Bank of America (BAC) Q1 2021 Earnings Call Transcript

Bank of America (BAC 1.53%)
Q1 2021 Earnings Call
Apr 15, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Bank of America first-quarter earnings announcement. [Operator instructions] Please note today's call is being recorded. And it is now my pleasure to turn the conference over to Lee McEntire. Please go ahead.

Lee McEntire -- Senior Vice President, Investor Relations

Good morning. Thank you for joining the call to review our first-quarter results. Hopefully, you've all had a chance to review our earnings release documents. As usual, they're available, including the earnings presentation that we'll be referring to during the call on the new and improved investor relations section of the bankofamerica.com website.

I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments. And then I'll ask Paul Donofrio, our CFO, to cover the details of the quarter. Before I turn the call over to Brian and Paul, let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call regarding various elements of the financial results. Our forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties, particularly during the pandemic period we've been operating in.

Factors that may cause those to be different are detailed in our earnings materials and the SEC filings that are on our website. Information about the non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. So with that, I will turn it over to you, Brian.

Take it away.

Brian Moynihan -- Chief Executive Officer

Thank you, Lee, and thank all of you for joining us. It's been a year since we first reported our results, which would include the health -- health crisis impact. But what we see different now is we see an accelerating recovery versus the economic uncertainty that we would have faced the last year at this time. The most recent economic indicators reflected an economic recovery that has gained momentum and continues to be supported by fiscal monetary policies.

From our company's perspective, we have emerged as an even stronger company and competitor than what we were when we entered the healthcare crisis. Compared to last year, Bank of America's balance sheet has higher capital ratios, higher reserves with lower charge-offs, and record liquidity. Our diverse business model with leadership positions across all our businesses has helped us earn our way through the crisis. Our Global Markets and Global Wealth Management businesses, which would typically benefit from this healthy capital markets environment, continued to perform well this quarter.

Our Consumer and Global Banking businesses also performed well. But they were -- this is after being more negatively impacted for several quarters by the interest rate environment and credit costs. These businesses now are in full recovery mode and are out generating new assets and new relationship with our clients. All this work by my team, and which we're very proud of here, has led to EPS in the first quarter of $0.86 per share, and a return on tangible common equity of 17%.

Paul is going to take you through the details in a moment. But simply put, we believe our decade-plus long dedication to responsible growth has put us in a position to both earn more money and deliver more back to you, our shareholders. Our announcement this morning regarding share repurchases highlights our intention to increase those repurchases over the coming quarters as the current restrictions are lifted by the Federal Reserve. But first, let's discuss the recovering economy.

On Slides 3, 4, and 5, we've shared slides like this with you the last few quarters. They are updated for the most quarterly data. They highlight the key economic signposts. I won't go through all the details on them, but they're there for your reference.

But a few highlights. Obviously, GDP consensus production -- projections continue to improve. And you can see our tremendous best-in-class Bank of America Research Team's projections in the upper left-hand corner of Slide 3. You will note also the increases in the consumer spending from our Bank of America customers at the bottom of the slide, which is not only much higher than the prior year when payments began to decline but notably is much higher this year to date than year-to-date 2019, a more appropriate comparison.

This is a key element of the economic optimism you're seeing reflected in the market. Looking back to 2017, after-tax reform and other matters, we saw a step-change in money movement by our customers, moving from previously a 5% year-over-year type of growth rate to up to 9% in 2019 versus 2018. Then the pandemic hit and growth of '20 over '19 was only 1%. But so far year to date, we're going faster on a larger base than the 2019 9%-plus growth trend at 10% plus.

The first quarter was a record dollar amount of money moved by Bank of America consumers. The trend is fully on track, even though the economy is not yet fully reopened. March was a record month of spending by Bank of America consumers and led to the highest ever quarter of consumer spending. As you look also on these slides, note on Slide 4, the lower level of card delinquencies as a spike from the expired deferrals, and the for [Inaudible] has worked its way through the charge-offs.

In addition, early stage delinquencies are at or near historic lows, suggesting low levels of card charge-offs again next year -- the next quarter, excuse me. As the economy has improved, customers have continued to increase their business across our platform. When you think about it from a customer's perspective, which is what we do as a business and comparing across the pandemic period of the last 12 months, we have simply added more customers across every line of business. And those customers are more digitally engaged in every business as well.

You're going to see later on Slide 17 that we added nearly 1 million active digital customers this quarter, pushing us past 40 million active users, led by increased use by boomers and seniors. We have more deposit and cash management customers and balances in every business from consumer to small business to Merrill Lynch to Private Bank, the business bank, and the commercial bank across the whole franchise. New investment relationships in our consumer businesses Merrill Edge platform now total more than 3 million accounts, and net new households continue to grow both in Merrill Lynch and the Private Bank. We saw aggregated client flows across our investment platforms of $48 billion in the quarter, bringing those total investment assets over $4 trillion with a range of those capabilities from our digital-only capabilities in our consumer business all the way through the great service and capabilities provided by our 20,000 wealth advisors.

We added new lending customers, whether through PPP and small business and business banking, and along with broader traditional banking relationships, our middle market, and corporate clients. And we've helped existing the new clients attained funding taxes market through our sales and trading investment banking platforms. Combined sales and trading investment banking revenue of $7.3 billion is our highest in a decade, is up 28% year over year. Jimmy DeMare, and Matthew Koder, and the teams led by Tom Montag have done a great job there.

Our customer satisfaction levels across all these groups of clients rose during the pandemic, and a brand loyalty of our company is at the highest it's been. We also note that our employee engagement is at highest it's been. And we have driven our success to our teammates this quarter, and you'll note in our expenses with another broad-based bonus plan, which is the fourth time we've done this. And with support provided to the communities we serve, our employees sense of pride in our company and what it does has reached a new level of satisfaction.

So with that being said, we do have some work to do in certain areas as we have for the last decade. I'd highlight those three areas with a couple of comments on each. Those areas are loan growth, net interest income, and expense, while loan growth continues to be a lot of liquidity in the system and customer payments remain high, which impacts our loan balances. This is across the whole consumers and companies.

Pipeline origination are improving but remain below pre-pandemic levels. We've reinstated all our credit standards back to where they were before the pandemic. And we remain highly focused on capturing loan growth as the economy expands and continues to recover. The projected economic growth should cause the need for companies to borrow, build inventory, increase hiring, and invest and do what they do in their businesses.

As you can see from Slide 4, Global banking loans after following in January appear to have stabilized again in March. We'll have to see how this plays out, but that's the first -- this -- the month of March was a good sign. Pipelines continue to build but line usage remains low. Card applications and mortgage originations continue to increase in each of the last three quarters.

This, along with mortgage rates moving higher and driving lower prepayments and runoff of current mortgage loan, sets up consumer loan growth. That strong customer liquidity obviously negatively impacts loan growth, but it has benefited credit cost. We saw Quarter 1 net charge-offs remain below pre-pandemic levels in dollars and percentage, further supporting reduction in our credit reserves this quarter. Now net interest income.

We told you six months ago that we believe the third quarter would be the trough and has proven to be so. Despite the drawdown of loans and two less days of interest in this current quarter, NII was flat to fourth quarter of last year. As we move through 2021, we believe the benefits from a steepened interest rate curve should begin to work its way into our revenue, driven by continued investment of our liquidity, as well as, picking up those lost days of interest. And thinking about the expected NII trajectory this year in the year ahead, I would set the stage just as follows: if the forward interest rate curve materializes and we see modest loan growth late -- in the later quarters of the year, we ought to see NII as we exit the fourth quarter of this year, $1 billion a quarter higher than the most recent level of $10.3 billion in this quarter.

The last area I would highlight is expense. We had a large expense this quarter driven by several factors. Some were seasonal impacts. Some were good news in that their volume and revenue-driven impacts and others were not typical of our normal operating expense due to charges taken.

We expect a significant decline as you look forward to the second quarter 2021 in expense. We've seen the headcount in our company start to work its way back down due to attrition, especially as the specialized programs begin to run their course. I'd also remind you that the first quarter is typically elevated for payroll tax expense, and this year was about $350 million. Next, I would say roughly $500 million of our increase is driven by the improved activity and higher revenue, which, of course, is a positive.

