Bank of America (BAC) Earnings Report: Q2 2015 Conference...
Transcript of Bank of America (BAC) Earnings Report: Q2 2015 Conference...
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page1of28
BankofAmerica(BAC)EarningsReport:Q22015ConferenceCallTranscriptThefollowingBankofAmericaconferencecalltookplaceonJuly15,2015,08:30AMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
LeeMcEntire;BankofAmericaCorporation;SVP-IRBrianMoynihan;BankofAmericaCorporation;Chairman,CEOBruceThompson;BankofAmericaCorporation;CFO
OtherPart icipants
BetsyGraseck;MorganStanley;AnalystMattO 'Connor;DeutscheBank;AnalystJimMitchell;BuckinghamResearch;AnalystJohnMcDonald;SanfordBernstein;AnalystGlennSchorr;ISIGroup;AnalystEricWasserstrom;GuggenheimSecurities;AnalystKenUsdin;Jefferies&Company;AnalystStevenChubak;NomuraSecurities;AnalystBrennanHawken;UBS;AnalystMartyMosby;ViningSparks;AnalystNancyBush;NABResearch;AnalystMikeMayo;CLSA;AnalystChristopherWheeler;AtlanticEquity;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Gooddayeveryoneandwelcometotoday'sprogram.Atthistimeallparticipantsareinalisten-onlymode.Lateryouwillhavetheopportunitytoaskquestionsduringthequestionandanswersession.(OperatorInstructions).Pleasenotethiscallmayberecorded.Iwillbestandingbyshouldyouneedanyassistance.
ItisnowmypleasuretoturntheconferenceovertoMr.LeeMcEntire.Youmaybegin,sir.
LeeMcEntire (SVP-IR):
Goodmorning.Thankstoeverybodyonthephoneaswellasthewebcastforjoiningusthismorningforthesecond-quarterresults.Hopefullyeverybody'shadachancetoreviewtheearningsreleasedocumentsthatareavailableonthewebsite.
SobeforeIturnthecallovertoBrianandBruceletmejustremindyouwemaymakesomeforward-lookingstatements.Andforfurtherinformationonthosepleaserefertoeitherourearningsreleasedocuments,ourwebsiteorourSECfilings.
SowiththatI'mpleasedtoturnitovertoBrianMoynihan,ourCEO,forsomeopeningcommentsbefore
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page2of28
BruceThompson,theCFO,goesthroughthedetails.Brian?
BrianMoynihan (Chairman,CEO):
Thankyou,Lee.Andgoodmorningeveryoneandthankyouforjoiningusforoursecond-quarterresults.
Asyoucanseefromourreleasewereported$5.3billioninafter-taxearningsthisquarterwhichisupfromlastquarteraswellasmorethandoublewhatwemadelastyear.Notonlywerewepleasedwiththebottomlinebutrevenuewasupandexpensesweredowncomparativelyagainstbothperiods.
Lotsofthingscametogethertoachievetheseresultsandwecontinuetoworkonallthesealso.OntheexpensesidewetoldyouthatweachievedthenewBACcostsavingsbackinthethirdquarteroflastyear.However,wedidn'tgiveuponourfocusonexpensesandyoucanseethoseintheresults.
It'sthelowestnon-litigationexpensebasesince2008.AtthesametimewecontinuetoinvestinthefutureofthisCompany.Justtomentionafewoftheseinvestments,weaddedsalesspecialistsinourfinancialcenters,up3%versuslastyear.
Weadded3%toourfinancialadvisorssincelastyear.4%toourcommercialandbusinessbankers.We'veopenednewfinancialcentersinnewmarketsthatwepreviouslydidn'thavecoverageandwecontinuetoupgradethoseinothermarkets.
InadditionwecontinuetoinvestinyoungnewtalentinourCompany.Wehiredarecordnumberofteammatesfromcollege,over1,200,andweuppedourinternprogramtoover1,800thissummer.
Andwecontinuetoinvestaswehavesaidintechnologywithover$3billionwe'vespentthisyeartocontinuetoimproveanddriveourproductsandourcapabilitiesintheCompany.Aswearedoingthatwecontinuetofocusonourprocessimprovement.OurSimplifyandImproveeffortcontinuestotakeholdandyousawthatandsomeoftheeffectsofthatthisquarter.
Thegoaloftheprogramistoholdthecostmanagementwellastheeconomycontinuestorecoverandourrevenuescontinuetorecover.Awayfromtheexpenses,afewotherhighlightsofthequarter,wesawouroverallloangrowthandbalancesfromthefirstquarter,wesawacontinuedimprovementinournetcharge-offsincreditquality,ourdepositsandourconsumercontinuetogrowevenfasterthisquarterthanpriorquarters.
WealsobuiltcapitalandtangiblebookvaluedespitetheOCIimpactofhigherrates.Wereturnedover$1.3billiontoourshareholdersthroughsharerepurchaseandcommondividends.Andlookingattheresultsthisquarteryoucanalsoseethatwe'remakingprogressonourpathtoourlong-termtargetstoreturnonassetsandreturnontangiblecommonequity.
Brucewilltakeyouthroughthebusinessactivityinthevariouspagesintheslidesbutsomehighlights.Thisquarteragainweaveragedabout5,000newcustomersadaytoourmobilebankingplatform.ButimportantlytheteamcontinuestomakeprogressinbringingthatplatformintotheCompanyinmultipleways.
Anexampleofthatisthisquarterourdigitalchannelsaleswereup30%fromlastyearinthesecondquarter.Inadditiontothatwecontinuetofocusonourmortgagearea;ourdirect-to-consumermortgageandhomeequityoriginationsimproved40%fromayearago.
InthemassaffluentspaceourMerrillEdgeproductcontinuestohaverecordassetsandthey'reup15%toover$122billion.Andthat'sontopofourinvestmentbrokerageservicesrevenueteammatesinUSTrustandMerrillLynchthatcontinuestogrow.
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page3of28
Wealsocontinuetodriveour401kbusinessandthisyearwe'veaddedsomeoftheindustry'slargestcompaniestoourplatform.SothosearethetrendsinthebusinessandBrucewillcovermorelater.
Fromabroadeconomicstandpointwhatdoweseeoutthere?NotwithstandinguncertaintyineconomiesoutsidetheUnitedStatesweseetheUSeconomycontinuestosteadilyimproved.Inourmiddle-marketbusiness,ourcommercialbusinesses,ourCompany'sbalancesheetisstrongandtheycontinuetodrawloansatahigherratethantheydidlastquarter.
Ourconsumerscontinuetospendonourdebitandcreditcards,thisquarterspendingover$127billionthisquarter,up3%fromlastyearevenwithadowndraftingaspricesintheyear-over-yearcomparison.Ourindustry-leadingresearchteamunderCandace'sleadershipandBankofAmericaresearchexpectsUSGDPgrowthforthesecondhalfoftheyeartobe3%foreachofthosequartersandweseethatinourstatistics.
OurCompanyiswell-positionedtobenefitfromthatcontinuedhealthintheeconomy.AndwecontinuetomanagethisCompanytodeliverforourcustomers,clientsandforyouasshareholders.WiththatIwillturnitovertoBruce.
BruceT hompson (CFO):
Thanks,Brian,andgoodmorningeveryone.I'mgoingtostartonslide3andlet'sgothroughtheresults.
Werecorded$5.3billionofearningsinthesecondquarteror$0.45perdilutedshare.Thiscomparesto$0.27ashareinthefirstquarterof2015and$0.19inthesecondquarteroflastyear.
Afewitemstonoteasyoureviewtheresults.Inthesecondquarterwehad$669millionofpositivemarket-relatedadjustmentsinnetinterestincomeprimarilydrivenbypremiumamortizationonourdebtsecuritiesfromhigherlong-termrates.Thisprovideda$0.04benefittoEPS.
Thequarteralsoincluded$373millioninbenefitsfromconsumerrealestateloanswhichadded$0.02ashare.Oneotheritemworthnotingistherepandwarrantprovisionwhichisanet$205millionbenefitthisperiod.Thiswasmostlyassociatedwithpositivedevelopmentsinlegacymortgage-relatedmatterswhich
I'lldiscusslaterinthepresentation.
Thisadded$0.01toEPS.RevenueonanFTEbasiswas$22.3billioninthesecondquarterandincludedtheitemsthatIjustmentioned.Totalnon-interestexpenseinthequarterwas$13.8billionandreflectslowerlitigationcosts,lowerLAScostandgoodcoreexpensecontrolscomparedtoboththefirstquarterof2015andthesecondquarterof2014.
Provisionforcreditlossesthisquarterwere$780millionandincludedimprovednetcharge-offsonanadjustedbasisaswellaslessreservereleasecomparedtothefirstquarterof2015.Returnontangiblecommonequitythisquarterwas12.8%,returnonassetswas99basispointsandtheefficiencyratiowas62%.IfweadjustforthosemetricsforthefewitemsImentionedearlierreturnontangiblecommonequitywas10.9%,returnonassetswas85basispointsandtheefficiencyratiowas65%.
Onslide4,thebalancesheetwasuplessthan1%versusthefirstquarterof2015asloangrowthandhighersecuritiesbalanceswereoffsetbyadeclineintheendingbalanceswithinourGlobalMarketsbusiness.Loansonaperiod-endbasiswereupreflectinggoodcoreloanactivity.Allofourloancategoriesshowedgrowthfromthefirstquarterof2015withtheexceptionofConsumerRealEstatewhichdeclinedfrombothdiscretionaryactivityaswellasotherone-offs.
Commonshareholders'equityimproved.Thissolidearningsgrowthwaspartiallyoffsetbya$2.2billion
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page4of28
declineinOCIand$1.3billionincapitalreturnstocommonshareholders.
Werepurchased49millionsharesfor$775millionandpaidapproximately$500millionincommondividendsthisquarter.Tangiblebookvalueincreasedto$15.02andtangiblecommonequityimprovedto7.6%.
Ifwelookatlendingactivityonslide5ourreportedloansonanend-of-periodbasisincreasedforthefirsttimesincethethirdquarterof2013,growing$8.5billionfromthefirstquarteror4%onanannualizedbasis.ActivityinourdiscretionaryportfoliowhichisreflectedintheLASandAllOtherboxwhereweuseconsumerrealestateloanstomanageinterestrateriskintheLASunitwherewehaveahomeequityrun-offportfoliotogethershowedadeclinefromthefirstquarterof2015of$15billion.
TheloansalesImentionedearlieraccountedforroughlyhalfthatamountandincludedcertainloanswithlong-termstandbyarrangementsthatwereconvertedintosecurities.Afterweexcludethisactivity,ourcoreloansincreased$23.5billion,or4%fromthefirstquarterof2015.Commerciallendingwasstrong.
Amongotherinitiativesthemanagementteamchallengedourcorporateandcommerciallendersforthepastseveralquarterstomorefullyutilizethecreditlimitstodriveresponsiblegrowth.Inthatlight,GlobalBankingshowedacontinuationofloangrowthfromtheendofthefirstquarterof2015growing$11.4billion,or4%duringthequarterfromamixofC&Iacrosslargecorporateandmiddlemarketaswellasgrowthincommercialrealestate.
OurWealthManagementbusinesscontinuestoexperiencestrongdemandinbothsecuritiesbasedlendingaswellasconsumerrealestate.AndourConsumerBankingareagrewbothcardandautoloans.
