Bank of America (BAC.US) Q3 conference call: CEO responds to $1.2 billion fine dispute, CFO supports net interest revenue growth next year

The Zhitong Finance App learned that Bank of America (BAC.US) announced the results for the third quarter of 2026 before the US stock market on Wednesday. Financial reports show that Bank of America's Q3 revenue was US$30 billion, but fell short of market expectations of US$30.7 billion; net profit was US$6.9 billion, or US$8.3 billion in the same period last year, down 17% year on year. The decline in net profit was mainly due to the inclusion of approximately US$1.2 billion (approximately $0.17 per share) of regulatory settlement expenses in the third quarter. Excluding $1.2 billion in regulatory settlement fees, adjusted net profit was $8.1 billion; adjusted earnings per share of $1.08 were lower than market expectations of $1.11.

Net interest income was US$16.4 billion, up 8% year on year; provision for credit losses was US$1.3 billion, which was basically the same as the same period last year. By business, global wealth and investment management business revenue was 7.1 billion US dollars, up 13% year on year; consumer banking revenue was 11.6 billion US dollars, up 4% year on year; global banking revenue was 6.2 billion US dollars, which was basically the same; global market business revenue was 5.9 billion US dollars, down 6% year on year.

Management pointed out during the conference call that the company's diversified business model continues to give full play to its advantages. Increased net interest income, expansion of loan business, and improvements in wealth management were the main highlights of this quarter's results. Overall, Bank of America remains optimistic about the resilience of the US economy, loan demand, and core business growth, but fluctuations in market transaction revenue, cost growth, and changes in capital levels are still factors to pay attention to. Management believes that continued consumer spending, continued corporate borrowing and investment, and continued inflow of funds from wealth management customers will continue to provide growth impetus for the company; at the same time, the company will continue to improve profitability and long-term shareholder returns by deepening customer relationships, expanding the application of digitalization and artificial intelligence, improving operational efficiency, and maintaining strict credit discipline.

Below are the details of Bank of America's Q3 earnings conference call.

I. Management speech

Brian Moynihan — Chairman and CEO

Good morning everyone, and thank you for attending today's meeting. Our third quarter results show that the importance of diversified business models cannot be overlooked. Businesses closest to customers, including wealth management clients, commercial clients, and mass-market businesses, continued to perform strongly. Growth in loans and deposits, strong inflows of wealth management funds, rising net interest income (NII), and improved credit performance have all contributed to steady profits; at the same time, sales and transaction revenue and investment banking revenue have declined.

We reported net profit after tax of $6.9 billion and earnings per share of $0.91. On page 2, we've adjusted these results to eliminate a $1.2 billion regulatory settlement fee. The fee was not tax-deductible and had an impact on earnings of $0.17 per share.

There are three points that need to be clarified with regard to this settlement. First, we are fully aware of the seriousness of compliance work and have a responsibility to ensure that relevant work is in place. Second, we've invested billions of dollars in technology and placed thousands of employees to fight financial crime. Our team has made great progress in completing the work required by regulators and will continue to firmly push for the completion of related work. Third, we have invested the necessary resources in this regard, and the costs of continuing to carry out the rectification have also been incorporated into the company's regular cost base.

Excluding this regulatory settlement fee, our net profit was $8.1 billion, or about $1.08 per share, up from the same period last year.

Our leading edge in various businesses, products, and regional markets enables us to meet more customer needs, deepen customer relationships, and drive growth throughout the company. The various business units are closely linked and continue to form our competitive advantage.

Now, when we review performance, the first thing we need to focus on is the customer's financial status and activity, which brings us to page 3. We believe that for Bank of America, the clearest economic signal comes from the daily activities of the 70 million customers and thousands of businesses with whom we have banking relationships.

The message of these campaigns has always been the same: consumers continue to spend. Up to now, the volume of capital flows in 2026 has increased by 5% compared to the same period in 2025. This situation can be seen on page 3. This increase is similar to the performance in the third quarter, and is similar to what has been observed since the beginning of October.

Our corporate clients have made selective investments and recruitment, which has supported steady growth in employment and wages for people with different income levels in our client groups. Wealth management clients remain actively involved in market activity and continue to seek professional advice; commercial clients are increasingly using our loan, money management, and payment services.

The scale of payments, digital channel activity, demand for loans, and inflows of wealth management funds have all remained healthy. As always, we present data relating to digital channel activity in an appendix to our performance presentation materials.

Economic uncertainty and geopolitical instability have always existed, yet actual customer behavior still shows that the US economy is resilient and continues to grow. These activities have driven endogenous growth in the company's various businesses, along with excellent credit quality. Page 4 shows the relevant situation.

Page 4 shows endogenous growth this quarter. In the third quarter, we once again achieved growth by attracting new customers and deepening our business relationships with existing customers.

We added 200,000 net core retail checking accounts this quarter. Currently, we have 39 million checking account customers. Our quarterly business metrics have continued to improve and grow for nearly 8 years. This forms a pretty strong growth flywheel.

We have opened over 1 million new credit card accounts. More importantly, credit card balances grew close to 5%, in line with our medium-term targets disclosed on Investor Day. Our continued investment in credit card products is paying off.

Our wealth management clients brought in approximately $41 billion in capital inflows this quarter. In the global wealth management and consumer investment business, we continue to expand our relationships with wealthy clients and high net worth clients. In these businesses, the total balance of household assets that our clients have entrusted us to manage is over $5.7 trillion.

Commercial loans have grown in all segments, from small businesses, commercial banking businesses, and global commercial banking to global corporate and investment banking. This covers all types of customers, from small businesses to the world's largest companies.

Our money management service, or cash management client relationship, has also expanded. This not only indicates good prospects for loan growth, which we will discuss later, but also shows the strong momentum of the economy, as these commercial customers are still active in business.

The growth shown on this page reflects our investments in people, technology, digital capabilities, and physical branch networks. These deep customer relationships support profitability, balance sheet growth, and long-term shareholder value.

The above is the overall situation. Next, I'll give Alastair time and ask him to provide more detailed results for the quarter.

Alastair Borthwick — Executive Vice President and Chief Financial Officer

Thanks, Brian.

Let me start with a few other profit and loss statement highlights on page 5. As Brian said, our core banking business continues to grow. Commercial businesses in consumer banking, wealth management, and global banking have driven most of the revenue and profit growth; in contrast, revenue from the global market and investment banking business declined from the previous period.

The stock business set a third-quarter revenue record. However, reduced customer activity and changes in the market environment, including drastic changes in interest rates, have had a significant impact on our dominant business segments in the fixed income, foreign exchange, and commodities (FICC) sectors, including credit, mortgages, and municipal bonds. The decline in revenue from these businesses outpaced growth in other areas of the trading business.

Revenue for the quarter was approximately $30 billion, up about 3% year over year. Net interest income increased 8% and asset management expenses increased 17%. These two increases outweighed the impact of lower investment banking and sales and transaction revenues.

On a full tax equivalent (FTE) scale, net interest income reached US$16.6 billion, an increase of 8% year over year, and an increase of US$450 million over the second quarter. The net interest yield rose to 2.16%, up 15 basis points year over year and 8 basis points month over month, bringing us closer to the 2.3% mid-term target set on Investor Day.

Credit quality has improved, capital and liquidity remain strong, and profits have remained steady.

Next, please take a look at the balance sheet on page 6. As can be seen, our balance sheet is still stable, and efficiency has improved, which is also reflected in the improvement in net interest yield.

Total assets were $3.4 trillion, down 2% from the second quarter. End-of-period deposits increased by $14 billion compared to the second quarter and remained above $2 trillion. Loans increased by $34 billion at the end of the quarter to $1.25 trillion. We fund this growth by reducing our securities balance; at the same time, reduced market-related assets and increased deposits enabled us to reduce the scale of short-term wholesale financing, thereby further improving our net interest yield.

Loans have been growing for 10 consecutive quarters, reflecting continued active business activity for commercial and consumer customers. Global liquidity sources are still sufficient, reaching $914 billion; capital levels are also far above regulatory minimum requirements.

The common share tier 1 capital (CET1) ratio was 10.9%, down about 35 basis points from the second quarter, mainly reflecting an increase in in-balance sheet and off-balance sheet loans and a decrease of $3 billion in CET1 capital.

Due to the impact of regulatory settlement costs, the amount of capital allocations exceeded net profit. Furthermore, of the cumulative other comprehensive income (AOCI) changes in ready-to-sell (AFS) securities, $1.8 billion was affected by rising interest rates and had an impact on CET1.

