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BAC Bank Of America

Participants
Brian Moynihan CEO
Lee McIntyre Investor Relations
Paul Donofrio CFO
Glenn Schorr Evercore
Matthew O'Connor Deutsche Bank
Mike Mayo Wells Fargo
Gerard Cassidy RBC
Betsy Graseck Morgan Stanley
Jim Mitchell Seaport Research
Charles Peabody Portales
Steven Chuback Wolfe Research
Ken Usdin Jefferies
Chris Kotowski Oppenheimer
Call transcript
Operator

Stand by, your program is about to begin. [Operator Instructions]. Good day, everyone and welcome to today's Bank of America earnings announcement. At this time, all participants are in a listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. I will be stating by if you should need any assistance. It is now my pleasure to turn today's conference over Lee McIntyre. Please. Go ahead.

Lee McIntyre

Thank you, Catherine. Good morning. Thank you for joining the call to review our Third-quarter results. Hopefully you've all had a chance to review the earnings release documents.

As usual, they're available, including the earnings presentation that Brian and Paul will be referring to during the call. They're available on the Investor Relations website of bankofamerica.com.

So I am going to first turn the call over to our CEO, Brian Moynihan for some opening comments, and then Paul Donofrio, our CFO, will 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 I would ask you to refer to non-GAAP financial measures during the call regarding various elements of the financial results.

Forward-looking statements that we make are based on management's current expectations and assumptions, and they're subject to risks and uncertainties. Factors that may cause the actual results to materially differ from expectations are detailed in our earnings materials, and the SEC filings available also on our website, Information about the non-GAAP financial measures, including reconciliations to U.S. GAAP can also be found in our earnings materials, and those are available on our website.

So with that, let me turn it over to Brian. It's all yours.

Brian Moynihan

Thank you, Lee (ph). And good morning to all, and thank you for joining us.

This quarter, the economy continued to make solid progress and our clients continued to perform well, having adjusted to the operating environment. Many companies are making healthy profits and our research team expects another strong quarter of profits by American businesses. We reported $7.7 billion in net income or $0.85 per diluted share in the third quarter, up significantly from the year-ago period. We've now earned over $25 billion for the first 9 months of the year.

This quarter's strong results include some themes I want to highlight ahead of Paul (ph) going through the details on the quarter. Prior to the pandemic, Bank of America was growing and creating operating leverage quarter after quarter after quarter.

As I said last quarter, the pre-pandemic organic growth machine has kicked back in.

You see that this quarter, and is evident across all our lines of businesses.

In addition, this quarter, we saw the return of operating leverage.

We also saw another quarter of solid loan growth. The good news is that the nature of this growth has broadened in the third quarter, even as commercial banking utilization rates have improved somewhat. NII has improved significantly, reflecting the many quarters of growth in deposits and now loans. That also reflects the steady management of the interest rate risk and deployment of cash from our core deposit growth. At the same time, we still have a high level of asset sensitivity. We invest in our core deposits and that's supported stability in NII over the last year as rates and loans declined. What that did is bridge us to where we are now.

This quarter where growth in loans and other factors that lead to an improvement in NII and a NIM. Strong free growth has complemented that NII improvement. And with expenses moving sharply lower, we saw notable return of operating leverage. Year-over-year, our revenue is up 12% and the expenses were flat.

Our efficiency ratio is approved to 63%.

As I've done in the past, I want to spend a moment on what we see in our consumer data.

Let me hit a few slides beginning first on slide 3. The improvement in the vaccination and hospitalizations, all the things you know about, have seen the U.S. economy continue its reopening trajectory following a modest slowdown from the surge in cases caused by the Delta variant. There's been some discussion around the slowdown, I'll just note that the U.S. economy is now as large as it was in the pre-pandemic.

Our own research team, not being in [Indiscernible] at all, expects the U.S. economy to grow 5.5%+ this year and 5.2% next year. These growth rates are more than twice the growth rates that occurred in the pre-pandemic decade or longer. Unemployment rates continue to fall back to pre-pandemic levels.

While the U.S. still has issues around labor supply, and supply chains of materials, the economy is moving along.

Looking at our own customer base and consumer spending, I'd offer you a few insights.

Third-quarter, total Bank of America consumer spending you can see it on the lower left-hand part of the slide. Payments were robust. They reached 937 billion up 23% over 2019 for the quarter and a similar percent of growth over 2020. September was the best month of the year, and we've seen that spending rates continue through the first part of October. Combined spend on total -- on debit and credit cards, which is a subset of this total, about 25% of it in that retailers and services remains strong. In third-quarter '21, we continue to see spending shift toward travel and in-person entertainment as well as fuel driven by both increased use in higher fuel prices. Year-to-date as you can see in the chart, our total payments of $2.8 trillion by our consumers are 22% ahead at the 2019 levels. In the chart on the right, you can see how fast the growth rates occur this year. And that's another economic sign -- signpost to the steady recovery.

Now as we turn to loan growth on Slide 4, you can see this chart that we've been presenting to you for last several quarters. Why do we show you this? We wanted to show you that as we hit the bottom, the inflection point, and what happened a couple of quarters ago. And this chart gives you a sense of the daily progression across those quarters.

As you can see, every loan category is thought to see an improvement. And if I showed you this by our lines of business, you would see similar progress across each one of them. Overall, ending loans, excluding PPP loans, which are in a forgiveness process, as you well know. Overall, those loans increased $16 billion linked-quarter. And if you look at the commercial portfolio, they grew $11 billion quarter-over-quarter. Compared to growth in Q2, growth this quarter was broad-based across global banking and global markets in the commercial space. C and I growth was driven in part by improved calling efforts from commercial Relations Manager that we deployed across the world, including in addition to a growing demand for credit.

As you might note, we've invested in hundreds of relationship managers in our commercial lines of business, and you know, those investments are now bearing fruit. Loans with our wealth management clients continue to grow this quarter.

As these customers borrow for the reasons they borrow for liquidity and asset purchases and other things. Interesting in our small business area, we're seeing the business have stabilize and start to grow.

One of the areas is our Practice Solutions Group. What that group does is lend to -- lend to medical, dental, and veterinary practices. They've continued to see momentum and are on the pace for the best years they've ever had.

Now, turning to consumer loans, the American consumer continues to borrow from Bank of America. Card loans grew 7% annualized from quarter two levels with increased spending. And as you well know, repayment rates trends remain high. All products on the consumer side except the home equity balances had higher balances for the quarter. The decline in home equity balance is understandable given the prepayments in mortgage loans, et cetera. But still we saw 1.5 billion in originations this quarter, up more than 50% from last year's third quarter.

Now, turn your attention to slide in appendix not to cover it now, but you should take a look there and you'll see the true loan lining business on a bottom left-hand side that slide. And you'll see without the volatile PPP in and out that's occurred because the program design, the loans this year in those lines of businesses are basically within 1% of where they were last year, and we can grow out from here.

