美國銀行 (BAC) 2013 Q4 法說會逐字稿

Good day, everyone, and welcome to today's program.

(Operator Instructions) It is now my pleasure to turn the conference over to Lee McEntire.

Good morning everybody on the phone as well as the webcast.

Thanks for joining us this morning.

Before I turn the call over to Brian and Bruce, let me just remind you we may make forward-looking statements today.

For further information on those, please refer to the website and our SEC filings about our forward-looking statement information.

So without further ado let me turn it over to Brian, our CEO.

Thanks, Lee, and good morning to all of you and thank you for joining us to review our fourth-quarter results.

As we talked over the last several quarters, we have been on a journey of simplifying our company and we talked to you about some consistent areas of focus: capital generation, reducing our cost, managing the risk down, addressing the legacy issues and driving business growth overall.

Each quarter you have seen the progress our teammates have made and the momentum is becoming more evident.

On the first page, slide two, of the deck you can see the annual comparisons that will show you the progress over the last couple years.

First, we have improved the balance sheet.

Our Tier 1 common capital has grown 16% this year.

Liquidity and time to required funding have further strengthened.

This strength in capital and liquidity allowed us to begin returning capital through share buybacks to shareholders in 2013.

Another area of our early focus has been rightsizing our expense base.

We have been meeting the goals of our cost programs each year.

While we make progress on this each quarter, there is still significant progress when you look across the last couple years.

After reporting expenses, excluding goodwill and impairment of $77 billion in 2011, we have worked that number down to $69 billion in 2013.

As we have been clear with you, we expect additional cost savings in 2014 as we continue to execute on both our new BAC and our legacy assets and servicing initiatives.

We have also focused on addressing our legacy mortgage issues, and although we still have work to do, we have made progress.

On our credit costs and our provision costs we see tremendous results as net loss rates in our portfolios are levels not seen in nearly a decade.

As a result of all this work earnings have improved significantly, but we still have not approached the true earnings potential of Bank of America.

So as we move to slide two let's talk about recent results in the business on a business-by-business basis.

We have been delivering solid growth and activity in relationships across all the groups of our customers and clients we serve.

Let me highlight a few of those for you.

Deposit levels continue to reach records each quarter.

While this growth has been occurring in balances, the rate paid has been declining to what we believe is low against our peers, that 8 basis points in our consumer business.

Our operating costs, which we focus on heavily, of our deposit business has declined to just 200 basis points now.

Driving this improvement is the work we have done to optimize our delivery network, our stores, in response to customer behavior changes across time.

Banking centers over-the-counter transactions continue to go down, but ATM, online, and mobile transactions continue to grow.

We understand this and we observed this in our customers and we are working with them to capitalize on arguably the largest and best positioned branch network in banking.

However, branches do remain a critical component of everything we do.

We have about 8 million customer visits a week, the kind of traffic that we really appreciate and most retailers would give their right arm for.

Meanwhile, as that traffic comes in, the customer behavior continues to shift to ATMs, online, and mobile, and that is giving us the opportunity to be more efficient at the same time continuing to deliver innovative products to our customers.

When you move to our mass affluent customer base we have seen deepening across the customer relationships.

Merrill Lynch brokerage assets continue their strong growth.

We have invested heavily in the salesforce for what we call our specialist salesforce and that has grown to 6,700 people in 2013.

Looking at what that salesforce has been able to do, this year we opened 350,000 new Merrill Edge accounts; 125,000 new small business deposit and card accounts as well during 2013.

As we move to our industry-leading global wealth investment management business, we continue to break records on top line and profitability.

We just recorded the best year in the Company's history for wealth management results.

We have more customers and clients doing more business with us and now we manage client assets of over $2.4 trillion.

In our global banking business loan flows have been very strong, now growing for six consecutive quarters.

Investment banking is coming off a very strong year and a very strong fourth quarter where we have once again maintained our number two position overall, improved in fees overall, and grew market share year over year.

As we look at our trading business, or our global markets business, we have been really pleased with the success we have had in equities over the past year and that has helped offset some of the industry challenges facing the larger FIC business that we had.

Now both remain very important customer-facing businesses for us.

They face some tough regulatory changes as the rules have changed about what the scope of activities is over the past couple of years, but the team under Tom Montag has been managing those changes well.

Importantly, we rank for the third year as a top global research firm.

All-in-all we believe, if you think back, 2013 was a significant year for the progress this company has made against all the focus areas I mentioned earlier.

As we look to 2014, we are well positioned as a company to meet our customers' needs by delivering the whole company to every client and every customer and winning in the marketplace.

With that brief introduction I would like to turn it over to Bruce to cover the numbers for the quarter.

Bruce?

Great.

Thanks, Brian, and good morning, everyone.

I am going to start and go through the fourth-quarter results starting on slide number four.

We earned $3.4 billion, or $0.29 per diluted share, this quarter.

Total revenues in the quarter on an FTE basis were in line with the third quarter of 2013 at $21.7 billion and were $22.3 billion if we exclude the negative impact of FVO and DVA as a result of the significant credit spread tightening we saw in our credit spreads during the quarter.

Our revenues benefited from increased net interest income, strong investment banking and wealth management fees during the quarter, and were partially offset by lower equity investment gains.

Total noninterest expense of $17.3 billion increased from the third quarter of 2013 as a result of increased litigation costs, which were $2.3 billion during the quarter.

If we back those litigation costs out and back out $1.4 billion of the foreclosure look back expense that we saw in the fourth quarter of 2012, our expenses during the quarter declined $300 million from the third quarter of 2013 and $1.4 billion from the fourth quarter of 2012.

Asset quality continued its improvement and resulted in provision expense of only $336 million.

I would also mentioned two additional items that impacted results during the quarter.

As I mentioned, FVO and DVA $618 million and we also recorded discrete tax benefits of approximately $500 million during the quarter that were driven by tax items that were related to non-US operations as well as the resolution of certain global tax matters.

On slide five you can see that our period end balance sheet came in at $2.1 trillion, below the prior quarter on lower trading assets versus that third quarter of 2013.

Ending loans declined $6 billion due to the decline in residential loans in our discretionary portfolio.

Outside of residential mortgages, client and customer lending reflected good commercial and seasonal credit card growth that was offset by expected declines that we have within our runoff portfolios.

Period-end deposits grew $9 billion from the record levels that we saw during the third quarter of 2013.

Moving down the page tangible book value improved to $13.79 as the full benefit of earnings was partially offset by a negative move in AOCI as a result of higher rates.

Tangible common equity increased to 7.2% during the quarter and during the quarter we repurchased 92 million common shares for roughly $1.4 billion.

The last thing that I would mention on this slide is, despite the earnings of $3.4 billion, our return on tangible common equity at 8.6% remains lower than we would like it to be, but we continue to make very good progress on this front.

On slide six, you can see our Basel I Tier 1 common ratio of 11.19% increased from the third quarter of 2013.

If we look at Basel III on a fully phased-in basis, we remain above our 8.5% 2019 minimum requirement under both the standardized as well as the advanced approaches.

Let's first look at the advanced approach.

Under that approach Tier 1 common capital increased from the third quarter of 2013 to more than $132 billion.

Our Basel III risk-weighted assets remain steady at $1.3 trillion and our common ratio improved slightly from the third quarter of 2013 to 9.96%.

Under the standardized approach, our estimate of Basel III Tier 1 common ratio improved a touch from the third quarter of 2013 and remained slightly above 9%.

If we turn to the supplementary leverage ratios, based on the proposed US requirements that are expected to take effect in 2018, as of the end of 2013 our bank holding company leverage ratio improved from the third quarter of 2013 and continues to exceed the proposed minimum of 5%.

Looking at our primary bank subsidiaries, BANA and FIA, they also continue to both be in excess of the 6% proposed minimums.

The last point I would make on this topic the BCBS published final supplementary leverage rules over the weekend, and while we do note some improvements from the original proposal, we are still evaluating the exact impact to us.

If we turn to slide seven, funding and liquidity, our long-term debt ended the quarter $6 billion lower which further improved our funding cost.

Global excess liquidity sources during the quarter increased $17 billion to $376 billion and was driven by our strong deposit flows.

The time to required funding at the parent company increased to 38 months.

As we look at 2014 we have $31 billion of parent company maturities during the year and once again we would expect the issuances to be below that number as we both reduce as well as smooth the maturity profile of that debt footprint.

The other thing I would mention is that we do expect to see some additional issuance within our banks this year, given the applicability of the new liquidity rules and how they apply to the bank subsidiaries.

If we turn to slide eight, net interest income, our net interest income on an FTE basis was $11 billion, which was $520 million over the third quarter of 2013.

The fourth quarter of 2013 did include $210 million of positive benefits in market-related adjustments driven by lower premium amortization from slower prepay assumptions on mortgage-backed securities as long-term rates rose 30 basis points from the end of 2013 to the end of 2014.

Our net interest income excluding those adjustments was $10.8 billion, representing a $241 million increase from the third quarter of 2013.

Roughly two-thirds of that improvement was driven by traded-related net income and the balance, once again excluding market-related adjustments, was driven by lower long-term debt levels and, to a lesser degree, higher deposit levels and lower rates paid.

