Good day, everyone, and welcome to today’s program. At this time all participants are in listen-only mode. Later you will have the opportunity to ask questions during the question-and-answer session. [Operator Instructions] Please note this call is being recorded. It is now my pleasure to turn the conference over to Mr. Lee McEntire. Please go ahead.

Good morning. Thanks to everybody on the phone as well as the webcast for joining us this morning for the second quarter 2016 results. Hopefully everybody’s had a chance to review the earnings release documents that were available on our website. Before I turn the call over to Brian and Paul, let me remind you we may make some forward-looking statements. For further information on those, please refer to either our earnings release documents, our website or our SEC filings. So before Brian and Paul get into the results, just let me mention one housekeeping item. Please limit your questions to one per caller so that we can get to everyone, and you can circle back. With that, I’ll turn the call over to Brian Moynihan, our Chairman and CEO, for some opening comments; before Paul Donofrio, our CFO, goes through the details. Brian?

Thank you, Lee, and good morning, everyone, and thank you for joining us to review our second quarter results. I’m beginning on slide two of the materials we sent to you. We reported solid earnings of $4.2 billion after tax, or $0.36 per diluted share, in what was certainly an eventful quarter for the markets from an overall macro perspective. This compares to $5.1 billion or $0.43 per share in the year-ago quarter. This quarter included negative market related NII adjustments that cost $0.05 per share and negative DVA that cost us another penny for a total of $0.06. That compares to a $0.03 benefit for EPS for both those items in the second quarter of 2015. Earnings neutralizing for the past 91 DVA for both periods improved from $0.40 per share to $0.42 per share on a year-over-year basis. Our results represent another quarter of solid progress in the strategies we have been executing. Those strategies are delivering more of the company’s capabilities to each and every client we serve. At BAC, we focus on what we can control, and despite low rates and other macro events, we continue to focus on managing our risk, our costs and our delivery of quality products and customer service. In Q2, we grew loans $22 billion or approximately 2.5% versus last year, even as we sold a few portfolios during the year. All this growth was organic and consistent with our risk appetite. We also grew deposits more than $66 billion or 6% over that same time period, and we did so while maintaining disciplined deposit pricing. We also continued to transform our company in a digital way at all things and all businesses. For example, this quarter we crossed over 20 million active mobile users and continued to increase their use…

Thanks, Brian. Good morning, everyone. Since Brian covered the income statement, I will start with the balance sheet on page five. As you know, when general deposit flows drive the size of our balance sheet, and they on a lending basis were relatively flat this quarter as inflows were partially offset by outflows to fund seasonal tax payments. So total assets were stable compared to Q1 with loans increasing modestly, security balances rising and cash down a corresponding amount. Liquidity also saw a small decline. However, we remain well compliant with LCR requirements. Tangible common equity of $170 billion improved by $3.6 billion from Q1, driven by earnings and OCI. This was partially offset by 1.1 billion in share repurchases and roughly 500 million in common dividends. As a reminder, following the CCAR results we announced an increase in both our share repurchase authorization as well as a planned increase of 50% in our quarterly dividend. On a per share basis, tangible book value per share increased to $16.68, up 11% from Q2 2015. Turning to regulatory metrics, as a reminder, we report capital under the advanced approaches. Our CET 1 transition ratio under Basel III ended the quarter at 10.6%. On a fully phased-in basis, CET 1 capital improved $4.3 billion to $161.8 billion. Under the advanced approaches compared to Q1 2016, the CET 1 ratio increased seven basis points to 10.5% and is above our current 2019 requirement. RWA declined roughly 13 billion, driven by reductions related to retail exposures primarily from credit improvement. We also provide our capital metrics under the standardized approach. Here our CET 1 ratio improved to 11.4%. Supplementary leverage ratio for both parent and bank continue to exceed U.S. regulatory minimums that take effect in 2018. Turning to slide six and on an…

[Operator Instructions]. We’ll take our first question from Matt O’Connor with Deutsche Bank. Please go ahead. Matt O’Connor: Good morning.

Good morning. Matt O’Connor: I had a few follow ups on the expense commentary. I guess first, though, just maybe what drove the timing of giving a three-year expense outlook? Is it acknowledging kind of lower for longer rates? Is it finding more opportunities, or what was kind of the motivation to give expense outlook for 2018 at this point?

