Bank of America Corporation

Good day everyone and welcome to today's Bank of America second quarter earnings call. 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 today's call will be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Lee McIntyre. Please go ahead.

Thank you, Chloe. Good morning, everyone. Thank you for joining us to review the second quarter results. Our earnings release documents are available on the investor relations section of the bankofamerica.com website. Those documents include the earnings presentation that we'll make reference to during the call. Brian Moynihan, our CEO, will make some opening comments before he turns the call over to Alistair Borthwick, our CFO, to discuss more of the details. Let me just remind you that we may make forward-looking statements and refer to 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 and the SEC filings 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 our website. With that, Brian, I'll turn the call over to you.

Good morning, and thank all of you for joining us for our second quarter of 2025 earnings results. First, a couple words on environment. We continue to see a solid consumer. Spending data, as you can see on our page, 21 of the deck. Improving credit quality, Alistair talked about from already strong statistics, plenty of household net worth growth in the market growth, and also the cap balances, again, staying strong above where they were pre-pandemic. We see solid commercial loan growth, and we see good credit quality, with the exception of CRE and office, which we'll talk about. We also see our clients continue to seek clarity with the changes in trade and tariffs, and now with the tax bill passing, we can see them start to understand the future and expect them to behave accordingly. We saw improving market conditions during the quarter, and that leads our worldwide leading research team to continue to predict no recession, a modestly growing economy, about 1.5 percent at the end of the year, and continued no recession. the Fed rate cuts until next year. So with that backdrop, we talk about our second quarter. Key points on the second quarter are as follows. We produced another solid quarter of revenue growth, earnings, and returns. The second point is these earnings are driven by strong organic growth across all the businesses. The third is we continue to drive technology innovation, both on the product side that we offer our customers, but also on the operational excellence side. We're continuing to see the benefits of our long-term investment in technology capabilities, digitization, machine learning, and now we're starting to see at the beginnings the AI practices that we develop pay off, and we're looking forward to much more. On slide two, we start the earnings discussion. This morning we reported revenue of $26.6 billion on an FTE basis, net income of $7.1 billion after tax, and earnings per share of $0.89 for the second quarter. On a year-over-year basis, We grew revenue 4% and grew earnings per share 7%. We produced a return on assets of 83 basis points and return on tangible common equity of 13.4% in the second quarter. We produced $14.8 billion in NII, a record for the company, growing 7% from the second quarter in 2024. This represents the fourth quarter of NII growth in line with the guidance we've been giving you. Supporting that, average deposits have now grown for eight consecutive quarters, and we have achieved this while maintaining very disciplined deposit pricing. That's great work by our teams. Markets-related revenue gained momentum throughout the quarter. We recorded our 13th consecutive quarter of year-over-year sales and trading growth. Jim DeBar and the team continue to do a good job there. Revenue was up 15% over the prior year quarter. We also produced more than $1.4 billion in firm-wide investment banking fees, and the quarterly results improved as each month of the quarter progressed. We reported expense below $17.2 billion this quarter, $600 million lower than the first quarter of 2025 in line with the expectations we gave you. We reported our sixth consecutive quarter of net charge-offs at around the $1.5 billion level. This is a little bit of a tale of two cities. Consumer net charge-offs were lower. Setting that, we had elevated commercial real estate office charge-offs. We resolved a number of credits in this quarter, in the second quarter. When those credits close in the third quarter, you'll see the reduction in MPLs related there, too. The good news is that most of those second quarter charge-offs were previously reserved, so it had a modest impact on the profitability for the quarter. We provided capital in support of our customers and clients to help them grow. For example, we delivered strong commercial loan growth, as you can see. We also provided more balance sheet to our institutional clients for their financing needs. At the same time, we also increased the capital return to our shareholders. In the second quarter, we repurchased $5.3 billion in shares and paid $2 billion in dividends. In the first half of 2025, we have returned $13.7 billion in total capital, 40% higher than the first half of 2024. Tangent book value per share continued to grow this quarter. Let's move our discussion to organic growth. You can see that on slide three. We added new clients and deepened relationships with our existing clients. That was across all our businesses, consumer, wealth, commercial, and our markets business. Our teams are winning in the marketplace by putting the client first. For example, in consumer banking, we continue to grow primary checking accounts. We grew average consumer deposits for a third consecutive quarter. Balances are up year over year for the first time since 2022, putting the effects of the pandemic surges behind us. This quarter, we grew across the milestone of 5 million net new checking accounts over the last six