Bank of America Corp (NYSE: BAC) Q1 2021 earnings call dated Apr. 15, 2021.
Corporate Participants:
Lee McEntire — Senior Vice President, Investor Relations
Brian Moynihan — Chairman and Chief Executive Officer
Paul Donofrio — Chief Financial Officer
Analysts:
Glenn Schorr — Evercore ISI — Analyst
Gerard Cassidy — RBC Capital Markets (US) — Analyst
Mike Mayo — Wells Fargo — Analyst
John McDonald — Autonomous Research — Analyst
Matthew O’Connor — Deutsche Bank — Analyst
Betsy Graseck — Morgan Stanley — Analyst
Steven Chubak — Wolfe Research — Analyst
Jim Mitchell — Seaport Global Securities — Analyst
Ken Usdin — Jefferies — Analyst
Presentation:
Operator
Good day. everyone, and welcome to the Bank of America First Quarter Earnings Announcement. [Operator Instructions]
And it is now my pleasure to turn the conference over to Lee McEntire. Please go ahead.
Lee McEntire — Senior Vice President, Investor Relations
Good morning. Thank you for joining the call to review our first quarter results. Hopefully, you’ve all had a chance to review our earnings release documents. As usual, they are available, including the earnings presentation that we’ll be referring to during the call, on the new and improved Investor Relations section of the bankofamerica.com website. I’m going to first turn the call over to our CEO, Brian Moynihan, for some opening comments. And then I’ll ask Paul Donofrio, our CFO, to cover the details of the quarter.
Before I turn the call over to Brian and Paul, let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call regarding various elements of the financial results. Our forward-looking statements are based on management’s current expectations and assumptions that are subject to risks and uncertainties, particularly during the pandemic period we’ve been operating in. Factors that may cause those to be different are detailed in our earnings materials and the SEC filings that are on our website. Information about the non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website.
So with that, I will turn it over to you, Brian, take it away.
Brian Moynihan — Chairman and Chief Executive Officer
Thank you, Lee, and thank all of you for joining us. It’s been a year since we first reported our results, which would include the health crisis impact. But what we see different now is we see an accelerating recovery versus the economic uncertainty that we have faced the last year at this time. The most recent economic indicators reflect in an economic recovery that has gained momentum and continues to be supported by fiscal monetary policies.
From our company’s perspective, we have emerged as even stronger company and competitor than what we were when we entered the healthcare crisis. Compared to last year, Bank of America’s balance sheet has higher capital ratios, higher reserves with lower charge-offs and record liquidity. Our diverse business model with leadership positions across all our businesses has helped us earn our way through the crisis. Our Global Markets and Global Wealth Management businesses, which would typically benefit from this healthy capital markets’ environment, continue to perform well this quarter.
Our Consumer and Global Banking businesses also performed well, but they were — this was after being more negatively impacted for several quarters by the interest rate environment and credit costs. These businesses now are in full recovery mode and are out generating new assets and new relationship with our clients. All this work by my team, which we’re very proud of here, has led to EPS in the first quarter of $0.86 per share and a return on tangible common equity of 17%.
Paul is going to take you through the details in a moment. But simply put, we believe our decade-plus long dedication to responsible growth has put us in a position to both earn more money and deliver more back to you, our shareholders. Our announcement this morning regarding share repurchases heights our intention to increase those repurchases over the coming quarters as the current restrictions are lifted by the Federal Reserve.
So first, let’s discuss the recovering economy. On Slides 3, 4 and 5, we’ve shared slides like this with you the last few quarters. They are updated with the most quarterly data. They highlight the key economic signpost. I won’t go through all the details on them, but they’re there for your reference. But a few highlights. Obviously, GDP consensus projections continue to improve, and you can see our tremendous best-in-class Bank of America Research team’s projections, the upper left hand corner of Slide 3.
You will note also the increases in the consumer spending from our Bank of America customers at the bottom of slide, which is not only much higher than the prior year when payments begin decline, but notably is much higher this year-to-date than year-to-date 2019, a more appropriate comparison. This is a key element of the economic optimism you’re seeing reflected in the market.
Looking back to 2017, after tax reform and other matters. We saw a step change in money movement by our customers, moving from previously a 5% year-over-year type of growth rate to up to 9% in 2019 versus 2018. Then the pandemic hit and growth of ’20 over ’19 was only 1%. But so far year-to-date, we’re going faster on a larger base than the 2019 9% plus growth trend at 10% plus. The first quarter was a record dollar amount of money moved by Bank of America consumers. The trend is fully on track, even though the economy is not yet fully reopened. March was a record month of spending by Bank of American consumers and led to the highest ever quarter of consumer spending.
As you look also on these slides, note on Slide 4, the lower level of card delinquencies has a spike from the expired deferrals in the [Indecipherable] has worked its way through the charge-offs. In addition, early stage delinquencies are at or near historic lows suggesting low levels of card charge-offs again next year — next quarter, excuse me.
As economy has improved, customers are continuing to increase their business across our platform. When you think about it from the customer’s perspective, which is what we do as a business and comparing across the pandemic period the last 12 months, we have simply added more customers across every line of business. And those customers are more digitally engaged in every business as well. You’re going to see later on Slide 17 that we added nearly $1 million active digital customers this quarter, pushing us past 40 million active users led by increased use by boomers and seniors.
We have more deposit and cash management customers and balances in every business from Consumer to Small Business to Merrill Lynch to Private Bank, the Business Bank and the Commercial Bank across all franchise. New investment relationships in our Consumer business’ Merrill Edge platform now total more than 3 million accounts and net new households continue to grow both in Merrill Lynch and the Private Bank.
We saw aggregated client flows across our investment platforms of $48 billion in the quarter, bringing those total investment assets over $4 trillion with the range of those capabilities from our digital-only capabilities in our Consumer business, all the way through the great service and capabilities provided by our 20,000 wealth advisors. We added new lending customers whether through PPP and small business and business banking along with broader traditional banking relationships, our middle market corporate clients. And we have helped existing and new clients obtain funding taxes market through our sales and trading investment banking platforms.
Combined sales and trading investment banking revenue of $7.3 billion is the highest in a decade and is up 28% year-over-year. Jimmy DeMare and Matthew Koder and the teams led by Tom Montag have done a great job there. Our customer satisfaction levels across all these groups of clients rose during the pandemic, and the brand loyalty of our company is at the highest it’s been. We also note that our employee engagement is at highest it’s been.
And we have driven our success through our teammates this quarter, and you’ll note, in our expenses with another broad-based bonus plan which is the fourth time we’ve done this. And the support provided to the communities we serve, our employees’ sense of pride in our company and what it does has reached new level of satisfaction. So that being said, we do have some work to do in certain areas as we have for the last decade.
I’d highlight those three areas with a couple of comments on each. Those areas are loan growth, net interest income and expense. While loan growth continues to be a lot of liquidity in the system, the customer payments remained high, which impacts our loan balances. This is across the whole consumers and companies. Pipeline origination improving, but remained below pre-pandemic levels. We’ve reinstated all our credit standards back to where they were before the pandemic. And we remained highly focused on capturing loan growth as economy expands and continues to recover. The projected economic growth caused a need for companies to borrow, build inventory, increase hiring and invest and do what they do in their businesses.
As you could see from Slide 4, Global Banking loans after falling in January appear to have stabilized again in March. We’ll have to see how this plays out, but that’s the first — the month of March was a good sign. Pipelines continue to build, but line usage remains low. Card applications and mortgage originations continue to increase in each of the last three quarters. This along with mortgage rates moving higher and driving lower prepayments and run off of current mortgage loan sets up consumer loan growth. That strong customer liquidity obviously negatively impacts loan growth, but has benefited credit costs. We saw quarter one net charge-offs remaining below pre-pandemic levels in dollars and percentage, further supporting reduction in our credit reserves this quarter.
