管理層發言
It is now my pleasure to turn the meeting over to Lee McEntire, Bank of America. Please go ahead.
Thank you. Good morning, everyone, and thank you for joining us to talk through our second quarter results in what is a busy bank earnings day. As always, the earnings release and presentation are posted on the investor relations section of bankofamerica.com, and we'll reference those materials during the call. Before we begin, a quick reminder that during the call, we may make forward-looking statements and refer to non-GAAP financial measures. These measures reflect management's current views and are subject to risks and uncertainties, which are outlined, along with the relevant GAAP reconciliations in our earnings materials and our SEC filings on our website. With that, I'll turn the call over to Brian Moynihan, our CEO.
Good morning, and thank you for joining us. Once again, our team delivered strong second quarter results, extending our momentum of the past several quarters. Our revenue grew 15% year-over-year to $31.6 billion. Our net income was $9.1 billion, up 27% from last year. Our EPS increased 34% to $1.21 a share. Our results show organic growth, operating leverage, and efficiency ratio improvement in every business segment. Along the bottom of slide two, you can see the progress against several of our key financial metrics for the firm. For the quarter, we delivered 6.6% operating leverage, and our efficiency ratio improved to 59%. We generated return on tangible common equity of 17%. In short, organic growth was broad-based and coupled with operating leverage, which translated into stronger returns on both equity and assets. Slide three shows the contributions and growth of each business segment. Every business segment contributed to our year-over-year growth. Average deposits and loan balances continued to grow, supported by healthy client engagement. Revenue and net income increased in every business segment. Each segment generated operating leverage. Each segment improved its efficiency ratio. Each segment demonstrated the benefits of its scale. Together, those results drive stronger returns across the company. Let me touch on a few earnings highlights from slide four, starting with revenue. Revenue growth was broad-based, led by NII, investment banking, wealth management fees, and sales and trading revenue. First, net interest income. It continued to perform well. On an FTE basis, NII was approximately $16.2 billion, up 9% over last year's second quarter. This is driven by the strength of our core lending and deposit-gathering franchises. It also includes our lending in our Global Markets business and the impact thereof. We also have added the benefit of ongoing repricing with lower-yielding assets and a repayment of higher-cost funding. Second, our fee-based businesses delivered exceptional results, translating into 22% non-interest income growth. Wealth management, investment banking, and markets all benefited from healthy client activity in favorable capital markets conditions. Merrill and the Private Bank advisors drove the 18% growth in investment brokerage fees. Investment banking fees increased 50% year-over-year to more than $2.1 billion. Sales and trading generated $7.2 billion in revenue, up 33%. Third, we manage cost while we continue to invest in our franchise, our brand, our people, our technology, and our AI-enabled productivity. Asset quality also remains stable and consistent with the strong underwriting discipline that has characterized our company for many years. Finally, capital generation and capital returns to investors remain strong. We've returned $8 billion to you through dividends and share repurchases this quarter. We ended the quarter with common equity Tier 1 capital of nearly $202 billion and a common equity Tier 1 ratio of 11.2%. The economic backdrop remains very constructive, as slide five illustrates. Last week, our research team raised its 2026 U.S. GDP growth forecast to 2.2%. They also have global growth expected to remain steady at 3.2% in 2026 and grow to 3.5% in 2027. As noted on the slide, consumer spending has recently expanded and continued to outperform our expectations. While the slide reflects 5% growth in year-over-year spending for the first half, spending picked up during the second quarter and now is running at 6%+ year-over-year comparison. Overall, the U.S. economy has proved more durable than expected, supported by the strong consumer, ongoing AI-driven investments across the board, and easing energy costs, though inflation and tighter monetary policy remain key risks. Before I turn it over to Alastair, I want to bring your attention to a couple slides. First, we have our digital slides in the appendix. In addition, we added a slide on AI. It's slide 20, which shows how our over 200,000 teammates are actively using AI-enabled capabilities across our company. These range from productivity tools to more advanced agentic workflows and coding support. Our associates are generating more than 400,000 prompts a day, and as of last week, we had over 300 AI use cases approved, all of which have good economics, of which 114 are live generative AI use cases. Thirty-four of those cases are fully implemented, and we see new capabilities coming on every week. These tools are designed to help our customer relationship managers prepare more thoroughly for client meetings. Our bankers automate research and presentation materials. Our developers code more efficiently, and all our teammates improve productivity, consistency, and client service while creating significant opportunities ahead of us. Now I'm going to turn it over to Alastair. Alastair?