Our hedging strategy continues to limit the AOCI impact of rising long-term interest rates on most marketable portfolios. Slightly less than half of the AOCI decline in the third quarter was related to cash flow hedging and did not affect CET1. Despite the impact on AOCI, the tangible common equity ratio (TCE ratio) remained the same as in the second quarter.

This quarter, we returned $8.3 billion to shareholders through dividends and share buybacks. A robust balance sheet combined with the ability to generate capital will continue to support customers and shareholders.

Next, please see the deposit status on page 7. The current deposit size has reached $2 trillion, an increase of $31 billion over the third quarter of 2025, although we have deliberately reduced the $11 billion high-cost deposits recorded in the “All Other” category.

Global banking deposits increased by 6%; consumer deposits increased slightly, with the combined balance of low-cost interest-free deposits and interest-bearing deposits growing close to 3%. Deposits in the Global Wealth and Investment Management (GWIM) business remain stable and are reasonably priced.

Our deposit structure remains attractive, with interest-free deposits accounting for more than 75% of the year-on-year deposit increase. We also continued to be disciplined in deposit pricing, and the overall deposit interest rate increased by only 3 basis points to 1.49%.

Our focus on operating deposits and our low loan-to-deposit ratio allows us to compete on service capacity rather than price. Customers value the safety and convenience we provide, and a significant portion of their balance remains in operating accounts based on customer relationships and other low-cost funding sources. The deposit business continues to be our key competitive advantage and continues to provide financial support to our clients' healthy business activities.

Next, take a look at page 8 to learn about the loan trends Brian just mentioned. This page shows that the average loan balance increased by about 6% year over year, with commercial loans growing more broadly. Wealth management-related loans also remained strong, and credit card balance growth continued to improve.

Commercial loans increased 8% year over year, with growth across all business lines: small business loans increased 2%, commercial banking loans increased 9%, global commercial loans increased 6%, global corporate loans increased 10%, and customized loans for global wealth and investment management businesses grew 22%.

Amidst this performance, international commercial loans to global banking businesses increased 15%. Additionally, we have observed widespread growth among mid-market customers in various segments of commercial banks, involving key industries such as real estate, sports, technology, healthcare, and biopharmaceuticals.

On the consumer side, credit card balances increased by nearly 5%. The rise in consumer real estate loan balances and the growth in small business loans were offset by lower car loan balances. Securities-backed loans and wealth management business loans increased 21%.

Importantly, these increases remain in line with our loan underwriting standards and credit discipline. At the same time, it also supported another strong quarter of net interest earnings. See page 9 for details.

As I mentioned before, net interest income reached $16.6 billion, and net interest yields also increased significantly compared to the second quarter and the same period last year. Fixed-rate asset repricing and global market business activity continue to drive growth. Commercial loans, credit card balances, and deposits are increasingly the main drivers of growth.

Looking ahead, we expect net interest income to improve month-on-month in the fourth quarter and continue to grow in 2027. This expectation is based on judging moderate growth in loans and deposits, as well as continued repricing of fixed-rate assets. Furthermore, our outlook assumes that interest rates will rise three times by June 2027, 25 basis points each time, in December 2026 and March and June 2027, respectively.

On Investor Day last year, we stated that we expect net interest income to increase by 5% to 7% in the medium term. We first raised this guideline to 7% during 2026, then recently to 8%. We still expect to achieve our revised net interest income growth target of approximately 8% for the full year. For 2027, we currently expect net interest income for the full year to increase by at least 8% compared to 2026, again higher than the 5% to 7% range initially set.

Bank books are still sensitive to asset-side interest rate changes. Based on dynamic deposits, if interest rates move parallel to the forward curve by 100 basis points, net interest income is expected to increase by US$1.4 billion over the next 12 months. This sensitivity is slightly higher than in the second quarter.

Next, please see page 10 for the cost information.

We are reporting costs of $19.7 billion, including $1.2 billion in regulatory settlements. Excluding this fee, the adjusted cost was slightly higher than US$18.5 billion, a decrease of nearly US$100 million from the second quarter, and a year-on-year increase of slightly less than 7%.

The year-on-year increase in expenses reflects increases in revenue-related costs in asset management and stock businesses, including incentive compensation, and increases in brokerage clearing and exchange fees in wealth management and stock businesses, respectively. We've also invested in technology modernization, artificial intelligence (AI), customer acquisition, marketing, and business franchise growth.

At the same time, production efficiency continues to improve, as can be seen from changes in the number of employees. Although we continue to expand our sales team, the total number of employees decreased by nearly 3,500 compared to the same period last year due to the company's various departments promoting process automation and work simplification.

This means we no longer need to recruit as many employees to fill the jobs left by those who left the company. We remain focused on the areas with the best long-term return on investment while continuing to improve productivity across the organization. We expect to see a return to improving operating leverage in the fourth quarter.

Move from cost to page 11 and page 12 credit quality.

As can be seen, credit quality remained stable, and there was another slight improvement this quarter. The provision for credit losses was approximately $1.3 billion, lower than in the second quarter; the net write-off rate improved to 44 basis points.

Consumer credit performance was in line with expectations. The credit card loss rate was 3.22%, an improvement from the second quarter; at the same time, the credit card overdue rate declined for the sixth consecutive quarter year over year. The share of assets classified as concern in commercial loans fell to its lowest level since the fourth quarter of 2019, and there were also fewer non-performing loans compared to the second quarter. Taken together, these trends continue to indicate that our consumer and commercial customer base is healthy and credit quality remains good.

In the above credit environment, let's now introduce each business one by one, starting with the consumer banking business on page 13.

The consumer banking business once again delivered steady quarterly results, combining endogenous customer growth, strict implementation of business strategies, and continued investment in business franchises. Revenue increased by about 4% to US$11.6 billion; net profit increased by about 2% to US$3.5 billion. Year-to-date results are still strong, with revenue up to 5% and net profit up 10%.

As we increased our marketing investment starting in the fourth quarter of 2025 to coincide with new sponsorship partnerships and the relaunch of the BofA Rewards rewards program, the year-over-year cost comparison base was higher. Our spending levels have remained stable over the past four quarters.

We opened 14 new financial centers this quarter, and plan to open about 20 more before the end of the year. Since its relaunch in May, BofA Rewards has attracted nearly 6 million customers, further deepening customer participation in banking, credit card, and investment businesses.

Thanks to these investments, we have seen a continuous increase in the number of new account openings, an increase in interest-free deposits, a continued rise in the number of new credit cards and credit card balances, and an increase in digital channel engagement and customer satisfaction. The business has an efficiency ratio of 50% and a return on allocated capital of 31%.

Our deposit franchise remains a key advantage in the consumer banking business. The average deposit was approximately US$949 billion, achieving the sixth consecutive quarter of year-on-year growth. Interest-free deposits grew by more than 4%, and 59% of deposit balances remained in checking accounts, of which 92% of customer relationships were primary bank account relationships. Consumer investment assets reached $664 billion, up 14% year over year, thanks to rising markets and net capital inflows of around $18 billion over the past year.

Digitalization has reached a new high level of popularity, with more than 50 million active users. 80% of consumer households actively use digital channels, and 71% of sales are completed through digital channels. Erica, Zelle, and AI-driven tools are helping customers and employees complete more business activities faster and more reliably. The combination of growing customer relationships, increased participation in digital channels, and strict business execution continues to enhance the strength of consumer banking business.

Next, please take a look at the wealth management business on page 14.

The business continues to improve profitability through strong customer capital inflows, positive operating leverage, and increased profit margins. Revenue increased by approximately 13% to $7.1 billion; net profit increased 22% to more than $1.5 billion. The profit margin before tax was close to 29%, and the return on allocated capital reached about 28%. As customer activity and market levels increased, asset management expenses and net interest income increased, and operating leverage was significantly corrected.

Client asset balances surpassed $5 trillion for the first time, up 9% year over year; asset under management (AUM) increased 12% to about $2.4 trillion. The net capital inflow from customers this quarter was about 38 billion US dollars, of which about 20 billion US dollars flowed into managed assets, bringing the total inflow of managed assets to about 74 billion US dollars in the past four quarters.

Growth is spread across all businesses. Merrill Lynch Securities added about 4,200 household customers with assets of at least $500,000, an increase of 17%; private banks added 470 customer relationships with assets under management of at least $3 million. These results reflect strong customer demand for professional advice and our ability to attract clients and experienced advisors to the platform. Banking relationships have also been further deepened. Currently, 67% of Merrill Lynch customers have also established banking relationships with us.

Closing loans grew by about 12% to more than $280 billion, mainly driven by securities mortgages, custom loans, and mortgages. Private bank loans have been growing for 12 consecutive quarters as customers use more of our investment and banking services capabilities.