Now net interest income. We told you six months ago that we believe the third quarter would be the trough, and it has proven to be so. Despite the drawdown of loans and two less days of interest in this current quarter, NII was flat to fourth quarter of last year. As we move through 2021, we believe that benefits from a steepened interest rate curve should begin to work its way into our revenue driven by continued investment of our liquidity as well as picking up those lost days of interest.
Thinking about the expected NII trajectory this year and the year ahead, I would set the stage as follows. If the forward interest rate curve materializes and we see modest loan growth in the later quarters of the year, we ought to see NII as we exit the fourth quarter of this year, $1 billion a quarter higher than the most recent level of $10.3 billion in this quarter.
The last area I would highlight is expense. We had a large expense this quarter driven by several factors. Some are seasonal impacts, some are good news and that they’re volume and revenue driven impacts and others were not typical of our normal operating expense due to charges taken. We expect a significant decline as we look forward to the second quarter 2021 in expense. We’ve seen the headcount in our company start to work its way back down due to attrition, especially as specialized programs to begin to run their course. I’d also remind you the first quarter is typically elevated for payroll tax expense, and this year it was about $350 million. Next, I would say roughly $500 million of our increase was driven by the improved activity and higher revenue, which of course is a positive, it’s what we’re in the business to do.
The items I classify as differing from our typical costs were as follows. First, given the progress made in our digital engagement with our customers and other customer traffic behavior. We will continue to rationalize real estate for our teammates and our customers and recorded impairment charge due that of $240 million in the quarter. Second, a portion of the equity awarded last year to our Global Banking Markets teammates had different retirement rule. And as previously reported, we changed that retirement rule, which caused that to accelerate in full this quarter instead of being amortized over the next four years. Other costs worth noting includes severance costs and special incentive award, recognizing a broad base of 200,000 teammates for their outstanding efforts during this pandemic. That award for the fourth time is built on shared success awards, the three times prior that was going to the three previous years.
Additionally, COVID expense remains elevated as we continue to help our clients through the various assistant programs established by the government; PPP, unemployment claims, stimulus payment disbursement and PPP forgiveness. But broadly speaking, we have done a great job in helping customers through these programs. We’ve now originated almost 500,000 PPP loans and have obtained forgiveness for our clients for 200,000 of those. We processed $180 billion unemployment claims and $73 billion in the IP stimulus payments. Paul is going to share a bit of the details on the quarter’s expenses. But even after absorbing these expenses, our PPNR rose from fourth quarter.
As we ended last year, we talked about a target for this year’s expense, meaning 2021 fiscal year expenses to be similar to the $55 billion level in 2020. Given the charges this quarter, we would increase that target by about $1.5 billion. However, I just want you to keep some perspective here. We reported $57 billion in expense for the year 2015, six years ago. Even though all the investments we have made in technology and the build out of branches in new markets, new sales resources and just having more customers, more activities, the inflation in healthcare and real estate and other costs, moving our teammates’ starting wages from $15 to $20 an hour during that time period. We are targeting 2021 expense roughly to where it was in 2015, six years later and a lot bigger company later. That discipline and operational excellence is what we do, and you should expect us to continue that.
So in summary, this quarter, we again drove responsible growth. We support our employees by keeping them safe and rewarding their efforts in the pandemic. We supported our customers by providing strong balance sheet and resilient systems to transact. We supported our communities by supplying critical funding and driving improvement toward racial and social equality with our increase in our $1 billion commitment to $1.25 billion. We’ve already delivered over $300 million of that commitment. At the same time, we delivered to you, our shareholders, $8 billion in earnings, generating return on tangible common equity of 17% and returned $5 billion in capital to the shareholders in the first quarter. This shows you we can both deliver for you, our shareholders, and deliver for our customers, our employees and our other stakeholders and society.
With that, let me hand off to Paul to cover the quarter in a little more detail.
Paul Donofrio — Chief Financial Officer
Thanks, Brian. Good morning, and hello everyone. I’m starting on Slide 6 and 7 together. As I’ve done in the past few quarters now, the majority of my comparisons will be relative to the prior quarter to reflect how we are progressing through this health crisis rather than year-over-year.
In Q1, we earned net income of $8.1 billion or $0.86 per share, which compares to $5.5 billion or $0.59 per share in Q4. The earnings improvement included strong revenue growth, which more than offset higher expense. Additionally, earnings also included a $2.7 billion reserve release, which resulted in a $1.9 billion provision benefit. Revenue growth was driven by strong sales and trading results, record investment banking fees and record asset management fees in our Wealth Management business, while consumer fees faced the seasonal challenge against elevated Q4 holiday spending. With respect to returns, return on tangible common equity was 17.1 and ROA was 113 basis points.
Moving to the balance sheet on Slide 8. The balance sheet expanded $150 billion versus Q4 to $2.97 trillion in total assets. Deposit growth continued to drive the balance sheet higher. Deposits grew $89 billion in the quarter and are up $300 billion from Q1 ’20. Note that as deposits continue to grow, loans declined $25 billion from Q4. We deployed some of this excess liquidity into debt securities, which increased $172 billion, while cash balances declined $54 billion and reverse repo also fell.
It is also worth noting that our liquidity portfolio is now more than one-third of our total balance sheet and has surpassed $1 trillion. On a period-end basis, our Global Markets balance sheet increased by $129 billion, coming off year end seasonal lows and as customers increase their activity with us. Note that on an average basis, it is only up marginally from the prior year and versus Q4 up only $40 billion. Shareholders’ equity increased $1 billion, earnings were mostly offset by $4.5 billion in net capital distributions and a decrease in OCI of $1.8 billion driven by an increase in long bond rates.
With respect to regulatory ratios, consistent with the fourth quarter, standardize remain our binding approach for us. And at 11.8%, our CET1 ratio is our binding metric. While the CET1 ratio declined 15 basis points from Q4, it is 230 basis points above our minimum requirement of 9.5%, which translates into a $35 billion capital question. The benefits to the ratio from an increased level of capital were more than offset by higher RWA from the liquidity deployed into mortgage-backed securities and growth in our Global Markets balance sheet. Our supplemental ratio at quarter end was 7% and 6.1% on a pro forma basis excluding the relief for deposits at the Fed and investments in treasuries. 6.1% versus a 5% minimum requirement leaves us plenty of room for growth in the balance sheet. Our TLAC ratio remained comfortably above our requirements.
Let me spend a minute on loans and deposits before moving away from the balance sheet. I will focus on averages as that is what drives NII. With respect to loans, on Slide 9, you can see the downward trend across the year as customer liquidity and accommodating Capital Markets drove pay downs well above historic levels. I would draw your attention to the linked-quarter change. Global Banking commercial loans declined $16 billion, but as Brian noted earlier, we are seeing pipelines build and balances have stabilized for more than a month, so we are hopeful for turnaround.
Loan payments by consumers continue to outpace originations with loans declining $14 billion in Consumer Banking led by mortgages, plus we saw a normal seasonality in our card products as customers paid down holiday balances with stimulus contributing to the high payment rates. But what is also noteworthy is the linked-quarter improvement in GWIM and Global Markets. GWIM continued to benefit from security-based lending as well as custom lending. In Global Markets, we relax some hold limits as the economy continued to strengthen.
With respect to deposits on Slide 10, we continued to see tremendous growth across the client base, not only because of growth in the money supply, but also because we are adding new accounts and attracting liquidity from existing customers.
Turning to Slide 11 and net interest income. On a GAAP non-FTE basis, NII in Q1 was $10.2 billion, $10.3 billion on an FTE basis. Net interest income declined $1.9 billion from Q1 ’20 driven by the rate environment and lower loan balances, but was relatively flat to Q4. Compared to Q4, we see this as a good outcome considering the headwinds of two fewer days of interest, lower loan levels and modestly higher premium amortization expense. These headwinds were mostly offset by the deployment of excess deposits into securities and a benefit of approximately $100 million from a legacy litigation settlement involving some securities.
