Bank of America Corporation

Good day and welcome to the Bank of America third quarter earnings announcement. Currently all phone lines are in a listen only mode. Later there will be an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star then one on your touch tone phone. Please be advised today's program may be recorded. It is now my pleasure to turn the program over to your host, Lee McIntyre.

Good morning. Welcome and thank you for joining the call to review the third quarter results. I trust everybody's had a chance to review our earnings release documents. As usual, they're available, including the earnings presentation that we'll be referring to during the call on the investor relations section of the bankofamerica.com website. I'm going to first turn the call over to the CEO, Brian Moynihan, for some opening comments, and then ask Paul D'Onofrio, our CFO, to cover some other elements. Before I turn the call over to Brian and Paul, let me just remind you we may make forward-looking statements and refer to non-GAAP financial measures during the call, just regarding various elements of our financials. The forward-looking statements are based on management's current expectations and assumptions, and they're subject to risk and uncertainties, particularly as we continue to operate in this pandemic period. Factors that may cause those results to materially differ from expectations are detailed in our earnings materials and the SEC filings that are available on the website. Information about our non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials available on the website. So with that, take it away, Brian.

Thank you, Lee, and thank all of you for joining, and I hope all of you are staying safe. We're going to begin on slide two. And today, before Paul takes you through the detail on the financials, I thought I'd give you some thoughts on the first three quarters of 2020 and how we're driving for you here at Bank of America. As an opening comment, the economy and the markets this year have been defined more than anything else by the impact of the global healthcare crisis. This has created a sinuous path for the recovery. As we have said early on here at Bank of America and what our data continues to suggest, is that we are seeing a return to the fundamentals of a generally sound underlying economy, but we won't get there until we fully address the healthcare crisis and its associated effects. These effects have been lessened by the monetary and fiscal policies and by the core health of the U.S. consumer, given those policies. There are three key themes that I'd like to comment on. One is the economy generally, what we see in our data, and the impact of the projected path on the company's earnings and prospects going forward. The second is how do we continue to think about and manage the risk resulting from the economic downturn and the subsequent beginnings of the recovery. And the third is how we are making progress given all that backdrop on our core strategies. Before I touch on these items, just a brief summary of the quarter. Overall, solid performance given the operating backdrop we face. We earned around $5 billion after tax of 51 cents per share. We ended the quarter with capital, a capital ratio of 11.9% versus 9.5% minimum. For the third period of this pandemic, we've earned more than twice our dividends, attesting to the strong balance sheet and security of this company. The operating environment continues to require more operational excellence than ever before. It requires delivery of immediate technology capabilities across our franchise from our group of talented teammates. It also has to deliver a customer experience that can be redefined on a daily basis. It also has to meet customer demands, which have been flowed given the daily events. It has required extra costs to do the right thing to protect our teammates, our clients, and our franchise, all while processing higher transaction levels and dealing with volatility and the high volumes that come from it. It requires operos work on delivery on a day-to-day basis. This results in expense that remains elevated this quarter, as expenses from COVID. However, our discipline expense management remains well intact. We've turned the corner on these COVID costs. As we see forward in the fourth quarter, we see the cost coming back down the company. That is evidenced by the drop this quarter of $3,000 in our headcount on a quarter-to-quarter basis. And Paul will talk more about the path going forward in a minute. So let's start with the economy and its impact on our company. We saw another partial restoration of the U.S. economy. We saw that in our outside data, and we saw it in the large base of spending on our customers. As you think through the quarters, in the first quarter, our customer spending was impacted as we hit March after a strong start to the year. However, for the quarter, our customers still spent more than they did in the first quarter of 19. The second quarter saw the worst of the crisis in terms of spending. It was a 30% drop in GDP, and the spending fell deeply in April. It started to recover as stimulus, PPP, and other monetary policy kicked in in May and June. And also, the reopenings began. In the third quarter, we've seen a full restoration of spending by Bank of America customers when compared to last year. Overall, the customer payment levels in September 2020 were larger than September 2019. Year-to-date, across $2.3 trillion in spending at Bank of America, customers have spent more than they did last year. You can see that in slide 26 in attendance. This has occurred even as some of the summer 2020 stimulus programs have run their course. Our own Bank of America economic experts predict a sharp rebound in third-quarter GDP of around 30%. So simply put, we're back to 90% plus where we were in terms of GDP size. So what are we seeing as we turn in October? The spending by our consumers is still solid, about 10% ahead of last year. Deposits remain elevated and continue to grow in consumer banking and global wealth management. In global banking, deposits are flattish as customers continue to make choices about the liquidity. We are seeing loan demand stabilize, and we may have seen a trough in September. And commercial utilization rates have come down below pre-pandemic levels last year. As the economy continues to grind forward, we believe we'll see some demand recover over the next few quarters. In consumer lending, card balances appear to be stabilizing. Credit spending continues to grow. And we are growing at new accounts in our consumer card businesses. New accounts