Bank of America (BAC.US) Q3 earnings call: CEO responds to $1.2 billion fine controversy, CFO backs next year's net interest income growth.

Bank of America Corp (BAC.US) reported third-quarter 2026 results before the U.S. market opened on Wednesday. The earnings report showed that Bank of America Corp's Q3 revenue was $30 billion, missing the market expectation of $30.7 billion; net income was $6.9 billion, compared with $8.3 billion a year earlier, down 17% year over year. The decline in net income was mainly due to approximately $1.2 billion (about $0.17 per share) in regulatory settlement expenses recorded in the third quarter. Excluding the $1.2 billion regulatory settlement expense, adjusted net income was $8.1 billion; adjusted earnings per share were $1.08, below the market expectation of $1.11. Net interest income was $16.4 billion, up 8% year over year; provision for credit losses was $1.3 billion, essentially flat compared with the same period a year earlier. By business segment, Global Wealth & Investment Management revenue was $7.1 billion, up 13% year over year; Consumer Banking revenue was $11.6 billion, up 4% year over year; Global Banking revenue was $6.2 billion, essentially flat; Global Markets revenue was $5.9 billion, down 6% year over year. Management noted on the earnings call that the company's diversified business model continues to demonstrate its advantages. Growth in net interest income, expansion in lending, and improvement in wealth management were the main highlights of the quarter's results. Overall, Bank of America Corp remains optimistic about the resilience of the U.S. economy, loan demand, and growth in its core businesses, but volatility in market trading revenue, expense growth, and changes in capital levels remain factors to watch. Management believes that continued consumer spending, businesses continuing to borrow and invest, and continued inflows of wealth management client funds will continue to provide growth momentum for the company; at the same time, the company will drive continued improvement in profitability and long-term shareholder returns by deepening client relationships, expanding digital and artificial intelligence applications, improving operating efficiency, and maintaining strict credit discipline. The following are the specific contents of Bank of America Corp's Q3 earnings call. I. Management Remarks Brian Moynihan -- Chairman and Chief Executive Officer Good morning, everyone, and thank you for joining us today. Our third-quarter results demonstrate that the importance of a diversified business model cannot be overlooked. The businesses closest to our customers, including wealth management clients, commercial clients, and mass-market-facing businesses, continued to perform strongly. Loan and deposit growth, strong wealth management fund inflows, rising net interest income (NII), and improved credit performance together drove solid earnings; at the same time, sales and trading revenue and investment banking revenue declined. We reported after-tax net income of $6.9 billion, or $0.91 per share. On Page 2, we adjusted these results to exclude a $1.2 billion regulatory settlement expense. This expense is not tax deductible and had a $0.17 impact on earnings per share. There are three points to make about this settlement. First, we fully recognize the seriousness of compliance work and our responsibility to ensure it is carried out properly. Second, we have already invested billions of dollars in technology and assigned thousands of employees to fight financial crime. Our teams have made substantial progress in completing the remediation work required by regulators and will continue to drive it forward resolutely. Third, we have already devoted the necessary resources to this, and the costs of ongoing remediation have been incorporated into the company's regular expense base. Excluding this regulatory settlement expense, our net income was $8.1 billion, or about $1.08 per share, higher than a year earlier. Our leading positions across businesses, products, and regional markets enable us to meet more customer needs, deepen client relationships, and drive growth across the company. The connections among our business segments are very close and continue to constitute our competitive advantage. Now, when we look at performance, the first thing to focus on is our customers' financial condition and activity, which brings us to Page 3. We believe that for Bank of America Corp, the clearest economic signal comes from the daily activity of the 70 million customers and thousands of businesses that have banking relationships with us. The message from this activity has been consistent: consumers continue to spend. Year to date in 2026, money flows are up 5% compared with the same period in 2025, which can be seen on Page 3. This increase is similar to the performance in the third quarter and also similar to what we have observed month to date in October. Our corporate clients have made selective investments and hires, which has supported solid employment and wage growth across income levels in our customer base. Wealth management clients remain actively engaged in the markets and continue to