Bank of America Corporation

Good day, everyone, and welcome to the 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 a question-and-answer session. Please note, today's call will be recorded, and we will be standing by if you should 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. Welcome and thank you for joining the call to review the third quarter results. As usual, our earnings release documents are available on the investor relations section of the bankofamerica.com website, and it includes the earnings presentation that we will be referring to during the call. I trust everybody's had a chance to review the documents. I'm going to first turn the call over to our CEO, Brian Moynihan, for some opening comments before Alistair Barthwick, our CFO, discusses the details of the quarter. Before we do that, let me just remind you that we may make forward-looking statements and refer to some 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 our actual results to materially differ from expectations are detailed in our earnings materials as well as the SEC filings available on our website. Information about non-GAAP financial measures, including reconciliations to U.S. GAAP, can also be found in our earnings materials that are on the website. So with that, Bryant, I'll turn the call over to you.

Good morning, everyone, and thank you for joining us. As usual, we're starting on slide two. Our third quarter here at Bank of America was another strong quarter as we delivered $7.8 billion in net income. That is a 10% growth over the year ago of third quarter. And for the first nine months of the year, we have earned $23.4 billion, an increase of 15% over 2022. We grew clients and accounts organically and at a strong pace across all our businesses. Our operating leverage was about flat. We improved our common equity tier one ratio by nearly 30 basis points in the quarter, to a level of 11.9% against a current minimum of 9.5%. We saw an increase in our deposits, and we maintained our strong pricing discipline. We continue to maintain $859 billion in global liquidity sources. We also delivered a good return for you, our shareholders, with a return on tangible common equity of over 15% and a 1% return on assets. Just a quick note on what we see in the economy. Our team of economists predicts a soft landing with a trough in the middle of next year. We see that in our customer data, our 37 million checking customers, we see their spending slowing down. You can see that on slide 34. The third quarter was up about 4% over last year's third quarter. Earlier this year, that would have been more of a 10% increase year over year. And for the entire year 2022, it increased 10%. round numbers over 21. This 4% level is consistent with the spending we saw in the pre-pandemic period from 2016 to 2019. That is consistent with a low inflation, lower growth economy. As we move into October, the spending is holding at that 4% level. So growing, but growing at a basis more consistent with a low growth, low inflation economy. With that, let me turn to slide three. We provide various highlights, and Alistair's going to cover a lot of this Our team continues to focus on driving organic growth, driving digital progress, and operational excellence, which keeps us focused on operating leverage. A few words on organic growth as we flip to slide four. Every business segment had organic growth. In consumer, in quarter three, we opened more than 200,000 net new checking accounts this quarter alone. We also opened another 1 million credit card accounts. We have 10% more investment accounts this year, third quarter end, than we did last year. In small business, we've seen 35 straight quarters of net new checking account growth. We've also seen good small business loan growth, and our loans are up 14% from last year. In this quarter, our small business teammates extended $2.8 billion in credit to small business in America alone. In global wealth, we added nearly 7,000 net new relationships to the Maryland private banking franchises, and our advisors opened more than 35,000 New bank accounts for the third consecutive quarter, fulfilling both investing and banking needs for those clients. We also increased our number of advisors. In the past year, across our wealth spectrum, in GWIM and in consumer investments, they have combined to gather $87 billion in total net flows. In our global banking team, we added clients and increased the number of products per relationship. Year-to-date, we've added 1,900 new commercial and business banking clients. That is more than we added in the full year last year. Even while activity is low, the investment banking team continues to hold its number three position. In the global markets, we continue to see performance establish new records for our firm. I'm going to cover that in a little more detail in a moment. As you can move to slide five, you can see the digital adoption engagement volumes continue to increase. We lead the industry in digital banking and continue to provide the best-in-class disclosures. You can find those disclosures by line of business in the appendix on slides 26, 29, and 31. We also continue to receive top accolades from third parties around these capabilities. Most