are growing in our auto lending business, and our mortgage business is stable. So this view of loan demand and more stability of balances, the ability to redeploy some of the cash balances given the now lengthier stability of customer deposits, leads us to believe that the third quarter was a trough quarter for NII, and Paul will cover more of that later. The second topic I want to touch about is going to slide three on the risks. We continue to remain focused on all the risks, whether market and trading risk, credit operational, reputational risk, given the incredible volumes and unusual working conditions that we're all in. Going back to the first quarter volatility, the concern was obviously market risk. We've handled this market risk well. And again, for this quarter, the team made trading profits on every single day. Our capital levels and liquidity are historically high levels, as I stated before, and liquidity stands at over $860 billion. Credit risk is the current focus in this quarter, and you can see the highlights of that on slide three. Charge-offs declined for the quarter. Reserve bill this quarter was on the commercial side. Mostly that's due to the specified industries that are facing still not being fully open in the length of time it may be until they reopen. Consumer card release reserves, for example. We believe we are staying ahead of the commercial risk by aggressively reviewing our portfolios. Over the last two quarters, in each quarter, we've done 100% review of all the middle market and business banking portfolios to ensure we have strong internal ratings integrity and focus on the ability to pay as well as just having liquidity. You can see an increase in the criticized exposure that comes from those views and re-ratings, but it's more focused on the certain industries, and Paul will touch on that. In the first couple of weeks, we've seen the criticized assets come back down on some of those clients to refinance. Meanwhile, overall, non-performing loans remain around $4.5 billion, with commercial basically flat to the last quarter and consumer growing around $200 million. Overall, the balance of non-performing loans remains at a modest 48 basis points to loans. This is a testimony to the decade of responsible growth this company has engaged in. Importantly, the deferral story, which we talked about the last couple of quarters, is largely over. We only have 100,000 customers remaining on deferral at the end of September. Of the $9 billion in total consumer balances that remain on deferral, $7.5 billion are mortgage loans. Those are well-secured and low loan-to-value, and among many other positive attributes, including 25% to 30% of them are in the wealth management business. all are accounted for in our reserves based on the expected losses that might come. Interesting, both car delinquencies and mortgage delinquencies are down in terms of dollar amount and percent year over year. Having said all this around credit, we don't expect to see a meaningful increase in net charge-offs until mid-next year, and we expect that the reserve builds are behind us, which means the P&L impact of those losses should be in our financials already. So then the question becomes, after managing the risk, is have we been investing in the company at the same time? And that you can see as you move to slide four. Through our continued investments in technology, we continue to improve our platforms across the board, drive operational excellence, invest in the future, all while growing core customer and client households throughout the quarter. In our commercial businesses, we're now actively prospect again, having done the reviews I spoke about earlier, fully assessing the credit quality of existing clients, and then focusing our production work on the prospects we know we can get around the country. In our consumer businesses, we continue to grow net core checking households by about $900,000 year over year and $100 billion plus in checking balances. We saw strong growth in Metal Edge in our consumer customer investment platform by $40 billion in assets year over year. We've seen depth and penetration and digital engagement across the whole consumer business. In our wealth management business, even as our advisors work from home, Our private bankers and financial advisors grew households again this quarter. In fact, we reached a record new client balances of $3 trillion. We also continued our investments in our market expansion during the third market expansion in the crisis. We added 13 new financial centers in the quarter and continued to offset that number with closures that were pre-planned before the pandemic. But here we continue to change the companies as in the digital capabilities, not only in consumer but across the board in every business. This digital enablement is the trifecta of better customer engagement and client delight, deeper penetration of products and services, and operating efficiency. And with the rollout of a new industry feature like this week's life plan announcement, where we now have 500,000 customers have already filled out a life plan financial plan over the last couple weeks. You can see these digital engagement highlights on slide four. This quarter we had $2.3 billion in total digital logins in our consumer business erica is up to 16 million users zel is at 12 million users importantly you see at the bottom of the list the digital engagement management customers through that digital platform mary lynch and private banker again proving that we're high touch and high tech this ranges from how we provide advice and personal research to how they how these Our clients have interacted with us to do things like just deposit checks, and that was up dramatically over the quarter as our advisor and clients embraced our new digital capabilities. In the middle of the page, you see the statistics for our commercial business, for our products called Cash Pro and Cash Pro Mobile. This makes our clients' lives easier and saves them operating costs. And here in the CashPro area, we've rolled out a bunch of new features and user interfaces and capabilities last week to allow companies and company treasurers to better manage their money around the world in all kinds of currencies and all kinds of environments. So in summary, $5 billion in after-tax earnings. and a solid quarter. Progress on the economic recovery, progress on the risk, but most importantly, underlying that business, strong growth in the business side, in the customer side of the business, which is what we do, and we'll continue to do it in perpetuity. With that, let me turn it over to Paul.