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    Bank of America Corp (BAC)

    Business Description

    Bank of America Corporation (BAC) operates as a bank holding company and financial holding company, providing a diversified range of banking and nonbank financial services and products through four main business segments . The company offers credit, banking, and investment products and services to consumers, small businesses, affluent and ultra-high net worth clients, corporations, governments, and institutions globally . Bank of America generated $98.6 billion in revenue and $26.5 billion in net income in 2023, with significant contributions from each of its business segments .

    1. Consumer Banking - Offers credit, banking, and investment products and services to consumers and small businesses, primarily driven by credit card loans.

      • Retail Banking - Provides a wide range of financial services to individual consumers.
      • Preferred Banking - Caters to small businesses with specialized banking solutions.

    2. Global Banking - Provides lending-related products, integrated working capital management, treasury solutions, and underwriting and advisory services, driven by new client growth and deepening existing client relationships.

    3. Global Wealth & Investment Management (GWIM) - Delivers investment and wealth management solutions to affluent and ultra-high net worth clients, with client balances increasing due to higher market valuations and positive net client flows.

      • Merrill - Offers investment solutions and financial advice.
      • Private Bank - Focuses on wealth management for ultra-high net worth clients.

    4. Global Markets - Engages in trading across a broad range of asset classes, serving corporations, governments, institutions, and individuals globally, noted for strong performance in sales and trading activities.

    Q3 2024 Summary

    Initial Price$39.91July 1, 2024
    Final Price$39.22October 1, 2024
    Price Change$-0.69
    % Change-1.73%

    What went well

    • Expected Net Interest Income (NII) growth due to repricing tailwinds: Bank of America anticipates significant repricing benefits in its securities and loan portfolios, with approximately 250 basis points repricing on securities and mortgages, and 100 basis points on commercial loans, which are expected to boost NII and earnings growth.
    • Strong capital position enabling continued share buybacks: The company maintains a strong capital base and continues to prioritize returning capital to shareholders, having repurchased $3.5 billion in shares this quarter, with plans to continue buybacks over time.
    • Robust growth in fee-based businesses supporting revenue and operating leverage improvement: Fee-based businesses have shown strong performance with sales and trading revenue up 12%, investment banking fees up 18%, and asset management fees up 14% year-over-year. This growth, combined with disciplined expense management and expected NII growth, positions the company for improved operating leverage.

    What went wrong

    • Worsening Efficiency Ratio: Despite high digital adoption across all lines of business, Bank of America's efficiency ratio has worsened to 65%, up from 63% a year ago, indicating increasing expenses and potential challenges in cost management .
    • Pressure on Expenses from Incentive Compensation: The company acknowledges that expenses are pressured due to increased incentive compensation related to fee businesses, which may impact overall profitability if not managed effectively .
    • Regulatory Uncertainties Affecting Capital Return: Bank of America is waiting for the final Basel III rules, creating uncertainty regarding capital requirements and potentially limiting the company's ability to return more capital to shareholders .

    Q&A Summary

    1. NII Growth Outlook
      Q: How will NII trajectory look beyond Q4?
      A: NII bottomed in Q2 and grew in Q3; it's expected to grow again in Q4, setting up well for 2025. Guidance for 2025 will be provided next quarter due to rate uncertainty.

    2. Deposit Trends
      Q: How are consumer deposits behaving post-rate cuts?
      A: Consumer deposits are stabilizing; major moves are over, and noninterest-bearing deposits are stable. Movement of higher-balance customers has slowed.

    3. Capital Return Plans
      Q: What is the outlook for share buybacks?
      A: No change in capital strategy; despite awaiting final Basel III rules, with excess capital, $3.5 billion was returned to shareholders this quarter through buybacks.

    4. Loan Growth in Global Banking
      Q: What's driving recent corporate loan demand?
      A: Modest loan growth observed, with an end-of-quarter pickup across small business and commercial banking; revolver utilization hasn't increased yet.

    5. Efficiency Ratio Concerns
      Q: Why is the efficiency ratio worsening despite digital adoption?
      A: Pressure from incentive compensation due to strong fee-generating businesses; expect operating leverage to improve as NII grows, aiming for improvement in 2025.

    6. Securities Portfolio Strategy
      Q: Any plans for securities portfolio repositioning?
      A: Currently see no need to reposition; comfortable growing NII and earnings with existing liquidity and capital, allowing HTM securities to run off and reinvesting at higher yields.

