Good day and welcome to the Bank of America Earnings Announcement. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Lee McEntire. Please go ahead, sir.

Good morning. Thanks for joining us this morning for our third quarter 2017 results. Hopefully everybody's got a chance to review the earnings release documents that are available on the Bank of America website. Before I turn the call over to Brian and Paul, let me remind you we may make some forward-looking statements and for further information on those, please refer to either our earnings release documents, our website, or our SEC filings. With that, let me turn the call over to Brian Moynihan, our Chairman and CEO for some opening comments before Paul Donofrio, our CFO goes through the details. Over to you Brian.

Thank you, Lee. Good morning everyone and thank you for joining us. This was another strong quarter across the board for Bank of America. Response for growth is delivering for our customers and for you our shareholders with strong operating leverage, strong credit results, and strong expense management. We earned $5.6 billion or diluted EPS of $0.48 per share this quarter that is up 17% from the third quarter of 2016. So thinking back and talking to a lot of you over the last year or so, as we met with you you’ve asked three basic questions. Can Bank of America actually go, whilst sticking to its responsible growth principles? Can we achieve the $53 billion 2018 expense goal? And can you meaningfully invest in the company at the same time you are reducing the cost? So what I thought I would do is use the summary on Page 2 to answer a few of those questions. So on the first question; you can see on Page 2, will responsible growth work? I would point you to several of the metrics there. We’ve been operating under this model for some time. First if you look at this quarter compared to year ago revenue grew 1% on a reported basis. And looking at the core lines of business without other we grew revenue 4% despite the tough comparison of Global Markets. If you move to Global Markets, you can see that the core annuity oriented businesses of Consumer Banking, wealth management and Global Banking grew revenue at 7%. If you look at what drives that revenue growth, average loans and business segments grew 6% year-over-year. Average deposits grew 4% year-over-year, led by our consumer business which grew its deposits 9% year-over-year. The assets under management business reached $1 trillion this quarter…

Okay. Thank you, Brian. I'm starting on Slide 5, as Brian said, we earned $5.6 billion in Q3, up 13% from Q3 2016, EPS of $0.48 per share, up 17% year-over-year as we reduced dilutive shares by 3% over the past 12 months. Revenue of $21.8 billion was 1% higher than Q3 2016 as NII improvement and higher asset management fees outpaced decline in sales and trading, and mortgage banking income. Expenses of $13.1 billion were 3% lower than Q3 2016. We generated more than 3% of operating leverage. The efficiency ratio of 60% for the second consecutive quarter now 59% on an FTE basis. Provision expense was $834 million, down modestly, compared to Q3 2016 and we see continued improvement in consumer real estate and energy. Return on assets this quarter was 98 basis points and return on tangible common equity was 11.3%, improving both on a year-over-year and a linked quarter basis. Turning to the balance sheet on Slide 6, overall compared to June 30, end of period assets increased $29 billion, driven by strong deposit growth that funded an increase in loans to customers with the remainder invested in securities and cash. Loans on an end of period basis were up $10.5 billion from Q2 led by commercial activity, while consumer loan growth was mitigated by the continued run-off of legacy non-core loans. On the liability side, long term debt increased $4.7 billion during the quarter as we took advantage of favorable credit spreads to pre-fund upcoming maturities. Given that we are now compliant with TLAC requirements our debt issuance over the next few quarters will likely be more opportunistic. Liquidity remains strong with 517 billion in global liquidity sources and our liquidity coverage ratio was 126%.Common equity increased more than $4 billion compared to Q2. During…

Thank you. [Operator Instructions] And we will go first to the line of Nancy Bush with NAB Research. Please go ahead.

Good morning. Brian I have a question on digital banking, I guess right after the crash when you guys sort of first began to emphasize digital and mobile banking, you were sort of the leader in the industry in that regard and do you still feel that you have that leadership position, is it important that you keep it and what are your thoughts about what you need to do to do that?

I think we have leadership position if that’s told just by other people and how they rate people in terms of activities and capabilities and things like that, but most importantly it’s how your customers use you, and what you see going on. So, if you look at the Page 14 that Paul took you through, you can see the growth in transactions and trends in activity, and while you mentioned that the drive after the crisis, but the reality is the drive started before the crisis, and we were one of the first apps available on Smartphones way back to the start of the iPhone, and so that helped us grow quickly, but it is a core platform for us. The question is, how do we drive all its feature functionality? The deposits that go through on a daily basis or equivalent of thousand branch activity and deposits to give you examples so its smooth major amounts of activity. We are excited about the Zelle payment levels because at the end of the day we have $5 billion that we spend a year on the cash currency, checks moving around our company and the system that the way we are going to get there is by coming, you know digitizing those and eliminating cash and driving that, and so things like Zelle, whether small numbers compared to all the other payment forms today the pace that they are growing at with the digital wallets and other things will help drive it there So, we feel we are a leader. We expect to be a leader. The activity grows faster, and I think you put it against any kind of mobile digital person out there, 1.2 [ph] billion customer interactions in the quarter shows you that people believe that it must be pretty good.

