Bank of America Corporation (BAC) Q1 2018 Earnings Conference Call Transcript

Bank of America Corporation (BAC 1.59%)
Q1 2018 Earnings Conference Call
April 16, 2018, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to today's Bank of America First Quarter Earnings Announcement 2018. At this time, all participants are in a listen-only mode. Later, you have the opportunity to ask questions during the question and answer session. You may register to ask a question by pressing *1 on your touchtone phone. You may withdraw yourself from the queue by pressing #. Please note this call may be recorded. I'll be standing by if you should need any assistance. It's now my pleasure to turn the conference over to Lee McEntire.

Lee McEntire -- Senior Vice President of Investor Relations

Good morning. Thanks to everyone for joining this morning's call to review our 1Q '18 results. Hopefully, everyone's had a chance to review the earnings release documents on the Investor Relations section of the bankofamerica.com website. I'll just remind you we may make some forward-looking statements in the discussion today. For further information on those, please refer to either our earnings release documents, our website, or our SEC filings. Brian Moynihan, our Chairman and CEO, will make some opening comments. Paul Donofrio, our CFO, will review the 1Q results in more detail. After that, we'll open up for questions. With that, I'll pass it over to Brian.

Brian Moynihan -- Chairman and Chief Executive Officer

Thank you, Lee, and good morning, everyone, and thank you for joining us to review our first-quarter results. The momentum our team has built over the last couple of years again showed up with strong earnings in the first quarter of 2018, so let me start on Slide 2. We reported record earnings for our company of $6.9 billion after tax, up 30%. On a pre-tax basis, our earnings grew 15%. This growth drove improvement in our returns. Return on tangible common equity improved nearly 400 basis points to 15.3%, where our return on assets improved to 120 basis points. Our efficiency ratio fell below 60% on an FTE basis, reflecting our disciplined focus on expenses.

We achieved all of this by driving responsible growth. As you've heard us say many times, responsible growth has four parts. We have to grow no excuses, we have to grow on our customer-focused framework, we have to grow within our risk appetite, and we have to do it in a sustainable manner. So, how'd we do this quarter? First of all, we did grow no excuses. During the first quarter, we continued to play the role that our company plays and helped economies grow around the world, by supplying capital and through debt and equity underwriting for growth for those companies.

In our company, we grew loans by more than 5% year over year in aggregate across the businesses. We grew deposits by more than 3% while maintaining discipline in our deposit pricing. Consumer led our deposit growth with an increase of 6% or $38 billion in deposits year over year, a strong showing. All this led to revenue growth of 4% and we also increased the amount of capital we returned to shareholders this quarter.

We grew within our defined customer framework, the second tenet of responsible growth. As Paul will show you later in the presentation, we delivered more cards and more checking accounts to our consumer customers, more accounts in our Merrill Edge online brokerage to our investors, more households were formed in Merrill Lynch and U.S. Trust, and more small business clients, more business banking clients, more commercial banking customers came into the franchise. But, most importantly, for those customers who were already here, we continued to increase our depth of relationship.

The third tenet of responsible growth is to grow within our disciplined risk framework. We reported credit charge-offs of $911 million dollars, 40 basis points of average loans, lower than both the prior quarter and the prior year-ago quarter. In fact, we've reported a net charge-off ratio of below 50 basis points now for 13 of the last 16 quarters. That's four years of relative consistency. Just like last year, for the whole of 2017, we made money every day in the first quarter in our Global Markets business, despite the pickup in volatility. While our market balance sheet grew to support our clients, our bar of value at risk remained stable year over year.

The fourth tenet of responsible growth is to grow on a sustainable basis, and we did that by investing in our people and our communities and by driving operational excellence. You can see that come through once again with the predictable earnings for our shareholders. This quarter was also the 13th quarter in a row reporting positive operating leverage on a year-over-year basis. As you look at Slide 3, you can see this chart. We got there different ways in different quarters, but it's 13 quarters in a row of positive operating leverage. That's because through fundamental operational excellence and expense discipline throughout our franchise, we've been able to again reduce quarterly operating expenses this quarter on a year-over-year basis. We've done that now for 13 of the past 14 quarters, even as we continue to invest heavily in the franchise.

These investments in our franchise range from investment in the communities we serve to products we deliver and the people we serve our clients. As we've said before, we've continued to invest nearly $3 billion annually in technology initiatives. Investments in the business this quarter have come through with new capabilities for our clients. We included the rollout of Erica across the board, our artificial intelligent assistant in mobile banking. We had a more extensive rollout of our digital auto shopping across the country, and we initiated our digital mortgage capabilities. In addition, we continued to drive our P2P payment product, Zelle, throughout our franchise. Paul will take you through the slides that focus on these items and the statistics around this growth, but it's important to realize the emerging growth that these items represent.

In addition to that, we continued to build on years of our retail transformation investments. This quarter, we highlighted over the next four years we'll open 500 new centers and redesign more than 1,500 centers, completing the task that we've been after for many years. This requires 5,000 new client-facing professionals, opening 600 Merrill Lynch offices, and expanding the financial center footprint. We're expanding those in markets where we traditionally have had commercial and wealth management businesses, and now we'll have a full franchise.

As you think about people, our investments, and our teammates, year over year, we've added 1,500 primary relationship teammates. At the same time, we've reduced our overall headcount by 2,600, or a little over 1% of headcount. We also shared the success of our company from tax reform with all our teammates through bonuses and share grants, and 90%-plus of our teammates have received benefits. We continue to invest our industry-leading aspects with our teammates, including our minimum starting wage, our extended bereavement and parental leave policies, and many other items. In summary, this was a record quarter, and we did it by driving responsible growth. With that, let me turn it over to Paul to take you through more details. Paul?

Paul M. Donofrio -- Chief Financial Officer

Thanks, Brian. Good morning, everyone. I'm going to start on Slide 4. Bank of America reported net income of $6.9 billion or $0.62 per diluted share. Net income was up 30% year over year. EPS was up 38%. Growth in earnings was driven by not only tax reform, but also operating leverage and continued strong asset quality, which is easily seen in our $8.4 billion pre-tax income, which was up 15% year over year.

Revenue was $23.1 billion, improving 4% year over year, driven by NII improvement. Expenses fell 1%, creating operating leverage of 5%. Provision expense was $834 million, virtually the same number as last year. With respect to returns, return on common shareholder equity grew to 10.8%. Return on tangible common equity, which tended to be more widely followed by BAC investors, grew to 15.3%. Return on assets was 1.2%. On an FTE basis, the efficiency ratio improved to just below 60%.

All of these metrics showed strong improvement from 2017. The effective tax rate for the quarter was 18%, reflecting the roughly 900 basis points of ongoing benefits resulting from tax reform. Note that Q1 included a tax benefit of approximately $200 million from deductions for share-based awards delivered during the quarter. If one adjusts for this, the effective tax rate would have been a little more than 20%, in line with expectations on a full-year basis. Before moving on, I would also note that the quarter included a few accounting rule changes, as well as reporting changes. None of these were material, and they are described more fully in our appendix of our press release and earnings deck.

Turning to the balance sheet on Slide 5, overall, compared to the end of Q4, end-of-period assets of $2.3 trillion increased $47 billion, driven by growth to support Global Markets clients as well as higher cash balances from strong deposit growth. We expect a portion of the cash build to reverse as customers pay taxes in Q2. Loans on a period-end basis declined $2.7 billion as consumers began paying down credit card balances following a period of strong holiday spend in Q4. We also moved roughly $2 billion of consumer loans to held for sale.

On the funding side, we grew deposits $19 billion from Q4 and we added market-based funding and support of asset growth in Global Markets. Long-term debt increased $4.9 billion from year-end as we took advantage of attractive spreads ahead of 2Q maturities. Liquidity remained strong, with average global liquidity sources of $522 billion and a liquidity coverage ratio of 124%.

Equity decreased a little more than $900 million from Q4. Common equity declined $3.3 billion while preferred equity increased $2.3 billion from a late-period issuance. The preferred issuance replaces redemptions that will be completed in Q2. The decline in common equity from Q4 was driven by negative OCI, common dividends, and share buybacks, which -- in total -- exceeded the $6.9 billion of earnings. The OCI decrease was driven by a $4 billion after-tax decline in the recorded value of our AFS securities given the increase and long-end rates in Q1.

