Bank of America Corporation (BAC)
Q2 2011 Earnings Call Transcript
July 19, 2011 8:30 a.m. ET

Executives

Kevin Stitt – Director, Investor Relations
Brian T. Moynihan – President and Chief Executive Officer
Bruce R. Thompson – Chief Financial Officer

Analysts

Glenn Schorr – Nomura Securities International, Inc.
John McDonald – Sanford C. Bernstein
Betsy Graseck – Morgan Stanley
Paul Miller – FBR Capital Markets
Matthew O’Connor – Deutsche Bank
Michael Mayo – Caylon Securities
Moshe Orenbuch – Credit Suisse
Edward Najarian – ISI Group
Nancy Bush – NAB Research
Chris Kotowski – Oppenheimer

Presentation

Operator

Good day and welcome to today’s program. At this time, all participants are in a listen-only mode and later you will have the opportunity to ask questions during the question-and-answer session. Please note this call is being recorded and I will be standing by, should you need any assistance. It is now my pleasure to turn the conference over to Mr. Kevin Stitt. Please go ahead, sir.

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. For additional factors, please see our press release and SEC documents.

With that let me turn it over to Brian.

Brian T. Moynihan

Thank you, Kevin. Before I turn it over to Bruce, I just wanted to make a few comments about the quarter. As we discussed on the call on June 29 when we announced the settlement of private-label securities litigation, we have been working hard to put large pieces of uncertain risk behind us as a company and where we can do that on a basis reasonable to you as our shareholders. This quarter, following actions we took in last year’s fourth quarter on the GSEs, in the first quarter on the mono lines, we have put another significant part of the rep and warranty exposure behind us in other mortgage-related matters.

In all, as you can see from the materials, we took almost $20 billion in charges relating to the mortgage business. That has translated into a $0.90 per share loss in the range we gave you a few weeks ago. Adjusting for the mortgage charges, our earnings were $0.33 per share, at is the high end of the range we gave you in June. Bruce is going to give you more details on those adjustments later on.

Switching to the important question of capital, the work we have done to improve our balance sheet over the last several quarters came through this quarter as even with a loss we reported capital ratios which are stronger in this quarter than 2010. Our Tier 1 common ratio, which we said at the end of June would come in around 8%, actually came in at 8.23%, higher than we expected, a drop of 20 basis points since the first quarter 2011, but improvement since last year.

Our tangible common equity ratio, which we estimated at the end of June to be about 5.7%, came in at 5.87%, again an improvement of what we said. We achieved the ratios through the continued balance sheet optimization and repair that we have been going through in the company over the last several quarters.

In all during the second quarter 2011, our RWA came down over $30 billion. Bruce is going to take you through the actions we completed during the second quarter 2011 and more importantly, the actions that are still ahead of us in the quarters ahead, all of which give us comfort and demonstrate that we don’t need to raise capital as we continue on our plans to comply with Basel III.

As we look at the business lines and you can see how they perform, this quarter shows the power of the rest of our franchise, which has been covered up by losses for mortgage. As you can see on slide five, you can see the results. Each business line other than mortgage had solid earnings and returns earning in all over $5.7 billion after-tax.

The franchise and customer model continues to shine through. In our deposits business we grew deposits. We also grew accounts at two times the rate we grew them last quarter on net new checking accounts. We paid less for our deposits this quarter in our deposits franchise and we lowered our costs to operate the franchise in this quarter. The transformation of this business unit continues to go well and we are growing our fees again, offsetting the overdraft regulations that came through last year.