Is there a direct relationship or is there any kind of quantification that you’ve done or ‘x’ mobile transactions means why fewer branches, is there that direct a relationship?

Yes and no. Yes in the sense that we know the cost of the various things, you know a branch transaction for deposits is 10 times more than a mobile transaction, but remember at the same time we’re investing heavily in the high touch side of our house. 2000 more salespeople, a lot of those in consumer, refurbishing all the branches, building out branches, and things like that because at the end of the day 20% odd of sales were on digital and mobile, but 80% aren’t and because of the nature of the intimate customer discussions because of the nature of what customers want to discuss and have face-to-face help on the branches are critically important to that. So the real question is, you have to have both be successful. The model doesn't works, it solely one or the other in the mode of having both works and that’s where you can see the activity growth. Think about the deposit growth year-over-year and consumer of 50 odd billion dollars and start to think about that in the context of activity.

Okay. And just one quick follow-up for Paul, Paul you mentioned in global banking that all categories of loans grew except CRE, is that a self selection or could you just expand on that a bit?

Yes, sure. We instituted - a year ago now, it is not longer, we pulled back a little bit on CRE, so we are still servicing customers there, we are still making loans, but we’re not, we're just being a little bit more cautious, and so you're not seeing a lot of growth in our CRE balances. And I would point out that, that kind of makes a 4% growth all that more kind of interesting, given our stance there.

Okay. All right. Thank you very much.

Thank you. We’ll go next to the line of Glenn Schorr from Evercore ISI. Please go ahead.

Hi, thanks.

Good morning, Glenn.

Good morning. Little drilling down on your comments on deposit costs rise. So we go from, I guess, 8 basis points last year to 24 basis points this, or 11 basis points to 24 basis points over the last quarter. How much of that increase is what you mentioned in Wealth Management? I heard your comment on the - bringing them a competitive cash alternative. I’m just curious, is it CD versus money market? Is it all coming from current clients? Thanks.

Mostly in Wealth Management and it’s - I wouldn't say, it's in one place or another, it's kind of across a lot of the different deposit products we offer to that community of investors and depositors.

Glenn, if you go to Page 10 of the supplement package, you can see the comparison of the third quarter last year to this year, and I start to think about some of the numbers you were citing. But if you look at the different categories, you're going to see that most of the move is in the now Money Market, which is - that's where the Wealth Management business is, and then the $240 billion odd number in there, about $140 billion of it is really people’s invested cash. And so if we make an allocation like we did in the second quarter to less cash and more equities that actually brings deposits out and then people are obviously thinking as investment cash. These are accounts that might have $5 million in securities in it and $500,000 of cash. So, obviously, the rate structure moves in that. But if you think about it across a year, there's about a 75 basis point increase in Fed funds, and you start to put these numbers against and even Wealth Management is relatively modest in terms of the change in the overall. The other thing that drives our profitability is, if you look at that page go down and you remember that’s non-interest bearing account, the deposits are still zero, and they grew - they’re $436 billion of non-interest bearing accounts. If you look in the consumer side there, that drives the profitability and that's where it comes from.

Gotcha. So there’s - a competitor too had put out some high price or high rate CDs in an effort to gather new client money that this is more of just compensating clients for being good clients sharing a little bit of the level?

Yes,. I would not say we’re - CDs are down $4 billion at Bank of America year-over-year.

I appreciate that.

This is about providing our GWIM clients with an alternative - a deposit alternative, if they want to take it. Since they have options in AUM and brokerage for some other excess cash.

Okay, cool. And I'm just curious to follow-up on the comment you guys have in the slides on targeted growth in client financing activities and equities. Is that just growing PB with the clients?

We talked about that last quarter where we made a decision to add some balance sheet to our equities business. We see an opportunity there. We've made a lot of investments in technology. We've got great relationships, and there's an opportunity to add a little bit more leverage to that business. So we provided some balance sheet, so we did that last quarter and we continue to do that this quarter, and it's having an effect. Like you said, it's PB, but it's also synthetic PB in Europe, so it's both synthetic and physical.

All right. Thanks very much.

Thank you. We’ll go next to the line of John McDonald with Bernstein. Please go ahead.

Hi, good morning. I want to ask about expenses, the magnitude of the improvement was nice - surprise this quarter. I think you were targeting kind of $100 million year-over-year improvement and you’ve got something closer to $300 million or more. Just wondering where did you kind of outperform your own expectations on expenses this quarter? And is this run rate, I mean, ballpark kind of a good jumping off point, Paul?

Yes, I would say, we feel great about the work we did. We've always talked about expenses not being a straight line, the same line every quarter. This quarter, we did maybe a little better than other quarters. You're right it was down about $300 million year-over-year, and those expense reductions were broad-based across personnel and non-personnel.

And in terms of next year when you think about the $53 billion target doesn't look like you might need it. But do you have any expectations that the roll off of the FDIC Special Assessment kind of help you get to that target and just maybe a reminder of how much that expense stepped up for you?