It's what we're in the business to do. The items I classify is differing from our typical costs were as follows. First, given the progress made in our digital engagement with our customers and other customer traffic behavior. We will continue to rationalize real estate for our teammates and our customers, and recorded an impairment charge to do that of $240 million in the quarter.

Second, a portion of the equity awarded last year to our -- before last year's work for our Global Banking and Markets teammates, we had different retirement rule. And as previously reported, we changed our retirement rule, which caused that to accelerate in full this quarter instead of being amortized over the next four years. Other costs worth noting include severance costs and special incentive board recognizing a broad base of 200,000 teammates for their outstanding efforts during this pandemic. That award for the fourth time is built on shared success awards three times prior, that was given in three previous years.

Additionally, COVID expense remains elevated as we continue to help our clients through the various assistant programs established by the government. PPP, unemployment claims, stimulus payment disbursement, and PPP forgiveness. But broadly speaking, we have done a great job in helping customers to these programs. We've now originated almost 500,000 PPP loans and have obtained forgiveness for our clients for 200,000 of those.

We processed $180 billion unemployment claims and $73 billion in the IP stimulus payments. Paul is going to share a bit of the details in the quarter's expenses, but even after absorbing these expenses are PPNR rose from fourth quarter. As we ended last year, we talked about a target for this year's expense in 2021 fiscal year expenses to be similar to the $55 billion levels in 2020. Given the charges this quarter, we would increase that target by about $1.5 billion.

However, I just want you to keep some perspective here. We reported $57 billion in expense for the year 2015, six years ago. Even though all the investments we have made in technology and the buildout of branches in new markets, new sales resources, and just having more customers, more activities, the inflation in healthcare and real estate and other costs, moving our teammates -- our starting wages from $15 to $20 an hour during that time period. We are targeting 2021 expense at roughly to where it was in 2015, six years later and a lot bigger company later.

That discipline in operational excellence is what we do, and you should expect us to continue that. So in summary, this quarter, we -- we again drove responsible growth. We support our employees by keeping them safe and rewarding their efforts in the pandemic. We support our customers by providing strong balance sheet and resilient systems to transact.

We support our communities by supplying critical funding and driving improvement toward racial and social equality with our increase in our $1 billion commitment to $1.25 billion. We've already delivered over $300 million of that commitment. At the same time, we delivered to you, our shareholders, $8 billion in earnings, generating return on tangible common equity of 17%, and returned $5 billion in capital to the shareholders in the first quarter. This shows you we can both deliver for you, our shareholders, and deliver for our customers, our employees, and our other stakeholders in society.

With that, let me hand off to Paul to cover the quarter in a little more detail.

Paul Donofrio -- Chief Financial Officer

Thanks, Brian. Good morning, and hello, everyone. I'm starting on Slide 6 and 7 together. As I've done in the past few quarters now, the majority of my comparisons will be relative to the prior quarter to reflect how we are progressing through this health crisis rather than year over year.

In Q1, we earned net income of $8.1 billion, or $0.86 per share, which compares to $5.5 billion, or $0.59 per share in Q4. The earnings improvement included strong revenue growth, which more than offset higher expense. Additionally, earnings also included a $2.7 billion reserve release, which resulted in a $1.9 billion provision benefit. Revenue growth was driven by strong sales and trading results, record investment banking fees, and record asset management fees, and our wealth management business, while consumer fees faced the seasonal challenge against elevated Q4 holiday spending.

With respect to returns, return on tangible common equity was 17.1 and ROA was 113 basis points. Moving to the balance sheet on Slide 8. The balance sheet expanded $150 billion versus Q4 to $2.97 trillion in total assets. Deposit growth continued to drive the balance sheet higher.

Deposits grew $89 billion in the quarter and are up $300 billion from Q1 '20. Note that as deposits continue to grow, loans declined $25 billion from Q4. We deployed some of this excess liquidity into debt securities, which increased $172 billion while cash balances declined $54 billion and a reverse repo also fell. It is also worth noting that our liquidity portfolio is now more than one-third of our total balance sheet and has surpassed $1 trillion.

On a period-end basis, our Global Markets balance sheet increased by $129 billion, coming off year-end seasonal lows and as customers increase their activity with us. Note that on an average basis, it is only up marginally from the prior year, and versus Q4, up only $40 billion. Shareholders' equity increased $1 billion. Earnings were mostly offset by $4.5 billion in net capital distributions and a decrease in OCI of $1.8 billion, driven by an increase in long bond rates.

With respect to regulatory ratios, consistent with the fourth quarter, standardized remain our binding approach for us. And at 11.8%, our CET1 ratio is our binding metric. While the CET1 ratio declined 15 basis points from Q4, it is 230 basis points above our minimum requirement of 9.5%, which translates into a $35 billion capital allocation. The benefits to the ratio from an increased level of capital were more than offset by higher RWA from the liquidity deployed into mortgage-backed securities and growth in our global markets balance sheet.

Our supplemental TLAC ratio at quarter-end was 7% and 6.1% on a pro forma basis, excluding the relief for deposits at the Fed and investments in treasuries. Six point one percent versus the 5% minimum requirement leaves us plenty of room for growth in the balance sheet. Our TLAC ratio remained comfortably above our requirements. Let me spend a minute on loans and deposits before moving away from the balance sheet.

I will focus on averages as that is what drives NII. With respect to loans, on Slide 9, you can see the downward trend across the year as customer liquidity and accommodating capital markets drove pay downs well above historic levels. I would draw your attention to the linked quarter change, global banking, commercial loans declined $16 billion. But as Brian noted earlier, we are seeing pipelines build and balances have stabilized for more than a month, so we are hopeful for a turnaround.

Loan payments by consumers continue to outpace originations with loans declining $14 billion in consumer banking led by mortgages. Plus, we saw normal seasonality in our card products as customers paid down holiday balances with stimulus contributing to the high payment rates. But what is also noteworthy is the linked quarter improvement in GWIM and global markets. GWIM continued to benefit from security-based lending, as well as custom lending.

In global markets, we relax some hold limits as the economy continued to strengthen. With respect to deposits, on Slide 10, we continued to see tremendous growth across the client base, not only because of growth in the money supply but also because we are adding new accounts and attracting liquidity from existing customers. Turning to Slide 11 and net interest income. On a GAAP non-FTE basis, NII in Q1 was $10.2 billion, $10.3 billion on an FTE basis.

Net interest income declined $1.9 billion from Q1 '20, driven by the rate environment and lower loan balances, but was relatively flat to Q4. Compared to Q4, we see this as a good outcome considering the headwinds of two fewer days of interest, lower loan levels, and modestly higher premium amortization expense. These headwinds were mostly offset by the deployment of excess deposits into securities and a benefit of approximately $100 million from a legacy litigation settlement involving some securities. The net interest yields was relatively stable, declining 3 basis points from Q4 and it was flat if you exclude global markets.

Reducing cash and repo, we deployed some of our excess liquidity into securities in Q1, split across treasuries and mortgage-backed securities. Ser -- securities increased $172 billion from year-end. On a weighted average basis relative to what we were earning on the cash, we improved our yield on that roughly $170 billion by approximately 115 basis points. Now, the improvement in yield could have been higher, however, but similar to Q4 purchases, we hedged a portion of the treasuries purchased with swaps, effectively keeping those securities floating.

As you will note, given all of the positive growth in loan rates, our asset sensitivity is rising. Our asset sensitivity to rising rates remained significant, highlighting the value of our deposit and customer relationships. The sensitivity is -- is lower from the year-end levels as higher rates and deployment of liquidity into securities increased our baseline. So the sensitivity no longer assumes that liquidity is available to invest at higher rates.