Moving to slide 5, we want to show the continued reemerged the pre-pandemic growth machine of Bank of America. We give you a few highlights.

Our Depo -- under the deposit side, we grew net consumer checking accounts, which are the primary transaction accounts for our consumers, 93% being primarily for the 11th consecutive quarter. This drove the continued growth in deposits in our leadership position in U.S. retail deposit market share reaching $1 trillion of deposits in our consumer segment alone. On credit cards to cross back over a million new card production. That's the same levels we were pre-pandemic.

New investment accounts have increased 9% during the pandemic. Digital progress has occurred across every business and you'll see that in Paul 's slides later. And that's increased sales of products and high use of digital platforms. This bodes well for future sales levels and for future efficiency. Sales of banking products in Merrill Lynch and the private bank have remained strong and with the return to in-person meetings we should them even see them grow stronger.

We have seen year-to-date assets under management flows grow and then nearly tripled compared to year-to-date '19. In markets and banking we had a near-record quarter [Indiscernible] investment banking and equity trading revenue.

So these are just a few examples of the customer growth we're seeing. A point or two on capital.

This quarter's level of profits, coupled with our excess capital, allowed us not only to pay higher dividends to shareholders, but also to buyback $10 billion in shares. In total, we returned $12 billion to you our shareholders through these actions, proving that we can support our customers in a growing economy, support our teammates with great pay and benefits, and support our community sales I'll describe in a minute. But above all, and return capital to you our shareholders and drive good returns for you.

Going to Slide 6. With regard to how the teams are delivering more broadly in our communities, we gave you in Slide 6 an update on our $1.25 billion commitment. To date, we have directly funded nearly $400 million, about 1/3 of that commitment. This includes $36 million in completed in equity investments in MDI and CDFIs. $300 million in equity investment commitments to minority-focused funds to support minority and women entrepreneurs and businesses. And $70 million have directed it philanthropic giving, directed at the priority shown on the slide, in addition to the amount we usually give on a yearly basis.

Now it's worth noting that in addition to the equity investments, we have $2.1 billion in deposits in CDFIs and MDI, the largest in U.S. doing that.

If you go to the next slide, slide 7, this is what we're doing with our customers to help them with their financial lives even better. It highlights the products and services starting with financial well-being of our retail clients, particularly in the low-to-moderate income areas we serve. This includes our commitment to our pathways program, where we hire team mates from our local communities to serve our communities and be successful in our Company as a Company of opportunity for them. We recently had to hire another 10,000 teammates from those communities -- from our communities over the next 5 years. That's because we completed the first 10,000 a year early. The unified ways in which our teammates and local markets do a spectacular job of approaching both banking from a global scale and both banking from a local community is unique and delivers every day for us. It's been a great job by our team this quarter, and I want to thank them.

Now I'm going to turn it over to Paul. But as you know, Paul has been our CFO since 2015, has done a spectacular job with our Company. He's going off to help us do some interesting things in the Company, and I just want to congratulate and thank Paul for his support. I'll now turn it over to him to take you through his last earnings call. Paul?

Paul Donofrio

Thanks, Brian. Hello, everyone. I will start on Slide 8 by adding a couple of comments on revenue and returns. On a year-over-year basis, revenue rose 12%. The improvement was driven by a nearly $1 billion increase in NII, and a nearly $1.5 billion increase in non-interest income. By the way, every business segment produced year-over-year improvement in non-interest income. Expenses declined from Q2 and were flat with Q3 20 despite the year-over-year improvement in revenue and related cost.

Solid revenue growth while holding expense is flat, created 1,200 basis points of operating leverage and resulted in 8.3 billion of pretax, pre-provision income up 40% year-over-year. With respect to returns, our return on tangible common equity was 16% and ROE was 99 basis points, both of which improved nicely from the year-ago period.

Moving to slide 9, the balance sheet expanded modestly versus Q2 to a little more than 3 trillion. After funding 9 billion of loan growth, deposit growth of 56 billion generated excess liquidity that was placed in a mixture of securities and cash.

Our liquidity portfolio grew to 1.1 trillion or 1/3 of the balance sheet. Shareholders equity declined 4.7 billion from Q2 as capital distributions outpaced earnings this quarter. With respect to regulatory ratios, CET1 under standardize approach was 11.140 basis points lower than Q2, driven primarily by a reduction in excess capital through share repurchases and to a lesser degree, higher RWA as a result of commercial lending growth. The ratio was a 160 basis points above our minimum requirement of 9.5%, which translates into $26 billion capital cushion.

Given our deposit growth, our supplementary leverage ratio declined to 5.6% versus a minimum requirement of 5%, which leaves plenty of capacity for Balance Sheet growth.

Our T-LAC ratio remained comfortably above our requirements.

Turning to slide 10, I will focus on average loan balances because they are more closely linked to NII. Note that loan growth over the past 2 quarters has begun to show signs of improved demand, and I will refer to quarter-over-quarter improvements on an annualized basis. Also note that these charts include PPP loans, which have been moving lower, driven by forgiveness. The footnotes detailed the change in PPP loans. From a peak of $25 billion last year. PPP loans have declined through forgiveness to a little more than 8 billion on an ending basis.

Focusing on the link quarter change in loans and excluding PPP loans, total consumer and commercial loans grew on an annualized basis by 9% with commercial growing at 11% and consumer improving 6%. [Indiscernible] continued to benefit from security-based lending, as well as custom lending, while mortgage continued to perform solidly and global markets, we again look ed for investment-grade opportunities with clients as a good use of liquidity. In Global Banking, we saw utilization move past stabilization this quarter. But utilization rates are still 700 basis points lower than 2019, representing a $30 billion GAAP from current loan levels. In consumer, we saw credit card grow as new accounts continued to build across the quarters and credit spending continued to rebound. And importantly in mortgage, as Brian noted, we saw growth as prepayment volumes slowed. With respect to deposits on slide 11, we continued to see significant growth across the client base, adding accounts across all with deposit-taking businesses. Combining both consumer and wealth management, customer balances, I would highlight that retail deposits grew 28 billion from Q2. These deposits -- these clients now entrust us to manage more than 1.3 trillion in deposits, which is more retail deposits than any other U.S. bank.

We also saw strong growth of 28 billion with our commercial clients. And remember, the deposits we are focused on and gathering are the operational deposits of our customers in both consumer and wholesale.

Turning to slide 12 and net interest income. On a GAAP non - FTE basis, NII in Q3 was 11.1 billion, 11.2 billion on an FTE basis. Net interest income increased 965 million from Q3 '20, driven by deposit growth and related investing of liquidity, as well as PPP loan activity. These drivers were partially offset by lower loan levels. NII versus Q2 '21 was up 861 million. There were several positive contributors to the quarter-over-quarter growth.