Share repurchases and common dividends in the quarter were $6.1 billion. In Q1, we repurchased 153 million shares and issued 41 million shares under our employee incentive programs. From a book value per share perspective, the decline in common equity was mostly offset by our declining share count, resulting in a tangible book value per share of $16.84, down modestly from Q4.

As we turn to regulatory metrics, let me remind you we are now through the transition period on CET1 and reporting on a fully phased-in basis. Our CET1 ratios remained well above our 9.5% requirement but did decline in the quarter given the reduction in common equity I just reviewed. In essence, we returned most of our net income through capital distributions, so the equity reduction roughly equaled the OCI loss on AFS securities.

Focusing on risk-weighted assets and compared to Q4, RWA under Advanced was stable. Under Standardized, it increased $9 billion. Global Market activity drove the increase under both approaches, but the increase was offset under Advanced by declines in consumer credit and continued roll-off of legacy mortgages. Looking at CET1 ratios, under Advanced, it declined 24 basis points to 11.3%; under Standardized ratio, it declined 33 basis points to 11.4%. The ratios are within 4 basis points of each other, as there is now only $6 billion of RWA separating the two approaches. The supplemental leverage ratio declined modestly from balance sheet growth but continued to well exceed regulatory minimums.

Turning to Slide 6, on an average basis, total loans increased to $932 billion. Note that the Q2 '17 sale of U.K. Card and the Q4 '17 sale of remaining small positions of student loans and manufactured housing loans impacted the year-over-year comparisons by a little more than $10 billion. Adjusting for these sales, which were recorded in All Other, average loans were up $28 billion or 3% year over year. Loan growth continued to be dampened by the run-off of non-core loans. On the other hand, loans in our business segments were up $45 billion or 5.5% year over year.

Consumer Banking grew 8%, led by mortgages and credit cards. Wealth management's strong growth of 7% was driven by mortgages and structured lending. Originations of new home equity loans continued to be outpaced by paydowns. Global banking loans and leases were up 3%. Loan growth remains solid, but with admittedly slow year-over-year growth than previous quarters.

Switching to average deposits and looking at the bottom right, growth was $41 billion or 3% year over year. Consumer banking once again led with growth of $39 billion or 6% year over year. Average deposits declined in wealth management. This year-over-year decline mostly occurred from Q1 '17 to Q2 '17. Since then, deposit levels in wealth management have been stable. Global banking deposits increased $19 billion or 6% as we grew client balances domestically across all sectors of commercial clients and internationally with corporate clients.

Turning to asset quality on Slide 7, total net charge-offs were $911 million or 40 basis points of average loans. As Brian mentioned, aside from the Q4 single-name commercial loss, our net charge-offs and resulting loss ratio have been quite consistent. Provision expense of $834 million in Q1 included a $77 million net reserve release. This reflects our focus on responsible growth as well as an improving economy. The net reserve release reflects continued improvement in our legacy commercial real estate and energy portfolios, with a modest build for continued credit card seasoning. Our reserve coverage remained strong, with an allowance-to-loan ratio of 1.1% and a coverage level 2.8 times our annual net charge-offs for the quarter.

On Slide 8, we break out credit quality metrics for both our consumer and commercial portfolios with respect to consumer net charge-offs of $830 million, or up $61 million from Q4. The primary driver of the increase is the seasoning of the consumer credit card portfolios as net charge-off ratio increased to 3%. Consumer NPLs of $4.9 billion declined from Q4 and 45% of our consumer NPLs remain current on their payments. Commercial losses continued to bounce along the bottom, declining from Q4 and on a year-over-year basis. Finally, reservable criticized exposure was down nearly $200 million from Q4.

Turning to Slide 9, net interest income on a GAAP non-FTE basis was $11.61 billion, $11.71 billion on an FTE basis. Year-over-year GAP NII is up $550 million or 5%, reflecting the benefits of both higher interest rates as well as loan and deposit growth. Partially offsetting this growth was the absence of NII resulting from 2Q 2017's sale of the U.K. consumer credit card business and higher funding costs for Global Markets.

Focusing on net interest yield, it is flat year over year as the benefits of broad improvement in asset yield versus funding cost was offset by two notable factors: First, the Q2 '17 of higher-yielding U.K. card portfolio, and second, the impact from the lower-yielding Global Markets assets. Together, these two factors lowered net assist yield by 12 basis points year over year. Compared to Q4 '17, NII on a GAAP basis improved $146 million as the net benefits of higher interest rates across the curve offset two less-interest-accrual days. NII on an FTE basis and a comparison to prior periods was further impacted by tax reform, which lowered NII on an FTE basis by roughly $100 million.

With respect to deposit pricing, overall interest-bearing deposit rate paid in Q1 rose 4 basis points from Q4 '17 and 21 basis points year over year. That compares to Fed funds, which is up 75 basis points over the past 12 months. In the most recent quarter, we increased rates on certain wealth management deposits to keep pace with market-based alternatives. With respect to commercial clients, we continued to selectively raise pricing. Pricing on retail interest-bearing deposits was unchanged.

Turning to asset sensitivity, as of 3/31, an instantaneous 100-basis-point parallel increasing rate is estimated to increase NII by $3 billion over the subsequent 12 months. This is modestly lower than 12/31 sensitivity, driven by the increase in long-end rates, which decreased prepayments and increased NII. The short-end sensitivity was largely unchanged from year-end and now represents about 75% of the sensitivity.

Turning to Slide 10, we had another solid quarter of expense management, extending our record of year-over-year quality declines in expense to 13 out of the last 14 quarters. Non-interest expense of $13.9 billion this quarter was down $196 million or 1.4% year over year. Improvement in non-personnel costs drove the year-over-year decline. Personnel costs were relatively flat year over year despite increasing salaries for merit and increased healthcare costs. We continue to reduce non-client-facing roles while increasing client-facing roles, such as relationship bankers and consumer business banking and commercial, as well as financial advisors and wealth management.

As we signaled on our 4Q call, expenses increased compared to Q4 '17. The increase of $622 million was driven by seasonal elevation of payroll tax expense and higher incentives associated with revenue, mostly in Global Markets, but also in wealth management. Modestly offsetting these increases were operational cost reductions. This quarter marks the first quarter we have reported an efficiency ratio below 60% on an FTE basis.

Turning to the business segments and starting with Consumer on Slide 11, another very strong quarter for this business as the value of deposits, growth of both loans and deposits, as well as the investments we have made in people and our ability to better connect with customers continued to improve financial results. Consumer Banking's earnings increased to $2.7 billion in Q1, returning 30% unallocated capital. Given tax reform, a review of pre-tax growth is more relevant, and on this basis, profits grew 19% year over year. By the way, this is the 11th straight quarter were Consumer Banking's earnings rose on a year-over-year basis.

Consumer Banking created over 700 basis points of operating leverage in Q1 as revenue growth of 9% outpaced expense growth of 2%. The efficiency ratio fell below 50%. Value of our deposits as rates rose, along with growth and client balances, drove the 9% year-over-year improvement in revenue. Year-over-year averaged loans grew 8%, average deposits grew 6%, and Merrill Edge brokerage assets grew 18%. Cost of deposits, which reflects noninterest expense as a percent of average deposits, remained steady at 161 basis points. Rates paid remained very low at just less than 5 basis points.

Year-over-year net charge-offs increased $105 million as we continue to experience modest and expected phasing of our credit card portfolio along with loan growth. The net charge-off ratio remained low at 1.27% and is up only 6 basis points year over year. Provision expense increased $97 million year over year.

Okay, turning to Slide 12 and key trends, looking first at revenue. Driven by NII growth, revenue grew 9% year over year, reflecting the value of our deposits and our relationships with customers, which continue to deepen as we expand capabilities. Spending on debit and credit cards was up 9% year over year. That's up from 5% growth in Q1 '17, indicating relationship deepening and consumer confidence have continued to improve. This increased spending was enough to drive a small increase in card income despite the headwinds from increased customer rewards. Service charges were down modestly as a result of the full-quarter impact of the elimination of certain overdraft fees late in Q4.

