Bank of America Corporation

Good day, everyone, and welcome to the Bank of America fourth quarter earnings announcement. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone, and you may withdraw yourself from the queue by pressing the pound key. Please note this call is being recorded. It is now my pleasure to turn the conference over to Mr. Lee McIntyre. Please go ahead, sir.

Good morning. Thanks for joining this morning's call to review our fourth quarter and full year 2018 results. By now, everybody I'm sure had a chance to review the earnings release documents on our investor relations section of bankofamerica.com, our website. Before I turn the call over to our CEO, Brian Moynihan, let me remind you that we may make forward-looking statements during the call. After Brian's comments, Our CFO, Paul D'Onofrio, will review the details of the fourth quarter results. Then we'll open up for questions. For further information on our forward-looking statements, please refer to either our earnings release documents, our website, or our SEC filings. With that, take it away, Brian.

Good morning, everyone, and thank you for joining us to review our fourth quarter results and 2018 results. Before Paul walks you through some of the details of the latest quarter, I wanted to review what our 200,000 teammates produced for you in 2018. This year, and in fact this quarter, we're continuing examples of how our shareholder model works for you. So let's start on slide two. We grew the top line a little better in the economy. We managed costs and risk well. We invested heavily in our leading capabilities and in our teammates. And that benefit all of you has returned almost all of our earnings to you. Looking at full year results, we reported record earnings for our company. of $28 billion after tax, or $2.61 per share. Revenue grew a little better than GDP at 3%. And when discussing the growth rate over 2017, we're increasing 2017 baseline as shown to add back the charges taken to the Tax Act last year. Our client base has expanded. And in our key business, our market leadership positions continue to improve. Deposits and loans within our business segments grew a little better than the economy. We managed expenses well and hit our target for 2018, which we established a few years ago. In fact, our expenses were down 2% for the year, and that helped achieve 6% operating leverage. We also believe we managed risk well, as net charge-offs remain at decade lows. Driving these elements allowed us to grow pre-tax earnings at 15%, and we used our capital to reduce shares, and that allowed us to grow EPS faster than our earnings growth rate. And importantly, We believe the same focus on responsible growth with a laser focus on controlling what we can will allow us to continue to improve results for 2019. As you can see on slide three, every line of business contributed to our growth and earned well above our company's cost of capital. And each line of business has superior efficiency through a focus on operating leverage. I put three years on this page so you can see the improvement across the business for multiple years. This is not a recent phenomenon and will continue in 2019. We expect to continue to drive incremental improvement in these businesses as we take advantage of our very strong franchise and the continued investments in digitalization and operating efficiency, as well as our relationship management capacity in core products and services. Let me give you a few examples. In our consumer banking, after a decade of simplifying our products, reviewing our focus on primary accounts, transforming our delivery network, and driving deeper relationship for our customers, we have seen net new checking accounts growing and those are growing with the same strong core attributes as our existing book. Savings accounts and credit cards have seen the same progress. In our Merrill Edge investment assets, we had a 21% year-over-year increase in funded brokerage assets and $25 billion of net client flows. In Merrill Lynch, we grew net relationship four times faster in 2018 and 2017. We saw a record number of our experienced $1 and $5 million producers in the financial advisor populations. And our U.S. trust team, we grew households by 9% last year. Andy Segan and Katie Knox, who have been recently added to my management team, are driving continued success in these businesses. Our commercial and business banking continues to build relationships. Net new relationship additions increased 32% for global commercial banking, our middle market business, and 28% for business banking, comparing 2018 to 2017. And when you go on the institutional investor side of the house, Through our investments in the business and increased balance sheet commitment to our clients, we have seen an expansion in our prime brokerage business. As a result, we had a record revenue year in our equities business. In the fourth quarter alone, we added 70 new clients for our equities team. As you turn to slide four, one of the drivers of an expansion in our client base is the fruit of multiple years of continuous improvement in our franchise. These investments have improved the capabilities and processes used to serve our customers, and we've added this talent, and these capabilities without net expense growth. To enable this investment, we have driven a culture of expense management that has reduced costs significantly over the past nine years while increasing our customer service scores and capabilities. This has led to a $30 billion annual reduction in our expense base since 2010. The team has done great work for you here, accomplishing significant savings at the bottom line and, at the same time, industry-leading investment levels in technology, physical platform, and talent. We face the same inflation and cost challenges everybody faces. Benefit increases, wage increases, real estate cost increases, more investment, everything that we face. And we still hit our 2,000 expense target of approximately $53 billion. And as Paul will reiterate in a bit, we expect that those expenses remain in that neighborhood for 2019 and 2020. And this year, our efficiency ratio was at 58%. These expense reductions increase revenue that result in substantial operating leverage. Now, take a