Thanks, Brian. I'm going to pick up on slide six and start with the balance sheet, where you can see it remained a source of strength, and we continued to support client activity across the franchise. Our ending assets were steady at $3.5 trillion, steady compared to the first quarter, and primarily reflecting lower securities balances replaced by loan growth and Global Markets activity. We maintained strong liquidity and funding while we optimized our balance sheet, and we supported all that with diversified funding and healthy client-driven growth. When you look at regulatory capital, we remain in a strong position with our CET1 ratio stable at 11.2%, and that remains well ahead of our 10% minimum ratio. Tier 1 common equity grew to nearly $202 billion, while our RWA increased to $1.8 trillion, driven by loan growth and capital markets activity. Supplementary leverage remains strong and well above our minimums. When we turn to slide seven, you can see deposits remain a key competitive advantage and a source of strength for our company. Average deposits were $2.02 trillion, up $49 billion or 2.5% from a year ago, and importantly, included non-interest-bearing growth of $19 billion, up 4%. This marks our 12th consecutive quarter of average deposit growth. Growth was primarily driven by Global Banking, where deposits increased 8% year-over-year, reflecting continued client engagement and operating account growth. The second quarter saw muted sequential growth in average deposits because it was impacted by typical seasonal tax-related outflows. Otherwise, underlying client activity remains healthy and on track with our expectations. Importantly, our deposit base remains highly diversified across consumer, wealth, commercial, and corporate clients, providing a stable and attractive funding advantage. Our strong liquidity and funding position means we don't need to change cash rate-sensitive balances. With other relationship values like rewards, digital, and security features, it allows us to offer customers attractive rates and grow balances. We continue to see growth in both interest-bearing and non-interest-bearing balances. As shown in the upper right, rate paid was modestly lower this quarter, led by consumer deposits of 48 basis points on $957 billion in balances, reflecting favorable balance moves. Turning to slide eight, loan growth remains strong and broad-based. Average loans and leases increased to $1.2 trillion, up $88 billion or 8% from a year ago. Ending loans were also $1.22 trillion, up $71 billion or 6%, marking the ninth consecutive quarter of both average and ending loan growth. Commercial lending continues to lead growth, with average commercial loans increasing to $733 billion, up $75 billion or 11% from a year ago. We've seen growth both domestically as well as internationally, illustrated by the chart at the bottom right of slide eight. Additionally, commercial growth has broadened away from the Global Markets activity that we saw last year. Consumer loans increased 3% year-over-year, led by growth in securities-based lending and credit card balances. Credit card grew 4% year-over-year as we increased marketing and enhanced product offerings. The combination of first and second lien mortgage balances remains relatively stable, reflecting elevated rates, and included the ninth consecutive quarter of average home equity growth. These trends reflect healthy client activity across both commercial and consumer businesses, and they demonstrate the benefits of our diversified lending franchise. Turning to slide nine, net interest income continues to perform well despite a modestly lower short rate environment, which impacted variable rate asset yields. NII on an FTE basis was approximately $16.2 billion, an increase of $253 million from the first quarter and $1.3 billion or 9% from a year ago. On a year-over-year basis, growth was driven by higher loan and deposit balances, fixed rate asset repricing, and Global Markets-related activity. This was partially offset by the impact of lower average short-term rates. We've seen steady improvement now since the second quarter of 2024, when NII was $13.9 billion, rising to $16.2 billion now. Net interest yield was 2.08%. That's up 1 basis point from Q1 and 14 basis points from a year ago, reflecting favorable asset and liability mix and loan and deposit growth, partly offset by Global Markets balance sheet growth. Bank of America's banking book remains asset sensitive. On a dynamic deposit basis, a 100 basis points parallel shift above the forward curve is expected to increase NII by $1 billion over the next 12-month period. Looking ahead on NII expectations, in January, we told you to expect 5%-7% full-year NII growth. In April, we raised that full-year range to 6%-8%. We now expect full-year 2026 NII