The operator introduces the Bank of America Earnings Announcement and reminds participants that the call will be recorded. Lee McEntire, Investor Relations, welcomes everyone and introduces CEO Brian Moynihan and CFO Alastair Borthwick. Moynihan discusses the strong third quarter results, with $7.8 billion in net income, a 10% increase from the previous year. He also mentions the possibility of forward-looking statements and non-GAAP financial measures.

The company has seen a 15% increase in earnings for the first nine months of the year, with strong growth in clients and accounts across all businesses. They have also improved their common equity Tier 1 ratio and maintained a strong pricing discipline. The company predicts a soft landing in the economy and has seen a slowing in customer spending. The company's focus on organic growth, digital progress, and operational excellence has resulted in growth in all business segments, with over 200,000 net new checking accounts and 1 million credit card accounts opened in the third quarter alone.

The company has seen significant growth in various sectors, including a 10% increase in investment accounts, 35 straight quarters of net new checking account growth in small business, and a 14% increase in loans. They have also added thousands of new relationships and advisors, as well as $87 billion in net flows. In addition, the company has seen record digital adoption and engagement, leading the industry in digital banking and receiving top accolades for their capabilities. This has allowed for growth with great expense leverage, demonstrated by a record 3.2 billion logins to their consumer banking app this quarter.

In the fourth paragraph, the speaker discusses the impressive growth and success of various capabilities and services offered by the company, including logins, the use of Erica, CashPro App sign-ins, and Zelle transactions. The company has a strong record of driving operating leverage and has managed to grow revenue faster than expenses despite the challenges of the pandemic. The company has also been able to manage headcount and attrition levels effectively.

The team has successfully reduced headcount by 7,000 FTEs and lowered expenses without special charges or layoffs. The debt has only increased by 1% from the previous year. Deposit trends show an increase in total deposits and a higher cost for deposits, but this is still low compared to industry standards. The majority of deposits are non-interest bearing, and the spread against the average Fed funds rate is important to consider.

In the current cycle, Bank of America's transactional counts are mostly comprised of deposits, which is beneficial compared to previous cycles. The bank maintains discipline in deposit prices and pays competitive rates to customers, but if rates fall, the rates for these products will also decrease. In the consumer sector, there was a $22 billion decline in deposits, with a shift towards higher-yielding non-checking accounts. The total rate paid on consumer deposits remains low at 34 basis points, mostly due to high-quality transaction accounts. Wealth management balances were flat, with a slowdown in clients moving money from lower-yielding sweep accounts to higher-yielding preferred deposits. Global banking deposits have remained around $500 million for the past six quarters, with noninterest-bearing deposits making up 37% of total deposits.

The proposed capital rules would have a significant impact on the banking industry in the United States, which is currently highly capitalized and profitable. The rules would increase risk-weighted assets by about 20%, with the largest increase in operational RWA and a four-fold increase in RWA for non-publicly traded equity exposures. This would result in a need for banks to hold more capital, with the minimum requirement currently at 9.5% for Common Equity Tier 1. The industry is working to address concerns with the proposed rules, but there is uncertainty about whether they will be changed.

The company's G-SIB charges will increase to 10% on January 1, 2024, requiring $163 billion in capital. However, the company currently has $194 billion in excess capital and will meet the proposed changes when they are fully phased in. The company has generated significant capital in the last nine quarters and plans to optimize its balance sheet and improve its return on tangible common equity once the rules are understood. The Global Markets business, which represents 17% of the company's earnings, has seen strong revenue growth and efficient balance sheet growth since receiving additional investment four years ago.

In the past year, the company has consistently grown its sales and trading revenue, with a 32% increase compared to the five years before the pandemic. This has been achieved through effective cost management, resulting in returns on capital exceeding the cost of capital. The summary income statement shows a 3% increase in revenue, driven by improvements in net interest income and sales and trading results. Expenses were reduced from the previous quarter, while asset quality remains strong. Provision expense for the quarter was $1.2 billion, reflecting a trend towards pre-pandemic levels.

The article discusses the financial results of the company, including a charge-off rate of 35 basis points, which is slightly higher than the previous quarter but still lower than the fourth quarter of 2019. Delinquencies and tax rates also remained stable. The balance sheet saw a $31 billion increase, primarily due to an increase in available for sale securities and a decrease in hold to maturity securities. Cash levels remain high and shareholders' equity increased by $4 billion. The company paid out dividends and bought back shares during the quarter. Tangible book value per share increased by 12% year-over-year.