seek professional advice; commercial clients are making greater use of our lending, treasury management, and payments services. Payment volumes, digital channel activity, loan demand, and wealth management fund inflows all remain healthy. As always, we have presented relevant data on digital channel activity in the appendix to our presentation materials. Economic uncertainty and GEO Group Inc political instability always exist, but customers' actual behavior still indicates that the U.S. economy is resilient and continuing to grow. This activity has driven organic growth across the company's businesses, accompanied by excellent credit quality. Page 4 shows the relevant situation. Page 4 shows organic growth in the quarter. In the third quarter, we again achieved growth by attracting new customers and deepening relationships with existing customers. In the quarter, we added a net 200,000 core retail checking accounts. We now have 39 million checking account customers. Our quarterly business metrics have continued to improve and grow for nearly eight consecutive years. This has created a rather powerful growth flywheel. We opened more than 1 million new credit card accounts. More importantly, credit card balances grew by nearly 5%, consistent with the medium-term target we disclosed at Investor Day. Our continued investment in credit card products is paying off. In the quarter, our wealth management clients brought in approximately $41 billion in fund inflows. In Global Wealth Management and Consumer Investments, we continued to expand affluent and high-net-worth client relationships. Across these businesses, clients have entrusted us with a combined total of more than $5.7 trillion in household assets under management. Commercial loans grew across all segments, from small business, commercial banking, and global commercial banking to global corporate and investment banking. This covers clients ranging from small businesses to the world's largest companies. Our treasury management services, that is, cash management client relationships, also expanded. This not only signals a good outlook for the loan growth we will discuss later, but also reflects the strong momentum of the economy, because these commercial clients are still actively doing business. The growth shown on this page reflects our investments in employees, technology, digital capabilities, and our physical branch network. These deep client relationships support earnings, the balance sheet, and long-term shareholder value. That is the overall picture. Next, I will hand it over to Alastair to provide further detail on the quarter's results. Alastair Borthwick -- Executive Vice President and Chief Financial Officer Thank you, Brian. I will start with a few other income statement highlights on Page 5. As Brian said, our core banking businesses continued to build momentum. Consumer Banking, Wealth Management, and the commercial businesses within Global Banking drove most of the revenue and earnings growth; by contrast, Global Markets and Investment Banking revenue declined compared with prior periods. Equities delivered a record third-quarter revenue. However, reduced client activity and changes in the market environment, including significant moves in interest rates, had a notable impact on our strong franchises in fixed income, currencies, and commodities (FICC), including credit, mortgage, and municipal bonds. Revenue declines in these businesses more than offset growth in other areas of trading. Third-quarter revenue was approximately $30 billion, up about 3% year over year. Net interest income rose 8% and asset management fees rose 17%, and these increases more than offset the impact of declines in investment banking and sales and trading revenue. On a fully taxable equivalent (FTE) basis, net interest income reached $16.6 billion, up 8% year over year and up $450 million from the second quarter. The net interest yield rose to 2.16%, up 15 basis points year over year and up 8 basis points quarter over quarter, bringing us further toward the 2.3% medium-term target set at Investor Day. Credit quality improved, capital and liquidity remained strong, and earnings remained solid. Please turn to Page 6 for the balance sheet. As you can see, our balance sheet remains solid and has become more efficient, which is also reflected in the improvement in net interest yield. Total assets were $3.4 trillion, down 2% from the second quarter. Period-end deposits increased by $14 billion from the second quarter and remained above $2 trillion. Period-end loans increased by $34 billion to $1.25 trillion. We funded this growth by reducing securities balances; at the same time, lower market-related assets and higher deposits allowed us to reduce short-term wholesale funding, further improving net interest yield. Loans have grown for 10 consecutive quarters, reflecting continued active business activity among commercial and consumer clients. Global liquidity sources remained ample at $914 billion; capital levels were also well above regulatory minimums. The Common Equity Tier 1 (CET1) ratio was 10.9%, down about 35 basis points from the second quarter, mainly reflecting increases in on-balance-sheet