Consultant productivity, strict pricing discipline, digital channel engagement, and artificial intelligence tools continue to expand our ability to provide personalized recommendations at scale. This continued endogenous growth has also led to the global banking business on page 15.

The global banking business benefited from strong growth in loans and deposits, as well as increased treasury management activities, which helped offset the weak performance of investment banking. Since the beginning of the year, commercial banks have added more than 300 new corporate customers. In September, we launched a generative artificial intelligence (GenAI) tool to further improve the efficiency of lead development and customer onboarding (account opening and business access) processes. Revenue was 6.2 billion US dollars, which was basically the same as the previous year; net profit was slightly less than 2 billion US dollars, a slight decrease from the previous year.

However, strong business reserves and broader year-to-date performance helped us to more fully understand the results of this quarter's investment banking business. Up to now, global banking revenue has increased 5% year over year, net profit has increased 7%, and the company's investment banking expenses have increased 16%. The return on allocated capital is 15%, and balance sheet growth reflects the continued strong momentum of clients' businesses.

Average deposits increased 6% year over year to US$669 billion; average loans increased 8% to US$419 billion; and end-of-term loans were US$428 billion. Loans to both commercial and corporate customers have experienced extensive growth. Revenue from treasury management services increased 10%. We help clients manage liquidity, payments, and working capital while creating more business opportunities in loans, investment banking, and global markets. Excluding self-led transactions, the company's investment banking expenses were approximately US$1.8 billion. Related expenses were lower than the strong level in the same period last year due to lower consultancy fees and debt underwriting costs.

Looking ahead, our business reserves remain healthy. We continue to invest in bankers, technology, and artificial intelligence tools to improve research, preparation, and business opportunity identification. Extensive customer contacts also support global market operations. Next, please see page 16. As can be seen, despite the slowdown in trading activity this year and the FICC credit business facing a high comparative base, we have achieved steady results.

Excluding debt valuation adjustments (DVA), revenue was US$5.8 billion and net profit was US$1.2 billion. Both indicators were lower than in the third quarter of 2025. Even so, the year-to-date performance has set a record in the company's history, with revenue growth of 11% and net profit growth of 14%. Excluding DVA, sales and transaction revenue was US$5.1 billion, down 5% year over year.

The stock business set a third-quarter revenue record, and international business revenue also set a third-quarter record. Revenue from the stock business grew 10% to $2.5 billion, mainly driven by prime brokers' financing business and strong customer activity. This performance reflects our long-term investment in talent, technology, and financing capabilities.

FICC's revenue was $2.5 billion, down 17%. The foreign exchange and commodities business benefited from increased customer activity, driving a 4% increase in revenue from the macro trading business. However, after strong performance in the same period last year, this increase was offset by reduced activity in the mortgage, municipal bonds, and credit businesses.

The increase in fees may seem abnormal given the decline in revenue, but this reflects the increase in transaction costs associated with the growth of the stock business, particularly the main broker's financing business and the Asian market. It also reflects our strategy of continuing to invest and expand over the long term.

Average loan growth of 5% indicates an increase in financial customer relationships and a further strengthening of synergy between global markets, global banks and wealth management businesses.

After introducing the performance of each business unit, let's finally take a look at “All Other” businesses on page 17 and make some summaries.

“All Other” businesses reported losses of $1.4 billion, which apparently included $1.2 billion in regulatory settlement fees, which were not tax-deductible. Excluding regulatory settlement fees, “all other” businesses lost $153 million compared to $103 million in the same period last year. The overall effective tax rate is 23%. Excluding regulatory settlement fees, the adjusted effective tax rate is close to 20%.

Finally, I'd like to summarize a few key highlights from this quarter.

Consumers continue to spend and support the US economy to show resilience; wealth management clients leave their assets under our management and rely on us to provide professional advice. Enterprise customers continue to spend, borrow, invest, and expand their business. Institutional clients remain active globally, albeit at a slower pace of activity. These trends are reflected in all of the company's businesses and are driving us to once again achieve solid quarterly results.

The confidence reflected in our business reserves and customer communications is consistent with our judgment on the economy, although customers remain closely concerned about geopolitical uncertainties. Our balance sheet and capital position remain strong. We continue to invest in technology and develop artificial intelligence capabilities to support long-term growth. This quarter's results have proven the strength of our business franchise and demonstrated the value of diversified business models.

Next, thank you all for participating. We will now finish the presentation and begin to answer everyone's questions.

II. Q & A session

1. Keefe, Bruyette & Woods (KBW) analyst Christopher McGratty

Brian or Alastair, regarding the capital outlook, you mentioned that the balance sheet will grow moderately. I would like you to further explain how do you balance the CET1 ratio and the TCE ratio between balance sheet growth and return on capital?

Alastair Borthwick

Of course. First, I'd like to say that if you look back at the situation since this year, it's clear that we've been using the capital we've created to support all of our clients' business growth that has already been achieved.

Judging from the current situation, we have quite a bit of flexibility in capital management. Note that our current CET1 ratio is 10.9%, while the regulatory minimum requirement is 10%. At the same time, we continue to create significant amounts of capital.

In this quarter, for example, Chris, we supported a $34 billion loan growth while also bearing a regulatory fine. Interest rates increased by 85 basis points, we raised our dividends, and bought back $6 billion in shares. As a result, with the profits we generate, we have a great deal of flexibility in balancing our needs, which is consistent with what we have been doing this year and for a long time.

Our top priority has always been to support our customers and their business growth. We know that minimum regulatory capital requirements must be met and dividends paid. The remaining capital will be returned to shareholders.

As a result, there has been no change in our strategy.

Christopher McGratty

OK, great. Regarding operating leverage, you mentioned that improvements will resume in the fourth quarter. I've heard this. But can we discuss the 2027 situation again? You guys provided quite a valuable update on net interest income. I remember that the guidance given by investors was between 200 and 300 basis points. Has your judgment changed about next year's situation?

Alastair Borthwick

There are no changes. Obviously, we performed very well in the first half of the year and slowed in the third quarter. We expect operating leverage to be re-created in the fourth quarter. I think as the fourth quarter progresses, Chris, we may provide guidance for next year. However, according to current judgment, this target will not deviate from the 200-300 basis point range, and may even be higher. However, we will make a decision as time gets closer.

2. Jefferies analyst David Chiaverini

I'd like to talk about your guidance on increasing net interest income by more than 8% in 2027. I'm curious what's driving this improvement? Is the growth entirely driven by interest rates or are there other factors?

Alastair Borthwick

It's not entirely driven by interest rates. Interest rates are clearly just one relatively minor factor.

David, the factors driving growth are essentially the same as this year.

This year, we've seen deposit growth return to a more normal level, particularly interest-free deposits. If you look at interest-free deposits in consumer banking or global banking, you'll find that they have returned to a more normal level of growth.

We have always believed that in a normal economic environment, the deposit growth rate should be around 4% to 5%. Judging from the situation over the past year, the current interest-free deposit growth has returned to this normal level. That's the first factor.

Second, the rotation of deposit pricing is slowing down. For example, deposit pricing in consumer banking services has stabilized, and related deposit balances have been growing for six consecutive quarters. A similar situation has also occurred in the wealth management business. Loan growth has averaged around $20 billion per quarter over a long period of time. Currently, we are seeing no signs of slowing down in loan growth.

Additionally, we mentioned that repricing of fixed-rate assets also benefits us, particularly in car loans and residential mortgage portfolios, as well as mortgage-backed securities and cash flow swaps.

If anything has changed in the last quarter, it is that both the return on floating interest rate assets and the return on fixed interest rate assets have risen. So looking ahead to 2027, will interest rates be beneficial to us? The answer is yes. But what really helps us achieve growth is the growth of the underlying business of deposits and loans.

Furthermore, we also need to recognize that if interest rates rise in 2027, we expect debt-side interest-sensitive global market operations may be affected, and their net interest income is entirely likely to decline.

However, keep in mind that we are continuing to increase our loans and continue to invest in our global market business. These factors can offset the negative effects to a certain extent. The growth in banking business will be enough to offset some of the pressure on global market operations. That's the core. In 2027, our core banking books will be stronger than in 2026.

Brian Moynihan

Yes, to be more precise, our 8% growth guide actually takes into account the drag on the global market business because the business hasn't grown in the past few quarters, and overall performance has been relatively flat. Therefore, this 8% is a combined figure covering the entire business, which means we need to overcome the drag of business in the global market to achieve this growth. I want to make this clear.

David Chiaverini

Very good. Regarding regulatory consent orders, will there be any future restrictions on business? Will it hinder normal business operations in any way?