A few thoughts on NII for the remainder of the year. But first, please note that these forward-looking comments on NII assume that the forward interest rate curve materializes, that the economy continues to recover, and that we have some fairly modest loan growth in the back half of the year. Given those assumptions, we expect some improvement in premium amortization across the next few quarters if mortgage rates follow the forward curve. At $1.5 billion in Q1, write-off of premium continued to be a headwind as mortgage prepayments remained quite high.

So forward-looking comments include a lot of mate -- of material moving parts from rates, loan levels, and premium amortization. But as Brian said, we believe 4Q '21 NII could rise by as much as $1 billion from this quarter's level. OK. Turning to Slide 12 and expenses.

Q1 expenses were $15.5 billion, $1.6 billion higher than Q4. I will add to some of the remarks Brian mentioned earlier. First, Q1 included the normal seasonal elevation of payroll tax expense of about $250 million. Second, as a result of the current period's solid revenue performance and a better outlook for revenue for the remainder of the year, we accrued for higher incentives and experienced increased processing costs.

This added roughly $500 million to the quarter. Third, we incurred some expense that differs from our typical operating expense. We reversed a decision made on some 2020 incentive comp awards, making certain portions of those awards retirement eligible. This accelerated approximately $200 million of expense into Q1 that would have been expensed over four years.

We also recorded an impairment charge of $240 million for real estate realization. And we incurred $160 million of severance charge as we moved back toward business as usual with respect to our headcount. This is based on an expectation that as roles get eliminated through process improvement, some associates might choose severance over opportunities to work in a different role in the company. Lastly, our COVID costs remained largely unchanged as modest declines in some employee-related costs were offset by cost associated with restarting PPP originations and forgiveness and additional unemployment claims processing.

COVID costs are proving a little slower -- a little slower to safely reduce than we had hoped. Turning to asset quality on Slide 13. Government stimulus and support has helped customers get through this pandemic. That support, coupled with our customer assistance programs and years of underwriting discipline under responsible growth, has resulted in low net charge-offs.

Net charge-off this quarter were $833 million, or 37 basis points of average loans, and were lower than Q4. And they were 14% lower than the fourth quarter of 2019, which was the last quarter before the pandemic despite an expected increase in card losses of $229 million in Q1. With the exception of a small uptick in small business and the card losses, losses in every other category declined from Q4. Provision was a 1.9 benefit in the quarter as an improvement in the macroeconomic outlook and lower loan balances resulted in a $2.7 billion release of credit reserves.

Total consu -- consumer reserve -- reserve releases were $1.4 billion, driven primarily by card, while the commercial release was $1.2 billion. Our allowance as a percent of loans and leases end of the quarter at 1.8%, which still remained well above the 1.27% where we began 2020 following our Day 1 adoption of CECL. With res -- with respect to reserve setting assumptions, we continued to include a multitude of scenarios. Based upon our Q1 weighting of those scenarios, GDP is forecasted to return to its 4Q '19 level by the end of 2021.

The weighted scenario also assumes that the unemployment rate at the end of 2021 will be just north of 6%, which is in line with March unemployment rate. For 2022, the weighted average scenario assumed unemployment just under 5.5% as we exit the year. To the extent the economic outlook and the remaining uncertainties continue to improve, we expect our reserve levels will move lower. On Slide 14, we showed the credit quality metrics for both our consumer and commercial portfolios.

Overall, consumer net charge-offs rose $211 million from Q4, and absent the $229 million increase noted in card, other losses declined. With respect to card losses, given the reduction in late-stage delinquencies in the 180-day pipeline, we expect card losses to be lower in Q2. NPLs remained low despite a small uptick due to consumer real estate deferrals, which have limited expected loss content given healthy LTV ratios. Moving to commercial, net charge-offs declined $296 million from the fourth quarter as the portfolio stabilized with re -- reservable criticize exposure and NPLs declining in the quarter.

Overall, given the environment, the asset quality of our commercial book remains solid and 90% of the exposures are either investment grade or collateralized. Turning to the business segments and starting with consumer banking on Slide 15. Consumer banking produced another strong quarter in terms of customer deposits and investment flows, reflecting the strength of our brand, the innovation around digital, and deployment of specialists in our centers, all of which has enabled us to capture more than our fair share of the increase in customer liquidity. The segment earned $2.7 billion in Q1, versus $2.6 billion in Q4 as the provision benefit more than offset lower mostly seasonal revenue and ex -- and higher expense.

Revenue declined 2%, reflecting lower card income from Q4. Q4 has elevated holiday spending. Expenses moved higher as a result of real estate impairment costs, as well as seasonally higher payroll tax expense. This also caused an increase in our cost of deposits this quarter, 242 basis points.

Absent the impairment charge, the cost of deposits would have been 131 basis points. As expected, net charge-offs rose from Q4 due to the flow-through of the bulge in card delinquencies as noted earlier. At -- a $1.4 billion reserve release resulted in a $617 million provision benefit in the quarter. On Slide 16, you can see the significant increase in consumer deposits and investments.

Average deposits of $924 billion are up 25% compared to Q1 '20 with nearly two-thirds of that growth in checking. Rate paid is down to 3 basis points as 56% of the deposits are low-interest checking. Lastly, note the growth throughout the -- the quarter as average deposits were up $39 billion from Q4. We covered loans earlier, so I would just note, investment balances of $324 billion are up 53% year over year as customers continue to recognize the value of our online offering.

As Brian noted and as you can see on Slide 17, we continued to see improvement in digital enrollment this quarter. Seventy percent of our consumer households use some part of our digital platform this year. We continued to see digital payments and Zelle taking hold across all our businesses. Zelle consumer dollar volume is up 72% year over year.

Small businesses up 182% year over year. And 90% of our business-to-consumer payments in global banking are now made via Zelle. As you can see, our digital assistant, Erica, continues to add users' capabilities and usage. Plus, we are applying our success with Erica to other businesses as well.

OK. Turning to wealth management. We continued to deliver solid organic growth, durably comprehensive banking and investment needs of clients, and manage risk responsibly. We experienced strong household -- new household acquisition in a virtual environment and a very competitive market.

This resulted in a record quarter with respect to total client flows, including near-record AUM flows and record AUM fees. Net income of $881 million improved 6% from Q4 as revenue growth and improvement in provision exceeded an increase in expense. With respect to revenue, the record AUM fees were complemented by higher NII on the back of solid loan and deposit increases. Expenses increased driven by revenue-related costs and seasonally elevated payroll tax.

Merrill Lynch and the private bank both continue to grow clients as we remain a provider of choice for affluent clients. Client balances rose to a record $3.5 trillion, up $882 billion year over year, driven by higher market levels, as well as strong client flows. During Q1, our advisors added over 6,000 net new households in Merrill Lynch and nearly 700 net new relationships in the private bank. Let's skip to Slide 20, which is a new page that highlights our progress to digitally engage wealth management clients.

In Merrill and the private bank, our clients and advisors have both embraced the value of a digitally enabled relationship in which digital tools are critical mechanisms for fast, safe, and secure transa -- interactions. Our wealth manage -- our wealth clients are some of the most highly engaged clients in the franchise with 80% of Merrill households digitally active. In Q1, we saw a record number of log-ins. Clients are logging in to trade, check balances, and originate loans with ease all of which can be done through a simple side -- sign in.

We continue to enhance and modernize the capabilities for both the client and advisor, and these capabilities are becoming key differentiators, as well as being recognized by third parties. Moving to global banking on Slide 21. The business earned nearly $2.2 billion in Q1, improving $500 million from Q4, driven by a provision benefit and solid revenue. While loan growth has been challenging, deposit growth has been strong and investment banking revenue exceeded previous records.

The team produced $2.2 billion in firmwide investment banking fees, growing year over year by 62% and 20% over Q4. Looking at revenue and comparing to Q4, despite the higher IB fees, total revenue declined 2%, driven by the -- by weather-related impairments on some tax-advantaged investments. Provision expense reflected a reserve release of $1.2 billion in Q1. Importantly, net charge-offs of $36 million fell by $278 million from Q4.