    7. Deposit Beta and NIM Expectations
      Q: How will deposit costs and NIM behave as rates normalize?
      A: Anticipate more value from the deposit base as rates settle. The spread between Fed funds and deposit costs is around 260 bps, higher than in 2019; expect to leverage this advantage as rates normalize.

    8. NII Sensitivity to Rate Cuts
      Q: How do rate cuts impact NII components?
      A: An additional rate cut adds headwinds for NII, affecting the full fourth quarter. Global Markets NII benefits slightly as it is liability-sensitive.

    9. Investments in Markets Business
      Q: Is the investment in Markets an ongoing effort?
      A: Yes, continued investment in people and balance sheet is ongoing; benefiting from a diversified business and long-term client relationships built over years.

    10. Branch Expansion Strategy
      Q: Update on branch banking system expansion?
      A: Expanding branches in key markets over the past 10 years to complement digital offerings; believe in a combination of high touch and high tech to better serve customers, as many still prefer starting relationships in person.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Consumer Banking10,70610,52410,47210,32942,03110,16610,20610,418
    - Net Interest Income-64---386(1)
    - Noninterest Income-(1,831)---(1,682)(1,761)(2,151)
    Global Wealth & Investment Management5,3155,2425,3215,22721,1055,5915,5745,762
    Global Banking6,2036,4626,2035,92824,7965,9806,0535,834
    Global Markets5,6264,8714,9424,08819,5275,8835,4595,630
    All Other(1,458)(1,767)(1,618)-(8,311)(1,644)(1,755)(2,152)
    Total Revenue26,39225,33225,32022,10499,14825,81825,37725,345
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    United States----85,571---
    Non-U.S.----13,010---
    - Asia----4,952---
    - Europe, Middle East, Africa----6,393---
    - Latin America, Caribbean----1,665---
    Total Revenue----98,581---
    KPIs - Metric / QuarterFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Active Digital Banking Users (millions)44.962464646-474748
    Active Mobile Banking Users (millions)36.337.337.537.9-38.539.039.6
    Net Investment in Leveraged Lease Trusts (billion USD)1.21.21.21.1-1.11.11.0
    Nonperforming Commercial Loans and Leases (%)0.20%0.24%0.35%0.47%-0.54%0.47%0.48%
    Criticized Utilized Exposure (billion USD)19.821.523.723.3-24.524.827.4

    Executive Team

    NamePositionStart DateShort Bio
    Brian T. MoynihanChair of the Board and Chief Executive OfficerJanuary 2010Brian T. Moynihan has been the Chair of the Board since October 2014 and CEO since January 2010. He leads a team of over 200,000 employees and has driven the company's Responsible Growth strategy .
    Alastair M. BorthwickChief Financial OfficerNovember 2021Alastair M. Borthwick has been the CFO since November 2021. He oversees financial management, including accounting, balance sheet management, and corporate treasury .
    Dean C. AthanasiaPresident, Regional BankingOctober 2021Dean C. Athanasia has been President of Regional Banking since October 2021. He has been an executive officer since 2014 and previously led Retail and Preferred & Small Business Banking .
    James P. DeMarePresident, Global MarketsSeptember 2020James P. DeMare has been President of Global Markets since September 2020. He was previously Global Co-Head of FICC Trading and Commercial Real Estate Banking .
    Matthew M. KoderPresident, Global Corporate & Investment BankingDecember 2018Matthew M. Koder has been President of Global Corporate & Investment Banking since December 2018. He was previously President of APAC .
    Geoffrey S. GreenerChief Risk OfficerApril 2014Geoffrey S. Greener has been Chief Risk Officer since April 2014. He previously served as Head of Enterprise Capital Management .
    Lindsay D. HansPresident, Co-Head Merrill Wealth ManagementApril 2023Lindsay D. Hans has been President, Co-Head of Merrill Wealth Management since April 2023. She was previously Head of Private Wealth Management, International and Institutional at Merrill Lynch .
    Kathleen A. KnoxPresident, The Private BankNovember 2017Kathleen A. Knox has been President of The Private Bank since November 2017. She was previously Head of Business Banking .
    Bernard A. MensahPresident, International, CEO of Merrill Lynch Int.August 2020Bernard A. Mensah has been President, International, and CEO of Merrill Lynch International since August 2020. He was previously President of UK and Central and Eastern Europe, the Middle East, Africa .
    Lauren A. MogensenGlobal General CounselNovember 2021Lauren A. Mogensen has been Global General Counsel since November 2021. She was previously Head of Global Compliance & Operational Risk, and Reputational Risk .
    Thong M. NguyenVice Chair, Head of Global Strategy & Enterprise PlatformsN/AThong M. Nguyen serves as Vice Chair, Head of Global Strategy & Enterprise Platforms. The documents do not specify his start date or provide additional biographical details .
    Eric A. SchimpfPresident, Co-Head Merrill Wealth ManagementApril 2023Eric A. Schimpf has been President, Co-Head of Merrill Wealth Management since April 2023. He was previously Pacific Coast Division Executive at Merrill Lynch .
    Thomas M. ScrivenerChief Operations ExecutiveOctober 2021Thomas M. Scrivener has been Chief Operations Executive since October 2021. He was previously Head of Consumer, Small Business & Wealth Management Operations .
    Bruce R. ThompsonVice Chair, Head of Enterprise CreditOctober 2021Bruce R. Thompson has been Vice Chair, Head of Enterprise Credit since October 2021. He was previously Vice Chairman, Head of Institutional Credit Exposure Management .