The net interest yield was relatively stable, declining three basis points from Q4, and it was flat if you exclude Global Markets. Reducing cash and repo, we deployed some of our excess liquidity into securities in Q1, split across treasuries and mortgage-backed securities. Securities increased $172 billion from year end. On a weighted average basis, relative to what we were earning on the cash, we improved our yield on that roughly $170 billion by approximately 150 basis points.
Now the improvement in yield could have been higher, however, but similar to Q4 purchases, we hedged a portion of the treasuries purchased with swaps, effectively keeping those securities floating. As you will note, given all the deposit growth and low rates, our asset sensitivity is rising. Our asset sensitivity to rising rates remained significant, highlighting the value of our deposits and customer relationships. Sensitivity is lower from the year end levels as higher rates and deployment of liquidity into securities increased our baseline, so the sensitivity no longer assumed that liquidity is available to invest at higher rates.
A few thoughts on NII for the remainder of the year. But first, please note that these forward-looking comments on NII assume that the forward interest rate curve materializes, that the economy continues to recover and that we have some fairly modest loan growth in the back half of the year. Given those assumptions, we expect some improvement in premium amortization across the next few quarters if mortgage rates follow the forward curve. At $1.5 billion in Q1, write-off for premium continued to be a headwind as mortgage prepayments remained quite high. So forward-looking comments include a lot of material moving parts; firm rates, low levels and premium amortization. But as Brian said, we believe 4Q ’21 NII could rise by as much as $1 billion from this quarter’s level.
Turning to Slide 12 and expenses. Q1 expenses were $15.5 billion, $1.6 billion higher than Q4. I will add to some of the remarks Brian mentioned earlier. First, Q1 included the normal seasonal elevation of payroll tax expense of about $350 million. Second, as a result of the current period’s solid revenue performance and a better outlook for revenue for the remainder of the year, we accrued for higher incentives and experienced increased processing costs. This added roughly $500 million to the quarter. Third, we incurred some expense that differs from our typical operating expense. We reversed a decision made on some 2020 incentive comp awards, making certain portions of those awards retirement eligible. This accelerated approximately $300 million of expense into Q1 that would have been expensed over four years. We also recorded an impairment charge of $240 million for real estate realization. And we incurred $160 million of severance charge as we move back towards business as usual with respect to our headcount. This is based on an expectation that as world get eliminated through process improvement, some associates might choose severance over opportunities to work in a different role in the company.
Lastly, our COVID cost remained largely unchanged as modest declines in some employee-related costs were offset by cost associated with restarting PPP originations and forgiveness and additional unemployment claim processing. COVID costs are proving a little slower to safely reduce than we had hoped.
Turning to asset quality on Slide 13. Government stimulus and support has helped customers get through this pandemic. That support, coupled with our customer assistance programs and years of underwriting discipline under responsible growth, has resulted in low net charge-offs. Net charge-offs this quarter were $833 million or 37 basis points of average loans and were lower than Q4. And they were 14% lower than the fourth quarter of 2019, which was the last quarter before the pandemic, despite an expected increase in card losses of $229 million in Q1.
With the exception of a small uptick in small business and the card losses, losses in every other category declined from Q4.
Provision was a 1.9 benefit in the quarter as an improvement in the macroeconomic outlook and lower loan balances resulted in a $2.7 billion release of credit reserves. Total consumer reserve releases were $1.4 billion, driven primarily by card, while the commercial release was $1.2 billion. Our allowance as a percent of loans and leases ended the quarter at 1.8%, which still remained well above the 1.27% where we’ve begun 2020 following our day one adoption of CECL.
With respect to reserve setting assumptions, we continued to include a multitude of scenarios. Based upon our Q1 weighting of those scenarios, GDP is forecasted to return to its 4Q ’19 level by the end of 2021. The weighted scenario also assumes that the unemployment rate at the end of 2021 will be just north of 6%, which is in line with March unemployment rate. For 2022, the weighted average scenario assumed unemployment just under 5.5% as we exit the year. To the extent, the economic outlook and the remaining uncertainties continue to improve, we expect our reserve levels will move lower.
On Slide 14, we show the credit quality metrics for both our consumer and commercial portfolios. Overall, consumer net charge-offs rose to $211 million from Q4. And absent the $229 million increase, notably in card, other losses declined. With respect to card losses, given the reduction in late stage delinquencies in the 180 day pipeline, we expect card losses to be lower in Q2. NPLs remained low despite a small uptick due to consumer real estate deferrals, which have limited expected loss content given healthy LTV ratios.
Moving to commercial. Net charge-offs declined $296 million from the fourth quarter as the portfolio stabilize with reservable criticized exposure and NPLs declining in the quarter. Overall, given the environment, the asset quality of our commercial book remained solid, and 90% of the exposures are either investment-grade or collateralized.
Turning to the business segments and starting with Consumer Banking on Slide 15. Consumer Banking produced another strong quarter in terms of customer deposits and investment flows, reflecting the strength of our brand, the innovation around digital and deployment of specialists in our centers, all of which has enabled us to capture more than our fair share of the increase in customer liquidity. The segment earned $2.7 billion in Q1 versus $2.6 billion in Q4 as the provision benefit more than offset lower, mostly seasonal revenue and higher expense.
Revenue declined 2%, reflecting lower card income from Q4, Q4’s elevated holiday spending. Expenses moved higher as a result of real estate impairment costs as well as seasonally higher payroll tax expense. This also caused an increase in our cost of deposits this quarter to 142 basis points. Absent the impairment charge, the cost of deposits would have been 131 basis points. As expected, net charge-offs rose from Q4 due to the flow through of the bold in card delinquencies, as noted earlier, a $1.4 billion reserve release resulted in $617 million provision benefit in the quarter.
On Slide 16, you can see the significant increase in consumer deposits and investments. Average deposits of $924 billion are up 25% compared to Q1 ’20 with nearly two-thirds of that growth in checking. Rate paid is down to three basis points as 56% of the deposits are low interest checking. Lastly, note the growth throughout the quarter as average deposits were up $39 billion from Q4. We covered loans earlier, so I would just note investment balances of $324 billion are up 53% year-over-year as customers continued to recognize the value of our online offering.
As Brian noted, and as you can see on Slide 17, we continued to see improvement in digital enrollment this quarter. 70% of our consumer households use some part of our digital platform this year. We continued to see digital payments and Zelle taking hold across all our businesses. Zelle consumer dollar volume is up 72% year-over-year, small business is up 182% year-over-year and 90% of our business to consumer payments in Global Banking are now made via Zelle. As you can see, our digital assistant, Erica, continues to add users, capabilities and usage. Plus, we are applying our success with Erica to other businesses as well.
Turning to Wealth Management. We continued to deliver solid organic growth, serve the comprehensive banking and investment needs of clients and manage risk responsibly. We experienced strong household — new household acquisition in a virtual environment and a very competitive market. This resulted in a record quarter with respect to total client flows, including near record AUM flows and record AUM fees. Net income of $881 million improved 6% from Q4 as revenue growth and improvement in provision exceeded and increase in expense.
With respect to revenue, the record AUM fees were complemented by higher NII on the back of solid loan and deposit increases. Expenses increased driven by revenue-related costs and seasonally elevated payroll tax. Merrill Lynch and the Private Bank, both continued to grow clients as we remained a provider of choice for affluent clients. Client balances rose to a record $3.5 trillion, up $822 billion year-over-year, driven by higher market levels as well as strong client flows. During Q1, our advisors added over 6,000 net new households in Merrill Lynch and nearly 700 net new relationships in the Private Bank.