Yes. Look, we - it’s a good question. We - I think the industry was assuming that that would end in the second quarter. It looks like it may extend to the third quarter, because we're not going to get to the level they need to get to. So that actually hurts us. And that's why we always say, we're going to get to approximately $53 billion for full-year 2018. There’s a lot of things could happen. I don't know the exact amount. Is it roughly $100 million quarterly?

Yes.

It’s around $100 million quarterly. So it's a material number.

Okay.

I think it’s a little more than $100 million, frankly, but I can get back to you on that.

Okay. And then I guess just on capital return, Brian, with that CET1 growing nicely, anything that you could see now that would stop you from approaching more of a peer capital payout next year? And then can you just remind us what kind of CET1 ratio would be a good target for you in knowing what you know now about regulatory minimums?

A couple of things. One, we would expect to keep moving up the ladder in terms of capital management this year 88% [ph] I think is a number and you expect us to keep pushing forward. And to - on the levels where 9.5, you’d add 50, 75 basis points on top of that, the SIFI buffer levels can bounce around on you. But you think about somewhere around 10 to 10.5, and if you subtract that from the 12, that's a pretty good amount of excess capital.

Okay. And just one quick follow-up Paul on that FDIC expense roll off. That's in the numbers now. You’re kind of running close to almost 13 per quarter, it's almost at 53 annualized. You're just saying that if you didn't get that step down, it gets a little tougher to get to the target?

Yes, I'm just -look, we've - the target now goes back to the middle of 2016. We said at that time, we would achieve approximately $53 billion for full-year 2018. So, obviously, if - it's a little harder if FDIC doesn’t roll off in the second quarter and extends in the third quarter, but we're going to get there either way.

Gotcha. Okay, fair enough. Thanks.

Thank you. We’ll go next to the line of Betsy Graseck from Morgan Stanley. Please go ahead.

Hi, good morning.

Good morning, Betsy.

A couple of questions. One, as we go towards the $53 billion, can you just give us a sense as to the source of the improvement consumer versus corporate?

Betsy, I think, if you look at the quarterly progression across all expense categories, it comes from everywhere. And so, comes from the data center configurations that we took a charge and moved a lot of stuff last quarter. It comes from continuing to shed real estate occupancy cost, it comes from lower headcount that was down of 1,000 this quarter. It comes from taking out expense and layers for things we called organizational health. But if you think of it more strategically, it comes from basically applying technology and digitizing processes. And so across the - with our wholesale banking and credit underwriting initiatives I talked about, we’ve been able to save about 20% of the headcount there by consolidating our activities and bringing their activities together. We will have another big chunk as we go to apply the technology that we are developing that is not yet deployed. And so it's a thousand ideas. It's little, I mean, thousands of ideas. It's literally across the Board, and the team does a great job of just going after piece by piece by piece. And then we can manage the, sort of repositioning cost by getting ahead of it and doing it on a rational basis. So that attrition - we’ll hire 8,000 people this quarter to maintain headcount sort of neutral or down a bit. So we have a lot of chances not to hire people and continue to shrink the company when we apply this technology.

I'm just thinking about the digital efforts, obviously, you’ve put a lot of time in the call on the…

Yes.

…consumer side, just wondering rate of change on corporate is that where you think the digital efforts are picking up?

Yes, there'll be more there because of like trade finance. We’d start digitizing more processes. And if those processes prove out, we’ll drive it. There's a lot in the back office of the securities clearance capabilities that is going on. So there are - the numbers are - the consumer always dominates in terms of numbers in a lot of ways just if you think about it. But GWIM has a bunch of digitization efforts, a bunch that saves statements and we set up 12 statements, if we get people to take e-statements that saves 12 times a year times whatever it cost for that particular statement. So these things are never - if there’s something - if there’s some silver bullet, you could shoot and take care of it all at once, we would have shot it already, this is just hard work.

So then, the follow-up is, question I get from people all the time, which is, we get the expense improvements? Are there any fee pressures that we should also be baking in here when you talk about cash management, fee rate, some of the Fintech disrupters look at these peoples and say, oh, this is too high, I'm going to go after that, I'm assuming that you're staying ahead of that thread. I'm just wondering, is there a fee rate that we should be making sure that we're including when we give you the expense side?

Yes, I mean, I think we've given the guidance on the expense side. If you think about something like another global transaction service platform cash management, as people call it, there has always been this loss and revenue that you're fighting against when paper - which people pay us more to process turns to digital, we lose revenue, but we save expense at a faster rate. That has been going through the numbers over the last several years. So the revenue growth we see in cash management takes that all into account. So it’s more customers, more activity fighting off, whether customers are converting cash to digital. So, yes, that's a part of it, but you're seeing in our run rate. There's nothing sort of ahead of us, it’s unusual compared to the quarter-to-quarter sort of picking away at us that goes on in that regard.

And then consumer expense ratio 51% that - as you're getting more people onto your Zelle platform, et cetera, is there a line of sight to that going sub-50 at some point?