First, we had an additional day of interest.

We also benefited from the continued deployment and growth of liquidity. Average loan growth also contributed to NII again this quarter. And we experienced an acceleration in the forgiveness of PPP loans, which improved NII quarter-over-quarter by a couple of 100 million. Last but not least, we had lower bond premium amortization expense, which declined from 1.6 billion to a little more than 1.4 billion. With respect to PPP loan forgiveness, I will emphasize that this was an acceleration or pull-forward of NII into Q3 from future periods. And as a side note, I would point out that the revenue from the PPP program has helped to defray some of the enormous cost of administering this assistance program on behalf of the government.

Our net interest yield improved 7 basis points from Q2 to 1.68% driven by the improvement in NII.

Importantly, given continued deposit growth and low interest rates, our asset sensitivity to rising rates remains significant, highlighting the value of our deposits and customer relationships.

As we move to Q4 and assuming no significant interest rate changes, we expect benefits from expected loan growth, liquidity deployment, and lower premium amortization expense to more than offset the expected reduction in PPP revenue I mentioned.

Assuming the forward curve materializes and given Q3 NII growth, as well as expectations for Q4 and assuming we see any loan and deposit growth next year, we would expect NII in full-year 2022 to be well above full-year 2021.

Turning to slide 13, on expenses. Q3 expenses were 14.4 billion, an improvement of more than 600 million versus Q2. Higher revenue related costs were more than offset by the absence of the prior quarters' contribution to our charitable foundation, as well as lower costs of unemployment claims processing. Compared to the year-ago period, expenses were flat as improvements in net COVID costs, the absence of elevated litigation in Q3 '20, as well as digitalization benefits and other initiative savings were offset by higher revenue-related and other costs.

As we look forward, we continue to see investment in technology and people at a high rate across the businesses. And we are adding new financial centers in certain growth markets.

Turning to asset quality on Slide 14.

As I've reported for several quarters, the picture is very good here. Net charge-offs this quarter fell again to 463 million orC 20 basis points of average loans. This is the lowest loss rate in 50 years. Net charge-offs were 22% lower than Q2 and more than 42% below the same quarter in 2019.

Our credit card loss rate was 1.7% and several loan product categories were still in recovery position this quarter. Provision was a $624 million net benefit-driven primarily by asset quality improvement as delinquencies and reservable criticized commercial loans continued to move lower. We had to reserve the lease of 1.1 billion split roughly 80% in commercial and 20% in consumer.

Our allowance as a percentage of loans and leases ended the quarter at 1.43%, which is still well above the level following our day one adoption of [Indiscernible], especially considering the mix of loans today versus then. To the extent, the macroeconomic environment and asset quality improves further and remaining uncertainties dissipate, we expect our reserve levels could move lower. On Slide 15, we show the credit quality metrics for both our consumer and commercial portfolios. The only point I would make here is just to note the continued low level of late-stage [Indiscernible] loans, which drives expectation that card losses could decline yet again in Q4 before leveling off.

Turning to the business segments, and starting with consumer on Slide 16.

Before I touch on the financials, I want to highlight what a great job this team has done in turning this business around since the pandemic.

All of our businesses -- of all our businesses, Consumer Banking was the most heavily impacted by the pandemic, which at its worst, drove quarterly profits to a very narrow level before rebounding. We incurred heavy cost to protect the health of our associates and customers, and we added contractors and other resources to support the government in our own customer assistance programs. We added billions to credit reserves, depressing profits, as [Indiscernible] mounted with respect to potential credit losses. Net interest income declined as interest rates fell quickly and significantly. Fast-forward to this quarter, and the segment's rebound has accelerated as earnings rebounded to more than 3 billion. Net charge-offs are at historic Lows and NII has rebounded, reflecting not only deposit growth, but also the value of their deposits and customer relationships. The business alone has now crossed over 1 trillion in deposits, up 16% year-over-year.

Our point here is that years of investing and operating under responsible growth, positioned us to not only deliver for everyone during the pandemic, but also rebound quickly to organic growth and operating leverage. We were never down and we never stopped investing. And while this is true of every segment, the rebound in our Consumer Banking earnings is just a great illustration of the resilience of our business and our people. The segment earned 3 billion in Q3, 48% higher year-over-year as revenue, expense, and credit cost all showed improvement. Revenue improved 10%, reflecting higher card income on increased purchase volumes and higher service charges due to client activity. Net checking accounts grew more than 700,000 year-to-date, and 93% of our consumer checking accounts are primary accounts with an average checking account balance of more than 10, 000. Expenses moved lower by 6% as a result of a continued reduction in COVID costs mitigated by higher costs for minimum wage increases and other operating costs. On credit, We had a $242 million reserve release this quarter.

However, the more direct indicator of improved asset quality is the decline in net charge-offs. Net charge-offs of 489 million were down 26% year-over-year and 22% lower quarter-over-quarter.

Our credit card net loss rate for the quarter was 1.7% pre-pandemic, it was over 3%. On Slide 17, you can see the increase in consumer deposits, loans and investments. We covered loans and deposit growth earlier with respect to investment balances, we reached a new record of 353 billion, growing 32% year-over-year as customers continue to recognize the value of our online offering. Yes, balance grew as market values increased, but we also saw 21 billion of client flows. An important element of this growth has been the 9% growth in the number of accounts over the past year to more than 3 million. On slide 18, let me highlight a couple of points regarding the continued improvement in digital engagement.

As all of you know, enrollment is important, but usage is key. We now have nearly 41 million customers actively using our industry-leading digital platform.

This quarter, 70% of households used some part of our digital platform within the past 90 days, logging in more than 2.6 billion times. And while Erica and Zelle usage has been tremendous, what I would draw your attention to is the digital sales growth, which is up 27% year-over-year.

Lastly, will not reflect on the slide, I would just add digital engagement has become foundational to maintaining our customer satisfaction at historic levels.

Turning to Wealth Management, the continued economic reopening, client flows, and strong market conditions once again led to not only record investment balances and asset management fees, but also record levels of loan and deposits all contributing to a record pretax margin in Q3.

In fact, this is the 46th consecutive quarter of average loan growth in this business. Both Merrill Lynch and the private bank contributed to the improvement and are driving digital engagement to deliver products and services to the clients.

You can expect this to continue as we drive towards a modern Merrill, which is advisor-led, powered by digital. Growth in our new households at Merrill and at the private bank continued as we continue to build pipelines and move back towards pre-pandemic -- our pre-pandemic pace. Net income of 1.2 billion improved 64% year-over-year driven by the strong revenue performance. With respect to revenue [Indiscernible] AUM fees, which grew 19% year-over-year, complemented higher NII on the back of solid loan and deposit increases. Expenses increased in alignment with higher revenue. Client balances rose to 3.7 trillion, up 20% year-over-year, driven by higher market levels, as well as strong flows of 91 billion.