Let’s skip to Slide 20, which is a new page that highlights our progress to digitally engage Wealth Management clients. In Merrill and the Private Bank, our clients and advisors have both embraced the value of a digitally-enabled relationship, in which digital tools are critical mechanisms for fast, safe and secure interactions. Our wealth clients are some of the most highly engaged clients in the franchise with 80% of Merrill households digitally active. In Q1, we saw record number of logins, clients are logging into trade, check balances and originate loans with ease, all of which can be done through a simplified sign-in. We continue to enhance and modernize the capabilities for both the client and adviser, and these capabilities are becoming key differentiators as well as being recognized by third-parties.
Moving to Global Banking on Slide 21. The business earned nearly $2.2 billion in Q1, improving $500 million from Q4, driven by a provision benefit and solid revenue. While loan growth has been challenging, deposit growth has been strong and investment banking revenue exceeded previous records. The team produced $2.2 billion in firm-wide investment banking fees, growing year-over-year by 62% and 20% over Q4.
Looking at revenue and comparing to Q4, despite the higher IB fees, total revenue declined 3% driven by weather-related impairments on some taxed advantage investments. Provision expense reflected a reserve release of $1.2 billion in Q1. Importantly, net charge-offs of $36 million fell by $278 million from Q4. Non-interest expense rose 14% from Q4, reflecting the incentive award changes noted earlier. Additionally, the strong IB performance and improved outlook and seasonally elevated payroll tax increased personnel costs in Q1.
Looking at the balance sheet on Slide 22. Average deposits moved up relative to Q4 as customers remained highly liquid. Year-over-year, deposits are up impressive 27%, while rate paid is at an historic low. As noted earlier, loans declined early in the quarter, but stabilized late in the quarter. Wholesale digital engagement continued to accelerate and usage continue to grow, driven by the same ease, safety and convenience of our digital banking capabilities that our consumer customers enjoy. We present some wholesale digital highlights on Slide 23.
Switching to Global Markets on Slide 24. Results reflected the highest revenue quarter in over a decade with solid year-over-year improvement and an even more significant increase relative to Q4. As I usually do, I will talk about the segment’s results excluding DVA. This quarter, net DVA was negligible, but the year-ago quarter had a $300 million gain. Global Markets produced $2.1 billion of earnings in Q1, more than double the level of Q4 and up 39% from Q1 ’20.
Focusing on year-over-year, revenue was up 26% on higher sales and trading and equity underwriting fees. The year-over-year expense increase was driven by volume-related expenses in both card and trading and an acceleration in expense from changes in the incentive awards. Sales and trading contributed $5.1 billion to revenue, increasing to 17% year-over-year, driven by a 22% improvement in FICC and a 10% increase in equities. FICC results reflected gains in commodities and strong results in credit, mortgage and municipal products versus relatively — relative weakness in the year ago period. This was partially offset by reduced activity and trading opportunities in other macro products. The strength in equities was driven by a strong trading performance in cash. The business produced strong returns, delivering a 22% return on capital in Q1.
Finally, on Slide 26, we show all other, which reported profits of $257 million compared to Q1 ’20. The improvement in net income was driven by a larger tax benefit given an expected increase in ESG activities this year. The year ago quarter also included a modest reserve build. Our effective tax rate this quarter was 12%. And excluding the tax credits, driven by our portfolio of EFG Investments, our tax rate would have been 23%. For the full year, absent any changes in the current tax laws or other unusual items, we expect an effective tax rate to be in the range of 10% to 12%.
With that, let’s go to Q&A.
Questions and Answers:
Operator
[Operator Instructions] Today we’ll go first to Glenn Schorr with Evercore ISI. Please go ahead.
Glenn Schorr — Evercore ISI — Analyst
Hi. Thanks very much. I wonder if we could just — you gave us a lot of detail on expense side, I just wanted to try to get a jumping-off point on the second quarter. I think with all your comments, it gets you to the low-to-mid $14 billion range. Want to see if that’s right? And then if you could give us the right perspective, meaning if you look — you were able to keep total expenses flat for many years while you grew the franchise. Now the economy is growing and capital markets are very strong and the expense dollars have crept up. But I don’t believe BOA has an experience to create problem, but I wonder if you could address that and give us the right perspective to look at? Thanks.
Paul Donofrio — Chief Financial Officer
Sure. So in terms of the second quarter, I think you’re about right, we expect expenses just north of $14 billion dependent on the revenue environment and the amount of progress we make in taking down the COVID costs. In terms of your comment about our ability to manage expenses, we agree with you. I think as Brian noted in his opening comments, we’ve managed not to increase expenses for years now and we’ve absorbed merit increases, investments, minimum wage, improvement in benefits, all the dramatic increase in processing volumes, digital increases. So where we have sort of has talked about in other calls, we’ve been using operational excellence and other initiatives to basically fund the investments in our future.
I think our goal here is to clearly create operating leverage over an extended period of time. We’ve talked about maybe expenses rising maybe at 1% level per year. And I think that’s probably the best guidance we could give you. Absent again some of the ins and outs, we had a lot of variability this quarter. And obviously, we’re sitting here in the middle of a pandemic with a lot of COVID expenses that have been a little bit more sticky than we had all hoped, but they’re going to come out, there is no question about that. And so we’ll get back to kind of a normal level of expenses in a very reasonable growth level over the long-term relative to revenue.
Glenn Schorr — Evercore ISI — Analyst
Thank you. That’s exactly what I was hoping for. Maybe just one other one. We’ve seen a lot of growth in the private credit markets. And it started out strong in middle-market lending, it’s transitioning and doing some now large corporate lending, there is specialized lending in aircraft and transportation maritime. So I’m curious, given the breadth of your franchise, all those things I mentioned are kind of in your backyard. They don’t — that’s just the lending relationships, they don’t have the same franchise you have. But curious if you see the growth in private credit as a significant competitive in your traditional backyard?
Brian Moynihan — Chairman and Chief Executive Officer
I’d say, Glenn, those depending on the asset — the type of loan, people have been in these markets for years, think mortgage, think other types of consumer credit and then in the commercial side. So sure, that has an impact, but our job is to compete through it. But the reality what’s having the impact now frankly is that draw rates and lines of credit and stuff are low and companies that are operating well, there’s companies that still need to get through the pandemic impact just aren’t using the lines, and that’s bumped along the bottom and we’ve shown you those long-term charts. So we feel good about our middle-market and our business banking business is a small business, so we feel good about. They’re getting setup as the economy continues to improve and the growth will come back and the services and rate we can provide are competitive. And so I don’t think that will ever change, and I think it reaches further, sometimes it reaches the stuff we want to do as a company obviously in terms of leverage –extra amounts of leverage and things like that. But we feel we are very strong and competitive and before the pandemic hit, middle market grew mid single digits and we expect to return back to that level.
Glenn Schorr — Evercore ISI — Analyst
That’s great. Thanks, Brian.
Operator
We’ll take our next question from Gerard Cassidy with RBC. Please go ahead. Your line is open.
Gerard Cassidy — RBC Capital Markets (US) — Analyst
Good morning, Brian.
Brian Moynihan — Chairman and Chief Executive Officer
Hi, Gerard. How are you?
Gerard Cassidy — RBC Capital Markets (US) — Analyst
Good. Can you guys share with us — I think you touched on the capital cushion being about $35 billion and you announced a $25 billion share repurchase program today. Obviously, with the new stress capital buffer construct that goes into effect in the third quarter, you and your peers will be free to buy back your stock in the fashion in which you see if it’s best for you guys. Can you give us some color on how you’re thinking about that $25 billion buyback on how it will proceed after you get the okay — I’m assuming you’re going to pass CCAR of course in June that gives you the green light to do the buyback.
