Bank Of America Corp (BAC) — Q3 2017 Earnings Call Transcript

Good morning. Thanks for joining us this morning for our third quarter 2017 results. Hopefully, everybody's got a chance to review the earnings release documents that are available on the Bank of America website. Before I turn the call over to Brian and Paul, let me remind you we may make some forward-looking statements, and for further information on those, please refer to either our earnings release documents, our website, or our SEC filings. With that, let me turn the call over to Brian Moynihan, our Chairman and CEO for some opening comments before Paul Donofrio, our CFO goes through the details. Over to you Brian.

Thank you, Lee. Good morning everyone and thank you for joining us. This was another strong quarter across the board for Bank of America. Response for growth is delivering for our customers and for you our shareholders with strong operating leverage, strong credit results, and strong expense management. We earned $5.6 billion or diluted EPS of $0.48 per share this quarter that is up 17% from the third quarter of 2016. So thinking back and talking to a lot of you over the last year or so, as we met with you you’ve asked three basic questions. Can Bank of America actually go, while sticking to its responsible growth principles? Can we achieve the $53 billion 2018 expense goal? And can you meaningfully invest in the company at the same time you are reducing the cost? So what I thought I would do is use the summary on Page 2 to answer a few of those questions...

Okay. Thank you, Brian. I'm starting on Slide 5, as Brian said, we earned $5.6 billion in Q3, up 13% from Q3 2016, EPS of $0.48 per share, up 17% year-over-year as we reduced dilutive shares by 3% over the past 12 months. Revenue of $21.8 billion was 1% higher than Q3 2016 as NII improvement and higher asset management fees outpaced decline in sales and trading, and mortgage banking income...

Good morning. Brian, I have a question on digital banking, I guess right after the crash when you guys sort of first began to emphasize digital and mobile banking, you were sort of the leader in the industry in that regard. Do you still feel that you have that leadership position, is it important that you keep it and what are your thoughts about what you need to do to do that?

I think we have a leadership position if that's told just by other people and how they rate people in terms of activities and capabilities and things like that, but most importantly it’s how your customers use you, and what you see going on... So we feel we are a leader. We expect to be a leader. The activity grows faster, and I think you put it against any kind of mobile digital person out there, 1.2 billion customer interactions in the quarter shows you that people believe that it must be pretty good.

Hi, thanks. Little drilling down on your comments on deposit costs rise. So we go from, I guess, 8 basis points last year to 24 basis points this, or 11 basis points to 24 basis points over the last quarter. How much of that increase is what you mentioned in Wealth Management? I heard your comment on bringing them a competitive cash alternative. I’m just curious, is it CD versus money market? Is it all coming from current clients?

Mostly in Wealth Management and it’s - I wouldn't say, it's in one place or another, it's kind of across a lot of the different deposit products we offer to that community of investors and depositors.

Hi, good morning. I want to ask about expenses, the magnitude of the improvement was nice - surprise this quarter. I think you were targeting kind of $100 million year-over-year improvement and you’ve got something closer to $300 million or more. Just wondering where did you kind of outperform your own expectations on expenses this quarter? And is this run rate, I mean, ballpark kind of a good jumping off point, Paul?

Yes, I would say, we feel great about the work we did. We've always talked about expenses not being a straight line, the same line every quarter. This quarter, we did maybe a little better than other quarters. You're right, it was down about $300 million year-over-year, and those expense reductions were broad-based across personnel and non-personnel.

Hi, good morning. A couple of questions. One, as we go towards the $53 billion, can you just give us a sense as to the source of the improvement consumer versus corporate?

Betsy, I think, if you look at the quarterly progression across all expense categories, it comes from everywhere. And so, it comes from the data center configurations that we took a charge and moved a lot of stuff last quarter. It comes from continuing to shed real estate occupancy cost, it comes from lower headcount that was down of 1,000 this quarter. It comes from taking out expense and layers for things we called organizational health. But if you think of it more strategically, it comes from basically applying technology and digitizing processes.

Hey, good morning. Maybe a quick question on rate sensitivity, it looks like it didn't change despite absorbing another rate hike this past quarter. Is that sort of indication that you've gotten slightly more asset sensitivity, asset sensitive as the quarter went on, or how do we think about your flat rate sensitivity?

Not really, it's still around two-thirds short end.

Hi, Brian, how are you? You'd mentioned, Brian, on the call about going into different markets with de novo expansion of your retail branches. Can you give us some color on how long it takes to get to those branches to break-even? And then second, how long does it take to get them to a level of profitability that's similar to your legacy branches?

It takes a while to build them up to the level of deposits obviously. But what we've seen so far and that's going to be one of the things you test every quarter is the... some of the branches we opened in Denver quickly moved into the top 10% of sales...

Hi, thanks for taking my question. I want to ask about a follow up on efficiency and cost performance beyond 2018 and where do you think your efficiency ratio can go to...

Well I think there are a number of things. Number one, you’ve got the general picture right, which is, we're getting it down to 53 that puts us in the level, we have a higher procession of wealth management, which has revenue related compensation...