Bank of America Corporation (BAC) Earnings Call Transcript & Summary

Hello, and welcome, everyone, joining today's Bank of America earnings announcement. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Lee McEntire, Bank of America. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us to talk through our second quarter results and what is a busy bank earnings day. As always, the earnings release and presentation are posted on the Investor Relations section of bankofamerica.com, and we'll reference those materials during the call. Before we begin, a quick reminder that during the call, we may make forward-looking statements and refer to non-GAAP financial measures. These measures reflect management's current views and are subject to risks and uncertainties, which are outlined along with the relevant GAAP reconciliations in our earnings materials and our SEC filings on our website. With that, I'll turn the call over to Brian Moynihan, our CEO.

Good morning, and thank you for joining us. Once again, our team delivered strong second quarter results, extending our momentum of the past several quarters. Our revenue grew 15% year-over-year to $31.6 billion. Our net income was $9.1 billion, up 27% from last year. Our EPS increased 34% to $1.21 a share. Our results show organic growth, operating leverage and efficiency ratio improvement in every business segment. Along the bottom of Slide 2, you can see the progress against several of our key financial metrics for the firm. For the quarter, we delivered 6.6% operating leverage and our efficiency ratio improved to 59%. We generated return on tangible common equity of 17%. In short, organic growth was broad-based and coupled with operating leverage, which translated into stronger returns on both equity and assets. Slide 3 shows the contributions and growth of each business segment. Every business segment contributed to our year-over-year growth. Average deposits and loan balances continue to grow, supported by healthy client engagement. Revenue and net income increased in every business segment. Each segment generated operating leverage. Each segment improved its efficiency ratio and each segment demonstrated the benefits of its scale. Together, those results drive stronger returns across the company. Let me touch on a few earnings highlights from Slide 4, starting with revenue. Revenue growth was broad-based, led by NII, investment banking, wealth management fees and sales and trading revenue. First, net interest income. It continued to perform well. On an FTE basis, NII was approximately $16.2 billion, up 9% over last year's second quarter. This is driven by the strength of our core lending and deposit gathering franchises. It also includes our lending in our Global Markets business and the impact thereof. We also have added the benefit of ongoing repricing of lower-yielding assets and a repayment of higher cost funding. Second, our fee-based businesses delivered exceptional results, translating into 22% noninterest income growth. Wealth management, investment banking and markets all benefit from healthy client activity and favorable capital markets conditions. Maryland, a private bank advisers drove the 18% growth in investment in brokerage fees. Investment banking fees increased 50% year-over-year to more than $2.1 billion, while Sales & Trading generated $7.2 billion in revenue, up 33%. Third, we manage cost while we continue to invest in the franchise, our brand, our people, our technology and our AI-enabled productivity. Asset quality also remained stable and consistent with the strong underwriting discipline has characterized our company for many years. Finally, capital generation and capital returns to investors remain strong. We've returned $8 billion to you through dividends and share repurchases this quarter. We ended the quarter with common equity Tier 1 capital of nearly $202 billion and a common equity Tier 1 ratio of 11.2%. The economic backdrop remains very constructive as Slide 5 illustrates. Last week, our research team raised its 2026 U.S. GDP growth forecast to 2.2%. They also have global growth expected to remain steady at 3.2% in '26 and grow to 3.5% in '27. As noted on the slide, consumer spending has recently expanded and continued to outperform our expectations. While the slide reflects 5% growth in year-over-year spending for the first half, the spending picked up during the second quarter, and now -- during the second quarter and now is running at 6% plus year-over-year comparison. So overall, the U.S. economy has proved more durable than expected, supported by the strong consumer ongoing AI-driven investments across the board and easing energy costs, no inflation and tighter monetary policy remain key risk. Before I turn it over to Alastair, I want to bring your attention to a couple slides. First, we have our digital slides in the appendix. In addition, we added a slide on AI at Slide 20, which shows how our over 200,000 teammates are actively using AI-enabled capabilities across our company. These range from productivity tools to more advanced Agente workflows and coding support. Our associates are generating more than 400,000 prompts a day. And as of last week, we had over 300 AI use cases approved, all of which have good economics of which 114 are live generative AI use cases. 34 of those cases are fully implemented, and we see new capabilities coming on every week. These tools are designed to help -- our customer relationship management prepare more thoroughly for the client meetings. Our bankers automate the research and presentation materials. Our developers code more efficiently and all our teammates improve productivity, consistency and client service while creating significant opportunities ahead of us. I'm going to turn it over to Alastair. Alastair?