and off-balance-sheet loans, as well as a $3 billion decrease in CET1 capital. Due to the impact of the regulatory settlement expense, capital distributions exceeded net income. In addition, within the change in accumulated other comprehensive income (AOCI) on available-for-sale (AFS) securities, $1.8 billion was affected by rising interest rates and also affected CET1. Our hedging strategy continues to limit the impact of rising long-term rates on AOCI for most of the available-for-sale securities portfolio. Slightly less than half of the decline in AOCI in the third quarter was related to cash flow hedges and did not affect CET1. Despite the AOCI hit, the tangible common equity ratio (TCE ratio) remained flat compared with the second quarter. In the quarter, we returned $8.3 billion to shareholders through dividends and share repurchases. The combination of a solid balance sheet and capital generation capacity will continue to support customers and shareholders. Please turn to Page 7 for deposits. Deposits currently stand at $2 trillion, up $31 billion from the third quarter of 2025, even though we intentionally reduced $11 billion of high-cost deposits recorded in the "All Other" category. Global Banking deposits grew 6%; consumer deposits increased slightly, with low-cost noninterest-bearing and interest-bearing balances combined growing by nearly 3%. Deposits in Global Wealth & Investment Management (GWIM) remained stable, with reasonable pricing. Our deposit mix remains attractive, with noninterest-bearing deposits accounting for more than 75% of the year-over-year deposit increase. We also continued to maintain discipline in deposit pricing, with the overall deposit rate rising only 3 basis points to 1.49%. Our focus on operating deposits, together with a low loan-to-deposit ratio, allows us to compete on service capabilities rather than price. Customers value the safety and convenience we provide, and a substantial portion of balances remains in relationship-based operating accounts and other low-cost funding sources. The deposit business remains an important competitive advantage for us and continues to fund our customers' healthy business activity. Please turn to Page 8 to review the lending trends Brian mentioned earlier. This page shows that average loan balances grew about 6% year over year, with broad-based growth in commercial loans. Wealth management-related loans also remained strong, and credit card balance growth continued to improve. Commercial loans grew 8% year over year, with growth across all business lines: small business loans up 2%, commercial banking loans up 9%, global commercial loans up 6%, global corporate loans up 10%, and custom lending in Global Wealth & Investment Management up 22%. Within this performance, international commercial loans in Global Banking grew 15%. In addition, among middle-market clients across commercial banking segments, we observed broad-based growth involving key industries such as real estate, sports, technology, healthcare, and biopharma. On the consumer side, credit card balances grew by nearly 5%. Higher consumer real estate loan balances and growth in small business loans were offset by lower auto loan balances. Securities-based lending and wealth management loans grew 21%. Importantly, this growth remained consistent with our underwriting standards and credit discipline. At the same time, it supported another strong quarter of net interest income, as shown on Page 9. As I mentioned earlier, net interest income reached $16.6 billion, and net interest yield rose significantly both from the second quarter and from a year earlier. Fixed-rate asset repricing and Global Markets activity remained drivers of growth. Commercial loans, credit card balances, and deposits are increasingly becoming the main DRIVE of growth. Looking ahead, we expect fourth-quarter net interest income to improve quarter over quarter and to continue growing in 2027. This expectation is based on moderate loan and deposit growth and continued repricing of fixed-rate assets. In addition, our outlook assumes three 25-basis-point rate increases by June 2027, occurring in December 2026 and in March and June 2027. At last year's Investor Day, we said we expected medium-term net interest income growth of 5% to 7%. During 2026, we first raised that guidance to 7% and then recently to 8%. We still expect to achieve the revised full-year net interest income growth target of about 8%. For 2027, we currently expect full-year net interest income to grow at least 8% over 2026, again above the original 5% to 7% range. The banking book remains relatively sensitive to asset-side rate changes. On a dynamic deposit basis, a 100-basis-point parallel upward shift in rates relative to the forward curve is expected to increase net interest income by $1.4 billion over the next 12 months, slightly more sensitive than in the second quarter. Please turn to Page 10 for expenses. We reported expenses of $19.7 billion, including the $1.2 billion regulatory settlement expense. Excluding this expense, adjusted expenses were slightly above $18.5 billion, down nearly $100 million from the second quarter and up slightly less than 7% year