Ifwemovetoregulatorycapitalonslide6,underthetransitionrulesourCET1ratioimprovedto11.2%inthesecondquarter.IfwelookatourBaselIIIregulatorycapitalonafullyphased-inbasisCET1capitalimproved$1.1billiondrivenbyearnings,partiallyoffsetbytheOCIdecline,sharerepurchasesanddividends.
Underthestandardizedapproach,ourCET1ratiowassteadyat10.3%asRWAwasstablewiththefirstquarterof2015.Undertheadvancedapproaches,CET1ratioincreasedfrom10.1%to10.4%asRWAimprovedbyapproximately$34billion.LowercounterpartyRWAdrovethisdeclineandwasequallysplitbetweenthreefactors.
ThefirstlowerderivativeexposuresmainlydrivenbymovementsinbothratesaswellasFX.Second,optimizationthroughbettercollateralmanagementandreductionsincertainpositions.Andthird,anincreaseinthepopulationoftradeseligibleformodeltreatment.
Thebalanceoftheimprovementwasdrivenbylowerlevelsofmarketrisk.InregardstotheFed'srequestedmodificationstomodelsinordertoexittheparallelrunthatwehavepreviouslycommunicatedtoyou,attheendofthequarterweestimateifwemadetherequestedmodificationsthatouradvancedapproach'sCET1ratiowouldbeapproximately9.3%atJune30.
MovingtooursupplementaryleverageratiosweestimatethatattheendofthesecondquarterwecontinuetoexceedtheUSrulesthatareapplicablein2018.OurbankholdingcompanySLRratiowasapproximately6.3%andourprimarybanksubsidiaryBANAwasapproximately7%.
Ifweturntoslide7onfundingandliquidity,long-termdebtof$243billionwasup$6billionfromthefirstquarterasissuancesoutpacedmaturities.Asyoucanseefromthematurityprofilewehave$10billionofparentcompanydebtscheduledtomatureintherestof2015andwe'llcontinuetobeopportunisticinregardstoissuance.
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page5of28
Ourglobalexcessliquiditysourcesreachedarecordlevelduringthequarterat$484billionandnowrepresent23%oftheoverallbalancesheet.TheincreasefromthefirstquarterofGELSreflectsacontinuedshiftfromdiscretionaryloansintoHQLAsecuritiesaswellastheincreasedstepbalances.
Ourparentcompanyliquidityincreasedto$96billionandourtimetorequiredfundingimprovedto40months.AttheendofthesecondquarterweestimatethattheconsolidatedCompanywaswellabovethe100%fullyphased-in2017requirementfortheliquidityratio.
Ifweturntoslide8onnetinterestincome,onareportedFTEbasiswas$10.7billion,anincreaseof$1billionfromthefirstquarterof2015.VolatilityinlongendratesoverthepastfewquartershasclearlycausedsomevariabilityinoutreportedNII.Themarket-relatedadjustmentfromourbondpremiumamortizationthisquarterwasabenefitof$669millionasratesrose40basispointsinthequarterwhileinthefirstquarterof2015wereportedanegative$484millionadjustmentfromadeclineinratesintheperiod.
IfweadjustforthoseitemsourNIIdeclinedapproximately$100millionfromthefirstquarterof2015tojustover$10billionastheimpactoflowerdiscretionarybalancesandconsumerloanyieldsmorethanoffsettheimpactofonemoredayofinterest.Attheendofthesecondquarteraninstantaneous100basispointparallelshiftincreaseinrateswouldbeexpectedtocontributeroughly$3.9billioninNIIbenefitsoverthefollowing12monthsandthat'ssplitroughly60%toshortendratesand40%tolongendrates.GiventhemovementhigherinlongendratesourbalancesheetdidbecomelesssensitivetolongendratescomparedtoMarch31aswerealizedsomeofthatsensitivitythroughFAS91inthesecondquarter.
Asyoucanseeonslide9,non-interestexpensewas$13.8billioninthesecondquarterandincluded$175millioninlitigationexpense.Litigationexpensediddeclinesignificantlyfromthesecondquarterof2014levels.Ifweexcludelitigationexpenseswere$13.6billioninthequarter,adeclineof$900million,or6%fromthesecondquarterof2014.
Onbalancewe'requitepleasedwithouryear-over-yearexpenseimprovementevenwhilewecontinuetoinvestinthefranchise.Inthethirdquarterof2014wewrappedupthenewBACcostsavingsinitiativesandseveralquarterslaterwecontinuetoseegoodprogressonoperatingcostreductionsinLASaswellasinotherareas.Ourheadcountisdown7%comparedtothesecondquarterof2014andasareminderwedoexpecttoincursomecostsassociatedwithourCCARresubmissionthroughthebalanceoftheyear.
Ifwegoaheadandswitchtoassetqualityonslide10,reportednetcharge-offswere$1.1billionversus$1.2billioninthefirstquarter2015.Bothperiodsincludecharge-offsassociatedwiththeAugust2014DOJsettlementwhichwehadpreviouslyreservedfor.IfweexcludetheseimpactsandasmallimpactfromrecoveriesonNPLsales,ourcorenetcharge-offsdeclined$75millionfromthefirstquarterof2015to$929million.
Lossratesonthesameadjustedbasisimprovedto43basispointsinthesecondquarterof2015.USconsumercreditcarddelinquenciesimprovedaswellandonthecommercialfrontwesawanuptickinNPLsandreservablecriticizedexposurefromthefirstquarterdrivenbydowngradesinouroilandgasexposures.Despitethesedowngradeswefeelgoodaboutourexposureinthisareaastheyarewellcollateralizedandmostofthesecreditsonlyhadaonelevelmigrationonariskratingscale.
Thesecond-quarterprovisionexpensewas$780millionandwereleasedanet$288millioninreserveswhichincludestheutilizationofpreviouslyaccruedDOJreserves.Releasesinconsumercardandconsumerrealestatewerepartiallyoffsetbyreservebuildswithinthecommercialloangrowtharea.
Let'sgoaheadandmovetothebusinessesonslide11,ConsumerBanking.ConsumerBankinghad
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page6of28
earningsof$1.7billionwhichwas4%greaterthanthesecondquarterof2014and16%abovethefirstquarterof2015level.Thisinturngeneratedastrong24%returnonallocatedcapital.
Withinrevenuefeeswereup2%fromlastyeardrivenbyhighercardandhighermortgagebankingrevenuebutthisgrowthwasmorethanoffsetbyadeclineinnetinterestincome.ThedeclineinnetinterestincomeisaresultoftheallocatedimpactofourALMactivitiesaswellassomecompressionincardlowyields.Provisiondecreased$44millionfromthesecondquarterof2014drivenbythecontinuedimprovementthatwesawinboththecreditcardaswellastheautoportfolios.
Ournon-interestexpensewasdown4%fromthesecondquarterof2014aswereducedthenumberoffinancialcentersandassociatedcostsandpersonnel.Thecostofaveragedepositsratioisnowlessthan175basispointsandwehavea57%efficiencyratiowithinthissegment.ThisbusinessisagoodrepresentationofhowtheCompanyisdoingmorebusinesswhilewecontinuetoreduceexpenses.
Wealsocontinuetoexperienceashiftinconsumerbehaviorpatternsawayfrombranchesandtowardsmoreself-service.Forexample,thenumberofmobilebankingcustomerscontinuestogrowandincreasetomorethan17.6millioncustomersthisquarterandthesecustomerslooktomobiledevicesforapproximately13%ofalltransactionsoralldeposittransactions.
Ifwelookatsomeofthekeydriversandtrendswithintheconsumerareaonslide12weremainaleaderinmanyaspectsofConsumerBankingdoingbusinesswithroughlyhalfofallUShouseholds.Let'slookatcardactivity.Cardincomeincreased5%fromthesecondquarterof2014onstrongsalesandsolidspendlevels.
Cardissuancereachedalmost1.3millionunitsinthequarteronincreasedsaleseffortswhiletheaveragebookFICOscorewasalsostrong.Averageloanbalancesweredownslightlyfromthesecondquarterof2014aswedoseecustomerspayingdownmoreoftheirbalances.
Netcharge-offsdeclinedfromverylowlevelsandwere2.7%inthesecondquarterandriskadjustedmarginsremainhighatroughly9%.Mortgagebankingincomeinthissegmentwasup8%fromlastyearasoriginationshadnicefollow-throughfromtheelevatedpipelineattheendofthefirstquarteraswellashigherproductionmargins.
First-quartermortgage--firstmortgageoriginationsforthetotalCompanywere$16billion,up44%yearoveryearandup16%fromthefirstquarterof2015.Homeequitylineandloanoriginationsincreased23%to$3.2billionfromtheyear-agoquarterandwerestablewiththefirstquarter.
Revenueimprovementversusthesecondquarterof2014wasdrivenbyimprovedmargins.Althoughthemortgagepipelineremainssoliditisdown15%fromtheendofthefirstquarterdriveninpartbyhigherrates.
Servicechargesweredownmodestlyversusthesecondquarterof2014.Thisfeelineitemdoescontinuetobesomewhatmutedaswecontinuetoopenhigherqualityaccountsandthoseaccountsarecarryinghigherbalances.Comparedtothesecondquarterof2014ouraveragedepositsof$545billionareup$31billion,or6%evenasweloweredtheratespaidwhichnowstandsat5basispoints.
Lastly,whilewearebringingdownouroverallheadcountinthisbusinesswecontinuetoinvestinthegrowthopportunityofourpreferredclientbase.Andwe'vebeenincreasingsalesspecialistsinthefinancialcentersandthat'sresultedinincreasedactivity.
Ifweturntoslide13,GlobalWealthandInvestmentManagementproducedearningsof$690millionwhichwasup6%fromthefirstquarterof2015levelsbutdown5%fromthesecondquarterof2014.Comparedtothesecondquarterof2014,solidfeegrowthwasoffsetbylowernetinterestincome,higher
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page7of28
creditcostandmodestlyhigherexpenseswhichresultedinadeclineinyear-over-yearresults.
TheallocationoftheimpactofourCompany'sALMactivitiesmorethanoffsettheNIIbenefitsthatwehadfromsolidloangrowthwithinthisspace.Year-over-yearnon-interestincomewasup4%onstrongassetmanagementresults.Non-interestexpensewasmodestlyhigherinthesecondquarteronthestrengthofourassetmanagementfeesaswellasthecontinuinginvestmentinclientfacingprofessionals.
Theyear-over-yearincreaseinprovisionreflectslargerreservereleaseinthepriorperiods.Pretaxmarginwas24%andthereturnonallocatedcapitalremainedstrongat23%.
Ifwelookatactivityanddriversonslide14assetmanagementfeescontinuetogrowandareup9%fromthesecondquarterof2014.Thiswaspartiallyoffsetbysluggishnessoftransactionalrevenueinthebrokeragebusiness.Wedidincreaseourfinancialadvisorsby6%overthelast12monthsandwefeelgoodaboutthenumberofadvisorsthatarejoiningusfromcompetitors.
Clientbalancesareabove$2.5trillion,upalmost$12billionfromthefirstquarterof2015drivenbysolidclientbalancein-flowsaswellasimprovedmarketvaluations.Long-termAUMflowswere$9billionforthequarterandthat'sthe24thconsecutivequarterwherewe'veseenpositiveflows.AsImentionedearlierwecontinuetoexperiencestrongdemandinbothoursecuritiesbasedandresidentialmortgagelendingareasandwereachedanewrecordforloanswithinthisspaceduringthequarter.