Let's skip to Slide 21 to highlight our progress in digitally engaging wealth management clients. The clients of this business continued to lead the franchise on digital adoption, utilizing not only digital tools to access their investments, but also other banking needs like mobile check deposit and lending. More and more clients logged in to easily trade, check balances, and originate loans all through one simplified sign-on. And through leveraging, Erica-based AI capabilities, and through use of WebEx meetings and secured text messaging, We are making it easier and more efficient for clients to do business with us wherever and however they choose. This creates additional capacity for our teams to spend more time advising existing and potential clients.

Moving to Global Banking on slide 22, the segment had very strong performance with near-record investment banking fees, another solid quarter of deposit growth, and an uptake in loan demand. Strong deposit growth helped to improve NII, which complemented the continued strength in investment banking. The business earned 2.5 billion, improving 1.6 billion year-over-year, driven by both higher revenue and lower provision costs. Provision expense reflected a reserve release compared to builds in the year-ago quarter. Revenue grew 16% and included an 8% improvement in NII while firm-wide investment banking fees were up 23% to 2.2 billion down only modestly from the Q1 record level. This IB performance resulted in a number for ranking and overall fees with a pipeline that remains strong. We rank number 1 in leveraged finance and investment-grade with strong market share improvement compared to the year-ago period.

We also had record M&A results. It is worth noting that we continued to see strong momentum in investment banking with our middle-market clients.

As many of you know, we have been investing in our investment banking capabilities with middle-market clients for a few years now. Over that time, we have executed transactions for nearly 300 first-time IB clients, and we now have investment bankers in 23 cities across the U.S. Non-interest expense increased 7% year-over-year, primarily reflecting higher revenue-related costs and continued investment in the franchise. We've already covered much of the balance sheet on slide 23, so let's skip to digital trends on 24. Digital investments, strategies, and tactics are an enterprise effort, with earnings in one segment benefiting in another. That has been particularly true in global banking. And as we continue to invest -- we continue our investments in digital solutions, our client adoption and usage continues to grow. Enhanced Banking Solutions have helped us capture greater market share as wholesale clients do more with banking partners that are the most stable and secure and have the capability to invest in new technology that will provide better data and global integrated solutions. Switching to global markets on slide 25, results reflect solid sales and trading activity led by our equity's business.

As I usually do, I will talk about the segment results, excluding DVA, this quarter net DVA was a modest loss, but the year-ago quarter had a higher $160 million loss. Global markets produced 4 -- excuse me. Global markets produced 941 million in earnings on par with the year-ago quarter.

Focusing on year-over-year, revenue was up 3% driven by sales and trading. Sales and trading contributed 3.6. billion to total revenue, improving 9% year-over-year. FICC declined 5%, while equities improved 33%, recording one of its stronger -- strongest performances ever. FICC results reflected a flat yield curve and range-bound interest rates for much of the quarter with continued tight credit spreads. With interest rates moving late in the quarter, we saw an improvement in activity in revenue opportunities. The strength in equities was driven by growth and our client financing business, as well as a strong trading performance and increased client activity in both cash and derivatives. The increase in expense year-over-year was driven by increased activity-related sales and trading costs. On slide 26, we note year-to-date revenue trends across the last few years.

As you can see, while our performance was elevated in 2020 during the pandemic, 2021 remains well above the pre-pandemic years presented, driven by continued elevation of client activity and volatility in the market, as well as investments made to extend more balance sheet to clients.

Finally, on Slide 27, we show All Other, which reported a small net loss. Revenue declined by 109 million year-over-year, reflecting higher partnership losses on ESG investments. Expense was lower year-over-year, driven by the absence of litigation accruals in the prior period.

Our effective tax rate this quarter was 14%.

Excluding the tax credits driven by our portfolio of ESG investments, our tax rate would have been roughly 25%. We would expect the tax rate in Q4 to be between 10% and 12%, absent any tax law changes or unusual items. With that, we can go to Q&A.

Operator

[Operator Instructions] We'll take our first question today from Glenn Schorr with Evercore.

Your line is open.

Glenn Schorr

Hi, thanks very much. Lots of detail, I love the forward-leading commentary on NII was bigger than a bread box, size it on the expense side. Obviously, expenses go up a little bit with all this market-related and activity-related revenue.

So maybe if we could think about it, X, whatever mark is going to do over the next couple of years.

You've produced great operating leverage, but -- as you still invest. Maybe you can give us an idea of what to expect, even if it's just over the coming years as you invest yet eke out further efficiency gains? Thanks.

Brian Moynihan

I think, Glenn, we might take you back a little bit in history to '15 and '16 when we started seeing the efforts in the BAC and the operating excellence kick in and what we said as we bring the expenses down. And then we'd expect them to grow, you have a 3% inflationary between raises and leave aside that the market's going up as you said, and could drive a moment in time and et cetera, but if you have 3% sort of embedded in CPI type of increases in merit and rents and things like that, and what we said is through our efficiency, we could -- when we got to the floor, which was the '19 year, the idea was then to manage that to 1% net growth, and we've been able to keep working at that.

With the PPP and with the COVID-related costs and stuff, it's kind of threw it all around for the last 12 months, but you'll see that start to emerge coming out the other side.

So the idea would be to grow revenues faster than the economy and grow expenses at a rate of net 1%, maybe 2% if the revenue growth is stronger. And, you know, that's the operating model. And you saw that come on quarter-after-quarter of operating leverage, I think for basically three years plus 14 quarters or something like, then the pandemic pushed that around. And as we stabilize after the pandemic a couple of quarters ago, you are seeing a comeback to the system.

Glenn Schorr

That's great.

So it sounds like no change and still operating efficiency. Cool. Brian, what we have here, I think there was like a 7-page press release announcing all the leadership changes. It's a lot, and so I figure while we have [Indiscernible] and talk about what's happening, how are you? Is this all-natural succession next level, stepping up, type changes? Maybe just put the right perspective around it all.

Brian Moynihan

Sure. We announced -- we have teammates who're retiring. I've been CEO. This is 48th quarterly earnings conference call, so it's been a long time but -- and I would rather never have to have senior leaders move because -- but they have a choice in life and when they retire, we have to adjust to it. But what we tried to accomplish if you go back to last summer, we put a lot of senior executives onto the management team. What has happened now with Andrew's retirement -- Tom's retirement and Andrew's retirement is those executives now are reporting directly to me. And that's really the efforts.

So we were a younger, more diverse, three women, running the eight lines of business same philosophy how we run the Company. And now with a group of people, we have your 5-10 years ahead of them and then we have two international colleagues on the management team for the first time. And Bernie (ph) and Kathy. Kathy is needed to help us in the European context as Brexit came through, it's different and that -- so she is going to go help us in that and be a great help to as Bernie has international -- does a great job for us. But the idea was to elevate people who -- and also focused on people who are thinking 10 years out as opposed to 1 or 2 and retirement and so that's really genesis of it.