Focusing on client balances, on the bottom of the page, you can see the success -- we continue to have growing deposits, loans, and brokerage assets. It's worth noting Merrill Edge assets have grown to $182 billion, up 18% year over year. Client flows here marked a new record this quarter, up 36% from the previous record. Merrill Edge offers customers a lot of value, and it's a great way for us to deepen relationships.

Whether it is access to one of our 4,000 licensed advisors and to world-leading research platforms or how we integrate Merrill Edge into other banking needs, we think customers are noticing and giving us more of their investment dollars. Also noteworthy is card balances, which grew 5% year over year. Our focus remains on prime and super-prime borrowers, which average book FICO scores of 770. Expenses were up 2% year over year as investment in renovating branches and technology initiatives modestly outpaced continued optimization and savings from digitalization. And, we continued to make progress on our announced investments in new and renovated financial centers, including entry into new markets.

Slide 13 shows the progress in digital banking. We had some significant events this quarter. First, we introduced Erica, our digital banking assistant, to customers. While it's too early to judge the usage, this is an exciting deployment which offers the customers the use of cognitive A.I. learning to help them better live their financial lives. We also rolled out digital auto shopping more fully across the U.S. In Q1, 67,000 customers utilized our auto shopping app, which was twice as many as Q4. Overall, auto loans sourced digitally accounted for 50% of all auto loans originated directly with our customers. We also rolled out our digital mortgage experience, accelerating and simplifying mortgage applications through benefits like prefilling customer data, digital loading of supporting documents, and utilizing DocuSign.

Turning to some of the digital trends on the slide, as you can see, year-over-year growth in all these metrics continues to be impressive as we remain a leader in digital banking. We now have more than 35 million digital users, including 25 million accessing their accounts through mobile devices. This quarter, customers logged in to the Bank of America mobile banking app 1.4 billion times to either transact or shop with us. Digital payments grew to $365 billion this quarter, well surpassing 50% of total payments of $682 billion, which were up 10% year over year. P2P payments, while a small percentage of overall payments, continued to increase, with $9 billion of payments processed in Q1.

Also noteworthy is the volume of mobile deposit transactions, which now represent 24% of all deposit transactions. This is equal to volume of more than 1,200 financial centers. Appointments made through digital devices to meet with a professional in one of our financial centers also continues to grow, reaching nearly 35,000 a week. This allows us to not only better understand and prepare for customer needs, but also to better manage our professional staffing within our busy financial centers. Sales on digital devices now account for 26% of all sales.

Turning to record results in our Global Wealth and Investment Management business on Slide 14, strong client activity, a market which was up year over year, higher rates, and solid expense management pushed GWIM's earnings this quarter to over $1 billion for the first time ever. Pretax earnings grew 12% and pre-tax margins increased to 29%. Strong AUM flows over the past 12 months and a tailwind with respect to market appreciation once again drove strong asset management fees, offsetting modest pricing pressure.

At the same time, brokerage revenue continued to face headwinds as volume declined and mix shifted. All in, revenue grew 6% year over year, with 17% growth in asset management fees and modest NII improvement, partially offset by lower brokerage revenue. Revenue growth coupled with careful expense management drove 3% operating leverage. Year-over-year expenses were up 3%, driven by revenue-related expenses as well as investments in primary sales professionals. While we were pleased with revenue this quarter, I would note that the market levels at fee pricing points were quite healthy this quarter and have since retreated.

Moving to Slide 15, we continued to see strong overall client engagement in Merrill Lynch and U.S. Trust. Our local market strategy, led by 93 market presidents, is helping to better integrate our lines of business and deepen relationships, especially in wealth management. We have also seen Merrill Lynch advisors react positively to growth initiatives in this business, including the 2018 compensation program, which incentivizes household and other types of responsible, organic growth. Total organic household acquisition for the quarter was the highest we've experienced in quite some time -- five years at least.

Q1 was also our strongest start of a year since the merger with Merrill in terms of total net new money. In fact, we saw positive brokerage flows for the first time in a couple years all while experiencing record low competitive advisor attrition. Year-over-year client balances rose $140 billion or 5% to $2.7 trillion, driven by higher market values, solid AUM flows, and continued loan growths. Average loans of $159 billion grew 7% year over year and the growth remained concentrated in consumer real estate as well as structured lending.

Turning to Slide 16, Global Banking earned just over $2 billion, generating a 20% return on allocated capital. With solid expense controls, this business remains the efficiency leader of the company at 44%. On a pre-tax basis, earnings declined 2% year over year, driven by lower investment banking fees and revenue impacts on an FTE basis of tax reform with respect to tax-advantaged assets. Absent the impact of tax reform, the business would have created modest operating leverage.

With respect to revenue, IB fees were down, in line with a reduction in the industry's IB fee pool, reflecting the tough comparison against a strong Q1 '17. IB fees of $1.35 billion for the overall company declined 15% year over year. Expenses reflect operational savings, mostly offset in our investment in additional client-facing professionals to enhance local market coverage. Global Banking grew loans 3% year over year to a record $352 billion. As I said last quarter, optimism among clients remains high, so we continue to expect loan demand to pick up.

Looking at trends on Slide 17, in comparison to Q1 last year with respect to average loans, the 3% growth was led by international regions and domestic middle-market C&I. Within total commercial lending, average C&I rose 3% while commercial real estate increased 2%. Loan spreads were flat in Q1, continuing the trend we have seen in the past six months after early 2017 compression. Average deposits rose 19% or 6% year over year as we maintained a targeted pricing approach to acquire and retain high-quality deposits.

Switching to Global Markets on Slides 18 and 19, I will talk about results excluding DVA. Global Markets revenue was $4.7 billion and earnings increased to $1.4 billion, returning 16% unallocated capital. On a pre-tax basis, earnings were down modestly year over year, driven by lower revenue and increased expenses from continued technology investments. Up 1% year over year, sales and trading totaled $4.1 billion of the $4.7 billion in revenue. Performance in equities was strong as volatility increased. Equity sales and trading revenue at $1.5 billion reached a record of 38% year over year.

Results were driven by increased client activity and a strong trading performance in derivatives. The equity business also benefited from an increased in client financing activities. Revenue and FICC sales and trading at $2.5 billion increased 13%, driven by lower client activity and less favorable credit markets compared to a very robust prior-year quarter. This overshadowed improvement in macro products such as rates and currency. With respect to expenses, Q1 was 2% higher year over year, driven by continued investments in technology.

Okay, on Slide 20, we show All Other, which reported a net loss of $286 million, which was an improvement year over year. Revenue declined $240 million year over year, primarily due to the absence of the non-U.S. consumer credit card business sold in 2Q '17. Noninterest expense improved approximately $500 million year over year due to lower mortgage servicing costs, reduced operational costs from the sale of the [inaudible] non-U.S. consumer credit card business and lower litigation expenses. Compared to Q4 '17, remember that changes related to tax reform were booked in this reporting unit, impacting significantly quarter-over-quarter comparisons of revenue and tax expense. Okay, let me turn it back over to Brian for a couple of closing comments before we open it up for Q&A.

Brian Moynihan -- Chairman and Chief Executive Officer

Thanks, Paul. We're on Slide 21. Just a couple of thoughts to close, then we'll take your questions. Our operating environment with global economic expansion continues, and it continued in the first quarter. Corporate profits have remained healthy. Consumer and business confidence continues to be strong, and we see that in accelerated consumer spending and our customer base, as Paul talked about. The financing balances grew in a markets business as our investors invested heavily in the markets in the first quarter.

So, that's a good business environment, a solid business environment with good economic metrics, and we continue to get our fair share in that environment. We did it by driving responsible growth and the operating leverage that we talked about through all the businesses. We also provided more capital back to you, our shareholders. With that, let's open it up for questions and answers.

Questions and Answers:

Operator

At this time, if you would like to ask a question, please press *1 on your touchtone phone. We'll take our first question from John McDonald of Bernstein.