I think through both the revenue lift they get, as the rate structure rises and good expense management, we’d expect that it should move down below 50 at some point. But we never say to people where do we think you can get to some big target, or the consumer team has set some targets. I said don't give people targets, because I don’t think that that’s success. We don't know where it goes. In other words, over - I’m not talking about next quarter, but over multiple years, when you continue to drive the revenue expense play here, because the 2 million of core transaction deposit account and getting it from $2,000 over the last 8, 10 years to $6,000 per account is a tremendous revenue lift by focusing primary accounts as the number of accounts actually fell by 10%. And so that dynamic is what we're after. So, yes, it'll move down, but I wouldn't - we never put that success, because then people will quit working.

Got it. Thanks, Brian.

Thank you. We’ll go next to the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi.

Good morning, Mike.

Yes, your branch account continues to go down, I guess, down 3% year-over-year, but deposits are up 4% year-over-year. And I'm trying to get a distinction between retention of deposits for your closed branches, retention of customers, because according to your 10-K from 2015 to 2016, the number of accounts declined by about 2%. But at the same time, deposits continue to grow just like the entire decade. So my question is, what is your retention rate of deposits, and what is your retention rate of customers when you close a branch today and why the difference?

The deposits to consumer just, Mike, which are more and small business, which are more related to your thing, we’re actually up 9% year-over-year, not 4%, that's the overall incorporate level, including GWIM commercial. But if you look at across time, it really depends on where you're closing a branch obviously and what's nearby, but the retention rates continue to go up. The - over time, because the physical plan becomes less dominant in the relevance to the customer. And so what we’re doing is fine tuning the branch account and often consolidating into a bigger branch that we've invested heavily into the quality of the branch itself, but the numbers of people there. So our branches are getting bigger in terms of numbers of people in them and smaller in terms of account. When you think about the customer falloff in terms of number of accounts was really continuing to focus on our primary account. So as we do that, the balances are up twice in the accounts, I think, over the last seven years or something like that and account numbers are down from 34 million to 31 million, that was all driven by our view that we had to get to the primary account, because that's where the profit could be made in the core transaction capabilities there. So we closed a lot of people, people ran off who were using us as a secondary or third bank just because they loved our distribution of ATMs and things like that and basically we have emphasized primary account sales.

I'm not sure if you disclosed this. So what is the retention of deposits when you close a branch today and what was it…?

We don't disclose it. We don’t disclose it separately, Mike, that’s all in there. So, in that 9% growth is everything we did, so…

Okay. And just the last question. You mentioned, I mean, digital banking is up, mobile banking is up, you mentioned 1,100 branches that’s equivalent of it, that’s good. So have you reached a specific point where you can go from 4,500 branches down to 3,500 branches or 4,000, how far can you go?

That always depend on the customer behavior and other factors. We are deploying new branches, hundreds of them over a multi-year period in the places we didn't have branches before located more strategically given circa 2017 beyond banking. So we don't put a - again, it's not another number, we target a number. What we target is a more and more efficient system. And so, each day three quarters of a million people come into our branches and our teammates serve them well and our scores of those branches are all-times high in terms of satisfaction, and 80% of the sales go on in that space. So, I wouldn't want to cut them back at one branch more than the customer wants us to do it by - evidenced by the behavior.

All right. Thank you.

Thank you. We’ll go next to the line of Steven Chubak Nomura Instinet. Please go ahead.

Thanks. Good morning. I had a follow-up question regarding the discussion earlier about GWIM deposit competition and just some of the efforts that you cited to compete with other cash alternatives. I was hoping you could quantify the actual magnitude of deposit price increase that we saw in the quarter? And maybe just give a little bit more context as to what prompted the action? And, Paul, I know you gave some color here. I'm just trying to get a better understanding as to whether this is really driven by increased competitive pressures, or is it more a function of the DOL, which actually requires that some clients receive reasonable compensation on some of their assets, including cash?

I don't think - it's not a function of the DOL, it's a function of our desire to give our customers an alternative to leave their money in a deposit account at Bank of America as opposed to seeking other alternatives within our AUM and brokerage platforms. So that's what's driving this. It's a meaningful increase, but it's nothing - when you think about the 100 basis points that we've seen here, it's not a significant amount.

Just philosophically, we say to our team, you have to maintain the operating leverage, given a relative pricing against the rate curve, because the rate curve, we got to zero fullers for so long. And so they have to grow faster in the market 4% or 5%, at least, you've got to go deposits and you've got to maintain a pricing discipline. What happened at GWIM frankly is, they got a little behind the curve and they had to move in a single quarter and they did. And so what you see in the period-end deposits, even though the average I think is down, period-end actually is up. And so they were able to shutdown some of the runoff as, Paul just described, but it's really localized in the GWIM business, and it's really driven by a subset of those deposits, which are in asset management accounts and in brokerage accounts that are part of an investment strategy that that is different than transactional checking accounts and things that are driving both in our commercial business and our consumer business. And so that's why you see, if you go look at Page 10 and kind of sort through it, you'll see there's differences and it's really narrowly in the area that has to do with really investment cash rather than transitional and transactional cash.