You know, if people retire and we make reactions and, you know, Tom and Anne (ph) and Andrew have tremendous teammates. But the best thing they did for us, they developed a bench behind them that is extremely strong that can step into the jobs. And frankly, we're running a lot of the businesses as they -- over the last few years as they -- we all spent more time on driving our brand in the market and other things are more at the Company level.

Glenn Schorr

Thank you, Brian. Thank you.

Operator

Our next question comes from Matthew O'Connor with Deutsche Bank.

Your line is open.

Matthew O’Connor

Good morning. Was hoping to circle back on the NII -- net interest income commentary, which was clearly positive overall. But I think you've been talking about 4Q net interest income to be up a billion versus the first quarter level on prior calls? And I think the guidance implies maybe similar to even better than that and was just hoping to get a little bit more of a point and update for 4Q NII?

Paul Donofrio

Sure.

So relative to the Q3, will have less and [Indiscernible] PPP loan forgiveness.

However, we think we should be able to overcome this decline and produce modest growth in NII in Q4. Through a combination of loan growth, liquidity deployment, and modestly lower premium amortization expense.

Matthew O’Connor

Okay. Which I think does get you, I guess to that up a billion versus the 103.

Paul Donofrio

Yeah. Modestly, would imply that we tend to tell you what we could do and we do it.

So that's how we run the Company so, yes.

Matthew O’Connor

Understood.

Okay. And then separately on the expense question, you talked about kind of 1 to 2% growth long term, but as you think about next year, you obviously had some kind of COVID and I think some one-time costs in the first quarter, how would you help frame '22 costs versus '21? Thank you.

Paul Donofrio

The way I would think about '22, we're not going to provide specific guidance, but as a quarterly base for 2022, just start with our rough estimate of Q3 or Q4 here. Q4 should be flattish to potentially modestly lower than Q3.

So just start with that as a base and add to that the seasonal higher payroll tax in the first quarter, which is roughly 250 million. And then as Brian said, add in inflationary costs, which we've being, as Brian said, targeting at around 1%. But given the war for talent, right now, maybe you want to add a little bit more than 1% next year. And then lastly, adjust that base for any assumption you make around higher or lower revenue expectations in the areas that are closely linked to compensation and exchange fees.

If you do that math, you're going to come up with I think a pretty good estimate for '22.

Matthew O’Connor

Okay. And anything that we can back out in terms of COVID or the PPP costs going away as we think about next year?

Paul Donofrio

Yes. Look, COVID -- there's still a couple of 100 million of net COVID in our costs, just down modestly from Q2. We're seeing some reduction in COVID's costs, but we incurred some new costs as people return to the office.

While there's not a lot left, it does create, I think, modest opportunity over the next year or so to get those costs out.

Matthew O’Connor

Okay. Thanks for all the clarity.

Operator

Our next question comes from Mike Mayo with Wells Fargo.

Your line is open.

Mike Mayo

Hi, my question relates to tech, the front office and back-office. The front office, you have the slide number 5.

So-net new consumer checking accounts up by half over the last 2 years. How much of that is directly or indirectly related to digital banking? And then my backup as question, which we don't really see. What are you doing as it relates to the cloud, your relationship with IBM. What sort of efficiencies do you think you can get. And I think you indicated you don't plan to go 100% to the public cloud, like some of your other peers have targeted.

So if you could elaborate on your tech strategy, thanks.

Paul Donofrio

So Mike, on the first -- the production of net new checking accounts, and remember Mike, this is not -- you've been around us a long time, and these are core checking accounts. The primary keeps going up. It actually went from 92 to 93% over last year of primarily accounts.

So the production hit this quarter was I think a 10-year high in terms of net accounts. And that's coming both from the digital 30% of sales round numbers. And we now have, to your point over the last three years, developed full digital execution in terms of account opening for core accounts in terms of auto purchases, in terms of mortgage origination, etc, which now allow the fully digital practice to take place. Half the sales are digital, the good news honestly is that as the branches reopened over the last -- and people -- the business went up, you saw the count sold rise because it takes both high-tech, high-touch and high-tech to be successful.

So the percentage of sales that digital came down, but that's because overall sales jumped up and obviously there are more brands dominate. But you got it exactly right. We think that is a more efficient method of accumulating customers. We think we have about 17% market share in the Gen-Z area that is heavily digitally originated. A lot of college, a lot of other things going on. But the key is to realize the net balances per account have gone from 7,000 to 10,000 over the last couple of years.

So you're seeing a bigger and bigger core position. When you go with -- and that's one thing to keep it in mind is when we give you our 40 digital customers, these customers are core customers with big balances. Merrill Lynch, for example.

I think we're up to 70,000 or something average balance per account, not 3,000 or 4,000. But anyway, just on the cloud. The cloud is a complex question.

As you are well aware, over the last 8, 10 years, Kathy and the team led an effort to internalize our cloud, which made us a lot more efficient.

And so we look at -- we run -- percentage of our business outside due to certain executions and things like that.

We have 500 different software programs that run in a FA -- the SaaS basis, which is the question cloud can be misleading is can you get to the -- all the product types or capability types? You can get out there because of the new companies that develop them on the cloud-based systems and we can get to them all. The IBM's efforts to internalize a Cloud that we can use the financial service industry and IBM is working on that. But these things have to be done carefully for purposes of security and trust and understanding our businesses.

And so far, we've come to the judgment that we're continuing to internalize and saving a lot of money and we continue to add modest amount to the cloud. But importantly, there's no restraint on our ability to tap innovation, ingenuity based on whether it's running internally or externally.

Next question, please.

Operator

Our next question comes from Gerard Cassidy with RBC.

Your line is open.

Gerard Cassidy

Hi, Brian (ph). How're you.

Brian Moynihan

Good, Gerard (ph). How're you?

Gerard Cassidy

Can you guys --good. Can you guys share with us, You've had incredible deposit growth, as you pointed out, the retail consumer is over a trillion dollars. When the [Indiscernible] sometime next year, can you share with us what you think will happen to deposit growth. And the second, your loan to deposit ratio, similar to your peers, is very low. How do you see growing that over the next two or three years? And where can you get it to, do you think?

Brian Moynihan

Paul wants to add a few comments on the change in monetary policy, and I will talk a little bit about sort of some of that thing.

Paul Donofrio

Yes.

So look, we expect deposit growth to continue, although it's going to be likely at a slower rate than what was experienced so far this year. And we expect our growth to continue in line with or slightly better than the industry.