Net interest income in those benefits was partially offset by lower consumer loan balances and lower yields.

As a result of these different factors, our net interest yield, excluding market-related adjustments, improved from 2.44% in the third quarter of 2013 to 2.51% in the fourth quarter of 2013.

As we move into 2014, I do want to remind you that the first quarter includes two less interest accrual days so the Q4 2013 base of just below $10.8 billion, excluding the market-related adjustments, all else being equal would start at roughly $10.6 billion for the first quarter of 2014.

Our asset sensitivity position remains positioned to benefit from higher rates, particularly from the short end of the curve.

If we move to expenses, as I mentioned earlier noninterest expense was $17.3 billion in the fourth quarter of 2013 and included a $2.3 billion charge for litigation expense.

Litigation expenses increased $1.2 billion from the third quarter of 2013 as we continued to evaluate our legacy exposures, largely our MBS litigation, which led to additional reserves.

Excluding litigation, total expenses were $15 billion during the quarter which compares favorably to the $15.3 billion in the prior quarter and $16.4 billion in the fourth quarter of 2012.

Our legacy assets and servicing costs, once again excluding litigation, declined nearly $400 million from the third quarter of 2013 and were below $2 billion this quarter as we previously guided.

This drove the $300 million improvement in expenses adjusted for litigation in the quarter.

As we continue to reduce the delinquent loans serviced over the course of 2014 and reduce operating costs, we expect the fourth quarter of 2014 LAS cost, excluding litigation, to be roughly $1.1 billion.

Move for a moment to new BAC, the benefits from new BAC in the most recent quarter were offset by a small seasonal uptick in costs when comparing to the third quarter of 2013.

And when comparing to the fourth quarter of 2012 our new BAC savings are partially offset by roughly $300 million of increases from revenue-related costs on higher global banking in markets and GWIM revenues.

We remain on track to achieve the expected $2 billion of new BAC cost savings in mid 2015 as these initiatives wind down near the end of 2014.

If we move to the number of full-time equivalent employees, we ended the quarter at 242,000 employees, a decline of more than 5,000, or 2.3%, from the third quarter of 2013.

And that was split pretty evenly between staff reductions in LAS and the production side of the mortgage business as volumes declined and, to a lesser extent, we reduced staff associated with our branch optimization.

Before I leave expenses, I do want to remind you all that the first quarter typically includes the annual cost of incentives for retirement eligible associates.

And once again we expect in the first quarter of 2014 that number to be approximately $900 million, which is consistent with what we saw in each of the first quarters of 2012 and 2013.

If we move to slide 10 on asset quality, you can see that credit quality once again improved nicely.

Net charge-offs declined to a reported $1.6 billion or a net loss ratio of 68 basis points.

The quarter did include $144 million of charge-offs related to clarification of regulatory guidance on accounting for TDRs in the home loans portfolios.

If we exclude that change, net charge-offs were approximately $1.4 billion, or 62 basis point net loss ratio, and improved $250 million, or 15%, from the third quarter of 2013.

Delinquencies, which are obviously a leading indicator of net charge-offs, declined again as well.

Our fourth quarter provision expense was $336 million on the back of this steadily improving consumer data, resulting in a reserve release of $1.1 billion excluding the regulatory guidance change.

As we move into 2014 we continue to see credit quality improve.

Let's now move into a discussion of the businesses and I am going to start on slide 11 with consumer and business banking.

Within this segment we delivered improved earnings from both the previous quarter as well as the prior year's quarter.

Net income of nearly $2 billion in the fourth quarter of 2013 is up 11% from the prior quarter [and] 36% from the fourth quarter of 2012.

Stability in revenues, lower credit costs, as well as expense reductions driven by network optimization drove the improvement in both periods.

If we take a step back and review customer activity during the quarter, we saw our average deposits grow steadily in rates paid down to 8 basis points.

Our brokerage assets increased 7% from the third quarter of 2013 and are up 26% year over year on both improved market valuation as well as account flows.

Our consumer card loans show seasonal growth this quarter as well as continued strong issuance with 1 million cards issued during the quarter.

I would note that our fourth quarter of 2013 balances reflect the reclassification of roughly $1 billion of an affinity portfolio that was moved to loans held for sale and we would expect seasonality to move these balances lower in the first quarter of 2014.

Our risk-adjusted margin on credit cards is now back above 9%, driven by seasonal spending and improved credit quality as net charge-offs and delinquencies continued to improve.

Our expense levels during the quarter do include approximately $112 million of litigation costs and that masked the benefit of our delivery network optimization as mobile banking usage continues to increase and we continue to consolidate banking centers.

Let's move to slide 12, consumer real estate services, which as you all know represents only 8% of the Company's revenues.

In our supplemental information we report two separate components of this segment, one focused on loan origination and the other focused on servicing and legacy issues.

As we signaled last quarter, our first mortgage retail originations of $11.6 billion were down 49% from the third quarter as the amount and level of refinancing opportunities slowed given the rising rate environment.

Locked volumes declined 37%, leading to lower core production revenue.

We continue to reduce our production staffing levels to be consistent with these lower volumes that we are experiencing.

Our rep and warrant expense was $70 million during the quarter and declined by roughly $250 million from the third quarter of 2013, which benefited Mortgage Banking income.

One item I do want to mention from the appendix of our slide deck is on page 20 regarding rep and warrant exposure.

We did receive increased levels of private-label claims, but it is important to note that the vast majority showed no evidence that the claimant reviewed the individual loan file ahead of the submission.

That obviously impacts the overall claim quality and, therefore, the process for claims resolution.

The other primary revenue component in this segment, servicing revenue, declined $54 million from the third quarter of 2013 as a result of our smaller servicing portfolio.

From a cost of servicing perspective our number of 60-plus day delinquent loans dropped 73,000 to 325,000 units at the end of 2013.

As a result of this once again, our LAS expense, ex litigation, declined nearly $400 million during the quarter to $1.8 billion.

Global wealth and investment management on slide 13, this represents 21% of our company's revenue and our wealth management business achieved records for net income in both the quarter as well as for the full year of 2013.

Within this segment both Merrill Lynch as well as U.S. Trust maintain their strong leadership positions managing a total of $2.4 trillion in client balances.

Revenue approached $4.5 billion in the quarter, increasing 7% year over year and 2% on a linked-quarter basis.

I would also note it is the fourth consecutive quarter in which the pretax margin was above 25%.

Our asset management fees once again achieved a new record during the quarter, driving the revenue improvement from the third quarter of 2013.

Our client engagement remains strong and market levels are providing an additional tailwind.

Our long-term AUM flows for the quarter were $9.4 billion and $48 billion for the year, nearly doubling the 2012 production level.

Ending deposits also grew nicely again and our ending client loan balances of almost $119 billion reached record levels as we continue to see very good activity in both consumer real estate as well as our security space lending.

Turning to slide 14, global banking, our fourth-quarter earnings of $1.3 billion show good growth over the third quarter of 2013 with strong investment banking results, but are down from the fourth quarter of 2012 due to higher provision expense.

Provision in the year-ago quarter included reserve releases while we built reserves in the fourth quarter of 2013 associated with the commercial loan growth that we have seen.

While we are on credit quality, I would note that our net charge-offs within the banking segment for the quarter were only $7 million versus $132 million in the fourth quarter of 2012 and $35 million in the third quarter of 2013.

Our expenses reflect effective cost control, but also reflect increases related to revenue-related compensation for investment banking.

Our investment banking fees this quarter across the Company were a record $1.74 billion, up 9% from the fourth quarter of 2012 and 34% from the third quarter of 2013.

Based on deal logic we did maintain our number two position in fees with an 8% market share.

In addition, during the quarter we ranked number one in America's investment banking fees with a 10.7% market share.

During 2013 we advised on 10 of the top 20 announced M&A deals.

And as we move into 2014 the pipeline remains strong.

If we move to the balance sheet, average loans increased $8.8 billion from the third quarter with solid C&I growth, particularly in large corporate and healthcare, along with growth in commercial real estate.

Our average growth did outstrip our $2.3 billion end-of-period growth as we funded several deals near the end of the third quarter of 2013 which benefited the overall average balances.

We see solid customer demand for loans as we head into 2014, but would note that competition is particularly aggressive for middle market loans.

Lastly on banking, our average deposits increased almost $20 billion from the third quarter of 2013 as our customers continue to show strong liquidity.

We switched to global markets on slide 15.

Ex-DVA we earned $341 million in the fourth quarter of 2013, consistent with the fourth quarter of 2012 but down $190 million compared to the third quarter of 2013 after we exclude the UK tax charge.

Higher revenue in both comparisons was offset by litigation costs, mostly associated with RMBS securities litigation.

Our sales and trading revenue, once again ex-DVA was $3 billion, 19% above the fourth quarter of 2012 and in line with what we saw in the third quarter of 2013.

Our fixed sales and trading revenue were up roughly $300 million, or 16%, compared to the fourth quarters of 2012 as the strength we saw in our credit and mortgage businesses more than offset slowness in both rates and commodities.

