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Bank of America Corporation (NYSE:BAC)
Q3 2017 Earnings Conference Call
Oct. 13, 2017, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Bank of America Earnings announcement. At this time, all participants are on a listen-only mode. Later, you'll have the opportunity to ask questions during the questions and answers session. You may register to ask a question by pressing the Star and 1 on your touch-tone telephone. Please note, today's call may be recorded. I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Lee McEntire. Please, go ahead, sir.

Lee McEntire -- Investor Relations

Good morning. Thanks for joining us this morning for our Third Quarter, 2017 results. Hopefully, everybody's got a chance to review the earnings release documents that are available on the Bank of America website. Before I turn the call over to Brian and Paul, let me remind you, we may make some forward-looking statements. And for further information on those, please refer to either our earnings release documents, our website, or our SEC filings.

With that, let me turn the call over to Brian Moynihan, our chairman and CEO for some opening comments before Paul Donofrio, our CFO, goes through the details. Over to you, Brian.

Brian Moynihan -- Chairman and Chief Executive Officer

Thank you, Lee. And good morning everyone, and thank you for joining us. This is another strong quarter across the board for Bank of America. Responsible growth is delivering for our customers and for you, our shareholders, the strong operating leverage, strong credit results, and strong expense management. We earned $5.6 billion. Our diluted EPS at $0.48 per share, this quarter; that is up 17 percent from the third quarter, of '16. So, thinking back in talking to a lot of you over the last year, so as we met with you, you asked three basic questions: Can Bank of America actually grow while sticking to its responsible growth principles? Can we achieve the $53 billion 2018 expense goal? And can you meaningfully invest in a company at the same time you're reducing the cost?

So, what I thought I would do is use the summary on Page 2, to answer a few of those questions. So, on the first question, you can see on Page 2, responsible growth work. I'll point you to several of the metrics there. We have been operating on this model for some time. First, if you look at this quarter compared to a year ago, revenue grew 1 percent on a reported basis. And looking at the core lines of business, without other, we grow a revenue of 4 percent, despite the tough comparison of global markets.

If you remove global markets, you can see that the core annuity-oriented businesses of consumer banking, wealth management, and global banking grew over at 7 percent. If you look at what drives that revenue growth, average loans in business segments grew 6 percent year-over-year. Average deposits grew 4 percent year-over-year led by our consumer business, which grew deposits of 9 percent year-over-year. The assets under management, our wealth management business, reached $1 trillion this quarter, and flows into the assets under management were $21 billion and a quarter, bringing year-to-date flows to almost $75-plus billion.

Our mobile usage continues to grow. We had $1.2 billion mobile interactions this quarter alone, up nearly 20 percent from last year, and it's doubled in the last three years. Our investment banking fees were up 14 percent for the nine months, this year. And we did this the right way. With net charge-offs ratios still bouncing on decade lows, we're growing with our risk framework and driving a strong risk culture.

Non-performing loans, at the lowest level since First Quarter of '08, and our market risk remains low. See, we are growing responsibly. The second question we get asked is can you get to your expense target. In the Second Quarter of '16, we committed to achieving a goal of approximately $53 billion in total expenses by 2018. And that's all in reported expense. At that time, our 12 months leading up to that point was running around $56 billion in expense. So, that means we had to take out $3 billion in costs. This reduction meant we also had to overcome a couple of years of no more merit increases, revenue-based incentive compensation increases, healthcare cost increases, and other inflationary costs such as lease renewals, etc.

And we had to do all this while our volume increased because we're doing more with our customers and have more clients and customers to do business with. And we remain on track. This quarter, you can see we reported a little more than $13.1 billion in expenses, and our efficiency ratio moved below 60 percent on a FTE basis. By the way, that is the lowest level of expense since the Fourth Quarter of '08. That was the lowest quarter before we bought Merrill Lynch. So, we reduced the costs in our company, equivalent to the entire cost structure of Merrill Lynch over those years.

Headcount is now down to $210,000.00, and it's down again this quarter. So, the third question is, can you continue an investment franchise while reducing those costs? So, the first thing to think about there is for the first nine months of the year, we spent nearly $2.25 billion on technology initiatives; that's on pure initiatives. Look no further than the branch in your pocket for evidence of that. Customers using our mobile have increased 47 percent in the past 12 months. Mobile deposits count for 21 percent of all check deposit transactions. Digital sales account for 22 percent of all consumer sales.

In this quarter, Zelle, Cain, and Ford. The latest offering we have I mobile are. Bank of America's volumes alone, our volumes through Zelle, this quarter were $4 billion in the third quarter. We processed nearly 14 million transactions, and the growth continues. We recently processed $0.5 billion in a single week. Our customers are using Zelle, and we look forward to further growth in that area. We're also continuing to innovate. We're rolling auto shopping across the country, home loans, mobile deployment of following that. And as we roll to the next couple of quarters, our artificial intelligence offering Erica will come out. We continue also to invest in our physical network by refurbishing nearly all our existing financial centers, which is well underway, and we'll complete over the next couple of years.

We have been, and we'll continue to open centers and markets where you have a strong commercial banking and wealth management client base that lack financial centers due to historical issues. We'll continue to enhance our online brokerage offering benefiting consumer and wealth management clients. For our global banking customers, we have added the availability of Cash Pro on our mobile devices. We're using artificial intelligence to efficiently prospect business clients and offer clients -- client receivables management alternatives to our clients.

We're investing also in enhanced wholesale credit underwriting operating model. In our markets business, we are redoing the trading platforms in total. In addition to the technology investments, we have added 2,000 primary sales professionals over the past 12 months with relationship bankers, financial advisers, commercial, and business leaders. So, yes, we're doing both, investing and finding ways to be more efficient to pay for it, and therefore, lowering our overall expense. Now, we did all of this is an economic environment. That still feels very constructive, consistent with growth at 2 percent-plus.

We expect moderate economic growth to continue this year. We expect the U.S. to grow a little faster next year, above 2 percent, and outside the U.S. is growing a little -- in the mid-3s. So, year-to-date, interests in our consumer payments, we're seeing consumer activity picked up. Consumers are spending, there's checks written, cash taken out of the ATMs, P2P payments in all the debit and credit cards. 5 percent more, to the first nine months of 2017 than they did in the first nine months in 2016. That's a faster growth rate than it had been in the prior years.

Debit and credit card spending are up 7 percent, the first nine months of the year, showing a strong consumer activity. Our commercial clients continue to perform well. They continue to remain optimistic, they continue to look forward to a continued implementation of a pro-growth agenda. Particularly, focus on meaningful tax reform. Housing -- home prices continue to remain on positive trends. Employment is strong, and employers continue to search for skilled workers.

So, that leaves a solid atmosphere, and we see no near-term indications of any change to it. As we move to Slide 3, we show that growing responsible is not new, and it's showing sustained progress. As you can see in Slide 3, we have delivered positive operating leverage on a year-over-year basis, every quarter, for the past three years. And by the way, not every quarter had revenue growth. In those quarters, reduced expenses more than revenue decline. So, that remains our focus: Continue to drive growth, on occasions where capital market might be slower, and there might be less growth and revenue, we have to manage our expenses well. And we have to do all that. We'll continue to make the investments.

That consistent operating leverage shows up in our businesses. All total, we earned $15.7 billion for the first nine months of 2017, up 10 percent in the first nine months of 2016. On Slide 4, you can see how the businesses contributed to those results. The businesses are driving earnings in returns above the firm's cost of capital. And they continue to drive their efficiency ratios lower. As you can see, global market results are actually down year-over-year for the nine months, on a reported basis. Excluding some DVA and a prior year recovery, earnings would be up on consistent revenue growth, despite low volatility, and low activity.

As you look at the other businesses, beginning with the consumer bank, the years of hard work the team has put in is now clearly showing. The business is driving operating leverage, as we optimize our delivery network continued to digitize the business, and follow customers' behavior, and as it changes over time. And our wealth management businesses, the teams continue to do a good job, and you see earnings are up 10 percent on a year-to-date basis. We have industry-leading margins in the business, at 27 percent, and the leading brands of Merrill Lynch, and U.S. Trust. And ahead of us, we have a lot of work to continue to deal with the industry by dynamics and margin pressures.

Global banking had a record-setting $15 billion in revenue year-to-date, and has the company's best efficiency ratio, as you can see. So, if you think about that, all that sums up in allowing us to return more capital to your shareholders. The first nine months of 2017, we have repurchased $7.9 billion in common shares and paid $2.8 billion in common dividends. This totals $10.7 billion comparing to $5.6 billion in the same period of 2016. With that, let me turn it over to Paul, to give you some other details in the quarter.