Well, Matt, as we looked at it, this is our current plan, so there’s no new news for us in terms of how we operate the company. But what we saw is that people were not sort of getting the expenses right in the out years thinking that we could not continue the rate of investment and continue to bring down expenses. Secondly, to make sure people understood it in terms of blending in LAS and putting it into the base. It’s now become less of the contribution and now it’s more the general expense base we’re working on. So I think it was consistent with the way we’re running the company but we want to make sure that people had clarity over the next six quarters and going into 2018 of where we think the expense base goes versus what we saw in some of your guys’ estimates and stuff. Matt O’Connor: Okay. And then I guess specifically, the $53 billion that you pointed to, does that include the first quarter stock expense of around a billion and some I assume nominal amount for legal?

Yeah, it includes an estimate based on current views of both. That’s all-in expenses for the year. Now they come in different quarters, as you just pointed out. We have it front-loaded of that, but – so this quarter did not include that I think it was about a quarter of a billion dollars plus a quarter when you think about the $13.5 billion this quarter. But overall, it includes the estimate for that out there plus the litigation estimate. Matt O’Connor: Okay. And then just separately, if I can ask, we’ve had a couple other banks talk about loosening standards a bit on the consumer side. I feel like you’ve held your standards quite high, especially in credit card. But just any thoughts on appetite for loosening standards a little bit here, given the challenging rate environment and the economy still hanging in there?

We’ve worked I think extraordinarily hard to transform the company, its balance sheet, its ability to produce earnings. We’ve got a customer and risk framework on the consumer side that is focused on prime and super prime. That strategy, I think, works for our shareholders and our customers and we’re sticking to it.

And just to give you a simple view of that, Matt, this quarter we did the highest number of new credit card originations we’ve done for a long time. And all of them are consistent with that risk appetite. So there’s plenty of market share to gain there by just concentrating on current customers and deepening. And while people always ask the question you ask, the answer is there’s still about seven out of 10 mortgage customers at Bank of America get their mortgage somewhere else that fit within our credit customers. There’s plenty of cardholder that fit our credit parameters that are out there that don’t have our card or aren’t using our card as their primary card. And so just giving those couple of examples, there’s plenty of market share to get there. So we don’t need to change the standards to grow and you’re seeing that come through. Matt O’Connor: Okay. Thank you very much.

And we’ll take the next question from Jim Mitchell with Buckingham Research. Please go ahead.

Hey. Good morning.

Good morning.

Maybe I could follow up a little bit on the NII discussion. Maybe if you could help us think through – you talked about near-term kind of flattish, but as we think a little bit longer term, if the forward curve is realized and/or maybe give some color. You’ve had good deposit growth, core loan growth of 9% but net loan growth’s only been about 2.5%. Do we start to see that inflect more? And does that start to help the out years as well? So just any color on NII beyond the next quarter or two would be helpful.

Sure. Look, as I said in my comments, if rate follow the current path of the forward curve, we would expect with the extra day and the client long-term rates to be at around a $10.4 billion range in the next quarter. So...

Right.

But as you get out to 4Q and next year, I think we get more optimistic about being able to grow, given just our current pace of deposit and loan growth. We’ve obviously experiencing good deposit growth. We’ve got, as we talked about, a strong risk in client framework, so we’d like to put all of that deposit growth into loan growth. But we’re going to only do so if it meets our criteria. Whatever deposit growth doesn’t get absorbed by good loans with our clients obviously goes into the investment portfolio and we get a return there. So I think, look, it’s just a question of the further you get out, the more that wave of deposits and asset growth kind of overwhelms the change in interest rates and we see growth.

Also if you look at page six, you can see that – a point you made is that the inflection point was hit a few quarters ago where the sort of the non-core loans and leases were running down and not being made up by growth. We’ve passed that. And so as we think about it going forward, in the upper right-hand part of page six, you can see that other loan and leases balances coming down. They’ll continue to come down but there’s just less of them. And then if you look at the lower left, you see the core loans are growing at a good rate, have been growing a good rate now can come through. So I think your point about what give us encouragement because you saw it last year second quarter, this year second quarter about how even in a lower for longer rate environment we can grow NII is that you’re actually are growing the net loan book pretty consistently now each quarter.

So I guess you don’t want to put too many numbers around it. But should we think that maybe starting in 4Q or 1Q, we might start to see some incremental NII growth; and maybe that accelerates – as you point out, the loan growth overwhelms the rate picture?

