Bank Of America's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Bank of America (BAC)

Q1 2012 Earnings Call

April 19, 2012 8:30 am ET


Kevin Stitt -

Brian T. Moynihan - Chief Executive Officer, President, Director and Member of Executive Committee

Bruce R. Thompson - Chief Financial Officer


Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Matthew D. O'Connor - Deutsche Bank AG, Research Division

Betsy Graseck - Morgan Stanley, Research Division

Paul J. Miller - FBR Capital Markets & Co., Research Division

Nancy A. Bush - NAB Research, LLC, Research Division

John E. McDonald - Sanford C. Bernstein & Co., LLC., Research Division

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Brennan Hawken - UBS Investment Bank, Research Division

Moshe Orenbuch - Crédit Suisse AG, Research Division

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Andrew Marquardt - Evercore Partners Inc., Research Division



Good day, everyone, and welcome to today's program. [Operator Instructions] Please note, today's call is being recorded. It is now my pleasure to turn the program over to Kevin Stitt. Please go ahead.

Kevin Stitt

Good morning. Before Brian Moynihan and Bruce Thompson begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results, and that these statements involve certain risks that may cause actual results in the future to be different from our current expectations. These factors include, among other things, changes in economic conditions, changes in interest rates, competitive pressures within the financial services industry and legislative or regulatory requirements that may affect our businesses. And for additional factors, please see our press release and SEC documents.

And with that, let me turn it over to Brian.

Brian T. Moynihan

Thank you, Kevin. Before Bruce discusses the results in detail, I just want to take a minute and provide some additional thoughts on the quarter. On our last call, I listed following areas of focus for our company during 2012: We want to focus on our capital levels, we want to focus on our risk, we want to focus on the cost base in the company, and we also need to drive the core business improvement.

In the first quarter of 2012, we have made progress in each of these areas. As you can see, our capital and liquidity are at record levels in our company. Our credit costs continue to decline, and our cost structure is coming down, and many of the business, customer and profit metrics have improved.

So first from capital perspective. We entered 2012 with increasing strength in our balance sheet position. We managed through the CCAR test and made significant progress on our regulatory capital ratios again in this quarter. Our Tier 1 common ratio reached 10.78% at the end of -- at March 31, 2012.

We continue to make progress on capital at a faster pace than we expected. When we turn to risk, our credit costs fell to the lowest level in nearly 5 years. Reserve levels cover 3.6% of our loans and leases and 2x our current level of annualized credit losses.

The improvement in delinquent and nonperforming assets bodes well for further improvement in net losses as we go forward. As you know, we continue to take opportunities to reduce the remaining legacy assets in the capital markets business, and we believe we have the strong litigation and rep and warranty reserves in the mortgage area.

On a day-to-day basis, the average value at risk or VaR is lower in our trading business than has been some time. Yet, we managed to make similar levels of sales and trading revenue, excluding DVA as we did last year. The continued cost reduction remains at the forefront of our thinking at Bank of America. We continue to streamline our company. Our priority is to make our company work better for our customers, our teammates and our clients and in the process reduce costs.

As Bruce will show you later, we are achieving those results. We're achieving good results in bringing down expense across our various business lines showing good progress on trends over the past year. One area we continue to work is our Legacy Assets and Servicing area. Personnel costs there are beginning to peak, and after adding significant resources over the past several months to implement a single point of contact in other mortgage programs.

We expect these Legacy Assets and Servicing costs to come down in the second half of 2012. Just for your reference in the first quarter of 2012, the expense in Legacy Asset Servicing was $3.3 billion.

As this cost increased, we passed a milestone. We have now modified more than 1 million mortgages. In addition to the modifications, the pace of the short sales, deeds-in-lieu and other alternative resolutions continues to make progress and continues to quick helping us reduce our delinquent loans overall.

For the rest of our company, we saw a continued improvement in our costs. We expect to continue to achieve significant cost savings over the next 18 months consistent with our New BAC goals. We're finalizing New BAC 2, Phase 2 as we have told you and would discuss those expected outcomes soon.

As you are well aware, headcount drives our operating cost in the end, and we expect to see continued progress in this area going forward. This quarter, we added more than 2,500 associates in LAS as I spoke about earlier. But overall, as we work throughout the company and cost management in every other area, we reduced our overall headcount, including those additions in LAS by over 3,000 FTEs. That's on top of reductions 7,000 FTEs-plus last quarter.

At the same time, as we're reducing our cost, we continue to invest in our franchise and support the economy. During the quarter, to help move the economy along, we extended more than $100 billion in loans to individuals and companies of all sizes. Showing the fifth consecutive quarter of average commercial loan growth to corporate and commercial clients.

We've added client facing teammates in selected growth areas in our company. We've hired 100 small business bankers in this quarter to further support our small business customers, bringing the total of small business bankers since the program began to over 700.

In small business lending, we continue to exceed all the goals we set for small business lending, including the goals we announced last fall in cooperation with the administration and Small Business Administration. In fact, we're up 17% this quarter versus last quarter -- first quarter last year.

We've added 200 Financial Advisors to our team in the first quarter. As the quarter progressed, we added mortgage loan officers to focus on our direct to consumer mortgage business. As we think about the consumer business as an area we'll continue to work and we spoke about, we continue to respond to changing preferences to optimize our distribution network, while investing where appropriate.

This quarter, we added 0.5 million mobile banking customers during the quarter. That's about 40,000 a week of pace and continues. We now have more than 9.7 mobile banking-enabled customers. In our industry-leading online banking area, we added another 0.5 million accounts this quarter, active accounts this quarter bringing us to over 30 million active accounts.

In addition, through our ATM capabilities, we past a milestone. With half the deposits at Bank of America going through our ATMs that used to go through our branch platform. So overall, our customers continue to do more with us through all the channels, including traditional branches, mobile, online and ATM. But they're using the branches less, and that's why we are fine-tuning our delivery network.

We continue to align our banking center network with our customer needs. And this includes reduction and consolidations, which there was a net reduction of 51 this quarter. That's part of the reduction we've spoken to you about of 750 branches over the next couple of years. In select instances, we'll consider branch sales in markets where growth potential and size don't meet our goals. And at the same time, we continue to expand in markets with high density, where new locations can generate good results, and we continue to renovate centers in all the places we do business.

We continue to use our leadership position to deepen our relationship with our customers and clients across all our franchise. In the consumer business, we opened 800,000 new credit card accounts this quarter, half of which, even with our focus on credit quality were opened in our branches. Our innovative Bank of America card, Cash 123 card introduced only 8 months ago now has more than 1 million cards outstanding and has achieved great customer acceptance.

In our brokerage and wealth management area, we continue to make progress. Brokers accounts and assets are growing nicely. In our Merrill Edge self-serve area, they've grown nicely year-over-year. But most importantly, our industry-leading capabilities in Merrill Lynch Wealth Management and U.S. Trust, we've seen solid long term assets under management flows this quarter, some of the best we've seen in a while.

Read the rest of this transcript for free on

More from Stocks

Trump, China Trade, Target and Las Vegas Casinos - 5 Things You Must Know

Trump, China Trade, Target and Las Vegas Casinos - 5 Things You Must Know

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

Quick Read: 3 Things for Investors to Know Before Wednesday's Trading Session

Quick Read: 3 Things for Investors to Know Before Wednesday's Trading Session

Replay: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron

Replay: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around