Paul Donofrio -- Chief Financial Officer

Thank you, Brian. I'm starting on Slide 5. As Brian said, we earned $5.6 billion in Q3, up 13 percent from Q316. EPS of $0.48 per share, up 17 percent, year-over-year, as we reduced diluted shares by 3 percent over the past 12 months. Revenue of 21.8 billion was 1 percent higher than Q316, as NII improvement, and higher asset management fees outpaced the decline in sales and trading and mortgage banking income. Expenses of $13.1 billion were 3 percent lower than Q316. We generated more than 3 percent of operating leverage. The efficiency ratio of 60 percent for the second consecutive quarter, now 59 percent on an FTE basis.

Provision expense was $834 million down, modestly, compared to Q316, and continued improvement. We see continued improvement in consumer real estate and energy. Return on assets, this quarter, was 98 basis points. And return on tangible common equity was 11.3 percent, improving both on a year-over-year, and a leap quarter basis.

Turning to the balance sheet, on Slide 6. Overall, compared to June 30, end-of-period assets increased $29 billion, driven by strong deposit growth that funded an increase in loans to customers, with a remainder invested in securities, and cash. Loans, on an end-of-period basis were up $10.5 billion from Q2, led by commercial activity, while consumer loan growth was mitigated by the continued run off of legacy non-car loans. On the liability side, long-term debt increased $4.7 billion, during the quarter, as we took advantage of favorable credit spreads to pre-fund upcoming maturities.

Given that we are now compliant with TLAC requirements, our debt issuance, over the next few quarters, will likely be more optimistic. Liquidity remains strong, with $517 billion in global liquidity sources. And our liquidity coverage ratio was 126 percent. Common equity increased more than 4 billion, compared to Q2. During the quarter, Berkshire Hathaway converted its Series T Preferred stock into 700 million shares of common stock for the terms of their 2011 investment. As a result of this conversion, common equity increased, and preferred stock decreased by the 2.9 billion book value of their Series T Preferred stock.

This issuance does not impact diluted EPS in this, or subsequent quarters. As the effect of this conversion was already accounted for in diluted EPS. The remaining increase in common equity reflects $5.1 billion in net income available to common, partially offset by the return of capital, totaling $4.2 billion, to both common dividend, and share repurchases. Tangible book value per share, of $17.23 was modestly higher than Q316, but decreased 3 percent, versus Q217, as a result of the Series T conversion.

Turning to regulatory metrics, and focusing on the advanced approach. Our CET1 transition ratio, under Basel 3, end of the quarter at 11.9 percent. On a fully phased-in basis, compared to Q2, the CET1 ratio improved 40 basis points to 11.9 percent, and remains well above our 2019 requirement of 9.5 percent. CET1 increased $4.9 billion, to $173.6 billion by earnings, and the Berkshire Hathaway conversion. The CET1 ratio also benefited from a modest $3 billion decline in RWA, as growth in loans, and low RWA density assets was offset by continuing optimization of the balance sheet.

We also provide our capital metrics under the standardized approach. RWA increased $15 billion from Q2, driven by loan growth, but increases in capital, more than offset asset growth resulting in a CET1 ratio improvement of 20 basis points, to 12.2 percent. Supplementary leverage ratios, for both the parent and bank, continue to exceed U.S. regulatory minimums, that don't take effect until 2018.

Turning to Slide 7. On an average basis, total loans increased to $918 billion. Note, that the sale of UK Card, which was recorded in "All Other" impacted year-over-year comparison of average loans, by $9.3 billion. Adjusting for the sale, average loans were up $26.8 billion, or three percent, year-over-year. Loan growth continued to be dampened by the runoff of non-core consumer real estate loans, and all other. Year-over-year, loans in "All Other" including the sale of UK Card, were down $28 billion.

On the other hand, loans in our business segments were up $47 billion, or 6 percent. Consumer banking and wealth management both experienced solid loan growth of 8 percent. Both businesses continue to see good growth in residential mortgages. Consumer banking also saw growth in credit card, in vehicle loans, originations of new home equity loans was solid, but overall, loan growth continues to be outpaced by pay-downs.

In wealth management, growth was also aided by structured lending. Global banking loans were up 4 percent year-over-year, led by CNI growth in the U.S., and abroad. On the bottom right, note that we grew average deposits by $45 billion, or nearly 4 percent, year-over-year. This growth was driven by consumer segments deposits increasing by $53 billion, or nearly 9 percent, year-over-year. Average deposits declined year-over-year in our wealth management segment as clients sought alternatives for their cash with the brokerage or AUM.

Deposit outflows here largely abated in Q3, and ending deposits were slightly up from the end of Q2. Deposits in global banking experienced strong growth in Q3, driven by rate actions taken in the quarter to win and defend relationship deposits.

Turning to asset quality, on Slide 8. Credit quality continues to be solid, with net charge-offs, NPLs, and reservable criticized exposure, all showing improvement from Q2. Total net charge-offs were $900 million, or 39 basis points of average loans decreasing, modestly, from Q2. Provision expense of $834 million, included a 66 million net reserve release.

Provision expense was in line with the prior year, but increased $108 million from Q2, as a result of less net reserve releases. Our reserve coverage remains strong, with an allowance to loan ratio of 116 basis points, and a coverage level three times our annual charge-offs. On Slide 9, we break out quality metrics for both our consumer and commercial portfolios. With respect to consumer, net charge-offs were down from Q2. Included in the quarter, were recoveries on the sale of some consumer real estate loans, partially offsetting this recovery benefit was the negative impact of clarifying guidance from the regulators on bankruptcies, which increased our consumer losses, this quarter.

The net effect of all these pluses and minuses was minimal. Consumer MPLs of $5.3 billion were the lowest they have been since Q208. NPLs came down from Q2 levels. And keep in mind, 45 percent of our consumer NPLs are current on their payments. Commercial losses were up, modestly from Q2, driven by a couple of names, while reservable criticized exposures and NPLs declined. With respect to the impact of hurricanes, first, let me say that our focus has been on those impacted by the storms, including our employees and customers.

One decision we made early, was to provide a payment deferral to many of our customers in the impacted areas, delaying some potential net charge-offs in Q3. Since then, we have, and we will continue to engage with consumers and businesses in the impacted areas to better understand how we can assist them. As it relates to credit, we have not seen any material impact. Our overall net reserve release for the quarter did include a modest build, related to the storms, for losses that are probable. And it goes without saying that we believe we are adequately reserved today. Turning to Slide 10, net interest income, on a GAAP non-FTE basis was $11.2 billion. $11.4 billion on an FTE basis. Compared to Q316, which has the same-day count in seasonal factors, NII is up $960 million, or more 9 percent, driven by an improving spread between our asset yields, and deposit pricing.

The year-over-year comparison also benefited from loan growth, and excess deposits deployed in security balances. An additional benefit was higher long-end rates from Q316, which drove lower prepayments, and therefore, lower bond premium write-offs. The full quarter effect of the sale of UK Card negatively impacted the comparison. Focusing on net interest yield, it improved 18 basis points from Q316, to 2.36 percent after adjusting for the impact of UK Card. Compared to Q217, NII increased $175 million, as the benefits from an increase in short-end rates, and an extra day of interest, as well as loan deposit growth was mitigated by a number of factors.

First, we lost the two months of interest income associated with the UK Card book. Second, we raised rates broadly across our wealth management business to offer clients a competitive deposit alternative to cash alternatives, within brokerage and AUM. Third, we experienced a decline in long-end rates in Q2 and early in Q3, which impacted reinvestment rates, as well as increase the write-off of bond premium, as mortgage prepayment speeds accelerated. I would note that we also increased deposit pricing for some commercial clients, which had a modest impact on NII in the quarter.

Looking ahead, to Q4, assuming no change in interest rates, NII growth will be dependent on loan, deposit growth, and pricing. If we get a late 4Q hike, as expected by the market, this should mostly benefit NII in Q118. With respect to asset sensitivity, as of 9/30, an instantaneous 100 basis point parallel increase in rates is estimated to increase NII by $3.2 billion over the subsequent 12 months. This is largely unchanged from June 30th and continues to be predominantly driven by our sensitivity to short-end rates.

Turning to Slide 11. Our teams continued to deliver on cost management. Net interest expense of $13.1 billion is down more than $300 million, or 3 percent from Q316. Productivity improvements were driven by our focus on digitizing processes and lowering our costs to deliver for our customers. Keep in mind, that we are seeing these expense declines while investment in technology and new sales professionals remains robust. Compared to Q316, in addition to overall operating cost improvements, we reduced personnel expense, which included cost associated with our UK Card business, as well as non-personal expense, which included lower litigation expense.

Compared to Q217, expense declined $600 million, with half of that decline driven by a Q217 charge in anticipation of the sale of several data centers. Q3 also included modest declines from lower severance, as well as revenue-related incentives. The remaining reduction reflects broad-based improvement as we drive operational excellence. The efficiency ratio hit our 60 percent target again, this quarter. With respect to headcount, we are down from the prior quarter, and continue to see a shift from non-client [inaudible] [00:24:36] associates to primary sales professionals, which now make up more than 21 percent of our headcount. We've added more than 2,000 primary sales professionals, over the past 12 months. Excuse me, over the past -- 12 months.