Our fourth quarter of 2013 did include roughly a $200 million benefit from recoveries on certain legacy positions within the FIC business.

Our equity sales and trading area finished a very strong year.

Revenues, although down 7% from the third quarter of 2013, were up 27% over the fourth quarter of 2012 as we continue to benefit from the repositioning of this business over the past 18 months.

We gained market share and improved our performance in each of the different product lines.

Expenses excluding litigation showed very good cost controls and small increases in line with revenue improvement.

Our average trading-related assets are down $54.3 billion, or 11%, from the year-ago period and are generally flat with the third quarter of 2013.

On slide 16 we show you the results of all other.

Profitability this quarter compared to the third quarter of 2013 declined as the tax benefits this quarter that I described earlier were more than offset by lower revenue and less reserve release.

The revenue decline from the third quarter of 2013 was driven by lower equity investment gains -- if you recall we sold CCB shares during the third quarter of 2013 -- as well as more negative FVO valuations.

The expense within all other includes $250 million of litigation in the fourth quarter of 2013.

Lastly, I would note we expect an effective tax rate of approximately 30% in 2014 absent any unusual items.

Before we open it up for questions, let me make a few comments on the quarter.

Capital and liquidity have never been stronger.

On the revenue side customer activity drove stronger core business results.

Our consumer banking saw a modest improvement on card income and service charges after troughing in early 2013.

Our global wealth and investment management business had a record year.

Our global banking had a record year as well with higher investment banking fees and stronger lending activity.

And our global markets business is performing well against the market opportunities that they are seeing.

We kept our cost initiative work on track and credit improvement continues its track towards historic lows.

We also made significant progress in 2013 in continuing to resolve legacy mortgage matters with the more significant ones being settlements with Fannie Mae and Freddie Mac, on GSE rep and warranty issues, MBIA in the monoline space, and the Luther Maine State class-action suit in the private label area of RMBS litigation.

With that let's go ahead and open it up for Q&A.

John McDonald, Sanford Bernstein.

Good morning, Bruce.

I was wondering in terms of the core net interest income you mentioned that the seasonally adjusted starting point for the first quarter would be 10.6, but it sounds like you expect that to keep grinding higher with the debt paydowns and rates being a little bit higher on the long end.

Is $300 million that we saw this quarter, is that a good representation of the pace that core NII could grow at?

I think, John, if you look at what we saw during the quarter, we had a series of benefits for the quarter.

You can see that the -- if you look back at our tables, the margin that we saw within some of the repo and other global markets lending activity was up nicely.

As you mentioned, we benefited from the continued reduction in the long-term debt footprint, which was clearly a positive.

And we had a little bit of benefit, even if you back out FAS 91, on the debt securities line.

So I think that those three things were clearly favorable.

We will have to see with respect to the markets margins, as well as just overall rates, where we go in the first quarter of 2014 relative to 2013.

I would be careful to assume that you are going to see $300 million type improvements in the NII as we go forward on a quarter-to-quarter basis.

But over time, with the work that we are doing, we would expect that number to continue to grind upwards all other things being equal.

Okay.

Any change, material change in your interest-rate sensitivity overall, Bruce, to long rates and/or short rates?

I would say that whenever rates move up you tend to widen out a little bit as maturities extend in the mortgage space as rates move up.

So you always have a little bit of that in a rising rate environment, although given where rates are, we think we are largely through that.

The only other thing from an asset liability management perspective I would note is that, as it relates to both managing OCI risk as well as managing to LCR, you saw it a little bit in the fourth quarter and you will see it a little bit more going forward, that we are purchasing on the margin some additional treasuries given the treatment that they have under LCR.

Okay.

Then I was wondering if you or Brian could speak at a high level about how you approach this year's CCAR.

Are you looking to grow your buybacks off of the $5 billion common request from last year?

And do you feel that you have improved the earnings enough and consistency here to start moving the dividend up yet?

We are not going to comment, John, on specific items with respect to the CCAR request.

We have been pretty consistent as we came into 2013 that we would focus on increasing the core profitability of the Company.

And as you look at the last couple of quarters from an EPS perspective, we think we have done a good job of that.

You can see the capital build that we have had and you can see the reduction in the legacy exposures that we have made.

So we feel like we did a good job of preparing ourselves for CCAR this year and we are obviously working hard as we go through the rest of the process between now and mid-March.

Okay.

Then last thing is you mentioned, Bruce, the 8.5% return on tangible and hope that that goes higher over time.

Your ROA was 64 basis points.

I guess what kind of goals do you have for ROA and ROE over the next few years, and any thoughts on timelines that you will hope to get there on?

I think as we look out at, as we look out over the three years I would say it is more of the same for us that you can see a tangible common equity ratio that is just over 7%.

The three metrics that we assume we stay at around that 7% level.

We were about it in the fourth quarter, but if we stay at that level we are looking to get to the point where we are returning 1% on assets, which translates into a 14% return on tangible common equity.

Those are the types of levels that we see ourselves looking to achieve over the course of the next three years.

Okay, thanks.

Betsy Graseck, Morgan Stanley.

Thanks, good morning.

Couple of questions, one on the NIM discussion that we just were having.

When you look at what happened with the yield and the cost of funds it looks like you are getting a little bit more competitive on non-resi consumer.

Just wondering how to think about how you are looking to shift either the loan growth going forward and how you are thinking about that loan yield relative to your cost of funds in an environment where NIB probably doesn't grow as much as it had been in the past, maybe your cost of funds is flattening out or potentially increasing a little bit.

I'm not sure exactly which piece you are looking at, Betsy, but if you go back to our earnings supplement, which is back on page 10, I think it is interesting that you can see from the third quarter of 2013 to the fourth quarter of 2013 that our yields on residential mortgages did increase about 6 basis points to 3.74%.

The other interesting thing is that we have started to see and be able to do more home-equity type business with our core customers.

I think it is interesting; if you look at the yields on that portfolio, they were up 20 basis points to just under 4% for the quarter.

So as we look at the yields and the rates that we are able to get, I think we are competitive in the market and we have been able to see some slight increases within the rates that we are able to earn.

Sure.

It is an interesting mix shift because you have got a little bit of shrinking going on obviously with the legacy resi still coming off, yet the yields there are increasing.

And on the non-resi consumer you have got some yield compression happening, but your loan growth is at margin inflecting more positively.

At the same time, cost of funds looks like it is probably settling out here and potentially even going up a little bit.

I mean NIB average balances were still up Q on Q, but end of period was down, so that is kind of the fuller context of the question.

The things is you have got the volume going through and then either the [receive] or the pay is on both sides of the rate question.

And we continue to see deposit pricing.

Liability pricing came down.

The contribution from non-interest-bearing size in the balance sheet continues to go up.

But just focusing on the production, what has really been happening across the last several quarters that we are seeing stabilization in some of the balances and the runoff portfolio impact gets smaller and smaller from some of the non-core portfolios that we are getting rid of.

But in the fourth quarter, for example, our direct auto, which is -- in 2013 our direct auto business, not our indirect but our direct-to-consumer auto, was up 55%.

The home equities in the fourth quarter were up almost 100% over the prior year's fourth quarter.

Year over year they are up 60%.

The card we had about 19% more production in the fourth quarter of 2013 versus 2012.

So we are building -- in the business banking, small business area we are seeing production up, so we are building the basics that are producing the balanced growth.

The pricing spreads are holding.

It's competitive as heck in the middle market and things like that.

So I think it all serves us well largely having runoff stuff that may have yielded high but had a high credit cost content you got to remember.

And we are replacing with stuff that is good and core and great credit quality and so we are seeing a shift a little bit from the commercial loan growth which was really more positive to where the consumer loan growth is starting to stabilize and come along.

When do you think you get that inflection point in loan growth?

Clearly, it is a function of legacy basically not weighing on the loan growth overall.

When does that inflection point happen?

If you look at the various portfolios, I think in card we have kind of seen it.

As Bruce talked about, we have got a sale.

I think it's home equity you still got a ways to go, Betsy, because remember we have got about 40% or so of our home equity is still in the non-core portfolio.

And then I think in the commercial side you have seen the straight growth, whether it is large corporate or commercial middle market.

I think that would be the overall summary.

So I think that sort of came through from the corporate activity.

It moved faster to the smaller business activity and then consumer activity, but we are stabilizing both portfolios and growing.

Okay.

Then just turning to the mortgage for a moment.

On LAS expenses, did I hear you right that you are looking for LAS expenses to be at about $1 billion at year-end?

Is that correct on a quarterly basis for 2014?

Yes, we quoted roughly $1.1 billion, Betsy.

Okay, so that is an uptick, right, from what you had been saying before, sub $1 billion by year-end?

Yes, that is correct.

It is about $100 million higher than what we had said before.

And I think the work that we are starting is -- take a step back that we got through roughly $400 million during this quarter, which was a little bit better than we would have expected to do, so we felt very good about that.

And if you look at the number of 60-plus day delinquent loans, it came all the way down to 325,000 loans.

So what we are going to be working on over the course of the next 90 days is a little bit of a reset of that expense base so that we can continue to drive that number down.