growth to be at the upper end of that 6%-8% range, supported by anticipated loan and deposit growth, fixed rate asset repricing, and balance sheet optimization. This assumes modest loan and deposit growth in the second half of the year, and it's based on the current forward curve, which has one 25 basis points rate hike in September. Overall, NII remains a significant contributor to earnings growth and reflects the core franchise advantages of our scale and diversified balance sheet. Non-interest expense on slide 10 was approximately $18.6 billion, up roughly $100 million from the first quarter and $1.4 billion from the second quarter of 2025, reflecting continued investment in technology, sales teams, financial centers, and brand marketing. It also includes higher activity-related costs that come from trading in our Global Markets business, particularly in our overseas markets. With those investments, we generated 660 basis points of operating leverage and improved our efficiency ratio to 59%, highlighting the performance of the franchise and the return on our investments. AI-enabled tools are now more embedded in workflows across operations, risk, finance, technology, and our client-facing teams. That's helped reduce manual work, improve speed, and enhance consistency for clients and teammates. On our first quarter earnings call in April, we told you we expected full-year operating leverage of more than 200 basis points. Operating leverage for the first half of 2026 has now exceeded 450 basis points. With that first half performance and our continued expectations for a strong second half, we now expect full-year operating leverage to be in the range of 300-400 basis points. Turning to slides 11 and 12, you can see credit quality remains stable and consistent with the strong underwriting discipline that's characterized our portfolio for many years. Provision expense was approximately $1.4 billion. Net charge-offs were also $1.4 billion, and both were largely unchanged from Q1. Consumer card charge-offs and delinquencies improved both year-over-year and quarter-over-quarter. Commercial credit also remained solid, with CRE improvement offset by some isolated corporate and commercial lending losses. Reservable criticized commercial exposures declined by approximately $2.3 billion from Q1 to roughly $22 billion, driven primarily by CRE improvement. Non-performing loans remained stable at approximately $5.8 billion, and we recorded a modest reserve release. Overall, our portfolio remains well-positioned, supported by strong client fundamentals and disciplined risk management. Turning to slide 13, now we get into the business segments. Consumer Banking delivered another strong quarter, combining solid financial performance with continued investment in growth, innovation, and client engagement. Over the past few months, we refreshed our rewards program, which has generated more than 2 million enrollments since the late May relaunch. We also launched one of our largest consumer marketing campaigns around the FIFA World Cup. We expanded our financial center network in new and growth markets, introduced new card products, and deployed new AI-enabled tools designed to enhance both the client and teammate experience. All of these investments help to strengthen the franchise and drive organic growth. Net income increased 10% year-over-year to approximately $3.3 billion, while revenue rose 5% to $11.3 billion. Through strong expense discipline, we generated our fifth consecutive quarter of positive operating leverage, maintained a strong 51% efficiency ratio, and delivered a 29% return on allocated capital. With regard to client activity, our deposit franchise remains a key competitive advantage. Average deposits rose to $957 billion, our fifth consecutive quarter of year-over-year growth. Client engagement was also strong with record checking account balances, 162,000 net new checking accounts, and card spending up 9% year-over-year to $266 billion. We continued to deepen relationships across the enterprise; consumer investment assets reached a record $640 billion, up 18% year-over-year, supported by strong market levels and net client flows. Digital engagement remains a clear differentiator, with roughly 50 million active digital users, more than 24 million active Erica users, and digital sales representing 70% of total sales. New AI capabilities have improved service, increased efficiency, and allowed teammates to focus on higher-value client interactions. Finally, consumers remain resilient as average deposit investment balances and spending all showed linked quarter increases. Additionally, consumer credit quality remains strong and in line with expectations, reflecting the strength of our customer base and our disciplined approach to risk management. Overall, Consumer