Ifweturntoslide15,GlobalBankingearningswere$1.3billionwhichis14%unallocatedcapital.Earningsdiddecline13%fromthesecondquarterof2014aslowernon-interestexpensewasmorethanoffsetbylowernetinterestincome,lowerinvestmentbankingrevenuesandhigherprovisionexpensethatwasassociatedwithastrongloangrowththatwesawduringthequarter.
Theyear-over-yeardeclineinnetinterestincomereflectstheallocationofourALMactivityandliquiditycostaswellassomecompressioninloanspreads.Non-interestexpensediddecline3%fromthesecondquarterof2014aslowerlitigationandothertechnologyinitiativecostwerepartiallyoffsetbyinvestmentinclientfacingpersonnel.
Ifwelookatthetrendsonslide16wechartthecomponentsofrevenue.InvestmentBankingfeesfortheCompanywere$1.5billion,down6%fromthenearrecordlevelsthatweexperiencedduringthesecondquarterof2014.
Advisoryfeeswereup5%duringthequarter.Debtunderwritingwasrelativelystableasincreasedactivityintheinvestment-gradeandotherproductsoffsetthedeclinesthatwesawwithinourleveragefinancearea.
Equityunderwritingwasdown19%fromwhatwasarecordlevelforourCompanyinthesecondquarterof2014.OutsideofInvestmentBankingfeesotherbankingrevenuedeclinedfromlowerleasinggainspartiallyoffsetbymodestlyhighertreasuryfeesandcardincome.Ifwelookatthebalancesheetloansonaveragewere$301billion,up4%fromboththeyear-over-yearandlinkedquarterperiods.
Thegrowthwasbroad-basedacrossbothcorporateandcommercialborrowers.Althoughaveragedepositswererelativelystableversusthesecondquarterof2014wedidseeafavorableshiftinmixwithournon-interest-bearingdepositsupover$20billionandourinterest-bearingdepositsdown$17billionversusthesecondquarterof2014.Thisgrowthinnon-interest-bearingbalanceswasdrivenbyacontinuingfocusonthegrowthwithinoperatingbalances.
Thedeclineininterest-bearingbalanceswasdrivenbytargetedreductionsintheselowliquidityvaluedeposits.
SwitchingtoGlobalMarketsonslide17,inthesecondquarterearningswere$1billiononrevenuesof
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page8of28
$4.3billion.Wegenerated11%returnoncapitalinthisbusinessduringthequarter.Earningswereupmodestlyfromthefirstquarterof2015levelswhichincludedhigherlitigationbutdownfromthesecondquarterof2014isrevenuedeclined.
TotalrevenueexcludingnetDVAdeclinedfromthesecondquarterdrivenbylowerequityinvestmentgains,lowerFICCandsalesandtradingresultsandlowerinvestmentbankingfees.Ifweexcludea$188milliondifferencebetweenperiodsonthesaleofanequityinvestment,revenuewasdown4%fromthesecondquarter.Non-interestexpensewasreduced5%fromthatsameperiodinlinewiththerevenuereductions.
Ifwefocusonthesalesandtradingperformancecomponentsonslide18,salesandtradingrevenueof$3.3billionex-netDVAisdown2%fromthesecondquarterof2014levels.Comparedtothesameperiodayearago,FICCsalesandtradingwasdown9%andnotunlikewhatwesawinthefirstquarterof2015strengthwithinthemacro-relatedproductslikeFX,ratesandcommoditieswasoffsetbylowerlevelsofactivitywithinthecreditproductsspace.Andtoremindyou,ourmixdoesremainmoreheavilyweightedtocreditproductsbasedonthesizeofournewissuebusiness.
Equitiestradingwasup13%yearoveryeardrivenlargelybyincreasedclientactivitywithintheAsia-Pacificregionaswellasastrongperformancewithinthederivativearea.
Slide19showsourLegacyAssetsandServicingbusinesswherewewereprofitableduringthequartergiventhenetbenefitinourrepandwarrantprovision.Revenueexcludingthisbenefitdiddeclinefromthefirstquarterof2015onlessfavorableMSRhedgeperformanceaswellaslowerservicingrevenue.Litigationexpensedeclinedsignificantlyfromthesecondquarterof2014.
Non-interestexpenseex-litigationwasroughly$900millionthisquarter,improving$122millionfromthefirstquarterof2015and$526milliongoingbacktothesecondquarterof2014.Weremainontracktohitourfourth-quartergoalofapproximately$800millioninLAScostex-litigation.
Wewerealsopleasedthatduringthequarterournumberof60-plusdaydelinquentloansdecreasedto132,000units.That'sdown14%fromthefirstquarterandalmost50%fromthepriorperiodoflastyear.
BeforeImoveawayfromthemortgagespaceletmementionanimportantdevelopmentinourlegacymortgageexposures.ThisquartertherewasacloselywatchedcaseinNewYork'shighestcourtwhichconfirmedthattheNewYorksix-yearstatuteoflimitationonfilingrepandwarrantclaimsbeginstorunatthetimetherepsandwarrantiesaremadeandnotatsomelaterpointintime.
Basedonourreviewoftherelevantdocumentswebelievethevastmajorityofthebank'sremainingPLSrepresentationandwarrantyobligationsaregovernedbyNewYorklaw.Asaresultofthecaserulingyoucanseeonslide20,asignificant$7.6billionreductioninourgrossoutstandingprivatelabelclaimsasaresultofcertainclaimsnowbeingtimebarred.
ThisrulingalsohadpositiveimplicationsonourrepandwarrantprovisionasImentionedaswellastherangeofpossiblelossabovethosereserves.Yourecall,theRPLhadbeenarangeofupto$4billionforseveralyearsandsothetopendofthatrangehasnowbeenreducedtoupto$2billion.
Onslide21weshowallother.The$637millionofearningsthisquarterresultedinaswinginprofitabilityasaresultoftheimprovementintheNIImarket-relatedadjustmentfromquartertoquarteraswellastheprior-periodinclusionoftheannualretirementeligibleincentivecost.TheloansalesImentionedearlierarealsoincludedinrevenue.
Oureffectivetaxrateforthequarterwas29%andIwouldexpectthetaxratetoberoughly30%fortherestof2015absentunusualitemsliketherecentUKtaxreformproposals.AmongtheUKproposalswerea
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
EventDescription:Q22015EarningsCallMarketCapasofEventDate:178.75BPriceasofEventDate:17.6646
©2014TheStreet,Inc.Al l R ightsReserved Page9of28
reductioninthecorporatetaxrate,asurchargetaxonbankearningsandareductioninthebanklevyrate.Ourpreliminaryreadisthatwecouldhaveaone-timechargeofseveralhundredmilliondollarslaterinthisyeartorepriceourUKdeferredtaxassetsuponenactment.
Atthistimeonanongoingbasisweexpectarecurringtaximpacttobemodest.Beforewrappinguponthisslideletmeremindyouthatourpreferreddividendsinthethirdquartershouldbe$440millionand$330millioninthefourthquarterofthisyear.
SotowrapupasBrianstartedthepresentationwithmanythingsthatourteamshavebeenfocusedonforsometimecametogethernicelythisquarterandthatenabledustoreportmorethan$5billioninearningsandmoveclosertoourlong-termtargets.Revenuereflectedrelativestability,weloweredcost,wegrewloansnicely,ourcreditqualityremainsverygoodandwe'refocusedonoperatingleveragewithinthebusiness.ThefoundationoftheCompany'sbalancesheethasneverbeenstrongerwithrecordcapitalandrecordliquiditylevelsandweremainwell-positionedtobenefitfromarisingrateenvironment.
Withthatlet'sgoaheadandopenitupforQ&A.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)BetsyGraseck,MorganStanley.
BetsyGraseck(Analyst-MorganStanley):
Hi,goodmorning.ThequestionI'mgettingfrompeoplethismorningisaroundtheexpenses.YoushowedsomeveryniceimprovementincoreexpensescomingdownmeaningfullyQonQandyearonyear,andthequestionishavewereachedtheendstatehereoristhereanyfurtheropportunitytobringdownexpensesfromhere?
BrianMoynihan (Chairman,CEO):
Ithink,Betsy,inthebroadestcontextwecontinuetoworkexpenses.Ifwetalktoallofyouabouteachquarter,18straightquarterreductionincoreoperatingexpensesoutsidelitigation,15straightquartersof3,000peopleormorereductioneachquarter.Sowejustcontinuetoapplytechnologytocontinuetooverthelongtermreduceexpenses.
SothegoalwehaveinSIMistokeeptheexpensesflatasrevenueincreases.Andiftheworldeconomicsituationchangesdifferentwhatpeopleareexpectingwe'dhavetolookatitdifferently.Butasyoucanseethisquarterthatwillresultinaconstantdownwardpressuregivenwhereweareintheeconomy.
BetsyGraseck(Analyst-MorganStanley):
Okay.Andthenontherepsandwarrantysideyouhadwhatlookslikealittlebitofatrue-upbasedonthislitigationdecision.Isthattherightwayofreadingitoristherepotentialeveninmoretocomeinthefutureasyougothroughthesecases?
BrianMoynihan (Chairman,CEO):
No,clearlywhatthecaseissignificantisthis,Betsy.Welookedatandaswedoeveryquarterlookattherepandwarrantprovisionandyou'rerightitwasanetbenefitof$200millionthisquarter.
IthinktheimportantthingIthinkmorethanthe$200millionisifyoulookbackonourslide20intheearningsmaterialstheeffectofthedecisionledtotwothingsthatdoreducetailriskonago-forward
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basis.Thefirstisyoucanseethenumberofnewclaimsthatcameinwasjustover$200millionwhichisadramaticimprovementfromwhatwe'veseenhistorically.Andsecondasaresultofthetimebarringofcertainclaimsthattheoutstandingclaimsthatwehave,andkeepinmindtheseoutstandingclaimsarebasedonoriginalUPB,camedownfairlysignificantlytojustbelow$19billion.
SowhileitwasnicetohavethemodestbenefitthatwedidinthequarterIthinkimportantlyonago-forwardbasisitdoesreducethetailriskthat'soutthere.Wesawsomeofthebenefitsfromthatintheactivitylevelsthisquarter.
BetsyGraseck(Analyst-MorganStanley):
Okay,thanks.Andthenjustonelastquestion.
Youindicatedtheupsidethatyouhaveintheeventofaraterise$3.9billioniftheparallelshiftis100basispoints.Thequestionishowyou'rethinkingaboutdroppingthattothebottomline?Istherereinvestmentsthatwouldtakeupsomeofthatorareyouatsufficientrunrateininvestmentspendthatyouwouldbeabletodropmoretothebottomline?
BrianMoynihan (Chairman,CEO):
There'snoquestion,Betsy,aswelookatandI'lljustremindpeoplethatwewereat$3.9billionfora100basispointmove.Ifyoulookatthatroughly60%ofitisontheshortendnow.40%ofitisonthelongend,andthere'snoquestionthatwewouldexpecttodropasignificantportionofthattothebottomlineifandwhenweseethat100basispointmove.
BetsyGraseck(Analyst-MorganStanley):
Okay.Andthenjustbacktotheexpenseside,theexpenserunratethatyou'vegotrightnowissomethingyouthinkyoucanholdatleastifnotimprovefromhere,isthatfair?