That $1.1 billion doesn't reflect that, but given the work and the activity levels we need to go back and do some more work on that.

Okay.

Then so $1.1 billion by year-end 2014; is there still runway in 2015 to bring that down further?

We still think and we have been consistent that we would expect and look to end 2015 at roughly $500 million a quarter.

Then just lastly on the litigation reserving, you called out the $2 billion litigation reserve for the mortgage business, highlighted that that reflects a lot of the litigation risk you think you have.

The question we get from people is how many more quarters of this should we build in going forward, because you do still have some lumpiness in the lawsuits that you face.

That is always a tough question.

I think what I would say, Betsy, is that there was obviously a lot of new learning that we saw during the fourth quarter of this year and as a result of that we adjusted the reserves for the legacy exposures to reflect that which we learned.

And as we have said, it was largely with respect to RMBS litigation and beyond that it is just a number that is difficult to predict.

All right, thanks.

Matthew O'Connor, Deutsche Bank.

Good morning.

We are seeing some peers that came out yesterday actually increasing liquidity and long-term debt levels to meet the LCR.

I think you guys were starting at a higher point maybe than they were, but just give us a sense of maybe where you are for LCR with the current proposals.

And as we think about kind of the net impact of long-term debt running off at the holding company, increasing at the bank, how does that all shake out on the net basis this year?

I will let Bruce talk you through it, but we got to remember how we got here which is with a legacy set of companies put together.

They had debt structures that were built for their company and their industry without the core funding we had, so we are coming down to a level most of our peers were below and they may be coming up a little bit.

You got have to remember that whether it was Countrywide or Merrill Lynch the funding structure was so different.

We had like $400 billion of long-term debt we have been bringing down and the size of the balance sheet shrank.

We started off at about $2.5 trillion and we are down to $2.1 trillion, so I would be careful about comparing where they are going versus where we are going based on this just because what we had is different than what they started.

Then Bruce can talk about what we think from where we are now going forward.

As we look out, Matt, I think at the parent company as we look at and with our understanding of the LCR ratio we are in the 100% area as it relates to LCR.

So at the parent you can look at us being where we need to be based on 2017 levels.

The one area that we will look to do more in and I highlighted is to further build and take out more term financing within the bank levels to look to build that.

So I think we are in great shape at the parent, we are in great shape at the banks, but you will see us doing a little bit more bank financing activity to be able to meet those requirements.

If you look at where we finance it at the banks, there is no incremental cost for that that is different than what we have communicated before.

The other thing that I would just point out on the overall debt footprint and the cost of it is with the work that we have done on the balance sheet and with where our credit spreads are now in the market, we will be refinancing our debt at lower rates than the debt that is coming off of the books as it matures.

Then at the parent, being around 100% right now, any sense of how much cushion you want?

I think some banks are running maybe like a 15% cushion.

Some banks are still trying to get to where you are right.

I think to project a cushion three years out I think we clearly are going to run at a cushion.

We are going to run the Company so this is not an issue.

But until we get out to 2016 and 2017 and understand the exact composition, as well as to any puts and takes that we are seeing, it is probably a little bit premature to talk about a cushion.

The focus has been to get to the 100% at the parent immediately, so it is not an issue to discuss.

Okay.

Then just separately, we saw out of JPMorgan yesterday a one-time valuation adjustment on certain derivatives.

Just wondering is that applicable to you or have you been absorbing it over time or still to come?

It is obviously applicable to anyone that has an uncollateralized derivative book, so it is applicable to us.

I think that clearly the industry view and how you account for FBA is still very much evolving.

JPMorgan, obviously, came out today with their adoption and as a company it is something that we continue to evaluate.

I think the important thing to remember when you look at this, and I'm sure you know this, is just that this is a question of do you take a reserve for something that you earn back over the average life of your uncollateralized balances.

So it is not something that changes the core economics of the activities that we are doing.

Okay.

All right, thank you very much.

Glenn Schorr, ISI.

Thanks very much.

So just kind of [wheezing] into some of the next questions, but on the balance sheet migration over the past year cash and equivalents up 19%; repo, trading assets, and derivative assets all down, say, 10% to 14%.

Is that a function of some of the sluggishness on the trading side during the year in the market and just a reaction to what is out there, or is this your obviously intent to get on size for SLR and LCR?

I would say that as we look at and what we have said is that from an LCR and an SLR basis, given that we are at the levels at the parent and then with respect to the supplementary leverage ratio at the bank, given we are at the levels that we need to be that phase in between 2015 and 2019, there is not anything directly related to those given that we are in great shape with respect to those.

What I would say is that as we move forward and as we look at the bank level and some of the rules, you will see us, on average, carrying a little bit more cash at those levels.

And you saw that as you look at the year-end numbers.

As it relates to the different repo activity and the like within the global markets business, you continue to look to manage and balance what is the size of that book, how it affects the overall size of the Company, and the yield that you are able to achieve.

I think that was one of the things as some of these different regs come out that we feel good that if you look at the repo book we were up 7 basis points from an average yield perspective Q3 to Q4.

Those are numbers that are going to ebb and flow, but I would say directionally we feel very good about where the balances.

Our approach has been as these rules come out to put ourselves in compliance, or whatever the right word would be, immediately and not wait so that we didn't have hanging over us could you get to the LCR, could you get to be supplemental leverage.

So we just said position our balance sheet.

But I would say as you look at the company's sort of constitution in terms of business mix and balance sheet mix at the year-end 2013.

We are very comfortable with that and so there will be ebbs and flows.

Loans will grow here or maybe market will use a little more balance sheet on a given quarter.

But Tom and the team have done a good job to sort of be able to face against the customers and maintain our strong market position in all our businesses -- investment banking, sales trading, fixed income and equities both -- while at the same time bringing the balance sheet in year over year down.

But we are completely comfortable with it being in the size range it is now and expect it to stay roughly in there.

I don't think we see massive changes in how the Company looks to comply with rules because we are already complying.

Okay, appreciate that.

In global markets the trading in absolute numbers in relative to some peers is pretty good.

The question I have is if you look at the return on capital or the return on average assets it is pretty low.

I am curious A) how much litigation costs dented that, because I know it dented it; we just can't see exactly how much.

And are these metrics we should be looking at on a consistent basis?

They are in the supplement and I am assuming that they mean something, I just don't know if the capital allocations and the asset allocations are fair things to judge on.

I think as it relates to the capital allocations they clearly are.

One of the things that if you look back in the footnote that we highlighted is we will refresh those allocations in 2014 and continue to have more capital pushed out within the businesses.

As you look at the returns within the markets business, I think you need to adjust for two numbers when you look at those.

The litigation number within markets business was north of $600 million for the quarter, and then you had another couple hundred million dollars during the quarter for DVAs.

So when you look at the returns, you need to adjust for those two numbers and realize that, in the fourth quarter, you are looking at what is seasonally the slowest quarter.

Okay, that is totally fair.

Final one is in mortgage.

I think there was a bit of a hiatus as you are getting things battened down.

I think you picked up about 100 basis points market share since then on the retail side.

Just curious for an update on, A, how the fourth quarter looked and then, B, your thoughts on going out in terms of intentions to continue to push that share higher.

Well, I think if you look at it, you could calculate statistics, but we were down.

We had two things going on during 2013 in the second half, especially as the HARP volume started to fall off because we sized our portfolio down in terms of total servicing size.

So our HARP opportunity went down and then obviously as rates went up, sort of midyear out, the volumes dropped.

And so the third quarter, the pipeline pull through helped us get $20 billion odd and in fourth quarter down to $11 billion.

But if we look at it non-HARP share, we are pleased with the progress we are making and we will continue to grind that direct-to-consumer, grind that forward from where we are now at about $9 billion this past quarter.

So I think we are fine.

It is going to be a business which we shape to size -- to serve the customers and the wealth management business does a couple billion a quarter.

It is a good solid position.

I would say in January with the rates moving down a little bit and stuff, you saw another kick up of about 20%, 25% in application volume in our book already.

Now I don't know if that holds and how much seasonality because the way Christmas and New Year's fell this year and things like that as we move through the month, but it immediately kicked up over the last several days as rates moved a little bit in our favor.

And the purchase volume has also moved up in January.

So we are looking for this business to start to grow again, but it obviously suffered a couple of different -- both the rate effect and also the HARP effect in the fourth quarter.

Okay.

Thanks both very much.

Chris Kotowski, Oppenheimer & Co.

Yes, I wanted to come back to the debt footprint discussion and just looking on page 11, you can see total average long-term debt down $27 billion year-over-year and at the same time, looking at page 7 of the presentation, the time to required funding expanded from 33 months to 38 months.

So I'm just curious, is there some other liability that is extending while you are bringing down the debt footprint and how can we gauge for the year ahead?

What I'm getting at is how much further can you get, how can we triangulate on how much further room there might be in the debt reduction?

I think that the important thing, and I understand your question, when you look at the time to required funding, one of the reasons why -- there are a couple components that go into that, the amount of liquidity that you have at the parent obviously and then what the debt footprint is over the course of the period of time that you are measuring it.