important, these capabilities are valued by our clients and customers and allow us to grow with great expense leverage. Let me give you a few examples. Our consumer and marital clients logged into our consumer banking app a record $3.2 billion times this quarter. Even at this scale and stage of maturity of this operation, Logins are up double digits from the year prior. Customer use of Erica continued to beat our expectations with almost 19 million users, up 16% in the past 12 months. Cash Pro app sign-ins with our business clients are up more than 40%. And we recently added the Erica functionality to Cash Pro to help corporate clients benefit from that artificial intelligence. Likewise, Zelle uses continues to grow. Zelle transaction levels are up more than 25% from last year. and Zelle is becoming a meaningful way our customers move money. In fact, customers now send money with Zelle at twice the rate they write checks. We're nearing a period where the Zelle transactions sent will exceed the combination of checks written and ATM withdrawal transactions. As you move across the lines of business on the slide, the story is the same. All these capabilities help us deliver faster, safer, and more efficiently, and all of it gets strong customer and client feedback. When you put that together, that helps us drive operating leverage, and you can see it on slide six. We have a strong record of driving operating leverage in our company. We drove operating leverage every quarter for nearly five years before the pandemic. And then again, more recently, we've had an eight-quarter streak leading into this quarter. We acknowledged to you this last quarter that operating leverage is going to be tough for a few quarters as we navigate through the trough of net interest income. But as you can see on slide six, we managed to grow our revenue year-over-year faster than expense. in dollar terms this quarter, even though the percentage change is basically flat. Now in January, we told you we'd manage our head countdown to help make sure we got our expenses in line. Over the course of 2023, we've seen moving from 2022's great resignation to a current level of a record low attrition in our company. All that meant the team had to work harder to manage that head countdown. And they did it. Our head count is now down over 7,000 FTEs for a peak in January. even with the addition of 2,500 college grads this fall. As a result, you've seen expense decline from $16.2 billion in quarter one to $16 billion in quarter two to $15.8 billion this quarter. And by the way, we've done this without special charges or large layoffs. Expense will decline again in the fourth quarter, excluding any FDIC special assessment, of course. We expect to report $15.6 billion in expenses in 4Q. Now, interestingly enough, The debt is up only around 1% from fourth quarter of last year. This is stronger expense guidance than we thought we could do earlier in the year and sets us up nicely for next year. Shifting gears, let's focus on the balance sheet. Slide 7 shows the breakout deposit trends on a weekly ending basis across the third quarter. We gave you this chart last quarter also. In the upper left-hand, you can see the trend of total deposits. We ended quarter three at $1.88 trillion, up from quarter two, and better than industry results. What you should also note is the cost of these deposits. Our team has rewarded customers with higher rates for their investment already cashed, reinitiated deposit growth and grown share, all with superior mix and cost. You will note that we're now paying 155 basis points all in for deposits, which is up 31 basis points from last quarter. I ask that you remember two things when you think about the deposits. The rate remains low relative to many. because of the transactional nature of our deposit relationships, with $565 billion in non-interest-bearing deposits. And you can see in the upper right alone, in low-interest and no-interest checking, there's $504 billion in consumer. Secondly, remember the importance of the spread against the quarter's average Fed funds rate. This position is very advantaged compared to past cycles because the transactional counts in the current cycle are a much higher mix of Bank of America's deposits. I would also add... That while we maintain discipline in deposit pricing, we pay competitive rates to customers with excess cash seeing higher yields across all the businesses. If rates fall, those particular products will see the rates come down also. Dropping into the business trends, in consumer, if you look at the top right chart, you saw a $22 billion decline. Note the difference in the movement through the quarter between the balance of low to no interest checking accounts and higher yielding non-checking accounts. You can also see the low levels of our more rate-sensitive balance in consumer investments and CD balances broken out. In total, we have $982 billion in consumer deposits. In consumer alone, this is $250 billion more than we had pre-pandemic. The total rate paid on consumer deposits in the quarter is 34 basis points. This remains very low, driven by the high percentage of high-quality transactional accounts. Most of the quarter's rate increased is concentrated in