Banking continues to demonstrate the power of our scale, digital leadership, and relationship-based model, positioning the business for sustainable and attractive long-term growth. Turning to slide 14, GWIM delivered another outstanding quarter, highlighted by record revenue and pre-tax income, expanded profit margins, and continued client growth. Clients continue to consolidate more of their financial lives with Bank of America. During the quarter, we added another 6,000 net new affluent households to serve. The continued strong growth in banking relationships and lending balances demonstrates the power of our integrated wealth and banking model. At the same time, both Merrill and the Private Bank continue to attract talented advisors who are drawn to the breadth of our platform and our ability to deliver comprehensive solutions for clients. The franchise continued to benefit from strong advisor productivity, growing digital engagement, and new AI-enabled tools that help advisors prepare for client conversations, identify opportunities, and deliver more personalized advice at scale. Net income for the segment increased 42% year-over-year to $1.4 billion, while revenue grew 16% to a record $6.9 billion, driven by higher asset management fees, strong flows, higher market valuations, and higher NII. With good expense discipline, we generated another quarter of positive operating leverage and saw pre-tax margins expand to more than 27%, demonstrating the scalability of this business. Client balances reached a record $4.9 trillion, up 12% from a year ago. Assets under management grew 17% year-over-year to $2.3 trillion, supported by approximately $14 billion of AUM flows this quarter and $78 billion of AUM flows over the past four quarters. Loans grew $13 billion or 5% linked quarter to $277 billion, driven by custom and securities-based lending demand. Overall, GWIM continued to demonstrate the strength of our advice-led, relationship-based model and remains well-positioned for sustainable growth. Moving to our commercial and corporate client-facing businesses in Global Banking on slide 15, Global Banking delivered strong results in the second quarter, reflecting healthy client activity, near-record investment banking performance, strong treasury service revenue, and continued balance sheet growth. Client engagement remained broad-based with activity across capital markets, strategic transactions, liquidity management. We continued our program of growth investments, including technology modernization, digital infrastructure, and AI-related initiatives. We're also using AI-enabled tools to help bankers accelerate their research, prepare materials, and identify relevant client opportunities more efficiently. Revenue increased 10% year-over-year to $6.2 billion, while net income grew 20% to more than $2 billion. Investment banking was a particular highlight. Total corporate investment banking fees, excluding self-led transactions, increased 50% year-over-year to more than $2.1 billion, reflecting strength across debt underwriting, advisory, and equity underwriting. Average loans increased 7% to $413 billion, while average deposits increased 8% to $652 billion, demonstrating continued franchise growth and client confidence. Credit quality remained solid, returns remained healthy with a 15% return on allocated capital. Turning to slide 16, Global Markets delivered an exceptional quarter. Excluding DVA, net income was $2.7 billion, up 70% from a year ago. Sales and trading revenue, excluding DVA, increased 33% to $7.2 billion. Equities delivered a record $3.6 billion of revenue, up 70%, driven by client financing activity and strong trading performance in derivatives and cash. FICC generated $3.5 billion, its strongest quarter in more than a decade. Growth was broad-based across the franchise. Domestically, our revenue in the U.S. increased 31%, while our international business delivered a 38% improvement, with Asia-Pacific as the standout. This is generally consistent with our Investor Day messaging of continuing our improved performance internationally. Perhaps what stands out most is the consistency of our performance, because we've now delivered our 17th consecutive quarter of year-over-year sales and trading revenue growth and our 14th consecutive quarter of year-over-year net income growth. Combined with 16% operating leverage and a 20% return on allocated capital, these results reflect the strength of our client franchise, diversified platform, and disciplined execution. Client activity remains strong and the connectivity between markets, Global Banking, and Wealth and Investment Management continues to create value for clients. Investments in technology and AI are helping teams deliver insights faster, operate more efficiently, and further strengthen