Thanks for that color, Brian. And so my understanding then is that, if we do see rate hikes from here, because much of this increase was a function of your efforts to catch up with the competition that - should we see the NIM introductory increase, or how should we think about the outlook from here if we get additional rate hikes?

Well, first, let me say that, our outlook on NII absent any change of rates. Is going to be dependent on loan and deposit growth, offset by deposit rate pay, which is mostly going to be driven here by competitive factors. So, if we get a 25 basis point rate hike in December, again, most of that will see in the first quarter, the benefit, and it's going to depend on what our customers need and want and what the competitive dynamic is. I mean, I don’t know how else to answer that question. We don't know yet what we're going to do. We have to see how the market develops.

Secondly, in the $3.2 billion for 100 basis points is modeled in a rate of change relative to that interest rate change for deposit pricing. We have better debt and because of the power of the franchise and things, we would expect to continue to maintain that discipline.

Got it. And just one more for me on the credit side, the trends there continue to be quite positive and appears to be doing a lot better than many of your peers in that regard. I know the guidance you've given previously, at least, in the near-term, was that provision should approximate net charge-offs? We did begin to see some healthier building consumer. I'm just wondering how we should think about the near-term provision trajectory from here?

We still think provision is expected to roughly match net charge-offs. You could see some modest increase as we bounce around the bottom with respect to net charge-offs in commercial and as we build allowance in support of loan growth. However, these factors may be offset by the release of non-core consumer, real estate and energy as we sort of been experiencing here over the last few quarters. So, no change there.

Okay. I mean, is 900 million as like a charge-off run rate, at least, in the near-term, a reasonable expectation?

Over the last five quarters, the average has been 900 million.

Got it. Thanks so much for your help.

Yes.

Thank you. We’ll go next to the line of Matt O'Connor from Deutsche Bank. Please go ahead.

Good morning, Matt.

Good morning. I was wondering if you could just elaborate a bit in terms of what you're seeing on the loan demand side, both on the commercial, corporate, as well as the consumer and obviously, the industry has slowed down overall, you made some comments about seeing more activity in pockets of consumer, and then along with that just your outlook for loan growth in the near-term here?

We've been - look, we've been experiencing solid long growth in consumer and GWIM and in - on the wholesale side and global banking you saw that again this quarter. We don't - so we talk about loan growth for the whole company being driven by deposit growth. And so if you think about our deposit growth and the size of our deposits relative to our loans, every quarter we grow deposits and we put as much of that to work as we can in loan growth and whatever doesn't go to loans and client growth goes into the investment portfolio or cash. So, if you're growing deposits sort of mid-single digit that means you’re going to grow total loans low-single digits, we don't think that's going to change, given the current economic environment. But as you've seen, because we have a significant run off portfolio and All Other that has translated into mid single-digit loan growth in our business segments and that's what we're comfortable with.

And then, as we think about the deposit growth driving the balance sheet growth, you've got the flatter yield curve, and some people - my personal view is, if you get additional increase in the short end, you might have further flattening. I’m just wondering the thought process to keep building the securities book and the mortgage book, you're seeing some banks shrinking the securities book and building cash instead and obviously there’s a cost of doing that. But just the thought process to keep building securities here, as the curve has flattened pretty meaningfully?

Yes. Look, we are always thinking about the trade-off between earnings liquidity and capital, where we have risk framework that we operate in with respect to the securities portfolio. But remember, when you're growing deposits in consumer, 8%, those are we believe high-quality deposits. So they have a meaningful duration, and you've got to find investments on the asset side to match what you believe the duration of those deposits are. So, we're very thoughtful about it and we think about it all the time. We haven't made a lot of change into our operating. We’re operating within our risk framework, and we feel good about kind of what we're doing there.

I think one of the things to remember is that as you think about deposits, so - in our trillion plus of deposits, we have significantly more consumer personal deposits than anybody else does, which then if you think through the resolution planning and how those are treated now as stuff. Those deposits are extremely valuable. If you think of the consumers, it was 4 basis points last year and 4 basis points this year, you're going to continue to grow those, because unless the curve flattens out in a way that would be below 4 basis points plus the FDIC, you start to think of it, which - no one thinks it is going to do. It's still very valuable idea to generate more customers and generate more deposits. But if we continue to really push that with - it’s almost $900 billion in deposits in our GWIM consumer businesses, which are tremendously valuable in terms of what drives this franchisers profit. So there's no way we're turned down more customers with a good core deposits.

Yes, just a point I was getting at is, you're paying up a little bit on the deposit side in the Wealth Management business. You're paying up a little bit on the global banking side. And on the one hand you can afford to pay up to help out the customers and keep them assuming our products. But at the same time with a flatter yield curve, it just makes it less economical to do so other bank?