The regulatory capital of the bank has improved, with a CET1 ratio of 11.9% and a supplemental leverage ratio of 62%. Loan growth has slowed due to a decline in demand for commercial borrowing and higher funding costs. Average deposits have increased significantly compared to pre-pandemic levels. The bank has been managing its excess liquidity and has been able to extract value from it to benefit shareholders. The excess of deposits needed to fund loans has increased from $420 billion to $835 billion.

The excess liquidity of $1.1 trillion at the company consists of a mix of cash, available-for-sale securities, and hold-to-maturity securities. In late 2020 and 2021, the company increased the hold-to-maturity securities portion to lock in value from deposits. The cash and available-for-sale securities represent 47% of the total, with a duration of less than six months. The hold-to-maturity book has grown to $600 billion, with a majority in treasuries and mortgage-backed securities. The decline in hold-to-maturity securities was driven by a reduction in mortgages, and the proceeds were invested in higher-yielding cash. This has resulted in a combined yield of over 3% for cash and securities.

The net interest income (NII) for the portfolio has increased significantly and is now 200 basis points higher than the peak size in the third quarter of 2021. It has also grown faster than the rate paid on deposits, reaching 178 basis points above the deposit rate. The valuation of the hold-to-maturity book has declined due to high mortgage rates, but the regulatory capital has increased and global liquidity sources are in excess of $850 billion. The NII, excluding Global Markets, has improved since the third quarter of 2020, reaching $13.9 billion in the third quarter of 2023. The NII for the fourth quarter of 2023 is expected to be around $14 billion, leading to a 9% growth in NII for the full year. It is anticipated that NII will remain around this level for the first half of 2024, with modest growth expected in the second half.

The article discusses the projected growth of NII in the fourth quarter of 2024, with an expected increase in the middle of next year. This projection is based on several assumptions, including interest rates and loan and deposit growth. In the current quarter, NII increased by $700 million, driven by higher interest rates and offset by lower deposit balances. The net interest yield also improved. The article also mentions the expected NII benefit over the next 12 months based on a forward yield curve and discusses the sensitivity to changes in interest rates. The paragraph also touches on the decline in expenses in the third quarter, which was in line with previous guidance.

The fourth quarter is expected to see a decrease of a couple hundred million to $15.6 billion in expenses, excluding the FDIC special assessment. This is only a small increase of $100 million compared to the same quarter in 2022. This decrease is due to a reduction in litigation expenses and lower headcount, offset by inflationary costs. The headcount has decreased by 2,800 since the second quarter, and the company has added 2,500 full-time campus hires. Next quarter, there may be an additional $1.9 billion expense for the proposed notice of special assessment from the FDIC. However, without this, the company expects expenses to continue to decline. Moving on to credit, net charge-offs increased by $62 million in the third quarter, driven by credit card losses. The credit card net charge-off rate is still lower than pre-pandemic levels. Provision expense was $1.2 billion, including a $303 million reserve build.

The paragraph discusses the macroeconomic outlook and credit quality metrics for both the Consumer and Commercial portfolios. It also mentions the intentional risk management strategies that have helped mitigate risk in the Commercial portfolio. The results for the Consumer Banking line of business are then highlighted, including good organic revenue growth, operating leverage, and a decline in earnings due to credit costs returning to pre-pandemic levels. However, the underlying success of the business is reflected in the 9% year-over-year growth in pre-provision net revenue.

The success of the company is driven by organic growth in checking, card, and investment accounts, as well as investments in future growth. Wealth Management produced good results, but earnings were slightly down due to higher deposit costs. Global Banking also had strong results, with a 11% increase in revenue and good expense management. The Global Treasury Services business and investment banking business are performing well, and the company maintained its position as number three in the industry.

The provision expense for the quarter included a reserve release of $139 million due to improved outlooks for certain troubled industries and credits. The Global Markets team had a strong quarter, with earnings of $1.3 billion driven by 10% revenue growth. Inflation, geopolitical tensions, and changes in central bank policies continue to impact bond and equity markets. Sales and trading revenue, excluding DVA, improved by 8% year-over-year, with FICC and equities both showing growth. Expenses increased by 7% due to investments in people and technology. The "all other" category had a profit of $89 million, with revenue improving from the previous quarter. The effective tax rate for the quarter was 4%, but would have been 25% if excluding renewable investments and other discrete tax benefits.