Non-interest expense rose 14% from Q4, reflecting the incentive award changes noted earlier. Additionally, the strong IB performance and improved outlook and seasonally elevated payroll tax increased personnel costs in Q1. Looking at the balance sheet on Slide 22, average deposits moved up relative to Q4 as customers remained highly liquid. Year over year, deposits are up an impressive 27%, while repaid is at an historic low.

As noted earlier, loans declined early in the quarter but stabilized late in the quarter. Wholesale digital engagement continued to accelerate and usage continued to grow, driven by the same ease, safety, and convenience of our digital banking capabilities that our consumer customers enjoy. We present some wholesale digital highlights on Slide 23. Switching to global markets on Slide 24, results reflected the highest revenue quarter in over a decade with solid year-over-year improvement and an even more significant increase relative to Q4.

As I usually do, I will talk about the segment results excluding DVA. This quarter, net DVA was negligible but the year-ago quarter had a $300 million gain. Global markets produced $2.1 billion of earnings in Q1, more than double the level of Q4 and up 39% from Q1 '20. Focusing on year over year, revenue was up 26% on higher sales and trading and equity underwriting fees.

The year-over-year expense increase was driven by volume-related expenses in both card and trading, and an acceleration in expense from changes in the incentive awards. Sales and trading contributed $5.1 billion to revenue, increasing 17% year over year, driven by a 22% improvement in fixed and a 10% increase in equities. These results reflected gains in commodities and strong results in credit, mortgage, and municipal products versus relatively -- relative weakness in the year-ago period. This was partially offset by reduced activity and trading opportunities in other macro products.

The strength in equities was driven by a strong trading performance in cash. The business has produced strong return delivering a 22% return on capital in Q1. Finally, on Slide 26, we show all other which reported profits of $257 million compared to Q1 20. The improvement in net income was driven by a larger tax benefit given an expected increase in ESG activities this year.

The year-ago quarter also included a modest reserve build. Our effective tax rate this quarter was 12% and excluding the tax credit, driven by our portfolio of ESG investments, our tax rate would have been 23%. For the full year, absent any changes in the current tax laws or other unusual items, we expect an effective tax rate to be in the range of 10% to 12%. OK, with that, let's go to Q&A.

Questions & Answers:

Operator

[Operator instructions] Today we'll go first to Glenn Schorr with Evercore ISI. Please go ahead.

Glenn Schorr -- Evercore ISI -- Analyst

Hi. Thanks very much. I wonder if we could just -- you gave us a lot of detail in the expense side. I just wanted to try to get a jumping-off point on the second quarter.

I think with all your comments, it gets you to the low to mid-$14 billion range. I want to see if that's right. And then, if you could give us the right perspective, meaning if you look -- you -- you all were able to keep the total expenses flat for many years while you grew the franchise. Now, the economy is growing, capital markets were very strong, and the expense of dollars have crept up.

But I -- I don't believe they had an expense-creep problem, but I wonder if you could address that and -- and give us the right perspective to look at. Thanks.

Paul Donofrio -- Chief Financial Officer

Sure. So, in terms of the second quarter, I -- you're -- I think you're about right. We expect expenses, you know, just north of -- of $14 billion dependent on, you know, the revenue environment and the amount of progress we make in taking down the COVID costs. In terms of, you know, your comment about our ability to manage expenses, we agree with you.

I think as Brian noted in his opening comments, you know, we've -- we've managed not to increase expenses for years now, and we've absorbed merit increases, investments, minimum wage, improvement in benefits, all the dramatic increase in processing volumes, digital increases. So, you know, we're -- we are sort of -- as talked about in other calls, you know, we've been using operational excellence and other, you know, initiatives to basically fund the investments in our future. You know, I think our goal here is -- is to clearly create operating leverage over an extended period of time. We've talked about maybe expenses, you know, rising maybe at a 1% level per year.

And I think that's probably the best guidance we can give you. You absent again some of the, you know, ins and outs, we had a lot of variability this quarter. And -- and obviously, we're sitting here, you know, in a middle of a pandemic with a lot of COVID expenses that have been a little bit more sticky than we had all hoped. But they're going to come out, there's no question about that.

And so, we'll get back to kind of a normal level of -- of expenses and -- and a very reasonable growth level over the long term relative to revenue.

Glenn Schorr -- Evercore ISI -- Analyst

Thank you. That's exactly what I was looking for. Maybe just one other one. I think we see a lot of growth in the private credit markets and it started out strong in middle-market lending.

It's -- it's transitioning and doing some now large corporate lending, the specialized lending, and aircraft and transportation, and now on some -- I'm curious given the breadth of your franchise, those -- all those things I mentioned are kind of your backyard. They don't -- that's just a lending relationship, they don't have the same franchise you have. But curious if you see that the growth in private credit as a significant competitor in your traditional backyard.

Brian Moynihan -- Chief Executive Officer

I'd take, Glenn, you know, those -- depending on the asset, you know, the type of loan. You know, people have been in these markets for years, you know, I think mortgage -- I think, you know, the -- the other types of consumer credit, and then the commercial side. So, sure there, you know, that has an impact. But our job is to compete through it.

But the reality of what's having an impact now, frankly, is that draw rates and lines of credit and stuff are low. And companies, you know, that are operating well -- those companies that still need to get through the pandemic impact just aren't using their lines. And that's a bump along the bottom we've shown you as a long-term chart. So, we -- we feel good about our, you know, our middle market and our business banking businesses, small businesses.

We feel good about they're getting set up as the economy continues to improve and the growth will come back, and -- and that -- and the services and rate we can provide are -- are competitive. and So, I don't think that'll ever change and I think it reaches further. Sometimes, it reaches the stuff we want to do as a company, obviously, in terms of leverage, you know, extra amounts of leverage and things like that. But -- but we feel -- we feel we're very strong and competitive.

And before the pandemic hit, we -- middle-market will go mid-single digits and we'd expect to return back to that level.

Paul Donofrio -- Chief Financial Officer

That's great. Thanks, Brian.

Operator

We'll take our next question from Gerard Cassidy with RBC. Please go ahead. Your line is open.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, Brian.

Brian Moynihan -- Chief Executive Officer

Good. Gerard, how are you?

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good. Can you guys share with us -- I think you -- you touched on the capital cushion being about $35 billion and you announced a $25 billion share repurchase program today. Obviously, with the new stress capital buffer construct that goes into effect in the third quarter, you and your peers will be free to buy back your stock in the fashion in which you see fits best for you guys. Can you give us some color on how you're thinking about that $25 billion buyback, on how it will proceed after you get the OK? I'm assuming you got past SICAR, of course, in June.

Did they give you the green light to do the buyback?

Brian Moynihan -- Chief Executive Officer

Yeah. Well, -- so, I'll start with a couple things. One is the number goes up this quarter because the average of the four quarters is a, you know, moved for the quarter and that's a higher average, so we'll be able to do more this quarter. And then assuming the -- the new rules come into effect in July, we have a substantial cushion and we'll look to bring that question down.

Yeah, we're not going to -- we're going to maintain a cushion, you know, over the -- our requirement is 9.5%. You know, we'll maintain a cushion over that which if you'd expect us to move, you know, fairly a pace to start to bring us closer to the cushion, that was honestly held up, you know, by the suspension last year this time of our ability to repurchase stock at all for the first, you know, for the -- for the second quarter, third quarter, and fourth quarter of last year, which if you go back and think about our original SICAR filings, we were going to buy back a substantial amount. So, we'll get back on -- back in the saddle and drive it forward. And also, you know, because the earnings, you know, power of the company, you know, work on -- continue to work the dividend.

And so, expect us to get right after as soon as we can.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. And Paul, you -- you -- you talked about the loan loss reserve levels. And when you compare them to your Day 1 CECL number from January of 2020, obviously you're considerably higher than that number. Can you share with us the outlook for potential loan loss reserve releases? And could you -- and see an environment where you could approach the Day 1 reserve level, considering the economy when you look at your own forecast that you gave us today is much stronger than what it was on Day 1 in January of '20? Can you give some further color on that?