Thanks, Brian. I'm going to pick up on Slide 6 and start with the balance sheet, where you can see it remained a source of strength and we continue to support client activity across the franchise. Our ending assets were steady at $3.5 trillion, steady compared to the first quarter and primarily reflecting lower securities balances replaced by loan growth and Global Markets activity. We maintained strong liquidity and funding while we optimized our balance sheet and we supported all that with diversified funding and healthy client-driven growth. When you look at regulatory capital, we remain in a strong position with our CET1 ratio stable at 11.2%, and that remains well ahead of our 10% minimum ratio. Tier 1 common equity grew to nearly $202 billion, while our RWA increased to $1.8 trillion, driven by loan growth and capital markets activity. Supplementary leverage remains strong and well above our minimums. When we turn to Slide 7, you can see deposits remain a key competitive advantage and a source of strength for our company. Average deposits were $2.02 trillion, up $49 billion or 2.5% from a year ago, and importantly, included noninterest-bearing growth of $19 billion, up 4%. This marks our 12th consecutive quarter of average deposit growth, and growth was primarily driven by Global Banking, where deposits increased 8% year-over-year, reflecting continued client engagement and operating account growth. The second quarter saw muted sequential growth in average deposits because it was impacted by typical seasonal tax-related outflows. Otherwise, underlying client activity remains healthy and on track with our expectations. Importantly, our deposit base remains highly diversified across consumer, wealth commercial and corporate clients, providing a stable and attractive funding advantage. Our strong liquidity and funding position means we don't need to change -- chase rate sensitive balances. And with the other relationship values like rewards, digital and security features, it allows us to offer customers attractive rates and grow balances. And we consent you to see growth in both interest-bearing and noninterest-bearing balances. As shown in the upper right, rate paid was modestly lower this quarter, led by consumer deposits of 48 basis points on $957 billion in balances, so favorable balance moves. Turning to Slide 8. Loan growth remained strong and broad-based. Average loans and leases increased to $1.2 trillion up $88 billion or 8% from a year ago. Ending loans were also $1.22 trillion, up $71 billion or 6%, marking the ninth consecutive quarter of both average and ending loan growth. Commercial lending continues to lead growth with average commercial loans increasing to $733 billion, up $75 billion or 11% from a year ago. And we've seen growth both domestically as well as internationally, illustrated by the chart at the bottom right of Slide 8. Additionally, commercial growth has broadened away from the global markets activity that we saw last year. Consumer loans increased 3% year-over-year, led by growth in securities-based lending and credit card balances. Credit card grew 4% year-over-year as we increase marketing and enhance product offerings. The combination of first and second lien mortgage balances remains relatively stable, reflecting elevated rates and included the ninth consecutive quarter of average home equity growth. These trends reflect healthy client activity across both commercial and consumer businesses and they demonstrate the benefits of our diversified lending franchise. Turning to Slide 9. Net interest income continues to perform well despite a modestly lower short rate environment, which impacted variable rate asset yields. NII on an FTE basis was approximately $16.2 billion and increased $253 million from the first quarter and $1.3 billion or 9% from a year ago. On a year-over-year basis, growth was driven by higher loan and deposit balances, fixed rate asset repricing and Global Markets related activity. And this was partially offset by the impact of lower average short-term rates. We've seen steady improvement now since the second quarter of '24 when NII has grown from $13.9 billion to now $16.2 billion. Net interest yield was 2.08%. That's up 1 basis point from Q1 and 14 basis points from a year ago, reflecting favorable asset and liability mix and loan and deposit growth, partly offset by Global Markets balance sheet growth. Bank of America's banking book remains asset sensitive and on a dynamic deposit basis, a 100 basis point parallel shift above the forward curve is expected to increase NII by $1 billion over the next 12-month period. Looking ahead on NII expectations, in January, we told you to expect 5% to 7% full year NII growth. And then in April, we raised that full year range to be 6% to 8%. We now expect full year 2026 NII growth to be at the upper end of that 6% to 8% range, supported by anticipated loan and deposit growth, fixed rate asset repricing and balance sheet optimization. And this assumes modest loan and deposit growth in the second half of the year, and it's based on the current forward curve, which has 125 basis point rate hike in September. Overall, NII remains a significant contributor to earnings growth and reflects the core franchise advantages of our scale and diversified balance