Bank of America Corporation

Good day, everyone, and welcome to the Bank of America first 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 star and 1 on your touchtone phone. Please note today's call is being recorded, and it's now my pleasure to turn the conference over to Lee McIntyre. Please go ahead.

Good morning. Thank you for joining the call to review our first quarter results. Hopefully you've all 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 new and improved investor relations section of the bankofamerica.com website. I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments. And then I'll ask Paul D'Onofrio, our CFO, to cover the details of the quarter. Before I turn the call over to Brian and Paul, let me just remind you that we may make forward-looking statements and refer to non-GAAP financial measures during the call regarding various elements of the financial results. Our forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. particularly during the pandemic period we've been operating in. Factors that may cause those to be different are detailed in our earnings materials and the SEC filings that are on our website. Information about the non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are available on the website. So with that, I will turn it over to you, Brian. Take it away.

Thank you, Lee, and thank all of you for joining us. It's been a year since we first reported our results, which would include the health crisis impact. But what we see different now is we see an accelerating recovery versus the economic uncertainty that we would have faced the last year at this time. The most recent economic indicators reflect an economic recovery that has gained momentum and continues to be supported by fiscal and monetary policies. From our company's perspective, we have emerged as an even stronger company and competitor than what we were when we entered the healthcare crisis. Compared to last year, Bank of America's balance sheet has higher capital ratios, higher reserves, with lower charge-offs and record liquidity. Our diverse business model with leadership positions across all our businesses has helped us earn our way through the crisis. Our global markets and global wealth management businesses, which would typically benefit from this healthy capital markets environment, continue to perform well this quarter. Our consumer and global banking businesses also perform well. But this is after being more negatively impacted for several quarters by the interest rate environment and credit costs. These businesses now are in full recovery mode or out generating new assets and new relationships with our clients. All this work by my team, which we're very proud of here, has led to EPS in the first quarter of 86 cents per share and a return on tangible common equity of 17%. Paul is going to take you through the details in a moment. But simply put, we believe our decade-plus long dedication to responsible growth has put us in a position to both earn more money and deliver more back to you, our shareholders. Our announcement this morning regarding share repurchases highlights our intention to increase those repurchases over the coming quarters as the current restrictions are lifted by the Federal Reserve. So first, let's discuss the recovering economy. On slides three, four, and five, we've shared slides like this with you the last few quarters. They are updated for the most quarterly data. They highlight the key economic signposts. I won't go through all the details on them, but they're there for your reference. But a few highlights. Obviously, GDP consensus projections continue to improve, and you can see our tremendous best-in-class Bank of America research team's projections in the upper left-hand corner of slide three. You will note also the increases in the consumer spending from our Bank of America customers at the bottom of the slide, which is not only much higher than the prior year, when payments began to climb, but notably is much higher this year to date than year to date 2019, a more appropriate comparison. This is a key element of the economic optimism you're seeing reflected in the market. Looking back to 2017, after tax reform and other matters, we saw a step change in money movement by our customers, moving from previously a 5% year-over-year type of growth rate to up to 9% in 2019 versus 2018. Then the pandemic hit and growth of 20 over 19 was only 1%. But so far year to date, we're going faster on a larger base than the 2019 9% plus growth trend at 10% plus. The first quarter was a record dollar amount of money moved by Bank of America consumers. The trend is fully on track, even though the economy is not yet fully reopened. March was a record month of spending by Bank of America consumers and led to the highest ever quarter of consumer spending. As you look also on these slides, note on slide 4, the lower level of card delinquencies as a spike from the expired deferrals in the FUFRA that accompanied that has worked its way through the charge-offs. In addition, early stage delinquencies are at or near historic lows, suggesting low levels of card charge-offs again next year, the next quarter, excuse me. As the economy has improved, customers have continued to increase their business across our platform. When you think about it from the customer's perspective, which is what we do as a business, and comparing across the pandemic period of the last 12 months, we have simply added more customers across every line of business. And those customers are more digitally engaged in every business as well. You're going to see later on slide 17 that we added nearly 1 million active digital customers this quarter. pushing us past 40 million active users, led by increased use by boomers and seniors. We have more deposit and cash management customers and balances in every business from consumer to small business to Merrill Lynch to private bank, the business bank and the commercial bank across the whole franchise. New investment relationships in our consumer businesses Merrill Edge platform now total more than 3 million accounts, and net new households continue to grow both in Merrill Lynch and the private bank. We saw aggregated client flows across our investment platforms of $48 billion in the quarter, bringing those total investment assets over $4 trillion with a range of those capabilities from our digital-only capabilities in our consumer business all the way through the great service and capabilities provided by our 20,000 wealth advisors. We added new lending customers, whether through PPP and small business and business banking, and along with broader traditional banking relationships to our middle market and corporate clients. and we've helped existing and new clients attain funding to tax this market through our sales and trading investment banking platforms. Combined sales and trading investment banking revenue of $7.3 billion is the highest in a decade and is up 28% year over year. Jimmy DeMar and Matthew Coder and the teams led by Tom Montag have done a great job there. Our customer satisfaction levels across all these groups of clients rose during the pandemic, and the brand