I think we’d say that you got to be careful about your rate scenario, even on a spot basis because it can move around and move that around. But think about it as second quarter next year, you’d start to see this breakthrough again, based on absolutely no change in rates from the low point they were.

Right. Okay. Great. Thanks.

And we’ll take the next question from Ken Usdin with Jefferies. Please go ahead.

Hey. Good morning, guys. Just one. On the fee side, you mentioned all the great metrics in terms of the growth of activity and account growth and whatnot. But we’re continuing to see declines year-over-year in card income, service charges and the brokerage business. So I was wondering, you can walk us through when do you anticipate some of the, kind of the building blocks turning into revenue? Or are there still some of the – kind of the spending or kind of competitive pressures building in underneath? So just kind of the outlook for some of those kind of core consumer and brokerage-related fee areas would be great. Thanks.

Okay. Well, let’s start with card. I think card actually is up on a linked-quarter basis, down year-over-year. But you have to remember, again, we had portfolio divestitures. So I think we’re at the point now, we’re not going to be seeing those sorts of divestitures in the future. And we start feeling better about more consistent growth around card. If you look at brokerage income, we have been in a multi-quarter, trend of people shifting from brokerage to more managed accounts. That trend has obviously put pressure on the revenue line because at the same time that was going on, we had had a lot of volatility in the marketplace, lower overall capital markets, lower overall activity. But I think over time as – if capital markets continue to rise, we will get – we will offset that decline in transactional revenue.

Thank you. We’ll take our next question from Glenn Schorr with Evercore ISI.

[Audio gap] in terms of FA attrition? And then the second part is in Wealth Management, what specific products or behavioral changes are you putting in place ahead of the DOL rules kicking in in April?

So on the first quarter, we haven’t seen any change in attrition after retention. And most of the retention – most of the attrition experienced financial advisors have been more due to our change in our way we do the international business, which has been going on for about a year. But in terms of aggregate numbers, it’s been relatively stable. In terms of the attrition we see is actually in the lower production levels, mainly due to people not being able to kind of build a book of business. And we’re trying to fix that through the integrated business system with our consumer and preferred teams. In terms of DOJ and the fiduciary standard, we’re visibly implementing this. It’s consistent with where we’re going with the business. It’s consistent with the move from an old view of what financial advisory was versus a managed money fee-based, loaded with a financial planning driven business. Admittedly it’s a little tricky, because the actual rules only apply to the $200-odd billion of 401(K) and retirement assets we have, but it’s consistent with where we’re taking the business and the team drawing we don’t see meaningful revenue or changes due to that. We’ll see meaningful changes to implemented, but not meaningful revenue changes.

Okay. I appreciate that. And just a follow-up on the 2018 expense target, which everyone appreciates, it might be a silly question, but should – is it safe to assume that 2017 will be somewhere between 2016 and actual in 2018’s target?

Well, we’ve got – yes, it’s a safe assumption. It’s not a silly question. But we’ve got six quarters between now and then, and you can see what we’re running at now to get it down to that level. It will take work every quarter.

Okay. Thanks, Brian.

We’ll take the next question from Steven Chubak with Nomura. Please go ahead.

Hi. Good morning.

Morning.

So I hate to beat a dead horse on the expense question, but, Brian or Paul, I was hoping you could provide some more detail as to what specific expense levers you can pull to really drive that figure to 53 billion? It is a pretty meaningful delta versus the 56 billion run rate over the last four quarters. I’m just trying to gauge how those expense initiatives might impact revenues? And whether we should expect any revenue attrition as those additional initiatives take hold?

Sure. So let me just back up a little bit. I will definitely answer your question, but I want to emphasize again, we’re talking about LTM 56 billion going to 53 billion, absorbing in that merit, healthcare, inflation and other investment. And the first thing I would point out as you sort of think about the credibility of that, look at what we accomplished over the last five years. From Q2 2011 to Q2 2016 we have reduced quarterly expenses by $4.8 billion. That’s a $19 billion annualized run rate. And we did this by not only reducing legacy mortgage related expenses, which were only make up $2 billion of that $4.8 billion, but just through good expense management in every major category across the company. So from here it’s about a number of things. A lot of those things have been identified through our simplify and improve initiative. We’re investing in technology and capabilities to improve efficiency. The most obvious example of that you can see is in the increasing adoption of customers for digital channels. But I do want to emphasize that it is, you know – it is about making progress across the entire company from our leaders and our teams. So if you look in consumer, they’re an example of the digital adoption. We’ve got mobile users of 15% over 2015. When they make a deposit, that’s one-tenth the cost. We’ve got digital sales up 12% year-over-year. We’ve got more customers using digital statements, a lot more work to do there with transition from paper to electronic. We are optimizing the coverage model in both consumer and GWIM, and they all have goals. We all have goals and initiatives around controllable expenses including travel, supply, support costs. If you look at global banking and global markets, we’re simplifying our legal entity structure and business model. We’re integrating wholesale credit origination and processing across the lines of business. We’re centralizing data platforms. We’re expanding electronic capabilities and we’re optimizing the coverage model. So, you know, there’s a lot going on and we’re going to need all of it to get to our goals