The company expects their full year tax rate to be in the 9% to 10% range, and they have had a strong quarter with double digit earnings growth and higher than expected NII. They have also managed costs and increased their return on tangible common equity. The company has returned $2.9 billion to shareholders and built up their CET1. The CEO believes that consumer spending will continue at 4% and that the economy will bottom out in the middle of next year, but external events could potentially change this outlook.

The speaker believes that the current rate of inflation is consistent with a lower inflation target, and that the economy will continue to grow and reach the 2% target by the end of 2025. They also mention that the rate of spending has been steady and that recent adjustments, such as increased travel and return-to-office spending, have leveled out. They believe that the current level of inflation is sustainable and shows that the consumer has aligned with the Fed's target.

The speaker asks about potential mitigation strategies for changes coming from Basel III end game, specifically regarding the increase in equity investments in the alternative energy space from 100% to 400% RWAs. The speaker mentions that there will be comments from various companies and industry participants, and expresses concern about the counterintuitive nature of the changes. The speaker also mentions the potential impact on pricing and the need to adjust for increased equity costs.

Alastair Borthwick, during a conference, stated that if the Fed is done, deposit pricing is close to its peak. He discussed this further and mentioned that some of his peers are worried about potential future repricing in consumer savings, but he believes that NII will trough and grow in the back half of next year. He also mentioned that there will be a natural lag in deposit pricing, but the forward curve shows three Fed cuts for next year. He does not think they are any different from others in this regard.

The speaker is discussing the current state of interest rates and how they may affect the bank's NII. They mention that they are nearing the peak of the rate cycle and that deposit pricing will likely adjust in the near future. They also mention the relationship value of their deposits and the expected growth in NII due to consumer balances finding a floor and starting to grow again.

The speaker discusses the potential for growth in deposits and loans in the coming year, as well as the impact of securities reinvestment on NII. The second question asks for more information on the strength of the bank's growth and retention in deposits.

Brian Moynihan discusses the bank's reinvestment horizon for 2024 and notes that their organic growth machine, driven by responsible practices across all operating businesses, has outperformed the industry. The bank has seen a $250 billion increase in consumer deposits and a 10% increase in checking accounts, with a 99% retention rate for long-term customers. Wealth Management and Commercial Banking segments have also seen growth in customers and deposits, making the bank's $3 trillion plus balance sheet strong.

The company has a strong organic growth engine, with significant growth in investment accounts, checking accounts, cards, and home equity. Loan growth is expected to continue as conditions improve. The commercial side has seen a decline due to lower demand, but the investment banking team is gaining market share. The company has sold and hedged its Visa Class B shares, and may have some RWA or liquidity to recycle for other clients in its markets business.

Mike Mayo from Wells Fargo asked about the potential improvement of the efficiency ratio and expenses at Bank of America. CEO Brian Moynihan responded by stating that expenses have been decreasing every quarter and they expect this trend to continue. He also mentioned that the bank's high adoption of digital services, with three-fourths of clients using them, will help control expenses and give them an advantage over other companies. In terms of revenues, Moynihan stated that the bank's Wealth Management business is the least efficient, but they are working to improve its efficiency. He expects the efficiency ratio to continue to improve as the net interest margin normalizes and the balance sheet is fine-tuned.

The speaker discusses the bank's past and current net interest margin (NIM) and how it will fluctuate in the future due to changes in management and the use of digital technology. They also mention the decrease in staff in the Consumer business due to the shift towards digital interactions. The speaker believes that the bank's investments in data, technology, and digital engagement give them an advantage over smaller banks, fintechs, and big tech companies.

Brian Moynihan discusses Bank of America's advantage in implementing AI technology, specifically through their virtual assistant Erica, which has 17 million customers using it for their banking needs. This has resulted in a significant increase in efficiency, with millions of interactions being handled by AI instead of traditional methods like emails or phone calls. The bank is also utilizing AI in other areas, such as commercial banking and technology development, to further improve efficiency and stretch their budget. Additionally, Bank of America has a large number of patents and inventors, giving them confidence in their ability to compete with other companies in the AI space. They also collaborate with other tech companies to enhance their AI capabilities.

The speaker mentions that they have invested heavily in data and technology, resulting in a $3 billion investment and 1 billion interactions this quarter. They also talk about headcount actions that will provide relief in the fourth quarter and have a positive impact on expense growth in the next year. They plan to finalize their strategic planning in the next few weeks and give more guidance next quarter. The speaker also mentions that the assumptions for higher NII exit rate for next year include the forward curve for reinvestment and loan growth.