Brian Moynihan — Chairman and Chief Executive Officer
We’ll — so I’ll start with a couple of things. One is, the number goes up this quarter because the average of the four quarters is a — move forward a quarter and that’s a higher average. So we’ll be able to do more this quarter. And then assuming the — the new rules come into effect in July, we have substantial cushion and we’ll look to bring that cushion down. We’re not going to — we’re going to maintain a cushion over the — our required was $9.5 billion [Phonetic]. We’ll maintain a cushion of that — you’d expect us to move fairly at pace to start to bring as closer to the cushion that was honestly held up by the suspension last year this time of our ability to repurchase stock at all for the first — for the, but the second quarter, third quarter and fourth quarter of last year, which if you go back and think about our original CCAR filings, we were going to buy back a substantial amount. So we’ll get back in the saddle and drive it forward. And also, because the earnings — power of the Company, work on — continue to work the dividend and so expect us to get right after as soon as we can.
Gerard Cassidy — RBC Capital Markets (US) — Analyst
Very good. And Paul, you talked about the loan loss reserve levels. And when you compare them to your day one CECL number from January of 2020, obviously you’re considerably higher than that number. Can you share with us the outlook for potential loan loss reserve releases? And could you — and see an environment where you could approach that day one reserve level? Considering the economy, when you look at your own forecast that you gave us today is much stronger than what it was on the day one in January ’20. Can you give us some further color on that?
Paul Donofrio — Chief Financial Officer
Sure. Just on reserves, absent a deterioration in environment, which we don’t expect, we believe the reserves will continue to come down in the coming quarters as we remain — as the remaining uncertainties continue to diminish. In terms of the reserve versus sort of day one CECL, every quarter we are reserving based upon the size and mix of our portfolio at that moment and our view of the future based upon independent sources. So as you think about that, you’ve got to recognize that our portfolio has changed. For example, card which, as you know, has some of the highest reserve rates is down 25% from day one. So you really need to think about how the mix has changed. If you just can go back to our reserve level on day one, which I think was 127 basis points if I’m not mistaken, and just apply that to today’s numbers, I think you got to do a bit of a product mix there to get back. We’ve done that work, and it shows we have still a significant, I’ll call it cushion to day one.
Gerard Cassidy — RBC Capital Markets (US) — Analyst
Very good. Thank you.
Operator
Our next question is from Mike Mayo with Wells Fargo. Please go ahead.
Mike Mayo — Wells Fargo — Analyst
Hi. I have two opposing views and I’m hoping that you can help me reconcile that as it relates to efficiency. On the one hand, it’s like your slides are very positive. Global Bank, 74% digital connections, well, 80% of households; Consumer, digital is still growing, and the unit cost per dollar of deposit, what, 130 basis points. It’s like best in class. So all that technology progress is noted. On the other hand, I look at slide 12 and I see the efficiency ratio and I see the expenses and I hear the higher guidance for expenses for this year. So I guess if you could help me reconcile these positive underlying trends with this number on the page of 68% efficiency ratio. And I do recognize that you’re calling out a lot of expenses. The $1.6 billion increase quarter-over-quarter, is that, should we consider that kind of just one-time and where should this efficiency ratio go over time? Thanks.
Brian Moynihan — Chairman and Chief Executive Officer
So Mike, you pointed out that the operating posture of the businesses continue to improve. But as you go across page 12, you got to remember, and you well know this, that in the stuff on the left-hand side of page, you had a rate environment that it finally after years have come up some level of Fed funds rate and short LIBOR rates and stuff and that helped our efficiency ratio move under 60%. But even if you look at this quarter, it’s 68% and you back out the type expenses that you drop into low 60s and then the NII improvement will, because that frankly, as you well know, comes with very little expense attached to it and that we don’t need more branches and more infrastructure and even more commercial bankers as loan usage goes up and the spreads — it’s spread off of our floors due to our massive deposit base. So I think you should expect it — even our pro forma basis, you could see the low 60s you expect it to move back in the levels you see here as we move through the year, pick up the NII, and then if rates start to move up, would even pick up more.
Mike Mayo — Wells Fargo — Analyst
And you don’t always disclose how much you’re investing, but how is your investing spend? I mean, did you lighten up during the pandemic? Are you taking that down?
Brian Moynihan — Chairman and Chief Executive Officer
Mike, on the technology side, we did — yeah, I mean, technology initiatives last year was 3 and change. And this year will go up frankly a bit and those numbers we gave you because we continue to take advantage of that. And so I think 25 branches opened up in new cities this quarter and we’re seeing the success from that. Markets that we weren’t in two, three, four, five years ago, we’re now moving in the top 10 all organic and driving off of that. And then salespeople. Now, that’s what we highlighted last year just because the opportunities weren’t there. But you’re going to see us continue to reposition people from the efficiencies in the opex program to the front.
And so headcount rose really to support the exigencies of the circumstances. When you couldn’t have teammates [Indecipherable] each other, we had to have a few more of them move and the issues that were there for social distancing and working from home and overstaffing because of high risk employees. So we ran up a little higher and now we start to see it step down. So that that core number of headcount will drive our expenses, but the reality is we invested at the same rate last year and everything except for incremental commercial bankers probably than we did in past years and we’re going to do it again this year because the payback is huge.
Mike Mayo — Wells Fargo — Analyst
And then last follow-up just on the COVID related expenses. It seems like a little bit of a longer tail than maybe you had expected. When do you think some of those come off? I mean, you’ve treated your employees well with special payments and all the other efforts that you’ve made. Is that like another quarter or two? Are we toward the end of that?
Brian Moynihan — Chairman and Chief Executive Officer
We’re winding it — winding down because the situation change obviously as schools reopen and things like that, we can normalize — we started last year this time and said, teammates, when you’re working from home, we’ll will give you $100 day to hire somebody come into your home, take care of your kids, you can do a great job for our clients. That’s why our client scores continued to rise during the pandemic. Obviously, as schools have reopened, we’ve tailored that program and will normalize it at the end of the second quarter. That’s one thing.
Obviously, PPP, Mike, it got extended again. But as we’re seeing the volumes to be more modest at this time, we can start to shake those teammates out. The forgiveness program will take us longer just because it’s a tail. Obviously, we’re 200,000 done. And so you will see that happen. And the extra cleaning and meals for the teammates and the testing and all the things we’ve done, that will come down as we sort of normalize operations over the next six months. But it took longer because things like PPP came out two more times since — two or three times — I guess we’re in four, would be the right number, but, so it’s good. But we’re doing what we need to do to support our customers — 0.5 million loans originated under four different programs. So the constant change in rules — at the peak, we had 10,000 people working on it. Now we’ve got about 3,000 there and 3,000 forgiveness and we can work it back down. So I think over the next six months, you’ll see it start to blend down piece after piece after piece.
Mike Mayo — Wells Fargo — Analyst
All right, Thank you.
Operator
Our next question comes from John McDonald with Autonomous Research. Please go ahead.
John McDonald — Autonomous Research — Analyst
Thanks. Sorry. On the expenses again. Just on the COVID expenses that you were discussing, Brian, with Paul. We might just — what’s the kind of size ballpark of that? I’m trying to think about the $56.5 million [Phonetic] total expenses and if we took off the $500 million [Phonetic] kind of special stuff you announced this quarter and then the COVID costs, which might be $1 billion a year, is the — might you re-base at some point at 55 before business growth and things like that? I’m just trying to kind of put some numbers on it. Is that reasonable?
Paul Donofrio — Chief Financial Officer
I would think of COVID expenses in the Q in the first quarter to be approximately $400 million of net COVID expenses. That was roughly flat, by the way, to the last quarter. As Brian said, we ramped up for the new PPP and unemployment processing of claims, but we did offset some of that ramp-up with lower expenses associated with childcare and supplemental pay and things like that.
Brian Moynihan — Chairman and Chief Executive Officer
So, John, just to be simple-minded about it. The reason why we had — we told you the full year is going to be higher is because we think it’s $1 billion, $1.5 billion higher in the first quarter here that wasn’t sort of in our mind as because of timing differences on some of the compensation matters and other things. So, as you well know, we’re pushing it back down as fast as possible.