John McDonald -- Sanford C. Bernstein -- Analyst

Good morning. In terms of expenses, Paul and Brian, you're on track, clearly, to get to your target of the ballpark $53 billion for this year. I think you've said that you can also stay in that ballpark in 2019 and 2020, even with the investments and the buildouts that you're doing. Is that still the view, and how is that possible? Are you self-funding that with some saves elsewhere? If you could talk about that, it'd be helpful. Thanks.

Brian Moynihan -- Chairman and Chief Executive Officer

John, it's our view. I think what we said the last quarter is the investments we make will be funded with the hard work, and operating leverage, and simplified improve, and organizational health, and operational excellence. We announced that the investments we're making in the retail business is all contemplated within the low $53 billion level, which we ought to be able to maintain in '19 and '20. If we're going to make any further investments, they'll be modest, as we said, but right now, it looks like it's shaking out to be OK.

John McDonald -- Sanford C. Bernstein -- Analyst

Okay, great. And then, also, on the credit cards, it looks like you're getting solid card growth now with balances up 5% year over year. Is that some acceleration in new products that you've rolled out within the last year or so? Do you think that growth can continue on the credit card front? Just as an add-on, in terms of the seasoning, Paul, do you have any view of what the pace of that 3% charge-off would look like as it seasons? Thanks.

Paul M. Donofrio -- Chief Financial Officer

Sure. Let me start with the latter. So, we did have a charge-off rate of 3% this quarter. That was expected and well within tolerance. We would expect it to be around 3%. If you look at the remainder of the year, remember Q2 is usually seasonally the highest quarter in terms of credit card net charge-off. Plus, I would remind you that we have the hurricanes, which -- it's been 180 days since the suspension of those charge-offs. Probably, a little bit of that will show up in the second quarter, but we're fully reserved for that. So then, you get the rest of the year, where it's seasonally down normally, so I would expect it to stay at around 3% on average for the full remainder of the year.

In terms of growth, it's just...good blocking and tackling. We remain focused on prime and super-prime, where our customers are adding cards, using our cards more because of the reward structure. We're making it simple for them, making it easy, and I don't think there's anything different we're doing. It's just a continuation of what we've been doing in the past.

Brian Moynihan -- Chairman and Chief Executive Officer

I'd add one thing, John. People forget that we also got out of and sold a lot of business pieces in card over the years, including another one that we'll go out of in the next quarter or so. That always was hard to grow through. That's over now, by and large, so the growth that we're seeing in the underlying million-plus new cards we do every quarter and the usage by the customers and primary usage has been pretty consistent, and ought to bode well for continued growth, but it's really getting rid of the drag of -- getting rid of portfolios of the last couple years.

John McDonald -- Sanford C. Bernstein -- Analyst

Okay. Thanks, guys.

Operator

Thank you. We'll move next to Jim Mitchell of Buckingham Research. Your line is open.

Jim Mitchell -- Buckingham Research -- Analyst

Good morning. Maybe just a quick question on deposit pricing. In the retail side, you guys have kept deposit pricing quite low. Obviously, you've done a great job in focusing on small balances, transaction, and relationship-type accounts. When do you think that pressure starts to build in your business, or is it because they're transaction, you just don't think there's a lot of pressure for repricing retail deposits right now?

Paul M. Donofrio -- Chief Financial Officer

Look, Bank of America and the industry have not increased deposit pricing appreciably on traditional accounts. I think the reason for that is -- certainly in Bank of America's case -- we deliver a lot of value to depositors: Transparency, convenience, safety, global banking, online banking. We're rolling out new capabilities every day with Erica, nationwide network, rewards, advice, and counsel. That has real value to people beyond just deposit rate paid, and I think this value plus the lack of market pressure so far has allowed us to keep deposit rates relatively flat on traditional accounts. You've seen us been raising it in GWIM, you've seen us been raising it selectively in Global Banking. We're just going to have to balance -- we're going to continue to balance the needs of our customers in the competitive market environment with that of our shareholders' interest, and we'll do the right thing at the right moment.

Brian Moynihan -- Chairman and Chief Executive Officer

Just to add to that, people get focused on the rates, so as a clear statement for all in rate pay, for all our deposits, about 24 basis points -- obviously, extremely beneficial versus any other way to raise money in the markets, which are multiples of that. In fact, I think we pay three times as much for our term debt costs on a quarterly basis than all the deposits. But, people forget that comes from the value of the customer franchise, and so, if you think about the consumer business, half their deposits are checking.

The CDs have been running off and are sort of bouncing around with $2 billion to $3 billion of runoff on a year-over-year basis, so it is driven by the fact that the core transaction accounts, the balances have grown over $7,000.00 per balance of checking account in the consumer franchise, and as we add more accounts and grow in these new markets, we're getting the primary relationship in the household, which means you're getting the transaction money, which is moving at all times. And so, it's a different format. It's not a pricing strategy, it actually comes out of the fact that that's the nature of the business.

Jim Mitchell -- Buckingham Research -- Analyst

Right, and you're still getting good growth, so it's a good thing. Has the -- if you look at the short end of the curve, your rate sensitivity numbers at the short end really don't seem to have changed over the past year, despite multiple rate hikes. Is that reflective of that experience, that the types of deposits you're attracting are at a lower rate than you initially thought and you have a little bit more sensitivity at the short end even after the number of rate hikes we've seen?

Paul M. Donofrio -- Chief Financial Officer

That's right.

Brian Moynihan -- Chairman and Chief Executive Officer

That's generally right.

Jim Mitchell -- Buckingham Research -- Analyst

Great, thanks a lot.

Operator

We'll move next to Betsy Graseck of Morgan Stanley. Your line is open.

Betsy Graseck -- Morgan Stanley -- Managing Director

Hi, good morning. A couple questions, one on capital. You indicated very strong capital ratios across the board. Could you just give us a sense of post the Fed discussion and proposals on the ESLR and BSCB, how you might be able to -- if these go through as proposed -- utilize them?

Paul M. Donofrio -- Chief Financial Officer

Utilize the capital?

Betsy Graseck -- Morgan Stanley -- Managing Director

Yeah. Does it free up any incremental opportunity set for you?

Paul M. Donofrio -- Chief Financial Officer

A couple of thoughts. Obviously, it's still early. I think it's only been out a couple of days. I guess the first thing I would say -- I think we think it's constructive. Growing the balance sheet and increasing buybacks -- continuing buybacks and stress relief didn't make a lot of sense, so that kind of change is going to model reality...or better model reality, I should say. Replacing a fixed-capital conservation buffer with a buffer that's more tailored to a company's individual situation -- that seems sensible. The issue is that you've got CCAR stress scenarios that can fluctuate year over year.

So, the question is -- look at this year's scenario. It's a lot more severe. So, the question is is that going to introduce some uncertainty and force all these banks to have more of a buffer? On the specifics for us, if you use the last three years of scenarios, our stress capital buffer would be 2.5% because we'd be below the floor, and on our ongoing, forward-looking basis, we feel good about the stress depletion and the stress capital buffer because of the way we run the company.

We're focused on responsible growth, loan to consumer, prime, and super-prime. We're prudent about our trading risk. We have a low bar. We have a legacy portfolio that's running off. Having said that, though, the scenario severity will create volatility, and we don't have transparency into the Fed's models, so we're just going to have to wait and see this year's results and future results, and we're going to have to have a comment period. We're going to give our comments and find out what the final rules look like.

Betsy Graseck -- Morgan Stanley -- Managing Director

Sure. Just thinking in particular about the SLR ratio, which is quite high, is there an opportunity for you to deploy some of that under the new rule set, maybe a little bit more than peers?

Paul M. Donofrio -- Chief Financial Officer

I think that's helpful. Given the recalibration as proposed, the SLR certainly makes more sense now. It was a buying strength for lots of banks -- not for us. It was a binding constraint and was really meant to be more of a backstop, so this feels like it makes more sense. In terms of the impact on us, it's going to be most helpful at our bank entities, reducing the well-capitalized levels by about 175 basis points from 6% to 4.25%, and that's going to allow us to have more flexibility in terms of taking some of that capital that's in our banking entities and moving it up the chain so that we can support other businesses, or potentially doing more business in [inaudible] than we otherwise would have been able to do. If we move it up, obviously, it becomes free for other uses, including return it to shareholders. So, again, it's an NPR, we'll have to see how it pans out, but I think that's constructive.