over year. The year-over-year increase in expenses reflected higher revenue-related costs in asset management and equities, including incentive compensation, as well as increases in brokerage clearing and exchange fees in wealth management and equities. We also invested in technology modernization, artificial intelligence (AI), customer acquisition, marketing, and franchise growth. At the same time, productivity continued to improve, as can be seen in the change in headcount. Although we continued to expand sales teams, total headcount decreased by nearly 3,500 from a year earlier as departments across the company advanced process automation and simplified work. This means that when backfilling roles left by attrition, we no longer need to hire as many people. We remain focused on investing in areas with the best long-term returns while continuing to improve productivity across the organization. We expect to return to positive operating leverage in the fourth quarter. Turning from expenses to credit quality on Pages 11 and 12. As you can see, credit quality remained stable and improved slightly again this quarter. Provision for credit losses was about $1.3 billion, lower than in the second quarter; the net charge-off rate improved to 44 basis points. Consumer credit performance was in line with expectations. The credit card loss rate was 3.22%, an improvement from the second quarter; at the same time, credit card delinquency rates declined year over year for the sixth consecutive quarter. The share of commercial loans classified as criticized assets fell to its lowest level since the fourth quarter of 2019, and nonperforming loans also decreased from the second quarter. Taken together, these trends continue to indicate that our consumer and commercial customer base is healthy and credit quality remains good. Against this credit backdrop, we will now walk through each business, starting with Consumer Banking on Page 13. Consumer Banking once again delivered a solid quarter, combining organic customer growth, disciplined execution, and continued investment in the franchise. Revenue grew about 4% to $11.6 billion; net income rose about 2% to $3.5 billion. Year-to-date performance remained strong, with revenue up 5% and net income up 10%. Because we began increasing marketing investment in the fourth quarter of 2025 to support new sponsorship partnerships and the relaunch of the BofA Rewards program, the year-over-year expense comparison base was higher. Over the past four quarters, our spending levels have remained stable. In the quarter, we opened 14 new financial centers and plan to open about 20 or more additional locations by year-end. Since its relaunch in May, BofA Rewards has attracted nearly 6 million customers, further deepening customer engagement across banking, credit cards, and investing. Thanks to these investments, we have seen continued increases in new account openings, growth in noninterest-bearing deposits, continued increases in new credit card issuance and credit card balances, and higher digital engagement and customer satisfaction. The business's efficiency ratio was 50%, and return on allocated capital was 31%. In Consumer Banking, our deposit franchise remains a key advantage. Average deposits were about $949 billion, marking the sixth consecutive quarter of year-over-year growth. Noninterest-bearing deposits grew more than 4%, 59% of deposit balances remained in checking accounts, and 92% of relationships were primary banking relationships. Consumer investment assets reached $664 billion, up 14% year over year, driven by market appreciation and about $18 billion of net inflows over the past year. Digital adoption reached another record high, with more than 50 million active users. 80% of consumer households actively used digital channels, and 71% of sales were completed through digital channels. Erica, Zelle, and AI-powered tools are helping customers and employees complete more activities faster and more consistently. The combination of relationship growth, higher digital engagement, and disciplined execution continues to strengthen Consumer Banking. Please turn to Page 14 for Wealth Management. This business continued to improve profitability through strong client fund inflows, positive operating leverage, and higher margins. Revenue grew about 13% to $7.1 billion; net income rose 22% to more than $1.5 billion. The pre-tax margin was nearly 29%, and return on allocated capital reached about 28%. As client activity and market levels rose, asset management fees and net interest income increased, and operating leverage turned significantly positive. Client asset balances exceeded $5 trillion for the first time, up 9% year over year; assets under management (AUM) grew 12% to about $2.4 trillion. Net new client fund inflows in the quarter were about $38 billion, of which about $20 billion flowed into AUM, bringing total AUM inflows over the past four quarters to about $74 billion. Growth was broad-based across businesses. Merrill added about 4,200 households with at least $500,000 in assets, up 17%; the Private Bank added 470 relationships with at least $3 million in AUM. These results reflect strong client demand for