And if you look at what we have done, we basically -- if you looked at our Company at the end of 2012, we had $70 billion of debt maturities that we needed to work through over the course of 2013 and 2014.

And you obviously need to carry significant amounts of liquidity to be able to basically meet your time to required funding when it is that lumpy.

What we have done is, between the debt that we repaid this year, as well as the activity you saw when we tendered for debt several times in 2013 for debt that was maturing in 2014, was to knock down those maturity profiles.

So you are asking a very good question, which is over time what you should expect us to be able to do is continue to move the parent company funding down and as we flatten out those debt maturities, we will be able to do that and not have nearly the impact on time to required funding because the maturity profile will be much flatter.

Okay.

Then as a follow-up, looking at your 10-K and 10-Q, you gave us a very nice breakdown of the debt by parent company versus Merrill versus BofA and A. And your parent company debt looks like, at least between year-end and September, like it was relatively flat and the declines in the long-term debt came primarily from Merrill Lynch going from like $90 billion to $60 billion.

Does Merrill Lynch as an entity need to continue to pay down debt or can that essentially be all squeezed into other subsidiaries and does that have an impact on the cost of funds?

I think a couple things.

Keep in mind we told you when we reported on the third-quarter earnings that the Merrill Lynch holding company that had previously issued debt before the merger of the two companies.

That has been merged into the BAC holding company so when you look at that debt profile realize today it is one and the same.

I think the important thing I would look at is on page seven.

What we do is that we do give you the actual what we consider parent company, and that parent company back in previous quarters prior to [ML and BAC] merging is a combined number.

So if you look at those red bars on the bottom on page seven that is the combined debt footprint of the two companies that is now one and you can see it over the course of five quarters migrating down.

Okay.

All right, I will follow up, thanks.

That is it for me.

Jim Mitchell, Buckingham Research.

Good morning.

Just a couple of quick follow ups.

On your Basel III Tier 1 common, the standardized versus advanced, you have I guess almost a 90 basis point difference.

Some of your large bank peers are closer to a 10 basis point difference.

Can you help us think about why you have such a large gap between the standardized and advanced?

The first thing I would say is that generally we would expect that gap to narrow over time.

But as you look at the actual content of it I think the biggest reason that you have is just given the percentage in some of our commercial loan balances that we have relative to our peers that under Basel III advanced get impacted significantly based on the actual credit quality, where when you go to standardized it is just 100%.

So I think you have got -- the first thing is you do have some of that activity or difference between the two metrics.

Then I would say that the second thing is that we still do have some assets that under Basel III standardized do get some fairly heavy risk weightings that we will continue to work off over the next couple years.

So there is no question relative to what we have seen out there, we are a little bit wider.

I think those are a couple of the differences.

And as I say, I would expect over the course of the next 12 to 18 months you will see that gap tighten.

So on the commercial side as credit gets better we should see that gap close for that reason?

No, the commercial credit getting better really isn't going to -- that is not going to lead to it getting tighter, because under standardized a commercial loan is a commercial loan.

There is no benefit of credit quality.

It is going to be more the runoff of some of the different positions that we have within the Company as opposed to anything specific on commercial.

Okay, got you.

Then just a follow up on your eventual ROE target or a tangible ROE of 14%.

When you are kind of discussing that target is that assuming some help from interest rates being higher, or is that without that help?

As we look out at and as we look at 2015, 2016 we don't do anything besides just look out at the forward curve, so you do get a little bit of benefit at the very end of 2015 and a little bit more so in 2016.

So there is embedded some of that.

At the same time, to the extent that we are not in an environment and an economy that is growing and where we are seeing some of that movement up in short-term rates, if we are not seeing that there are other actions that we are going to need to take within the Company.

Okay, great.

That is very helpful, thanks.

Steven Chubak, Nomura Securities.

Good morning.

So one thing that we did see over the past year is a pretty robust pace of DTA consumption, which certainly helped boost your capital ratios.

I know when contemplating DTA utilization the mechanics can be quite complicated, but how should we think about the potential level of progress as we enter 2014 as your earnings profile continues to improve?

I would say on that that as we work through 2014 a fairly healthy percentage of what would show up in the tax provision line will not reduce our regulatory capital.

And as we go out in 2015 and beyond how quickly the balance of that goes is going to be a function of profitability.

But what I would say is that as it relates to working through the DTA, and it is a complicated calculation, that we should get a very large amount of what we pay in taxes back in regulatory capital during 2014.

Okay, great.

Then just thinking about some of the profitability targets you highlighted, such as the 14% tangible ROE, what are you guys assuming in terms of capital return over that potential horizon?

Unfortunately, I can't answer a way around.

We're not going to give any more guidance on CCAR than we have already given.

It was a good attempt, though.

Fair enough.

All right, that is it for me.

Thank you for taking my questions.

Paul Miller, FBR Capital Markets.

Thank you very much.

On the origination side, you did talk a little bit about that you are improving our retail side but the refis have gone down.

You're down to like 4.5%; where do you see your market share and where do you think you can take your retail market share?

And also, what do you think about non-QMs?

I know some banks have come out and said they will start doing some non-QMs.

I didn't know where you stand on that.

We think that, ultimately, if you look at our market share and other product capabilities, given the ebbs and flows of the rate environment, Paul -- fast refis, lower refis, whatever is going on.

But if you look at it we should be able to better we should be able to -- we have a 10% or 13% deposit share we think in consumer deposits.

We have a higher percent in cards, etc.

Home equity is bigger.

We should be pushing towards upper single-digit level in mortgage.

It just will take time because we are rebuilding that process, which was not geared to serving the core customers, and just doing it.

The team has been doing a good job of building that fairly steadily.

The purchase volume percent is in the 30%s this quarter and so we are getting there.

That is our goal; it will just take us time and we will drive that.

But in terms of direct-to-consumer production, I think we are second largest now and we plan to keep driving.

On the non-QM and things like that we will meet the needs of our customers by using our balance sheet, because remember we do a lot of mortgages today through our wealth management business and stuff and so we will work through the rules.

But for the standard products obviously, for the general consumer and the Fannie eligible and Freddie eligible, FHA type products we will be following all the rules and making sure they go through the standard process to get them off the balance sheet and into the securitization process.

But in terms of putting stuff on the balance sheet, I think we meet the needs of customers and we have been doing it for years.

And on the jumbo loans I know a lot of the institutions are going after the jumbo product.

You don't break out your jumbo product, but is that an area of focus for you guys?

And if it is, what type of yields are you getting on that product?

Inherently, when you have one of the largest wealth management businesses it is a focus.

So of our production about 20-odd-percent comes from the wealth management business.

And the yields are -- Bruce, I guess the yields on the product are competitive.

We have to compete in the market, so it is a market-driven business.

I would say it obviously depends on the product, floating versus fixed, but you are clearly seeing credit spreads on a floating basis where some of those customers in the spreads of 100 to 150 basis points over from a floating rate perspective.

And is there any update on the state of New York, where they stand with approving the Bank of New York settlement of $8.5 billion?

Do we know when that is going to come to a conclusion?

We do not.

There is no update at all besides the fact that the trial is over.

At this point you know what we know.

Okay.

Thank you very much.

Moshe Orenbuch, Credit Suisse.

Great, thanks.

A couple of things.

In the mortgage business I noticed that it looked like the revenue stream from the LAS servicing actually went up from the third quarter.

Is that something that will remain at that level, or does that come down kind of with the servicing assets?

The thing you need to look at within legacy assets and servicing, I know it is completely counterintuitive, but recall that the reps and warrants is a contra revenue line item.

So we had the lower rep and warranty provision for the quarter was the big delta.

In terms of the card business, I mean you had talked about the million-plus accounts and you have done that both third and fourth quarter.

Just talk a little bit maybe more generally about the strategy there; are there any things that you are doing to kind of maintain or increase that?

Also, on the other side are there other affinity portfolios that your partners are going to ask for back as we go into 2014?

I would say on the affinity side we identified the one -- I think we basically repositioned that business over the last three or four years and I think we are kind of where we are at this point.

The strong affinity partners we have that have done well we continue to support them and continue to drive production there.

But the real story on the card business is think about the Cash 1-2-3 product, the Balance Rewards, and the Travel Rewards products, core products that we continue to drive.

The production of those products continue to be up significantly year over year and that is what is driving us from a couple of years ago maybe 600,000, probably 700,000 cards a quarter up to 1 million-ish now per quarter.

And so that is good because it is our core brand of product with a great product for the consumer and they use it.

So what you are seeing is if you look at some of the detail we give you in the supplement stuff you will see that the average spending is going up, the average spending per card is going up and so that obviously is more efficient and an indicator that you are becoming the primary card in the wallet for customers.

With that though one of the drags is the spend rate.

We are in the low 20%s on payment rate.

In other words, the people are paying us off and not caring balances because of the affluent customers.

So that is a little bit of drag, but they charge enough that you make it through the interchange.

We are very comfortable with the business.

We spent three or four years in positioning, but the good news is with the credit quality that we have seen from originations and things like that we are getting a 9% risk-adjusted margin.

So we have ended up with the right spot where we are getting production growth, i.e., more cards, with our direct customers with a good, strong margin and we like that.