Alastair Borthwick

It won't. There is no maximum asset size here, so there are no restrictions in this regard. As for other impacts, it won't crowd out our other business resources because we've invested in the technology we need and the people we think we need to do the work involved. These investments have been factored into day-to-day operating costs. We have made the necessary decisions and increased the resources we believe we need. So this shouldn't affect our customers in any way.

3. Morgan Stanley analyst Manan Gosalia

Regarding consumer business, you indicated that consumers continue to spend and are generally healthy. But can you elaborate more on what has been observed so far? Are you seeing signs that consumers are under pressure as short-term interest rates rise and gasoline prices remain high and likely to last longer? In terms of business layout, are you marginally adjusting investment priorities to decide which areas to increase or decrease your business efforts?

Brian Moynihan

I think your question needs to be split into two aspects.

The first is the quality of credit. Our underwriting standards are in line with the approximately 5% growth in the credit card business. The credit card business still uses the same underwriting standards, and you can also see from the relevant data that credit performance is very strong. The change in the credit card write-off rate is approximately 3%. Overall, we are very happy with it. Other consumer loan quality indicators also continued to be strong and improved. As a result, we are not seeing any pressure as far as the quality of consumer credit is concerned.

Second, look at the balances in customer accounts, which are growing. Looking at the wages paid by employers to consumers and the direct deposit situation, it can be seen that the wage income of the three customer groups of low income, middle income and high income is increasing, and wage growth of the low-income group has accelerated. All of these developments are encouraging.

Let's also look at actual consumer activity. As we said in our presentation material, this year's consumer spending increased 5% compared to last year. Indeed, gasoline spending has increased by more than 20%. But if we only look at credit and debit card expenses, this portion of expenditure will crowd out consumers' disposable expenses in other areas. You can also see from some online data that gasoline sales and in-store consumption in convenience stores are still growing, but the growth rate is not as fast as before. As a result, gasoline spending did have a crowding out effect.

Frankly speaking, however, the situation is very different for different types of consumers. With the exception of gasoline, other consumer spending is still very strong, with an overall increase of 5%. Other consumer categories such as entertainment also performed well.

Manan Gosalia

Understood. Next, can you further explain your expectations for positive operating leverage next year? What are the key drivers? Clearly, more net interest revenue growth will directly translate into profit, which is a positive factor. But can you talk about what other steps you can take in terms of costs? Also, I want to confirm that the 200-300 basis points you mentioned are calculated based on the 2026 adjusted fees, that is, the cost of regulatory settlement is not included, right?

Alastair Borthwick

I think this is really the most appropriate way to understand it because we don't think this fee will be repeated. We see this as a one-time expense rather than a core operating expense, so adjustments should be made. But yes, we still think that 200 to 300 basis points is generally a reasonable target range. We proposed this mid-term goal on Investor Day. As we enter the fourth quarter, we will further explain the specific guidance for 2027.

You've pointed out the first key factor, which is the increase in net interest income. A significant portion of this will be directly converted into profit, which is very important and a powerful driving force for our company's performance growth.

Second, we still have excellent growth opportunities in our fee business because we continue to invest in these businesses. Whether it's wealth management, global banking, or global market business, we think the opportunities to drive fee revenue growth are considerable. As for cost management, we have maintained a pretty good record in managing the number of employees since this year.

If you look at the major cost components of a business, employee costs usually account for 60% to 70%. This year, we have maintained strict discipline in managing the number of employees and have done a pretty good job. Next year, we will continue to adhere to this management discipline to achieve the operating leverage improvements we have discussed.

Finally, I would like to emphasize that we have a very important advantage: the company also operates consumer banking, wealth management, small businesses, medium enterprises, large enterprises, and investor-related businesses. These businesses are closely linked, and customers and business opportunities can flow between different departments. This is a key point we've emphasized in our Investor Day presentation and many times since, and it's also an additional source of growth that we continue to explore.

4. Citibank analyst Ben Gerlinger

I want to confirm once again: you expect strong net interest income for the whole of this year, and will continue to grow strongly next year. At the same time, you also said that interest-free deposits are growing healthily. So do you assume that interest-free deposits will continue to grow healthily even if the forward forecast includes another three rate hikes? If so, can you explain further what are your assumptions about the deposit beta coefficient used to forecast next year's net interest income?

Alastair Borthwick

First, with regard to interest-free deposits, we generally assume that deposits will maintain low single-digit growth. We expect interest-free deposits to continue to grow as in the past year. Keep in mind that regardless of whether interest rates rise by 25 basis points, interest-free deposits are somewhat more affected by inflation and GDP growth. Therefore, in the long run, we should be able to see interest-free deposits continue to grow.

Previously, when interest rates rose from 25 basis points to 4.5%, deposit pricing and customer fund allocation were drastically adjusted. We've been in the current environment for three to four years, and consumers and wealthy customers have plenty of time to gradually adapt to this environment. So yes, we expect deposits to continue to grow.

Regarding the deposit beta coefficient, apparently we went through a process where interest rates fell from 4.5% to 3.75% and then to 3.50%. Today, we are reversing the previous path of interest rate changes. I expect that when interest rates rise, the performance will be roughly similar to when interest rates fell previously.

Areas that need attention still include: in consumer banking, the key is the pricing of time deposits; in wealth management, we usually adjust customer deposit interest rates accordingly as interest rates are raised or lowered; the same is true of global banking.

When the Federal Reserve raises interest rates, we usually communicate interest rate changes to our customers. As a result, whether interest rates rise or fall, our basic judgment will not change. Our opinion on deposit beta factors has not changed.

5. John McDonald, analyst at Truist Securities

Brian, I'd like you to talk about the relevant orders issued by the US Monetary Commission (OCC) and Financial Crimes Enforcement Administration (FinCEN). How have these things evolved to this stage? Is it because you misunderstood the requirements of regulators or because you disagree on how to address issues raised by regulators in internal processes? I'd like to know the context of what happened and what lessons you've learned from it, or what lessons we should draw from it.

Brian Moynihan

Frankly, at the end of the day, we have agreed to call this a settlement and move forward. So we're doing it. We understand what the regulators are asking us to do, and we are currently advancing the rectification in depth.

For example, in this quarter alone, we spent more than hundreds of millions of dollars on this work. This is a sizeable job involving thousands of employees. Therefore, we are very aware of what needs to be done, and we are implementing these requirements and finalizing the relevant work. Management's current focus is to completely resolve this issue.

Other than that, there isn't much we can discuss further about our internal processes and capabilities. However, we have been actively promoting related work, and this has been the case for the past few months and quarters.

This settlement addresses the fines involved in the 2024 injunction and cessation order. The part that previously took a long time was negotiations on these matters. However, the relevant rectification work was already being carried out rapidly at the time.

We are gradually improving the relevant processes and will continue to advance them. As the work progresses, our efficiency will further increase, ultimately improving the company's operating conditions.

John McDonald

OK. Alastair, your explanation of capital management measures for this quarter was very helpful. I would like to further confirm what indicators will you use to manage capital in the future? You may need to combine multiple metrics. Specifically, would you set the CET1 ratio target at around 11%, while also considering maintaining the TCE ratio at around 6%?

Alastair Borthwick

First, we'll wait for the final regulatory rules to come out. We expect the relevant rules to be announced in the fourth quarter. These rules will help us clarify the specific calculation method and how each indicator should be calculated. I think this will also help clarify the transition period, John. So we'll need to wait until we see the final rules later in the quarter before we take these factors into account. As for why we focus on CET1 and tangible common equity interests at the same time, it is because we need to serve different stakeholders and manage all aspects. So it's important to keep an eye on these different metrics. When making decisions, we need to constantly balance capital, liquidity, and profitability.

But I'd like to go back to one point: Currently, we have a lot of flexibility in terms of capital. You've seen what we can do in the third quarter. We continue to create significant amounts of capital, which provides great flexibility for the future. Our priorities have not changed.

6. Jim Mitchell, analyst at Seaport Global Securities

Alastair, first thank you for explaining the 2027 net interest income. I want to confirm that you seem to mean that the net interest income related to business in the global market is likely to be lower than the 2026 level. Does this mean that after excluding global market business, the growth rate of core net interest income should exceed 8%?

Also, with regard to your previous comments on operating leverage, if these net interest income increases can be converted into profits, it seems that it will bring you closer to the upper limit of the operating leverage target range when other conditions remain the same. I don't want to draw conclusions for you; I just want to understand how all of these factors interact.

Alastair Borthwick

Overall, I agree with both of your judgments, and I think they're probably both correct.

First, with regard to global market business, if interest rates rise three more times due to the interest rate environment, that is, if interest rates are raised three more times in addition to the one that has already occurred, then global market business may be affected because it is more sensitive to changes in debt-side interest rates.