BrianMoynihan (Chairman,CEO):
Yes,Betsy,reallytoyourlastquestionwe'vebeeninvestinginheadcounttoopenupacustomerfacingcapacity.SoI'drathergiveyousomeofthestatisticsearlier,sowe'recomfortablefromatechnologyspendrate,fromaninvestmentandclientfacingcapacity,marketingandeverythingwe'reatagoodrunrate.Sothere'dbedownwardpressureasheadcountcontinuestocomedownthroughtheapplicationoftechnologyacrosstheplatformwithcustomersinternally.
Sowe'recomfortablethatwecancontinuetodriveit.Andmakenobonesaboutitthisiswhatweworkoneverydayandwe'rereluctanttoputoutadollartargetbecausefranklythattellstheteamwe'vemadeagoalandstopasopposedtojustgetbetteratiteveryday.SoweareconstantlyworkingtoimprovethedynamicsofrevenueversusexpenseinthisCompany.
BetsyGraseck(Analyst-MorganStanley):
Thanksalot.
Operator :
MattO 'Connor,DeutscheBank.
MattO'Connor (Analyst-DeutscheBank):
Ifwelookatthecorenetinterestincomeex-themarket-relatedmarksitwasdownalittlebitversuslastquarterbutyou'restartingtoseetheloansinflectasyoumentionedearlier.Dowestartseeingstability
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inthecorenetinterestincomelookingatnextquarterortwoordowereallyneedhighershort-termratesforthat?
BrianMoynihan (Chairman,CEO):
Thanksforthequestion.It'sagoodquestion.IthinkifyoulookatwetypicallyhavealittlebitofseasonalpressureinthesecondquarteronNIIsoaswesitheretodaybasedonthecurvewewouldexpecttoseethecorenetinterestincomewhichobviouslyexcludesFAS91moveupfromQ2toQ3andwe'dexpectfurthergrowthfromQ3toQ4.
MattO'Connor (Analyst-DeutscheBank):
Okay.Andthat'swithoutanybenefitfromrates?
BrianMoynihan (Chairman,CEO):
It'sjustbasedontherealizationofwhattheexistingcurveiswhichquitefranklywedon'tlookatandourmodelsdon'tshowFedfundsgoingupuntilJanuary2016.Sothere'snotalotofgreatbenefitinthatatall.
MattO'Connor (Analyst-DeutscheBank):
Okay.AndthenonthediscretionarybookyoumentioneditcamedownalittlebitwhenyoulookoutonacombinedsecuritiesmortgagesbasisandIguessjustwesawlong-termratesgoupandsomebankshavebeenincreasingthediscretionarybookwithhigherreinvestmentratesorhigherinvestmentrateshere.What'sthethoughtonbringingthatbookdownasrateshavegoneup?
BruceT hompson (CFO):
Ihavetwocomments.Ithinkthefirstisthatwhenwetalkedaboutthediscretionarybalancescomingdownthat'sbasicallythewholeloanportfolioaswellascertainpiecesofthehomeequityportfolio.Sowereferencedthatthosecamedownabout$15billionquarteroverquarter,halfduetosalesandhalftopaydowns.
Weprobablyhaveonemorequarterwhereyou'llseesomeoftheconversionofthoseloanstosecurities.ButifyouactuallylookattheamountofsecuritiesfromabalancedperspectivetheywentupalittlebitQ1toQ2basedontheconversionofthoseloanstosecurities.Andaswecontinuetoseethedepositfootprintgrowwewillcontinuetoinvestandwe'reobviouslymindfulofthebalancebetweenincreasingnetinterestincomelikeIspokeaboutaswellasbeingsensitivetoOCIrisk.
MattO'Connor (Analyst-DeutscheBank):
Okay,thankyouverymuch.
Operator :
JimMitchell,BuckinghamResearch.
JimMitchell(Analyst-BuckinghamResearch):
Hey,goodmorning.Justaquickfollow-upontheNIMoutlook.
IthinkBrucelastquarteryoumentionedthatiftheyieldcurvestayedwhereitwasyou'dhaveabout$600millionofdraginNIIoverthenextfewquarters.Areyousayingthatthat'sprettymuchchangedwiththesteepeningofthecurvesinceAprilwhenyouspokelastandnotonlyNIIisgrowingbutNIMshouldstabilizeorisitjustsortofoffsettingeachother?
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Areyougettingaboostfromthat?Howdowethinkabouttheyieldcurveversusyourpriorcomment?
BruceT hompson (CFO):
Aswelookandsnapforwardtherearealotofthingsthatinfluencethatnumber.Oneisobviouslytheabilityandhowmuchwe'veputtheincreaseindepositstoworkthroughgrowingloansandclearlywe'veseenduringthesecondquarterwesawthatloangrowthmoveupwhichisobviouslyagoodthingwhichlessenssomeofthatsensitivity.
Andaswelookattheamountandwhatwe'redoingfromaninvestmentportfoliothere'slesstododuringthesecondhalfoftheyear.Soallinallaswelookatthosedifferentfactorsit'swhywe'recomfortablesayingthatwe'dexpectthecoretoincreasebothQ2toQ3aswellasfromQ3toQ4.
JimMitchell(Analyst-BuckinghamResearch):
Okay,fairenough.Andjustonthecapitalside,whendoyouthinkthemodificationsbecomeofficialandyouexittheparallelrun?HowlongdowethinkwehavetowaitforthatandisthereanythingthatcouldchangeintermsofyourexpectationaroundIguessthe90basispointhittoyourCET1?
BruceT hompson (CFO):
IthinkIcansaythatwecan'tsaytoomuchaboutregulatorymatters.Ithinkgiventheupdateddisclosurewe'vegivenyoucanassumethatwe'regettingclosertohavingthatresolved.Youneverknowuntilyou'reultimatelydonebutwefeelverycomfortablewiththeguidanceof9.3%factoringintheadjustmentsbasedonwherewewereattheendofthesecondquarterandwe'lllooktogetthatwrappedupsoonerthanlater.
JimMitchell(Analyst-BuckinghamResearch):
Okay,that'shelpful.Andjustonelastquickoneonthe$3.9billionofsensitivitytohigherrates,howmuchisFAS91relatedversuscore?
BruceT hompson (CFO):
Sure.AsImentionedroughly40%ofit'slongendwhichis$1.5billionoftheamountandroughlyhalfofthatisFAS91andhalfofitisnon-FAS91related.
JimMitchell(Analyst-BuckinghamResearch):
Okay,thanksalot.
Operator :
JohnMcDonald,Bernstein.
JohnMcDonald (Analyst-SanfordBernstein):
Hi,thanks.Brucejustonemorequestionontheratesensitivity,the$3.9billionmovefor100basispointparallelmoveIassumethatillustrationistoa100basispointmovethat'sashockoraninstantaneousmoveinrates?Canyougiveusanyfeelforhowthatnumberwouldchangeifthemoveinratesismoregradual?AstheFedissayingifIgograduallyhowdoesthatchangeifit'snotinstantaneous?
BruceT hompson (CFO):
WellImeanultimatelyovertimeifyougettothe100basispointnumberyouhavethat,Ithinkyourpointisthatiftheymove25basispointsisit25%orisitmorethan25%?AndIthinkthethingthatyouhaveto
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keepinmindandwe'vetalkedaboutitalotwithwhatwewouldexpectfromadepositrepricingperspectivethatclearlyyou'dexpectthefirst25to50basispointsmoveupthatwewouldnothavetodomuchfromadepositperspective.Sonet-netonarelativebasisthatshouldbeapositiveasyoulookatthenumbers.
JohnMcDonald (Analyst-SanfordBernstein):
Okay.Andaclarification,whereitisthegainonconsumerrealestateloans?IsthatintheMortgageBankingline?
BruceT hompson (CFO):
No,it'sinotherincomeandit'sreflectedintheAllOthersegment.
JohnMcDonald (Analyst-SanfordBernstein):
Okay.TheMortgageBankingincomewasverystrongonthefeeincomeline,obviouslyyouhadtherepandwarrantinthere.WasthereanythingelseintherethathelpedontheMortgageBankingline?
BruceT hompson (CFO):
IwouldsaythatgenerallythatthehedgeresultsontheMSRwerefairlydecentinthequarterandthenlikewe'vesaidtherejustwasn'tmuchlitigationduringthequarteraswell.Soallofthosethingsledtotheresultsbeingwheretheyare.Butyou'rerightwe'vetypicallyhad100to200ofrepandwarrantyprovisionandwehad200benefits,soyougetasenseofthemagnitudeoftheswingonacomparableperiodbasis.
JohnMcDonald (Analyst-SanfordBernstein):
Gotit.Okay,andthenlastquestionformeonthecredit,doyouseethenetcharge-offsbouncingaroundthecurrentlevelthe$929millionandhowdoyouseeitplayingoutintermsofprovisionreservereleaserelativetowhatyoujustdidthisquarter?
BruceT hompson (CFO):
IthinkthisquarterIthinkyou'reseeingacontinuationofwhatwe'vebeentalkingaboutandIwanttobecarefulthatIthinkweneedtoexcludeDOJbothonthetopasyoudidinyour$929millionnumberaswellasinthereserverelease.SoifyoubackoutwhatwehadforDOJthereservereleasewasabout150,thecharge-offsof$929millionweredownroughly$75million.
AndwhilethiscanbouncearoundalittlebitIthinkwhatyou'relikelytoseeoverthenextcoupleofquartersisprobablyaconvergencewherethecharge-offsandtheprovisionnumberbecomemorecloselyaligned.AndIwouldjustsaythatparticularlyontheconsumersidewecontinuetolikewhatweseeoncreditandonthecommercialsideyoucanseethatcharge-offsarevirtuallynilwithinthelargecorporatespaceandthere'snothingthatweseeouttherethat'sgoingtochangethatmaterially.
JohnMcDonald (Analyst-SanfordBernstein):
Okay.AndontopofthatwilltheDOJstillbeafactorforthenextcoupleofquarters?
BruceT hompson (CFO):
AsitrelatestothatIwanttothink,John,thatitwillbeinthe$100milliontypeareaasitrelatestobothcharge-offandreservereleaseandthenbythetimewegettothefourthquarteritshouldvirtuallygoaway.Itcanbouncearoundalittlebitbutitshouldlargelybegonebytheendofthethirdquarter.
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BrianMoynihan (Chairman,CEO):
ButitparesoffJohnsothewayyousubtractthisquartercontinue.Soit'sanumberit'soffsetbyapreviouslyestablishedreserve.
JohnMcDonald (Analyst-SanfordBernstein):
Gotit.Okay,thankyou.
Operator :
GlennSchorr,EvercoreISI.
GlennSchorr (Analyst-ISIGroup):
Hi,thanks.Twoquickonesontheaveragebalancesheet.
Whenyoulookatthedebtsecuritiesline,theyieldwentupsomeversionofalotfrom2%to3.2%.I'massumingsomeofthatisLASloansconverting,butcouldyougivealittlecoloronwhatdrivesthat?Becausetheoverallsizeofthebookdidn'tchangethatmuch.
BruceT hompson (CFO):
Yes,it'sinteresting,ifyoulookyearoveryearandyouadjustforFAS91whichshowsupintheNIIwhenyou'relookingbackatthetablethattheyieldswerealmostidenticalfromthesecondquarterof2014tothesecondquarterof2015onceyoumakethat91adjustment.