CDs and consumer investment deposits, which are about 13% of the deposits. Turning to wealth management, balances were flat. We saw a slowing in the previous quarterly trend of clients moving money from lower-yielding sweep accounts into higher-yielding preferred deposits and off-balance sheet products. Sweep balances were down by $7 billion and were replaced by new account generation and deepening. At the bottom right, note the global bank deposits grew $2 billion and have hovered around $500 billion the past six quarters. These are generally the transaction deposits of our commercial customers used to manage their cash flows. Not interest-bearing deposits were 37% of deposits at the end of the quarter. Thinking of the balance sheet but moving to capital, let me give you a few thoughts on the proposed capital rules. As you are well aware, our banking industry in the United States is the most highly capitalized and most profitable banking group in the world. It's a source of strength for our country and its economy. The annual stress tests are now over a dozen years old, using ever increasingly harsher test scenarios have proven that capital is sufficient. Banks have proven to be a part of this solution during the more recent COVID pandemic and the banking disruption in March this year. If we add to our capital, it will reduce our lending capacity to American business consumers, and those tradeoffs are being debated. But as far as the rules are concerned, there are many parts of the rules that our industry doesn't agree with because of double counts or increased trading and market risk. And we're talking through those proposals and working, and we're hopeful they'll change. But in any event, they may not. And if they don't, how will they affect us? If you go to slide 8, you can show the expected impact as we interpret those proposed rules. This assumes that they're proposed today without any changes. The proposed rules would inflate our risk-weighted assets by about 20%. So if I apply the inflation against... This quarter's RWA of $1.63 trillion. That means if nothing else changed in the rules, we'd end up with about $320 billion more risk-weighted assets. The biggest increase in RWA would be a couple hundred billion dollars in operational RWA. The next biggest category would be driven by a four-fold increase in the RWA against non-publicly traded equity exposures. In our case, that really is mostly about the tax-advantaged investments in solar and wind. Looking at the capital be held against the inflated RWA on the right side of the slide, I'd remind you today that our minimum capital requirement is to hold 9.5% in common equity tier one. But based on our G-SIB charges that are going to come into effect on January 1st, 2024, we moved to 10%. So I'm going to use that as a requirement. Holding 10% today means $163 billion. We finished the third quarter with $194 billion. So today we have more than $30 billion excess capital. Now let's assume the proposed change is going through in full. Those proposed changes are phased in from the middle 25 to 28 under the current proposal. When those are fully phased in, as we used to call Basel fully phased in, if you remember, we would have a need for $195 billion of total capital. Now if you look on the upper right-hand side of the page, you'll see that today we're at $194 billion. So we hold the required capital today. And, of course, we'd have to build a buffer to that throughout the implementation period. But if you look at the bottom of the page, you can see just in the last nine quarters the kind of capital generation this company has. Once we understand the final rules, we'll, of course, have a chance to optimize our balance sheet and appropriately price assets to improve the return on tangible common equity. Now, before I turn over to Alistair, I just wanted to highlight one of the businesses that we've talked about over the many years. That's our global markets businesses. Global markets represent 17% of the company's year-to-date earnings and is one of the top capital markets platforms in the world. It's one of a handful of firms that can do what it's due, providing advice and execution in every major market around the world. Jimmy DeMara and the team who run the business asked us for an additional investment around four years ago, and they've grown this business with an intensity that clients have appreciated and rewarded us with more of their business. This has produced strong revenue growth. We've grown the balance sheet here but have done it efficiently. That's allowed us to grow sales and trading revenue over the past 12 months consistently. Now stands 32% higher than the average of the five years leading into the pandemic in the investment in the business. And through effective cost management, we also generate 11% to 12% returns on capital in this business. This exceeds our cost of capital, even as we continue to allocate more capital to the business. Returns are even larger if you combine it with the global banking business that many show the businesses combined. because our corporate clients also take advantage of these industry-leading capabilities. With that, let me turn over the call to Alistair to walk through the quarters. Alistair.