Yes, but I mean think about the all-in cost and it’s still much - it's still very advantage, because a $600 million a quarter for the $1.2 trillion in deposits in total just think about that a second, and if you think that there's a lot of advantage in any yield curve.

Question is obviously focused on the right thing, it’s focused on the economics. But remember, these are our customers, and we want to make sure that they have the right alternatives for them to make good decisions about where they want to keep a deposit, or whether they want some other alternative.

Okay. Thank you very much.

Thank you. We’ll go next to the line of Brian Kleinhanzl from KBW. Please go ahead.

Yes, good morning.

Good morning.

My first question was on the first mortgage production that you mentioned. You said that you’re putting most of that on the balance sheet. Could you just give kind of a description of the type of paper that it is? Is it just two-year conforming? I mean, was that due to the duration of the loan book for that consumer?

These are our customers who are originating mortgage either through purchase or refinancing. And we like the risk profile, we know them. We’re all focused on prime’s and. super prime. And we - so it's mostly non-conforming, but there is some conforming in there. We still are selling some to the agencies and obviously that would - that has duration to the asset side to the extent, that starts to gain a lot, but we’ll manage that and remember we’re adding deposits.

Also don't think that we don't manage that - we manage that rate risk through a whole bunch of things, including derivatives and stuff too. So it's not like we just sit there and throw the long assets on and leave them there.

Okay, thanks. And then you did call out the hiring of the sales staff about 2000 year-on-year, I mean, how do we measure the success of those hires? Is - how much of that is already in the run rate? I mean, was it an opportunity to take market share, or were you understaffed in certain areas? I mean, how should we think about the increase in sales staff?

We have a - how you should think about is that, you can't grow in a business, which is largely driven by face-to-face interaction for the Wealth Management business and the Commercial business in total and a large part of Consumer business. If you don't grow your sales force, you can't grow your production. If you don't grow your production, you can't grow your balances. And so all those balances were growing, loan balances and deposit balances and are all driven by having more sales capabilities. And so unless you assume your team isn't working hard, which is absolutely not the truth. The Bank of America team works very hard, you got to add more capacity and to serve the customers and we have tremendous opportunity. So whatever metric and you can stun yourself with the opportunity, the number of customers who have their banking accounts that are in our Wealth Management business and other banks, hundreds of billions of dollars of bank deposit balances, loan balances, the amount of middle market investment banking goes to competitors from our middle market clients is 70%, 80% of their activity, which we should be capturing a lot more of. So we added middle market investment bankers. So that capacity is acquirement. We look at all the markets, 90 markets in the U.S. We look at the relative market shares. We look at what we should be able to do. We look at how the team works together and we deploy those people in units and between six - five or six core business of operating markets to make sure building markets. So they can play off each other and then they work to get business together and refer business back and forth. So without that sales force build, you won't have growth in the future.

All right great. Thanks.

Thank you. We’ll go next to the line of Ken Usdin from Jefferies. Please go ahead.

Thanks. Good Morning.

Good morning.

Paul, I want to follow-up on consumer credit. There has been last day or so a lot of concern about card. Your card losses have been up a little bit, but very manageable. But I did notice you did, and you mentioned you built the card reserve to now 3.5%. I'm just wondering what kind of normalization are you expecting on the card losses to follow, to start, sorry?

Yes. So we've been growing our card book. We have a back book that is well seasoned. We have a front book that we're growing and that is seasoning like any other normal portfolio card and you're seeing, I think that across the industry. So we feel really very good about our card portfolio. We're focused on, again, prime and super prime. We're focused on our customers. We did see a modest pickup in NCOs year-over-year, but that was fully expected and planned for. So, nothing here from our perspective unusual.

All right. So just expected gradual seasoning and that you're not expecting any kind of vintage major shift in the recent growth?

If you think about the whole card business as we reshaped it over the last 10 years quite frankly has been a move to more and more relationship customers whose credit statistics are relatively consistent over time. And so, while we have a year-over-year increase in card charge-offs, linked quarter, it fell back down. And so you should expect this thing to see - bounce around in these rates. But it's because of the nature of the way we originate the cards as core relationship customers. And then our focus is not necessarily getting a lot more cards out there, it's really to get people to use their card as a primary card out of their wallet at Bank of America customer, the Bank of America card and using it and that's where we're driving the business. So, I don't think you expect - the strategy is responsible growth. So the balances grew $1 billion or $1.2 billion - a couple of billion here over the last year. But we know it's going to steady as you go and drive it, so you shouldn’t see major changes in terms of nominal dollars of charge-offs.

Understood. And then as a follow-up to that in terms of the new preferred rewards card, how will that work through? Will there be any type of amortization of rewards cost, et cetera that we should think about in terms of like the card fees line? How - or is that just also kind of already been as part of the spending you've been doing?