In response to a question about loan growth and tax advantage investments, the executives of the bank clarify their plans and strategies. They also discuss the expected drop in net interest income in the fourth quarter, citing factors such as deposit pricing lag, normalization of consumer balances, and potential changes in client behavior.

The speaker discusses the factors that have influenced the company's interest income guidance for the next year, including potential rate hikes and changes in deposit pricing. They also mention that a higher for longer rate scenario would be beneficial for the company. The speaker then addresses a question about credit and states that the trajectory of charge-offs can be seen on a slide, with most of the increase being attributed to card and Consumer card.

The speaker discusses the current state of charge-offs and asset quality in the company's Commercial side, noting that they are still lower than in the fourth quarter of 2019. They anticipate this trend to continue in the short term, but it will depend on the economy. The only area of concern is in office loans, which make up a small portion of the portfolio. The speaker also mentions the company's disciplined ratings change process and adjustments being made to reflect current market conditions.

The speaker discusses the impact of the company's high ratings integrity and conservatism on their portfolio. They also mention the impact of CECL reserves and charge-offs, and their aspirations for a 15% ROTCE through the cycle. They acknowledge the potential for new rules and the need for a buffer on their capital. They also mention their current return on capital and their need to deal with the current regulatory environment.

The speaker clarifies the rules regarding the required amount of capital and discusses potential mitigations. They also mention the possibility of modifications to the rules. The speaker also mentions that they currently earn enough capital and do not have to make any calculations. The next question asks about the potential impact of rate cuts on NII, and the speaker explains that without rate cuts, NII could potentially be higher. They attribute this to the faster repricing of floating rate assets compared to deposit spreads. The speaker also mentions that the forward curve predicts multiple rate cuts next year, and the question was about the impact if those cuts did not occur.

In the paragraph, Alastair and Vivek discuss the potential impact of interest rate cuts on the bank's NII and the composition of their securities portfolio. Alastair clarifies that most of their available-for-sale securities are swapped to floating rates, with only a few fixed-rate securities. Ken asks about the impact of reopening in the markets on the bank's Investment Bank fees, and Alastair responds that the current environment is both unusual and uncertain.

The potential for swings in fees in Investment Banking is discussed in this paragraph. The author notes that the fees have been bouncing around $1.1-1.2 billion per quarter, which is unusual as Investment Banking typically has a quicker return rate. The author believes that the uncertainty in the macroeconomic and geopolitical landscape is causing this volatility. However, the author also mentions that Investment Banking can quickly return to historical levels of $1.3-1.5 billion per quarter. The team at the company has been focusing on building capabilities to serve their middle market and global commercial banking clients, which has helped them maintain their position in a down market. They plan to continue expanding this team in the future.

The speaker is discussing the growth of deposits and how it relates to loan growth. They mention that their deposit base is already high and that they have been relatively flat in the banking business for six quarters. They also mention that they have adjusted to the higher rate environment by buying treasury securities. The rest of their deposits are in a stable base, and there are two or three factors affecting consumer deposits.

In this paragraph, the speaker discusses the trends in spending and deposit balance among medium and high income households during the pandemic. They note that while medium income households are seeing a slow decrease in spending, high income households have actually decreased their deposit balance due to investing in the market. The speaker also mentions the impact of loan repayment and interest rates on cash carry, and emphasizes the need to consider overall customer behavior rather than specific categories.

The speaker discusses how customers have adjusted their behavior due to the pandemic and stimulus payments, leading to growth in deposits. They prefer to grow deposits in line with customer growth and activity. The yield on earning assets and interest-bearing liabilities both increased by 20 basis points, which was not due to an amortization issue but rather the various moving pieces of the balance sheet.

The speaker responds to a question about the notable aspects of the company's recent earnings report, stating that there is nothing particularly noteworthy. They also discuss the growth of trading in equities and the company's capacity for further growth in that area. The speaker also mentions that the company's NII guidance includes their Global Markets division.

The speaker discusses the performance of Global Markets, stating that it is part of a diversified portfolio and remains liability sensitive. They also mention that NII has decreased due to rising rates and that there may be some balance sheet growth. They emphasize that this is reflected in the NII guide and will follow the forward curve. The speaker then summarizes the key points of strong earnings, high returns, and responsible growth before ending the call.

This summary was generated with AI and may contain some inaccuracies.