Betsy Graseck -- Morgan Stanley -- Managing Director

Thanks, Paul. Brian, a follow-up on the expense question. I know you said $53 billion in expenses for 2018 and I believe flat in '19, so, one of the questions we've been getting is around the branch buildup of 500 branches that you're looking to do in new markets. Does the branch buildout -- is that a net neutral to these numbers of $53 billion or have you factored that into that expense expectation?

Brian Moynihan -- Chairman and Chief Executive Officer

Those investments are all factored in. They're flattish from here. It's over four years, obviously, to build them out. Remember that you build them and you staff them up, so it's a ratable build, so we're comfortable with the flattishness, and we'll pay for those. The question we've all asked ourselves over and over again -- if it's proving successful, can you even accelerate it faster? That comes down to practical questions of getting leases and things up and running, but if it provided a lot more pop, we might move it up, and that might cost a little bit more, but it'd be modest.

Betsy Graseck -- Morgan Stanley -- Managing Director

I know a while ago you mentioned processing costs associated with cash and checks were pretty high -- if I recall correctly, somewhere around $5 billion. With all the digital activity that you're doing now, has that materially gone down yet?

Brian Moynihan -- Chairman and Chief Executive Officer

It's going down. The 25% of deposits on mobile versus branch that Paul spoke about earlier, the P2P in Zelle getting more meaningful, the digital movement of money is half the money moved by consumers today. It's all adding positive pressure. It's not going to immediately change. It took us over the last ten years go to from 6,100 branches to 4,400 and change, or whatever we're at now. It's allowed us to increase ATMs and effectiveness at the same time, bringing the overall cost down for them. So, we're absorbing massive volume increases, too, and so, in terms of checks and money movement this year, it all means the payments in first quarter up 9% over last year, yet the costs in Consumer, as you can see, are modestly up, and efficiency ratio is right around 50% now. So, it's all good, but don't expect there to be a massive step function in a day. It really takes the change in customer behavior over time.

Betsy Graseck -- Morgan Stanley -- Managing Director

Got it. Thanks so much, Brian.

Operator

Our next question is from Mike Mayo of Wells Fargo.

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

Hi. I guess I have a good news/bad news question. The bad news for you, Brian -- the tax cut was supposed to lead to a lot of loan growth, the higher rates were supposed to lead to much higher margins, volatility was expected to lead to much higher trading -- not from your guidance, but just generally in the market. As we sit here, it's been a good meal, but where's the dessert? I guess the question there is should we expect more of a benefit from that in the future? How long will it take? The good news is even with the dessert, so to speak, you guys still had some very nice efficiency, so if you could elaborate more on the record Consumer efficiency and tie that more to the 1.4 billion quarterly hits you had in digital banking and how much of the Consumer efficiency is due to digital versus branch closures or other actions, and where do you think that could go?

Brian Moynihan -- Chairman and Chief Executive Officer

Mike, you're sort of stating the debate that's gone on. We have seen loan growth of 5% year over year in the core businesses, 3% overall. Remember, we're still running off some portfolios, believe it or not, ten years after the crisis. We showed you on that slide. So, in our view, that's solid loan growth. If you look at it with the commercial business of C&I product of 5%, the consumer lending up, it's solid loan growth. We have been growing at a decent clip. We expect that to continue. It's a 2% to 2.5% type of growth in the economy we're experiencing as we speak. The projections are higher going forward, but we've got to get there. So, I think that's there.

I think on margin expansion, if you think about it from an operating profit -- to your point, the efficiency ratio drifted below 60%, which means we're expanding our pre-tax operating profits and revenue of expense. In terms of NII, there are some sales that went on that Paul explained earlier, and the trading and equities were up 30% year over year. Again, solid, but that nominal was about $400 million compared with $500 million of NII expense, so you have to keep all these things in balance, which I think is kind of what you're saying. As we look out, we expect constructive economy, and the rest of the year, our experts have it continuing to grow with an all-in growth rate for the U.S. economy of 2.9% GDP for '18, which would be a nice pickup over last year, and you ought to expect the elements that we talked about to grow within that.

Then, with Consumer, I think the story is the same. Going to Betsy's earlier question, people look for this overnight change. It's going to be a change that's going to occur every single quarter, so, 1.4 billion mobile logins this first quarter versus 1 billion last year allow us to have 25% sales in that business, allow us to have 20% checks deposited in that business -- all that saves us efficiency. At the same time, we still have 850,000 people coming into branches every day. You need to have highly qualified, capable people servicing them, so, investing in those sales professionals. So, I think it's just going to keep going in the right direction, and all that bodes well to help us make that change with expenses basically down in the company year over year, and in Consumer, basically flattish.

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

Just one follow-up, then. So, the 1.4 billion digital banking hits per quarter -- how does that help other metrics today -- call center, personnel...? How many more branches can you close or how many people... Anything else concrete you could give us.

Brian Moynihan -- Chairman and Chief Executive Officer

Sure. Calls are down about 14% year over year, I think. Lee can give you that number. So, it all helps. Sales are up, deposits are up, so that all helps, but don't forget, this is a high-tech, high-touch system. And so, you have to be able to do both and do both well. It's just that these techniques -- whether it's the ATM capabilities, whether it's the digital devices, mobile device capabilities allow you to do more value-added tasks -- for lack of a better term -- in the branches and the stores than we used to do, which was just deposit checks and things like that. So, deposits at the branches continue to trend down and go up in mobile, but it's a trend that will continue over many years. Prices are down quarter over quarter and year over year again and again, but we're still adding new branches and investing in cities at the same time.

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

So, do you still expect branches to decline even with all those branch additions?

Brian Moynihan -- Chairman and Chief Executive Officer

It's always going to be a question of modest changes, because remember, we're adding the branches, taking them out, redoing branches, and making them bigger. So, I think the count can bounce around. If you look across the last several quarters, it's been slightly down. As we build our branches, that'll put upside to it, but you also see us consolidating branches and cities, so it's really configuration. Like any other person, we are looking at what the optimal configuration is at any given time, so we might take two or three branches and fold them together in a city because the nature of the business has changed. So, I don't ever make long-term projections of that number because of what I told you many years ago to go from 6,100 to 4,400 -- you said Bank of America was crazy, and in fact, it did that.

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

All right, thank you.

Operator

Thank you. We'll take our next question from Glenn Schorr of Evercore ISI.

Glenn Schorr -- Evercore ISI -- Managing Director

Hi, thank you. First question on trading -- FICC down 13%, got all your comments, appreciate it, but trading assets were up 17% year on year, so we can't see trading assets split between FICC and equity, so just looking for a little more color. Was the decline in FICC mostly a reduction activity in credit? Where is the increase in trading assets falling?

Paul M. Donofrio -- Chief Financial Officer

On a year-over-year basis, a lot of the increase in Global Markets was the result of client activity in equities. Quarter over quarter, it was probably more FICC, it's being driven by client demand, and it's also being driven by the opportunity we see in equities to do more with our customers and to build some scale.

Glenn Schorr -- Evercore ISI -- Managing Director

Is that prime brokerage? Is that derivatives? Is that all of the above?

Paul M. Donofrio -- Chief Financial Officer

It's prime brokerage and derivatives, exactly, but I would put prime brokerage first.

Glenn Schorr -- Evercore ISI -- Managing Director

Okay, that's good. And then, just one other question. I think in the past, a flatter yield curve was a predictor of a slowdown in -- or, credit issue was a slowdown in the economy, or maybe even a recession, but the curve is pretty darn flat right now, but the economy is great. So, curious from your vantage point what it means to your balance sheet, how you're positioned business-wise and balance-sheet-wise, and how much we should be concerned about the flatter curve.

Paul M. Donofrio -- Chief Financial Officer

Look, we are positioning our balance sheet to service our customers. Obviously, we look carefully at balancing capital, liquidity, and earnings when we do that, but the primary motivation is serving our customers. The flatter yield curve -- it would be better if it was a little bit steeper. The improvement on NII comes from the short end. We are in a situation today where securities rolling off the balance sheet are being replaced with securities at higher yields, so that's good.