professional advice and our ability to attract clients and experienced advisors to the platform. Banking relationships also deepened further, with 67% of Merrill clients now also having a banking relationship with us. Period-end loans grew about 12% to more than $280 billion, driven primarily by securities-based lending, custom lending, and mortgages. As clients make greater use of our investment and banking capabilities, Private Bank loans have grown for 12 consecutive quarters. Advisor productivity, disciplined pricing, digital engagement, and AI tools continue to expand our ability to deliver personalized advice at scale. This continued organic growth also leads into Global Banking on Page 15. Global Banking benefited from strong loan and deposit growth and increased treasury management activity, which helped offset softer investment banking performance. Year to date, Commercial Banking added more than 300 new corporate clients. In September, we launched a generative AI (GenAI) tool designed to further improve efficiency in prospecting and client onboarding. Revenue was $6.2 billion, essentially flat year over year; net income was slightly below $2 billion, down slightly year over year. However, a strong pipeline and broader year-to-date performance help provide a fuller picture of this quarter's investment banking results. Year to date, Global Banking revenue rose 5% year over year, net income rose 7%, and companywide investment banking fees rose 16%. Return on allocated capital was 15%, and balance sheet growth reflected continued strong client momentum. Average deposits rose 6% year over year to $669 billion; average loans rose 8% to $419 billion; period-end loans were $428 billion. Loans to commercial and corporate clients grew broadly. Treasury management services revenue rose 10%. We help clients manage liquidity, payments, and working capital while creating more lending, investment banking, and Global Markets opportunities. Excluding self-led deals, companywide investment banking fees were about $1.8 billion. These fees were below last year's strong level due to lower advisory fees and debt underwriting fees. Looking ahead, our pipeline remains healthy. We continue to invest in bankers, technology, and AI tools to improve research, preparation, and opportunity identification. Broad client connectivity also supports Global Markets. Please turn to Page 16. As you can see, despite slower trading activity this year and a tougher comparison base in FICC credit, we still delivered solid results. Excluding debt valuation adjustments (DVA), revenue was $5.8 billion and net income was $1.2 billion, both below the third quarter of 2025. Even so, year-to-date results still set a company record, with revenue up 11% and net income up 14%. Excluding DVA, sales and trading revenue was $5.1 billion, down 5% year over year. Equities delivered record third-quarter revenue, and international revenue also set a third-quarter record. Equities revenue rose 10% to $2.5 billion, driven primarily by prime brokerage financing and strong client activity. This performance reflects our long-standing investments in talent, technology, and financing capabilities. FICC revenue was $2.5 billion, down 17%. Foreign exchange and commodities benefited from increased client activity, driving a 4% increase in macro trading revenue. However, after a strong performance a year earlier, lower activity in mortgage, municipal bonds, and credit offset those gains. Given lower revenue, higher expenses may seem unusual, but this reflects increased trading costs associated with equities growth, especially in prime brokerage financing and related costs in Asian markets. It also reflects our ongoing strategy of long-term investment and expansion. Average loans grew 5%, indicating stronger financing client relationships and further strengthening of the connectivity among Global Markets, Global Banking, and Wealth Management. After reviewing the business segments, we will finish with "All Other" on Page 17 and make some closing points. "All Other" reported a loss of $1.4 billion, which clearly includes the $1.2 billion regulatory settlement expense, which is not tax deductible. Excluding the regulatory settlement expense, "All Other" had a loss of $153 million, compared with a loss of $103 million a year earlier. The overall effective tax rate was 23%. Excluding the regulatory settlement expense, the adjusted effective tax rate was close to 20%. Finally, I would like to summarize a few key points for the quarter. Consumers continued to spend, supporting the resilience of the U.S. economy; wealth management clients entrusted assets to us and relied on us for professional advice. Corporate clients continued to spend, borrow, invest, and expand. Institutional clients remained active globally, although the pace of activity slowed. These trends were reflected across the company's businesses and drove another solid quarter. The confidence reflected in our pipeline and client conversations is consistent with our view of the economy, although clients continue to closely monitor GEO Group Inc political uncertainty. Our balance sheet and capital position remain strong. We continue to invest