Then you might say: well, why don't you push it harder because it is returning so well?

The issue is to do that you have to go to places where I think it is our core strength and so you should expect us just to grind forward on that.

Got you.

Following up on the DTA question, how do you think about and how do you believe the Fed thinks about that DTA consumption kind of as part of a CCAR submission?

I think that the interesting thing is that as you move forward into -- as we move forward and you look to test under Basel III NOLs are not eligible as capital under Basel III.

So there is good news and there is bad news.

The bad news is you don't get to count it.

The good news is that it eliminates the likelihood that you have a difference relative to the way somebody else looks at your deferred tax position.

Given that CCAR is based on the way regulatory capital works, that is how the deferred tax asset flows through.

And once again under Basel III you don't get to count NOLs.

So you are saying though they do consider the capital generation as opposed to just your earnings?

I can't comment on the way the Federal Reserve looks at that, but our belief is that is correct.

Thanks, Bruce.

The point would be this year you are in transition, but as you go forward and the expectation is you move purely to Basel III, this becomes sort of a non-element in that it is out of the calculation already.

Great, thanks.

Guy Moszkowski, Autonomous Research.

Good morning.

Question on how we should think about the fact that last year your capital return really included not just the buyback authorization of shares, but also the redemption of the preferreds.

So you could add the two numbers together and say $10.5 billion out of last year's CCAR.

Is there some conversion factor that we should think of for the preferreds in terms of saying what the 2013 baseline really was?

I think as you look at the preferreds that we redeemed the yields on those preferreds were between 8% and 9%.

Our belief, and once again I am not going to speak for the Federal Reserve, but I think most people looked at that and said -- at least the way we looked at it was that we look at the heavy content of Tier common that we have and you look at preferred that is 8% to 9% after tax.

I think most people would look at that and say it makes good corporate finance sense and it is a good thing for Bank of America to retire those.

Given the work that we have done on the balance sheet, you can see that the majority of what we have left from a preferred stock perspective is priced at competitive rates.

So I would be very careful to thinking of and including that preferred stock redemption and assuming that it was evaluated as common stock.

Right, but I mean is there a factor that you used in thinking about what it would convert into in terms of the capital return?

No, because it was straight preferred stock.

It had no conversion features whatsoever.

Okay, fair enough.

I have had a number of clients ask me the question this morning about the significant increase in the yield on the securities portfolio just from the third quarter to the fourth.

Obviously long rates are up a lot, but is it just that or can you link that to the couple hundred million dollar benefit that you were talking about in terms of the market-related impact?

You are absolutely correct.

If you adjust for the FAS 91 the delta Q3 to Q4 the increase was only 2 basis points.

Got it, that helps.

I know you said that on the SLR with the Basel add-ons you are still evaluating that, but JPMorgan was out saying yesterday that their estimate was that it probably only increased above and -- beyond the NPR decreased their leverage ratio by about 10 basis points.

Are you thinking similar order of magnitude or are you really not in a position to comment at all at this point?

I would make a couple of comments on that, Guy.

We have got teams, as you can imagine, culling data and spending a lot of time with it.

The couple of comments I would make is that the changes that were made from prior BCBS rules to the new rules, as it relates to both the credit conversion factor as well as the netting for securities financing transactions, clearly are less punitive than what the original BCBS proposals were.

I would say on a very preliminary basis as we look at it I would say that we think the negative or the impact to us was a little bit more than what JPMorgan quoted.

That being said, with our ratios above 5% at the parent and above 6% at each of the banks coming into this, we feel like we are in very good shape with respect to compliance with this supplementary leverage ratio.

Fair enough.

That is very helpful.

Then I guess the final question that I would have for you, and it is along the lines of some of the ones you have been asked about further reductions in the long-term debt footprint.

Obviously there has been some speechifying by members of the Fed about not seeing banks reduce their long-term debt levels much below where they are now.

Is there some rule of thumb that you guys are using in the absence of any defined orderly liquidation or bail in capital definition yet as to what you would want your total sort of long-term debt plus Tier 1 capital to look like as a percentage of risk-weighted assets?

That you are using as a guidepost to help you figure out how much long-term debt to bring down.

I will let Bruce give you sort of his thoughts on that from his perspective, but before we get there you got to remember what I said earlier is we -- our company has shrunk and our equity has gone up.

So when you think about that if you shrunk the Company by $300 billion to $400 billion in size across the last three or four years and your equity balance has gone up then your deposit balance has gone up.

The only thing to do to balance the balance sheet is to take the long-term debt footprint down.

That is because we fundamentally got rid of businesses and assets and things that weren't necessary to do what we do today.

There is just a difference between us and someone, our peers who have been more organic in how they came together in the last few years.

I would just be careful that -- obviously we work with the Fed and all this redemptions it's not like we can make capital plans and, as you said, liquidation authority and structure.

But a lot of our reductions come by just shrinking the scope of the Company to $2.1-and-change-trillion from $2.4 trillion to $2.5 trillion and that is going to allow us to reshape the thing.

And then getting rid of assets that were non-core, not yielding.

So I will let Bruce answer the rules, but remember we started from a different place because, as someone said earlier, Merrill had a lot of debt because they didn't have the deposit funding we did.

Bruce?

I think, Guy, we hear the same thing that you do where we hear the numbers quoted of very high teens that you need to be at from a common, plus your debt footprint that is greater than a year.

If we look at where we are today from that metric, we are in the low 20%s today, which as we compare ourselves to our peers is higher than where our peers are.

I think what you are going to see as we go forward, and I referenced this earlier, that this is the last year of big debt maturities where we have got north of $30 billion at the parent that comes due.

So I think what you will see for us going forward is you will see us issue less today at the parent than what matures at the parent.

As you get out to 2015 and beyond it tends to be much more a $20 billion a year type maturity profile.

The impact in 2015 and beyond -- assuming we continue to do what we should with the balance sheet, the impact in 2015 and beyond is going to be more about the cost at which we are raising debt relative to the debt that we are retiring, whereas we do have one more year, which is this year, of shrink in the actual total amount.

Got it.

That is really helpful perspective.

Thanks so much for taking my questions.

Matthew Burnell, Wells Fargo.

Good morning.

First I guess a bigger picture question and then just a couple of administrative questions.

You have mentioned a couple of times your view about cards and the progress you are making not only in getting cards in the hands of your customers, but also the use that your customers are taking with the card in terms of charging more.

I guess I'm just curious as to what your outlook is for actual balance growth over the course of 2014, presuming that we are in a somewhat better economic environment this year versus the last couple of years.

If you look at the -- couple things that would drive that.

If you look at the last three or four quarters you can see that we have kind of flattened out.

Remember around the holidays you get a seasonal bump and it comes out, so Bruce said earlier that you should expect the card balances to come down in the first quarter just because of that.

But if you look at it, it has been $90-odd-billion in the US business consistently.

What we did see in the latter part of last year is more usage on the credit side, which from a general economy perspective is actually good news in that people were using the credits versus debit when we look at our usage of the cards and what they are used for in a given quarter.

So the credit spending was up better among all the customer bases in October and November and into December.

So I would say we are set up to -- because we had gotten rid of the balances of the cards that we were running off, and that is really a very low percentage now, to have the thing stabilize.

I don't think it will have large balance growth because it will kind of work with our -- it will work with our customers and what they are doing and we have a substantial part of the people pay us off.

But the good news is underlying it you have seen a little more credit usage fundamentally in the last couple quarters.

Okay.

Bruce, I think you mentioned a couple of quarters ago that you were targeting a branch count for the Company, round numbers, around 5,000.

You are basically there at the end of this year.

Is there potentially a push to get that number materially below 5,000 or at this point do you think you are where you want to be?

I would say when I reference the 5,000 that was in the context of starting at just under 6,000 branches and the work that we were doing with respect to new BAC.

I would say that we continue to track towards that 5,000 number.

What is probably a little bit different from what we saw in new BAC is that we have been able to actually sell some of those branches that are, for us, out of market to local banks as they look to build up their local presence, which I think is a good thing for everyone.

As we look forward, I think there will be a continued evaluation that we have at this point as to the opportunity and the cost versus the benefit of the branches.

But I would directionally think of us being 5,000, maybe a few less than that by the end of 2014 and there will be a continued evaluation that we have beyond that.

We would always focus people on the branch count.

It was a fairly objective way to show how we were trying to do it.

The reality now is as you look at the different formats we are always putting new branches in the market.

In other words, as leases run off, repositioning the branch, consolidating branches, and adding these express formats that we are testing and stuff.

So the definition of a branch is changing in terms from what you would traditionally think.

After the period which Bruce talked about, you are really going to be where the customer is leading you, but the branches are critically important.

You always use the example, in one market we were able to take four branches and put them in one larger one; have Merrill teammates, U.S. Trust teammates, and the core personal bankers and teammates in the branch.

So we don't know exactly where this goes because it will be dependent upon customer behavior, but what we do know is we have to dominate the physical side and the e-commerce, online, mobile side at the same time.

And that is where we are investing heavily in both platforms.

We have a fairly stated probably $0.5 billion we put in the online mobile platform across the last three or four years and we will continue to invest at that rate.