Turning to the business segments, and starting with consumer banking on Slide 12. Earnings were $2.1 billion, growing 15 percent year-over-year, and returning 22 percent on allocated capital. The business created over 800 basis points of operating leverage on revenue growth of 10 percent, which out-pays expense growth of 2 percent. Year-over-year, average loans grew 8 percent, average deposits grew 9 percent, and Merrill Edge brokerage assets grew 21 percent. Revenue growth was led by NII, driven by increases and client balances. Revenue was modestly impacted this quarter by the hurricanes, as we took steps to help customers in the impacted areas. We expect the dip in fees, and interchange weakness to be temporary, as impacted communities begin to recover, and rebuild.

With respect to expenses, through continued efforts to drive operating leverage, the efficiency ratio improved over 400 basis points, to 51 percent. Cost of deposits, and rate paid, which were combined, represents costs of goods sold from the deposit perspective, remains steady, at a combined rate of 160 basis points in the quarter. Consumer banking credit quality reflected moderate to seasoning, and portfolio growth, which drove a reserve build of $168 million in addition to $800 million in net charge-offs. The net charge-off ratio declined modestly from Q2 to 1.18 percent of loans.

Turning to Slide 13, and looking at key trends. As I said earlier, revenue increased 10 percent, year-over-year. Within revenue, mortgage banking income was the only major category that was lower year-over-year, driven by our strategy of holding more originations on balance sheet, instead of selling to the agencies, as we liked the economics of holding these high-quality originations. In Q3, we retained about 80 percent of first mortgage production on balance sheet. Looking at revenue more broadly, we believe our relationship deepening Preferred Rewards Program is improving NII, and balance growth while mitigating industry pressures on seas, as we reward customers for doing more business with us.

This is why we continue to emphasize total revenue as opposed to fees, and NII separately. Having said that, spending levels on debit and credit cards were up 7 percent year-over-year. And new issuance of credit cards was solid, at $1.3 million. Spending levels on credit card -- on cards, drove revenue increases, but were again, largely offset by the rewards to customers. We saw a modest year-over-year improvement in card fees, as well as service charges. Focusing on client balances, on the bottom left, you can see the success we continue to have, growing deposits, loans, and brokerage assets.

With respect to loans, residential mortgage continued to lead our growth, but we also saw good growth in auto, as well as better growth in card than we've experienced in quite some time. We remain focused on prime and super volume borrowers, with average book cycle scores of at least 760. Client brokerage assets were up 21 percent year-over-year, driven by strong client flows, as well as market performance. Net due accounts grew 6 percent from Q316. At the bottom right, you can see deposits broken out. Our 9 percent year-over-year deposit growth continued to outpace the industry, while the rate paid remained low, and stable.

Importantly, 50 percent of these deposits are checking accounts, and we estimate that 90 percent of these checking accounts are the primary accounts of households. Expenses were up modestly compared to Q316, despite strong revenue growth, as optimization, and digitalization savings were more than offset by investments, and refurbishing branches, and technology initiatives.

Turning to Slide 14. Let's look again, this quarter, at digital banking highlights, as they continue to shape the way we do business with our customers. As you can see, the year-over-year growth in these metrics is impressive. We remain the leader in digital banking. We now have nearly 24 million mobile users, another 11 million online, with us. Within the $639 billion in total payments shown here, note how digital continues to grow, as customers move away from cashing checks. This migration is helping us lower expenses and reduce operational risk.

Further, digital growth of credit and debit card usage is accelerating as e-commerce grows, and more payments are taking place within merchant applications like Uber, and Starbucks. Within total payments, is person-to-person. And I want to spend a moment on Zelle. As Bank of America has been one of the lead banks introducing this P2P capability for customers. Note, the steady adoption by Bank of America customers, of this online app, which makes it easier to spend, request, and even split person-to-person money transfers. Also, note on the bottom left, the growth in mobile channel usage. This quarter, we saw nearly 1.2 billion log-ins, which is up 19 percent, versus Q316.

And more than 21 percent of all check deposit transactions are now done on mobile devices. This represents the volume of 1,100 financial centers. And while important in terms of how we transact with customers, mobile has also become important in terms of how we connect with our customers. One example of that is the reduction in our call center volumes, which are down 13 percent over the past three years. And we continue to innovate.

This quarter, we rolled out an app in several states for mobile auto shopping, which will soon be followed by a mortgage shopping and fulfillment app. Excuse me, I meant mobile auto shopping, which will soon be followed by a mortgage shopping and fulfillment app. That, we call homes navigator. Still, even with all this digital activity, it is important to note that we still have 775,000 people a day, walking into our financial centers across the U.S. Many of these customers still use our centers to transact, but many use the centers as financial destinations where they can learn more about products and services, work face-to-face with a specialized professional, and generally improve their financial lives.

That's why we continue our multi-year branch refurbishment program, and it is also why we continue to add new financial centers in markets where we have never had a Bank of America center, but we have a strong presence in other lines of business. This quarter, for example, we opened centers in Denver, Minneapolis, and Indianapolis. In addition, we are testing [inaudible] [00:32:47] centers, which utilize video-assist ATMs, and other video conferencing capabilities in areas where it makes sense to do that.

Turning to Slide 15. Let's review global wealth and investment management, which produced earnings of $769 million, up 10 percent from Q316. A pre-tax profit margin of 27 percent, and a return allocated capital of 22 percent. The market and client activity, once again, provided a tailwind for asset management fees, while at the same time, transaction revenue continues to face headwinds in the industry, as the industry evolves and adapts to new fiduciary requirements and the increasing adoption of passive investing.

In all, revenue grew 6 percent, year-over-year, led by NII, and a 13 percent increase in asset management fees, partially offset by lower transactional revenue. We saw nearly 21 billion of AUM inflows this quarter, continuing the strength of $57 billion in the first half of the year. Year-over-year expenses were up 4 percent, driven by revenue-related incentives. Other expenses were managed well, creating modest operating leverage in this segment.

Moving to Slide 16. We continue to see overall solid client engagement. Capital balances rose to nearly $2.7 trillion, driven by higher market values, solid AUM flows, and continued loan growth. Average deposits, $240 billion. We're down $5 billion from Q2. The increase and deposit rates at the end of the second quarter helped mitigate the movement of client balances from deposits to other cash investment alternatives, within an AUM and brokerage. The decline in NII from Q2 to Q3 reflects the cost of this rate increase. Average loans of $154 billion grew 8 percent year-over-year, [inaudible] [00:34:46], the continued trend of investment clients deepening their relationship with us. Loan growth remained concentrated in consumer real estate as well as structured lending.

Turning to Slide 17, global banking earned $1.8 billion. This was a 13 percent increase from Q316. Return on allocated capital was 17 percent, and stable with last year, despite a $3-billion increase in allocated capital. Year-over-year revenue growth of 5 percent was driven by improved NII, reflecting solid loan and deposit growth, compounded by rising short-term interest rates. We also grew IB fees modestly, year-over-year, led by debt and advisory fees. Revenue improvement coupled with lower expenses created operating leverage of 650 basis points, and an efficiency ratio of 43 percent.

This expense comparison versus Q316, reflects savings offset by continued technology investment. We also added new bankers, while keeping overall headcount relatively flat over the year. We're also deploying more AI capabilities in this business. The focus so far has been on improving client prospecting, and more intelligent receivable processing for clients. Provision expense of $48 million remains low, and is down from Q316, on improvement across most of the portfolio, particularly energy.

Global banking grew loans 4 percent, year-over-year. As Brian mentioned, our loan growth in global banking has been pretty consistent over the past three or four quarters, at 4 to 6 percent on a year-over-year basis. When compared to Q2, I would note an increase in loans, near the end of the quarter, drove end-of-period balances meaningfully above the average.

Looking at the trends in Slide 18, and comparing to Q3 last year, average loans of $346 billion were up nearly $12 billion. With the exception of CRE, loan growth was fairly broad-based, with slightly elevated growth in Asia. Loan spreads were stable compared to Q217, but compressed, compared to the year-ago period. Average deposits rose 3 percent, compared to Q316, with most of it concentrated in Q3, given the rate action this quarter. Total investment banking fees, of $1.5 billion were up modestly from a strong Q316. Debt underwriting remains strong, while equity underwriting was down from a year ago. Growth in advisory fees also benefited the year-over-year comparison. Year-to-date, we remain Rank No. 3, in investment banking fees, with fees of $4.6 billion, which is up 14 percent, from 2016.

Switching to global markets, on Slide 19. The business side of a solid quarter, although it's a tough comparison against a strong Q316, for the reasons you all know. Global markets generated $3.9 billion in revenue, and earned $770 million, after adjusting for a modest impact from DVA. Given the tough comparison, we view this quarter as solid, despite the fact that sales and trading revenue of $3.2 billion, excluding DVA, declined 15 percent from Q316. Excluding the DVA, and versus Q316, FICC sales in trading of $2.2 billion, decreased 22 percent. Within FICC, the decrease was driven by less favorable market conditions across credit products, especially mortgages, combined with lower volatility, and rates products in the coming quarter.