But we also need to recognize that we have been gradually expanding the balance sheet size of this business. Scaling up usually helps increase net interest income. We are also continuing to increase our loans, which will also have an impact. As for global banking and overall bank books, yes, that means they are likely to grow more than 8%. I think you're right in your judgement.

Second, yes, we want to turn as much revenue growth into profit as possible, which usually significantly improves operating leverage. However, I don't want to make an overly specific judgment on this right now, as we hope to further evaluate the situation in the fourth quarter and then give next year's guidance.

But one thing is clear: we haven't changed the expectations investors have made over time. If we look back at the past few years, our operating leverage is often better year by year. We believe our current business layout makes us fully prepared for next year.

James Mitchell

Next, I would like to ask about the FICC trading business. You mentioned that rising interest rates have had a negative impact on some business segments. Is this mainly due to negative valuation changes in asset prices or a decline in trading volume? I'm wondering if this pressure is likely to continue or if related businesses are likely to rebound quickly if interest rates stabilize?

Alastair Borthwick

Overall, our strength lies in the large scale of our credit, mortgage, and municipal bond businesses. These are all our leading business franchise areas. But when interest rates rise 85 basis points in a quarter, these businesses are usually adversely affected. Customers tend to slow down their trading activity, and asset prices are also under pressure. As a result, this is mainly due to reduced customer activity. We didn't see interest rates in the fourth quarter like in the third quarter. As a result, after entering the fourth quarter, we have gone through the environmental changes of the third quarter, and we are still leading the way in these large business areas.

7. Wells Fargo Securities Analyst Mike Mayo

In an era of rapid development of artificial intelligence and its deployment, how much room can this technology bring you? I've seen your per capita income increase by 10% since this year. Given all the tools you have, theoretically, there should be room for further increases in per capita income. I know I've asked this question before, but artificial intelligence is developing so fast, and the banking industry must keep up quickly, so I'd like to ask this again.

Brian Moynihan

Mike, I think first we need to clarify some context. If you look at the year-over-year data, our total expenses increased by $1.2 billion, while the number of employees decreased by about 3,000. Of this $1.2 billion cost increase, about $450 million comes from incentive compensation brought about by increased revenue from wealth management businesses. About 300 million US dollars comes from market business, or BCE business. Calculated this way, there is still about 400 million US dollars left. Of this, more than $200 million in the third quarter was related to two tasks: anti-money laundering (AML) rectification, and rectification work to address and implement Mythos-related requirements. Therefore, if these factors are excluded, the overall cost increase is only a few hundred million dollars, about 200 million to 300 million US dollars, compared to last year's cost base of about 17 billion US dollars.

How can we keep expenses growing at around 1% to 2% given the large investments we are making? This will be achieved through process engineering, the application of artificial intelligence, and other engineering techniques. For example, we opened 5 new branches in Milwaukee this month and are also adding customer-facing employees. These all require input. As a result, you can already see the relevant results from the financial data, and we expect continued progress in the future.

We also anticipate that Mythos-related rectification costs will gradually decrease as we have placed an additional 1,000 employees to do this work. These people don't count as regular employees; in addition, we use consultants. This portion of the fee is expected to decrease as the relevant requirements are gradually implemented. What we can continue to obtain, however, is efficiency leverage based on core costs.

Artificial intelligence is already helping us. Currently, we have implemented around 130 different projects. These projects have all been carefully evaluated, and each has a clear return on investment. The contribution of individual projects is not particularly significant, but overall, we expect the benefits to be two to three times the associated investment over time. We expect the revenue from related projects this year to be around US$250 million to US$300 million, and will increase to US$700 million next year. This is an expectation based on plans already included in the project reserve.

One of the key areas is technology development. We invest more than $4 billion in technology development every year, and through artificial intelligence and other means, we have increased our efficiency by 10%. That means we'll be able to do 10% more work at the same cost next year. Therefore, we will continue to invest to drive the development of the entire business franchise, and artificial intelligence will be an important part of it.

In summary, we expect revenue from related projects to increase from about 300 million US dollars to 700 million US dollars; the number of employees will decrease by about 3,000, or about 1.5%; the number of managers will decrease by about 5%; at the same time, the number of employees directly facing customers and responsible for actual business work will increase year over year. As a result, we are very satisfied with how the company is operating.

Even if the cost base grew in the third quarter, we can clearly indicate which of these projects are tied solely to capital market activity or revenue, and which expenses will disappear over time and be replaced by expenses that create more value for us.

Michael Mayo

OK. There's also a separate question. Brian, I think this is your 17th year as CEO. I'd like to know what you think about the successor. How long do you plan to continue as CEO? What qualities would you value in your successor? Would you consider looking for a successor from outside the company? Why not consider an outside candidate?

Brian Moynihan

This is up to the board of directors to decide. Management's responsibility is to cultivate and showcase talent for the company, and we have a large number of outstanding talents. We've been doing this work because of Mike, I might have an accident tomorrow, and nobody can predict it.

However, the company owes its success to its 209,000 employees who work hard every day. In the future, the company will also have an excellent leader, and the board of directors will make decisions in due course. We have great confidence in our current team and the company's leadership. Mike, you'll be the first to know when I decide on relevant matters.

8. Kenneth Usdin, analyst at Bernstein Autonomous LLP

I have a macro question about the balance sheet. Alastair, last quarter you talked about improving balance sheet efficiency. Looking at the past few quarters, you seem to have followed the direction you mentioned before, significantly reducing the size of wholesale financing on your balance sheet while improving your net interest margin. I was wondering if doing this would have any other impact? For example, will this limit the revenue you can earn from trading? Will it change your ability to provide financial intermediation services? Furthermore, what are your views on the overall trend in the size of average interest-bearing assets in the future?

Alastair Borthwick

Yes, this actually involves two different decisions.

First, for global market businesses, we provide the balance sheet resources and capital they need to drive profitable growth. Over the past three to four years, the business has done a fantastic job of scaling up and increasing returns. I think the second quarter is a great example. A very rare business opportunity came up at the time, and we seized it. Due to the excellent return in the second quarter, we also provided more capital to the business. By the third quarter, returns weren't as high, and customer activity wasn't as active as before. As a result, we will continue to invest in our global market business, continue to provide balance sheet resources, and continue to support our customers as this is an important growth opportunity for us.

The second question is how to manage short-term wholesale financing. For us, the overall direction in this regard is to continue to decline. Generally, deposit growth and repayment of maturing securities can provide financial support for loan growth. Every time deposit increases and the amount recovered from maturing securities exceeds the increase in loans, we can further repay part of our short-term wholesale financing. As a result, much of the improvement in net interest spreads comes from asset repricing and profitable deposit and loan growth. Only a small portion is due to the decline in the size of short-term wholesale financing.

These two things are independent of each other and are not directly related.

Kenneth Usdin

OK. If I can, I'd like to go back to the topic just now. Brian, please continue.

Brian Moynihan

I just wanted to add one more point. Consider the increase in net interest yield from 2% to 2.15%, which is an increase of 15 basis points. This was achieved on a balance sheet scale of around $3 trillion. This is exactly the efficiency improvement described by Alastair.

We are replacing lower-yielding securities assets with commercial loans and consumer loans with much higher yields. At the same time, our deposits are also growing: interest-free deposits have increased by about 5%, and overall deposit growth has reached several percentage points. This means that our deposit structure is also improving.

As for the question raised by your colleagues earlier, interest-free deposits and low-interest savings accounts and checking accounts will continue to exist as wages grow and deposit balances grow, no matter what the circumstances. This is the core reason why we expect the net interest yield to gradually move from 2.15% to 2.30% over the next few quarters.

This dynamic is very important because if we go back to the TCE ratio target of 6%, we will find that improving balance sheet efficiency can help us increase returns relative to capital size, thereby achieving a return level of around 16%, etc. As a result, we've been working to make our balance sheet more efficient.

In the previous liquidity environment, we increased the size of our balance sheet, but now we are gradually reducing it. Global market businesses have the balance sheet resources they need to operate on their own. If they get good returns, they can also get more resources. This is completely different from the efficiency improvements we have achieved through the rest of our balance sheet.

Kenneth Usdin

Understood. Next, I would like to go back to the results of the global market business in the third quarter. Alastair, you mentioned that trading opportunities have declined this quarter. Yesterday, an interbank said that due to normal seasonal factors, fourth-quarter results may still decline significantly from month to month. I know the third quarter may not be a typical quarter, but can you talk about the overall performance of the global market business in the fourth quarter with sales and transaction revenue of 5.1 billion US dollars in the third quarter? Especially considering what happened in the third quarter and the seasonal changes that usually exist in the fourth quarter.