sheet. Noninterest expense on Slide 10 was approximately $18.6 billion, up roughly $100 million from the first quarter and $1.4 billion from the second quarter of $25 million reflecting continued investment in technology, sales teams, financial centers and brand marketing. And it also includes higher activity-related costs that come from trading in our Global Markets business, particularly in our overseas markets. With those investments, we generated 660 basis points of operating leverage and improved our efficiency ratio to 59%, highlighting the performance of the franchise and the return on our investments. AI-enabled tools are now more embedded in workflows across operations, risk, finance, technology and our client-facing teams. And that's helped reduce manual work, improve speed and enhance consistency for clients and teammates. On our first quarter earnings call in April, we told you we expected full year operating leverage of more than 200 basis points. And operating leverage for the first half of 2026 has now exceeded 450 basis points. So with that first half performance and our continued expectations for a strong second half, we now expect full year operating leverage to be in the range of 300 to 400 basis points. Turning to Slides 11 and 12. You can see credit quality remains stable and consistent with the strong underwriting discipline that's characterized our portfolio for many years. Provision expense was approximately $1.4 billion. Net charge-offs were also $1.4 billion and both were largely unchanged from Q1. Consumer card charge-offs and delinquencies improved both year-over-year and quarter-over-quarter. Commercial credit also remained solid, with CRE improvement offset by some isolated corporate and commercial lending losses. Reservable criticized commercial exposures declined by approximately $2.3 billion from Q1 and to roughly $22 billion, driven primarily by CRE improvement. Nonperforming loans remained stable at approximately $5.8 billion, and we recorded a modest reserve release. Overall, our portfolio remains well positioned, supported by strong client fundamentals and disciplined risk management. Turning to Slide 13, and now we get into the business segments. Consumer Banking delivered another strong quarter, combining solid financial performance with continued investment in growth, innovation and client engagement. Over the past few months, we refreshed our rewards program. And that's generating more than 2 million enrollments since the late May relaunch. We also launched one of our largest consumer marketing campaigns around the FIFA World Cup. We expanded our financial center network in new and growth markets, introduced new card products and deployed new AI-enabled tools designed to enhance both the client and teammate experience. All of these investments helped to strengthen the franchise and drive organic growth. Net income increased 10% year-over-year to approximately $3.3 billion, while revenue rose 5% to $11.3 billion. Through strong expense discipline, we generated our fifth consecutive quarter of positive operating leverage, maintained a strong 51% efficiency ratio and delivered a 29% return on allocated capital. With regard to client activity, our deposit franchise remains a key competitive advantage. Average deposits rose to $957 billion, our fifth consecutive quarter of year-over-year growth. Client engagement was also strong with record checking account balances, 162,000 net new checking accounts and card spending up 9% year-over-year to $266 billion. We continue to deepen relationships across the enterprise and consumer investment assets reached a record $640 billion, up 18% year-over-year, supported by strong market levels and net client flows. Digital engagement remains a clear differentiator with roughly 50 million active digital users, more than 24 million active Erica users and digital sales representing 70% of total sales. new AI capabilities have improved service, increased efficiency and allowed teammates to focus on higher-value client interactions. Finally, consumers remain resilient as average deposit investment balances and spending all showed linked quarter increases. Additionally, consumer credit quality remains strong and in line with expectations, reflecting the strength of our customer base, and our disciplined approach to risk management. Overall, Consumer banking continues to demonstrate the power of our scale, digital leadership and relationship-based model positioning the business for sustainable and attractive long-term growth. Turning to Slide 14. GWIM delivered another outstanding quarter, highlighted by record revenue and pretax income, expanded profit margins and continued client growth. Clients continue to consolidate more of their financial lives with Bank of America. During the quarter, we added another 6,000 net new affluent households to serve and the continued strong growth in banking relationships and lending balances demonstrates the power of our integrated wealth and banking model. At the same time, both Merrill and the Private Bank continued to attract talented advisers who are drawn to the breadth of our platform and our ability to deliver comprehensive solutions for clients. Franchise continued to benefit from strong adviser productivity, growing digital engagement