GlennSchorr (Analyst-ISIGroup):
Okay.Similarbutdifferentquestion,insidetheC&Ibook,theusedcommercialbookitwasjusta4basispointdropquarteronquarterbutthere'sgrowththere.SoI'mjustcuriousthetrade-offbetweenpriceandyieldgiveuponthenewloansyou'reputtingonversustheresponsiblegrowthyoutalkedabout.
Itdoesn'tseemthatbad.I'mjustcuriousonwhatkindofyieldyou'reputtingnewloanson?
BruceT hompson (CFO):
Sure.Ithinkwhenyoulookatcommercialloanspreadstherearetwothingsthatthosenumbersreflect.Ithinkthefirstthingwhichjustfromamacroperspectivethathasbeenalittlebitofcompressionalthoughwe'reseeingitslowasitrelatestojustthecompetitivelandscapeandwhereloansaregettingdone.
Asitrelatestoyourquestionaboutthenewloans,theresponsiblegrowth,ifyoulookedatinparticularlyintheareasthatpickedupduringthesecondquarterthatonourriskratingscaletheywouldtranslatetocreditsthattendtobeinthestrongBBBorasingle8areasothattheyarelargelyinvestment-gradetypecreditswherewe'reextendingitandifyoulookataveragespreadsinthatareatheytendtobeintheLIBORplus150typeareaonaveragewhichisalittlebitlowerthantheaverageacrossthecommercialplatform.Butasyoucanseethecreditisclearlyattheupperend.
BrianMoynihan (Chairman,CEO):
SoGlennit'sprobablysayifyouthinkaboutitwe'renotoncreditstructureweheldourdiscipline,onpricethere'sbeenpressurebutthenyouhavetolookatthatonawholerelationshipbasiswiththeotherfeesandrevenuesyougetfromcashmanagementandstuff.Andwetrytohaveaclientfocuseddisciplinetodoit.Butyourobservationisright,thereisalittlepressureonthosespreadsduetothat.
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GlennSchorr (Analyst-ISIGroup):
Okay,Idefinitelyappreciatethat.Lastoneiswhenyoutalkaboutthepushingforgrowthandyoumentionedthedifferentspecialistsinthebranches,theBusinessBanking,thefinancialinvestmentconsultants,I'mcuriouswhatareyoudoingtoincentandtoencouragethem?Inotherwordsarethereactualincentivesordotheygetpaidontheirproduction?
BrianMoynihan (Chairman,CEO):
Inthesalescontextthereisthereareincentivesforproductionbutithastobedonetherightwaywiththerightcustomersintherightstructuresoitisnot--itdoesn'tdrivetheirbehavior.It'sdifferentthanlet'ssaytheWealthManagementbusinessintermsofthebalancebetweenincentives.
Butyestheyarepaidtoopen,themortgageloanofficersarepaidtoproducemortgagesandtoopenupcheckingaccountsandotherthings.Butit'sreally,it'sactuallydeployingthepeopleandbuildingthecapacitytosell,that'swherewearereducingtheneedforservicesthroughalltheautomationthat'sgoingonandshiftingthatgroupofpeople.
Sothatitisreallyjusthavingmoreofthemthanthinkofitasincentivedrivenbehavior.Andthenreallythenhavingtheinformationatthepointofthesalethroughourtechnologyofoffersthathavebeenmadetopeopleforcreditcards,etc.,soyoucanmaketheofferagainthat'salreadybeenmadetothemonlineorsomething.Soit'sacombinationofsalespractices,morepeopleandthenjustthedisciplineoftheteam,Tom,GlennandDena(inaudible)thenitwouldbeincentivedriven.
GlennSchorr (Analyst-ISIGroup):
Allright.Thanksverymuch.
Operator :
EricWasserstrom,GuggenheimSecurities.
EricWasserstrom(Analyst-GuggenheimSecurities):
Thanksverymuch.Justtofollowupalittlebitonthatlastpoint,whenIwastryingtoshiftthroughthecoreloangrowthnumbersthismorningitlookedlikethecoreloangrowthcomingoutoftheinstitutionalbankandtheWealthManagementlookedstrongbutI'mstillunclearwhatthecorelevelofgrowthwasinsidetheconsumerorganizationandsoI'mjusttryingtoreconcilethatwithwheretheincrementalhiringisoccurringonthesalesfront.Socanyoujustclarifywhatthecorelevelofconsumergrowthwas?
BrianMoynihan (Chairman,CEO):
Wellasyoulookattheconsumeronpage5youcanseethebalancesandyoucanseethedifferentpieces.Wehadchangeofpracticeofhowwebookedresidentialmortgagesforourconsumercustomersthathasanimpactonthat.Butoverallyourememberthey'restillfightingacouple--we'restillfightingacoupleofthingsonconsumer.
Oneisthecardbalancesarefinallystabilizeandyousawfromfirstquartertosecondquarteraslightuptickthere.That'sbecausewe'vebeenhittingincreasinglyrecordsalesofcreditcardssoIthinkwedidabout$1.3millionthisquarter,Bruce,thatisagainarecordforusandsincewechangedthebusinessmodelsix,sevenyearsago.Andifyoulookat--butifyoulookatthingslikethehome-equitybalancesandthingslikethatthoseareunderpressurejustbecausewe'restillseeingsignificantrepaymentseventhoughwe'reproducingalotinthatarea.
Soifyoulookatthatyoucanseeit'sacrosstheboardjustalittlebitupsidetilt,inparttheinterplay
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betweensomeoftherunoffintheothercategoryandthebuildupinresidential.ButtheydoalotmorethansellloansinthatplaceandsotheinvestmentsaleslevelsthatdrivesthatMerrillEdge,infactattheFSAsandthebranchesthatwedeploydo$4millionofnotionalonaverageamonthofnewinvestmentproducts.Inbuilding$4millionto$5milliontheysellobviouslycheckingaccounts,netcheckingaccountsthisquarter.
We'reinanetcheckingaccountgrowthpositioneventakingintoaccounttherunofffromdivestituresandotherthingsandthenyouhavetheloanside.Sotheyareresponsiblefordrivingallthatandsoitshowsupintheloansalittlebitbutalsothat'swhythefeedcategoryisstableinotherareas.
EricWasserstrom(Analyst-GuggenheimSecurities):
Andsodoyouhaveasenseoristheresomesensemaybeyoucangiveustohowthatinvestmentinfrontofficestaffiscontributingtogrowthoutsideofthesegment?
BrianMoynihan (Chairman,CEO):
Well,forexampleinthesmall-businessarenainthefirsthalfoftheyearwedidabout$5billionoforiginationsandwhattheworldwoulddefineassmallbusinesswehaveitacrosstwodivisionsandtheyhelpedgrowthat.Merchantservicesgrowth,youknowtheysellthatgoesintotheBusinessBanking--GlobalBankingsegmentandtheysentabout20,000customersayearintoWealthManagementthatliterallywalkinabrancharewealthyandtheygetmovedoverandthathelpsourWealthManagementbusiness.
Soyoucan'tthinkof--you'reright.Thatsalesforcedoeswhatitdoesinthesegmentbutithasthebenefitacrosstheboardandthenserviceisalotforallcustomers.
BusinessBanking,CommercialBankingcustomerscomeintothebranchesobviouslyforthecash--relatedtothecashmanagementrevenue.Soitisacrosstheboardandcontributesandsothegoodnewsistheyaremakingmoremoneythantheymadelastyearontheirownbuttheyarestillprovidingthatservicesandcapabilitiesacrosstheplatform.
EricWasserstrom(Analyst-GuggenheimSecurities):
Andsowhenthisismyfinalquestiononthisifwedivorcejusttherunofffromsomeofthelegacyassetsthatarestilloccurring,wouldyouexpectthecoreconsumerassetgrowthtoaccelerateasaconsequenceofthisinvestmentordoyouthinkthatit'scurrentlyrunrating?
BrianMoynihan (Chairman,CEO):
AstherunoffsubsidesintheconsumercategoriesthisisConsumerBankinghereandthenyou'vegottheLASpiece,theLAShomeequitieswillcontinuetogodownbecausefranklythoseareproductsweputintherebecausewedecidednottodothem.Butontheconsumeryoushouldseeasitstabilizesyou'llseealittlebitbetterloangrowth.
Butrememberthatfocusontheresponsivepartofresponsiblegrowthwe'renotgoingtoopenupthecreditcardbusinessinawaythatwillproducecharge-offlaterdowntheroadthatwewon'tbehappywith.SowearedrivingthatgrowthintothecorestrongcreditqualitythatwewanttohaveinthisCompany.AndsoI'dbecarefulaboutassumingitwilljustleaptousbecausetodothatyou'dhavetogointocreditposturesthatwewon'tdo.
BruceT hompson (CFO):
AndIwouldjustadd,Brian,ifyoulookathome-equityit'sagoodexamplewhereifyoulookwithinthe
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consumerbankingspaceduringthesecondquarterofthisyearthehomeequityoriginationsoflineamountswereabout$3.2billion.Theyweretoloantovaluelessthan60%,FICOsdeepintothe700sandsothereweremorethan$3billionofthosebooked.
It'snumberonemarketshare,roughly$1.5billionofthatwasfunded,butyoudohavesomeofthelegacystuffthat'srunningoff.SoIthinkwhenyouwonderaboutactivitylevelsandwhat'shappeningIthinkyouneedtorealizethatwiththatnumberoneshareinwhatwe'redoingitisgrowing.It'sjustthatthereisarunoffthatmutesthateffect.
EricWasserstrom(Analyst-GuggenheimSecurities):
Great,thanksverymuchfortheanswerstoallmyquestions.
Operator :
KenUsdin,Jefferies.
KenUsdin (Analyst-Jefferies&Company):
Thanks,goodmorning.FirstquestionjustontheRWAs,lookslikewhenyoulookatthereconciliationofthemovetofullyphased-inthereisalittlebitofahelpontheadvancedmodelsthisquarterandjustinageneralsenseobviouslywestillhavethatfinalizationtocomebutwhatadditionaltweaksareyouworkingoninsidethemodelsandwhatadditionalmitigationcouldwestillseefromhereontheRWAside?
BruceT hompson (CFO):
Ithinktherearecoupleofthings.We'reobviouslyworkinghardtomoveasmanyoftheexposuresfromCEMtreatmenttoIMMtreatmentwhichgenerallyhasfavorablebenefitthere.
ThesecondthingItalkedaboutbettercollateralmanagementaswellaslookingtoworktodomorecompressionandtonetthingsoutandwecontinuedtoseesomebenefitthere.Ithinkthirdiswecontinuetomoveoutandwe'relargelythroughthisbutaswecontinuetomoveoutsomeofthenon-performingconsumerrealestateaswellasthebenefitsofimprovedconsumercreditquality,we'reseeingbenefitsthere.AndtherestillareafewRMBSandothertypepositionsthatwe'dexpecttogetbenefitforoverthenextcoupleofquarters.
SoIthinkthisquarterwasclearlyaquarterbetweentheactivitiesthatweundertookaswellaswhathappenedfromaratesandFXperspectivewherewesawprettygoodquarter-over-quarterimprovement.Andobviouslythatwasnotonlyinthemarketsbusinessbutalsointheconsumerbusinesses.
