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 if you should need any assistance. It is now my pleasure to turn today's conference over to Lee McIntyre. Please go ahead.

Thank you, Catherine. Good morning. Thank you for joining the call to review our third quarter results. Hopefully you've all had a chance to review the earnings release documents. As usual, they're available, including the earnings presentation that Brian and Paul will be referring to during the call. They're available on the Investor Relations website of bankofamerica.com. So I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments. And then Paul D'Onofrio, our CFO, will 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 I would ask you to refer to non gap financial measures during the call recording regarding various elements of the financial results. forward looking statements that we make are based on management's current expectations and assumptions and they're subject to risks and uncertainties. Factors that may cause the actual results to materially differ from expectations are detailed in our earnings materials and the SEC filings available also on our website. Information about the non-GAAP financial measures, including reconciliations to US GAAP, can also be found in our earnings materials, and those are available on our website. So with that, let me turn it over to Brian. It's all yours.

Thank you, Lee, and good morning to all, and thank you for joining us. This quarter, the economy continued to make solid progress, and our clients continued to perform well, having adjusted to the operating environment. Many companies are making healthy profits, and our research team expects another strong quarter of profits by American businesses. We reported $7.7 billion in net income, or 85 cents per diluted share in the third quarter, up significantly from the year-ago period. We've now earned over $25 billion through the first nine months of the year. This quarter's strong results include some themes I want to highlight ahead of Paul going through the details on the quarter. So prior to the pandemic, Bank of America was growing and creating operating leverage quarter after quarter after quarter. As I said last quarter, the pre-pandemic organic growth machine has kicked back in. You see that this quarter and is evident across all our lines of businesses. In addition, this quarter we saw the return of operating leverage. We also saw another quarter of solid loan growth. The good news is that the nature of this growth has broadened in the third quarter, even as commercial banking utilization rates have improved somewhat. NII has improved significantly, reflecting the many quarters of growth in deposits and now loans. It also reflects a steady management of the interest rate risk and deployment of cash from our core deposit growth. At the same time, we still have a high level of asset sensitivity. We invest in our core deposits, And that supported stability in NII over the last year as rates and loans declined. What that did is bridge us to where we are now. This quarter, where growth in loans and other factors have led to an improvement in NII and in NIM, strong free growth has complemented that NII improvement. And with expenses moving sharply lower, we saw a notable return of operating leverage. Year-over-year, our revenues were up 12% and the expenses were flat. Our efficiency ratios improved to 63%. As I've done in the past, I wanted to spend a moment on what we see in our consumer data. Let me hit a few slides, beginning first on slide three. The improvement in the vaccination and hospitalizations, all the things you know about, have seen the U.S. economy continue its reopening trajectory following a modest slowdown from the surge in cases caused by the Delta variant. Where there's been some discussion around the slowdown, I would just note that the U.S. economy is now as large as it was in the pre-pandemic. Our own research team, not being in transit at all, expects the U.S. economy to grow 5.5% plus this year and 5.2% next year. These growth rates are more than twice the growth rates that occurred in a pre-pandemic decade or longer. Unemployment rates continue to fall back to pre-pandemic levels. While the U.S. still has issues around labor supply and supply chains of materials, the economy is moving along. Looking at our own customer base and consumer spending, I'd offer you a few insights. Third quarter total Bank of America consumer spending, you can see it on the lower left-hand part of the slide. Payments were robust. They reached $937 billion, up 23% over 2019 for the quarter, and a similar percent of growth over 2020. September was the best month of the year, and we've seen that spending rates continue through the first part of October. Combined spend on total on debit and credit cards, which is a subset of this total, about 20-odd percent of it, in that retailers and services remain strong. In third quarter 21, we continue to see spending shift toward travel and in-person entertainment, as well as fuel driven by both increased use and higher fuel prices. Year-to-date, as you can see in the chart, are total payments of $2.8 trillion by our consumers. Our 22 percent have had it at the 2019 levels. In the chart on the right, you can see how fast the growth phase occurred this year. And that's another economic signpost to the steady recovery. Now, as we turn to loan growth on side four, you can see this chart that we've been presenting to you for the last several quarters. Why do we show you this? We wanted to show you that as we hit the bottom, the inflection point and what happened a couple of quarters ago. And this chart gives you a sense of the daily progression across those quarters. As you can see, every loan category has seen improvement. And if I showed you this by our lines of business, you would see similar progress across each one of them. Overall, ending loans excluding PPP loans, which are in the forgiveness process, as you well