in technology and develop AI capabilities to support long-term growth. This quarter's results demonstrate the strength of our franchise and the value of our diversified business model. Thank you for joining us. We will now end the prepared remarks and begin taking your questions. II. Q&A Session 1. Christopher McGratty, Analyst at Keefe, Bruyette & Woods (KBW) Brian or Alastair, on the capital outlook, you mentioned that the balance sheet will grow modestly. I would like you to elaborate further on how you weigh the CET1 ratio and the TCE ratio between balance sheet growth and capital return? Alastair Borthwick Sure. First, I would say that if you look at the year to date, we have clearly been using the capital we generate to support all the customer business growth we have achieved. From where we stand now, we have considerable flexibility in capital management. Keep in mind that our current CET1 ratio is 10.9%, while the regulatory minimum is 10%. At the same time, we continue to generate substantial capital. Take this quarter as an example, Chris. We supported $34 billion of loan growth while also absorbing a regulatory fine. Rates rose 85 basis points, we raised the dividend, and we repurchased $6 billion of stock. So, with the earnings we generate, we have a great deal of flexibility in balancing these demands, consistent with how we have operated this year and over the long term. Our first priority is always to support customers and their business growth. We know we must meet regulatory capital minimums and pay dividends. The remaining capital is then returned to shareholders. So our strategy is unchanged. Christopher McGratty Okay, great. On operating leverage, you mentioned that improvement will resume in the fourth quarter. I heard that. But can we discuss 2027 a bit more? You provided quite valuable updates on net interest income. I recall the guidance at Investor Day was 200 to 300 basis points. Has your view changed for next year? Alastair Borthwick No change. Obviously, we performed very well in the first half, and performance slowed somewhat in the third quarter. We expect to generate operating leverage again in the fourth quarter. I think as we move through the fourth quarter, Chris, we may provide guidance for next year. But based on our current judgment, this target will not deviate from the 200 to 300 basis point range, and could even be higher. However, we will make that judgment as we get closer. 2. David Chiaverini, Analyst at Jefferies Financial Group Inc. I want to talk about your guidance for net interest income growth of more than 8% in 2027. I am curious, what are the factors driving this improvement? Is the growth entirely rate-driven, or are there other factors? Alastair Borthwick It is not entirely rate-driven. Rates are clearly only one relatively small factor. David, the drivers of growth are basically the same as this year. This year, we saw deposit growth return to more normal levels, especially noninterest-bearing deposits. If you look at noninterest-bearing deposits in Consumer Banking or Global Banking, they have returned to more normal growth levels. We have always believed that in a normal economic environment, deposit growth should be around 4% to 5%. Based on the past year, noninterest-bearing deposit growth has already moved back toward that normal level. That is the first factor. Second, the rotation in deposit pricing is slowing. For example, deposit pricing in Consumer Banking has stabilized, and those deposit balances have grown for six consecutive quarters. A similar situation has occurred in Wealth Management. Loan growth has averaged about $20 billion per quarter for a long time. At present, we do not see signs of loan growth slowing. In addition, as we mentioned earlier, we also benefit from fixed-rate asset repricing, especially in auto loans and residential mortgage portfolios, as well as mortgage-backed securities and cash flow swaps. If anything changed in the most recent quarter, it is that both floating-rate asset yields and fixed-rate asset yields rose. So looking ahead to 2027, will rates be favorable to us? The answer is yes. But what really helps us grow is the underlying business growth in deposits and loans. In addition, we also need to recognize that if rates rise in 2027, we expect that the liability-sensitive Global Markets business could be affected, and its net interest income could very well decline. But remember, we continue to add loans in Global Markets and continue to invest. These factors can offset the negative impact to some extent. Growth in the banking businesses will be enough to offset some of the pressure in Global Markets. That is the core point. In 2027, our core banking book will be stronger than in 2026. Brian Moynihan Yes, more precisely, our 8% growth guidance already takes into account the drag from Global Markets, because that business has not grown over the past few quarters and has been relatively flat overall. So this 8% is a consolidated number covering all businesses, meaning we need to overcome the drag from Global Markets to achieve that growth. I want to make that clear. David Chiaverini Great. Regarding the regulatory consent order, will