Paul Donofrio -- Chief Financial Officer

Sure. Just on reserves, absent, you know, a -- a deterioration in an environment which we don't expect, we believe the reserves will continue to come down in the coming quarters as we remain -- as the remaining, you know, uncertainties continue to diminish. In terms of the reserve versus sort of Day 1 CECL, you know, every quarter, we're -- we are reserving based upon the size and mix of our portfolio at that moment, and our view of the future is based upon, you know, independent sources. So, as you think about that, you've got to recognize that our portfolio has changed.

You know, for example, card, which has -- which as you know has some of the highest reserve rate is down 25% from Day 1. You know, so, you really need to think about how the mix has changed. If you -- you can't just go back to our reserve level on Day 1 which I think was 127 basis points if I'm not mistaken. And just, you know, apply that to today's numbers, I think you're going to do a little bit of a product mix there to get, you know, to get back.

We've done that work and it shows we have, you know, still a significant, I'll call it, cushion to Day 1.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. Thank you.

Operator

Our next question is from Mike Mayo with Wells Fargo. Please go ahead.

Mike Mayo -- Wells Fargo Securities -- Analyst

Hi. I have two opposing views and I'm hoping that you can help me reconcile them as it -- as it relates to efficiency. On the one hand, it's like your sides are -- are very positive. Global bank 74%, digital, connections, wealth, 80% of households, consumer.

Digital, still growing, and, you know, the -- the unit cost per dollar of deposit, what, 130 basis points. So, it's -- it's like best in class. So, all that technology progress is -- is noted. On the other hand, I look at Slide 12 and I see the efficiency ratio and I see the expenses, and I hear the higher guidance for expenses for this year.

So, I guess if you can help me reconcile, you know, these positive underlying trends with this number on the page of 68% efficiency ratio. And I -- I do recognize that you're calling out a lot of expenses. The $1.6 billion increase quarter over quarter, is that -- should we consider that kind of just one time? And where should this efficiency ratio go over time? Thanks.

Brian Moynihan -- Chief Executive Officer

So, you know, Mike, you pointed out that, you know, the -- the operating posture of the businesses continues to improve. But, you know, as you go across the page, sure you got to remember and you well know this that in the -- the stuff on the left-hand side of the page you had a rate environment that it finally after years had come up to some level of Fed-funds rate and -- and short of LIBOR rates and stuff. And that helped our efficiency ratio move under 60%. But even if you look at this quarter at 68% any you back out the type of expenses that you drop in the low-60s, and then the NII improvement will -- because that frankly as you well know, comes with very little expense attached to it I -- that we don't need more branches and more infrastructure, or more -- even more commercial bankers as those loans' usage goes up and -- and the spreads just spread off of our floors due to our massive deposit base.

So I think you should expect that even on a pro forma basis, you could see the low 60s. You should expect it to move back in the levels you see here as we move through the year, pick up the NII. And then if rates start to move up, you'd even pick up more.

Mike Mayo -- Wells Fargo Securities -- Analyst

And you don't always disclose how much you're investing, but how is your investing spend? I mean, did you lighten up during the pandemic? Or are you ticking up now or --

Brian Moynihan -- Chief Executive Officer

Not on the technology side.

Mike Mayo -- Wells Fargo Securities -- Analyst

Overall [Inaudible]

Brian Moynihan -- Chief Executive Officer

Like on the technology side, we did -- look, yeah, I mean, you know, technology initiatives last year with three and change, and this year would go up, frankly, a bit in those numbers we gave you because we continue to take advantage of that. And so I think 25 branches opened up in new cities this quarter, and we're seeing the success from that -- markets that we weren't in two or three, four, five years ago. We're now moving in the top 10, all organic, and driving off of that. And then salespeople.

Now, that's what we probably lightened up last year just because the opportunities weren't there. But you're going to see us continue to reposition people from the efficiencies in the opex program to the front. And so headcount rose, really, to support the exigencies of the circumstances. When you couldn't have your teammates anchored with each other, we had to have a few more of them move in the issues that were there for social distancing as working from home and overstaffing because of high-risk employees.

So we ran up a little higher. And now you're starting to see it drift down. So that core number of headcount will drive our expenses. But the reality is we invested at the same rate last year in everything, except for incremental commercial bankers, probably, than we did in past years, and we're going to do it again this year because it's -- the payback is huge.

Mike Mayo -- Wells Fargo Securities -- Analyst

And then last follow-up. Just on the COVID-related expenses, it seems like a little bit of a longer tail than maybe you had expected. When do you think some of those come off? I mean, you've treated your employees well with the special payments and all the other efforts that you've made. Is that like another quarter or two? Or are we toward the end of that?

Brian Moynihan -- Chief Executive Officer

Well, we're blending it. It's blending down because of the situation change. Obviously, as schools reopen and things like that, we can normalize the -- we started last year this time and said, "Teammates, when you work from home, we'll give you $100 a day to hire somebody to come in at your home and take care of your kids, so you can do a great job for our clients." That's why our client scores continue to rise during the pandemic. Obviously, as schools will reopen, we've tailored that program.

We will normalize it at the end of the second quarter. That's one thing. Obviously, PPP, Mike, it got extended again. But as we're seeing the volumes be more modest this time, we can start to shape those teammates out.

That forgiveness program will take us longer just because it's a tail, obviously, but we're through 200,000 done. And so you'll see that happen, and the extra cleaning and meals for the teammates and the testing and all the things we've done, that will come down as we sort of normalize operations over the next six months. But it took longer because things like PPP came out two more times since -- or two or three times. I guess we're in four, would be the right number.

So it's good. But we're doing what we need to do to support our customers, 0.5 billion -- or 0.5 million, excuse me, loans originated under four different programs, so the constant change in rules. At the peak, we had 10,000 people working on it. Now, we've got about 3,000 there and 3,000 in forgiveness, and we can work it back down.

So I think over the next six months, you'll see it start to blend down piece after piece after piece.

Mike Mayo -- Wells Fargo Securities -- Analyst

All right. Thank you.

Operator

Our next question comes from John McDonald with Autonomous Research. Please go ahead.

John McDonald -- Autonomous Research -- Analyst

Thanks. Sorry, on the expenses again, just on the COVID expenses that you were discussing, Brian, with Paul, remind us, what's the kind of size ballpark of that? I'm trying to think about the $56.5 million total expenses. And if we took off the 500 kind of special stuff you announced this quarter and then the COVID costs, which might be $1 billion a year, like is the -- might you rebase at some point at 55 before business growth and things like that? I'm just trying to kind of put some numbers on it. Is that reasonable?

Paul Donofrio -- Chief Financial Officer

I would think of COVID expenses in the first quarter to be approximately $400 million of net COVID expenses. That was roughly flat, by the way, to last quarter. As Brian said, we ramped up for the new PPP and unemployment processing of claims. But we did offset some of that ramp-up with lower expenses associated with child care and supplemental pay and things like that.

Brian Moynihan -- Chief Executive Officer

Yeah. So, John, just to be simple-minded about it, the reason why we told you the full year is going to be higher is because we think it's $1 billion, $1.5 billion higher in the first quarter here that wasn't, sort of, in our mind because of timing differences on some of the compensation matters and other things. So as you well know, we're pushing it back down as fast as possible.

John McDonald -- Autonomous Research -- Analyst

Yeah, yeah. OK. And then, Paul, I just wanted to follow up, when you're talking about the interest rate disclosures, you mentioned that the model doesn't assume deployment -- automatic deployment of liquidity anymore. Could you just explain that? Like what changed because of rate moves or deployment? Thank you.

Paul Donofrio -- Chief Financial Officer

The model doesn't assume automatic deployment of liquidity. I think we're talking about the 100 up and 25 down.

John McDonald -- Autonomous Research -- Analyst

Yeah. Yeah, exactly. Yeah.

Paul Donofrio -- Chief Financial Officer

Yeah. I mean, we got a little bit less asset-sensitive because we deployed some liquidity in the fourth quarter and in the first quarter. And so now, that's in the baseline. And when rates shock up, you obviously -- you're not deploying that liquidity at a higher rate anymore.

So it kind of moved from the sensitivity into the baseline. Do you see what I'm saying?

