After Bank of America (NYSE:BAC) reported second-quarter earnings on Tuesday, its executives held a conference call with analysts to walk through the results. The call covered a lot of ground, but here are five things I found particularly noteworthy about what Chairman and CEO Brian Moynihan had to say.
1. Responsible growth
Bank of America's mantra over the past few years has been all about responsible growth.
Moynihan introduced the term in his 2014 shareholder letter. He then dedicated his letter the following year to digging into the four pillars of responsible growth:
- Growing and winning in the market.
- Growing with a customer-focused strategy.
- Growing within the bank's risk framework.
- Growing in a sustainable manner.
This remains Bank of America's focus today, as Moynihan made clear on the bank's second-quarter conference call:
This quarter represents another solid example of driving responsible growth here at Bank of America. Staying the course and executing against our responsible growth mantra has allowed us to gain market share and grow revenue.
That mantra drives the way we manage our cost effectively while at the same time making continued large investments in people and technology for the long-term value of this franchise. That mantra allows us to manage risk well, whether it's credit, market, operational, or reputational risk. That mantra also drives an appropriate pace of growth in a modest GDP environment while holding credit cost down.
2. Capital return
One of Moynihan's objectives since becoming CEO in 2010 has been to "get back most of the [7 billion] shares we issued in the crisis, that caused all the dilution," as he told Fortune's Shawn Tully in 2011.
BRIAN MOYNIHAN, THE CHAIRMAN AND CEO OF BANK OF AMERICA. IMAGE SOURCE: BANK OF AMERICA.
Moynihan doubled down on this goal in his latest shareholder letter, saying in relation to the financial crisis that "now that our company is stronger, we are focused on reducing the dilution and increasing the dividend."
Bank of America made good on its promise following this year's stress tests. Thanks to its performance on the tests, the North Carolina-based bank was given the green light from regulators to increase its dividend and repurchase $12 billion worth of stock between now and the end of the second quarter of next year.
As Moynihan noted on the call:
Through the first six months of 2017, we have more than doubled the amount of net share repurchase and dividends to shareholders compared to the first half of 2016.
As a reminder, with successful [stress test] results behind us, we announced plans on June 28 to deliver $17 billion in capital back to shareholders over the next 12 months through higher dividends and net share repurchases.
3. Digital banking
Bank of America has consistently been on the leading edge of digital banking, with its mobile-banking app in particular becoming especially popular.
On Tuesday's call, Moynihan shared a number of metrics that show just how significant its progress on this front has been:
Mobile banking users have grown to 23 million at the end of the second quarter. ... This quarter we broke through the 1 billion interactions digitally with our customers. That's 1 billion in a quarter.
When you look at deposit transactions you can see that 21% of our deposits are made through mobile devices today. That's the equivalent of what a thousand financial centers does. That's important for client satisfaction. It is also important because those costs one-tenth of what it cost to do it over the counter.
Once customers got used to transacting, we're now using devices in a broader sense. You can see that in the 370,000 appointments that were set up on a mobile device to come to a branch. When they come to the financial center, we're in better shape to serve them because they know what they're coming for, and we know what they need. In addition, sales and digital devices are up to 22% of our account and loan sales.
4. Regulations
Most conference calls with bank executives nowadays include some conversation about the likelihood that regulations in the bank industry will be eased, as Donald Trump vowed on the campaign trail. Bank of America's latest call was no exception.
In response to an analyst's question about changes that would be most helpful to Bank of America, Moynihan largely dodged the question:
[O]ur belief is we want responsible, clear, transparent regulation that helps maintain the safety and soundness and capabilities in this industry.
There's no question, but in areas where things have gotten too far you've got to bring them back a little bit and that lottery list is really there to provide it. So while some are more important to our franchise than maybe other people's franchise and vice versa, at the end of day a careful revisiting of some of these things to ensure that we maintain the safety and soundness while getting good regulation is critical, and I think hopefully the ball is moving forward on that.
For the record, at an industry conference last year, Moynihan intimated that his top priority on the regulatory front was regaining discretion over capital distributions, which all big banks lost as a part of the stress testing process. As Moynihan noted at the time:
For us as a company, just because of where we are, it's about capital return. ... It's about getting certainly around the ability to have access to your capital return once you've met all the hurdles. And whether those hurdles move up or down because of various peoples' points of view, the issue is the industry's above them, and now we need to be able to get the capital out.
5. Branches
Last but not least, Moynihan spent a fair amount of time talking about Bank of America's branch network. Given the growing popularity of digital banking, combined with the fact that large branch networks are expensive to operate, there's a need to balance consumers' desire to have access to branches against economic realities.
Here was Moynihan's take on this:
We're continuing to invest in that branch structure. ... We have now built or refurbished 290 centers over the past 12 months, and expect to have completed more than 1500 by the year end 2019. In addition, we have upgraded our ATMs or are planning to upgrade all ATMs and we'll finish that by the end of 2019 as well. That's 16,000 new ATMs over three or four years. All that has led to customer satisfaction levels which has reached the highest level in our history.
We don't know where it goes from here, because it will be based on customer behavior and demands. But if you go back, if you think about it, over the last several years, we've been adding branches in places like Denver and we'll continue to build out there. We have been refurbishing branches heavily across the whole franchise.
Despite these investments, Moynihan told analysts that they should expect the bank to close roughly 100 branches a year.
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