You saw some impact on OCI this quarter because rates rose, so we have to be watchful of that, but again, it's not like we're out there doing derivatives or doing other things to manufacture a certain type of balance sheet. We basically have a balance sheet that services our customers' needs. It grows when there's more activity from them. We have to make sure we have enough liquidity and enough capital to run the company in good times and in bad, and I think we're doing all those things.

Glenn Schorr -- Evercore ISI -- Managing Director

Super helpful answer. Thanks so much.

Operator

We'll move next to Ken Usdin of Jefferies. Your line is open.

Ken Usdin -- Jefferies and Co. -- Managing Director

Thanks. Good morning. I was wondering if you could talk a little bit about the structure of the balance sheet. I notice that you did have a lot of this cash come in, a lot of balances in lower-yielding parts of the balance sheet, and you also had a smaller securities portfolio, both in period and average. Can you talk about how much of that was just episodic, or if it was a purposeful change given the movement of the yield curve, and how you might think about that mix of the lower-yielding assets and mix going forward? Thanks.

Paul M. Donofrio -- Chief Financial Officer

Sure. A couple of things in there. Remind me if I don't get all of them, but first of all, in the securities portfolio, there's no change in how we're managing the securities portfolio. The reduction you're seeing is just a function of long-term rates going up and the effect on the available securities in terms of decline in their value that flows through OCI and hits equity. In terms of -- we discussed the impact on the company's net interest margin or net interest yield, whatever you prefer. That is being affected by 1). The fact that U.K. Card we sold in the second quarter, but 2). We're growing Global Markets assets.

We just talked about the fact that we've been growing them on a multi-quarter basis now in equities. When you grow the balance sheet in equities, you create interest expense, you don't create interest income. That benefit shows up in the trading link, but this quarter, with any volatility, we had a 38% increase in our fees and equities. In terms of the cash you're seeing on the balance sheet, yes, we had the positive growth, we saw some cash buildup -- with that cash buildup, a lot of it is for people who want to pay their taxes, so a portion of that cash buildup is going to run out in the second quarter. Did I hit all your questions, or was there something else?

Ken Usdin -- Jefferies and Co. -- Managing Director

No, that's exactly it. Obviously, you had a huge balance sheet growth, but the NIM was flat, and it was largely just because of this mix, so I'm just wondering how much of that mix might naturally revert back out. You don't see as much balance sheet growth, but you see the NIM start to move through.

Paul M. Donofrio -- Chief Financial Officer

Well, the U.K. Card thing will roll off, obviously. We're still going to grow our balance sheet, and markets will grow if the client demand is there. What we're always looking at is to make sure we're getting the right returns. We feel good about the investment we're making there. You can see that when some volatility happened, we got the return we were expecting. Also, that balance sheet growth in Markets -- a lot of it is very low-RWA. You saw the RWA come down under the Advanced approach this quarter even though we've been growing the balance sheet in Markets. So, it's an investment, we're watching it, we think we're getting the right returns, and the bottom line is NII is up $550 million year over year.

Ken Usdin -- Jefferies and Co. -- Managing Director

That's exactly the point. Great. And then, if I could follow up on the commercial lending front, you guys would also seem to be among the best-positioned to see the small business middle-market commercial uptick. Could you just talk about end demand, and the tone you're hearing, and how you -- when and if we're going to see that translation into balance? I heard your intro comment said things are good underneath, but if you can flavor it by the product segment, that'd be great. Thanks.

Paul M. Donofrio -- Chief Financial Officer

Sure. Look, we are optimistic about loan growth. We've been seeing mid-single-digit loan growth in our business segments, we've been seeing C&I growth 4% or 5% every quarter. As you know, we're more cautious in CRE, so the fact that we're able to grow loans and Global Banking by as much as we have even though we've been more cautious with CRE is another indication of the strength of our platform, it's another indication of the value of these new bankers we're adding in local markets.

We had repatriation. I think some of the dollars did go to pay down some loans. I think we saw that in large corporates; we may have seen a little bit of it in middle-market. I hate to say it, but anecdotally, if you look at the average balances in middle-market and you compare them to quarter-end balances, we clearly saw a little bit of an increase at the end of the quarter. So, we feel very good. We're optimistic.

Ken Usdin -- Jefferies and Co. -- Managing Director

Thanks a lot, Paul.

Operator

We'll move next to Gerard Cassidy of RBC. Your line is open.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, Brian. Can you give us some color -- your Consumer Banking digital trends are obviously very strong. Can you tell us what advantage that is giving you over the smaller banks? Second, there's a lot of talk about non-banks maybe coming into this area, the classic Amazon effect. Can you give us some of your thoughts about that as well?

Brian Moynihan -- Chairman and Chief Executive Officer

Just on the broader question, our job with management and the team is to be the best there is at digital banking, mobile banking, et cetera across all the platforms. And so, we have been investing heavily for many years. This mobile platform just didn't arrive in the online platform. This is $1 billion of investments across the last six years or something like that to get there in terms of building it out. So, no matter who comes in, our job is to be more competent and more capable than anybody, whether they're our competitors in the traditional industry or new competitors, and that's why we continue to upgrade the capabilities and driving it.

Think about what we've done. Erica is a voice-activated artificial intelligence agent, and you can go in and say, "Send Brian $5.00," and it'll come to Brian, so we can go do that if we want. It's pretty simple. It allows people to find balances and do things by talking to the computer. It will improve across time, and we had 40,000 teammates working on it, but it's an exciting thing. Its payback will be over the next decade, but its competitive advantage is high. If you take Zelle, we've processed almost 29 million transactions in our first quarter. That's up over 100%, but importantly, it's up dramatically even from last quarter, so you're seeing that go on.

Digital sales are at 26%. These numbers are hard to get comparisons on, but we think in the banking industry, it's generally sub-10%. We think all retail -- including Amazon and the non-banking space -- is maybe in the mid-teens as a percentage of sales, maybe high teens, but we're at 26% today, and things like our auto program -- we've got multiples of applications with this new application just rolled out to 2,000 dealers. You can see 2,000 dealers' car inventory on our site and go buy and qualify for loans at the same time.

So, all these things -- we're getting tens of thousands of appointments per week for people setting an appointment on a digital to come in, which allows us to staff more appropriately. The point is that these are tremendous capabilities with major investments that will pay off not only to date, but over time, and I think it's good against all comers -- large, small, traditional competitors, and anybody outside the industry. Our job is to continue to invest to do it. When you put that all together, we've grown the customer base, we've grown what they do with us. The customer satisfaction scores are at all-time highs both in the branch and non-branch.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you. As a follow-up, Paul, you talked a little bit about the commercial real estate loan portfolio growing. You're more cautious. Some of the banks that have reported results have indicated that some of the underwriting in commercial real estate is getting too aggressive. Can you give us more color? Are you seeing that as well, and how are you being more cautious in your underwriting?

Paul M. Donofrio -- Chief Financial Officer

We have been more cautious for many quarters now. We've been talking about this for over a year. We've just made -- we've stuck to our client selection, which are the higher-quality players in the industry, and we've stuck to structures that we thought made sense, like multifamily and other structures. We're getting a little bit to a place where we are not comfortable. We've been growing, but it's just been a different level of growth relative to many of our competitors, but again, it's not something we've done this quarter, it's something that we have been focused on and cautious about for many quarters now. So, we feel pretty good about where we are in commercial real estate, and by the way, we're seeing -- again, this is more anecdotal, but as others are getting nervous, we're seeing business come our way at prices and structures that we like.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Thank you.

Operator

We'll move next to Matt O'Connor of Deutsche Bank. Your line is open.

Matt O'Connor -- Deutsche Bank -- Managing Director

Good morning. Just a follow-up on the NIM. You mentioned the drag on a year-over-year basis from the card sale and the market's impact was 12 basis points. I don't know if I missed what the QQ swing was from the markets.

Paul M. Donofrio -- Chief Financial Officer

You mean the quarter-over-quarter 4Q to Q1?