Alastair Borthwick

We generally don't provide guidance on the global market business performance for any single quarter because this business is really difficult to predict. As I said before, the third-quarter results were affected by the business structure. We are strong in the credit, mortgage, and municipal bond business.

Therefore, if the market environment in the third quarter is an extreme bear market within a quarter, then this impact should weaken as the market environment tends to ease. Judging from the situation in the previous two weeks, this easing has already begun to appear.

We don't expect the fourth quarter to be similarly impacted. Of course, there are seasonal factors in the fourth quarter, but these factors may offset each other. At the end of the day, the global market business has achieved year-on-year growth for about 17 consecutive quarters, and the performance has been outstanding. So they're looking forward to the fourth quarter, and so are we.

I think the seasonal impact of the fourth quarter of this year is likely to be less than previous years due to the situation in the third quarter. However, we don't predict this because we're not good at predicting the exact performance of global market business in any given quarter.

9. Matt O'Connor, analyst at Deutsche Bank

Judging from the H.8 data we can see, loan growth appears to have accelerated at the end of the quarter. The end of term loan growth you disclosed was also significantly stronger than average loan growth. Other than short-term fluctuations at the end of the quarter, is this any other sign worth watching?

Brian Moynihan

I don't think there's anything particularly worth interpreting. As you can see, the H.8 data itself can fluctuate. For example, the balance of warehousing finance we provide to mortgage lenders sometimes rises and sometimes falls. But if you remove these fluctuating factors and look at the real core business, you'll find that mid-market loans have seen widespread growth in most segments.

In addition, commercial banking is growing again. The Sharon Miller team has done a fantastic job driving this growth. These businesses include loan balances, small business operations, and credit card businesses. They may have phased ups and downs, but overall, these increases are quite solid. As a result, this lays a good foundation for next quarter.

As for some large-scale and highly volatile businesses, loans may increase and decrease from time to time due to bridge loan repayments, changes in warehouse financing balances, etc. As a result, most of the fluctuation comes from these businesses, while the core business continues to grow every month. This is very encouraging.

Matthew O'Connor

OK. Let me ask one more general question. In an environment of rising interest rates, with regard to the deposit beta coefficient, I feel that many banks assume that this situation will be similar to the rate hike cycle a few years ago. But I also feel that the current loan and deposit environment is completely different.

The last time interest rates rose, loan balances were falling, and various banks had excess deposits. Loan growth is now quite steady, the market generally expects this trend to continue, and all banks want to fund loan growth through deposits. So what I want to ask is: will accelerated loan growth lead to more intense deposit competition, which in turn will increase deposit pricing more than you and other banks currently expect?

Brian Moynihan

I think Alastair has mentioned before that we have $2 trillion in deposits and a loan size of $1.2 trillion. As a result, we still have plenty of room for loan growth until additional capital is needed to support the loan.

In addition, we have a significant portion of our capital stored in cash and short-term securities, and the portfolio of securities held until maturity is gradually being recovered at maturity. Residential mortgage repayments alone can bring in about 9 billion US dollars every quarter, about 36 billion US dollars a year, and currently this scale has remained stable. As a result, we have plenty of cash to support the growth of our mortgage balance — that is, our loan balance. You can also see this in the year-over-year balance sheet changes.

Compared to many other banks, our situation is very different because our deposits reached $2 trillion and loans were only $1.2 trillion, and the loan-to-deposit ratio was significantly lower. As Alastair said, we've cut back on high-interest financing. We will also allocate some of our clients' funds to other financial institutions in the form of time deposits, etc. In other words, for customer funds that want to receive higher interest rates, we can allocate them to banks that need financing and are willing to pay higher interest rates. Therefore, there is no need for us to compete for higher interest rates on deposits in order to obtain funds.

Also, even if we don't consider slight fluctuations in interest rates for the time being, if we look at the nominal interest rate environment over the past few years, we will find that the size of our deposits has been growing. After the pandemic, our minimum deposit size was about 1.8 trillion US dollars. I remember it was about 1.85 trillion US dollars at the time, and now it is over 2 trillion US dollars. We have maintained pricing discipline throughout this process. If you look at the deposit data on page 7, you'll find that our overall deposit interest rate is 149 basis points, while the surrounding market interest rate is about 3.5% to 4%.

This shows that we have core capital and capital flows from core trading accounts, including deposits from consumers, small businesses, and wealthy clients. These funds continue to grow and are very stable. Therefore, we have not seen a marked increase in competitive pressure on deposits, because we still have a lot of room for loan growth, and there is no need to bear the pressure to raise deposit interest rates in order to finance loans.

Continued maturity and repayment of fixed-rate assets can also help us finance loan growth. Other than that, deposits are still growing, and we have a significant deposit advantage. Therefore, in the current interest rate environment, the deposit cost of 149 basis points is a very favorable position.

Additionally, compared to most or almost all of our competitors, we also have an advantage in the consumer business, which is that we operate more efficiently compared to deposit size. Low deposit costs allow us to obtain very strong profits from the consumer business.

10. UBS analyst Erika Penala

I'd like to apologize in advance because I have three questions. I'll try to keep it short, but considering that the stock price opened and fell 8%, I think it's necessary to ask these questions clearly.

The first question concerns net interest income after excluding operations in global markets. Alastair, since you mentioned that net interest income from the global market business may decline, can I infer from this that core net interest income will reach a year-on-year growth rate of about 10% in 2027, in line with J.P. Morgan Chase's statement yesterday? Is this judgment roughly correct?

Alastair Borthwick

There are a number of reasons why we won't be providing separate guidance for these two sections. Earlier, someone asked me if global market business is likely to decline next year, considering the one rate hike that has already occurred and the three interest rate hikes that may occur in the future.

The answer is yes, because this business is sensitive to changes in debt-side interest rates. But I would like to remind everyone once again that we are continuing to increase the loans for this business and are likely to continue to expand the size of our balance sheet. As a result, net interest income from operations in global markets may indeed decline.

Our 8% growth guide already includes the impact of global market business. This means that core banking books are likely to grow at a higher rate. But we won't be disclosing these two parts separately because changes between businesses influence each other, and we manage the overall performance of the entire company. So in terms of direction, you can understand it this way. We may provide more specific guidance as we move into the fourth quarter, but we probably won't be disclosing these two parts separately.

L. Erika Penala

The second problem is that the stock price fell 7%. In the market's view, this appears to be not only a performance issue, but also a matter of confidence, and the regulatory consent order may have further exacerbated this concern. I wanted to ask both questions together, sorry.

First, are third party reviews required by regulators likely to incur additional costs? I understand that this issue has been around since the cessation order was issued in December 2024. Second, given that costs are higher than expected, how can you convince investors that next year you can reach the upper limit of the 200-300 basis point operating leverage target, or even at least achieve the target of 200 to 300 basis points?

Alastair Borthwick

OK.

Regarding costs, I think we've made the situation as clear as possible. We have significantly increased the number of people handling tasks related to regulatory consent orders, and this work has actually been going on for some time. We have also made it clear that the technical investment required to complete the relevant work has also increased. Therefore, we believe these investments have been factored into regular operating costs.

Also, keep in mind, Erika, we had 3,000 more employees at the beginning of the year than we have now. This helps show that we've been able to absorb the resources needed for these jobs within the company by reconfiguring our workforce and increasing productivity. So I think the overall picture in terms of costs is still reasonable.

Regarding operating leverage, we have previously stated that we plan to achieve an improvement of 200 to 300 basis points in the medium term, and there is no change in this target. As we enter the fourth quarter, I'll explain the details of 2027 further.

L. Erika Penala

The last question is about capital. Starting January 1, 2027, your additional capital requirements for global systemically important banks (G-SIB) are expected to increase, which will raise the minimum capital requirement to 10.50%. Considering that shareholders have always benefited from your share repurchases of approximately $6 billion each quarter, and that repurchases also support stock prices, how should we understand the relationship between the following factors: strong capital creation capacity, a TCE ratio constraint of about 6%, and an increase in G-SIB additional capital requirements. At the same time, the regulatory reform plan may soon be finalized.

In the short term, will your share repurchases proceed as usual and remain close to $6 billion? Or do we need to wait until the G-SIB rules are finalized before we know how the regulators will handle the calculation of additional capital requirements — whether they only apply it in the future or retroactively to avoid an increase in capital requirements?

Alastair Borthwick

OK, there are a lot of issues involved here. We don't provide specific guidance on share buybacks for a number of reasons. However, as we consider the overall framework for share buybacks, in principle, it is still going as usual. The only exception is that we have to wait for the final regulatory rules to come out. I know everyone would love to see the final rules as soon as possible, and I really hope so myself, but we haven't got them yet. We first need to understand the details of the rules, how they will be implemented, and how the transition period will be arranged.