John McDonald -- Autonomous Research -- Analyst

OK. Gotcha. Gotcha. OK.

Got it. And the last thing was just the NII ramp that could happen to get you $1 billion higher by the fourth quarter. How do you see that distributed? Is that kind of evenly? Or is it kind of based on the second-half loan growth coming back?

Paul Donofrio -- Chief Financial Officer

Yeah. Look, we've been fairly careful about our guidance. There's a lot of moving pieces here. You've got amortization of premium that can move around.

You've got loan growth, which is hard to predict. So we want to be careful about being too specific about how we get from here to there. I think we feel very good about getting to there. Again, the guidance that we gave you that NII in the fourth quarter could be $1 billion higher than what it was in the first quarter, that's based upon the forward curve materializing and some modest loan growth in the back half of the year.

We've got some flexibility because we do have liquidity, can go faster or slower on in terms of investing. We'd like to put that in loan growth and not necessarily into securities, but we will invest it over time. We've got to see the amortization expense start to come down. It hasn't come down yet, even though mortgage rates have gone up.

And like I said, we've got to see some loan growth, and we'll pick up at least two days here. So that's the best perspective I can give you.

John McDonald -- Autonomous Research -- Analyst

OK. Fair enough. Thank you.

Operator

And our next question comes from Matthew O'Connor with Deutsche Bank. Please go ahead.

Matthew O'Connor -- Deutsche Bank -- Analyst

Good morning. I just want to follow up on the deployment of liquidity that you've done. You did a lot this quarter or last quarter. If we look back since the end of 2019, most of your deposits have been deployed into securities.

And most of the securities, I think, are longer-term, mortgage-backed that aren't hedged. I know you said some of the treasuries were hedged, but that's a small portion of what you added. So I guess just conceptually, like is this signaling that you think rates have kind of gone up, kind of the big moves already happened for the next few years? Are you kind of thinking loan growth is not going to come back that much? Or what's the thought of locking in so many assets at these rates this quarter and the last couple of quarters?

Paul Donofrio -- Chief Financial Officer

Well, let me back up because I want to make sure that everybody's clear about kind of what we have done. You went all the way back to 2019 -- if you go all the way back to year-end 2019, deposits are up $450 billion, and loans are down $80 billion. So we created $530 billion of liquidity to deploy somewhere, plus we're going to see some more deposit growth. So the $530 billion of liquidity, we had to deploy it somewhere.

Through the end of Q1, securities are up $380 billion, and cash and equivalents are up $150 billion to $300 billion. But as I said in the remarks, we bought treasuries, but on about $150 billion of those treasuries, we have interest rate swaps. So you can really think of the $300 billion of cash as being $450 billion in terms of our ability to fund loan growth or invest for turn or other uses. So we've been balancing liquidity, capital, and earnings throughout this whole process.

We don't tend to make bets on interest rates one way or another. We just want to make sure that we can deliver for our customers no matter what happens. And I think we've been trying to do that as we've gone through this pandemic. Again, it's all about balancing liquidity, capital, and earnings.

Matthew O'Connor -- Deutsche Bank -- Analyst

OK. And then just separately, in the prepared remarks, you guys mentioned about increasing hold limits a little bit. I think you're referring to the trading businesses. But if you could just circle back on that concept and give a little more detail on kind of where you were and where you are now in terms of the hold limits.

Paul Donofrio -- Chief Financial Officer

Yeah, sure. I mean, look, we -- in terms of -- if you think about pre-pandemic underwriting criteria, we are, on the consumer side, I think, back to pre-pandemic now. In terms of the commercial side, there are still the affected industries that we're watching carefully, but everywhere else, I think we're back to pre-pandemic. And in light of the size of our company, in light of the need for loan growth, I think we're relaxed a little bit on some hold levels, particularly in global markets, where they have more of a moving than storage mentality around loans and what they do for customers.

So, yeah, we're just taking a few maybe bigger positions than we might have otherwise taken pre-pandemic, but there's no real change in the underwriting standards. The company is bigger. We have more liquidity. We have more capital.

So we think all of this is appropriate.

Matthew O'Connor -- Deutsche Bank -- Analyst

And that's with respect to large corporate loans, not the trading book, just to clarify.

Paul Donofrio -- Chief Financial Officer

Yeah, that's right. That's right.

Brian Moynihan -- Chief Executive Officer

Yeah.

Matthew O'Connor -- Deutsche Bank -- Analyst

OK.

Brian Moynihan -- Chief Executive Officer

Just across loan growth, just to think about it, what's going to drive the company's P&L also on the consumer side, especially, if you look at by business, so the wealth management business actually has grown a little bit. You got the commercial business down, and consumer is down. Consumer is largely down because of mortgage churn, but the big thing that happened is cards came down. And what's been interesting to watch now -- and so because we pulled back -- this time last year's unemployment went to 15%.

Everybody pulled back their underlying criteria, Matt. We've now reinstated, as Paul said. So what's happened? We did 1 million units of new cards a quarter. Going into the last year's first quarter, it fell as low as 400.

It's back up to 600 and change already and moving north on that. And if you look by month, it's stacking back up. So, yeah, so that's -- and if you look at where that's coming from, obviously, the branch system, which basically was run at around 2,500 of the 4,300 branches for the last six, eight months, nine months, is only catching back up as it opens up and sales come in. So that bodes well on, obviously, on the consumer side, on the cards, which are most important.

Mortgages production will continue to kick back up, and prepayments will slow down at a slightly higher rate environment. You'll see that bodes well there. GWIM has done a -- has some of the mortgage aspects, but on the type of lending that GWIM does to affluent, wealthy people, they've done a good job, and they've actually seen that grow. And then you go to the business banking, middle market, and that's all line usage.

And so that should come through -- in order for the economy to expand 7% this year, which is what our Bank of America team has it at, at some point, companies have to access capital to meet that final demand, and you should see that usage come up. So even in things like the car business, because there just aren't the cars to sell, you're seeing line usage down at lower level. So as you think across the things -- the hold levels and things that Paul is talking about enable us to push a little harder just because of the sheer size of our company. But if you think about it, think about the flywheel that we have in the company as a production engine, having had necessarily to be slowed down in the crisis with 15% unemployment peaks and the final demand being crushed in the second quarter of last year, then turning that crank back up and just watch that flywheel start to take off, that's what we have good confidence in terms of getting right back on loan growth.

But if you added all that together and we grew 5%, it'd be $45 billion of loans. So to Paul's point, you still have tremendous excess capacity because the deposit growth is so strong on core transactional deposits with the commercial and consumers.

Matthew O'Connor -- Deutsche Bank -- Analyst

Understood. That's helpful. Thank you.

Operator

Our next question is from Betsy Graseck with Morgan Stanley. Please go ahead.

Betsy Graseck -- Morgan Stanley -- Analyst

Hi. Good morning.

Brian Moynihan -- Chief Executive Officer

Hi, Betsy.

Betsy Graseck -- Morgan Stanley -- Analyst

Question, Brian, on just capital allocation. And you were one of the only GSIBs to really kind of trim down so that your GSIB number didn't go up recently. And I'm wondering if you're thinking about the opportunities there to lean into a higher GSIB, maybe do more in capital markets. I know traditionally, you've been looking to keep your RWAs in markets very tight.

And I'm wondering if there's any thought to maybe leaning in at this stage given all the excess capital and liquidity that you have. Is that potentially an option that's on the table in addition to the buybacks you discussed earlier?

Brian Moynihan -- Chief Executive Officer

Yeah. So, Betsy -- and the two are not mutually exclusive at all, except way -- at the margin, way away from where we are now. But with stock price increases and all the things that go into that calculation, as you all know, they're not all related to straight risk in terms of sheer size and stock -- just things that go in. It is harder to maintain where we were at the end of last year.

And you might expect that we may move up a bucket and take advantage of that by actually expanding the business in the markets business, where the opportunity is there, based on the capabilities that Jimmy and the team and Tom and the team have put together. So why would you do that? The reason why we do that is our clients have been growing, and we kept about a third of the size. And even if you took away some of the growth just due to the deposit things, it has come down around 20% the size of the company. And the idea is to keep it in synergy and synchronize it with the company's overall size, but the company has grown around it another step.