Matt O'Connor -- Deutsche Bank -- Managing Director

Exactly.

Paul M. Donofrio -- Chief Financial Officer

It's impacted by the growth in global markets, but it's also impacted quarter over quarter by the change in corporate tax rate on an FTE basis. You've got to factor that in as well. It's a couple basis points.

Matt O'Connor -- Deutsche Bank -- Managing Director

Combined, the $100 million lower TEA and the market's impact is a couple basis points?

Paul M. Donofrio -- Chief Financial Officer

I think that's right. I'll get back to you.

Matt O'Connor -- Deutsche Bank -- Managing Director

Okay. Separately, deposits overall continue to grow, but we saw some decline in the non-interest-bearing bucket, and I think versus 4Q, there's some seasonality, but obviously, it was also down year over year. I'm just wondering what your thoughts are in terms of how much further pressure there might be in that category and which business segment -- it's not on the Consumer side, it sounds like, but which business segment that's coming from.

Paul M. Donofrio -- Chief Financial Officer

It's coming from the Global Banking side. We expected to see rotation between non-IB and IB in Global Banking. We're still growing deposits there, wealth up 6% year over year. The growth is across large corporates and middle-markets. International is also growing well. But, we are seeing a mix shift there over the last couple quarters.

Matt O'Connor -- Deutsche Bank -- Managing Director

Okay. Is that factored in -- the rate sensitivity that you disclosed -- for the erosion there?

Paul M. Donofrio -- Chief Financial Officer

Yes, it is.

Matt O'Connor -- Deutsche Bank -- Managing Director

Okay, thank you.

Operator

Our next question is from Marty Mosby of Vining Sparks.

Marty Mosby -- Vining Sparks -- Director

Thanks. Two questions. First, Paul, since you're getting the mark-to-market in your equity already, is there some thought that periodically, you'll go in and refresh the yields to get the benefit and the income statement while you're already taking the hit on the equity side?

Paul M. Donofrio -- Chief Financial Officer

No, we're just going to follow normal GAAP accounting. The one thing I will say about that, by the way -- it's interesting... If you look at our balance sheet -- over $2 trillion -- you've got a portion of it -- the AFS securities portfolio, which is $230 billion, which is mark-to-market and close to OCI, but basically, nothing else does. So, the value of our deposits, the value of the debt that we -- the money we raise, that we borrow -- that doesn't change in value. So, it's just an accounting construct that all banks have to deal with.

Marty Mosby -- Vining Sparks -- Director

I understand that. Maybe I didn't do the question right. I'm thinking you can take actions -- because you're forced to already recognize the loss in the AFS portfolio, you might as well go ahead, restructure, be able to buy new bonds, even bonds of the same duration, because you can generally add -- I just did the math -- somewhere between $0.15 and $0.20 just by going in and rounding up the yields when you're already taking the hit on the equity side.

Paul M. Donofrio -- Chief Financial Officer

Look, we are...the way our securities portfolio works is we grow deposits, and we try to put all that deposit growth to work in customer assets within our client and risk framework, and if we don't have enough demand there, it goes in the securities portfolio. We're buying securities that we think make sense to balance liquidity, earnings, and capital of the company in all sorts of market environments.

Brian Moynihan -- Chairman and Chief Executive Officer

Marty, just to be simple, we're not going to take losses in the current period to hit equity and reposition the portfolio. It'll run off over time, and it's all in the PFE -- it's straight sensitivity numbers Paul gave you, and about tens of billions of dollars come through each quarter that we have to put back to work, and it ratchets up at a higher-rate environment, so don't expect us to do anything.

Marty Mosby -- Vining Sparks -- Director

Okay. And then, Brian, the second question I really wanted to focus on was you've eliminated the tracking-a-mortgage banking as even a line item on the income statement for fees. I'm interested in that particular business. You've gone from buying Countrywide, which was supposed to be a major strategic move for the company -- we all know what happened there, not by any of y'all's fault; you've done a great job of working through that. But, thinking strategically, from where you've come from to it not being a business segment, and now it's actually limited in the sense of what you're looking at from a line item on the fee income statement. So, strategically, think about that shift and what that means going forward.

Brian Moynihan -- Chairman and Chief Executive Officer

Well, what it doesn't mean is that we're not delivering mortgage loans for our customers and home equity loans. We did more than $9 billion of mortgage loans, more than $3 billion of home equity loans, and we'll continue to do that. The issue is when you're putting them on your balance sheet, there's no gain on sale. When the mortgage servicing portfolio is running down to be a core business, the amount of fees there is not as high, the MSR is down to a few billion dollars and running off, so it's just immaterial. That's the problem. But, it's immaterial for financial reporting and the context of $23 billion in revenue a quarter, but it's not immaterial in the minds of our Consumer customers and our Wealth Management customers, and there, you can see that we continue to drive our mortgage capabilities through it, including introducing a digital mortgage product this quarter that I think is going to be the best in the industry.

Paul M. Donofrio -- Chief Financial Officer

Remember, Marty, we are focused on revenue. We're not focused on the fee line or the NIM lines exclusively. We're focused on revenue. So, we're making loans to our customers, and we're making them at prime and super-prime, so why shouldn't we keep them on our balance sheet as opposed to selling them to an agency and having to pay insurance that is overpriced for the amount of risk we're taking? So, we feel really good about the strategy because it increases revenue over time.

Marty Mosby -- Vining Sparks -- Director

I feel like you're making the right transitions here. It's just interesting to see how far the industry has come from a transaction business to a balance-sheet-driven business. There has been a dramatic shift, and you all participated and led that as we've gone through it. Thanks.

Brian Moynihan -- Chairman and Chief Executive Officer

Remember, here, it's a customer business. It's not a transaction business, it's not a balance-sheet business, it's a customer business, and that's how we've been driving.

Operator

Our next question is from Brian Kleinhanzl of KBW.

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Good morning. I just had a quick question on the commercial. You said you were able to grow C&I around 4% to 5%. Is there any way to break that down between overall growth among existing customers versus what you're getting from entrance into new markets? Trying to get a sense of how much further you could go just by entering new markets. You could continue to push C&I growth more.

Paul M. Donofrio -- Chief Financial Officer

We can follow up with you on that. I'm not sure I have those numbers with me, but it's our customers, obviously, but we have been -- we've added hundreds of bankers in business banking and commercial banking, we've added in local markets all around the U.S. where we feel like there are opportunities, and that's clearly contributing to the growth. Some of that C&I growth is in wealth management, where we've seen nice growth as well, and we have a lot of FAs out there talking to clients, and again, we're concentrating our bankers, our new branches in those markets where we have those bankers and wealth advisors so that we can deliver in those local markets. I think you're seeing the benefit of that in loan growth generally, but certainly in C&I.

Brian Moynihan -- Chairman and Chief Executive Officer

Brian, one thing I'd say is we have done a good job in the small business segment and the business banking, which is $50-million-and-under-revenue companies for business banking and $5-million-and-under for small business. I think in small business this quarter, year over year, we had a 9% growth in loan balances, and in business banking, we probably had mid-single digits. That shows you the breadth of the franchise, albeit the total of those two portfolios is probably $50 billion or $60 billion in total, so you've got to be careful when you put it against the $400 billion in total commercial balances. But, if you think about it as an economic indicator, the growth and our company's success in that shows that those mainstream SME-type companies are out there borrowing more and doing more, and we expect that to continue to be good for the economy going forward.

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Thanks. As a separate question, you did mention that you saw the brokerage balances tick up this quarter. Was that something that you had done internally to try to manage those balances higher? Was it just customer engagement that hadn't been there for a while? Is this a trend? Can you elaborate further on that?

Paul M. Donofrio -- Chief Financial Officer

We were talking about brokerage assets in wealth management.

Brian Moynihan -- Chairman and Chief Executive Officer

Institutional wealth management, Brian.

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Correct.

Brian Moynihan -- Chairman and Chief Executive Officer

Is it institutional brokerage assets or wealth management brokerage assets?

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Wealth management brokerage assets.

