Bank of America Corporation

Good day, everyone, and welcome to today's Bank of America earnings announcement. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note this call may be recorded. I will be standing by should you need any assistance. It is now my pleasure to turn today's conference over to Lee McIntyre, Investor Relations. Please go ahead.

Good morning. Thank you, Catherine. Thanks for joining the call to review our first quarter results. By now, I hope everybody's had a chance to review the earnings release documents that are available on the investor relations section of the bankofamerica.com website. For the many years I've been in IR, I've always joined the other speakers in the same room as we presented earnings. But this quarter, we, like all of you, are practicing following safe physical distancing protocols, and we're joining this morning from different locations. First, I'll turn the call over to our CEO, Brian Moynihan, for some opening remarks. And then I'll ask Paul D'Onofrio, our CFO, to cover the quarter briefly before turning back to Brian to moderate a question session. So hopefully this will make the session go a little bit smoother. Before I turn the call over to Brian, let me remind you we may make forward-looking statements during this call. For further information on forward-looking comments, please refer to either our earnings release documents our website, or our SEC filings. Over to you, Brian.

Thank you, Lee, and good morning to all of you, and thank you for joining us to review our results. It has been an eventful quarter, but I hope all of you are safe and your families are well during this war on the COVID virus. As you think about our quarter, our decade-plus long discipline of responsible growth has resulted in us strengthening our balance sheet and making investments in technology and people and talent over the decade has helped us prepare for this environment. Today we're going to do three things with you. First, I'm going to provide a couple of high-level thoughts on the quarter. Second, I'm going to make sure you know how we're supporting our teammates, our customers, our communities in delivering for you our shareholders during this crisis. And third, Paul will cover the results in more detail. I'll start this discussion by covering the chart on slide two, along with the comments on slide three, which go with the chart. Given the volatility in the last couple months and the global slowdown, I'm proud of Bank of America and our team's results. I want to thank my 209,000 teammates across our company for all of their efforts this quarter, both in their frontline roles and support functions. It's been a company-wide effort to continue to serve our customers well during these times. As I said many times, we're in a war against the COVID-19, and at Bank of America, we're doing our part to help fight the effects of that war. We do that by living our purpose. We're helping people manage their financial lives through this crisis. My teammates know they're playing a critical role for their clients, whether they're people or they're companies of all different sizes and institutional investors. Their role is to help keep the economy moving as best we can during this healthcare crisis. Their role is, we have seen major disruption of financial markets that affected every line of business as customers moved to stay-at-home status through voluntary or involuntary In the United States and around the world, governments have responded with historic measures in a very short period of time. Central banks, governments, and others have responded to provide tremendous liquidity to keep the markets functioning and to protect individuals and businesses at an historic scale. The banking industry continues to play a vital role. We're well capitalized with strong liquidity, and we have helped transmit the benefits of these programs as well as our own measures in the economy and markets. So let's cover our first quarter performance. In the first quarter of 2020, Bank of America produced $4 billion of after-tax earnings. This includes building our loan loss reserve by $3.6 billion over charge us. And that's due to the economic deterioration of the global economy as a result of the virus. Earnings per share were 40 cents. Our earnings were down $3.3 billion from last year. This was led by the reserve bill. I think it's useful to draw your attention to the pre-tax pre-provision income line as we believe it helps illustrate the underlying earnings power of the company to support the credit costs that are inevitable in a downturn. We produced $9.3 billion of pre-tax, pre-provision income in the first quarter of 2020. That was down 5% from the first quarter of 2019. That is relatively strong given the changes in interest rates that have occurred, the widening of credit spreads, and other changes across the past 12 months, particularly in the last quarter or so. During this period, we maintained our strong balance sheets. Global markets clients' needs for liquidity temporarily increased our balance sheet during the quarter by as much as $130 billion from year end, but through the efforts of Tom Montag and team, we ended the quarter marginally up. Small business originations, not from any of the special programs, were $2.4 billion during this quarter, showing support for that segment of the economy. We also met our larger commercial borrowing customers' demands with commercial loans increasing $67 billion as clients drew down against their unfunded commitments and new commitments were made. In addition to these fundings which reduced commitments, we also had requests for new commitments. Remember, some of the commitments that we're making are for clients like grocers, healthcare companies, and others who need equity because of the rising demand for their services during this time. At the same time, we returned $7.9 billion in capital to our shareholders. And as you know, during the quarter, we voluntarily chose to suspend the buyback portion of those distributions to assure capital for expected customer growth. We did all that in our common equity Tier 1 ratio of 10.8%, still finished 130 basis points above our 9.5% minimum. From our liquidity standpoint, we ended the period with $700 billion in liquidity, increasing $120 billion from year end. Driving that increase was deposits, increasing $149 billion, far exceeding our $67 billion expansion in our loan portfolio. Moving away from the balance sheet and onto earnings, a couple highlights I'd point out. NIA finished a bit better than expected at $12.3 billion on an FTE basis, flat with fourth quarter. Capital markets revenue was strong. Sales and trading revenues, excluding DBA, were up 22% year-over-year, And investment banking fees were up 10% year-over-year. We had a record quarter in FabGala's equities trading business. Our non-interest expense was a touch better than