You got to remember that we're entering a phase of tapering. Taping is still QE, so deposits are really not likely to decline until many quarters to look back at historical data after QEM if they ever do. Because as the economy expands, the multiplier effect could -- we could see growth in deposits even though money supply is coming down.

So we'll just have to wait and see, but what we do know is as QE starts, we're still going to -- it's still going to be stimulative from a deposit standpoint and then as I said, if posits do decline, it will probably many quarters, a couple of years maybe after QE ends.

Brian Moynihan

Gerard, just a couple of things. When looking at the consumer deposit base, sometimes, I think it's deja vu all over again, it's a classic statement, because in '15, '16, '17 it was all about the Fed's going to normalize rates and you're going to have to raise prices, and we didn't have to because we -- the reason why we don't have to is, these are core transaction accounts, in a large part, non-interest bearing.

And so you'll see some of that same dynamic apply again as the rates normalize and the monetary supply has changed, but in the consumer business, 56% of the balances are checking, so that would say those are core transaction accounts, money moving in and out, very little CDs, I think 50, 60 billion bucks or something like that.

So the $1 trillion is all basically in checking and money market. Can it move around? Yes.

If you look, one of the things that bodes and -- well for the economy is that if you look at a checking customer that has made $2,000 or $3,000 in balances with us, either sitting with 3 to 4 times -- 3 times what they had before the crisis. That's good news. They will spend some of that, I assume. But interestingly enough, that's been growing month over month for the last few months. It's not going down, even though the stimulus payments to customers in large part other than the childcare stops.

So one thing is it bodes well for the economy. And this isn't trying to [Inaudible] you to -- some viewpoint about it is there's consumers still have a lot of money in their accounts and are going to spend it.

Going back to your deposit question, could that mean those balances come down a little bit. But it would be overcome by the new accounts coming on at a million a year that carried $10,000 average balance, etc. We feel good about long-term deposit growth, and it's all -- it's driven by the check-in core transactions. Loan-to-deposit ratio, it's our customers driving, so when the usage by the auto dealer lines was down to 25% of what it was because inventories being down, of course, we -- they want to borrow, we want to lend to them because that means they have the inventory to sell to the consumer.

So this is a customer-driven business and so 900 billion [Indiscernible] of loans against 2 trillion of deposits is largely driven by the customer activity. The good news is you can see in those charts that I call the smile charts on the loan growth page there that the other half to smile is coming up, meaning that the customers are starting to draw on credit and use it. And that above well for the customer growing their businesses and stuff. But importantly, thinking about just the economy generally.

One of the things I just want to remind you, Gerard, is we breakout consumer and [Indiscernible] and a lot of people talk about retail deposits. That is 1.4 trillion when -- 1.3 trillion when you combine them together.

So it is a big machine and it's all transactional and we just don't think that moves as much on monetary supply questions as obviously institutional side.

Gerard Cassidy

Very good. Thank you.

Operator

Our next question comes from Betsy Graseck with Morgan Stanley.

Your line is open.

Brian Moynihan

Morning Betsy.

Betsy Graseck

Hi Good morning. Hey, Brian. I wanted to ask, we've got a setup into '22 that looks pretty positive especially when you think about the top-down GDP growth you're mentioning earlier, how are you leaning into that with regard to your footprint, where do you see the biggest opportunity for share or gain across your business platform?

Brian Moynihan

I'd say there's a couple areas. One, as you're well aware, we've expanded the balance sheet in the markets business. And they're seeing the returns on that stronger in the equities business and good -- and Jim DeMare and the team under Tom's leadership continue to do it. But stronger in the equities business in that.

So deploying balance sheet against that, recognizing activity levels, sustaining, etc. And then if you go in the lending business, it's customer selection.

So we were out with those 100 extra relationship managers banging away at the world, getting more customers the hard way. And you're seeing net new customers in the business banking, small business segments and stuff growing.

You see that in the wealth management business.

So what you'll see is that the Balance Sheet deployed to markets as a capital and balance sheet question. Everywhere else that's going to follow the customer, but it's the core customer growth and that's why you put those statistics and that you see. Meanwhile, Merrill Lynch is over $300 million and becoming fairly significant enterprise on its own. And you see some of these other aspects.

So we feel good about it. And like you said, Candice (ph) and the team are on a great research platform and they, they basically are 5% plus this year and 5% next year, which sets up well.

Betsy Graseck

So is there an opportunity that's even larger outside the U.S. I'm just thinking about your franchise outside the U.S. borders, is that an engine of growth for you potentially here, relative to what you've been doing?

Brian Moynihan

We'll invest -- we'll continue to expand our -- we have more loans in the global core of investment banking segment outside the U.S. than we do inside the U.S.

We continue to expand that. Matthew O'Connor and team have done a good job. [Indiscernible] and team in corporate banking area are doing a great job.

So yes, we're going invest in that. And then the GTS, Ahmed and the team continued to develop our capabilities there, and we're getting the high single-digit revenue growth, soft deposits and fees combined together. And we continue to invest that real-time payments and it's just one thing after another.

So we're doing that, but outside, but I don't -- if the questions, are we going to change and go into the consumer business or wealth manager business outside the U.S., the opportunities in the consumer business are just -- and wealth management business in the U.S. are staggering to us. Think about we just opened our 15th branch in Indianapolis.

You and I would've been talking 4 years ago and it didn't [Inaudible] at any maybe as FY. We're now 7th market share, moving up strong.

You look at it in Columbus and Cleveland, Cincinnati, and Salt Lake City and Minneapolis. And you're seeing us move in the top 5, 7 from 0. And that growth in the new households is running multiples of 2019 and Merrill and the private bank. There's just so much opportunity to distract ourselves, would be not the time to do it. We're in a war with the competition, and we're winning.

Betsy Graseck

Okay. And then just lastly, Paul, you're mentioning how you've got bigger than a bread box on growth in NII as you look into next year, and you outlined the drivers, I'm just wondering, embedded in that is a forward curve. What about opportunity here for the forward curves to shift higher when you're thinking about the increase in NII, if we had inflation come through stronger, rates rise s soon, would that be an opportunity for you to take even more duration than you've got in the book or would you keep security duration where it is [Indiscernible]

Paul Donofrio

We'd look.

We have a lot of excess liquidity right now.

So there's always an opportunity to deploy some of that in the future. We're always balancing liquidity, capital, and earnings and rates rise.

I think we probably would have to study whether we want to deploy some of that liquidity at higher rates. We've got our interest rate sensitivity disclosure, which is probably the best way to talk about the opportunity if rates were to rise. It sits today because of our liability insensitivity, the value of those deposits and customer relationships that Brian just talked about, that's sitting at $7.7 billion for a parallel shift, 70% of that's on the short end.

So that gives you a sense of maybe the opportunity here as rates rise.

Betsy Graseck

Thanks.

Operator

Our next question comes from Jim Mitchell with Seaport Research.

Your line is open.