John McDonald — Autonomous Research — Analyst
Yeah, yeah. Okay. And then, Paul, I just wanted to follow up. When you were talking about the interest rate disclosures, you mentioned that the model doesn’t assume deployment — automatic deployment of liquidity anymore. Could you just explain that like what changed because of rate moves or deployment? Thank you.
Paul Donofrio — Chief Financial Officer
The model doesn’t assume automatic deployment of liquidity. I think we’re talking about the 100 op and 25 down?
John McDonald — Autonomous Research — Analyst
Yeah, yeah, exactly, yeah.
Paul Donofrio — Chief Financial Officer
Yeah. I mean, I think we’ve got a little bit less asset sensitive because we deployed some liquidity in the fourth quarter and in the first quarter. And so now that’s in the baseline and if one rate shock up, you obviously — you’re not deploying that liquidity at a higher rate anymore. So it kind of moved from the sensitivity into the baseline. Is it okay?
John McDonald — Autonomous Research — Analyst
Okay, got you, got you. Okay. Got it. And the last thing was just NII ramp that could happen to get you $1 billion higher by the fourth quarter, how do you see that distributed? Is that kind of evenly or is it kind of based on our second-half loan growth coming back?
Paul Donofrio — Chief Financial Officer
Yeah. Look, we’ve been fairly careful about our guidance. There’s a lot of moving pieces here. You’ve got amortization of premium that can move around. You’ve got loan growth, which is hard to predict. So we want to be careful about being too specific about how we get from here to there. I think we feel very good about getting to there. Again, the guidance that we gave you that NII in the fourth quarter could be $1 billion higher than what it was in the — in the first quarter, that’s based upon the forward curve materializing and some modest loan growth in the back half of the year. We’ve got some flexibility because we do have liquidity can go faster or slower on in terms of investing. We’d like to put that in loan growth and not necessarily into securities, but we will invest it over time. We’ve got to see the amortization expense start to come down. It hasn’t come down yet, even though mortgage rates have gone up. And like I said, we’ve got to see some loan growth and we’ll pick up at least two days here. So that’s the best perspective I can give you.
John McDonald — Autonomous Research — Analyst
Okay. Fair enough. Thank you.
Operator
And our next question comes from Matthew O’Connor with Deutsche Bank. Please go ahead.
Matthew O’Connor — Deutsche Bank — Analyst
Good morning. I just wanted to follow up on the deployment of liquidity that you’ve done. They do a lot this quarter and last quarter. If we look back since the end of 2019, most of your deposits have been deployed in securities and most of those securities I think are longer-term mortgage backed that aren’t hedged. I know you said some of the treasuries were hedged, but that’s a small portion of what you added. So I guess just conceptually like is this signaling that you think rates have kind of gone up, kind of the big moves have already happened for the next few years? Are you kind of thinking loan growth not going to come back that much? Or what’s your thought of locking in so many assets at these rates this quarter and the last couple of quarters?
Paul Donofrio — Chief Financial Officer
Well, let me back up, because I want to make sure that everybody is clear well kind of what we have done. You went all the way back to 2019. If you go all the way back to year-end 2019, deposits were up $150 billion and loans were down $80 billion. So we created $530 billion of liquidity to a point somewhere plus we’re going to see some more deposit growth. So the $530 billion liquidity had to deploy somewhere. Through the end of Q1, securities were up $380 billion and cash and equivalents are up $150 billion to $300 billion. But as I said in the remarks, we bought treasuries but on about $150 billion of those treasuries, we have interest rate swaps. So you can really think of the $300 billion of cash as being $450 billion in terms of our ability to fund loan growth or invest for term or other uses. So we’ve been balancing liquidity, capital and earnings throughout this whole process. We don’t tend to make bets on interest rates one way or another. We just want to make sure that we can deliver for our customers no matter what happens, and I think we’ve been trying to do that as we’ve gone through this pandemic. Again, it’s all about balancing liquidity, capital and earnings.
Matthew O’Connor — Deutsche Bank — Analyst
Okay. And then just separately, in the prepared remarks, you guys mentioned about increasing hold limits a little bit. I think you were referring to the trading businesses, but if you could just circle back on that concept and give a lot more detail on kind of where you were and where you are now in terms of the hold limits.
Paul Donofrio — Chief Financial Officer
Yeah, sure. I mean, look we — we are — in terms of — if you think about pre-pandemic underwriting criteria, we are on the consumer side, I think back to pre-pandemic now. In terms of the commercial side, there are still the affected industries that we’re watching carefully, but everywhere else I think we’re back to pre-pandemic. And in light of the size of our Company, in light of the need for loan growth, I think we’re relaxed a little bit on some hold levels, particularly in global markets where they have a more of a moving and storage mentality around loans and what they do for customers. So yeah, we’re just, we’re just taking a few maybe bigger positions than we might have otherwise taken pre-pandemic. But it’s no real change in the underwriting standards. The Company’s bigger, we have more liquidity, we have more capital. So we think all of this as appropriate.
Matthew O’Connor — Deutsche Bank — Analyst
And that’s just with respect to large corporate loans, not the trading book, just to clarify.
Paul Donofrio — Chief Financial Officer
That’s right, that’s right.
Matthew O’Connor — Deutsche Bank — Analyst
Yeah. Okay.
Brian Moynihan — Chairman and Chief Executive Officer
Just across loan growth, just to think about it, what’s going to drive the Company’s P&L also on the consumer side, especially, if you look at by business, so the wealth manager business actually has grown a little bit. You’ve got the commercial business down and consumer is down. Consumer is largely down because of mortgage churn but the big thing that happened is cards came down. And what’s been interesting to watch now — so because we pulled back this time last year’s unemployment went to 15%. Everybody pulled back their underwriting criteria in that. We’ve now reinstated, as Paul said.
So what’s happened? We did 1 million units of new cards a quarter going into the last year’s first quarter. It fell as low as 400,000. It’s back up to 600,000 and change already and moving north on that and if you look by month is stacking back up. So that’s — and if you look at where that’s coming from, obviously the branch system which basically was running at around 2,500 of the 4,300 branches for the last six, eight months, nine months is only catching back up as it opens up and sales come in. So that bodes well on the — obviously on the consumer side, on the cards, which are most important. Mortgages production will continue to get back up and prepayments will slow down in a slightly higher rate environment. You’ll see that bodes well there. GWIM has done — has some of the mortgage aspects, but on the type of lending that GWIM does, the affluent and wealthy people, they’ve done a good job and they’ve actually seen that grow.
And then you go to the business banking, middle market and that’s all line usage, and so that should come through. If this — in order for the economy expand — 7% this year, which is what our Bank of America team hazard at — at some point companies have to access capital to meet that final demand and you just see that uses come up. So even in things like the car business, because they’re just aren’t the cars to sell, you’re seeing line uses down a lower level. So as you think across the things a whole levels and things Paul was talking about enable us to push a little harder just because of sheer size of our Company. But if you think about it — the think about the flywheel that we have in the Company as a production engine haven’t had necessarily to be slowed down in the crisis with 15% unemployment peaks and the final demand being crushed in the second quarter of last year, then turning that crank back up and just watch that flywheel start to take off, that’s what we have good confidence in terms of getting right back on loan growth. But if you add it all together and we grew 5% — $45 billion of loans.
So to Paul’s point, you still have tremendous excess capacity because the deposit growth is so strong on core transactional deposits with the commercial and consumers.
Matthew O’Connor — Deutsche Bank — Analyst
Understood. That’s helpful. Thank you.
Operator
Our next question is from Betsy Graseck with Morgan Stanley. Please go ahead.
Betsy Graseck — Morgan Stanley — Analyst
Hi. Good morning.
Brian Moynihan — Chairman and Chief Executive Officer
Hi, Betsy.