look at slide five. Sixteen consecutive quarters of operating leverage, every quarter for four straight years. Even in periods of revenue decline, we were able to reduce expenses even more. During that four-year period, we have invested $12 billion in new technology initiatives, retooled every single ATM in the company, rehabbed 1,500 branches, built hundreds of new branches, added new administrative facilities, and added relationship management and sales teammates. And we've also shared success with our teammates. Our shared success program we announced at the end of 2017, we also continued at the end of 2018. The two programs combined added over $1 billion to all but the top 5% of our team in annual compensation. If you go to the next slide, slide 6, one of the things that helped us deliver these earnings and growth has been an increase in net interest income over the last several years. Once in a while, I get asked by you, did you capture the value of the rate curve normalizing that you told us you would? The simple answer is yes, and you can see it here. But we delivered more than that. On slide six, you see the improvement in NIA every year since 2015. NIA is up $8 billion in the past four years. But what we often miss here, it wasn't solely driven by higher rates. It is driven by our business model, a business model which drives strong core deposit growth coupled with strong pricing discipline. But it's also not just about deposits. Driving Core NII takes good core loan growth as well, and we have seen growth in loans across the business. This continues to strongly help NII growth. So you can see these on the right-hand side. Average deposits grew more than $150 billion after the past four years at a 4% compound annual growth rate. Loans in our business grew $140 billion, or 6% CAGR, over the same four years. But a specific point to demonstrate this. We have grown consumer checking balances at Bank of America for 40 quarters in a row, a stat our consumer team will be proud of. And by the way, that was $200 billion in core checking balances added across that decade. So as we look forward into 2019 and consider the beta where the NII can grow, short-term rate increases stop or slow, we will drive what we control with loan and deposit growth, and even in an unchanged rate environment, that should produce more NII. One of the other areas for improvement has been a continued increase in the amount of capital we've been able to return to you, our shareholders. Take a look at slide seven. As we've increased earnings, we have also increased the return of those earnings in the form of both increased dividends as well as share repurchases. This quarter, we crossed an important milestone for our team. Fully-diluted shares moved under $10 billion, with more than 1.4 billion shares lower than the peak in 2013 and the lowest since 2008. It's the same great company, has more earnings, more capital, but 14% less shares in the peak, and we see much more ahead. So we strive to deliver what we control, more customers, more activities from those customers, whether it's loans, whether it's deposits, whether it's assets under management, whether it's underwriting fees, whether it's trading revenue. We continue to drive what we control, and we control the risk and expenses. And we do this while driving our competitive advantage through increasing investments in people, technology, and physical plans. What does that sound like? It sounds like another year of driving responsible growth. Now, before I ask Paul to dive in the quarter, I wanted to give you we are all facing a perceived change in the operating environment, with predictions in the year ahead reflecting a range of outcomes from GDP growth in the mid-twos to lower growth to recession. I wanted to give you two perspectives, one from our research team and the second from what we see in our client base. Let's first focus on the views of our research team, one of the best there is. The United States economy, largest in the world, grew at the highest rate in a decade, long recovery in 2018. We still have low inflation, rising wages, low unemployment, and despite the increases in rates, interest rates remain all-time lows. Our research team predicts economic growth to be lower in 2019 than it was in 2018, as do the general economic community. However, it's true these estimates still point to solid growth. For 2019, our research team has global GDP growth at 3.5%. And the research team has the U.S. GDP growth at 2.5%, which is higher than any but one year in the last seven. But the second view is through our customers, and this strongly supports a solid growth view. In our consumer business, we processed, in 2018, more than $2.8 trillion in consumer payments and cash consumption. That's a large sample of the U.S. GDP. That data shows that the consumer spending was 8.5% higher fall of 2018 than 2017. That growth rate remained solid in December and January, even as comparables are increasing due to the strong growth in the end of 2017 and early 2018. We also see a lot of credit flows as one of the larger commercial and consumer lenders in the United States. Those flows are solid, reflecting customer confidence, responsible borrowing and lending. We talk to a lot of clients. We survey a lot of clients. We monitor their asset quality. We've seen it remain strong as net loss ratios are at record lows. We see no problems in near-term horizon and expect charge-offs to remain around $1 billion or so for the rest of 2019. We also see those companies as healthy, making more money and continuing to invest. Our small business clients remain optimistic. Our most recent survey shows that. The geopolitical comment, however, affects all of us. It provides a backdrop of obdurate uncertainty. Trade wars, government shutdown, China slowdown, EU slowdown, Brexit, you name it, both here and abroad, impact people's economic growth outlook. We are mindful of those potential impacts, but we see in the U.S. strong indications of continued growth due to the benisons we have here in our economy. So given the slowdown predicted does not enervate us, it invigorates us. We look forward to continue to produce strong results in 2019 by driving responsible growth. With that, let me turn it over to Paul. Thanks, Brian.