And so we've told Tom – Tom and the team are working on ideas to continue to do that. We stay -- we're a little bigger now than we were at year-end, obviously, first-quarter activity, but you shouldn't expect us to come down. Now, those ratios aren't effective for a bit of time here, so we'll see how it plays out. But if the opportunities there will take them, the team has done a great job and managed the risk well.

If you look at the trading results for the quarter, look at it for last quarter, look at it throughout the pandemic, they've done a great job in managing risk-reward balance. And we're proud of them and the work they've done, and we're going to support them with some more capital.

Betsy Graseck -- Morgan Stanley -- Analyst

OK. That's great. Thanks. And then separately, one of the most tedious discussions that I have with people is on comping your skillset in digital consumer apps and everything you're doing there not only for consumer but also for corporate and SMBs with fintech players.

And -- and I say it's tedious because you have a huge market presence. OK. But I don't feel like you're getting your message out there beyond this call. So have you given any thought to, you know, trying to get the message of what you've done for consumers in the digital and the -- the fintech that you actually are bringing to your clients beyond the four walls of your clients?

Brian Moynihan -- Chief Executive Officer

Well, that always starts with the -- first thing that the reason why we do this is to serve our clients and do a great job and it -- it flows through the numbers. As Mike said earlier, you know, the idea that we run this huge consumer business at a cost advantage, you know, which is significant due to the digi -- digitization of all the consumer activity due -- due to the way customers interact this way we can help them the way and give guideposts. And frankly, that way we can take the fee structure out and that's, you know, that we drop over our fees dramatically over the years and made up for it in terms of efficiency and other types of things. And -- and so you know, we get the word out, we tell everybody we win all kinds of awards, and the list goes on and on in terms of the different ranking agencies and they've seen, as the Merrill Edge growth, there's over 300 billion now.

And so, you know, our job is to do a great job for our customers and I think, you know, I'll leave to you and your colleagues to debate the relative merits of fintech resources. But I will tell you, you know, for a company making $8 billion and having 40 million new digital customers are fully active on the consumer side, half-million on the digital on the -- on the corporate side. The impact on our ability to have expenses be flat from even with extra money of $1.5 billion, so the first quarter from six years ago shows the impact of the ability to digitize as a company. And we learned more about this than last year in areas that we didn't do.

So we'll keep pushing it out there. You can help us tell the story but the reality is -- is that the number one person we want to understand is our -- our customers and that means attrition, you know, attrition in the customer is way down the -- the penetration of their wallets way up. Just look at the wealth management statistics we threw in and see how that they've adapted to it. These are -- these are major changes, the size of which doesn't exist much out there.

So you know, well -- we'll keep telling the way you keep telling a story. We'll keep telling the story but the key is it's producing, it's produced and they have kind earnings we're producing in the kind of efficiency we're producing, which continues to be down to our benefit going -- going forward. The neatest thing about this stuff is where we go next with the -- where we've been going with it. So, Erica, there's just nothing close to it out there and driving it with volumes and things, you know, so if you look at the charts on those pages and show it.

And it -- so it's the usage and the personalization and the ability to help people manage their -- their payments and their things for the mass market and their investments. You know, the -- the -- so we feel good about it we'll tell the story as often as we can but the reality is I -- I just -- we'd like to see us keep growing a number of customers and drive in it and drive it on an integrated basis. We're putting major investments in -- in a couple of areas. We had to improve merchant services, payments on the commercial side at the merchant level, and we've put major investments 401K technology, you know, to push that, with the number seven of that businesses is the lowest market position of any business we had, number six or seven of what we are.

You know, so these are major investments. We are making hundreds of millions of dollars a year that go into that expense base, better paid for by the efficiency of the core businesses.

Betsy Graseck -- Morgan Stanley -- Analyst

OK, thanks.

Operator

And our next question is from Steven Chubak with Wolfe Research. Please go ahead.

Steven Chubak -- Wolfe Research -- Analyst

Hi, good morning. So I wanted to ask a follow-up on the NII outlook and really specific to premium memorization. Now, this given -- the sheer amount of growth we've seen in the MBS portfolio, the deployment of all the excess liquidity. Paul, I was hoping you could help size what the premium and benefit would be if we did see prepayment speeds revert to more normal levels and how much of that benefit is contemplated in the billion-dollar increase in the exit rate for 2021.

Paul Donofrio -- Chief Financial Officer

Sure. Let me just give you a couple of perspectives. One, the premium memorization in the first quarter was about $1.5 billion. And as, you know, as you point out, if the securities portfolio has grown, so as you try to size what it could come down to, you just can't go back to last year and look at what it was because the portfolio has gotten a lot bigger.

That's sort of one. Two, and I think about that billion dollars, I would say the most important driver would be the modest loan growth and the second most important driver would be the reduction in premium memorization. So maybe that's enough guidance right there. Again, we're not going to go down to where it was in Q1.

I re -- really I think, you know, Q4 '19 because we've grown so much. But it's going to be, you know, it's going to be meaningful in terms of, you know, a few -- more than a few $100 million in terms of that guidance we gave you.

Steven Chubak -- Wolfe Research -- Analyst

OK, understood. And for my follow-up, just wanted to ask on capital. You know, if I look at your SLR ratio, excluding the relief in your CET1 ratios, if I assume maybe like a 10.5% on set one, five in a quarter on SLR, the CET1 is still your binding constraint today. But just looking at the sheer amount of balance sheet growth you guys saw this past quarter, I think was about $150 billion or so, you know, our analysis suggests that you maybe haven't another $160 to $200 billion balance sheet growth headroom before the SLR becomes binding.

And as we consider our expectations just for additional QE Fed balance sheet growth, how are you preparing for that potential -- what sort of mitigating actions might you take if the SLR does in fact become binding?

Paul Donofrio -- Chief Financial Officer

It -- it's just the way out there, Steven. I don't think your numbers are right. And I feel -- well, I'd be glad to take you through some calculations but I think the numbers are a lot bigger than you think.

Steven Chubak -- Wolfe Research -- Analyst

Yeah. Yeah. We've done that work and I -- we came up with a bigger number in terms of balance sheet capacity.

Paul Donofrio -- Chief Financial Officer

On the SRL, it's 100 basis points times the much bigger base or the 75 basis points in the example, maintained by the quarter. So it's -- it's -- it's multiple of that. It's -- it's multiple --it's bigger than what we've grown so far from by the lot.

Steven Chubak -- Wolfe Research -- Analyst

Yeah, I guess, I think, what the difference is there is the lens of like what constraint becomes more binding in this SLR, I recognize you have access under both. But if the ratio is going to shake out sub-six pro forma, that relief gets at a 5% ratio, it's -- that's $500 billion of capacity to grow. But in terms of like where -- where you have the most access, it looks like SLR becomes binding. In relatively short order, we're just maybe a couple more quarters of, you know, $150 billion-plus growth in the balance sheet.

So I -- I guess that's what I was trying to get at, that is, would you look to mitigate it, given it becomes a little bit more binding than your set one constraints?

Brian Moynihan -- Chief Executive Officer

We've managed the capital ratios to maintain the minimum requirement, that's not the issue, but I think it's just -- it's -- it's hundreds of billions of dollars away. So --

Steven Chubak -- Wolfe Research -- Analyst

Yeah.

Paul Donofrio -- Chief Financial Officer

We're 6.1 pro forma, right? So April 1, and you know, that's -- that's $700 billion-ish of capacity down to the regulatory minimum. As you said, we'd want to have a buffer. But that's the rough math.

Steven Chubak -- Wolfe Research -- Analyst

OK. Fair enough. I -- I can take it offline with me later on, anyway. But that's -- that's very helpful in how you framed it so thanks very much for taking the question.

Operator

And the next question is from Jim Mitchell with Seaport Global Securities. Please go ahead.