it impose any restrictions on the business in the future? Will it hinder normal business operations in any way? Alastair Borthwick No. There is no asset cap here, so there is no restriction of that kind. As for other effects, it will not crowd out resources from our other businesses either, because we have already invested the necessary technology and staffed what we believe are the people needed to complete the work. These investments are already included in our regular operating costs. We have made the necessary decisions and added what we believe are the necessary resources. So this should not affect our customers in any way. 3. Manan Gosalia, Analyst at Morgan Stanley On the consumer business, you noted that consumers continue to spend and are generally healthy. But can you elaborate on what you are seeing? With short-term rates higher and gasoline prices at elevated levels and potentially staying there longer, are you seeing signs of pressure on consumers? In terms of business positioning, are you adjusting your focus at the margin, deciding where to increase or reduce efforts? Brian Moynihan I think your question needs to be looked at in two parts. First is credit quality. Our underwriting standards are consistent with roughly 5% growth in the credit card business. The credit card business still uses the same underwriting standards, and you can see from the data that credit performance is very strong. The change in the credit card charge-off rate is about 3%. Overall, we are very pleased with that. Other consumer loan quality metrics also remain strong and have improved. So as far as consumer credit quality is concerned, we see no pressure at all. Second, look at the balances in customer accounts, and those balances are growing. Looking at wages paid by employers to consumers and direct deposits, wage income is growing across low-income, middle-income, and high-income customer groups, and wage growth among lower-income groups has accelerated. These are encouraging signs. Looking at actual consumer activity, as we said in the presentation materials, consumer spending this year is up 5% from last year. Yes, gasoline spending is up more than 20%. But if you look only at credit and debit card spending, that spending crowds out discretionary spending in other areas. You can also see from some online data that gasoline sales and in-store spending at convenience stores are still growing, just not as fast as before. So gasoline spending is indeed creating some crowding-out effect. But frankly, conditions vary widely among different types of consumers. Apart from gasoline, other consumer spending remains very strong, with overall growth of 5%, and other categories such as entertainment are also performing well. Manan Gosalia Understood. Next, can you elaborate further on your expectations for positive operating leverage next year? What are the key drivers? Obviously, more net interest income growth will flow directly to the bottom line, which is a positive. But can you talk about what else you can do on expenses? Also, I want to confirm that the 200 to 300 basis points you mentioned is based on 2026 adjusted expenses, excluding the regulatory settlement expense, correct? Alastair Borthwick I think that is indeed the most appropriate way to understand it, because we would not consider this expense to be recurring. We view it as a one-time expense rather than a core operating expense, so it should be adjusted. But yes, we still believe that 200 to 300 basis points is generally a reasonable target range. We set that medium-term target at Investor Day. As we move into the fourth quarter, we will provide further detail on 2027 guidance. You have already identified the first key factor, which is net interest income growth. A substantial portion of that flows directly to the bottom line, which is very important and a powerful driver of our company's earnings growth. Second, we still have excellent growth opportunities in fee-based businesses, because we have continued to invest in them. Whether in Wealth Management, Global Banking, or Global Markets, we believe the opportunities to drive fee revenue growth are considerable. As for expense management, we have maintained a fairly good record in headcount management this year. If you look at a company's main expense components, personnel costs typically account for 60% to 70%. This year, we have maintained strict discipline in headcount management and have done quite well. Next year, we will continue to maintain that discipline to achieve the operating leverage improvement we discussed. Finally, I want to emphasize that we have a very important advantage: the company operates consumer banking, wealth management, small business, middle-market, large corporate, and investor-related businesses at the same time. There are close connections among these businesses, and customers and opportunities can flow across departments. This is also a point we emphasized at Investor Day and many times since, and it is an additional source of growth we continue to explore. 