I think there is an assumption implicit in your question that the current rules — which will soon become the old rules — will still determine the exact direction of capital requirements. This may or may not happen. We'll have to wait and watch. However, if you take another look at how things went this quarter, you'll see what we actually did.

We also focus on tangible common equity and CET1. On the CET1 side, we have plenty of flexibility because the current ratio is 90 basis points above the regulatory minimum. As for tangible common equity, consider what happened this quarter: interest rates rose 85 basis points, we processed a regulatory fine at the end of the quarter, added $34 billion in loans to support our clients, while paying dividends and buying back $6 billion in shares. This is enough to show that the company has a very strong ability to generate capital every quarter.

So, Erika, none of these basic circumstances have changed. We just need to watch the subsequent developments this quarter and wait for the final regulatory rules to come out.

11. Scott Siefers, analyst at TD Cowen Securities

You've already mentioned some investment banking prospects, and I'd like to know more. The overall performance this year was very strong, but I think the market is now paying more attention to the recent suspension of trading activity. Can you talk about internal discussions and customer conversations? Are there any factors that can help us determine whether this is just a temporary standstill — the market needs to adjust to higher interest rates — or is there likely to be a longer-lasting slowdown in activity?

Alastair Borthwick

First, we need to remind ourselves that as of the first nine months, investment banking fees increased 16% year over year. Overall, the level of business activity is quite good.

Was the third quarter slightly weaker than the second quarter? Yes, there is a slight slowdown indeed. The interest rate changes we are seeing are quite large. Will this affect our clients' trading activities? The answer is yes. In this volatile environment, both buyers and sellers need to readjust their valuations and expectations. This is something that happens all the time.

However, if we look at our overall business, we see that commercial loan growth indicates that the capital expenditure cycle continues. We also know that investment banking reserves are still strong, and our team further increased reserve projects during the quarter. As a result, we feel that customers around the world are still active.

The US economy is performing well, with consumer spending and AI capital spending supporting the economy. At the same time, artificial intelligence companies and the entire industrial ecosystem formed around these enterprises still have significant capital requirements. We've always been actively involved.

As a result, we remain optimistic about investment banking. We have a world-leading business franchise in the capital markets sector. In my opinion, we ranked third in terms of the size of M&A deals announced in the third quarter. This usually means there will be good business opportunities in the future. As a result, our overall judgment is quite positive, and we will continue to monitor developments in the fourth quarter.

12. Steven Chubak, Analyst at Wolfe Research

First, Brian, I'd like to ask you to talk about some of the recent market concerns about Muse or Agentic AI (Agentic AI). These technologies may encourage consumers to be more active in seeking higher returns, thereby increasing the risk of consumers transferring idle deposits. Can you set clear restrictions that prevent agents from directly accessing accounts? This may not only slow down the reallocation of clients' funds, but also provide additional security for customers.

Brian Moynihan

I think there are actually two different issues involved here.

First, we are working with various smart service providers, and possibly with some aggregation service providers, to ensure that customers always have control over decision-making power. Human participation in the decision-making process must be ensured before funds are transferred from client accounts, and before similar transactions occur. This involves safety and security measures. Keep in mind that the banking system has long been the foundation on which people make transactions and payments. Customers trust the security of the banking system and know that payments they make will be processed through the system and eventually credited to the payee's account. They are also able to receive payments and use banking services around the clock. Customers can transfer funds at any time, pay with Zelle, or initiate a wire transfer directly from their phone. All of these operations are performed in a safe and secure environment. I think that's the key.

As a result, our entire industry and related service providers are now working together to ensure that humans are always in control, because we don't want lots of transactions that aren't properly confirmed, and may even be forgotten or not processed in a timely manner. This is an independent question.

As to whether customers will adjust deposit allocations in order to obtain higher profits, the key is why customers keep their money in banks. Currently, clients can obtain money market funds with a yield of more than 4%. Clients can also earn about 4% of money market fund returns through us, depending on their investment needs, and these funds can be allocated within or outside of the balance sheet in related products. As a result, although clients' checking account balances continue to grow, these funds are mainly used for everyday transactions, and they need to use these accounts to make various payments.

If these balances are optimized for higher returns, the costs may be unsuccessful transactions, failure to pay bills, overdraft penalties, or other issues. This isn't an optimization in the real sense of the word. The client has allocated cash for investment purposes.

Our wealth management clients have deposits of approximately $280 billion. By definition, these customers all have significant assets. If they want to pursue higher returns, they can adjust the fund allocation in our account system, and our advisors can also help them transfer funds to market-related cash management products. They already hold large amounts of cash in their investment accounts. As a result, I can't see how intelligent experience can fundamentally change this dynamic. Furthermore, if the smart body is unable to understand the consumer's plans for the next day, or if it doesn't know that the consumer has already issued checks or arranged other payments, it may cause problems. I think eventually the market will gradually find a reasonable way to operate. So we're not worried about that.

We are a strong company. Tools such as Erica can help consumers handle related matters through intelligent means. We strongly believe that humans must participate in decision-making because people should control their own money, and indeed, they should control it. This field will gradually develop and mature.

As for the existence of high-interest deposit products, this environment has always existed regardless of whether you are dealing with ordinary individual customers, wealthy customers, or commercial customers. Frankly speaking, off-balance sheet investment alternatives have existed in the market since money market funds appeared 40 years ago. And we've already seen the actual situation in this environment. Therefore, we are very confident about the future of the deposit business.

We also believe that the company's application of technology will ultimately meet the real needs of customers, as we are always communicating with customers to understand their ideas.

Steven Chubak

If I can, I'd like to confirm one more question briefly. The market is always discussing the performance of the global market business, and is also concerned about the need for you to balance multiple capital indicators. During this quarter, there was a lot of speculation in the market. It is believed that in order to adjust the TCE ratio to 6%, you may have limited the performance of the global market business in the third quarter because the balance sheet size of this business unit has shrunk. I would like to ask you to explain how managing the TCE ratio at around 6% will affect your willingness to further invest balance sheet resources in the global market business? In other words, will this also affect other businesses that use a lot of leverage and have a higher capital footprint compared to risk-weighted assets?

Brian Moynihan

It had no effect at all. The easiest evidence is that compared to a year ago, the balance sheet size of the global market business actually increased, but revenue declined. So there's no connection between the two as you say.

For fixed income businesses, when customer activity changes, so do return opportunities. This involves trading in capital markets, as well as our business supporting investment clients. If your fixed income business dominates and rising interest rates cause customers to reduce activity, the demand for balance sheet resources will naturally decline. That's what happened this quarter.

In the second quarter, the balance sheet size of the business increased significantly, while the third quarter returned some growth. But that doesn't mean we're limiting our business expansion. If the business is well rewarded, it can continue to grow. This is exactly what Alastair said before. Our position is to support this business. The business's balance sheet has increased by hundreds of billions of dollars over the past few years, and we expect it to continue growing in the future. However, as it grows, it must be rewarded accordingly.

When clients suddenly drastically reduce their trading activity, as was the case last quarter, business performance will naturally be affected. This has nothing to do with the capital position of the company as a whole. As you can see, the company's tangible common equity ratio remained flat month-on-month, and the impact of global market business on this stable performance was relatively limited.

What's more, we also had an additional cost impact of 1.2 billion US dollars this quarter, and with a total asset size of about 3.5 trillion US dollars, the overall impact of changes in global market business was relatively small.

13. J.P. Morgan analyst Vivek Juneja

I'd like to follow up on two questions. First, ask the first one. Brian and Alastair, someone just mentioned the TCE ratio. How insistent are you on the 6% target? Under what circumstances would you be willing to lower this rate? And to what extent are you willing to let it go?

Brian Moynihan

If there is more than normal business growth in a quarter, the TCE ratio is likely to decline. But that doesn't mean 6% is an absolutely accurate standard; 6% is perfectly acceptable, and 5.99% is not. In fact, we have more flexibility with this metric.

However, Vivek, as we mentioned in several sessions of today's conference call, capital management involves many different metrics. We are awaiting new capital regulation rules. Alastair has emphasized this several times because we need to understand how the final rules will affect capital management. We have to deal with the relationships between these different metrics.

As for TCE, we have plenty of room for optimization. We have sufficient additional loan capacity, around $800 billion, a large portion of which is not needed for liquidity management. Furthermore, securities portfolios are gradually recovering funds at maturity, and even within this space of 800 billion US dollars, we can reallocate part of our assets.

As a result, we have a lot of room for balance sheet growth and the ability to further improve balance sheet efficiency. This indicator will not limit our ability to continue to repurchase shares in accordance with established principles. Our principle remains to balance dividends, business growth, and return capital from current profits to shareholders. At the same time, we must also consider how the company operates and how much capital is needed to develop different businesses.