Okay. So, Paul, from based on your comment, it sounds like it’s really going to be driven by technology and other efficiency initiatives. So there shouldn’t be any expectation that we could see any meaningful revenue drop-off or attrition in light of those actions that you’re taking?

I think Paul gave you a lot of different places it comes from, but I think you have to back up and say it comes from reducing the expense base and by people. And you can see that even in markets, year-over-year we’re down 7% and people revenue went up. So it’s electronification of fixed income platform and the equity’s platform continue down that road. So every single area is moving here and then if you also have to think about the stability of the platform, this company has now been operating with a consistent strategy and a consistent ability to execute for many years. And what’s gone with the legacy and stuff that just allows us to keep operating on ourselves. And we always have performed best in history when we had that period of time no acquisitions, no divestitures, no legacy asset servicing. So we’re very confident that it will happen. On revenue, I’d say look at it year-over-year, look at it linked quarter so last three or four quarters you’re seeing revenue is stable and well bounces around with market activity in a given quarter. The core revenue continues to go forward and the expenses keep coming down on a core basis. So we’re comfortable that there’s nothing – we won’t allow our people and our responsible growth to give us cost saves and not grow the business. So it has to be sustainable. It has to be actually taking out real work and yet still investing in more client-facing teammates, more salespeople and more technology capability for customers.

Thanks very much.

We’ll take the next question from Eric Wasserstrom with Guggenheim Securities. Please go head.

Thanks. Just a couple of questions on auto and then one clarification on the OpEx guidance. I’m sorry to come back to that but on the OpEx, is it the 2018 figure where you expect to begin 2018 or end 2018?

That’s for the full year.

For the full year. On auto, you underscored the origination quality and the high end of the FICO range, but one of the things that we’re hearing from dealers is, is about the compression and pricing that’s occurring in the high end ranges, some other lenders move up out of the mid-FICO range. And I wanted to see if that’s something that you think you’re experiencing or if you’re in fact seeing some stabilization in the competitive area around high FICO auto lending.

I would say we haven’t experienced that. We can check and get back to you. I would – I would just make a couple more comments about auto. We are – we’re maintaining our share, but we are very focused on the prime and super prime. And as we pointed out last quarter, we’re booking these loans at FICO scores of around 70, 74. We’ve got debt-to-income at all-time lows, and importantly, we are not from a structuring standpoint extending kind of way we see in the marketplace.

Thanks very much.

We’ll take the next question from Mike Mayo with CLSA. Please go ahead.

Hi. Still more on expenses. This might be good news bad news. I guess the good news is your expenses over the last year, branches are down 2%, FTE down 3%, almost every expense line is lower. So that’s good. And your efficiency ratio is down to 62%. But the bad news the way I look at it is over the last five years, your expenses are down a lot, but your core revenues are down even more. So what might resolve at least the issue in my mind? Do you have a specific efficiency target for 2018?

Well, Mike, the – if you look at the risk adjusted revenue, you would come to a different conclusion. So, yes, we had a lot of revenue in 2011 or 2012, but the charge-offs were running tens of billions of dollars more a year than we have now. So a lot of that revenue was just going off the back end. So if you look at it from a risk adjusted basis, I think we grew from a low 60s to the low 80s over the last five or six years. So that is actually the work that gets done. So we could – going back a point, we focus on very high credit quality so we keep that credit cost moving in the right direction or stable when the world has gone a different way. We don’t have a target efficiency ratio. You can calculate on of that out in 2018 because as we talked about earlier, the NII differences will be driven by where rates go to some degree. But the idea is we are going to take expenses from $56 billion in the last four quarters to $53 billion and we think that’s where we’ll get them to. And if rates stay stable or go up a little bit, you’ll see a lower efficiency ratio. Right now, we’re running about 62% this quarter fairly stated and we think we can push it down from here.