Betsy Graseck — Morgan Stanley — Analyst
A question, Brian, on just capital allocation. And you were one of the only G-SIBs to really kind of trim down so that your G-SIB number didn’t go up recently. And I’m wondering if you’re thinking about the opportunities there to lean into a higher G-SIB, maybe do more in capital markets. I know traditionally you’ve been looking to keep your RWAs and markets very tight, and I’m wondering if there is any thought to maybe leaning in at this stage given all the excess capital and liquidity that you have is that potentially an option that’s on the table in addition to the buybacks you discussed earlier?
Brian Moynihan — Chairman and Chief Executive Officer
Yeah, so, Betsy, and the two are not mutually exclusive at all except way at the margin way away from where we are now. But if stock price increases and all the things that go into that calculation, as you all know and are not all related to straight risk in terms of sheer size and stock, just things that go in, it is harder to maintain where we were at the end of last year. And you might expect that we may move up a bucket and take advantage of that by actually expanding the business — in the markets business with the opportunities there based on the — and the capabilities that Jimmy and the team and Tom and team have put together.
So why would you do that? The reason why we do that is, our clients have been growing and we’ve kept it about a third of the size and even if you took away some of the growth just due to the deposit things, it has come down to around 20% of the size of the Company and the idea is to keep it in synergy and synchronized over the Company’s overall size, but the Company has grown around another step. And so we’ve told Tom — Tom and the team are working on ideas to continue to do that. We’re a little bigger now than we were at year-end obviously first quarter activity. But you shouldn’t expect us to come down.
Now, those ratios aren’t effective for a bit of time here, so we’ll see how it plays out, but if the opportunities are there, we’ll take them. The team has done a great job and managed the risk well. Look at the trading results for the quarter, look at it for last quarter, look at throughout the pandemic. They’ve done a great job of managing risk and we’re balanced and we’re proud of them and the work they’ve done and we’re going to support them work.
Betsy Graseck — Morgan Stanley — Analyst
Okay. That’s great. Thanks. And then separately, one of the most tedious discussions that I have with people is on comping your skillset in digital, consumer apps and everything you’re doing there not only for consumer, but also for corporate and SMBs with FinTech players. And I say it’s tedious because you have a huge market presence, okay. But I don’t feel like you’re getting your message out there beyond this call. So have you given any thought to trying to get the message of what you’ve done for consumers in the digital and the FinTech that you actually are bringing to your clients beyond the four walls of your clients?
Brian Moynihan — Chairman and Chief Executive Officer
So, let’s always start with the first thing that — the reason why we do this is to serve our clients and do a great job and it flows through the numbers. As Mike said earlier, the idea that we run this huge consumer business at a cost advantage which is significant due to the digitization of all the consumer activity, due to the way customers interact with where we can help them and the way we get guideposts and frankly the way we can take the fee structure out and that’s — we dropped over to our fees dramatically over the years made up for in terms of efficiency and other types of things. And so we get the word out. We tell everybody we win all kinds of awards and the list go on and on in terms of the different banking agencies, and you’ve seen it in the Merrill Edge growth is over $300 billion now.
And so our job is to do a great job for our customers, and I think I’ll leave it to you and your colleagues to debate the relative merits of FinTechs versus ours, but I will tell you, for a company making $8 billion and having 40 million new digital customers are fully active on a consumer side, 0.5 million on the digital — on the corporate side, the impact on our ability to have expenses be flat from even with extra money of $1.5 billion we saw the first quarter from six years ago shows the impact of the ability to digitize this Company. And we learn more about this in the year in areas that we didn’t do. So we’ll keep pushing it out there, you can tell the story, but the reality is, is that the number one person we want to understand is our customers and that means attrition. Attrition of customer is way down, the penetration of the wallet is way up. Just look on the wealth manager statistics we threw and see how they’ve adapted to it. These are major changes the size of which don’t exist much out there. So we’ll keep on in the way. You keep telling the story, we’ll keep telling the story, but the key is it’s producing, it’s producing — the kind of earnings we’re producing and the kind of efficiencies we’re producing, which continues down to our benefit going forward.
The neatest thing about this stuff is where we go next with it, where we’ve been going with it. So Erika, there’s just nothing close to it out there and driving with volumes and things. Zelle, if you look at the charts on the pages and show us, it show us the usage and the personalization and the ability to help people manage their payments and things for the mass market and their investments. So we feel good about it. We’ll tell the story as often as we can. But the reality is, I just would like to see us keep growing the number of customers and driving it and driving it on an integrated basis. We’re putting major investments in a couple of years we had to improve, merchant services, payments on the commercial side of the merchant level and we’ll put major investments in 401(k) technology to push that to number seven, that business is lowest market position of any business we have, number six or seven of what we are. So these are major investments. We’re making hundreds of millions of dollars a year that go into that expense base, but are paid for by the efficiency of the core businesses.
Betsy Graseck — Morgan Stanley — Analyst
Okay. Thanks.
Operator
And our next question is from Steven Chubak with Wolfe Research. Please go ahead.
Steven Chubak — Wolfe Research — Analyst
Hi. Good morning. So wanted to ask a follow-up on the NII outlook and really specific to premium amortization. Just given the sheer amount of growth we’ve seen in the MBS portfolio, the deployment of all the excess liquidity, Paul, I was hoping you could help size what the premium and benefit would be if we did see prepayment speeds revert to more normal levels and how much of that benefit is contemplated in the $1 billion increase in the exit rate for 2021.
Paul Donofrio — Chief Financial Officer
Sure. So let me just give you a couple of perspectives. One, the premium amortization in the first quarter was about $1.5 billion. And as you point out, the securities portfolio has grown. So as you try to size what it could come down to just can’t go back to last year and look at what it was because the portfolio is getting a lot bigger. That’s sort of one. Two, think about that $1 billion, I would say the most important driver would be the modest loan growth. And the second most important driver would be the reduction in premium amortization. So maybe that’s enough guidance right there.
Again, we’re not going to go down to where it was in Q1. Well, I think 4Q ’19 because we’ve grown so much. But it’s going to be — it’s going to be meaningful in terms of a few — more than a few hundred million dollars in terms of that guidance we gave you.
Steven Chubak — Wolfe Research — Analyst
Okay. I understood. And for my follow-up, just wanted to ask on capital. If I look at your SLR ratio, excluding the relief in your CET1 ratios, if I assume maybe like a 10.5% target on CET1, 5.25% on SLR, the CET1 is still your binding constraint today. But just looking at the sheer amount of balance sheet growth you guys saw this past quarter, I think it was about $150 billion or so, our analysis suggests that you maybe have another $160 billion to $200 billion of balance sheet growth headroom before the SLR becomes binding. And as we consider our expectation just for additional Fed balance sheet growth, how are you preparing for that potential, what sort of mitigating actions might you take if the SLR does in fact become binding?
Brian Moynihan — Chairman and Chief Executive Officer
It’s just way out there, Steven. I don’t think your numbers are right match. We’ll have Lee take you through some calculations, but I think the numbers are a lot bigger than you think.
Paul Donofrio — Chief Financial Officer
Yes. Yeah, we’ve done that work and we come up with a bigger number in terms of balance sheet capacity.
Brian Moynihan — Chairman and Chief Executive Officer
On the SLR, it’s 100 basis point times, that much bigger base or a 75 basis points in your example maintain 5.25%. So it’s multiples of that. It’s bigger than what we’ve grown so far, probably by a lot.
Steven Chubak — Wolfe Research — Analyst
I guess I — I think what the difference is there is the lens of like what constraint becomes more binding and is the SLR — I recognize you have excess under both but if the ratio is going to shake out sub 6, pro forma that relief, I guess at a 5% ratio, that’s $500 billion of capacity to grow. But in terms of like where you have the most excess, it looks like SLR becomes binding in relatively short order with just maybe a couple or more quarters of $150 billion plus growth in the balance sheet. So I guess that’s what I was trying to get it is, would you look to mitigate it given that becomes a little bit more binding than your CET1 constraints.