BrianMoynihan (Chairman,CEO):
I'dsay,Bruce,theotherthingwehaveahealthydoseofoperatingcapitalduetotheoperatingriskembeddedfromCountrywideandotherthingsthatwehavetofigureoutovertimehowwecanworkthroughthesystembecauseweneverdidtheactivitiesintheCompanybutontheotherhandwehadtodealwiththecostofthem.Andsobothoperatingandgeneral,soasyouthinkaboutthatlongertermwehadtogetamorerationalviewofthatoperatingriskrelativetotheCompanyweruntodaywhichisdifferentbutthatwilltaketimeandworkingthroughthemodelstheretoo.
KenUsdin (Analyst-Jefferies&Company):
Okay.AndthenmysecondquestionrelatestotheWealthManagementbusinessandBruceyoualludedtotherebeingalittlebitofaslowdownontherevenue.Soifalookatthesegmentorthelineitemontheincomestatementtherehasbeenadeceleration,advisorproductivitylooksalittlebitlowerand
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you'veaddedalotofpeople.You'veaddedalotofassets.
SoI'mjustwonderingwhatdoweneedtoseetogetare-accelerationoftherevenuesideinbrokerageandWealthManagement?Andisitjustatimelagrelativetothoseadditions?
BruceT hompson (CFO):
Acoupleofpointsonthat.Ithinkfirstthere'sclearlyabuildingupofadvisorsparticularlyifwe'rebringingtheminandtrainingthem,thatthere'sarampupinproductivitythatoccurs.Idon'tthinkthere'sanyquestion.
ThesecondthingthatIdothinkisimportantisthatwhenyoulookatthenetinterestincomelinethatasImentioneditlookedalittlebitmuted,ifyousawgrossloannetinterestincomeyouwouldseethisincreasing.SosomeofthepushoutoftheALMactivitieshasmutedtheNIIlinealittlebit.
AndthenthethirdthingwhichyoureferencethatIdothinkisalittlebitmoreofatrendandIthinkisnotonlyissomewhatconsistentwithsomeoftheregulatorystandardswhichwe'reseeingmoreandmoreoftheassetsthatwemanagebeingmanagedonalong-termbasiswherewe'remanagingthem.Andsothat'sleadingtogrowthintheassetmanagementfeesandthecorollarytothatisthatyoudohavelowerbrokerageincomebutnet-netyoucanseethatwearegrowinginthesegmentandwefeelgoodabouttheactivitythatwe'reseeingthere.
BrianMoynihan (Chairman,CEO):
AndI'dsaythatthefewquarterswesawthemargin,thepretaxmargincomedownandyou'reseeingitstarttoturnbackandgoup.Andthere'spositivepressureoutinthefutureonthatattheendofthisyearbecauseofsomeofthedealstuffrunsoffwilladdacoupleofpointstomarginthatit'sinthenumbersthisyearbutwon'tbeinthenumbersnextyear.
Andthenyourpointisthematurityoftheinvestmentcyclesoifyougobackwe'readdingfinancialadvisors,theirbooksarecomingin,they'rebuildingthebooksandasthatmaturityhappensyou'llseeitmatchalittlebetter.Buttheencouragingsignswe'reseeingthemargincomebackup.
Andrememberthisbusinessalsobenefitsalotbytheratechanges,too,ultimately.Itisabigbank,it'sgot$250billiondeposits,roundnumbers,alotofloans,andithasalotofthesamesensitivityourConsumerBankdoesthatpeopledon'tthinkofitinthiscontext.
Soaswethinkaboutthecompstructureisinplacebutthere'sanaddeddealpiecethatrunsoffyou'reseeingthematuritycycleofthepeoplecomingup.Andtheteamisjustworkinghardontherevenueexpensemanagementandwestartedtoseesomebettersignsthey'vegotsomeworktodostillthough.
KenUsdin (Analyst-Jefferies&Company):
Understood.Okay,thanks,guys.
Operator :
StevenChubak,Nomura.
StevenChubak(Analyst-NomuraSecurities):
Hi,goodmorning.SoIhaveacoupleofquestionsonthetopicofcapital.
Thefirstisafollow-uptoKen'searlierquestionregardingRWAmitigationpotential.AndBruceIdoappreciatethecoloryoucitedrelatingtoallthemitigationopportunitiesonthehorizon.I'mjusttryingto
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
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getabettersensegivenyoureffortstogrowthecoreloanportfoliohowweshouldbethinkingaboutthetrajectoryinadvancedRWAs,maybeexcludingtheupwardadjustmenttiedtotheregulatoryguidancejusttogiveusasenseastowhatthattrajectoryshouldlooklikeoverthenextcoupleofquarters?
BruceT hompson (CFO):
Youmakemethecaveatthatthisassumesthatwedon'thaveasignificantchangeonewayinmarketconditionsbecauseobviouslythere'sapartofBaselIIIthat'ssomewhatprocyclical.ButIthinknet-netifwedoagoodjobofmanagingthisthewaythatwewouldexpecttothatabsentanyexogenouschangesweshouldbeableintheinstitutionalbusinesswhichisbothGlobalBankingaswellassalesandtradingthatweshouldbeabletogrowloanswhileatthesametimehavereductionsintheoverallrisk-weightedassetsthatareattributedtothatarea.NowwhereyouwillprobablyseeitbemoredollarfordollarisobviouslyunderstandardizedthoseloanstendtobeeverydollarofloanisadollarofRWAsoyouhavetobealittlebitcarefulbetweenwhichmethodyou'relookingat.
StevenChubak(Analyst-NomuraSecurities):
Okay.ButpresumablythefocusatleastonyourpartisgoingtobeonmitigatingtheadvancedRWAsgiventhatthatappearstobeyourlonger-termbindingconstraint.
BruceT hompson (CFO):
It'sbothbecauseyou'reright,asitrelatestoaratioproformaforthisitisthelowernumber.Butkeepinmindyouhavetokeepthefocusonstandardizedaswellbecauseatleastbasedonlastyear'sCCARaswellasguidancethat'souttherestandardizedisveryimportantfromaCCARperspective.
StevenChubak(Analyst-NomuraSecurities):
No,understood.Okayandthenactuallyit'sagreattransitiontomynextquestiononthetopicofG-SIBsurchargeswhereI'msureyou'reawarethere'sbeensomediscussionaroundthepossibilityofincorporatingthesurchargeswithinCCAR.AndIwasjusthopingtogetabettersenseastowhatcontingencyplansyoumighthaveinplaceifthesurchargeweretobeincludedandarethereopportunitiesthatyouseetosufficientlymitigatetheG-SIBindicatorssothatyoucouldmoveintoalowerbucket?
BruceT hompson (CFO):
Acoupleofthingsonthatfront.ThefirstisasitrelatestoG-SIB,theirapplication,wheretheymayormaynotbeused,atthispointwhileweparticipateinindustryforumsIthinkthatthesupervisoryareahasbeenverytransparentandsharingmuchofthesamethingsthattheysharewithusyouarealsoawareof.SoIthinkthattheinformationisfairlydisseminatedamongsteveryone.
Asitrelatestocontingencyplanningit'sreallyanongoingcontinuationofwhatwedidfrom2013to2014whichifyourecallisrelatedtoourquantitativeCCARresultsinatimeframewherewedidn'thavesignificantlevelsofnetincomethatourCCARcushiongrewsignificantly.Sowhatarewedoingtofocusonthat?Ontheinvestmentportfoliowe'remindfulofmanagingOCIriskgiventhatitflowsthroughtheoverallCCARprocess.
Wecontinuetobeveryfocusedonmovingoutthoseloansandthoseassetsthathavehigherlosscontentandatthesametimemakingsurethattheoriginationsthatweputonwereofthehighestquality.Sowecontinuetofocusonthat.
Ifyoulookattheoverallriskthat'sbeingtakenwithinthemarketsbusiness,we'remanagingthatsothatthere'snotasurpriseasitrelatestothat.Andclearlywecontinuetoworkhardtomoveoutthose
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exposuresthathavehighlosscontentthere.
SoIthinkIwouldsayit'sreallymuchmoreofacontinuationoftheworkthatwe'vebeenatforseveralyearsnow.Andwe'remindfulofmakingsurethatwecontinuetopushthatstuffoutatthesametimethatwe'reoriginatingthosethingsthatwe'llperformwellaspartofthatoverallexercise.
StevenChubak(Analyst-NomuraSecurities):
Allright.ThanksBruce.Thatdetailisextremelyhelpful.
Andthenonemorequickfinaloneforme.IwashopingyoucangiveusanupdateonwhereyourTLACratiosittoday?
BruceT hompson (CFO):
IthinkthattheTLACratioasitrelatestowhereweareandthisassumesthatweexcludestuffthat'slessthanayear,IthinktheTLACratioisroughly21%atthispoint,we'llhavetoseethedeductsthatcomeinandoutofthatbasedonG-SIBandotherthings.ButIthinkwe'rejustbelow21%attheendofthequarter.
StevenChubak(Analyst-NomuraSecurities):
Okay,great.Thankyoufortakingmyquestions.
Operator :
BrennanHawken,UBS.
BrennanHawken (Analyst-UBS):
Goodmorning.Thanksfortakingthequestion.
AquickoneonWealthManagement.IsitpossibleforyoutoquantifyforushowmuchofyourtotalWealthManagementclientassetsareinretirementaccountsandofthat,whatpercentageareadvisory?
BruceT hompson (CFO):
We'llletLeegetbacktoyouonthat.Idon'thavethatoffthetopofmyheadintermsof--Ijustdon'thavethatfactrightinfrontofme.
BrennanHawken (Analyst-UBS):
Okay.JustthewholeideathereistryingtogetattheDOLproposalandmaybewhatcouldbepotentialdownsideevenbasedonhowitallgetsfinalizedunderstandingthatit'spreliminaryatthispoint.
BrianMoynihan (Chairman,CEO):
Yep,Leecanfillyouinonthat.
BrennanHawken (Analyst-UBS):
Okay.Andthenlookingatthebranchdeclinesthatyouguysreferencedearliershouldwecountonthe5%yearoveryearasareasonabledeclineratesustainablefromheregiventhetrendsthatyou'reseeinginyourmobileplatform?Andcouldthispotentiallyaddadditionaljuicetoyourexpensedeclinesbeyondthebusinessasusualtypepushingthatyou'vespentalotoftimetalkingabouthereonthecalltoday?
BrianMoynihan (Chairman,CEO):
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Solet'sstepbackandmakesurethatweunderstandonethingistheideahereiswe'removingbecausethecustomersaremovingandhowtheyconductbusiness.Andsoyou'vegottorunyourchangesconsistentwithwhatthey'redoing.That'sabaselinethatyouhavetosticktobecauseifyouforgetthatyoucanovershootorundershootfranklyandsothatbeingsaidthat'sonepoint.
Thesecondpointisinthe6,100branchesthatwehadatthepeakdowntothislevelthereweremultiplethingsweweredoing,customerbehaviorchanges,changeintheconfigurationofthemarketsweattack,etc.,sotherearelotsofelements.Sonowwe'renowonabusinessasusualongoingpracticewhichwillreallybedrivenmorebythecustomerbehaviorasopposedtosomeviewpointswehaveaboutmarketsandarrangingthefranchise.
SoI'dexpectthattheywillcontinuetoworkthemselvesdownandIwouldn'tpredictasteadyratebecauseit'saverycomplexequationbutthenlet'sfliptowhat'sreallygoingon.AsBrucetalkedaboutearlierwehave17.6millionmobileusers.Wehave31millionbankcomputerbankingusers,thatnumberisactuallygrowingagain.