and new AI-enabled tools that help advisers prepare for client conversations, identify opportunities and deliver more personalized advice at scale. Net income for the segment increased 42% year-over-year to $1.4 billion, while revenue grew 16% to a record $6.9 billion, driven by higher asset management fees, strong flows higher market valuations and higher NII. With good expense discipline, we generated another quarter of positive operating leverage and saw pretax margins expand to more than 27% and demonstrating the scalability of this business. Client balances reached a record $4.9 trillion, up 12% from a year ago. Assets under management grew 17% year-over-year to $2.3 trillion supported by approximately $14 billion of AUM flows this quarter and $78 billion of AUM flows over the past 4 quarters. Also, loans grew $13 billion or 5% linked quarter to $277 billion, driven by custom and securities-based lending demand. Overall, GWIM continued to demonstrate the strength of our advice-led relationship-based model and remains well positioned for sustainable growth. Moving to our commercial and corporate client-facing businesses in Global Banking on Slide 15, where Global Banking delivered strong results in the second quarter reflecting healthy client activity, near record investment banking performance, strong treasury service revenue and continued balance sheet growth. Client engagement remained broad-based with activity across capital markets, strategic transactions, liquidity management, and we continued our program of growth investments, including technology modernization, digital infrastructure and AI-related initiatives. We're also using AI-enabled tools to help bankers accelerate their research, prepare materials and identify relevant client opportunities more efficiently. Revenue increased 10% year-over-year to $6.2 billion, while net income grew 20% to more than $2 billion. Investment banking was a particular highlight. Total corporate investment banking fees, excluding self-led transactions, increased 50% year-over-year to more than $2.1 billion, reflecting strength across debt underwriting, advisory and equity underwriting. Average loans increased 7% to $413 billion, while average deposits increased 8% to $652 million, demonstrating continued franchise growth and client confidence. Credit quality remains solid and returns remained healthy with a 15% return on allocated capital. Turning to Slide 16. Global Markets delivered an exceptional quarter. Excluding DVA, net income was $2.7 billion, up 70% from a year ago. Sales & Trading revenue, excluding DVA, increased 33% to $7.2 billion. Equities delivered a record $3.6 billion of revenue, up 70% driven by client financing activity and strong trading performance in derivatives and cash. FICC generated $3.5 billion its strongest quarter in more than a decade. Growth was broad-based across the franchise. Domestically, our revenue in the U.S. increased 31%, while our international business delivered a 38% improvement with Asia Pacific as the standout. And this is generally consistent with our Investor Day messaging of continuing our improved performance internationally. But perhaps what stands out most is the consistency of our performance because we've now delivered 17 consecutive quarters of year-over-year sales & trading revenue growth and 14 consecutive quarters of year-over-year net income growth. And combined with 16% operating leverage and a 20% return on allocated capital, these results reflect the strength of our client franchise diversified platform and disciplined execution. Client activity remains strong and the connectivity between markets, global banking, and Wealth and Investment Management continues to create value for clients. Investments in technology and AI are helping teams deliver insights faster, operate more efficiently and further strengthen our competitive position. So this was a record quarter built on scale, client engagement and consistent execution across the franchise. Moving to all other on Slide 17. We recorded a $292 million net loss in the quarter, which is larger than a year ago with no significant drivers to note, and we reported an overall tax rate of 21.5% and consistent with our full year guidance. In closing, the second quarter reflects the strength of our diversified operating model. We produced double-digit revenue growth and more than $9 billion of net income, with EPS growth of 34% and return on tangible common equity of 17%. We also delivered strong operating leverage while continuing to invest in the franchise and supporting our clients. Across the company, clients continued to invest, transact and grow. Activity remains healthy across lending, payments, investment banking, markets and wealth management, including technology, digital infrastructure and AI-related opportunities. We also see meaningful opportunities to continue using AI and automation ourselves to improve productivity, strengthen client engagement and support disciplined growth across the company. So taken together, these trends simply reinforce our confidence in the long-term earnings power of the franchise and our ability to deliver responsible growth and attractive returns for shareholders. And with that, Leo, let's open it up, and we'll see what questions we can answer.