Yes. So let me just take a step back, because there’s a lot of people on the call and just review what we did. So we did launch it last month. It's a card that we launched, because we were listening to our customers and we wanted to design a card that rewarded them. We rewarded those who wanted to deepen their relationship with us even further. And importantly, we also wanted to give them the flexibility to use their rewards the way they wanted to use them. Similar to all our other cards, we are very careful to balance the customer value with the shareholder value rewards that are very clear and transparent. We've been up and from seeing this card that we're not waiving. So we've been very mindful of the profitability of the product, and we don't expect any significant impact at this point anyways. We'll see how it goes, but at this point any significant impact to card income from existing upfront.

Okay. Thanks a lot, Paul.

Thank you. We’ll go next to the line of Jim Mitchell with Buckingham Research.

Hey, good morning.

Hey, Jim.

Maybe a quick question on rate sensitivity, it looks like it didn't change despite absorbing another rate hike this past quarter. Is that sort of indication that you've gotten slightly more asset sensitivity, asset sensitive as the quarter went on, or how do we think about your flat rate sensitivity? A - Paul Donofrio I mean, if you look at rates at the end of last quarter and you look at rates where they are now, there really wasn't - hasn't been a lot of change. So that that's - it's the rate structure, both existing at the end of the quarter versus existing then plus what the forward path look like at both of those points that drives that asset sensitivity disclosure and they were kind of similar at both points.

Was there any change in the short versus long end sensitivity?

Not really, it's still around two-thirds short end.

Okay. And maybe just a broader question on consumer credit, I mean, I think that's a big issue. I heard your comment on cards. But maybe just taking - looking at the consumer as a whole, do you feel like there's any stress points out there that that gives you some pause? I think that's really what's going on in the industry, or at least in a lot of investors' minds worrying about, is this the start of a new upward cycle in consumer credit costs and how do you think about that?

Look, we - again, we’re focused on prime, super prime.

Yes.

We’re focused on our customers and we're just not seeing it in that group. I'm looking at a page here, it's got residential [ph] on it. And after you adjust for the OCC bankruptcy and the repossession, if you look at card, if you look at auto, if you look at consumer vehicle lending and you make an appropriate adjustment net charge-offs, they haven't really gone up linked quarter or versus Q1. So, we're just not seeing it yet in our net charge-offs.

Is there any reason….

That’s a multi-year discipline. This is not something that happened this quarter. This is - multi-years of changing the underwriting standards and sticking to it and not varying those standards as we move through time. So we changed the mortgage underwriting standards in 2007 and 2008. We changed the card standards about the same time, which, the auto standards have always been high. We’ve always made that a business that we took very little credit risk in. And so when you think about it, we just don't see it, but it's - a lot of it's just sticking to the netting over the years in and to the responsible growth strategy and the team finding the growth in the customers. And so the debates always been, can you grow? And the answer is, yes. But you've got to grow in a rational responsible basis, so and that's what's playing out in us this quarter relative to other people, I think.

Right. Okay, great. Thanks.

Thank you. We'll go next to the line of Gerard Cassidy with RBC.

Good morning, Gerard.

Hi, Brian, how are you?

Good.

You'd mentioned, Brian, on the call about going into different markets with de novo expansion of your retail branches. Can you give us some color on how long it takes to get to those branches to break-even? And then second, how long does it take to get them to a level of profitability that's similar to your legacy branches?

Well, I think the - it takes a while to build them up to the level of deposits obviously. But what we've seen so far and that's going to be one of the things you test every quarter is the - some of the branches we opened in Denver quickly moved into the top 10% of sales and stuff. Now, why is that different than the de novo branching? A, we have a nationwide brand. B, we have Wealth Management and Commercial businesses in all these markets. C, we have card customers and mortgage customers and its markets that were - that we've had for years. And so you’re - a lot of times you’re converting a deepening proposition as opposed to I'm opening a store and seeing what comes in. And the fourth is, we strategically locate them near where the rest of our teammates are and drive it. So they're getting up to speed faster. I won't give you the exact date that we target and things like that, because it’s proprietary. But you just assume that they're getting up to speed faster. And you should assume that we're smart enough that we're not going to build them if they don't work.

Very good. And then second, we're all familiar with the treasury white papers that have come out about where they think regulation as you go through the banks. When you guys review what has come out, what are the top one, two or three items that when you sit down with the new Vice Chairman of the Fed, Quarles, what are you going to talk to him about? And as part of that answer, can you share with us your thinking on where is your operational RWA? And is that a big issue for you to talk to the regulators about changing in the future?