And I don’t want to take away – I think we collectively appreciate having a 2018 expense target, but if you just take the second quarter annualized, you’re at $54 billion, and then if you reduce your LAS expenses, you kind of get down to a $53 billion number. So if...

Mike, you’re missing the FAS 123 and social security, which is $1.2 billion in the first quarter that doesn’t occur this quarter but you’ve got to add that back too.

Okay. That’s helpful. And you said a lot is anything on, and I think some other analysts tried to restate what you’re saying. But what are the three biggest drivers then of that reduction of what you might term a core expense base?

It’s then people. We’re down 2,600 people quarter over quarter. It’s a constant reduction in personnel through hard work and automation while we’re continuing to increase the investment in salespeople. And so that helps on the revenue side and the revenue equation versus expense. It’s the things like our data center configuration. We’ve been in a program to take about a billion, billion and a half out of the data work, all the data centers and configuration that we’re part way through. And in part it’s just like Paul said, every line item is just grinding that. As we continue to bring down people, we have less occupancy, less telecommunications and everything else. So it really comes across the board.

And then lastly, should we expect a restructuring charge? Or do you pay as you go?

We have consistently paid as we’ve gone, as you well know, and even in every quarter we have between $50 million and $100 million of severance expense that we don’t even talk bout.

All right. Thank you.

The next question comes from Vivek Juneja with JPMorgan

Hi. I won’t beat the dead horse on expenses. Just a quick question on the card business. If I look at purchase volumes year on year, it slowed further from last quarter. Any color on what’s going on there?

Yeah, I think purchase volumes are up 7% if you normalize for the divestitures.

Okay. But the divestiture happened in 4Q. It slowed from where it was. It was up 2% year on year in the first quarter, and it slowed to 1% year on year in the second quarter. So it seems to me a little bit of a weakening trend.

I think we’ve had divestitures in 2Q last year and in the fourth quarter.

I know. I am [indiscernible]. Those were both reflected in 1Q 2016 year on year growth rates. And I’m comparing growth rates...

Let me just make it simple for you. The year-to-date through July is up – taking out divestitures, up 4% on debit and credit both and up 7% on credit card purchases normalized for divestitures year to year the first six months plus this part of July. So it’s growing fine.

Okay. Got it. Thanks.

We’ll go next to Paul Miller with FBR and Company. Please go ahead.

Yeah, thank you very much. On the LAS, so you now consolidate the LAS segment into pretty much the consumer segment. You still – the last on the appendix you said you had about 11,000 workers in that area where I guess continue to work through about 88,000 loans. Is that number – should that number continue to move down? Will we continue to see that move down? Or what’s the thoughts behind that?

Be careful because those 10,000 people work on the 88,000 loans plus the 3 million good loans. They service both good and not good loans, to make it simple. And so that’s one of the reasons why we’re separating. In all other going forward is the loans that we are actually only loans we’d never do again and that we’re running off 600,000, 700,000 units. Moved into the segments whether it’s consumer, U.S. trust, or Merrill Lynch are the loans that relate to their businesses in terms of servicing costs, too. So that was one of the confusions. As this thing got down, you got the point where the good servicing costs are becoming a more meaningful part of the total. It’ll continue on, because that portfolio, whether it’s direct servicing costs for third parties or even the stuff on the balance sheet, will continue. But to give you a sense, from first quarter, second quarter, we’re down the total head-count of about 2,600. About 900 and change came from LAS from the servicing side. So it still contributes, but its contribution is going down each quarter, because the amount left to service the good stuff and just generally service our portfolio will be a higher percentage of what’s left.

Okay. And then you gave some guidance on where you think LAS expenses will be by the fourth quarter. And I’m not sure I wrote it down correctly, and I might have misinterpreted it, but was it close to 500 million you said? Or am I off somewhere?

Yeah, so this quarter we ran about 600 and we said we’d get – a long time ago we said we’d get to 500 by the fourth quarter this year. So we’re almost there, and the idea is that will be completed.

So is 500 the run rate to service the good loans? I’m confused. Or is that still servicing the bad loans?

Both.

Both. Okay. Thank you very much, guys.

The next question comes from Brennan Hawken with UBS. Please go ahead.