loyalty of our company is at the highest it's been. We also note that our employee engagement is at the highest aspect. And we have driven our success to our teammates this quarter, and you'll note in our expenses, with another broad-based bonus plan, which is the fourth time we've done this. And with support provided to the communities we serve, our employees' sense of pride in our company and what it does has reached a new level of satisfaction. So with that being said, we do have some work to do in certain areas, as we have for the last decade. I'd highlight those three areas with a couple comments on each. Those areas are loan growth, net interest, income, and expense. On loan growth, there continues to be a lot of liquidity in the system, and customer payments remain high, which impacts our loan balances. And this is across the whole consumers and companies. Pipeline origination improving, but remain below pre-pandemic levels. We've reinstated all our credit standards back to where they were before the pandemic. and we remain highly focused on capturing loan growth as the economy expands and continues to recover. The projected economic growth should cause a need for companies to borrow, build inventory, increase hiring and invest, and do what they do in their businesses. As you can see from slide four, global banking loans, after falling in January, appear to have stabilized again in March. We'll have to see how this plays out, but this month of March was a good sign. Pipelines continue to build, but line usage remains low. Card applications and mortgage originations continue to increase in each of the last three quarters. This along with mortgage rates moving higher and driving lower prepayments and runoff of current mortgage loans sets up consumer loan growth. That strong customer liquidity obviously negatively impacts loan growth, but it has benefited credit costs. We saw quarter one net charges remain below pre-pandemic levels in dollars and percentage, further supporting reduction in our credit reserves this quarter. On net interest income, we told you six months ago that we believe the third quarter would be the trough, and it has proven to be so. Despite the drawdown of loans and two less days of interest in this current quarter, and I was flat to fourth quarter of last year. As we move through 2021, we believe the benefits from a steep and straight curve should begin to work its way into our revenue driven by continuing investment of our liquidity as well as picking up those lost days of interest. In thinking about the expected NAI trajectory this year, in the year ahead, I would set the stage as follows. If the forward interest rate curve materializes and we see modest loan growth in the later quarters of the year, we ought to see NAI, as we exit the fourth quarter of this year, a billion dollars a quarter higher than the most recent level of $10.3 billion in this quarter. The last area I would highlight is expense. We had a large expense this quarter driven by several factors. Some were seasonal impacts, some were good news and that their volume and revenue driven impacts and others were not typical of our normal operating expense due to charges taken. We expect a significant decline as you look forward to the second quarter 2021 in expense. We've seen the headcount in our company start to work its way back down due to attrition, especially as the specialized programs begin to run their course. I'd also remind you that the first quarter is typically elevated for payroll tax expense, and this year was about $350 million. Next, I would say roughly $500 million of our increase is driven by the improved activity and higher revenue, which, of course, is a positive. It's what we're in the business to do. The items I classify as differing from our typical costs were as follows. First, given the progress made in our digital engagement with our customers and other customer traffic behavior, we will continue to rationalize real estate for our teammates and our customers and record an impairment charge to do that of $240 million in a quarter. Second, a portion of the equity awarded last year for last year's work for our global banking markets teammates had a different retirement rule. And as previously reported, we changed that retirement rule, which caused that to accelerate in full this quarter instead of being amortized over the next four years. Other costs worth noting include severance costs and special incentive award recognizing a broad base of 200,000 teammates for their outstanding efforts during this pandemic. That award for the fourth time is built on shared success awards the three times prior that was given in three previous years. Additionally, COVID expense remains elevated as we continue to help our clients through the various assistance programs established by the government, PPP, unemployment claims, stimulus payment disbursement, and PPP forgiveness. But broadly speaking, we have done a great job in helping customers with these programs. We've now originated almost 500,000 PPP loans and have obtained forgiveness for our clients for 200,000 of those. We've processed $180 billion in unemployment claims and $73 billion in EIP stimulus payments. Paul is going to share a bit of the details in the quarter's expenses, but even after absorbing these expenses, our PPNR rose from fourth quarter. As we ended last year, we talked about a target for this year's expenses, meaning 2021 fiscal year expenses, to be similar to the $55 billion level in 2020. Given the charges this quarter, we would increase that target by about $1.5 billion. However, I just want you to keep some perspective here. We reported 57 billion dollars in expense for the year 2015. 6 years ago, even though all the investments we've made in technology and the build out of branches and new markets, new sales resources, and just having more customers, more activities, the inflation and healthcare and real estate and other costs. Moving our teammates are starting wages from 15 dollars to 20 dollars an hour during that time period. We are targeting 2021 expense. At roughly to where it was in 2015, 6 years later, and a lot bigger company. Later that discipline and operational excellence is what we do, and you should expect us to continue that. So, in summary, this quarter, we, we can drove responsible growth. We support our employees by keeping them safe and rewarding their efforts in the pandemic. We support our customers by providing strong balance sheet and resilient systems to transact. We support our communities by supplying critical funding and driving improvement toward racial and social equality with our increase in our $1 billion commitment to $1.25 billion. We've already delivered over $300 million of that commitment. At the same time, we delivered to you, our shareholders, $8 billion in earnings. generating return on 10 years of common equity of 17% and return $5 billion in capital to the shareholders in the first quarter. This shows you we can both deliver for your shareholders and deliver for our customers, our employees, and other stakeholders in society. With that, let me hand off to Paul to cover the quarter in a little more detail.