Sure. So on the first point on the white papers and all the other stuff that you’ve been seeing, look, as an industry, I think, it goes without saying that we really have a vested interest in regional regulation that, but that also promotes safety and soundness. So we are very focused on that. I would say that, we are for regulatory refinement that promotes economic growth while protecting its financial stability. There has been a lot of discussion out there, a lot of white papers, a lot of great points that are being made in those papers. But we would be in favor sort of generally in the type of refinement that allows us more access and control over our capital and liquidity in support of responsible growth that we've been talking about all throughout this call, in support of the economy and the communities where we live and work, and for lending and for capital return. We've talked about the - how large our buffer is. We'd also like to see a little bit more efficient regulation driven by amortization across the regulatory bodies. So, we're going to work with whatever parties we can to see some of this get refined in a responsible way. On your second question was on RWA, oh, on operational risk capital, yes, one of our favorite subjects. Yes, look, we have a third of our advanced RWA is operational risk RWA, it is a floor that has been given to us by regulators. That 500 billion is 33% more than our next closest competitor has in operational risk RWA. That 500 billion is more RWA than just about all the European banks have in total RWA. So, we would like to make progress on that. The advanced approach is something we used to manage risk at the company, so it’s important to have an accurate amount of RWA as we think about how we are managing the company. Having said all that, I would point out that at least in the United States with the Collins amendment, we have to have an amount of RWA that is the higher of standardized and advanced and as we continue to make progress on optimizing how we deliver the customers and clients, we are optimizing our advanced RWA and it is getting closer and closer to standardize. So at some point standardize will likely become our binding constraint. That doesn't mean that the operational risk capital is not important, it is, but it - but to generalize, at some point it will become our binding constraint and make that a little bit move.

Very good, and then just finally, Paul, you mentioned I think on the call about the higher rep and warranty expense. Can you guys kind of frame for us what's left there? And obviously, I'm assuming we're towards the tail end, but do you guys know about what's left?

Look, we don’t really go through them line by line. I think you guys know all the big ones. I will happy to sort of list a couple of those if you want. What I would say is, if you look at our disclosures we still have 2 billion in reserves for reps and warranties and we have got another 2 billion leased as of the end of the second quarter in the RPL for reps and warranties. So we are going to work through things and we are going to see over time how all that plays out.

Very good. Brian, we will see you in Boston. Thank you.

Thank you. We will take our final question from the line of Saul Martinez from UBS. Please go ahead.

Hi, thanks for taking my question. I want to ask about a follow up on efficiency and cost performance beyond 2018 and where do you think your efficiency ratio can go to, so you’ve obviously, you have brought down you efficiency ratio to 60%. If you get to the 53 billion whenever that is 18 or whenever you there around 18, you drive down your efficiency ratio even further to [indiscernible], so you are pretty close to, sort of, your competitors despite the fact that your business mix is one that has more wealth management and which has a higher efficiency ratio, so how should we think about your ability, the opportunity set to continue to drive positive operating leverage over a multi-year period and get your efficiency ratio down even further to the mid-to-low 50% range and I know it’s a difficult question to answer, and it depends on a lot of things, but with technology and AI and cognitive computing and digitization and mobile banking, can we see efficiency ratios that maybe a few years ago we wouldn’t have even thought for a bank like Bank of America.

Well I think there are a number of things. Number one, you’ve got the general picture right, which is, we're getting it down to 53 that puts us in the level, we have a higher procession of wealth management, which has revenue related compensation that obviously is 27% pretax margin, you flip that around 83% efficiency ratio and it is a meaningful amount of dollars, but it is a great return on capital business and last thing you want to do is not grow it. So that creates a dynamic around, you know the aggregation of all these numbers and you look at the other ones in their 50-ish type of numbers across the board. So we're going to drive that. When you think about it in the future the way we talk about it is the 53 billion is the 18 target, we try to hold it flattish after that, you know sliding [ph] to apply technology all things you talked about, more digitization and the earlier callers - the earlier questioners talked about and using that to offset, you know the fact that medical care premiums go up 6%, 7%, something else goes up, the rents go up and things like that and pay for all that, and merit increases and bigger bonus pools because our teammates are doing a good job. So all that, you're fighting that and if you keep it flattish and then a question of what scenario you are playing into, your rates rise a little bit that [indiscernible] and that is what we told you guys before and that’s what we will tell you in the future. There is no additional cost to that. If it comes through wealth management fee generation, it’s going to have more expense attached to it. So it is a little bit of what’s your scenario you're playing into. We don't target - the efficiency ratio is a result of all the hard work that goes in to keep expenses flat, down to 53 billion and flattish after that. That will then produce an efficiency ratio based little bit on the revenue scenario, which could be on the economics and what’s going on out there, but you should, rest assured, after $20 billion expenses in the last five years taking out of the company that there is no team that is more focused on this than the team that works for me.

Okay great. That's very helpful. Thanks a lot.

We would like to go over to Mr. Moynihan for closing remarks.

Thank you, Operator. Let me just wrap up quickly. Thank you all for being on the call today and thank you and look forward to talking to you next quarter. As you think about Bank of America for the quarter three of 2017 it’s pretty straightforward, responsible growth. It is evidence across the company in all different fashions, whether it is [indiscernible]. We got to grow no excuses, you saw that in balances and revenue, you got to do with the right customer focus, got to do with the right risk, and we got to do it and be sustainable. When we say sustainable that means we got to do it and keep investing in the future and you saw us do that also. When we do that right we can take more capital and deliver back to you through dividends and share buybacks and as we told you earlier we nearly double that year-over-year. So, thank you and we look forward to talking to you next quarter.

I’d like to thank everybody for their participation. Please feel free to disconnect at any time.