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 an opportunity to ask questions during the question and answer session. Please note this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn today's program over to Lee McIntyre.

Good morning. Welcome. Happy Monday, and thank you for joining the call to review Bank of America's second quarter results. I hope everyone's had a chance to review our earnings release documents. As always, they're available, including the earnings presentation that we'll be referring to during this call, on the 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 Alistair Borthwick, our CFO, to cover the details of the quarter. Before I turn the call over to Brian, just let me remind you we may make some forward-looking statements, and please refer to our non-GAAP financial measures during the call. Forward-looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Factors that may cause actual results to materially differ from expectations are detailed in our earnings materials and SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to US GAAP, can also be found on our earnings materials that are available on the website. So with that, Brian, I'll turn it over to you. Thanks.

Thank you, Lee, and thank you, all of you, for joining us today. This quarter, thanks to a great team here at Bank of America, we reported $6.2 billion in net income, or $0.73 per diluted share. We delivered on our fourth straight quarter of operating leverage. We grew revenue 6% while expense rose 1.5% for 4.5% of operating leverage compared to quarter two, 2021. We also saw a 21% year-over-year improvement in NII. These earnings generated a return on tangible common equity of 14% and return on assets of 79 basis points. As a reminder, when comparing our earnings in the second quarter of 21 to the earnings this quarter, in the second quarter of 21, we recorded two items of note. In that quarter, net income benefited by $2 billion from a tax adjustment for a UK tax law change, and that was worth 23 cents to EPS. We also released $2.2 billion in credit reserves during that quarter that benefited earnings by 1.7 billion, or 19 cents, in EPS. This would bring that quarter's reported EPS of $1.03 down in the low 60s, and that compares to this quarter's $0.73 per share. This gain is illustrated by the increase in pre-tax, pre-provision income, which would exclude those two impacts, and that was $7.4 billion this quarter, improving 15% in PPNR improvement from the second quarter of 2021. Let's go to slide three. Let's talk about some of the drivers of results. The organic growth engine at Bank of America that existed pre-pandemic is back in full place here, and you can see that in the second quarter of 2021. This reflects in net new checking account openings, net new consumer investment accounts, net new household growth and wealth management, very strong loan growth across all products, and good performance by global markets and investment banking teams, even given a quarter with volatile capital markets. Our expense management continues strong, and it benefits by the best digital banking platform in the world. Once again, we drove more users, saw more logins and usage, and that generated 20% more sales from the platform compared to last year. Our asset quality remains very strong, with net charge-offs in the second quarter of 2021 still 50% below pre-pandemic levels in late 2019 when credit was pretty good. Breaking down the performance by segment, I'd make a few comments. Our consumer banking segment continued to see good momentum as we grew loans at the fastest quarterly pace in nearly three years. We added more than 240,000 net new checking accounts in the second quarter alone. We opened new financial centers and renovated others and deepened digital engagement with both consumer and small business clients. And after considering the highly elevated consumer income tax outflows, payments of taxes, which is good for the government, we saw good deposit activity. In our wealth management segment, in a period of declining market values, where stocks and bonds had the worst first half in five decades, revenues still grow in that business 7% year-over-year, and we expanded our pre-tax margin. Our banking business with clients overcame those market values and weakness. We added more than 5,100 net new households across Merrill and private bank. Across our entire wealth platform, Merrill, the private bank, and our consumer investments team, Merrill Edge, client balances, including deposits, investments, and loans, totals $3.8 trillion at 6-30-2022, aided by nearly $150 billion of client inflows over the last year into those businesses. Our global banking team grew loans 5% in one quarter. That's 5% in a single quarter, 20% annualized. We also saw global treasury services revenue as customers utilized our services to manage their quality stand up well in the quarter. Overall revenue in global banking was impacted by the weaker investment banking fees that were available in this volatile market. Lower investment banking fees, and we also had marks as previously discussed on leveraged finance positions. Our NII improvements. nearly offset all those impacts, leaving revenue only modestly down year over year. We maintained our number three investment banking market share ranking. In markets, we had a solid quarter of sales and trading results, growing 11% from last year ex-DVA. Our macro FIC business, where we have been investing over the last couple of years, performed well, as did the equity derivatives while other FIC businesses felt the effects of spread widening and customers taking a more risk-off position. From a broader enterprise, Our P&L perspective, quarter two expense was down modestly from quarter one, consistent with what we told you on our last call. It is notable that we achieved that even as quarter two included approximately $425 million in regulatory matters that Alistair will discuss in a few minutes. As I said earlier, one of the reasons we continue to have good expense results and continued progress on digital engagement across the businesses. I commend you to look at slides 22, 27, 29 in our appendix where we set forth our digital operating results by lines of business. Overall digital sales continue to grow up 20%. Digital choice for payments continue to grow. Zelle transactions continue to out-distance checks written. Crossing over the last year, and the gap continues to widen. Erica is approaching 1 billion interactions since we started with it. Clients have filled out 8 million life plans. enhancing our asset growth and account retention. That's one of the fastest-growing product implementations we've had. It is also worth noting the strong credit quality. Most all of the asset quality metrics improved again this quarter. You will note, however, the charge-offs rose in quarter two, but