Equity sales and trading was up 2 percent year-over-year. To a little less than a billion, benefiting from growth in client financing activity. Lower volatility also drove lower secondary market activity and equities. With respect to expenses, Q317 was 2 percent higher than Q316, driven by increased technology investment in our trading platform, as well as numerous regulatory requirements, such as [inaudible] [00:39:00], among others.

Moving to trends, on Slide 20, and focusing our attention, or your attention on the components of our sales and trading performance on a year-to-date basis, for just a moment. While, the quarter is down from Q316, as you can see, on the lower left box, sales and trading revenue has been fairly consistent on a year-to-date basis for the last three years, at roughly $10.5 billion. And note, that we have achieved this stability while reducing VaR, and RWA. And just as important, if not more important, this revenue consistency reflects a value to our clients of our diverse product set, and sales and trading capabilities, in every major market across the globe. Without this strength in diversity, one would have seen a lot more revenue volatility as client activity shifted from a product in market perspective over the last three years.

On Slide 21, we show all other, which report the net profits of $217 million. This is an improvement of roughly $400 million, compared Q316. This quarter, included a lower litigation expense, while reps and warranty expense increased a little more than 100 million over Q316. Reps and warranty provision is recorded as counter revenue in mortgage banking income, and as the result of advanced negotiations with certain [inaudible] [00:40:36] to resolve several of -- to any legacy issues. Also, note that mortgage banking income in Q316 included a benefit of roughly $300 million in net MSR hedge results.

And also, remember that this is the first quarter without the UK Card business, which was sold in June. So, in addition to two months of approximately $250 million in normal quality revenue, generated from UK Card, Q2 also included a $795 million benefit from the sale of UK Card that was mostly offset by tax expense in that quarter. And when making expense comparisons, remember, in addition to lower litigation, Q2 also included a $295 million impairment charge on three data centers that we are in the process of selling. Lastly, note that the effects of tax rate for the quarter was 29 percent.

Just a few summary points, to wrap up. Again, this quarter, we created a positive operating leverage by growing revenue, while lower expenses. And as Brian pointed out, this continued the trend of many quarters of positive operating leverage. For years, we have been focused on growing responsibly, while improving operating efficiency, and making our growth more sustainable. And importantly, we have stuck to, and not compromise our client in risk frameworks while doing so. NII growth is benefiting from the value of our deposit franchise, and continue loan growth in a modestly improving world economy. Asset quality remains strong as net charge-offs, NPLs, and commercial reserve like criticized exposure all declined.

We continue to invest in new technology, and capabilities while adding sales professionals in certain businesses. And we did all this, while nearly doubling the amount of capital we returned to shareholders this year, versus last year. This tells us that responsible growth is working and that we are well-positioned to continue to invest in, and growth with our customers and clients as the economy continues to improve.

...

Thank you. And with that, we will open it up to questions.

Questions and Answers:

Operator

Thank you. And as a reminder, at this time, f you'd like to ask a question, it is the star-one on your touch-tone telephone.

We'll go first to the line of Nancy Bush, with NAB Research. Please, go ahead.

Nancy Bush -- NAB Research, LLC -- Research Analyst

Good morning. Brian, I have a question on digital banking. I guess right after the crash when you guys sort of first began to emphasize digital and mobile banking, you were sort of the leader in the industry, in that regard. Do you still feel that you have that leadership position? Is it important that you keep it? What are your thoughts about what you need to do to do that?

Brian Moynihan -- Chairman and CEO

I think we have leadership position. That's told to us by other people, in how they rate people in terms of activities, and capabilities, and things like that. But most importantly, it's [inaudible] [00:43:58] and what you see going on. So, if you look at Page 14, that Paul took you through, you can see the growth in transactions, and activity. Well, you mentioned that the drive after the crisis, but the reality is the drive started before the crisis, and we were one of the first apps available on smartphones, way back to the start of the iPhone, and so, that helped us grow quickly. But it is a core platform for us. The question is, how do we drive all its feature functionality. The deposits that go through on a daily basis, are equivalent to 1,000 branch activities, in deposits, to give you an example. So, it moves major amounts of activity.


We're excited about the Zelle payment levels because, at the end of the day, we have $5 billion that we spend a year on cash currency, checks moving around our company in the system. The way we're going to get there is by digitizing those, and eliminating cash, and driving that. So, things like Zelle, while, they're small numbers compared to all the other payment forms today, at the pace that they're growing, with the digital wallets, and other things, will help drive it there. So, we feel we're a leader, we expect to be a leader as the activity grows faster. And I think if you put it against any kind of mobile digital person out there, 1.2 billion customer interactions in the quarter, shows you that people believe that it must be pretty good.

Nancy Bush -- NAB Research, LLC -- Research Analyst

Is there a direct relationship, or is there any kind of quantification that you've done of "X" mobile transactions means "Y" fewer branches? Is there that direct relationship?

Brian Moynihan -- Chairman and CEO

Yes, and no. Yes, in the sense that we know the cost of the various things, and a branch transaction or deposit is ten times more than a mobile transaction. But remember, at the same time, we're investing heavily on the high tech side of our house. 2,000 more salespeople, a lot of those in consumer, refurbishing all the branches, building out branches, and things like that. Because, at the end of the day, 20 percent of sales are on digital and mobile, but 80 percent aren't, and because of the nature of the internet customer discussions, because of the nature of what customers want to discuss and have face-to-face help on, the branches are critically important to that. So, the real question is, you have to both be successful. The model -- is solely one or the other, in the model of having both work, and that's where you can see the activity growth. Think about the deposit growth, year-over-year, in consumer of $50 odd billion, and start to think about that in the context of activity.

Nancy Bush -- NAB Research, LLC -- Research Analyst

And just one quick follow-up for Paul. Paul, you mentioned in global banking, that all categories of loans grew, except CRE. Is that a self-election, or could you just expand on that, a bit?

Paul Donofrio -- Chief Financial Officer

Yes, sure. We instituted -- a year ago now, if not longer. We pulled back a little bit on CRE, so we're still servicing customers there, we're still making loans. But we're not -- we're just being a little bit more cautious. And so, you're not seeing a lot of growth in our CRE balances. I would point out that, that kind of makes a 4 percent growth more interesting, given our stance there.

Nancy Bush -- NAB Research, LLC -- Research Analyst

All right. Thank you very much.

Operator

Thank you, and we'll go next to the line of Glenn Schorr, from Evercore ISI. Please, go ahead.

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

Hi, thanks. A little drilling down on your comments on deposit [inaudible] [00:47:35]. So, we go from, I guess, 8 base point last year, to 24 this -- or 11 to 24 over the last quarter. How much of that increase is what you mentioned in wealth management? I heard your comment on the bringing them a competitive cash alternative. I'm just curious, is it CD versus money market? Is it all coming from current clients? Thanks.

Paul Donofrio -- Chief Financial Officer

Mostly, in wealth management, and I wouldn't say it's in one place, or another. It's cut across a lot of different deposit products we offer to that community of investors and depositors.

Brian Moynihan -- Chairman and CEO

Glenn, if you go to Page 10 of the supplement package, you can see the comparison of the third quarter of last year to this year, and start to think about some of the numbers that you were citing. But if you look at the different categories, you're going to see that most of them was in a Now Money Market, which is -- that's where the wealth management business is. And of the $240 billion-odd number in there, about $140 billion of it is really people's invested cash. And so, if we make an allocation, like we did in the second quarter, to less cash and more equities, that actually brings deposits out. And then, people are obviously thinking it's investment cash. These are accounts that might have $5 million in securities in it and $500,000.00 of cash.

So, obviously, a rate structure moves in that, but if you think about it, across a year, there's been a 75-basis point increase in fed funds, and you start to put these numbers against wealth management, it's relatively modest in terms of change, overall. The other thing that drives our profitability is if you look at that page, go down, and remember, the non-interest-bearing account deposits are still zero, and they grew. They're $436 billion of non-hedge bearing accounts if you look on the consumer side of that, you know, that drives a profitability, and that's where it comes from.

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

A competitor, too, had put out some high price, or high rate CDs in an effort to gather new client money, this is more of just compensating clients for being good clients. Sharing a little bit of the --.

Brian Moynihan -- Chairman and CEO

CDs are down $4 billion at Bank of America year-over-year.

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

I appreciate that.

Paul Donofrio -- Chief Financial Officer

This is about providing our G1 clients with an alternative. A deposit alternative. If they want to take it. Since they have options in AUM and brokerage, for some of their excess cash.

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

Cool. I'm just curious, a follow-up on the comment you guys had on the slides on targeted growth, and client financing activities and equities. Is that just growing PB with the clients?