[Operator Instructions] Our first question comes from Chris McGratty with KBW.

Noticed the deposit discipline in the quarter. Alastair, I'm interested in your thoughts about pricing in a higher for longer environment. I know you didn't change the full year NII guide. But your deposit pricing outperformed some of your peers this quarter. Any comments on the near-term outlook would be great.

Yes. So I'd say we kind of just kept nudging NII a little bit higher as we've gone through the year. First, from that 5% to 7% up to the 6% to 8% and then we're recently saying we're probably going to be at the top end of that range. So we've tried to express our confidence in the momentum of NII. And some of that comes from the deposit gathering. I think you know we've got a lot of liquidity. We're not loaned up at this point. We've got $800 billion of excess between our cash and securities over our loans. And that really allows us to concentrate on our strategy. Our strategy is very clear. We're trying to grow clients and operating accounts. That's the highest quality growth. It's the highest quality clients because when you get that operating account, it's key to the financial lives. So when consumer puts up 162,000 of net new checking accounts, or when we grow noninterest-bearing for 7 consecutive quarters, that's what helps us to drive the noninterest-bearing up 4%. So the lower rate paid is really about mix, Chris, we're competing out there for deposits like everyone else. We compete tooth and nail to get deposits where we can. But at the end of the day, our strategy is about relationship value all the things around digital and security and rewards that we talk about. And it's that favorable mix of growing the noninterest-bearing that makes a difference.

Okay. That's helpful. I appreciate that. And then on the operating leverage conversation, the new slide. And what you said the 200 to 300 basis points plus of operating leverage that you talked about in November, you're clearly off to a great start. I'm interested in kind of the sustainability. Obviously, the comps will be a factor, but the influence that AI might have on that over time.

Well, there are 2 elements to that, I think First, obviously, we said at Investor Day, the sustainable kind of thing that we're in for is something like 200 to 300. Right now, we're outperforming that. We've had a terrific first half of 450 basis points. So that's what's giving us the confidence for the full year to say is going to be above the range. AI plays a role, I think, in 2 ways. The first one is on the revenue side. There's obviously a big AI theme going on in the world. We're leading in investment banking and global markets around capital raising financing, that massive capital investment and infrastructure build around the world. So that's helping us there. And then you're asking a question that's really about sustainability going forward. Can it help us with our own operations? The answer is yes. That's why we put that slide in. So if you go to the slide, it's Slide #20. And you just take a look, remember, we've been at this for a little while now, but you can begin to see now in these general purpose productivity tools or the tools that are aimed at specific functions like the bankers or the wealth professionals or the software developers. You can see what we're doing there. And then there's another layer of AI on top of that, that accesses a lot of the company. So on the right-hand side, here's what's going to come out of that. We believe growth, efficiency risk management and resiliency. So that's what we're trying to make sure. We're updating you on the AI as we're going through. And at this point, we've got -- we put it at the top of the page just so you could see it. But you can see the number of approved model cases at this point it's 300. You can see the number we've got in here that we're using, 114. So this is going to be something for the future, and we're just working our way through it.