Forawhileitwaskindofflat,it'sactuallygrowing,soit'sinterestingthatthat'shappening.16%ofalloursalesarealldigitalnow.About6%ofthesalesofdigitalwhichiscomputersandmobilearemobileandthat'sgrowingat300%soit'scatchingup.
Andthenyougetthingswhichareinterestingbecauseitgoestotheefficiencyofyourbranch.Thereareabout10,000appointmentsscheduledinamobiledeviceaweekatthebranchwhichthenallowsustohaveamoreefficientbranchstructure.Eventhoughwemayhavelesswemayhavebiggerbranchesbecauseyouhavemoresalesgoingoninthem.
Sothinkaboutthat,that'supfrom2,000lastyear,secondquarterof10,000timesaweeknowandgrowingatthatrateimpliedthere.Peopleareschedulingappointmentstocomeseeuswhichisalotbetterexperienceforusandthentohelpustoservethem.
Soitallowsustohaveourstaffinglevelsdone.Brucereferencedthechecksdepositedare13%ofallthecheckssotheactivityofallthisiscriticaltothatquestion.SoIwon'tgiveyoua5%reductionor4%reduction.
Ithinkyoucanmathematicallyderivewhatwe'vedone.ButI'dbecarefulaboutassumingitwillbethatratablebutitwillbemorebasedinbehaviorchange.Butthekeyisourcustomerscoreshavegoneupoverallandeveninthemobilechannelswe'vegoneupyearoveryear1,000basispointsinourmobilechannel,toptwoboxsatisfaction.
Soitwillbeacomplexthing.It'sanintegratedpoolofcapabilities.Phones,onlineATAandbranchesandyou'dexpectittobepressuregoingdownbutrememberwewereearlyintothisandifyouthinkabout1,400branchesthat'sbiggerthanalotofcompaniesouttherealreadyoutofthesystem.Sowe'vebeenatthisforalongtimebutwewilldoittherightwaybecauseifyoupushtoohardyouwillupsettheclient.
BrennanHawken (Analyst-UBS):
That'shelpfulcolor,Brian.Thanks.Andthenlastoneformeyoumadeareferenceearliertoacoupleofpointsmarginfromtheemployeeforgivableloanamortizationdroppingoffnextyear.
Isnextyearabumpinthetrendoristhatindicativeofpotentialfurtherdeclinesinforgivableloansastheycontinuetorolloff?Anddoesitassumesomelevelofcounterpressureoffsettingpressurefromcontinuedrecruiting?AndmaybealittleupdateontherecruitingenvironmentforFAswouldbehelpful.
BrianMoynihan (Chairman,CEO):
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WhatI'mreferencingisdiscreteawayfromtheentirerecruitingprocess.Thisisa--wassetupatthetimeofthetransactionforagroupofpeopleatthattimeanditjustcameinovertheyearsandit'snotthislastyearitgoesaway.
Theforgivableloanpracticeandalltheotherstuffinrecruitingisawholedifferentthing.ButforJohninkeybanksandtheteamsthey'resuccessfullyrecruitingontheexperienceleveltheattritionsforthetoptwoquintilefinancialadvisorsisatanall-timelow,IthinkagainIthinkit'srunningat2%orsomethinglikethat.Sowe'reretainingthoseandthenwe'rerecruitingatboththeexperiencedlevelbutimportantlywhatisobvioustousistodrivetheamountofclientneedhere,driveagainsttheclientneedwhichishugeandunderservedinourbelief.
Wehadtocreatemoreadvisorsthanthereareoutthereandsowe'vereallyworkedhardonwhattheycallthePMDprogramwhichisbasicallybringingpeopleinthebusinesswhomayhaveexperienceinotherfirmsbybringingthemintoourfirmandalsootherindustriesintoourfirm.Andthatisnowreapingbenefitstousgivenwe'vebeenworkingonitfortwoorthreeyearstoretoolitanddriveit.
Soyoushouldexpectouradvisorcounttogoupandourproductivitymaycomedownperadvisor.Butfranklythere'salotofbusinesswhererememberourvaluepredictis1millionandsoonsobringingitdownalittlebittogetalotmoregrowth,alotmoregrowthinadvisorswouldnotbe--wouldbeagreattradeforourCompany.
Soourrecruitingisstrong.We'renetdoingadecentjobatthehigherendthatyouhearalotabout,thatisnotabigpartoftheadvisorcount,severalhundredayear,likeinacouple200,300.
Butwhat'sgoingtodriveouradvisorandcapabilitiestoserveourclientsisthebroaderbuildoutoftheteamswhichistheBFAsandthePMDsthatworkatthebranchesinsomecasesandworkwithpeople.Andthatshouldredoundtoourbenefitovertimealthoughitwillhavealittledragonprofitabilityrightnowbecauseit'sinvestment.
BrennanHawken (Analyst-UBS):
Great,thanksforthat.
Operator :
MartyMosby,ViningSparks.
MartyMosby(Analyst-ViningSparks):
Thankyou.Iwantedtoaskabouttheassetliabilitymanagement.
Whenyoulookatthemarketadjustmentsthatyouhadof$669millionthisquarter,asratesgoupthereislessandlessimpactfromthat.Howmuchisremaininginthenext50basispointsinjusttheprepaymentspeedslowingdown?
BruceT hompson (CFO):
Idon'thave50basispoints,Marty,butthenumberwequotedwasona100basispointmovetheFAS91benefitwouldbe$775million.
MartyMosby(Analyst-ViningSparks):
Okay.Perfect.Andthenwhenyou'retalkingaboutbeingabletoseethemargingoupinthebackhalfoftheyearbecauseofthecurrentsteepnessoftheyieldcurvedoesthatincludesomeutilizationinthesenseofincreasingyoursecuritiesportfoliowhileyouinvestsomeoftheliquidassetsyouhaveonthe
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
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balancesheet?
BruceT hompson (CFO):
There'sclearlysomeofthatbecausewewouldexpectaswegoforwardwiththecompositionofthebalancesheetthattherewillbeincrementalcashthat'sgenerated.Obviouslysomeofthatgoesintoloangrowthandsomeofitgoesintotheinvestmentportfolio.Soembeddedinthatthosecommentsisanassumptionthattherewillbealittlebitmoretobeinvested.
MartyMosby(Analyst-ViningSparks):
Anygeneralrange?$10billion,$20billion,$30billion,anykindofruleofthumbthere?
BruceT hompson (CFO):
Iwouldthinkofitasonthelowendofthatduringthethirdquarterandacomparableamountinthefourth.Andthere'soneotherthingthatIdidwanttocorrectthatIsaidearlierthatifyoulookatthesecuritiesbalancesyieldthestabilitythatwesawonceyouadjustforFAS91wasQ1toQ2.
MartyMosby(Analyst-ViningSparks):
Gotyou.AndlastlythisisanuancebutwhenyoulookatthetradingactivitytypicallyinthepastwhenIhadatradingactivityinthebankthatIwasmanagingwhenyouhadasteepeningoftheyieldcurveyougetsomepickupbecauseyou'regettingthecurrentlong-termyieldfundedbyshort-termrates.Therateonthetradingactivityaccountdidnotgoupthisquarterbutaveragingintothenextquarterwouldyouexpectsomebenefitthere?
BruceT hompson (CFO):
Ithinkifyoulookat--IthinktheimportantthingisthatsothatratetendstomanifestitselfinthemarketbasedNII.TherearealotofthingsthatdrivethatwhenratesmovearoundasmuchastheyhavebutIdon'tthinkthere'sanyquestionthatovertimeasyou'reinanincreasingrateenvironmentthatthereisapartoftheyieldcomponentthatflowsthroughNIIthatyouwouldexpecttogetalittlebitbetter.
MartyMosby(Analyst-ViningSparks):
I'mjustmorefocusedonthesteepnessversustheflatteningoftheyieldcurve.Asteeperyieldcurvetypicallybringsalittlebetterspreadonthetradingaccount?
BrianMoynihan (Chairman,CEO):
Itwouldbutthequestionisitworksitswaythroughbutifyoulookacrosslongperiodsoftimeit'srelativelyconstant.
MartyMosby(Analyst-ViningSparks):
Okay.Thanks.
Operator :
NancyBush,NABResearch.
NancyBush (Analyst-NABResearch):
Hi,goodmorning.Guys,justanotherliquidityissue.Couldyoujusttelluswhat'sondeposit,whatexcessdepositsyou'vegotwiththeFednowandwhatyourplansareforthosegoingforward?
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BruceT hompson (CFO):
Atanyonepointintimeitcanmovearoundbutyoushouldassumeit'scomfortablyabove$100billionthat'sontheFedinanyonenightduringthequarter.AndIthinkthatwhenyoulookatwherewearewithLCRwhereweareatboththeparentaswellasthebank,thatIthinkand$484billionofoverallliquiditywhichisarecordthatwefeelwe'reinareasonableplaceandIdon'tseesignificantchangesgoingforward,Nancy.
NancyBush (Analyst-NABResearch):
Okay,youmeaninoverallliquidityoratliquidityondepositwiththeFed?
BruceT hompson (CFO):
Probablyboth.
NancyBush (Analyst-NABResearch):
Okay,that'salotofliquidity.Mysecondquestion,Brianisforyou.
You'vegonethroughalotofchangeoverthepastfewyearsandthistransitiontomobile,etc.,etc.,butoneofthethingsIstillgetfromtalkingtopeoplearepersistentgripesaboutservicequalityparticularlyinthemortgagecompany.Canyoujusttelluswhatyourinternalpollingorwhatevershowsintermsofimprovementsincreditqualityandhowyoufeelaboutthatentiresubject?
BrianMoynihan (Chairman,CEO):
Inthemortgagebusiness,forexamplethebankoriginatorswe'renumberoneinJDPowersurveyandIthinkwe'renumbertwoorthreeoverallofallmortgagecompanies.SoIthinkintermsoforiginatingmortgageloansaguynameSteveBolandrunsthatforushasgottenthatplatformsettledinandyou'llgetmomentaryspikeswheretherefiswillbumpupandthingsslowdown.
Fromagettheloandone,fromkeepingourcreditqualitywherewewantedthatendsupwithushavingsomenoisearoundpeoplewhodon'tgetmortgages.Sowedid$15billionorwhateverwedidthisquarter,30%ofthoseloansweremoderateincomesowe'restillservingthatsegment.ButagainwearenotpushingforcredittermsandmortgageandIthinkyou'dunderstandwhy,Nancy.
NancyBush (Analyst-NABResearch):
Buthowaboutjustmoretheissueofservicequalityatthebranches,etc.?
BrianMoynihan (Chairman,CEO):
Well,ifyoulookatourcustomerscorescontinuetorisealmostonamonthlybasisandinthebroadestcontextourbrandandpartofthatisduetowhathappensatthebranch.Partofitisalsoduetothere'slessstuffgoingonabouttheCompanyandthat'sgonefromthelowpointinthefourth-quarter2009andhasrosefairlysteadily.Soit'sbeeninfactbacktowithin95%ofwhereitwasatitishighestpointin2005and2006.
Sowiththatwe'resatisfied.AndifyouactuallygotothecustomerswhoactuallygetservedwhenwemeasureallthechannelswhichwemeasurewithtensofthousandsofcustomersaweekandamonthyoufindthatthosescorescontinuetogoupandthetoptwoboxscoreIthinkwe'reinthe70sto80softhevariouschannelsandincludingmortgage.