Lee McEntire -- Investor Relations

We talked about that last quarter, where we made a decision to add some balance sheet to our equities business. We see an opportunity there, we've made a lot of investments in technology, we've got great relationships. And there's an opportunity to add a little bit more leverage to that business if we provide some balance sheets, so we did that last quarter, and we continued that this quarter, and it's having an effect. It's like you said, it's PB, but it's also synthetic PB, in Europe, so it's both synthetic and physical.

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

All right. Thanks, very much.

Operator

Thank you. We'll go next, to the line of John McDonald, at Bernstein. Please, go ahead.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

Hi. Good morning. I wanted to ask you about expenses, the magnitude of improvement was nice. I'm surprised at the score. I think you were targeting kind of a $100 million a year improvement, and you got something close to the $300 million, or more. I'm just wondering, where did you kind of outperform your own expectations on expenses this quarter? And is this run-rate, being a ballpark, kind of a good jumping off point, Paul?

Paul Donofrio -- Chief Financial Officer

Yeah. I would say, we feel great about the work we did. We've always talked about expenses not being a straight line, the same line every quarter. This quarter, we did maybe a little bit better than other quarters. You're right, it was down about $300 million year-over-year, and those expenses reductions were brought based across personnel, and non-personnel.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

And in terms of next year, when you think about the $53 billion target, it doesn't look like you might need it, but do you have any expectations at the roll off of the FTIC special assessment? Kind of will help you get to that target, and just may be a reminder of how much that expense stepped up for you.

Paul Donofrio -- Chief Financial Officer

Look, we --. It's a good question. I think the industry was assuming that that would end in the second quarter. It looks like it may extend to the third quarter because we're not going to get to the level they need to get to. So, that actually hurts us. And that's why we always say we're going to get to approximately $53 billion for full year, '18. There's a lot of things that can happen. I don't know the exact amount. Is it roughly around $100 million, quarterly? It's around $100 million quarterly. So, it's a material number. I think it's a little more than $100 million, frankly, but I can get back to you on that.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

Then, I guess, just on capital return, Brian, with that CET1 growing nicely, anything that you could see now that would stop you from approaching more of a peer capital payout next year? And then, could you just remind us what kind of CET1 ratio would be a good target for you, in knowing what you know now about regulatory minimums?

Brian Moynihan -- Chairman and CEO

A couple of things. 1) We would expect to keep moving up the ladder in terms of capital management, this year, 88 percent, I think, is the number, and you'd expect us to keep pushing forward. 2) On the levels were 9 and a half, you'd add 50, 75 basis points on top of that. The [inaudible] [00:53:34] buffer levels can bounce around on you, but if you think about somewhere around 10 to 10 and a half, and if you subtract that from the 12, that's a pretty good amount of excess capital.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

One quick follow-up, Paul, on that FTIC expenses roll off. That's in the numbers now. You're kind of running close to almost the 13 per quarter, almost at 53 annual. So, you're just saying that if you didn't get that step-down, it gets a little tougher to get to the target.

Paul Donofrio -- Chief Financial Officer

I'm just --. The target now goes back to the middle of '16. We said, at that time, we would achieve approximately $53 billion portfolio '18. So, obviously, it's a little harder if the FTIC doesn't roll off in the second quarter, and extends in the third quarter. But we're going to get there, either way.

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

Got it. Fair enough. Thanks.

Operator

Thank you. We'll go next to the line of Betsy Graseck, from Morgan Stanely. Please, go ahead.

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Hi. Good morning. A couple of questions. 1) As we go toward the $53 billion, could you just give us a sense as to the source of the improvement consumer versus corporate?

Brian Moynihan -- Chairman and CEO

Betsy, I think if you look at the quarterly progression across all expense categories, it comes from everywhere. It comes from the data center configurations that we took of charge, and moved a lot of stuff last quarter. It comes from continuing to shed real estate [inaudible] costs. And it comes from lower headcount, that was down 1,000, this quarter. It comes from taking out the spans and layers, we call organizational health. But if you think of it more strategically, it comes from basically, applying technology, and digitizing processes. And so, across our wholesale banking credit underwriting initiative that I talked about, we've been able to save about 20 percent of the headcount thereby consolidating our activities, and bringing in activities together. We'll have another big chunk, as we go to apply the technology that we are developing that is not yet deployed.

And so, it's a thousand ideas -- thousands of ideas, it's literally across the board. And the team does a great job of just going after piece, by piece, by piece. And then, we can manage the repositioning cost by getting ahead of it, and doing it on a rational basis so that attrition will hire 8,000 people this quarter to maintain a headcount sort of neutral, or down a bit. So, we have lots of chances not to hire people, and continue to strengthen the company when we apply this technology.

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Just to keep out the digital efforts, obviously, put a lot of time on the call of the consumer side, just wondering, rate of change on corporate, is that where you think the digital efforts are picking up?

Brian Moynihan -- Chairman and CEO

Yeah, there'll be more there because of trade financially -- start digitizing more processes. And if those processes prove out, we'll drive it. There's a lot in the back office of the security clearance capabilities that is going on. So, there are -- the numbers are -- consumer always dominates in terms of numbers, in a lot of ways, if you think about it. But DUM has a bunch of digitization efforts, a bunch that saves statements. And we send out 12 statements, if we get people to get these statements, that saves 12 times a year, times whatever it costs to that particular statement. So, these things are never --. If there's a silver bullet you could shoot and take care of it all at once, we would've shot it already. This is just hard work.

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Then, the follow-up is a question I get from people all the time, which is we get the expense improvement. Are there any de-pressures that we should also be baking in here when you talk about cash management, fee rates, some of the [inaudible] [00:57:34] look at the speed pools and say, "Oh, this is too high. I'm going to go after that." I'm assuming that you're staying ahead of that thread. I'm just wondering, is there a fee rate that we should be making sure that we're including when we give you the expense side.

Brian Moynihan -- Chairman and CEO

Yeah. I mean, I think we've given guidance on the expense side. If you think about something like in the -- go with transaction services platform, cash management, as people call it, there has always been this loss in revenue that you're fighting against when paper -- which people pay us more to process turns to digital. We lose revenue, but we save expenses at a faster rate. That has been going through the numbers in the last several years. So, the revenue growth we see in cash management, it takes that all into account, so it's more customers, more activity fighting off where the customers are converting cash to digital. So, yes, that's a part of it, but you're seeing it on a run-rate. There's nothing sort of ahead of us that's unusual compared to the quarter-to-quarter sort of pecking away at us. That goes on in that regard.

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Then, consumer expense ratio, 51 percent, that -- as you're getting more people onto your results platform, etc., is there one of sight to that going sub-50, at some point?

Brian Moynihan -- Chairman and CEO

I think for both the revenue list they get, as a rate structure rises, and good expense management, we'd expect that it should move down, below 50, at some point. But we never say to people where do we think it can get to, if some big target -- if the consumer had set some targets, I say, "Don't give people targets because, then, they'll think that that's success." We don't know where it goes. In other words -- I'm not talking about next quarter, but over your multiple years, when you continue to drive the revenue expense play here because, the accumulating core transaction deposit account, and getting it from $2,000.00 over the last eight, ten years, to $6,000.00 per account is a tremendous revenue lift, by focusing on primary accounts. As the number of accounts actually fell by 10 percent. And so, that dynamic is what we're after. So, yes, it'll move down, but I wouldn't -- we never put that success because then people quit working.

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Got it. Thanks, Brian.

Operator

Thank you. We'll go next to the line of Mike Mayo, with Wells Fargo. Please, go ahead.

Mike Mayo -- Wells Fargo & Co. -- Analyst

Hi. Your branch count continues to go down. It goes down 3 percent, year-over-year, but deposits are up 4 percent, year-over-year. I'm trying to get a distinction between retention of deposits for your closed branches, and retention of customers. Because, according to your 10K, from 2015 to 2016, the number of accounts declined by about 2 percent, but at the same time, deposits continued to grow just like the entire decade. My question is what is your retention rate of deposit, and what is your retention rate of customers when you close a branch today? And why the difference?

Brian Moynihan -- Chairman and CEO

The deposits and consumer, Mike, which are more in small business, which are more related to your thing, we actually have 9 percent, year-over-year, 4 percent, that's the all in corporate level, including [inaudible] [01:00:51] and commercial. But if you look at across time, it really depends on where you're closing the branch, obviously, and what's nearby. But the retention rates continue to go up over time because the physical plant becomes less dominant and irrelevant to the customer. And so, what we're doing is fine-tuning the branch count, and often consolidating into a bigger branch that we've invested heavily in, to the quality of the branch itself, and the numbers of people there.

So, our branches are getting bigger in terms of numbers of people, and smaller in terms of count. When you think about it, the customer fall-off in terms of numbers of accounts was really continuing to focus on that primary account. So, as we do that, the balances are up twice in the account, I think, of the last seven years, or something like that, and account numbers are down from $34 million, to $31 million. That was all driven by our view that we had to get to the primary account because that's where the profit could be made, and that core transaction capabilities there. So, we closed a lot of people -- people ran off who were using us as a secondary or third bank just because they loved our distribution of ATMs, and things like that. Basically, we have emphasized primary account sales.