this increase was largely due to some loan sale accounting and some other credit decisions due to the past pandemic issues. As I've done for several quarters, I want to make a few points about customer activity. Let's go to slide four. By our data across the 35 million core checking households plus we have in 60 million consumers in America, U.S. consumers remain quite resilient. I would offer a few thoughts as you look at slide four. In addition, I'll give you what we see so far in July in a moment. First, consumers continue to spend at a healthy pace. even as quite some time has passed since the receipt of any stimulus. Second, the overall average deposit balances for most client cohorts are higher than they were both last quarter and even rose in June versus May. They remain at multiples above the pre-pandemic levels. And importantly, we're seeing no deterioration in our customers' asset quality and they have the capability to borrow. Our customer data shows Bank of America customers spent the highest quality period on record in quarter two. At $1.1 trillion in total spending, that's up 12% year-over-year. This quarter also was the highest debit spending period on record for us. But as you think about more recently, just to give you the more recent statistics, in June 2022, spending was up 11.3% over June 2021. Transactions also rose more than 6%. For the first two weeks of July, the spending is up 10% plus, and transactions are again rising 6% plus. This is strong consumer resilience. We continue to see shifts in what people are spending on as the quarter took place, more on experiences, travel, and things like that, and a bit more on fuel due to increased prices and less on retail stores. In quarter two, we saw that higher gas spend as well as a continued recovery in the travel categories and a continued recovery in restaurant spending. On the lower right-hand chart, you'll note the continued shift in how people spend money. Check and cash volumes continue to come down and are replaced by digital alternatives. This continues to help on our cost structure. Regarding our customer equity, the average deposit balance of our customers remained at high levels relative to the year-ago and pre-pandemic periods. The large change for the mass market customers, they rose about 1% over June from May. The only area where we had any change to the negative was a small dip 1% for the most affluent segments of those customers. That reflects the tax payments made in April and the build back coming more slowly for those customers. In addition to this data, I would refer you to slides 24 and 25, which completes the resiliency picture. This shows you strong asset quality across our consumers. Also look at elevated payment rates on credit cards. That means people paying off their debt at a good clip. There's no real differentiation across the trends of customer cohorts, even for the very small portion of our card book that is in lower credit quality. So while all this is good news, it clearly makes the Fed's jobs tougher when you take these statistics and this activity and combine it with a low unemployment rate. I want to switch gears now and talk a little bit more about credit. We provided more information on credit this quarter, as would be obvious given the debate about a future recession. While others debate and discuss this potential outcome, we just continue to drive responsible growth at our company, and so we're prepared. So as you look at slide five, you can see how much the loan book has changed under more than a decade of responsible growth. As you can see in the top left chart, our loan book is quite well balanced now between consumer and commercial loans. Focusing on the top right chart, note that the consumer portfolio is even more collateralized with a greater mix of mortgage and less cards. In addition, much less second mortgage, and obviously second mortgages today underwritten clearly differently than they were in the mid-2000 to 2010 decade. And all consumer portfolios had much higher FICO's. In the bottom left chart, you'll note that more diversified commercial mix as well. And if you look at the lower right chart, you can see our results on the stress test and how they fared time and time again. When you go to slide six, we gave you a little detail on what we look like in the height of last crisis compared to where we are now. You can see the loan portfolio in 2009, when risks were at the peak for Bank of America, because this was after we'd closed the Merrill and the Countrywide Transactions, and the company was all put together. We give you those metrics, what they look like pre-pandemic, at the end of 2019, and what they look like today, and the changes we've made under that decade-plus of responsible growth. Given all these changes, 92% of our commercial loan book today is either investment grade or secured. And while there's not much difference in something like commercial real estate book, you have to look underlying to see the changes. For instance, the land development loans have decreased from $5 billion in 2009 to $200 million currently, and secured residential exposure decreased from $11 billion to $150 million now. We've also included a few slides in our appendix, pages 23 to 25, that highlight the consumer resilience and delinquency points, as well as the consumer lending statistics, highlighting this continued strong quality of all our originations. Take note of the FICOes on the newly originated activity there. So in the end, despite the worries of a slowing economy and other global issues, client activity remained good this quarter, and has improved quickly, and our customers' resilience and health remain strong. We recognize some expense from regulatory matters and still manage to keep expenses flat to the first quarter and in line with what we told you. We continue to drive strong operating leverage in a weaker capital markets environment. These earnings are delivering strong returns and delivering capital back to shareholders. In thinking about capital, remember, first, we use our capital to support customers and related loans, and we continue to invest in the franchise. Second, we are delivering capital back to you as shareholders. We now intend to increase our dividend in quarter three, which will have our dividend 22% higher than it was just 12 months ago. In addition, we retired shares this quarter. Third, we're going to be building capital given the new higher minutes received during the stress test. It will make our balance sheet even stronger. Along the way, we believe our expected earnings generation over the next 18 months will provide an ample amount of capital. which allows us to support customer growth, pay dividends, and use the rest to allocate between buying back shares and growing into our new capital requirement. And with that, I'll turn it over to Alistair.