Sobecauseyoujusthavealotofcustomersyou'llfindoutthatonceinawhilewe'rebumpingupinour
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jobstofixsomethingwedobutifyouthinkaboutitwe'veaddedmortgageproduction,checkingaccountsnetnew,creditcardsandthat'stheramificationofgoodserviceanddrivingitandtheteamjustcontinuestoworkonit.We'renotperfectandwewillalwaysgetbetterbutIthinkifyoulookatitoverthelastthreeorfouryearsitcontinuestogetbetter.
NancyBush (Analyst-NABResearch):
Allright.Thankyou.
BrianMoynihan (Chairman,CEO):
AndbythewayifyoulookatourdepositgrowthitcontinuestoaccelerateinoverthetopoftheCDscontinuetorunoffyearoveryearof$10billion.Sowe'reup$31billionindepositsandconsumeryearoveryearIthinkithasandCDswereprobablydownIdon'tknow$10billionorso.
Sothinkaboutthatifpeopledidn'tlikeusalottheywouldn'tbegivingustheircorecheckingaccountandthatishappeningmoreandmoreeveryquarter.Andthatwillserveuswellasrateschangebecauseweareahugelyprimaryfocuscheckingaccountcompanyinthebroadmass-marketbusinesswhichisdifferentthanthepast.
NancyBush (Analyst-NABResearch):
Allright.Goodtohear.Thankyou.
Operator :
MikeMayo,CLSA.
MikeMayo (Analyst-CLSA):
Hi,IjustwantedtofollowuponBetsy'squestionatthestarttalkingaboutexpensesbeingatarunrateormaybegoinglower.Theexpensesaredown$400millionyearoveryearbutifyoulookatyourfourbusinesslinestherevenuesaredowntwicethatimplyingalotoftherestiscomingthroughtheotherline.SoIguessI'mjustwonderinghowmuchmorethereistocutorshouldcutiftheexpensesaredownagain$400millionbuttherevenuesinthefourbusinesslinesaredown$800million?Howdoyoubalancethattrade-off?
BruceT hompson (CFO):
Yes,Ithinkthefirstthingthatyouhavetokeepinmind,Mike,whenyouquotethenumberswithinthebusinessisonayear-over-yearbasisyouhavetwosignificantthingshappening.You'vehadFAS91inasignificantmovementinratesasitrelatestopushoutofthosechargesaswellaswepushtheLCRouttothebusinessesfromareportedsegmentperspectivethathasasignificantimpact.
AndsoIthinkaswe'vegonethroughthepresentationthatthenumbersthatIwouldfocusonareverymuchwhat'sgoingonwithinthesegmentslookingatthefeeincomelinebecausethereisactivityfromanetinterestincomeperspectiveofgreateractivitywithinthebusinesses.SoI'dbealittlebitcarefulwiththatcharacterizationandIthinkinthatcontextI'dgobacktoBrian'sinitialcommentswhichwecontinuetopushhard,we'readdingclientfacingpersonnelacrosstheCompany,atthesametimewe'rereducingaggregateheadcountandthat'sleadingtodeclinesintheexpensenumbersandwe'revery,veryfocusedoncontinuingtokeepthatbalanceaswegoforward.
MikeMayo (Analyst-CLSA):
Okay.JusttounderstandbecauseI'mjustlookingatyourslides,slide17andtheotherslidesinyour
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presentationtoday,IlookedatthefourslidesrelatedtoGWIM,GlobalBanking,GlobalMarketsandConsumerBanking,Itooksecondquarterof2015versussecondquarterof2014andlookedatthedeltainrevenuesandthat'showIgotthe$800milliondecline.Soyouwouldsaywhichadjustmentsshouldwemakefromthat?
BrianMoynihan (Chairman,CEO):
Don'ttakeGWIMbecauseIgotthatnumberoffthetopofmyheadMike.IthinkyearoveryearthedifferenceinGWIMNIIallocationduetosortofunfundamentalthingsisBrucehowmuchof--
BruceT hompson (CFO):
Yes,let'sjustgothrough.Relativetothesecondquarterof2014you'vegotconsumerfromanoverallNIIimpactwasmorethan$200million.GWIMwasasBriansaidroughly$130million,overallInvestmentBank,ourGlobalBankingwasacouplehundredmillionandthenyouhavedeminimisamountswithinmarketsandLAS.
BrianMoynihan (Chairman,CEO):
Thatisnothingmorethanuschangingtheallocationmethod,it'sbecauseofLCRandotherthingsbecomingimportant.Sowepusheddownthebusinessestogetthebehaviorofthebusinessesalignedwiththeparent.
Sothisiswhyyouhavetobealittlecarefulaboutmicroassessingthesemovementsbecausethingschangeinthemethodologyyearoveryearandwedon'tgobackandrestatethis.Wedidn'tdoitlastyear.
MikeMayo (Analyst-CLSA):
Okay.Iwillfollowuponthat.Soareyoucomfortable,areyousatisfiedwiththerevenueprogressionthatyou'vehadnomatterhowyoutakealookatit?
BrianMoynihan (Chairman,CEO):
Mike,wearesatisfiedthatwearestartingtoseethehardworkofallourteammatescomethroughbutwe'renotsatisfiedinthesensethatweexpectbetterperformanceonboththerevenueexpensedynamicinthefuture.That's--we'llkeepworkingatit.
Butifyoulookatitoverthelastseveralquarterswhatyou'veseeninstabilityinrevenuesbutcontinuetoworkonexpensesbothinthedollarsbutalsointheheadcount.15straightquarters,3,000morepersonnelreductionsperquarterisaprettystrongrecordtoshowthatwe'redisciplinedinworkers.
MikeMayo (Analyst-CLSA):
Andthenaseparatequestion,Ithinkit'sthefirsttimeyou'velistedROAandROEonthefirstpageofyourpressrelease.Andshouldwereadanythingintothatthatwe'remorefocusedonachievingthesetargetswithaspecifictimeframeorwhatchanged?
BrianMoynihan (Chairman,CEO):
Itmaybethepagination.It'sbeenlistedinourdocumentsconsistently,Mike,so.Wearefocusedonthosegoalsandwe'vetoldyouthateachtimeyou'veaskedthequestion.
MikeMayo (Analyst-CLSA):
Andthenlastlyjust,IknowI'veaskedthisquestionbefore,isthereaspecifictimeframethatyoucan
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committo,toachieveyourROAandROEgoals?
BrianMoynihan (Chairman,CEO):
Mike,asItoldyouattheAnnualMeetingwhenyouweretherewithafewotherpeopleandaskingthequestionsonthisquestion,wehadthebuildingblocksinplacetogetustowhereweareandwecanseethebuildingblocksfallinginplacetogetustoourgoals.Andthereareexternalfactors,therateincreaseandstuffthatyouseeinthemarketcurvethat'schangedjustinthelast15daysinthisquarterandhasmovedarounddramatically.Butwithourcontrolofelementswecontinuetodriveandweseetheprogressiontowardsitoverthenextseveralquarterslikewetoldyou.
BruceT hompson (CFO):
AndIthink,Mike,justtobeclearwe'vetalkedabout100basispointsand12%to14%returnontangiblecommonequity.Obviouslyat99basispointswe'rebumpingrightupagainstthat.
AndIthinkwhat'simportantisasyoulooktothepathtowhatwe'vetalkedaboutwe'rebasicallythereinthesecondquarter,youcouldsayyouhadthe$700millioninFAS91,the$400millionofloansalegainsandacouplehundredmilliondollarsfromrepandwarrantprovisions.ButwhatIthinkisinterestingandasyoulookatthepaththereisifyoulookatandassumethe100basispointparallelshiftintheyieldcurvewhatthatwouldmeaninthequarteraswellasifweultimatelygettowhereourLASexpensegoalsareyou'rebasicallybacktoallotherthingsbeingequalwherewewerethisquarter.Sowhatwasarticulatedissomethingwhereyoucouldn'tseeapathorawaytogetthere,Ithinkitwasastepforwardthisquarterasfarasseeinghowwecangetthere.
MikeMayo (Analyst-CLSA):
Allright.Thankyou.
Operator :
ChristopherWheeler,AtlanticEquity.
ChristopherWheeler (Analyst-AtlanticEquity):
Yes,goodmorninggentlemenandI'msorrytoraisethesubjectofcostagain.ButIjustwanttosquareawaywhatyousaidIthinktoBetsy'squestionattheverybeginningtowhatyousaidattheconferencebackinMaywhenyouactuallysaidthatiftradingrevenuesdidn'tpickupyou'dhavetoadjustcostsfurther.Ijustwonderedwhereyouwereonthatbecauseobviouslytradingrevenuesweredownabout2%yearonyearIthinkinthequarterandI'mhavingtoassumethatthestarttothequarterhasbeenprettybumpywithGreeceandChina.
Socouldyoujusttalkalittlebitabouthowyouseethat?ButperhapsalsotalkalittlebitabouthowyoumightaddressthatsituationinglobalmarketsandglobalbankinginrespectoftheUSbusinessandtheinternationalbusinesses?BecauseitisreallyclearthattheUSbusinessseemstobeofferingmoreopportunitiesnotjustbecausetheyaremorebuoyantbutalsobecauseyou'reseeingEuropeanbanksplayalesserrole.
AndobviouslyseeingthreeofthebigbanksgetnewCEOsinthelastfewweeksIhardlyimaginetheyaregoingtobeallocatingmorecapitaltoInvestmentBanking.Thankyou.
BruceT hompson (CFO):
Letmetakeastabatacoupleofpartsofthatquestion.ThefirstisandIthinkyoureferencedthatwhatwouldyoudoifglobalmarketexpenseswereloweronago-forwardbasis?Ithinkthisquarterwas
CompanyName:Bankof AmericaCorporationCompanyTicker:BACSector:FinancialIndustry:Banking
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reflectiveofthewayyou'dexpectustomanageitwhichisthepuresalesandtradingnumberwasdown2%andtotalexpenseswithinthesegmentweredown5%.
SoIthinksomeofwhatBriancommunicatedinmateyousawevidenceofthathappeningduringthequarter.ThesecondthingthatIwouldsayisthatit'sobviouslyearlierinthequarterbutIwouldn'tdrawanyconclusionsastooverallperformancebasedonthevolatilitythatwe'veseenduringthefirstcoupleofweekstothenegative.
AndthenthirdIthinkyourquestionwasandisjustthatwithwhat'sgoingonwithinsomeoftheEuropeanbanksaswellaschangesinmanagementandquestionsaroundcapital,howdoesthattranslateandwhatareyouseeingintheUSbusiness?IthinkwhatIwouldsayisthatweobviouslyhavesignificantshareintheUSbusiness.We'relookingtodoabetterjobofthatandIthinkthatasyoulookatsomeoftheloangrowththatwe'veseenthatitisreflectiveofthefactthatwe'redeepeningintheUSbutjustasimportantlythatloangrowthisnotonlyintheUS,it'sthroughoutEurope.
There'sbeenalittlebitinLatinAmericaandthere'sbeengrowthinAsia-Pac.Sowearelookingtousesomeofthesemarketopportunitiesasabasistodeepenandlooktogrowtheoverallglobalbankingsegment.
ChristopherWheeler (Analyst-AtlanticEquity):
Thanksverymuch.Thankyou.
BrianMoynihan (Chairman,CEO):
Wellthankyoueveryone.That'sthelastquestion.Welookforwardtotalkingtoyounextquarter.
Operator :
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