We'll now move on to Glenn Schorr with Evercore. Mr. Schorr, please check your mute switch. Your line is open. We'll move on to Ken Usdin with Autonomous Research.

Alastair, just on the positive operating leverage point. I think you've made it very clear about the comps getting a little harder in the second half because of the ramp you had last year, starting with the NII and also markets. Can you just help us put it into some kind of context obviously with 300 and 660 basis points of leverage and now talking to a full year of $300 million to $400 million. Just how do we kind of box the operating leverage potential for the second half as we get into this kind of tougher comps, albeit with the good top line revenue growth continuing.

Yes. So we're offering the $300 million to $400 million, recognizing that we've already booked $450 million for the first half, so that's good. And then we're just trying to give you a range, Ken, that allows you to kind of work backwards because as you point out, in the second half of last year, the NII went up more than the first half. We think that will happen this year as well, but it might not. Just the numbers are bigger this year, so the percentages just change a little bit. And then remember, second quarter last year was a slower quarter for investment banking for the entire industry. So you think about it, if we put up $2.1 billion of investment banking this year, up 50%, if you kind of sustain that relative to what we did in third quarter of last year, which was $2 billion or so, you just don't get the same kind of uplift in the second half. So that's what we've got our minds on. Otherwise, as you can imagine, the business conditions are very good, and we're trying to maximize operating leverage where we can.

Okay. Got it. And you mentioned balance sheet optimization from here. Can you talk about where you have that room to continue to optimize notably -- well, across the balance sheet, I guess, on both the asset side and the liability side as you focus more on that?

Well, there are really 2 places, I think, that you'll see it. The first one is we've talked about the fact that we believe we can improve net interest yield over time. We've done that. You can see we're at $2.08 now. were up from $1.94 a year ago. So that's been a contributor to some of the NII gains. But we've talked about on prior calls, we still feel like we carry some repo, some institutional CDs, but over time, we're just continuing to pay down. If those are invested at the Fed, we're not capturing a lot of spread. It doesn't do anything for NII. It actually hurts NIY, but it also ties up a little bit of capital. So as we continue to pay that down, and I think you'll see more of that happening in the second half of this year, that will free up more capital. It will help us on the return on tangible common equity as well. So we're sticking to that program. We'll have a pretty good opportunity in the second half. We're looking forward to that.

Just note, there's no constraint on the growth of loans or the core deposits, et cetera. So that's all can grow because it's all going to good returns and things like that. It's really a question of sort of the centralized security portfolios, the term debt, the repo, as Alastair said, a lot of the buildup that came because of the rules getting flipped around is now we're through that and on the other side.

We'll move on to Manan Gosalia with Morgan Stanley.

Alastair, I know you outlined the higher rates as a positive if you can talk a little bit about if the rate environment changes here because we're getting a lot of changes overall. Would that impact the NII guide? And as we think about just markets NII overall as well, given that prime brokerage and some of the other businesses are doing better if there's any offset to getting to the high end of the 6% to 8% NII guide.

Well, first, welcome to coverage. Nice to have you on the call. Second, yes, I mean, if rates -- if we've got one rate hike in the curve, it's in September. So its impact this year is pretty modest because you're really only capturing anything in October, November and December. We will obviously adjust pricing in each of our segments for any rate hike but net-net-net, we expect that to be a positive. So that's in our guide right now where we're saying it was 5% to 7%, then it was 6% to 8%. Now we're saying it's going to be at the top end of that range, and that's with that hike. Now, I think, generally speaking, because the banking book is liability insensitive, that's the predominant benefit. But the markets business is slightly liability sensitive. So that's a slight offset. But net-net-net, it's a positive for us, and that's what we're trying to communicate.