expected, as well, at $13.5 billion. Net chargeouts remained low at a little more than a billion, up $163 million from last quarter, driven by an uptick in commercial. Obviously, returns to the quarter moved lower given the reserve build. Return on tangible common equity was 8.3%. Let's turn to slide four. Just as important as our financial results this quarter is what we're doing to take care of our teammates and to help clients and communities impacted by the virus. We do this not only because it's the right thing to do, but also in the end, it will benefit you, the shareholder. Many of our teammates are on the front lines of this effort, including daily engagement with clients, whether it's in our financial centers, which remain open, financial advisors guiding their clients through the turbulent times, or the capital and liquidity we're providing to companies across the businesses. To be able to do all these great things to support clients, our first priority since the crisis was to address the health and safety of our teammates. We've taken that teammate-centric view of our efforts because it's the right thing to do and we need these teammates to do a great job for the clients. We've taken extensive measures in our business continuity work to prevent teammate exposure to the virus. We've established multiple locations for important work of our trading operations and call center platforms and otherwise enabled social distancing by moving more than 150,000 people to work from home. That means ensuring that they have appropriate tools and resources, and we have the appropriate control protocols for them to do their day-to-day work. To give you a sense of scale, we have deployed about 90,000 laptops in the last 60 days across the company. We've moved quickly to assure social distancing in our facilities that are still open, installed additional protective barriers in all our branches, thinned outstanding operations environments, and posted healthcare professionals in our facilities to help anybody. We're also taking measures to help our employees better handle the stresses in their personal lives. You can see some highlighted here. One example has been our increased childcare support. We allow teammates to hire relatives and others so they can work given school and daycare outages. Our life event services team provides teammates with personalized support, resources, tools, and access to benefits. And we're providing special compensation to teammates in the financial centers, operations centers, and call centers. We also hired 2,000 teammates in March to continue to increase the staffing we need, especially in the consumer-related areas, to handle our clients' needs. And we announced that there would be no layoffs during 2020 of our teammates. Our previous announced $20 an hour minimum compensation is now in effect and reflected in the numbers you're seeing across the company. And we confirmed our commitment to bring on our 3,000 young kids for summer jobs and starting their first job, whether graduating from college or graduate school. Taking care of the employees is the right thing to do and enables them each to play the important role they must provide as critical providers of services to help the economy keep rolling through the virus. We're doing that in many ways. In addition to keeping our financial center open, the many things I mentioned earlier, we're doing more for our clients through these times. Customers are struggling to make their payments or calling the bank with deferral requests on loans and fees. and waiver of fees, as in other disruptive events that we've done for hurricanes, earthquakes, tornadoes, and other things over time. We work with them. Since the humanitarian crisis began, we received more than 1 million requests for assistance through early April. We've seen the volume of the deferrals, however, reduce since the peak a week or two ago, and we'll see where it goes next. We provide a chart in the material beginning on slide five about the deferrals. As you can see in our case, the largest number of requests have come from cardholders. But as a percentage of loans, we have the most requests from our small business clients. These clients are at the heart of the governmental programs and are also at the heart of businesses that were shut down due to the stay-at-home orders by governments. One of the things that's different about this business for us is it lends doctors, dentists, and others. They have deferred payments until they can reopen their practices. we're a leading lender to them and you'll see those recover as they go back to business. Our mortgage requests have been relatively low in volume and some of our customers, for all our customers, we've also spent suspended foreclosures or repossessions autos, which may have been pending. Our affluent clients are also looking for our company in these turbulent times. We've been there for clients with both upgraded systems and capabilities to allow them to trade, a centralized investment office supplementing 20,000 advisors' capabilities to talk to their clients and give advice and counsel. Client engagement during the quarter was up two-thirds from last year, even as our advisors work from home. For small business clients, we built the first digital platform for the PPP program, and we launched it 12 days ago. The team is working hard to drive over 300,000 requests for funding through the process so that we can get those loans funded. As stated earlier, our regular way small business support was over $2 billion in the quarter. For larger clients, we provided $67 billion in access earned funding commitments. Imagine the speed and capacity that our team did to absorb the requests so quickly and get them funded over the course of the quarter. These commitments are much near the equity bridge for many clients, especially in light of the rapid changes that occurred in March in the commercial paper markets and in debt markets. But as those markets opened up, we also saw strong debt capital markets issuance to support clients. In fact, March ended up being the busiest month ever for U.S. high-grade market with approximately $260 billion of total issuance. The previous record was $171 billion, and we led the market. April has continued this busy pace, and it's been good to see that access is expanding to high-yield clients. For our institutional trading clients, we have provided an operationally sound system with improving speeds of trading. In a single day, we had $1.7 trillion in payment value made. Again, the investments made over the past years to our trading platforms delivered more speed and capacity to make that possible, and all doing while maintaining good controls. The clients we served in that business had witnessed severe volatility in markets, and we over-provided them with liquidity when needed. Since the mid-month spike, Tom and the team managed the balance