Jim Mitchell

Hey, good morning. Maybe just a question.

One of your peers this morning talked about the impact of [Indiscernible] adoption.

I think he disclosed that standardized RWS could grow 7% to 10%. Is that a similar impact for you? Just trying to get a sense of how you think about the adoption of that.

Paul Donofrio

We already adopted Sachar, I think and that was a benefit for us in markets.

Jim Mitchell

Really?

Paul Donofrio

Yeah, Lee can come back to you with the details. We were the first to adopt.

Jim Mitchell

Okay. Well, that's great. Then -- so when we think about the buybacks, the 10 billion, the acceleration of buybacks this quarter is, should we just expect that acceleration to continue to -- until you get towards your target of around 10 to 10.5%.

Paul Donofrio

Yes. I mean, it's simply put. We manage it dynamically. The Board manages it dramatically on a quarterly basis. And what's happening is if you look at where we thought we'd be, we're in it with more capital because we're earning more money. And then we clean up a little bit here and there, but we're working towards over a multi-quarter period towards where -- back towards our target and we'll continue to focus on that.

Jim Mitchell

Okay, that's great. Thanks.

Operator

Our next question comes from Charles Peabody with Portales.

Your line is open.

Charles Peabody

Actually, my question was asked, but on the NII, if you just extrapolate, third, fourth-quarter kind of guidance, you're looking at a mid-single-digit rate of growth year-over-year in 2022, and I think you used the word modest NII growth is expected for 2022. In that, what sort of yield curve or nominal rate environment are you assuming to get above or towards that level?

Paul Donofrio

Let me just correct, because I think either you didn't hear us right or we said something wrong. But we're expecting modest NII growth from the third quarter to the fourth quarter.

Charles Peabody

Oh, okay.

Paul Donofrio

Yeah. We gave some perspective in the initial comments that I made about '21 versus '22. We're not really providing specific guidance on '22, but let me just give you a couple of reminders and qualifiers that it's going to depend. NII is going to depend on loan and deposit growth, and we expect both of those to continue to grow consistent with a growing economy.

We also expecting lower premium amortization expense over time consistent with the path before rates. When -- all the guidance we ever give you is always dependent on the forward curve at that moment.

So assuming the current forward curve and given our expectations around improving NII in the second half of this year, we've already booked the third quarter. I've given you guidance on the fourth quarter. That one could expect I think robust improvement in NII, comparing the full-year '21 versus the full-year '22. By the way, I want to correct one thing I said earlier. I mentioned that our asset sensitivity 100 basis points rise parallel shift to the curve was 7.7 -- it's actually 7.2, so sorry for that.

Charles Peabody

But -- so on the interest rate structures, what I'm thinking about and please help me here, there's a significant amount of liquidity on bank balance sheet that's being put -- waiting to be put to work, and I'm wondering if that doesn't put a, somewhat of a cap on how much rates can rise. And then you're going to have some decline in treasury issuance because of a declining budget deficit. And then you're still going to have QE yield through the first half of next year, so you got a lot of demand for a shrinking supply on the treasury side.

So that's why I'm curious what sort of rate structure either nominal or curve wise you're anticipating going forward.

Paul Donofrio

All the factors you're talking about go into -- we -- we use the curve and so all you market participants in all of the debate, we don't use some internal estimates, we've always used the curve of it don't know that for a long, long time going back a couple of decades, that's how we build that estimate of asset sensitivity based on the forward curve at the time at the end of the quarter whenever we got.

Charles Peabody

Thank you.

Operator

Our next question comes from Steven Chuback with Wolfe Research.

Your line is open.

Steven Chuback

Hi, good morning. And thanks for taking my questions.

So I wanted to start off with one, just on the tax rate guidance. And Paul, you've always provided [Indiscernible] color on how to think about some of the potential fee income drag as well associated with those ESG related investments, recognizing that the impacts are intended to be P&L neutral. I was hoping you could help size just how we should be thinking about the other income drag related to the guidance for 4Q and whether you guys would consider a potential change to the accounting, just given all the noise and volatility that that creates in the Income Statement.

Paul Donofrio

Yeah. Look, we expect our ESG activities to increase over time, so as we go into '22 and '23, and as we've long talked about the fourth quarter is generally the highest for that pretax -- for that loss that we book in other income for entering into these partnerships. I do think it's important to remind everybody. I know, you know it, but I'll remind everybody that these partnership losses are booked in other income. But they are more than offset in the tax line.

So as we grow these activities in the future, there will be a small headwind to revenue growth, but not to net income growth given the tax benefits of these investments.

As you think about modeling, everybody out there, we expect the fourth-quarter loss to be 800 million on the other income line from these tax investments, or even perhaps a little higher, reflecting both that typical seasonal increase in the fourth quarter and partnership investments, as well as there were a few deals in the third quarter that got delayed because of all the logistical stuff. And we think they're going to pop into the fourth quarter.

Beyond that, putting the fourth-quarter aside, a good modeling assumption for the normal three-quarters of '22, I would say, absent unusual items. It will be a quarterly loss of 400 to 500 for those ESG investments, Again, in the other income line, more than made up for in the tax line.

Steven Chuback

Thanks for that color, Paul. And just for my follow-up, I know you guys are reluctant to give some explicit expense guidance for next year, just given the sheer amount of inbound that we've gotten after you made your remarks. I just wanted to have these provide some ranges and just see if we're thinking about things appropriately. It does sound like the 14.4 billion we saw this quarter annualizing that is the jumping-off point that gets us to 5076.

You have the 250 million of additional incentive expense -- seasonal expense, sorry, that you spoke to that gets us to 5079 and then that's the starting point for thinking about how much incremental growth somewhere in that range of 1 to 2%. Is that the right way to think about it?

Paul Donofrio

You've got some but not all the components because you got the COVID-related expenses and what happens next year. But I think the leading thing for everybody to focus on is what's the headcount because [Indiscernible], if you think about the expense base, it's dominated by people and buildings and equipment they operate on and positioning them for success. And that headcount and [Indiscernible] drifting down as it has because the impact of the runoff of some of the special programs that we had 0.5 million PPP loans to medium customer,

Brian Moynihan

deferral applications, the unemployment payments, all those stuff it's going down, and that's coming down, so client-facing investments and technology stuff that goes up, but we continue to engineer the back-office, so watch that number, I think it was 209400 this quarter, 411 if I got it right, down for the quarter, down for the year. Managers are down about a 1,000 in the Company round numbers at this point, and we just continue to manage that down.

So you've got the component parts that have come clear. We brought the run rate back down to flat year-over-year and we'll continue to work on it.

Paul Donofrio

Yeah. The only other thing I would add, Brian, if I may; we're clearly focused on managing expenses well, but what we're really focused on is creating operating leverage. And that -- you saw that this quarter. And that's how we really think about the business model. We've got to grow revenue. And in terms of expense growth, we've got to grow expenses slower than we're growing revenue, and we've given you the 1% framework.