our competitive position. This was a record quarter built on scale, client engagement, and consistent execution across the franchise. Moving to all other on slide 17. We recorded a $292 million net loss in the quarter, which is larger than the year ago with no significant drivers to note. We reported an overall tax rate of 21.5%, consistent with our full-year guidance. In closing, the second quarter reflects the strength of our diversified operating model. We produced double-digit revenue growth and more than $9 billion of net income, with EPS growth of 34% and return on tangible common equity of 17%. We also delivered strong operating leverage while continuing to invest in the franchise and supporting our clients. Across the company, clients continued to invest, transact, and grow. Activity remains healthy across lending, payments, investment banking, markets, and wealth management, including technology, digital infrastructure, and AI-related opportunities. We also see meaningful opportunities to continue using AI and automation ourselves to improve productivity, strengthen client engagement, and support disciplined growth across the company. Taken together, these trends simply reinforce our confidence in the long-term earnings power of the franchise and our ability to deliver responsible growth and attractive returns for shareholders. With that, Leo, let's open it up and we'll see what questions we can answer.
分析師問答
Thank you. If you'd like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question, and we'll pause for just a moment to allow everyone a chance to join the queue. Thank you. Our first question comes from Chris McGratty with KBW. Please go ahead. Your line is open.
Great. Good morning. Thanks for the question. Noticing the deposit discipline in the quarter. Alastair, I'm interested in your thoughts about pricing in a higher-for-longer environment. I know you didn't change the full-year NII guide, but your deposit pricing outperformed some of your peers this quarter. Any comments on the near-term outlook would be great. Thanks.
I'd say we just kept nudging NII a little higher as we've gone through the year, first from that 5%-7% up to 6%-8%, and then more recently saying we're probably going to be at the top end of that range. We've tried to express our confidence in the momentum of NII. Some of that comes from the deposit gathering. We have a lot of liquidity. We're not loaned up at this point. We've got $800 billion of excess between our cash and securities over our loans. That really allows us to concentrate on our strategy. Our strategy is very clear. We're trying to grow clients and operating accounts. That's the highest-quality growth. It's the highest-quality clients. Because when you get that operating account, it's key to the financial lives. When consumers open 162,000 net new checking accounts, or when we grow non-interest-bearing balances for consecutive quarters, that's what helps us to drive the non-interest-bearing up 4%. The lower rate paid is really about mix, Chris. We're competing out there for deposits like everyone else. We compete to get deposits where we can. At the end of the day, our strategy is about relationship value, all the things around digital and security and rewards that we emphasize. It's that favorable mix of growing non-interest-bearing balances that makes a difference.
Okay. That's helpful. I appreciate that. On the operating leverage conversation and the new slide, I'm interested in the sustainability. Obviously the comps will be a factor, but the influence that AI might have on that over time.
There are two elements to that. First, at Investor Day we said the sustainable target was something like 200-300 basis points. Right now we're outperforming that. We've had a terrific first half at 450 basis points. That's giving us confidence for the full year to say it's going to be above the range. AI plays a role in two ways. The first is on the revenue side. There's a big AI theme going on globally. We're leading in investment banking and Global Markets around capital raising and financing the capital investment and infrastructure build around the world. That's helping us there. On sustainability going forward, can AI help our own operations? The answer is yes. That's why we put that slide in. If you go to slide 20, you can see we're embedding these tools in productivity tools aimed at functions like bankers, wealth professionals, and software developers. There's another layer of AI that accesses a lot of the company. The right-hand side shows expected outcomes: growth, efficiency, risk management, and resiliency. We're updating you on AI as we're progressing. To date, we have about 300 approved model cases and 114 live generative AI use cases. This will be an ongoing effort.
Understood. Thanks so much.