You can see the future functionality return and the usage of the platform has grown tremendously.

For example, in the fourth quarter of 2013 9% of all the checks deposited by consumers went through the iPads and mobile phones.

That was up from 7% the quarter before and didn't exist until basically the third quarter of 2012.

So that is what we are driving, because of customer convenience and usage.

At the same time we have 8 million customers coming to the branch and the engagement rate for those customers is going up.

And so the team is less about what number of branches and more about how the distribution process works between phones and ATMs and mobile in branches and express branches, ATAs which are tellers through the branch, and then we are deploying more people to sell in all those regards.

And that is what we are trying to do.

Presumably over the next two to three years you could see the square footage of the total branch base come down potentially fairly dramatically given all the electronic delivery mechanisms that you just mentioned?

Yes, dedicated to transactions, but the square footage dedicated to sales could increase.

Fair enough.

Then just finally, what was your percentage of mortgage volume this quarter that was dedicated to purchase?

And how does that compare to the third quarter?

32% was purchased this quarter.

I think it was 21% in the previous quarter.

Okay, that is it for me.

Thank you very much.

Nancy Bush, NAB Research LLC.

Good morning, guys.

I think we all appreciate the tremendous progress you have made on increasing profitability at the Company and getting things turned around, but there is a perception out there that you are going to have a gap up in profitability when short rates start to go up.

Can you just give me your thoughts about that?

Is that indeed a correct view?

We look at -- in each quarter look at our asset sensitivity on the balance sheet.

As we look out at and our constant metric that we look at is what does 100 basis points do to our net interest income.

Obviously that flows directly to the bottom line and at the end of the year 100 basis point move up was worth between $3 billion and $3.1 billion to us from a net interest income perspective.

So we clearly will benefit from short-term rates.

We obviously don't control that.

And so I think the important thing, Nancy, is that as we look at near-term benefits that we have we continue to have a lot of work to do on expenses in both 2014 and 2015, because we have got another $0.5 billion a quarter of new BAC savings that will get implemented between end of 2013 and end of 2014.

Then with the guidance that we gave today another $700 million a quarter to get out going into 2014 to where we end 2014.

So we do look forward to those days of higher rates, but in the meantime we have got a nice chunk of expenses to get out that we do not believe will impact the revenue-generating ability of the Company.

Just kind of to add on to that; do you have a sense at this point -- and this sort of goes back to the previous question.

When rates do start up how much will the profitability of -- given everything you have done in the deposit-gathering network, how profitable will that be in the next cycle as opposed to, let's say, I don't know, three or four years ago?

Nancy, if you look at page 11 where we give the profitability of the consumer business banking, and that is obviously the one that benefits the most by the short-term rate rise because they have a huge constitution of deposits that is non-interest-bearing and then picks it up.

Then you can look at the returns there and in the supplement and you can see we are up to about $2 billion in after-tax income and the returns clearly exceed the cost of capital.

It will benefit, but in the meantime what we will be doing is driving the cost structure down in the deposit franchise for almost 300 basis points of cost to run the deposit franchise as a percentage of deposits down to 200 and opening that up.

So it will absolutely help that business.

But, meanwhile, it earned $2 billion this quarter, which is not a bad -- after tax, which is not bad either.

Okay, thank you.

Eric Wasserstrom, SunTrust Robinson.

Thanks very much.

Most of my questions have been answered, but just one small question also on the mortgage business.

Doing the simple gain on sale mathematics it looks like you had a rebound in your gain on sale sequentially, which is pretty consistent with what we have seen from others.

But the magnitude looked much greater.

It looked as if your gain on sale in the period was back to, more or less, year-ago levels, which doesn't seem intuitively right so I just wanted to get your view on that.

There was one piece internally between the LAS or, excuse me, the home loan space within LAS and what we have in all other.

So if you adjusted that out you are not seeing material changes in the gain on sale.

The core production margins that has come down and stayed pretty flat at the levels.

Don't read into that is something we are doing, something different.

Got it.

So just sequentially you would characterize the margins as largely flat, is that right?

Yes.

Okay.

Thank you very much.

Mike Mayo, CLSA.

You said the banking backlog was up.

Was that versus the third quarter or year over year?

And can you quantify that?

I think I characterized the backlog as strong at this point, and I would say it is strong both relative to the third quarter as well as to the year-ago period.

And which areas in particular?

I think the interesting thing that we have seen coming into this is that the M&A business, and if you look at activity levels and just what has been announced over the course of the last week, that it does feel like that some of the -- the M&A deals that are being talked about are going to happen.

Obviously there are a number of them that are still being negotiated and may or may not happen, but M&A activity clearly feels like it is beginning to pick up and ramp up from what we have seen.

You saw within the overall debt businesses very good growth, both year over year as well as linked quarter, and I would say that that business, as well as the market conditions, continue to be quite strong.

You then move to the equity side.

The fourth quarter was obviously a very good quarter from an IPO perspective.

Typically coming into the year you have a little bit less visibility on that, because a lot of that tends to happen after people wrap up their year-end numbers.

But given overall valuations and what we are seeing, we are optimistic on the equity side as well.

So I think there is not one piece that we look at within those pipelines that don't feel pretty good.

The only thing I would say as a brief cautionary note is that you are comping against a period that is the highest investment banking revenue period we have ever seen in the history of the Company.

Then switching gears, the wealth management margin, 26.6%, can you give that to us excluding U.S. Trust?

It just helps with apples to apples comparisons with peers.

U.S. Trust adds maybe 150 to 200 basis points to it.

Okay.

Mike, so that gives you a sense of it.

But be careful; what drives our margin is what I said before.

It is the wholistic nature of the Merrill Lynch wealth management business.

In there they have the wonderful classic investment business, but also they have a good deposit base and a good loan base and all the work the team does there under [John Thiel].

But it adds about 150, 200 basis points.

Okay.

Loan utilization in commercial and wholesale, where does that stand?

Within commercial it continues to be in the very low 30%s.

So no change?

No change.

The only thing that we are seeing that is a little bit of change, and we have talked about it before, is the -- if you look at the amount of funded commercial and corporate loans relative to our total commitments, that has been very much a focus of what Tom has looked at.

And we have seen that migrate up to where it is just under 50%.

So while we are not seeing line utilization as much, we are seeing across our commercial and corporate books that the funded commitments relative to total commitments has increased.

I wasn't sure; what is our net interest margin outlook for the next quarter or two?

You mentioned FAS 91 for the debt security yield.

To what degree, if the yield curve has flattened here a little bit here recently, do you give some of that back on the net interest margin?

I think that we talked about that which drove the margin in the fourth quarter.

I would say that across the board the margin was very strong in the fourth quarter.

You have seen numbers in the low 240s; you have seen it at 251.

I would think about that being generally range bound at this point in time with what we see.

And with regard to new BAC, can you just repeat how much do you have left and how much do you think hits the bottom line this quarter?

You spent a little bit more money for revenues, which I guess makes sense if you have the opportunity, but I just want to size that again.

We have said that we have got $500 million to get through over the course of the next four quarters and I would say that is going to generally be earned over time.

So I wouldn't think of it being any more than 100, 125 is generally the way that you will see it phase in.

I'm sorry, like $100 million to $125 million per quarter then and that should hit the bottom line, or you might look at reinvesting those gains?

Well, we have committed to saying that our new BAC savings have to be net savings to the Company with the caveat that to the extent that businesses are doing more revenues from where we started that will pay out.

And that is what we did see during the fourth quarter from both the global banking side as well as wealth management.

Keep in mind, and I think this is important as you look at the first quarter, is that we have got two things that generally happen in the first quarter.

One that we know does and one historically that trend would suggest it does.

I mentioned the FAS 123 that you have in the first quarter.

We know that is going to be an incremental $900 million.

The other thing that historically has been true is that the sales and trading business the first quarter historically is the most significant quarter within that business.

So the incentive compensation, given that we accrue based on revenues, tends to be seasonally highest in the first quarter.

You add that plus the $900 million I mentioned and it is not an insignificant number.

We, once again, feel very good we will get the net new BAC savings on a net basis over the course of 2014.

Just realize that the first quarter has those two components.

Then lastly, you mentioned a goal for an ROA of 1% over three years and I just want to understand what you mean by that.

Do you mean at the end of 2016 going into 2017 you look to have an ROA of 1%, or do you mean the average over these three years?

What we are referencing is at the end of it -- as we look at over three years, at the end of the third year that is where we would look to get to which, given our current leverage profile, is around 14% on tangible common.

So at the end of 2016 you look to have an ROA of 1%?

That is correct.

With the forward curve the way it stands.

And with that, with those assumptions what sort of change do you expect with the certificates of deposits or CDs, which are historically low for you and others?

Do you have money moving out of CDs at that point or not yet?

You are around 15% of deposits; historically it is around 35%.

I would say the general expectation should be that that number is going to be at or probably move down a touch from where we are today given the performance of the core deposit franchise.

Then in your page 49 of the proxy it mentions PRSUs and they kick in with an ROA of only 0.5%, whereas you seem to be shooting for an ROA of 1%.