Steven Chuback

That's great. And just one quick follow-up, if I may, just on the securities yield.

You guys actually saw some nice expansion there. I know that's going to be reflective at least in part of some of the premium and benefit that was cited. But I was hoping you can maybe help frame how large could that benefit be from premium if prepay bids really start to normalize in earnest somewhere closer to pre-COVID levels. And then separately, just where are you reinvesting along the curve and how you're thinking about duration, risk, appetite, given the size of your MBS portfolio?

Brian Moynihan

Yeah.

If you think about premium amortization expense over time, it's going to depend on the path of rates. And I just would remind you that prepayment lags, movements and mortgage rates, people kind of focus on the 10-year. It's about mortgage rates and they lag that by a little more than two months and I would also just remind everybody that as you think about premiumization expense, it's also important to really remember that the size of the [Indiscernible] securities portfolio has increased a lot year-over-year.

So all those things sort of have to go into your -- into your modeling.

Steven Chuback

Understood. Thanks for taking my questions.

Operator

Our next question comes from Ken Usdin with Jefferies.

Your line is open.

Ken Usdin

Thanks. Good morning.

Just a question or two on the card. Interesting to see that your purchase credit card volumes continued to grow really nicely and debit did come down a little bit.

So that the overall interchange fees, just wondering if you can talk through what you're seeing in terms of the underlying trends there, and was that stimulus starting to change as far as debit? Was at delta variant? What do you see in terms of the forward outlook for, in terms of your views of spend trend and balances and card. Thank you.

Brian Moynihan

Sure. Well, look, in card income, just a couple of points to make just so no one's confused, when you look at our sort of Consumer Banking card income fees, they were up very nicely year-over-year at about 8% driven, as you said, by the purchase volume increases despite the fact that payment rates are still relatively high. But when you look at the consolidated line, you're not going to see that. That's up only slightly versus Q3 '20 because of the decline in card income associated with processing unemployment claims, which sits in global markets.

Just for some clarification there.

In terms of balances, look, we're expecting card balances to continue to improve. The balances grew 7% quarter-over-quarter on an annualized basis, including some small growth and revolving balances. And we opened over a million new accounts, which now matches pre-pandemic levels.

I think balanced growth reflected higher spend and the reinitiated marketing efforts that we've talked about, including promo offers.

While again, payment rates remained elevated.

We expect higher Q4 seasonal purchase volume, and that's going to drive additional balances in cards.

Paul Donofrio

Yeah.

I think just a couple of things.

You got the balance question on cards, but you do always have to look at the spending side of it. And we said -- debit and credit cards are only about 20% of the way consumers spend money out of their accounts. Cash, all the ATMs, checks written. Zelle is taking off and becoming a meaningful amount of the payments.

I think in -- but cards are an easy form of payment. We're already seeing [Inaudible] tap cards or things at 12% of the spend, 12% of the penetration already, but the good news is, no matter how you cut it and how you look at it, two good messages, card balances are growing, but there's still tremendous capacity for the consumers to borrow if they want to, to do things.

Brian Moynihan

The second thing is that the spending levels are growing at 10% growth rates. In an economy in the U.S. which is led by the American consumer, that is a tremendous amount of spending that's going on, and it's accelerating, even as the stimulus is not in the rearview mirror by quite a -- many months.

So as people get back to work and higher wages and things, there's just more money to spend.

So I think the focus on card as a spending vehicle versus a borrowing vehicle, [Indiscernible] something we look at, but if we like the business, we continue to generate a million new cards as Paul talked about, and it will break down about who needs to borrow and what, and the asset quality is unbelievable. The NIM is as high as it's ever been, and that's a good business.

Ken Usdin

Great. Thanks a lot, guys.

Operator

Our final question comes from Chris Kotowski with Oppenheimer, your line is open.

Brian Moynihan

Morning, Chris.

Chris Kotowski

Good morning, and thank you. I'm trying to disaggregate the strength in net interest income. And if I -- just wanted to make sure I have all the moving parts right. The PPP revenues were up 166 million, and amortization was down 200. It still implies a $500 million or roughly 5% linked quarter growth in NII up against, say, 1.5% average loan growth, if I have that right. And is there an explanation for that strength? Is it the securities you put on or is it -- how did it become quite that strong?

Brian Moynihan

You got to add an extra day.

Chris Kotowski

Extra day.

Okay. That's 1% more.

Brian Moynihan

And then what you get is -- what you're left with, I think is the loan growth for two quarters now, and we took in a lot of deposits quarter-over-quarter. We put some of those towards the loan growth. We put some of those in cash, and we put some of those in the securities portfolio.

Chris Kotowski

Okay. And if you had to guess, with the size of the securities portfolio that you had now, if you were in a, say, 2017 kind of rate environment, the billion for an amortization currently, what would that go to if you can say?

Brian Moynihan

If you can look at that by just tracking the CPRs and make your estimates.

You know the size of portfolio in the basis, but just backing up a little bit, loan growth -- in the first quarter we said -- we thought we're seeing the stabilization and there's a lot of people formulated against that saying, wait, how can that be true? The second quarter we said -- in the second-half quarter especially we saw growth. All that loan stayed on the books plus we grew it on top of that, as we said earlier, at $60 billion excluding the PPP. That's what's going to build into the NII projections going forward because that's 250, 300 basis points spread stuff. And remember, we're funding with 0 cost deposits to the tune of 2 or $300 billion up year-over-year.

So that's what drives -- that's what will drive it long-term. Short-term, it'll be all the things you talked about, but that's going to stabilize at somewhere at this point and then take -- and then it's really going to come back down to what we do on the banking side of balance sheet, make loans, take deposits, and make the spread between them. And the best news is the NIM percentage actually started moving up and that shows you that the stabilization leads to that coming through as we grow the loans.

Chris Kotowski

That was an awesome quarter, thank you. That's it for me. Thanks.

Brian Moynihan

We agreed with that. That's all. Thank you all for your attention.

Just to close the quarter out, I could just take Chris's comment and say we returned to organic growth trends in pre-pandemic. we saw a solid loan demand, good revenue growth, 12% year-over-year expenses, flat year-over-year for great operating leverage at 12% returning to that effort to drive that quarter-by-quarter to make the great investments to drive the franchise at the same time, having expense disciplined 12 $12 billion of capital, went back to this quarter.

We continued return the excess capital and all the current earnings because frankly, we can grow without retaining capital because of the core way we run the business on a risk basis.

We continue to do what we need to do in our communities outside the same time. And just in closing, I want to thank Paul for his services as CFO and we look forward to Allison and team taking over next quarter. Thank you.

Operator

This does conclude today's program. Thank you for your participation.

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