know. Overall, those loans increased $16 billion linked quarter. And if you look at the commercial portfolio, they grew $11 billion quarter over quarter. Compared to growth in Q2, growth this quarter was broad-based across global banking and global markets in the commercial space. CNI growth was driven in part by improved calling efforts from commercial relationship managers that we deployed across the world, including in addition to a growing demand for credit. As you might note, we've invested in hundreds of relationship managers in our commercial lines of business, and those investments are now bearing fruit. Loans with our wealth management clients continue to grow this quarter, as these customers borrow for the reasons they borrow for liquidity and asset purchases and other things. Interestingly, in our small business area, we're seeing the business stabilize and start to grow. One of the areas is our practice solutions group. What that group does is lends to medical, dental, and veterinary practices. They've continued to see momentum and are on the pace to the best year they've ever had. Now turning to consumer loans, the American consumer continues to borrow from Bank of America. Card loans grew 7% annualized from quarter two levels with increased spending. But as you well know, repayment rates trends remain high. All products in the consumer side except the home equity balances had higher balances for the quarter. The decline in home equity balance is understandable given the prepayments in mortgage loans, et cetera. But still, we saw $1.5 billion in originations this quarter, up more than 50% from last year's third quarter. Now turn your attention to slide appendix not to cover it now, but you should take a look there and you'll see the true loan lending business on the bottom left-hand side of that slide. And you'll see without the volatile PPP in and out that's occurred because of the program design. The loans this year in those lines of business are basically within 1% of where they were last year. And we can grow out from here. Moving to slide five, we want to show the continued reemergence of the pre-pandemic growth machine of Bank of America. We give you a few highlights. On the deposit side, we grew net consumer checking accounts, which is the primary transaction account for our consumers, 93% being primary, for the 11th consecutive quarter. This drove the continued growth in deposits in our leadership position in U.S. retail deposit market share, reaching $1 trillion of deposits in our consumer segment alone. On credit cards, we crossed back over a million new card productions. That's the same level as we were pre-pandemic. New investment accounts have increased 9% during the pandemic. Digital progress has occurred across every business, and you'll see that in Paul's slides later. And that's increased sales of products and high use of digital platforms. This bodes well for future sales levels and for future efficiency. Sales of banking products in Merrill Lynch and the private bank have remained strong, and with the return to in-person meetings, we should even see them grow stronger. We have seen year-to-date ASSETS UNDER MANAGEMENT FLOWS GROW IN A NEARLY TRIPLE COMPARED TO YEAR-TO-DATE 19. IN MARKETS AND BANKING, WE HAD NEAR-RECORD QUARTERS OF BOTH INVESTMENT, BANKING, AND EQUITY TRADING REVENUE. SO THESE ARE JUST A FEW EXAMPLES OF THE CUSTOMER GROWTH WE ARE SEEING. POINTER TWO ON CAPITAL. THIS QUARTER'S LEVEL OF PROFITS COUPLED WITH OUR EXCESS CAPITAL ALLOWED US NOT ONLY TO PAY HIGHER DIVIDENDS TO SHAREHOLDERS, but also to buy back $10 billion in shares. In total, we return $12 billion to our shareholders through these actions, proving that we can support our customers in a growing economy, support our teammates with great pay and benefits, and support our communities, as I'll describe in a minute. But above all, and return capital to you, our shareholders, and drive good returns for you. Going to slide six, with regard to how our teams are delivering more broadly in our communities, we gave you in slide six an update on a $1.25 billion commitment. To date, we have directly funded nearly $400 million, about one-third of that commitment. This includes $36 million completed in equity investments in MDIs and CDFIs, $300 million in equity investment commitments to minority-focused funds to support minority and women entrepreneurs and businesses, and $70 million of directed philanthropic giving directed at the priorities shown on the slide, in addition to the amount we usually give on a yearly basis. Now, it's worth noting that in addition to the equity investments, we have $2.1 billion in deposits in CDFIs and MDIs, the largest in the U.S. doing that. If you go to the next slide, slide seven, this is what we're doing with our customers to help them live their financial lives even better. It highlights the products and services charting the financial well-being of our retail clients, particularly in the low to moderate income areas we serve. This includes our commitment to our Pathways program, where we hire teammates from our local communities to serve our communities and be successful in our company as a company of opportunity for them. We recently re-upped to hire another 10,000 teammates from our communities over the next five years. That's because we completed the first 10,000 a year early. The unified ways in which our teammates and local markets do a spectacular job of approaching both banking from a global scale and both banking from a local community is unique and delivers every day for us. It's been a great job by our team this quarter, and I want to thank them. Now I'm going to turn it over to Paul. But as you know, Paul has been our CFO since 2015 and has done a spectacular job with our company. He's going off to help us do some interesting things in the company, and I just want to congratulate and thank Paul for his support. And now I'll turn it over to him to take you through his last earnings call. Paul. Thanks, Brian.