Thank you. We'll now move on to Glenn Schorr with Evercore. Your line is now open. Mr. Schorr, please check your mute switch. Your line is open. We'll move on to Ken Usdin with Autonomous Research. Your line is now open.
Morning, Glenn. You there?
Hi, thanks a lot. Hey, Alastair, just on the positive operating leverage point, I think you've made it very clear about the comps getting a little harder in the second half because of the ramp you had last year, starting with NII and also markets. Can you help put it into context? With 300 and 660 basis points of leverage and now talking to a full year of 300-400, how should we think about operating leverage potential for the second half as we get tougher comps, albeit with good top-line revenue growth continuing? Thanks.
We're offering the 300-400 range, recognizing we've already booked 450 for the first half. We're giving you a range that allows you to work backwards, because as you point out, in the second half of last year NII rose more than the first half. We think that can happen this year as well, but it might not, and the percentages change as the numbers get bigger. Remember, second quarter last year was a slower quarter for investment banking across the industry. If we put up $2.1 billion of investment banking this year, up 50%, sustaining that relative to what we did in the third quarter of last year won't give the same uplift in the second half. That's what we're considering. Otherwise, business conditions are very good. We're trying to maximize operating leverage where we can.
Okay. Got it. You mentioned balance sheet optimization. Can you talk about where you have room to continue to optimize across the balance sheet, both asset and liability sides, as you focus on that?
There are two places you'll see it. First, we believe we can improve net interest yield over time. We've done that; we're at 2.08% now, up from 1.94% a year ago. We've carried some repo and institutional CDs that over time we expect to pay down. If those are invested at the Fed, they don't capture much spread and can hurt NIY and tie up capital. As we pay those down, you'll see more capital freed up and better return on tangible common equity. We expect more of that to happen in the second half of this year. We'll stick to that program and see opportunity in the second half.
Just note there's no constraint on growth of loans or core deposits. Those can grow and give good returns. It's really the centralized securities portfolio—term debt, repos—that we've been working down as the rules changed. We're through much of that buildup and are on the other side now.
Okay. Got it. Thanks, guys. Appreciate it.
Thank you. We'll move on to Manan Gosalia with Morgan Stanley. Your line is open.
Hey, good morning. Alastair, you outlined higher rates as a positive. If the rate environment changes, would that impact the NII guide, and how should we think about markets NII overall, given that prime brokerage and some other businesses are doing better—any offset to reaching the high end of the 6%-8% NII guide?
If there's one rate hike in the curve, it's in September. Its impact this year is modest because the benefit is captured in October, November, and December. We will adjust pricing in each of our segments for any rate hike. Net-net, we expect that to be a positive and that's in our guide where we expect to be at the top end of the range. The banking book is liability sensitive predominantly, which is the main benefit. The markets business is slightly liability sensitive, so that's a slight offset. Net-net, it is positive for us.
Got it. As you think about loan growth in the back half of the year and middle-market C&I growth, how is that trending and what do you expect overall as we get into the back half of the year?
Middle market is growing similar to commercial loans overall. They're growing around 8% or so, including middle market and larger corporates. We've been growing loans at roughly $20 billion per quarter for over nine quarters—7% last year, 8% this year. Commercial growth looks pretty good and we don't see that changing. We're in a good environment for loan growth. Also watch card growth: Holly laid out a plan to get back toward 5% card growth—we were at 1%, then 2%, then 3%, and this quarter 4%. Securities-based lending has been positive given market performance and wealth clients' demand. We remain constructive on loan growth in the second half.
Great. Thank you.
Thank you. We'll move next to Ben Gerlinger with Citi. Your line is open. Please go ahead.
Hi. Good morning. I was curious: does the updated guide closer to the higher end of NII incorporate more productivity on the average earning asset mix? I know you alluded to more productivity down the road. Is the guidance based on a static balance sheet or a continuation of more loans in average earning assets?