    Questions to Ask Management

    1. Despite significant investments in digital capabilities, your efficiency ratio has been deteriorating; how do you plan to enhance operational efficiency and return to consistent positive operating leverage?
    2. With the current rate environment impacting deposit growth and higher-end balances showing outflows, what strategies are you employing to stabilize deposits and attract new funds?
    3. Considering the potential for more favorable Basel III final rules than initially proposed, how might this influence your capital return plans, and are you prepared to increase shareholder distributions?
    4. As the net interest income is sensitive to rate movements, especially with floating-rate loans, how are you managing interest rate risk, and what impact do you anticipate from potential future rate cuts?
    5. Given the decline in commercial real estate loans and ongoing challenges in that sector, how are you addressing credit risks in your portfolio, and what is your outlook on asset quality, particularly in commercial real estate?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateOctober 2021 July 24, 2024
    End Date/DurationModified in September 2023 Effective August 1, 2024
    Total Additional Amount$25 billion $25 billion
    Remaining AuthorizationN/A$22,375 million as of September 30, 2024
    DetailsModified to include repurchases for equity-based compensation plans Replaces previous authorization; influenced by capital position, liquidity, and market conditions

    Past Guidance

    Q3 2024 Earnings Call (Guidance for Q4 2024)

    • Net Interest Income (NII): Expected to grow in Q4 2024, targeting $14.3 billion or more on a fully tax equivalent basis.
    • Expenses: Expected to be in line with Q3, which were $16.5 billion.
    • Headcount: No significant change expected.
    • Operating Leverage: Anticipated return as NII grows.
    • Capital Strategy: Continued share buybacks, with $3.5 billion repurchased in Q3 2024.
    • Efficiency Ratio: Aim to improve as NII grows.
    • Deposit Growth: Modest increases expected in loans and deposits.
    • Interest Rate Sensitivity: A 100 basis point increase would benefit NII by $1.8 billion, while a decrease would reduce it by $2.7 billion .

    Q2 2024 Earnings Call (Guidance for Q3 2024 and Q4 2024)

    • Net Interest Income (NII): Q2 2024 was the trough, with growth expected in Q3 and Q4. Q4 NII projected around $14.5 billion.
    • Net Charge-Offs: Expected to be lower in the second half of 2024.
    • Deposit Growth: Low single-digit growth expected.
    • Loan Growth: Low single-digit growth anticipated.
    • Capital Ratios: CET1 ratio stable at 11.9% .

    Q1 2024 Earnings Call (Guidance for Q2 2024 and the back half of 2024)

    • Net Interest Income (NII): Expected to approach $14 billion in Q2, with growth in the latter half of 2024.
    • Deposits and Loans: Low single-digit loan growth and moderate deposit growth expected.
    • Expenses: Expected to decline from Q1's $17.2 billion.
    • Efficiency Ratio: Expected to improve.
    • Credit Quality: Consumer net charge-offs expected to level out.
    • Capital and Liquidity: CET1 ratio at 11.8% .

    Q4 2023 Earnings Call (Guidance for Q1 2024 and FY 2024)

    • Net Interest Income (NII): Expected to decline slightly in the first half of 2024, then stabilize.
    • Loan Growth: Low to mid-single-digit growth expected.
    • Expense: Q1 2024 expenses expected around $16.4 billion.
    • Deposit Growth: Moderate growth expected.
    • Asset Sensitivity: A 100 basis point shift expected to result in $3.5 billion NII over 12 months .

    These summaries provide a comprehensive view of the guidance metrics and the periods they were issued for.