Mike Mayo -- Wells Fargo & Co. -- Analyst

I'm not sure if you disclosed this. So, what is the retention of deposits when you close a branch today, and what was it --?

Brian Moynihan -- Chairman and CEO

We don't disclose it. We don't disclose it. Mike, that's all in there. So, in that 9 percent growth is everything we did.

Mike Mayo -- Wells Fargo & Co. -- Analyst

The last question. Digital banking is up, mobile banking is up. You mentioned 1,100 branches that [inaudible] [01:02:28]. That's good. So, have you reached where you can go from 4,500 branches down to 3,500 branches, or 4,000? How far can you go?

Brian Moynihan -- Chairman and CEO

That always depends on the customer behavior and other factors. We are deploying new branches, hundreds of them over a multi-year period in the places we didn't have branches before, located more, strategically given, circuit 2017, beyond banking. So, but we don't put a -- again, it's not a number we target -- a number, what we target is a more and more efficient system. So, each day, three-quarters of a million people come into our branches, and our teammates serve them well, and our scores at those branches are at all-times high, in terms of satisfaction. And 80 percent of the sales go on in that space. So, I wouldn't want to cut them back at one branch more than the customer wants us to. Depends by the behavior.

Mike Mayo -- Wells Fargo & Co. -- Analyst

Thank you.

Operator

Thank you. We'll go next to the line of Steven Chubak, from Nomura Instinet. Please, go ahead.

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

Thanks. Good morning. I have a follow-up question regarding the discussion earlier about deposit competition. Just, some of the efforts that you decided to compete with other cash alternatives. Assuming you can quantify the actual magnitude of deposit price increase that we saw in the quarter, and maybe just give a little bit more context as to what prompted the action. And Paul, I know you gave some color here. I'm just trying to get a better understanding as to whether this is really driven by increased competitive pressures, or is it more a function of the DOL, which actually requires that some clients receive reasonable compensation on some of their assets, including cash.

Paul Donofrio -- Chief Financial Officer

I don't think it's -- it's not a function of a DUL. It's a function of our desire to give our customers an alternative to leave their money in a debited account at Bank of America, as opposed to seeking other alternatives, within our AUM and brokerage platforms. So, that's what's driving us. It's a meaningful increase, but it's nothing when you think about the 100 basis points that we've seen here, it's not a significant amount.

Brian Moynihan  -- Chairman and CEO

Philosophically, we say to our team, you have to maintain the leverage given, a relative pricing against the rate curve because the rate curve, you know, we were at the zero floor for so long. So, they have to grow faster than the market, 4 or 5 percent, at least, you've got to grow deposits, and you've got to maintain the pricing discipline. What happened to GUM, frankly, is they got a little behind the curve, and they had to move in a single quarter, and they did. And so, what you see in the period-end deposits, even though average, I think goes down, period-end actually is up. So, they were able to shut down some of the run-offs, as Paul just described.

But it's really localized in the GUM business, and it's really driven by a subset of those deposits, which are in asset management accounts, and brokerage accounts that are a part of an investment strategy that is different than transactional checking accounts, and things that are driving both, in our commercial business, and our consumer business. And so, that's why you see, if you go look at Page 10, and kind of sort through it, you'll see there's differences, and it's really narrowly in the area that has to do with really, investing cash, rather than transitional and transactional cash.

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

Thanks for that, Brian. So, my understanding is that if we do see rate hikes from here, because, much of this increase was a function of your efforts to catch up with the competition, should we see an introductory increase? Or how should we think about the outlook, from here, if we get additional rate hikes?

Paul Donofrio -- Chief Financial Officer

First, let me say that our outlook on NII, absent any change of rates, is going to be dependent on loan and deposit growth, offset by deposit rate pay, which is mostly going to be driven by competitive factors. So, if we get a 25 basis point rate hike in December, again, most of that, we'll see in the first quarter, the benefit. And it's going to depend on what our customers need and want, and what the competitive dynamic is. I don't know how else to answer that question. We don't know yet, what we're going to do; we have to see how the market develops.

Brian Moynihan  -- Chairman and CEO

In the $3.2 billion for 100 basis points is modeled in a rate of change relative to that interest rate change for deposit pricing. We have bettered that, and because of the power of the franchise, and other things, and we'd expect to continue and maintain that discipline.

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

Just one more for me, on the credit side, the trend there continued to be quite positive, appear to be doing a lot better than many of your peers in that regard. I know the guidance that you're given previously, at least in the near-term, was that -- provision should approximate in net charge-offs. We did begin to see, though, some healthier building consumer. I'm just wondering how we should think about the near-term provision trajectory from here.

Paul Donofrio -- Chief Financial Officer

We still think provision is expected to roughly match net charge-offs. You could see some modest increase as we bounce around the bottom, with respect to net charge-offs, and commercial, and as we build allowance in support of loan growth. However, these factors may be offset by the release of non-core consumer real estate, and energy, as we sort of have been experiencing here, over the last two quarters. So, no change there.

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

May $900 million as like a charge-off run-rate, at least in the near-term a reasonable expectation?

Paul Donofrio -- Chief Financial Officer

Over the last five quarters, the average has been $900 million.

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

All right. Thanks so much for your help.

Operator

Thank you. We'll go next to the line of Matt O'Connor, from Deutsche Bank. Please, go ahead.

Matt O'Connor -- Deutsche Bank -- Wall Street Analyst

Good morning. I was wondering if you could just elaborate a bit in terms of what you're seeing on the loans demand side, both on the commercial corporate, as well as the consumer. Obviously, the industry has slowed down, overall. We've made some comments about seeing more activity in pockets of consumer. And then, along with that, your outlook for loan growth in the near-term, here.

Paul Donofrio -- Chief Financial Officer

We've been experiencing loan growth in consumer, and GUM, and also, in global banking. You saw that again, this quarter. We don't -- so, we talk about loan growth for the whole company being driven by deposit growth. So, if you think about our deposit growth, and the size of our deposits, relative to our loans, every quarter we grow deposits, and we put as much of that to work, as we can in loan growth. And whatever doesn't go to loans, and client growth goes into the investment portfolio or cash. So, if your growing deposits sort of mid-single digits, that means you're going to grow total loans in the low-single digits. We don't think that's going to change given the current economical environment. But, as you've seen because we have a significant run-off portfolio in All Other, that has translated into mid-single digit loan growth in our business segments, and that's what we're comfortable with.

Matt O'Connor -- Deutsche Bank -- Wall Street Analyst

As we think about the deposit growth driving the balance sheet growth, it's got this slight [inaudible] [01:10:29] curve, and some people, my personal view is if we get additional increase in the short end, we might have further flattening. I'm just wondering the thought process to keep building the securities book, and the mortgage book. We've seen some banks shrinking the securities book, and building cash, instead, and obviously, there's a cost to doing that. But just the thought process to keep building securities here, as the curve has flattened pretty meaningfully.

Paul Donofrio -- Chief Financial Officer

We are always thinking about the trade-off between earnings liquidity and capital, where we have a risk framework that we operate in with respect to the securities portfolio. But remember, when you're growing deposits in consumer, 8 percent, those are, we believe high-quality deposits, so they have a meaningful duration. And you've got to find investments on the asset side to match what you believe the duration of those deposits are. So, you know, we're very thoughtful about it, and we think about it all the time. We haven't made a lot of change into how we're operating. We're operating within our risk framework, and we feel good about, kind of what we're doing there.

Brian Moynihan  -- Chairman and CEO

I think one of the things to remember is the -- as you think about deposits, and our trillion, plus the deposits, we have a significantly more consumer personal deposits than anybody else does, which then, if you think through the resolution planning, and how those are treated, and all that stuff, those deposits are extremely valuable if you think of consumers; it was 4 basis points last year, and 4 basis points this year, you're going to continue to grow those. Because, unless the curve flattens, in a way that would be below 4 basis points, plus FTIC, you'd start to think of -- no one thinks it is going to do. It's still very valuable idea to generate more customers, and generate more deposits. But if we continue to -- really push that with -- it's almost $900 billion in deposits, in our GUM consumer business, which are tremendously valuable in terms of what drives this franchise as profit. So, there's no [inaudible] [01:12:37] more customers for good core deposits.

Matt O'Connor -- Deutsche Bank -- Wall Street Analyst

I guess the point I was getting at is you're paying up a little bit the deposit side in the wealth management business, you're paying up a little bit on the global banking side. And on the one hand, you can afford to pay up to help out the customers and keep in some products. But at the same time, at the flat of your curve, it just makes it less economical to do so, I would think.

Brian Moynihan -- Chairman and CEO

Think about the all end-cost. It's still very -- it costs $600 million a quarter for the trillion to end deposits, in total. Just think about that a second, and you'll think that there's a lot of advantage in the curve.