How will your new expectations here for the next three years translate into kind of more formalized metrics or compensation?

Is it more than simply a general target?

How does it kind of sink into the organization?

I think the targets that we have for performance we will put out in the proxy this year when the Board goes through the process over the next several weeks here, Mike.

But I think in the past it has been based on getting us back to a level of profitability in the Company and that is what is reflected.

Okay.

In very simple terms, if you look for a 1% ROA on $2 trillion of assets, you hope to be at kind of a $2 annual run rate in the later 2016?

The one piece, and once again we are not going to give it, is that if you are just doing that simple math you have not made any assumption with respect to the change in shares.

Once again, given that we are in the middle of CCAR, we are not going to comment on that, but you do have some benefit over time through share count.

All right, thank you.

Derek De Vries, UBS.

Good morning, guys.

I just have two questions.

First, I think in the December conference you mentioned there has been a 70% increase in referrals to wealth management from other parts of BAC.

I was just wondering if you could elaborate on that a little bit.

Is that environment driven or have you implemented some specific programs?

And then maybe just give us a sense of how meaningful those referrals have been at the net income level?

We have a very stringent program that is driven in each market by our marketing president and teammates where we count the referrals that go in, we count the close rate, and who participates in all of that.

And then markets are stack ranked and we monitor it monthly to see how they are doing and reward the people doing well.

We set aggressive goals and this year for 2013 they hit all the goals.

Every market was in good shape and so it is a fundamental way that our teams operate in the markets together.

When you get specifically into things that work well for wealth management, you have the connectivity when there are liquidity events, so-called business sales, IPOs, and things like that, where we bring in business.

We will get through November and I haven't seen a final count yet.

We have about 675 401(k), retirement plan closed sales in 2013 and we had about 200 and some in 2012.

That is driven through the Merrill institution of retirement planning business that [Andy Sieg] and John Thiel drive and delivered between national teams and the financial advisors in the market.

So that gives you the kind of sense of how this works.

The dollars of that is in the $5 billion, $6 billion range, if I remember exactly so it is all those types of flows.

And then it is several tens of thousands of customers come from the consumer bank into the wealth management platform referred from the preferred team.

But that goes on and those customers, they come into the branch, they have asset bases that are consistent with Merrill Lynch and U.S. Trust service models we move them in.

So it is a whole bunch of things, but it is tracked, literally, person by person to make sure that it happens.

But, frankly, the teams like to work together and win in the market.

And that is what you see when you go into our markets and talk to the teams that do it.

Okay.

Then switching gears entirely and just talk about the leverage finance business.

I think when you look at the industry you are seeing record (inaudible) issuance and you are seeing some pretty favorable pricing for issuers.

How do you think about this business over the next few years, both from a revenue perspective but also from a risk management perspective?

I would say the leverage finance business is a very good business for us.

If you look at historically we are number one or number two in that business, and if you look at -- on an overall basis if you look at our debt origination, both investment grade as well as non-investment grade, it tends to be an $800 million to $1 billion a quarter type revenue stream.

As it relates to the risk -- and we believe, particularly given some of the new capital guidelines and the competitive landscape, that we are doing better in that business than we have.

From the risk management perspective of it you have got two different components of it.

You have the underwrite to distribute component to it, which one of the most notable changes I think has been over the last couple years is the risk gets distributed from the underwriter to the investor generally much quicker, even in the context of deals that have a lag time from the time that they are committed to to where they are distributed.

So that is a positive from a risk management perspective.

Then, with respect to the hold pieces, we continue to be very disciplined with respect to the hold levels that we have on those deals.

The other thing I would say is, if you just look at mix of business now relative to what you saw 12 months ago, a lot more of the leverage finance business tends to be coming from corporate customers that are either privately held or public.

And as valuations have gone up less of it tends to come from the private equity firms.

It is a business that we think that we are very good at.

Our team has done a very good job of being mindful of the risk that is associated with it over the last couple years and it is a business that we are optimistic about.

Okay.

Maybe just to follow up, so just to paraphrase what you said, you are very comfortable on the risk management side and you have taken market share it sounds like.

But I don't think you gave an answer in terms of where you think the revenue outlook is for this business over the next couple of years.

The revenue outlook, I think in many respects, as we look out at the profitability we feel very good about the outlook.

This is probably the business that most benefits from increased M&A activity, particularly on the corporate side.

So to the extent that corporate M&A picks up, you would look to see this business continue to have favorable trends.

The word of caution would just be that it is a market-dependent business and, as you all know, periodically there are gaps in time where the new issue market, particularly on the high-yield side, does slow down, sometimes materially.

But on balance we feel very good about the business going forward.

Great.

Thank you very much.

Andrew Marquardt, Evercore Partners.

Morning, guys.

Just wanted to go back to the retail branch banking strategy shift and, Brian, you have been clear about this evolution of everyone having a branch in their pocket, so not totally surprised about targeting maybe shrinkage in branch count in 2014 and 2015.

But, to frame it out a little bit more, does that provide additional expense leverage beyond what you have long been talking about on new BAC and LAS, or is there an investment spend component that we need to be mindful as well?

The relative amount, obviously, you are getting more and more to the core franchise, so the relative amount of movement we can make -- and remember, couple that with we are investing in people and we are investing in technology to make it all work.

And so I would be careful about assuming -- we are always going to be working this, that is our job, but I would be careful about assuming beyond the new BAC cost that Bruce talked about that there will be a lot net after that.

Only because we are investing so heavily in the electronic space, which is still building in front of us.

But the theme is right; it is really how do you keep driving down the overall operating cost of all the platforms relative to the revenue stream and the deposit base obviously, because that drives a lot of the revenue stream in the business.

And so I wouldn't hold the bottom line, but you should assume that we are going to be diligent in terms of managing that transition to help provide more investments, frankly, as we can.

And where do you think you are in terms of that investment cycle for mobile banking, other deliverables?

We have got a great product and we just -- I think we are at a steady state.

We spend just overall, we decide which business, about $3-billion-and-change in annual technology development, just development, and we expect that number to stay constant over time here.

And as we take (multiple speakers)

On an annual basis?

On an annual basis, yes.

We are rebuilding a system, so I think that -- but that is all built into the dialogue we had about new BAC.

Got it, that is helpful.

Then separate, but sort of related on expenses, so with new BAC that is left to realize in LAS how much of that should we have kind of a step function down on the absolute level of expenses off the core 4Q run rate of, call it, $15.5 billion type level?

Should we see by the end of 2014 I guess heading into 2015 should we take out $1.5 billion or are there other costs related to maybe investment spend elsewhere that we need to be mindful of?

I think if you look at the chart we gave you we try to isolate on the costs on page, the bar chart on page nine.

You can see that the red bars are sort of the core if take out the litigation and LAS.

You have to put some back because there will always be litigation.

You have to put some back for just running the servicing portfolio, but we are shooting to drive into numbers that -- take those numbers and then you have to grow them and be careful of the FAS 123 type of thing and which quarter you are looking at.

But our job is to keep driving towards that core expense base.

Then as you grow, if we are growing revenues -- the economy growth rate 100 basis points above that, we will grow expenses probably half of that.

And that takes a lot of work to keep that expense down because the people content reaches 50%, 60% of our expense base.

Our people do a great job and we will pay them.

I would just add that, Andrew, on the LAS piece we guided to roughly $1.1 billion at the end of the year.

So with respect to the gray bar on page nine that Brian referenced, I would look at and think about $1.8 billion to $1.1 billion happening generally pro-rata over the course of the year.

We still got a lot of clean up there.

If you look at one of our peers announced yesterday, you can see that they are probably doing their mortgage servicing expenses maybe 30% to 40% of ours, and that is because we just are still getting through the higher delinquency content portfolio.

And it lags a little bit getting the stuff done.

Got it, that is helpful.

Then, Bruce, you have said I think in some of your prepared remarks that credit quality continues to improve into this year.

Should we read into that that there is still meaningful credit leverage left to be realized in terms of reserve releases, or are we closer to the end here in magnitude?

I think you are closer to the end on magnitude from a reserve release perspective.

It always a little bit hard to predict obviously because the reserve releases are a function of what is happening in the underlying credit.

But generally, Andrew, I would say that you expect to see charge-offs continue to decline.

And you are obviously going to see the reserve releases, given the magnitude that they have been, you are going to see those slowdown as well with the one delta just being what is the overall loan growth that you are seeing.

Got it, thanks.

Then just lastly, just to wrap up some of the Q&A on the CCAR capital deployment.

Just to be clear, it seems like one should not use kind of the $10 billion combined kind of preferred and common last year as a base.

It really needs to be kind of a $5 billion as the baseline on common that you got approved for last year.

Hopefully we will make our own assumption, but it seems like it is fair to assume you could move upward in terms of deployment this year off that kind of base.

Is that fair summarization?

We agree with your characterization of the $10 billion number.

You are trying to creatively ask the same question.

You are doing a good job.

Okay.

Thanks, guys.

That was our last question, so once again thanks, everyone, for joining us.

Thank you.

This concludes our conference call for today.

You may now disconnect your lines and everyone have a great day.