Got it. All right. And apologies if I missed it, but as you think about loan growth in the back half of the year and you think about, I guess, just middle market C&I growth, how is that trending? And what do you expect overall as we get into the back half of the year?

Yes. So if we look at the middle market, we're sort of growing kind of like commercial loans overall. They're growing around 8% or so. Middle markets kind of in there, larger cap corporates are in there. So the growth looks pretty good, we would say, on the commercial side. And if you go back now, I think it's over 9 or 10 quarters, we've been growing loans at $20 billion or so per quarter, 7% last year, full year, 8% this year. So the commercial growth there, we don't necessarily see that changing. It feels to us like we're in a good environment for loan growth. And then just keep half an eye also on card where how we laid out a plan to say we want to get back towards 5% type card growth. We were at 1%, then 2%, then 3%. You can see this quarter, we are at 4%. So some good news on the consumer side. And then things like securities-based lending have been pretty positive as well, just with the way the markets have performed and what our wealth management clients want to do. So we remain pretty constructive on loan growth in the second half, no changes there.

We'll move next to Ben Gerlinger with Citi.

I was curious, I get the updated guide or closer to the higher end of NII, includes the forward hike potential. I was curious, does that also incorporate a little bit more productivity on the average earning asset mix? I know you guys have alluded to a little bit more productivity down the road. And I guess that, that takes time. Just kind of curious, is the guidance based on a static balance sheet or the continuation of a little bit more loans in the averaging assets?

Yes. So Ben, also welcome to coverage. Thanks for joining. Yes, the updated guide essentially assumes the following: first, modest deposit growth similar to what we've been seeing. Second, good continued loan growth in the second half of the year, similar to what we've been seeing. So we haven't really changed our perspectives on either of those. We'll get the benefit from some fixed rate asset repricing. We got a little bit more of that in the second half than the first half. But otherwise, it's mostly balance sheet gains. And then what I described in terms of balance sheet efficiency, I would think about that as being more about net interest yield and less about NII, okay?

Got you. That's helpful. If I can do a follow-up in terms of operating leverage, I guess that you've increased the guide for the full year this year. When you think about just a higher revenue production that you kind of alluded to, do you run the risk of potentially underinvesting? I guess that you're probably ahead of peers across every major category of AI and technology and is being a bit more digital. But if you have more revenue, do you think you could potentially speed up the spending, so it pulls forward into this year, reducing that leverage?

Well, I think we are spending at a good clip overall on technology and also dedicating a lot of time in the company towards careful examination implementation catalyst, people working to understand the projects in AI, we give you the outline on Slide 20. So I think there's productivity increases. There's a lot of spending. We're going to be spending more of it, whether that increases expenditures of technology development dramatically or not really has to do with a couple of things. One is they're shifting of spending towards it. And then secondly, even the coding process has become more and more efficient using these tools. So the same amount of money in '27 will get us more code for lack of a better term, in '28. So we're driving everything as hard as we can. And so our focus on operating leverage, and we just told you we raised us above the normalized range. And then we're continuing to invest in the places to grow the business, especially around the consumer business, I think financial centers and new markets done in a rational full market build-out basis, not on a one-off, one at a time base of building out cities we're not in and we continue to drive the marketing capabilities of the firm and our consumer scores have now reached all-time highs. And then we invested heavily in our rewards program, which goes to some of your other colleagues ability to cement relationships with great deposit mix and their result cost of funds. So we're spending -- I don't think you'll see a major change in our methodology of how we think about spending A lot of the incremental expense growth from second quarter this year, last year was due to incentives and BC clearing expenses. If that keeps going, we'll be happy -- has not -- very happy because that means the revenue has got to grow. If the revenue slows down, it expense growth were able to slow down and it will have a different type of operating leverage that Alastair described earlier.

We'll now move on to Erika Najarian with UBS.