Good morning. Sorry to come back here, but I just hate horses. So I’m anything to take another whack at this thing. On expenses, what should we think about as far as your assumptions for legal and then some of your market-related businesses, market-sensitive businesses GOM and markets? Just because the expense line items in those businesses do have a pretty big impact from market conditions.

So I’ll start with legal. From a legal perspective, if you look over the last four, five, six, seven quarters, we’ve been running around 300 million per quarter. We did 270 this quarter. You know, that I feel like is a reasonable range if you’re building a model for the near term. And in terms of the Capital Markets businesses, I’m not quite sure I get your question. Obviously they are – that line is tied to the performance of the business. The total performance of the business, returns, earnings and revenue, and we have – we have programs in place that we think are competitive with what’s on Wall Street so that we can attract the best of talent and retain the best of talent. We’re constantly benchmarking against those programs, and we feel like we’re where we should be for the quality and the market presence we have in those areas. Q – Brennan Hawken: Overall, you should think about the environment we’re talking about is an environment consistent where we are now from growth of 1.5%, 2% of U.S. GDP and stuff. So it doesn’t contemplate any change in the current environment from just a general operating principle.

Again, remember what I think Brian said and what I emphasized again, that 53 billion is absorbing increases in merit, absorbing increases in healthcare, investment that are just inflation that are just natural in the business.

Right. I guess I was just – so you’re saying that first of all on legal, the 53 billion includes roughly 300 million per quarter rate, and that your operating assumption for the GWIM and other market business would assume a revenue inflation and corresponding payout inflation from those businesses from here?

Yeah, based upon our current plan.

Got it. Got it. Got it.

Within our current plan. And in terms of legal, I hope it’s going to be less than 300 million when we get out there. I’m not telling you to stick that in your model, but that’s a good range to be thinking about.

Okay. That’s really helpful. Thank you. And one quick follow up on GWIM, you guys highlight a gain on sale, but could you talk about how much that impacted the margins in that business? And then whether or not there was any EPS tailwind there?

Yeah, it’s – it was 80 billion of AUM again. That was all short-term. It had minimal impact on margins. Minimal.

Okay. Thanks.

We’ll go next to Matthew Burnell with Wells Fargo Securities.

Good morning. Thanks for taking my question. Paul, I wanted to follow up on the mortgage banking side of things. That was one of the areas you highlighted in terms of potential growth. Year over year the mortgage banking revenue was down fairly substantially. It seems like a lot of that was hedging gains and losses and things like that. But you also mentioned that you’re planning on keeping more mortgages that you originate on the balance sheet. Could you give us a little bit more color in terms of how you’re thinking about that going forward, both in terms of the mortgage originations being kept in the balance sheet and sort of how you’re thinking about mortgage banking fees?

Sure. Let me – you’re right. MBI line was down year-over-year. That was planned for. We knew that was coming. I just want to walk – so for everybody else, I just want to walk through kind of why it’s down and then we can talk a little bit about going forward. So kind of four items. First, we sold an appraisal business last year, so there was revenue in last year’s second quarter that isn’t in this quarter. Second, we had some servicing sales in the second quarter of last year for a gain that we didn’t have this quarter. Third and probably most significant from a revenue perspective is that we have the ace decision in the second quarter last year, so we released last year some reps and warranties. That was a significant amount of benefit last year. And then fourth and probably strategically most important in the point you’re getting to is we are selling less mortgages choosing instead to hold them on our balance sheet, and obviously this decreases MBI but increases NII over time. So and plus you have to note that as we just talked about, servicing bad servicing is going to continue to run off. So if servicing is running off and not being replaced as fast, if we’re holding more mortgages on the balance sheet as we transition from MBI to NII you could see that line continues sort of trend lower. In terms of the mortgages, you know, I think in the short-term, it’s going to be fairly stable and that trend is going to this is a good base. This quarter is a good base to sort of start from. I think that trend lower is going to be, you know, in some quarters very slow because as you point out other items – other line items are a little bit messy and bounce around there depending on what happens with interest rates.

Right.

But that’s the trend. In terms of what we’re trying to accomplish, all of the loans we originate that are nonconforming we would like to keep on our balance sheet. And even the conforming loans that have a certain characteristic we’re going to be holding on our balance sheet. So right now that’s around 75-ish percent of the loans we’re originating are going on our balance sheet. Is that helpful? Q – Matthew Burnell: Yes. Thanks. Thanks very much.

And we’ll go next to Richard Bove with Rafferty Capital. Please go ahead.