Vivek Juneja

I would like to ask the second question next. As Erika mentioned earlier, the market currently has confidence issues, and the fall in your stock price of more than 7% in early trading today reflects this. Brian, surprisingly, you said on the January 25 conference call that the costs required to address anti-money laundering issues have all been factored into regular operating costs. But this morning, you apparently confirmed a huge amount of money.

The problem isn't that the company can't afford $1.2 billion; it's about reputation and market confidence. How should we understand this situation? How can you convince investors that the associated costs are actually included in regular operating costs? Can you provide a timeline of when in the future it will be possible to confirm that certain corrective deliveries have been completed and that regulatory requirements have been met? We need to know what the next critical point in time is to determine if this really is a thing of the past, rather than the risk of additional costs or further increases in spending.

Brian Moynihan

We have just addressed the key issue of timing in this matter, which is the subject of a regulatory order. If you look at the expenses of the past few quarters, they are roughly around $18.5 billion. The last three quarters were approximately US$18.6 billion and US$18.5 billion respectively, which is quite stable overall.

We told you that the associated costs have been factored into regular operating costs. The job involved thousands of employees. As we improve efficiency in other departments, we will reassign some personnel to this work, and then as the rectification progresses, the number of relevant personnel can also be gradually reduced. As a result, these costs have been factored into regular operating costs, and you can see this from the data. I also just provided relevant statistics to one of your peers.

We are very confident that we are moving in the right direction. The point is that we needed to agree on a solution with regulators, and we have done it now. Earlier this year, we had some repeated discussions on related issues. Now we've defined the specific metrics and requirements regulators want to see. We have submitted a number of suspicious activity reports (SARs), etc., and what we need to do now is to clarify what specific standards the regulators want us to follow under the new regulatory framework. The relevant framework made adjustments to the original project. We're ready for this now.

14. Evercore ISI analyst Glenn Schorr

I would like to continue to inquire about the fixed income market business. I do think you have strong strengths in corporate bonds, municipal bonds, and mortgage business, and interest rate trends this quarter are also quite special. I understand all of these situations. My question is, have you been working to expand your interest rate, forex, and commodities businesses so that these businesses can have a larger and broader scale like other segments? In this way, it is possible to reduce the imbalance between different businesses and prevent this from happening from time to time — because changes in the market environment always occur.

Alastair Borthwick

Glenn, I should have mentioned this earlier.

We've been talking about this for the past two to three years. If you look back even earlier, Jimmy had already started talking, and we wanted to make up for the shortcomings in the business franchise. When we talk about investing in people, technology, and balance sheets, we want to take advantage of our existing strengths while continuing to expand those strengths and invest in other business areas.

Currently, our fixed income business is indeed larger than our stock business. We can continue to invest in the stock business. As you pointed out, we believe we are still capable of providing more services to customers around the world in the fields of interest rates, foreign exchange, and commodities. This is one of the reasons we made it clear on Investor Day that every business line has opportunities for growth. These businesses are an important source of growth for us, and we have pretty good growth opportunities in these areas. So the answer is yes.

We've recognized this for a long time and have continued to invest. I think everyone should expect that we will continue to expand the scale of these businesses.

15. Gerard Cassidy, RBC Capital Markets Analyst

Can you tell us more about the credit situation? I noticed that in your asset quality data on page 12, the amount of interest in accruing reserves has used risk exposure of about US$19.9 billion, a decrease of 25% over the previous year. Can you explain the factors that are driving this number down? Alastair, you just mentioned that consumer credit conditions are very good, and we can all see that in the data. But what exactly is driving this decline in risk exposure? Do you think this trend will continue until 2027?

Alastair Borthwick

This is a commercial credit indicator, which reflects our lending activities in various commercial loans. We have seen a fairly broad improvement in the overall situation. I think one of the areas where there has been a lot of improvement over the past year is the office building business in commercial real estate. Currently, adjustments in this area are nearing completion. I think in this area, the exposure to relevant concerns has declined by 50 to 60 percent. This is one of the key factors driving overall improvement.

However, when you see such a marked decline, that is, a significant improvement in risk exposure to attention, it is clear that it cannot be attributed to a single area, but rather reflects a broad improvement. The consumer situation is very strong and the economy is performing well; these factors all played a big role. So Gerard, this is yet another proof that the economy is doing well right now.

As for 2027, I think the current risk exposure indicator, which is currently receiving attention, is very low compared to pre-pandemic levels. This is our lowest level since the COVID-19 pandemic. Can it be improved in the future? It's possible. However, if you look at the current commercial loan write-off situation, this quarter was only 220 million US dollars, which is indeed a very low level. So can that number drop much more? There may be a slight decline, but I think we're happy with the 2027 situation. Currently, we are not seeing any signs of a change in the quality of the underlying credit. However, this indicator is now at a very low level.

Gerard Cassidy

Very good. Then there's another question. I know this isn't an easy question to answer. Clearly, we are all benefiting from the economic growth brought about by the AI boom and capital spending boom. We have also all seen the expenses of hyperscale cloud service providers in related fields. Have you been able to comprehensively sort out or estimate how open Bank of America is to companies that indirectly benefit from artificial intelligence construction? Examples include companies that provide catering services for data centers under construction, or hotel owners that provide accommodations for people involved in new construction projects. Have you conducted some kind of secondary or derivative analysis to assess how these businesses might be affected when the AI boom slows down? What do you guys think about this?

Brian Moynihan

Gerard, I think the last part of your question actually gets to the point. If part of the economic growth comes from artificial intelligence activities, then different economists and market participants may have different opinions on how large this part actually is. But if AI activity does drive some of this year's economic growth, and this activity then slows down, then not only will AI-related fields be affected, but it may also have a ripple effect through building construction, staffing, and other aspects you just mentioned. So it would essentially be a broad macroeconomic issue.

Currently, according to our team's estimates, the US nominal economy is growing at more than 5%, while the inflation rate has dropped to just over 2%. There is still significant nominal growth activity in the economy. If these activities slow down, the next thing we need to pay attention to is whether inflation will also slow down and how other relevant economic indicators will change. Ultimately, the key is how much unemployment this will cause, and how rising unemployment will affect the economy as a whole.

For example, the average number of initial jobless claims over the past four weeks was around 190,000. Judging from nominal numbers, this level is even lower than before the pandemic, when the number of people employed in the US was still less than it is now. As a result, people are still employed, and we can also see the employment situation and see an increase in the income they receive.

What really needs to be assessed next is what kind of impact it will have if the economy slows down. In the commercial loan underwriting process, we always look at each client's situation individually, including their source of revenue. We determine if a customer's revenue is excessively focused on specific customers. How will these clients' businesses be affected if their business changes. In other words, we evaluate factors such as the intensity of its cash flow and the diversity of its cash flow sources. These elements have all been incorporated into our credit assessments.

You also know that the quality of our credit, whether it's commercial business or consumer business, especially commercial business, has always been very resilient. We have maintained good credit quality during the COVID-19 pandemic and other economic fluctuations. Remember commercial real estate? Two years ago, many of you thought we were going to face massive commercial real estate credit losses. But in the end, that wasn't the case because our underlying underwriting standards were very strict. You should expect that we will continue to apply the same prudential standards for all loan portfolios in our day-to-day business.

III. Closing Remarks

Brian Moynihan

I would like to thank all of you for attending today's meeting.

Looking back at a few key topics this quarter, first, we have addressed discussions with government regulators on anti-money laundering (AML) issues and paid related fines in the third quarter. The cost of rectification has been included in regular operating costs.

Second, since our business structure focuses more on fixed income, the global market business is greatly affected by changes in trading activity. Despite this, our trading business still generated significant revenue this quarter, and there were very few trading days with low earnings, so we are still very satisfied with this.

Looking ahead, as Alastair said, we don't expect the seasonal decline in the fourth quarter to be as big as in the past few years. But for Bank of America, the most critical thing remains business diversification.

On the basis of eliminating one-off factors and returning to normalization, our profit level exceeds 8 billion US dollars, of which: the consumer banking business contributed about 3.5 billion US dollars; the commercial loan business contributed about 2 billion US dollars; and the wealth management business contributed about 1.5 billion US dollars. Revenue from these businesses all achieved strong growth, endogenous business activities continued to expand, and credit quality performance was excellent.

You can also see this in the overall growth of the company's deposits and loans. More importantly, net interest income continues to grow, and we are also confident about the future growth prospects of net interest yield. Thank you all. We will continue to work hard to manage this company well and create value for our customers and shareholders.