4. Ben Gerlinger, Analyst at Citi I want to confirm again: you expect strong full-year net interest income this year and continued strong growth next year. At the same time, you also said noninterest-bearing deposit growth is healthy. So, are you assuming that even with three more rate hikes included in the forward expectations, noninterest-bearing deposits will still grow healthily? If so, can you further explain what deposit beta assumptions you are using in your net interest income forecast for next year? Alastair Borthwick First, on noninterest-bearing deposits, we generally assume deposits will grow at a low single-digit rate. We expect noninterest-bearing deposits to continue growing as they have over the past year. Remember, whether or not rates rise 25 basis points, noninterest-bearing deposits are to some extent more influenced by inflation and GDP growth. So over the long term, we should be able to see continued growth in noninterest-bearing deposits. Previously, when rates rose from 25 basis points to 4.5%, there was a great deal of adjustment in deposit pricing and customer fund allocation. We have now been in the current environment for three to four years, and consumers and affluent clients have had ample time to gradually adapt to it. So yes, we expect deposits to continue growing. On deposit beta, obviously, we went through rates falling from 4.5% to 3.75% and then to 3.50%. Now we are reversing the previous path of rate changes. I expect that behavior when rates rise will be broadly similar to when rates fell previously. The areas to watch remain the same: in Consumer Banking, the key is CD pricing; in Wealth Management, we typically adjust client deposit rates up or down as rates rise or fall; the same is true in Global Banking. When the Federal Reserve raises rates, we typically pass through the rate change to customers. So whether rates rise or fall, our basic judgment does not change. Our view on deposit beta is unchanged. 5. John McDonald, Analyst at Truist Securities Brian, I hope you can talk about the related orders issued by the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN). How did these matters get to this point? Was it because you misunderstood regulators' requirements, or because you disagreed on how to address the issues raised by regulators within internal processes? I would like to understand the background of what happened and what lessons you have learned, or what we should take away from it. Brian Moynihan Frankly, at the end of the day, we have agreed to call this a settlement and move forward. So that is what we are doing. We understand what regulators require us to complete, and we are now deeply engaged in remediation. For example, in this quarter alone, we spent more than several hundred million dollars on remediation for this work. This is a sizable effort involving thousands of employees. So we are very clear about what needs to be done, we are implementing those requirements, and we will ultimately complete the work. Management's current focus is to resolve this issue thoroughly. Beyond that, there is not much more to discuss regarding our internal processes and capabilities. However, we have been actively advancing the work, as we have over the past several months and quarters. This settlement resolves the fine associated with the 2024 injunction and cease-and-desist order. The part that took longer previously was negotiating around these matters. However, the remediation work had already begun quickly at that time. We are gradually improving the relevant processes and will continue to push forward. As the work progresses, our efficiency will also improve further, ultimately improving the company's operations. John McDonald Okay. Alastair, your explanation earlier about this quarter's capital management actions was helpful. I want to confirm further that looking ahead, what metrics will you use to manage capital? You may need to balance multiple metrics. Specifically, will you set a CET1 ratio target of around 11%, while also considering maintaining the TCE ratio at around 6%? Alastair Borthwick First, we will wait for the final regulatory rules to be issued. We expect the relevant rules to be published in the fourth quarter. These rules will help us clarify the specific calculation methods and how each metric should be calculated. I think this will also help clarify transition arrangements, John. So we need to wait until we see the final rules later this quarter before incorporating these factors. As for why we focus on both CET1 and tangible common equity, it is because we need to serve different stakeholders and manage all aspects. So closely monitoring these different metrics is important. When making decisions, we need to constantly weigh capital, liquidity, and earnings. But I still want to return to one point: currently, we have great flexibility on capital. You have seen what we were able to do in the third quarter. We continue to generate substantial capital, which provides significant flexibility for the future. Our priorities are unchanged. 6. Jim Mitchell, Analyst at Seaport Global Securities Alastair, first, thank you for the explanation on 2027 net interest income. I want to confirm that you seem to be saying that net interest income related to Global Markets could be lower than the 2026 level. Does that mean that