Hi. I apologize for going back to the net interest income issue, but obviously the reason why central banks keep interest rates down is because they expect it to increase lending. And I’m wondering if you have any elasticity studies which show what happens to loans when interest rates go down or up. And as part of that, there are multiple examples of what happens to earnings if interest rates go up 100 basis points or down. And I’m wondering if you have done anything to show if interest rates remain flat and loans go up 2%, 5%, 6%, 8% what the impact on earnings would be.

Yeah, absolutely. On that last part of your question is precisely what I think we’ve been talking about today in the Q&A and in the remarks. We’ve got interest rates – we talked about interest rates following the forward curve. We talked about interest rates being flat. And despite both of those circumstances, we think in the out years we can grow NII or in the out quarters we can grow NII because we’re growing deposits, and we’re putting them to work where we can within our risk and client frameworks to grow well priced loans. Any amount of deposits that doesn’t go to our clients and customers we’re sticking in the securities portfolio and getting as much yield as we can get there within the constraints of liquidity and capital risk and interest rate risk. So we think we can grow in even a flat interest rate environment, grow the NII line not necessarily in the next quarter but as we again move out into the future. Brian has already pointed out all the work we’re doing around expenses, so when you combine what we think we can do from a fee base, from an NII perspective and lowering expenses, we think we can grow earnings of a company even if interest rates are flat.

What I’m asking is a lot more specific in the sense that you do this with interest rate changes, right? In other words, there’s these bubble charts which show what will happen to net interest income if interest rates go up 100 basis points. There’s nothing which says what happens to earnings if you see a 5% increase in loans. In other words, what is more important? I mean, in the old days, people would show these charts if you hold interest rates flat and volume goes up, what happens to earnings if you get a 5% increase in lending as a result of interest rates staying so low?

Yeah, I get it, Dick. You’re right. I mean, we tend to talk in our disclosures about interest rates moving 100 basis points, 50 basis points, and holding all else kind of equal what’s in our plans. We could just as easily do the opposite. We could hold interest rates flat and then you could see the effect of deposit and loan growth. We certainly have that analysis. That’s how we arrive at our perspective on the future. And I think if that’s something that interests you, maybe after the call, we can kind of share with you some of that work. It’s just math.

Yeah, no, the reason why I’m interested is because the whole discussion that we now have is that interest rates are staying flat, and therefore, bank earnings cannot go up because the other side of the equation which is what happens to volume when interest rates go down is just not discussed at all. So I’d love to talk to you more about it.

Yeah, okay. That’d be great.

Okay. Next we’ll go to Jim Mitchell with Buckingham Research.

Oh, thanks. Just a quick follow up on the capital ratios. Paul, we saw a pretty big improvement across you and your peers in PP&R on seemingly lower op risk hits, particularly legal. Do we start to see that factor into the advanced approach calculation? You guys get punished pretty hard on op risk in the advanced approach. Do you start to see some, I guess some light at the end of the tunnel of being able to reduce that, given all the reductions in legacy risk assets that you’ve seen?

Thanks for noticing. So let me start by saying that we are very pleased with our results in CCAR this year. And we believe they really do reflect all the hard work we’ve been putting into that process and improving capital planning. Operational risk, we have a third of our advanced RWA roughly is operational risk. And we would characterize most of that, Brian might say all of it, as for businesses we’re no longer in, products that we no longer sell, and risk that I don’t think we ever took as a basic Bank of America. So there’s a lot of RWA sitting there, and we have to work overtime to show the regulators that we can get that down.

But this – you’re not – there’s nothing to read into the results in CCAR yet anyway?

No, I don’t think so. I mean, obviously CCAR is on a standardized basis, so it doesn’t incorporate operational risk.

No, no. But in the PP&R, they obviously made that point that...

Yeah, you’re right.

Okay.

You’re right. I think they improved their models. I mean, I don’t know, but I think we’re all kind of looking at what they’ve done and trying to understand it, and I think they probably improved their models a little bit around op risk and there was a little bit less across all the banks. I think the banks that had the most maybe benefited because it was more of an average type of thing.

Right.

So maybe we got a little extra benefit in that. But I don’t know, to tell you the truth. We don’t know what’s in their models.

Right. So it’s just a little too early to see any kind of spillover benefits yet?

Yes.

Okay. Thanks.

It appears we have no further questions at this time. I’ll turn the program back over to our presenters for closing remarks.

Thank you very much, and we look forward to talking to you next quarter. Thank you.