Welcome to coverage. The updated guide essentially assumes modest deposit growth similar to what we've been seeing, continued loan growth in the second half similar to recent trends, some fixed-rate asset repricing—more of that in the second half than the first. We haven't changed perspectives on deposit or loan growth. The balance sheet efficiency I described is more about net interest yield than NII alone.
Gotcha. If I could follow up on operating leverage: you've increased the full-year guide. With higher revenue production, do you risk under-investing? Could you speed up spending so it pulls forward into this year and reduces that leverage?
We are spending at a good clip in technology and focusing companywide on careful evaluation and implementation of AI projects. We outlined our approach on slide 20. There are productivity increases and a lot of spending. Whether that dramatically increases technology expenditure this year depends on shifting of spending and efficiency gains from tools. The same amount of money next year may buy more code or productivity than previously. We're continuing to invest, particularly in Consumer Banking—financial centers, new markets, and marketing. Incremental expense growth this quarter versus last year included incentives and activity costs tied to higher revenue. If revenue continues to grow, we'll spend; if revenue slows, expense growth will slow. Our methodology for spending is consistent: invest in growth opportunities while maintaining expense discipline.
Great. Thank you.
Thank you. We'll now move on to Erika Najarian with UBS. The line is now open.
Hi. Good morning. Investor feedback so far is that the net interest income guide may be conservative. The first half NII growth is up 9%. The second half has tougher comps. You mentioned the guide includes modest deposit growth, good loan growth, and improving card growth. Are we getting earning asset growth in the second half but not much NIM expansion? I'm trying to understand what will slow NII growth from the 9% printed for the first half.
It's not slowing much. Most of the NII build last year was in the second half, so we're up against tougher comps. We need to keep growing loans and deposits, focus on operating accounts and non-interest-bearing balances, and we will benefit from fixed-rate asset repricing. We've invested in Global Markets' balance sheet, which is a net positive, but I don't expect that to be a big incremental driver in the second half. Overall, it looks to us like more like 8% for the full year given the comps.
Got it. Second, Brian, you printed a 17% return on tangible common equity this quarter. Two-part question: one, is positive operating leverage being better in the full year but slower in the first half only due to seasonal revenue factors? If the pipeline continues to be robust in banking and markets, it could be better, right? Second, as you think about strong returns, are you willing to invest in slightly lower-return businesses like equities financing to set up earnings growth going forward?
The ROTCE at 17% came sooner than we expected, in part due to strong operating performance, NII lift, and markets. The current pipelines are strong, but there are geopolitical uncertainties that could affect markets and deal flow. Right now, returns are healthy and we expect to maintain them. Regarding accepting lower-return businesses, we constantly evaluate businesses against return on tangible common equity. Our focus is to grow the bottom line while maintaining acceptable returns. Units operating below target must be careful; we push for optimization opportunities that improve returns. We continue to invest in growth where it makes sense and produce attractive returns for shareholders.
Got it. Thanks.
Thank you. We'll now move on to Mike Mayo with Wells Fargo. Your line is now open.
Hi. Could you elaborate more on the change in your operating leverage guide? That's quite a big lift. You addressed NII. Aside from that, it still seems guided higher. Your marginal margin or scalability—can you highlight which areas are impacting that the most?
At Investor Day we outlined that the model works if we can create 200 basis points of operating leverage organically. We thought 200-300 basis points would be sustainable. We've outperformed in the first six months. Two reasons: NII continues to grind higher and all of that flows to the bottom line, and we've had terrific fee-based performance—AUM, sales and trading, investment banking. Halfway through the year with 450 basis points of operating leverage, it's clear we'll be above 300. We know the comps are tougher in the second half, but it's still a strong second half.
Did you provide any expense guidance for the year or the second half?
No. We largely moved away from specific expense guidance because when revenues increase quickly, some costs are activity-related—brokerage clearing, FA incentives, exchange costs—and it's hard to update expense each quarter. Operating leverage is a clearer way to present that. Headcount is a useful core measure; headcount has been flat to slightly down over the last six quarters. We expect good core expense discipline; expense will largely follow revenue.