sheet into the place we need to be at the end of the quarter. Lastly, to assure communities around the U.S. where we live and work got some assistance before the government money came to help, we announced a $100 million donation to help fight the virus outcomes and supply vital support across those communities. Our market presence and other leaders are playing a vital role in this critical action. We've also increased our capital this community development financial institutions by $250 million on top of our industry-leading $1.5 billion commitment to these institutions. As we've discussed each quarter and frequently over the last decade, we've transformed our company so we can serve clients consistently across all areas. We've added a slide in the appendix to remind you how much the company has improved its balance sheet position and risk profile since the last crisis. It's also stress testing to illustrate our preparedness, but we're now being tested in a new environment. We didn't know what economic challenge might cause us to have to demonstrate these resilience, and that challenge is upon us now. I remain very proud of what my teammates have accomplished across every dimension to help us be ready, and I'm proud of the part they're playing to help the world win this war against this virus. An area that we've focused on also is consumer spending. We've seen a shift in consumer payments, and this begins on slide six. Overall, a couple months ago, in a healthy U.S. economy, payments were running at a high single-digit, in fact, in some cases, a low double-digit percentage increase over the same period prior of 2020, January and February, versus 2019, January and February. And, in fact, that would have shown that the economy this quarter probably was going to grow faster than people expected. That changed the virus spread, and you can see that impact here on slide six. We saw a severe immediate decline in discretionary payments for travel, leisure, and other things that you've read about in entertainment that you expected. This was followed immediately by large increases in payments for necessities around groceries and staples like health supplies, et cetera. Then as large cities and states began to move to voluntary and mandated stay-at-home status orders, we saw large declines in debit and credit card spending into other categories. At the same time, we've also noted a stabilizing going on, and the level of payments in other areas like ACH, cash, wires, and P2P payments. The broader measure is the black line in the chart. As you can see, overall payments have declined but remained at a high single-digit pace year-over-year, moving down from double-digit pace to around 8%. The total movement in the U.S. has been pulled down by a significant decline in the card spending, which has been affected by the travel, entertainment, and other related areas in retail areas, and that's gone from 7% to 8% It's only 2% increases in the month of March, and it has fallen into negative territory in April. The overall spending, however, of all types of spending in our customers seems to have stabilized in the last few weeks. During mid-April, we're seeing spending run at about a low $50 billion average level compared to a $60 billion average level before the crisis. That's per week spending. We'll see how that plays out through this quarter, and that stability may provide insight to the level of the economy activity in the shutdown status. Our digital banking capabilities have helped with both customer service and sales. Our financial center visits are down, and sales are down because of that. We've seen consumer digital logins remain steady as people manage their financial lives on a digital basis. Digital sales are down, but they're now running about 50% of the total sales. Our loan production for cars, mortgages, and other products has fallen week by week. Through the first Two weeks of April, comparing that to the February average levels, we're seeing them down 55% for card origination, 40% for mortgage, and 60% for audits. Again, we're watching to see these stabilize at some level of activity, even given the shutdown economy. And we'll keep watching that as states, cities, and the federal government focuses on reopening the economy. On slide 7, you can see the couple charts showing the commercial line draw velocity in deposits in March. In total, we saw a $67 billion increase in commercial loans due to draws from commercial clients in the month of March. 45% of these fundings came from large commercial clients. 40% were from large corporate bank customers, and the remainder was spread across all the businesses. As for the asset quality of what we funded, 92% of these were collateralized or were made to investment-grade clients, and less than $100 million were made to clients whose loans became non-performing. The draws were well diversified by industry, largely driven by U.S. borrowers. From a capital standpoint, we're already at risk weighting these commitments at 50% under standardized capital, so the additional impact to CET1 from these draws was roughly 25 basis points for the quarter. The draw activity was pretty normal through the first week of March, but ramped up in the second week before peaking in the third week of the month. The requests have come down in every one of the last three weeks. And as we've seen, we've turned it to April, Draw requests and new credit requests have mitigated at these levels. We're seeing clients' attentions turn from securing liquidity to a more structured view of their capital position and their needs to better understand how they will prosper and fare in the COVID-19 impacted business model. We observed earlier that the commercial paper market froze in the middle of the quarter as new rounds of the virus worsened and clients were unable to access the CP markets. As the Fed announced their programs, we saw that market stabilize, and over time here, we've seen it lengthen out, so draws can be for long periods of time. It's worth noting, since we have one of the premier global treasury service platforms in the world, we saw many of those draws come back in our balance sheets as deposits. Well, the 75% of loan draws were not used for other paydowns, ended up as deposits with our company. In addition to that, at the bottom of the slide, you can see the growth in deposits by every line of business. Global banking deposits rose $94 billion, which is unusual for sure. We also saw a $32 billion increase in consumer deposits, with 65% of that being checking. That has been our normal. In fact, it's the 28th quarter of the last 29 that we've had year-over-year growth of $20 billion or more in consumer banking deposits. Wealth managed deposits reflect a flight to cash in the first quarter, but have been stabilizing last year, as you can see in the charts Paula showed you later. So with that, let me turn it over to Paul.