Jim Mitchell -- Seaport Global Securities -- Analyst

Hey, good morning. Maybe first on just maybe the cadence for a card charge offs. You know, obviously, we had a little bit of an increase this quarter but 30-plus day delinquencies are now back down to almost near lows. Should we expect, you know, I think we hit charge-offs that we're in the hundreds in the fourth quarter.

Are we heading back toward that? Or how do we think, you know, you have lower balances, how do we think about the trajectory of card charge-offs, given your view of the delinquency book delinquencies?

Brian Moynihan -- Chief Executive Officer

If you go to page 4, Jim, you can see it. I mean, you -- you kind of summarized a bit. You know, we went from 400 up to 600, it will turn back down just because of look at that charge. You can see that what produces next quarter's charge us is obviously on the right-hand side of this page and this comeback -- is coming down.

So -- so you have a balance that's lower but also just half-year delinquency. And as you think further out, it's going to come from the left-hand side of the page and migrate to the right from actual charge-offs. Leave aside the projected and provisioning under the sea. So -- but just -- so you've got it right, it's -- it comes down and you would hope, frankly, that if you get the growth it might change this dynamic in six months or something like that just because it takes a lot of getting delinquency out anything, maybe much longer now.

But this is -- this is -- this bodes well for the next couple of quarters.

Jim Mitchell -- Seaport Global Securities -- Analyst

Right. So I mean, you know, the reason I ask is that if you look at charge-offs ratios only last year they were lower than pre -- pre-COVID levels so you still think we can sort of keep that very low level at least for now until balances maybe start to grow more significantly is that the takeaway?

Brian Moynihan -- Chief Executive Officer

But -- it -- it did probably go down as balances grow because there'll be no delinquency then. You know, a year later when the delinquency from those balances whatever minor amount it is comes through it might add to that. So the denominator effect will push even down further on percentage as the balances go up in your term, right?

Jim Mitchell -- Seaport Global Securities -- Analyst

OK. And maybe a follow-up on the technology side. You guys did an acquisition, a small one, obviously, Axia in -- in your merchant processing business. Can you just sort of giving your thoughts on the opportunity set up as -- as you build out that platform? Are there more acquisitions do you think involved? You know, what's -- what's your excitement level, I guess, of building that platform out?

Brian Moynihan -- Chief Executive Officer

Look, it's a great little company -- company that we can put across. The platform has a wonderful market position where it -- it plays and we're very proud of the deal. But the key is that we -- you got to go back to the whole history of merchant services. We sold half of it and a -- and a joint venture of 15 years ago now or whatever it was.

Rise Capital come forward, we bought it back. Remember, that's one of the reasons why our expense run rate moved up by $800 million to $900 million a year. People forget about us because we brought that in last year for half a year and it wasn't in two years ago. But the reason why bought it back is really to invest around that platform.

So what is exciting about it is things like the acquisition to take us in the medical area. What's exciting about is the ability to actually sell it through this sales force without having to have a nano and sales force selling it in our small business in our -- in our business banking colleagues that, you know, thousands of people out there can and can help deliver the product and then what's really exciting is the integration of payment scheme that we've been working on for commercial payments. So it's an integration to the, you know, P2P which is held as a small business and all these payment gateways, which is outside the traditional merchant business but you have to be completely flexible along all payment schemes to actually rooted much more favorable to the merchant with very low cost to them. And in real-time, you know, contemporary value exchange.

So what we're doing with real-time payments and Zelle and combination into the business platforms through the merger -- through the payment gateways. These are all exciting things and you go larger and it's a different element and blockchain payments and everything else. So we -- you know that's the core of the business on the commercial side but it goes all the way from small business all the way up to large companies and so that investment was part of that, the new investments were part of that and you expect us to keep driving at the implementation. The good news is we're getting the network effects of the Zelle and things like that.

When you look at those pages that, you know, Zell's half the credit card charge volume used by our consumers to make payments now, the new line that for a minute think 35 million credit card people out there charge in the Zelle has reach and half of it checks down 25% of the last couple of years in terms of checks written by and by consumers. It's -- so you get the network effect of that and you get the merchants to use it -- to use it in real-time. So this is all part of a thing that time when Mark Monaco and team are leading and there's AMEX in the commercial side that you should expect to see a lot. A lot of investments been made including a major replacement in the system that's coming to the P&L this year and the change in bringing the people fund fully on the balance sheet and a lot of investment will be made including acquisitions like we just made.

Jim Mitchell -- Seaport Global Securities -- Analyst

OK. That's -- that's a great color. Thanks, Brian.

Operator

Our next question is from Ken Usdin with Jefferies. Please go ahead.

Ken Usdin -- Jefferies -- Analyst

Hey. Thanks. Just one -- just one question on card and stimulus and -- how do you guys get the sense of -- of how much of the stimulus and incremental deposit growth is sticking around versus now kind of starting to be spent? And --and what's the trade-off with regards to the staging around that -- that re -- releveraging or that balance growth that might start to come over time in the card business specifically? Thanks.

Brian Moynihan -- Chief Executive Officer

You know, I think, just on -- it depends, literally, when you look in -- in customers earning -- earnings power and -- and things like that. But largely, I think, Paul and I last saw was a 30%-odd of the stimulus money has been spent to make it -- to be a simple mind about it. And so the other 70% sitting in people's accounts are little different by stratification of the earnings power of the household. And so that has to be spent, that bodes well for an economic reopening and stuff.

It has an effect on balances in cards and stuff, yes, because, you know, consumers have used to pay down their debt in part of what it has been spent -- has been spent to pay down card balances. And then, you know, with their limited travel we're just not getting as much use. But the good news is you watch January or February or March, with the virus and vaccine pathways come into for -- where the -- you're starting to see the purchase numbers go up. And the payments rate went way up as you've observed last year a 30%, you know, to last year in this quarter.

But you'd expect that that might be more constant and then the -- the users' rate will go up and start to drive some balanced growth which is good news. So the good news is the consumers are healthy from every aspect. We have no deferrals left except in the mortgage business. So all the debate we had about this last year this time through the system, delinquencies down, consumers sitting with their money in their accounts, and the economy opened up which bodes well and that's what you saw in the retail sales numbers today.

And we expect that number those numbers to even be higher in the month of April because March was partly -- partly reopened in the month and the weather isn't too pleasant in the Northeast to even if you wanted to eat outside in the northern parts of the -- of the central country.

Ken Usdin -- Jefferies -- Analyst

OK. Got it. And that's the offset -- the offset is in Jim's question about that back better credit cards could stick as an offset as well if there are still 70% sitting around. So we'll take that trade-off.

Brian Moynihan -- Chief Executive Officer

Yeah. And remember, where we play -- where we -- where we lend money in the consumer space, we never came close to it the projected losses where we -- we decide that the models projected that you knew by watching the consumer at delinquency and unemployment levels of our consumers. They're much lower in society and as that became clear that's what you're seeing coming through the reserve releases right now.

Ken Usdin -- Jefferies -- Analyst

Thanks, Brian.

Brian Moynihan -- Chief Executive Officer

Thank you.

Operator

It would appear as we have no further questions, I will now return the floor to our presenters for closing remarks.

Brian Moynihan -- Chief Executive Officer

Well, thank all of you for joining us. Thank you and the company produced $0.86 of earnings per share, $1 billion return, and tangible common equity is 17%. We look forward to talking to you next quarter and we continue to -- we'll continue to drive responsible growth while we're doing it. Thank you.

Operator

[Operator signoff]

Duration: 87 minutes

Call participants:

Lee McEntire -- Senior Vice President, Investor Relations

Brian Moynihan -- Chief Executive Officer

Paul Donofrio -- Chief Financial Officer

Glenn Schorr -- Evercore ISI -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

John McDonald -- Autonomous Research -- Analyst

Matthew O'Connor -- Deutsche Bank -- Analyst

Matthew OConnor -- Deutsche Bank -- Analyst

Betsy Graseck -- Morgan Stanley -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

Jim Mitchell -- Seaport Global Securities -- Analyst

Ken Usdin -- Jefferies -- Analyst

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