Paul Donofrio -- Chief Financial Officer

It's obviously focused on the right thing, it's focused on the economics. But remember, these are our customers, and we want to make sure that they have the right alternatives for them to make a good decision about whether they want to keep a deposit, or whether they want some other alternative.

Matt O'Connor -- Deutsche Bank -- Wall Street Analyst

Thank you very much.

Operator

Thank you. We'll go next to the line of Brian Kleinhanzl, from KBW. Please, go ahead.

Brian Kleinhanzl -- KBW -- Analyst

Good morning. First question was on the first mortgage production that you mentioned. You said they were putting most of that on the balance sheet. Can you just give kind of a description of the type of paper that it is? Is it just [inaudible] [01:13:55] conforming. And what's that do to the duration of the loan book for that consumer.

Paul Donofrio -- Chief Financial Officer

These are our customers who originated a mortgage either through purchase or refinancing. And we like the risk profile, we know them, we're focused on primes and super prime. It's mostly non-conforming, but there is some conforming in there. We still are selling some to the agencies. And obviously, that adds duration to the asset side, to the extent that it starts getting a lot, but we'll manage that. Remember, we're writing deposits.

Brian Moynihan -- Chairman and CEO

Also, don't think that we don't manage -- we manage that rate risk through a whole bunch of things, including [inaudible] [01:14:47], and stuff, too, so it's not like we just sit there, and throw the long assets on, and leave them there.

Brian Kleinhanzl -- KBW -- Analyst

Thanks. Then, you did call out the hiring of the sales staff, about 2,000, year-on-year. How do we measure the success of those hires? How much of that is already in the run-rate? Was it an opportunity to take market share? Were you understaffed in certain areas? How should we think about that increase in sales staff?

Brian Moynihan -- Chairman and CEO

Well, we have -- how you should think about it is that you can't grow in the business, which is largely driven by face-to-face interaction for the wealth management business, and the commercial business, in total, and a large part of the consumer business. If you don't grow in your sales floor, you can't grow your production. If you don't grow your production, you can't grow your balances. And so, all of those balances were growing: loan balances, and deposit balances are all driven by having more sales capabilities. And so, unless you assume your team isn't working hard, which is absolutely not the truth at Bank of America; the team works very hard. You've got to add more capacity to serve the customers.

And we have tremendous opportunity, so whatever metric, and you can spend yourself with the opportunity, the number of customers who have their banking accounts, they don't have wealth management business at other banks, hundreds of billions of dollars of bank deposit balances, loan balances, the amount of middle market investment banking goes to competitors from our middle market clients is 70 to 80 percent of their activity, which we should be capturing a lot more of. So, we added middle market investment bankers. So, that capacity is a requirement. We look at all the markets, 92 markets in the U.S. We look at the relative market shares, we look at what we should be able to do, we look at our team, works together, and we deploy those people in units in between the five or six core business who operate markets, to make sure building markets, so they can play off of each other. And then, they work, they get business together, and refer business back and forth. So, without that sales force build, you won't have growth in the future.

Brian Kleinhanzl -- KBW -- Analyst

Great. Thanks.

Operator

Thank you. We'll go next to the line of Ken Usdin, from Jefferies. Please, go ahead.

Ken Usdin -- Jefferies & Co. -- Wall Street Analyst

Thanks, good morning. Paul, I wanted to follow up on consumer credit. There's been, in the last day or so, a lot of concern about cards. Your card losses have been up a little bit, but very manageable. But I did notice you did -- and you mentioned you built the card reserve to now, 3.5 percent. I'm just wondering what kind of normalization are you expecting on the card losses to follow -- to start?

Paul Donofrio -- Chief Financial Officer

We've been growing our card book. We have a back book that is well seasoned. We have a front book that we're growing, and that is seasoning like any normal portfolio card, and you see that I think, across the industry. So, we feel really good about our card portfolio. We're focused on prime and super-prime; we're focused on our customers. We did see a modest pick-up in NCOs, year-over-year, but that was fully expected and planned for. So, nothing here, from our perspective, unusual.

Ken Usdin -- Jefferies & Co. -- Wall Street Analyst

So, just expected gradual seasoning. You're not expecting any kind of vintage major shift in the recent growth?

Brian Moynihan -- Chairman and CEO

If you think about the whole card business, which we reshaped in the last 10 years, quite frankly, has been in a move to more and more relationship customers whose credit statistics are relatively consistent over time. And so, while we have a year-over-year increase in card charge-offs, in the late quarter, it fell back down. So, you should expect to see a bounce around in these rates, but it's because of the nature, the way we originate the cards, is [inaudible] [01:18:42] customers. And then, our focus is not necessarily getting a lot more cards out there, it's really to get people to use their card as a primary card out of their wallet, a Bank of America customer, a Bank of America card, and using it. That's where we're driving the business. So, I don't think you'd expect -- the strategy is responsible growth, so the balance has grown $1 billion or 2 -- a couple billion here for the last year, but it's going to be as steady as you go, and drive it, so you shouldn't see major changes in terms of nominal dollars of charge-offs.

Ken Usdin -- Jefferies & Co. -- Wall Street Analyst

Understood. And then, as a follow-up to that, in terms of the new preferred rewards card, how will that work through? Will there be any type of -- rewards cost, etc. that we should think about in terms of the card fees line? Or is that just also kind of already been as part of the spending you've been doing?

Paul Donofrio -- Chief Financial Officer

Let me just take a step back, because a lot of people in the call -- and just review what we did. So, we did launch it last month. It's a card we launched because we were listening to our customers, and we wanted to design a card that rewarded them -- we wanted to deepen their relationship with us, even further. Importantly, we also wanted to give them the flexibility to use the rewards the way they wanted to use them. Similar to all our other cards, we're very careful to balance the customer value with the shareholder value, words that are very clear and transparent. [inaudible] [01:20:11] fee in this card, that we're not winning. So, we've been very mindful of the profitability of the product, and we don't expect any significant impact, at this point, anyways. We'll see how it goes, but at this point, any significant impact to card income, from existing -- upfront.

Ken Usdin -- Jefferies & Co. -- Wall Street Analyst

Thanks, a lot, Paul.

Operator

Thank you. We'll go next to the line of Jim Mitchell, with Buckingham Research.

Jim Mitchell -- Buckingham Research -- Analyst

Hey, good morning. I have a quick question on rate sensitivity. It looks like it didn't change despite absorbing another rate hike this past quarter. Is that sort of an indication that you've gotten slightly more asset sensitivity -- asset sensitive as the quarter went on? How do we think about the flat rate sensitivity?

Paul Donofrio -- Chief Financial Officer

If you look at rates at the end of last quarter, and you look at rates where they are now, there really hasn't been a lot of change. It's the rate structure, both existing at the end of the quarter, versus existing then, plus what the forward-pass look like, at both those points. It drives that asset sensitivity disclosure, and they were kind similar at both points.

Jim Mitchell -- Buckingham Research -- Analyst

Was there any change in the short versus long-end sensitivity?

Paul Donofrio -- Chief Financial Officer

Not really. It's still around two-thirds short-end.

Jim Mitchell -- Buckingham Research -- Analyst

And maybe just a broader question on consumer credit. I think it's a big issue. I heard your comment on cards, but maybe just looking at the consumer as a whole, do you feel like there's any stress points out there that gives you some pause? I think that's really what's going on in the industry, or at least in a lot of investors' minds, worrying about, is this the start of a new upward cycle in consumer credit costs? And how do you think about that?

Paul Donofrio -- Chief Financial Officer

Again, we're focused on prime, super prime, we're focused on our customers, and we're just not seeing it in that group. I'm looking at a page here, it's got [inaudible] [01:22:17] on it. And after you adjust for the OCC bankruptcy, and the repossession, if you look at card, if you look at auto, if you look at consumer vehicle lending, and you make an appropriate adjustment, net charge-offs, they haven't really gone up. Link order, versus Q1. So, we just have not seen it yet in our net charge-offs.

Brian Moynihan -- Chairman and CEO

That's a multi-year discipline. This is not something that happened this quarter. This is multi-years of changing, of underwriting standards, and sticking to it, and not varying those standards as we move through time. So, we change the mortgage underwriting standards in '07, and '08; we changed the card standards about the same time. The auto standards have always been high; we've always made that a business that we took very little credit risk in. So, when you think about it, we just don't see it, but a lot of it's just sticking through the knitting over the years, and to the response of the strategy, and the team finding the growth in the customers. So, the debate's always been "Can you grow?" and the answer is, "Yes." But you've got to grow in a rational, responsible basis. And that's what's plotting out, and that's the score to relative, to other people, I think.

Jim Mitchell -- Buckingham Research -- Analyst

Great. Thanks.

Operator

Thank you. We'll go next to the line of Gerard Cassidy with RBC.

Brian Moynihan -- Chairman and CEO

Good morning, Gerard.