As a follow-up, going back to Investor Day, I think you're looking for cards to grow 5%. It's been 1%, then 2%, then 3%, now 4%—progressing. You also hope for net new asset growth at 5%. The net client flows this quarter weren't as strong. Could you comment? Also, on commercial loan growth, is traditional C&I growth coming back broadly across the U.S.?
On the Merrill 5% aim over the next three to five years, we've had a good start, adding net new households this quarter. AUM flows were positive. Loan growth was up $13 billion in GWIM. Advisor attrition is near historic lows. We're off to a good start. On commercial loan growth, it's broader than AI; capital investment globally is driving demand. Each line in Global Banking is contributing: business banking, commercial bank, and corporate bank—all contributing to broad-based commercial loan growth. That's another reason we're comfortable with the NII guide for the second half.
All right. Thank you.
Thank you. We'll now move on to Gerard Cassidy with RBC. Your line is now open.
Hi, Brian. Hi, Alastair. Can you take a step back and give us a sense of what you're seeing in underwriting for credit? Is there ongoing risk? Numbers are great, and the economy is healthy. What trends are you seeing?
Overall, we stick to disciplined underwriting. That consistency allows us to grow in middle market areas, small business, and other core segments. Some excesses have developed outside the banking system; some of that is coming back to bank-lendable terms. We see price pressure in some very liquid consumer products like auto, where pricing got tight, and we pulled back. Overall, credit quality is high, underwriting is strong, and credit costs have been stable. Economic strength—consumer spending, low initial unemployment claims—helps support that. We continue to watch segments like real estate and private capital lending, but they haven't surfaced broad issues the way some expected.
Very good. As a follow-up, AI is a powerful economic force. Have you framed out the second-order credit effects beyond data center build-out? Two to four years from now, if AI slows, what are second-derivative credit aspects? Have you thought about that?
We factor AI into underwriting and credit assessments. Teams consider AI's impact on industry and company earnings power. It will take time, and we continue to watch it. For deals tied to AI or energy or infrastructure, we assess tenant or operator credit strength. We also advise and encourage companies we lend to to adopt AI responsibly to avoid being left behind. AI is powerful and has great utility, but it requires careful management of data, rules, and processes. We feel strong about the opportunity and manage risks accordingly.
Thank you, Brian.
Thank you. We'll now move on to Matt O'Connor with Deutsche Bank. Your line is now open.
Good morning. Quick follow-up on NII. The guidance for this year implies essentially up 8%. What is that ex Markets?
Give me one second. I can help offline after the call. Markets NII is not a big factor; I expect markets NII to be flattish and could be slightly down with a rate move in the fourth quarter. Most of the growth will come from the banking books. We don't normally provide guidance ex Global Markets because there are moving pieces; stripping it out can be confusing. Bottom line: markets NII will be flat to slightly down, and it's not the driver of second-half NII performance.
Okay. Longer term, you talked about NIM grinding higher and referenced a 230 basis point target earlier. Any updated thoughts on NIM over time?
We still feel good about the 230 basis point number. We said it would take two to three years; we're probably a year closer now. Growing the markets business, which has lower net interest yield, has suppressed the overall NIM, but that was a conscious investment, and it's proven beneficial. It's less about net interest yield and more about net interest income in terms of dollar contribution. We're confident and remain on track for that 230 target.
Okay. Thank you.
Thank you. There are no further questions in queue. I'd be happy to return the call to Brian Moynihan.
I thank all of you for joining us. Consistency is key across our metrics in every area—NII, fees, lending, deposits. Revenue growth is strong and diversified across many businesses. Credit costs have flattened at historically low levels and delinquencies are improving. Given all that, we set guidance at the top end of a range for operating leverage, and we expect a strong second half. Market pipelines are full, investor demand for debt and equity is strong, commercial lending is strengthening and broadening, and consumer spending is supporting the U.S. economy. Our company is well-positioned to be part of that growth, and we look forward to talking to you next time. Thank you.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.