Brian Moynihan — Chairman and Chief Executive Officer
We’ve managed all the capital ratios and maintained the minimum requirement. So that’s not the issue, but I think it’s just — it’s hundreds of billions of dollars away. So I think…
Paul Donofrio — Chief Financial Officer
We’re 6.1% pro forma, right, so April 1, and that’s $700 billion-ish of capacity down to the regulatory minimum. As you said, we want to have a buffer but that’s the rough math.
Steven Chubak — Wolfe Research — Analyst
Okay. Fair enough. I can take it offline with Lee later on, anyway. But that’s very helpful on how you framed it. So thanks very much for taking the question.
Operator
And the next question is from Jim Mitchell with Seaport Global Securities. Please go ahead.
Jim Mitchell — Seaport Global Securities — Analyst
Hey. Good morning. Maybe first on just maybe the cadence for card charge-offs. Obviously, we had a little bit of an increase this quarter, but 30 plus day delinquencies are now back down to almost near lows. Should we expect — I think we had charge-offs that were in the 400s in the fourth quarter. Are we heading back towards that or how do we think — you have a lower balances. How do we think about the trajectory of card charge-offs given your view of the delinquencies?
Brian Moynihan — Chairman and Chief Executive Officer
If you go to page 4, Jim, you can see it. I mean, you’ve kind of summarized it, but we went from 400-ish up to 600-ish, will turn back down just because, look at the charts, you could see that what producers next quarter’s charge-offs is obviously on the right-hand side of this page and is coming down. And so you have balances lower but also just have sheer delinquency and as you think further out, it’s going to come from the left-hand side of page and migrate right from actual charge-offs. Leave aside the projected provisioning under the CECL, but just — so you’ve got it right. It comes down. You would hope frankly that if we get the growth that might changes dynamic in six months or something like that just because it takes a lot of [Indecipherable] delinquency out anything, maybe much longer, but this is — this bodes well for the next couple of quarters.
Jim Mitchell — Seaport Global Securities — Analyst
Right. So I mean, the reason I ask is that if you look at charge-off ratios last year, they were lower than pre-COVID levels. So you still think we can sort of keep that very low level at least for now until balances may start to grow more significantly, is that the takeaway?
Brian Moynihan — Chairman and Chief Executive Officer
So, probably, yeah go down as balances grow because there will be no delinquency then. A year later when the delinquency from those balances whatever minor amount it is comes through, it might add too. And so the denominator effect will push you even down further on percentages as balances go up near term.
Jim Mitchell — Seaport Global Securities — Analyst
Right. Okay. And then maybe my follow-up on the technology side. You guys did an acquisition, a small one, obviously, of Axia in your merchant processing business. Can you just sort of give your thoughts on the opportunity set as you build out that platform? Are there more acquisitions do you think involved? What’s your excitement level I guess of building that platform out?
Brian Moynihan — Chairman and Chief Executive Officer
Look, it’s a great little company that we can put across the platform. It has a wonderful market position where it plays and we’re very proud of the deal. But the key is that we — you got to go back to the whole history of merchant services. We sold half of it in a joint venture 15 years ago now, whatever it was raised some capital come forward. We bought it back. Remember, that’s one of the reasons why our expense run rate moved up by $800 million, $900 million a year. That people forget about it because we brought that in last year for half year. It wasn’t in two years ago. But the reason why we bought it back is really to invest around the platform. So what’s exciting about it is things like the acquisition to take us in the medical area. What’s exciting about it is the ability to actually sell it through the sales force without having to have a non-owned sales force selling it in our small business in our — in our business banking colleagues — thousands of people out there and can help deliver the product.
And then what’s really exciting is the integration of payment scheme that we’ve been working on for commercial payments. So it’s the integration of the P2B, Zelle to small business and all these payment gateways, which is outside the traditional merchant business, but you have to be completely flexible along all payment schemes to actually route it much more favorable to the merchant with very low cost to them and in real time contemporaneous value exchange. So what we’re doing a real-time payments and Zelle in combination into the business platform through the — through the payment gateways. These are all exciting things. And you go larger and it’s different elements and blockchain payments and everything else. So that’s the core of the business on the commercial side, but it goes all the way from small business all the way up to large companies. And so that investment was part of that — the new investments part of that, and you’ll expect us to keep driving at the implementation.
The good news is, we’re getting the network effect of Zelle and things like that when you look at those pages that Zelle’s have the credit card charge volume used by our consumers to make payments now [Indecipherable] on that for a minute, I think 35 million credit card people out there charge in Zelle is reaching half of it. Checks down 25% over the last couple of years in terms of checks written volume by our consumers. So you get the network effect of that and then you get the merchants to use it with real time. So this is all part of a thing that kind of win Mark Monaco and the team are leading with Zelle on the commercial side, that you should expect to see a lot — a lot of investments have been made, including a major replacement system that’s coming through the P&L this year and the change in bringing the people on fully own balance sheet and a lot of investment will be made including acquisitions like we just made.
Jim Mitchell — Seaport Global Securities — Analyst
Okay. That’s great color. Thanks, Brian.
Operator
Our next question is from Ken Usdin with Jefferies. Please go ahead.
Ken Usdin — Jefferies — Analyst
Hey, thanks. Just one question on just card and stimulus. And how do you guys get the sense of how much of the stimulus and incremental deposit growth is sticking around versus now kind of starting to be spent. And what’s the trade-off with regards to the staging around that re-leveraging or that balanced growth that might start to come over time in the card business, specifically? Thanks.
Brian Moynihan — Chairman and Chief Executive Officer
Yeah. I think just on — it depends literally when you look in customers’ earnings power and things like that. But largely I think, Paul, last I saw was 30-odd percent of the stimulus money has been spent to make it — to be a simpleminded about it, and so the other 70% sitting in people’s accounts. It’s little differently by stratification of earnings power of the household. And so that’s to be spent — that bodes well for economic reopening and stuff. It has an effect on balances in card and stuff. Yes, because consumers have used to pay down their debt and part of what it has spent has been spent to pay down card balances, and then with the limited travel just not getting as much as easier.
The good news is you watch January to February to March with the virus and vaccine pathways come into the fore with the — you’re starting to see the purchase numbers go up and the payments rate way up as you observed last year at 30% through last year in this quarter. But you would expect that that might be more constant and the usage rate will go up and start to drive some balanced growth which is goodness news. So the good news is the consumers are healthy from every aspect. We have no deferrals left except in the mortgage business. So all the debate we had about those — last year this time through the system — delinquency is down, consumer is sitting with money in their accounts, and the economy open up, which bodes well and that’s what you saw in the retail sales numbers today. And you expect that number — those numbers to even be higher in the month of April because March was a partly reopened month and the weather isn’t too pleasant in the Northeast as well even if you want to eat outside, so in northern parts of the central country.
Ken Usdin — Jefferies — Analyst
Okay. Got it. And that’s the offset — the offset is in Jim’s question about that back better credit could stick as an offset as well, if there is still 70% sitting around. So that’s what we’ll take that trade-off.
Brian Moynihan — Chairman and Chief Executive Officer
Yeah. And remember, where we play — yeah, when we lend money in the consumer space, we never came close to what the projected losses were. We leave aside that the models projected [Indecipherable] by watching the consumer delinquency and unemployment levels of our consumers. They are much lower than society and as that became clear that’s what you’re seeing coming through the reserve releases right now.
Ken Usdin — Jefferies — Analyst
Thanks, Brian.
Brian Moynihan — Chairman and Chief Executive Officer
Thank you.
Operator
It appears we have no further questions. I’ll return the floor to our presenters for closing remarks.
Brian Moynihan — Chairman and Chief Executive Officer
All right. Well, thank all of you for joining us. Thank you. And the Company produced $0.86 of earnings per share, $8 billion — return on tangible common equity of 17%. We look forward to talking to you next quarter. And we continue to — will continue to drive responsible growth while we’re doing that. Thank you.
Operator
[Operator Closing Remarks]