Gerard Cassidy -- RBC -- Analyst

Hi, Brian. How are you? You'd mentioned, Brian, on the call about going into different markets with de novo expansion of your retail branches. Can you give us some color on how long it takes to get to those branches to break even? And second how long does it take to get them to a level of profitability that's similar to your legacy branches?

Brian Moynihan -- Chairman and CEO

Well, I think the -- it takes a while to build them up the level of deposits, obviously, but what we've seen so far -- and that's going to be one of the things you test every quarter -- is the branch we opened in Denver, quickly moved into the top 10 percent of sales, and stuff. Now, why is that different in the de novo branching? A) We have a nationwide brand. B) We have wealth management and commercial businesses, and all these markets. C) We have card customers, and mortgage customers in this market that were -- that we've had for years. So, a lot of times, you're converting a deepening proposition as opposed to opening a store, and seeing what comes in. And the fourth is we strategically located near where the rest of our teammates are. So, they're getting up to speed faster. I won't give you the exact date that we target, and things like that because it's proprietary, but you assume that they're getting up to speed faster, and you should assume that we're smart enough that we're not going to build them if they don't work.

Gerard Cassidy -- RBC -- Analyst

Very good. Second, we're all familiar with the treasury white papers that have come out about where they think regulation should go for the banks. When you guys review what has come out, what are the top one, two, or three items that when you sit down with the new vice chairman of the FED, what you're going to talk to him about. And as part of that answer, can you share with us your thinking on where is your operational RWA, and is that a big issue for you to talk to the regulators about changing, in the future?

Paul Donofrio -- Chief Financial Officer

Sure. So, on the first point, on the white papers, and all the other stuff, as an industry, I think it goes without saying that we really have a vested interest in [inaudible] [01:25:48], but that also promotes safety and soundness, so we are very focused on that. I would say that we are for regulatory refinement that promotes economic growth while protecting financial stability. There's not a lot of discussion out there, a lot of white papers, a lot of great points that are being made in those papers. But we would be in favor sort of generally in the type of refinement that allows us more access and control over our capital and liquidity. In support of responsible growth that we've been talking about all throughout this call in support of the economy and the communities where we live and work, and for lending, and for capital return.

We've talked about the -- how large our buffer is. We'd also like to see a little bit more efficient regulation driven by [inaudible] [01:26:42] across the regulatory bodies. So, we're going to work with whatever parties we can to see some of this get refined, in a responsible way. Your second question was on RWA, operational risk capital. One of our favorite subjects. We have a third of our advanced RWA is operational risk RWA. It's a floor that's been given to us by regulators. That $500 billion is 33 percent more than our next closest competitor has in operational risk RWA. That $500 billion is more RWA than just about all of the European banks have in total, RWA. So, we'd like to make progress on that. The advanced approach is something we use to manage risk at the companies, so it's important to have an accurate amount of RWAs, as we think about our managing the company.

Having said all that, I would point out that at least, in the United States, with the Calhun Amendment, we have to have an amount of RWA that is the higher up standardized in advance. And as we continue to make progress on optimizing how we deliver for customers and clients, we are optimizing our advanced RWA, and it's getting closer and closer to standardized. So, at some point, standardized will likely become our binding constraint. That doesn't mean that the operational risk capital is not -- operation risk RWA is not important; it is. But standardized, at some point, will become our binding constraint, and make that a little bit moot.

Gerard Cassidy -- RBC -- Analyst

Very good. Finally, Paul, you mentioned, I think, in the call about the higher reps and warranty expense. Can you guys kind of frame for us what's left there? Obviously, I'm assuming we're toward the tail-end, but do you guys know about what's left?

Paul Donofrio -- Chief Financial Officer

We don't really go through them line-by-line; I think you guys know all the big ones. I'd be happy to sort of list a couple of those if you want. What I would say is if you look at our disclosures, we still have $2 billion in reserves for reps and warranties, and we've got another $2 billion, at least, as of the end of the second quarter in the RPL for reps and warranties. So, we're going to work through these things, and we're going to see over time how all of that plays out.

Gerard Cassidy -- RBC -- Analyst

Very good. Brian, we'll see you in Boston. Thank you.

Operator

Thank you. We'll take our final question from the line, Saul Martinez, from UBS. Please, go ahead.

Saul Martinez -- UBS -- Analyst

Hi. Thanks for taking my question. I want to ask a follow-up on efficiency, and cost performance, beyond 2018, and where you think your efficiency ratio can go to. So, you've obviously -- you brought down your efficiency ratio to 60 percent. If you get to the $53 billion, whenever that is, '18, or whenever you get there -- around '18, you drive down your efficiency ratio even further. Just so you know, it's 57, 58, so you're pretty close to sort of your competitors despite the fact that your business makes as one that has more wealth management, and the HOT, which has a higher efficiency ratio. So, how should we think about your ability, the opportunity set to continue to drive positive operating leverage over a multi-year period, and get your efficiency ratio down even further, to the mid to low 50 percent range? I know it's a difficult question to answer, and it depends on a lot of things, but with technology, and AI, and cognitive computing, and digitization, and mobile banking, can we see efficiency ratios that maybe a few years ago we wouldn't have even thought about for a bank like Bank of America?

Brian Moynihan -- Chairman and CEO

I think a number of things. No. 1, you've got the general picture, right, which is we're getting it down to 53, that puts us in a level. We have a higher possession of wealth management, which has revenue-related compensation that obviously is a 27 percent pre-tax margin. You flip that around, to 83 percent efficiency ratio, and it's a meaningful amount of dollars, but it's a great return on capital business, and the last thing you want to do is not grow it. So, that creates a dynamic around the aggregation of all these numbers, and you look at the other ones, and they're 50-ish-type of numbers across the board. So, we drive that.

When you think about a future, the way we talk about it is the $53 billion is a '18 target, we try to hold it flattish. After that, fighting to apply technology, all the things you talked about, more digitization, and [inaudible] [01:31:41] that the early questioners talked about in using that to offset the fact that medical care premiums go up, 6 percent, 7 percent, you have something else goes up, rents go up, and things like that, and pay for all that. Merit increases, and bigger bonus pools because our teammates are doing a good job. So, all that, you're fighting that, and if you keep it flattish, then, the question of what scenario you're playing into, your rates rise a little bit, that pours the bottom line, and we told you guys before, and we'll tell you in the future, there's no additional cost to that.

If it comes through wealth management fee generation, it's going to have more expense attached to it, so there's a little bit of what your scenario will play into. But we don't target -- the efficiency ratio is a result of all the hard work that goes in to keep expenses flat, down to $53 billion, and flattish after that. That will then produce an efficiency rate base, a little bit of the revenue scenario, which will be -- on the economics, and what's going on out there. But you should rest assured, after $20 billion expenses in the last five years, taken out of the company, that there is no team that is more focused on this than the team that works for me.

Saul Martinez -- UBS -- Analyst

Great. That's very helpful. Thanks a lot.

Brian Moynihan -- Chairman and CEO

Last one?

Operator

We would like to turn back over to Mr. Moynihan for closing remarks.

Brian Moynihan -- Chairman and CEO

Thank you, operator. Let me just wrap up quickly. Thank you all for being on the call today. And thank you. I look forward to talking to you next quarter. As you think about Bank of America, of the quarter of 2017, it's pretty straightforward; responsible growth. It's evidence across the company, and all different fashions, whether it's --. We've got to grow, no excuses, you saw that in balances and revenue. We've got to do it with the right customer focus. We've got to do it with the right risk, and we've got to do it and be sustainable. When we say sustainable, that means we've got to do it and keep investing in the future, and you saw us do that, also. When we do that right, we can take more capital, and deliver it back to you through dividend and share buy-backs, and as we told you earlier, we've nearly doubled that year-over-year. So, thank you, and we look forward talking to you next quarter.

...

Operator

We would like to thank everybody for their participation. Please feel free to disconnect at any time.

Duration: 94 minutes

Call participants:

Lee McEntire -- Investor Relations

Brian Moynihan -- Chairman and CEO

Paul Donofrio -- Chief Financial Officer

Nancy Bush -- NAB Research, LLC -- Research Analyst

Glenn Schorr -- Evercore ISI -- Senior Research Analyst

John McDonald -- Sanford C. Bernstein & Co., LLC -- Wall Street Analyst

Betsy Graseck -- Morgan Stanley & Co. -- Wall Street Analyst

Mike Mayo -- Wells Fargo & Co. -- Analyst

Steven Chubak -- Nomura Instinet -- Wall Street Analyst

Matt O'Connor -- Deutsche Bank -- Wall Street Analyst

Brian Kleinhanzl -- KBW -- Analyst

Ken Usdin -- Jefferies & Co. -- Wall Street Analyst

Jim Mitchell -- Buckingham Research -- Analyst

Gerard Cassidy -- RBC -- Analyst

Saul Martinez -- UBS -- Analyst

 

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