Paul M. Donofrio -- Chief Financial Officer

The balances have been declining for many quarters as people shifted to AUM, and this was the first time in two years that balances were actually up. Remember, balances go up because the market goes up, balances go up because of flows, and the combination of those two things -- for the first time in many quarters -- saw an increase.

Brian Moynihan -- Chairman and Chief Executive Officer

Again, similar to the small-business/business banking relative to the commercial, underneath, the Merrill Edge piece -- which is geared at the mass-affluent market segment -- had record flows and is growing 18% or 20% year over year. Again, that's $175 billion or $200 billion in total balances, but it's growing nicely, and as it gets bigger, it's starting to actually have a contribution to the total out, whereas in the past, the Merrill Lynch/U.S. Trust dwarfed it. So, you're seeing that kick in and help us out on what you'd call "brokerage balances."

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Okay, thanks.

Operator

Thank you. We'll move next to Richard Bove of Hilton Capital.

Richard X. Bove -- Hilton Capital -- Chief Strategist

Morning. I just want to go back to the balance sheet issue. The company hasn't grown its common equity for roughly two years now, and it earned $7 billion in the current quarter, and nothing fell down to common equity. I'm just wondering -- when does the inability or the unwillingness to grow common equity have an impact on the secular growth rate of the business?

Paul M. Donofrio -- Chief Financial Officer

Well, common equity didn't grow on the linked quarter. A lot of it had to do with that the OCI came and took a chunk of it away, and we returned capital. But, let's flip to the other side of it: The balance sheet grew, loans grew, deposits grew, so we're overcapitalized, so we don't need to grow the notional amount to support the businesses. That's what we're driving at. And then, inside our loan balances, we still have $70 billion or $80 billion of runoff loans, which give us tremendous capacity. They're going to run off over the next several years and we'll fill that back up with loans that we want, so there's no inability to serve our customers and our clients implied by the equity being flat.

Brian Moynihan -- Chairman and Chief Executive Officer

With 11.1% CTE1 ratio intact relative to a 9.5% minimum, we have plenty of cushion, plenty of equity to be able to grow with our customers.

Richard X. Bove -- Hilton Capital -- Chief Strategist

I think you've done an unbelievably good job -- a phenomenal job, I would argue -- in terms of turning this company around, but I'm just wondering because I'm going back two years, not just looking at one quarter, and I'm seeing that common equity just doesn't grow. At some point, given the fact that assets do grow, that market capitalization does grow, common equity is going to have to grow, and I don't know when that is.

But, the second question is we've seen -- again, looking longer-term, going back to the fourth quarter of 2015 -- something like a 165-basis-point increase in the overnight rate, and the net interest margin of the bank is up 25 basis points. The Fed funds rate is up something like 80 basis points in the last year, and the net interest margin is unchanged. Now, I know there's a lot of dynamics, mix of business, the whole yield curve shape of the balance sheet, et cetera, but when does the net interest margin of this bank start to reflect the changes in overall interest rates in the economy?

Paul M. Donofrio -- Chief Financial Officer

You're talking about the 239 -- when does it go up?

Richard X. Bove -- Hilton Capital -- Chief Strategist

Yeah.

Paul M. Donofrio -- Chief Financial Officer

Well, we told you that versus last year first quarter, it had been up 12 basis points, but we sold a portfolio of higher-yielding cards. That's pretty much out of the system. So, all during that time, you've got to think about the dynamic of the loans that ran off that were more risky, and the charge-offs. So, take credit card just across that time, you'll see that the risk-adjusted margin on a percent basis has been strong, and obviously, charge-offs have continued to work their way down, but the NIM of the company doesn't change a lot because we ran off a lot of cards we didn't want over the years that were causing a lot of charge-offs.

So, I think you've got right -- it's mix, it's all that stuff, but the key is on the deposit side, can we keep the pricing and mix of deposits? We've done that. On the yield that, because we have that capacity we just talked about, a lot of this stuff has mortgage loans and securities, which doesn't help on the yield side, but will help our rates drive.

Richard X. Bove -- Hilton Capital -- Chief Strategist

Okay. Thank you very much.

Operator

Our final question comes from Nancy Bush of NAB Research.

Nancy Bush -- NAB Research -- Owner

Good morning, gentlemen. Paul, back to this question on tangible book value, you guys -- Brian, after the crisis, I recall vividly you were saying you were going to focus on tangible book value as an indication of the growth of the company, and we've been used to -- not just for you, but for everybody else in the industry, seeing TBV going up quarter after quarter, and now, that's beginning to change, mostly due to the OCI issue. Do you have to be more careful at this point on share repurchase and other capital actions just to keep the hit to TBV from not being extreme on a quarter-to-quarter basis?

Brian Moynihan -- Chairman and Chief Executive Officer

I think our price -- we're going to deploy the capital back to the shareholders through the structure, Nancy, that you're more than familiar with. It's going to go a substantial amount, and stock buybacks. But, the OCI -- you pointed out -- is the near-term risk, and that'll pull to par over time, as you well know, and that's an accounting convention that will go away. It's $12 billion in gross now, I think, so think about that. As an after-tax number, that's $1.20 per share that will pull to par over time.

Nancy Bush -- NAB Research -- Owner

Okay. Secondly, on the underlying growth issue, I think you said the underlying loan growth was 5%, but the reported growth was 3% due to the runoff of these non-core portfolios. Has there been any thought about accelerating the disposition of these portfolios so that the underlying growth becomes more apparent? Would it take a capital hit at this point, or are there not buyers, or do you just think it's better to work these things out over time?

Brian Moynihan -- Chairman and Chief Executive Officer

Well, we've taken all approaches. We've sold some, we've let some run off, we've restructured at the customer level, and stuff we have now, frankly, is -- the credit quality -- there are still bumps that we're working through, but generally, the credit quality has been improving, so we're just letting it go on its ordinary course. I think you can see on Slide 6 that that number is now down to about $68 billion, down $30 billion year over year, and a lot of the year-over-year was sales and things where we moved some stuff out.

But, I don't expect -- there are buyers, but frankly, the economics that we always look at at as opposed to the growth rate, and I think we're trying to maximize value for us and all of you as shareholders, and we look at every trade, and try to figure out every possible piece, and what the trade is, and whether it makes sense. And so, the good news is it's down to $68 billion from what it was a few years ago -- probably $250 billion -- and it's run off a slower amount, so we'll work through it, Nancy. I hope there's a bit of an opportunity to move some of it. I hope we do.

Paul M. Donofrio -- Chief Financial Officer

Take that portfolio in total, Nancy. You should not be thinking that it's a loss there.

Nancy Bush -- NAB Research -- Owner

Okay.

Brian Moynihan -- Chairman and Chief Executive Officer

We've gotten through most of that problem.

Nancy Bush -- NAB Research -- Owner

Okay, thank you.

Brian Moynihan -- Chairman and Chief Executive Officer

Thank you. Thank you, everyone, and thank you for your questions. We had a strong quarter, record earnings for our company. We did that by driving responsible growth. The key to that is driving operating leverage, and you can see that in our efficiency ratio going below 60% for the first time in a long time. We look forward to next quarter, and we'll see you then. Thank you.

Operator

This does conclude today's Bank of America First-Quarter Earnings Announcement 2018. You may now disconnect your lines. Everyone have a great day.

Duration: 86 minutes

Call participants:

Lee McEntire -- Senior Vice President of Investor Relations

Brian Moynihan -- Chairman and Chief Executive Officer

Paul M. Donofrio -- Chief Financial Officer

John McDonald -- Sanford C. Bernstein -- Analyst

Jim Mitchell -- Buckingham Research -- Analyst

Betsy Graseck -- Morgan Stanley -- Managing Director

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

Glenn Schorr -- Evercore ISI -- Managing Director

Ken Usdin -- Jefferies and Co. -- Managing Director

Gerard Cassidy -- RBC Capital Markets -- Analyst

Matt O'Connor -- Deutsche Bank -- Managing Director

Marty Mosby -- Vining Sparks -- Director

Brian Kleinhanzl -- Keefe, Bruyette, and Woods -- Managing Director

Richard X. Bove -- Hilton Capital -- Chief Strategist

Nancy Bush -- NAB Research -- Owner

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