years. We saw increases in the average consumer checking account balance of our clients for two consecutive quarters, and now the average balance per account is over $9,200 and 92% of the primary checking account in the household. On the investment side, our clients carry an average funded balance of more than $130,000, strong when compared to the industry. Our home and auto originations grew on a year-over-year basis this quarter. We continue to be a leading supplier of credit to small businesses, helping the core segment of the economy grow. Loans were once again up year over year and reflecting the commitment to add more bankers in the markets that we serve across the United States. In wealth and investment management, client balances reached $4.4 trillion. We saw strong AUM flows and loan demand, as well as market appreciation. Our advisors continue to deliver comprehensive banking solutions to help our clients achieve their goals. In our global banking business, client activity remains solid. Commercial clients are actively using their credit facilities, albeit at still a lower level than they used them as a percentage prior to pandemic. And our risk management approach remains very disciplined. We added more than 1,000 net new clients, most of them driven by our payments capabilities. Global markets continue to perform well with a record second quarter level of sales and trading revenue. Institutional clients sought funding of their warehouse of loans and other needs at an increased pace with high-quality collateral. Organic growth means that we're also investing in our own capabilities, our people, and our technology to serve our clients more effectively. Those investments have led to continued expansion in digitalization and engagement across all our lines of business. Nearly 80% of our consumer households are now fully digitally engaged, and they have benefited from our award-winning platforms. Just to give you a sense of the volumes, in the second quarter alone, 4 billion logins were made by our consumer. In the second quarter, 65% of our consumer product sales were digital. You can see all these trends in our disclosures on slides 24, 26, and 28 in the appendix. I commend you to review them to see how the technology application can be scaled and applied across the businesses. We also continue to invest in our teammates and are moving more money into the AI side and machine learning side. And as we think about the quarters ahead and the operating leverage returning in the company due to the NII growth, it's key to note we have fully absorbed the cost of the last several years of inflation and wages and other third-party-provided services. Fifteen years ago, to make an understanding of how much an impact technology has had, fifteen years ago the company had a headcount of 300,000. Today we have 212,000. We did that with a relentless application of scalable, secure, resilient technologies. Customer behavior also changed and matched it. Digitization, simplification of products, machine learning, and models, and process improvements helped us get there. Now we have a chance to capture the value of that with the new enhanced capabilities of AI and machine learning. Artificial intelligence allows us to change the work across many more areas of our company, effective than prior tools allowed us. We have deep scaling experience in AI capabilities. With Erica, our AI assistant is the most recognized aspect of that. As you can see on slide four, we think about the way we apply artificial intelligence and augmented intelligence in four different pillars. AI agents, search and summarization, content generation, importantly coding and automated processes. First off as an example is our virtual assistant, Erica. This is a model we introduced back in 2018 and developed prior to that. It was a first true banking industry virtual agent. It averages over 58 million interactions per month today, helping to make it easier for clients to bank how they want and where they want. We also leveraged Erica capabilities for use to our commercial clients and cash pro, as well as with our employees in Erica for employees. To give you a sense, 90% of our more than 210,000 teammates have now utilized Erica for employees to complete such tasks as password updates, equipment refreshes, et cetera. In wealth management and our other relationship manager banking businesses, AI is helping those relationship managers and advisors search and summarize information, preparing them to deliver personalized planning and personalized pitches to clients for their business and help with their advice. Co-pilots help them organize the prospecting process, and all this is implemented in going through the system. In our operations group, AI tools help improve our process around customer satisfaction. Chat-based AI product works between markets and operations and allows us to have 750 people engaged with AI agents to allow them to reconcile trades, which has saved many FTE already. In addition, as you can see, we have 17,000 programmers using AI coding technology today, saving 10% to 15% in code generation costs, and we expect that to continue to rise. Overall, we have 1,400 AI patents and have created over 250 AI and machine learning models in the company. We're currently working through many dozens of our AI proof of concepts beyond what I just spoke about. These investments are intended to help both improve the client experience and our own productivity. So if you think about the quarter before I turn it over to Alistair, just a few points. We saw good organic client activity. We enjoyed good growth in revenue and earnings per share. We continue to invest in that growth. and are beginning to see the impacts of AI, again, aiding our efficiency. We managed risk well. That drove healthy returns. And we kept delivering more capital back to you as our shareholders. With that, I'll turn it over to Alistair.