Bank of America Reports First-quarter 2015 Net Income of $3.4 Billion, or $0.27 per Diluted Share

Bank of America Corporation today reported net income of $3.4 billion, or $0.27 per diluted share, for the first quarter of 2015, compared to a loss of $276 million, or $0.05 per share, in the year-ago period.

Revenue, net of interest expense, on an FTE basis, declined $1.3 billion from the first quarter of 2014 to $21.4 billion(G). Nearly $1 billion of this decline was related to a $757 million reduction in equity investment income as the prior year included a gain on sale of a portion of an equity investment, and $211 million was related to additional market-related adjustments on the company´s debt securities portfolio due to the impact of lower long-term interest rates. Excluding these two items, as well as net debit valuation adjustments (DVA) in both periods, revenue decreased 1 percent to $21.9 billion in the first quarter of 2015 from $22.1 billionin the year-ago quarter(H).

“Continuing the trend from last quarter, we saw core loan and deposit growth, higher mortgage originations, and increased wealth management client balances," said Chief Executive Officer Brian Moynihan. “We retained a top position in investment banking as our team generated the highest advisory fees since the Merrill Lynch merger. We see continued encouraging signs in customer and client activity, with consumer spending increasing and utilization of credit by our commercial customers rising. This should bode well for the near-term economic outlook.

“At a time of continued low interest rates, we had good expense control as we focus on responsible growth with a balanced platform to create long-term value for customers and shareholders.”

"We continued to strengthen an already strong and liquid balance sheet this quarter," said Chief Financial Officer Bruce Thompson. "We improved our liquidity, accreted capital and tightly managed expenses in a challenging interest rate environment. Meanwhile, credit quality remained strong, reflecting both the economic environment and our risk underwriting."

Selected Financial Highlights

1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliations to GAAP financial measures, refer to pages 21-23 of this press release. Net interest income on a GAAP basis was $9.5 billion, $9.6 billion and $10.1 billion for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively. Total revenue, net of interest expense, on a GAAP basis was $21.2 billion, $18.7 billion and $22.6 billion for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.
2 Represents a non-GAAP financial measure. Net DVA gains were $19 million and $112 million for the three months ended March 31, 2015 and March 31, 2014, respectively, and net DVA/FVA losses were $626 million for the three months ended December 31, 2014.
3 Noninterest expense includes litigation expense of $370 million, $393 million and $6.0 billion for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

Net interest income, on an FTE basis, was $9.7 billion in the first quarter of 2015, down $616 million from the year-ago quarter. The decline was driven by the market-related adjustments mentioned above and lower loan balances and yields. These were partially offset by reductions in funding yields, lower long-term debt balances and commercial loan growth. Excluding the impact of market-related adjustments, net interest income was $10.2 billion in the first quarter of 2015, compared to $10.4 billion in the prior quarter and $10.6 billion in the year-ago quarter(G).

Noninterest income was down 6 percent from the year-ago quarter to $11.8 billion. Excluding net DVA and equity investment income in both periods, noninterest income was up 1 percent from the year-ago quarter, driven by higher mortgage banking income and higher investment and brokerage services income, partially offset by lower sales and trading results and lower gains on sales of debt securities(H).

The provision for credit losses declined $244 million from the first quarter of 2014 to $765 million. Adjusted for the impact of the U.S. Department of Justice (DoJ) settlement previously reserved for, and recoveries from nonperforming loan sales, net charge-offs declined $384 million, or 28 percent, from the first quarter of 2014 to $1.0 billion with the net charge-off ratio falling to 0.47 percent in the first quarter of 2015 from 0.62 percent in the year-ago quarter(B). The decline in net charge-offs was driven by an improvement in portfolio trends, including increased home prices. In the first quarter of 2015, the reserve release was $429 million, compared to a reserve release of $379 million in the first quarter of 2014.

Noninterest expense was $15.7 billion in the first quarter of 2015, compared to $22.2 billion in the year-ago quarter. The decline was driven by lower litigation expense, continued progress on Legacy Assets and Servicing (LAS) cost initiatives, and cost savings from Project New BAC, which was completed in the third quarter of 2014. Excluding litigation expense of $370 million in the first quarter of 2015 and $6.0 billion in the year-ago quarter, noninterest expense decreased 6 percent from the year-ago quarter to $15.3 billion, reflecting continued progress to realize cost savings and improve efficiency(A). The first quarter of 2015 and 2014 also included approximately $1.0 billion of annual retirement-eligible incentive costs.

The effective tax rate for the first quarter of 2015 was 29.2 percent, primarily driven by recurring tax preference items.

Business Segment Results

Effective January 1, 2015, to align the segments with how the company manages its businesses in 2015, Bank of America changed the basis of segment presentation. The Home Loans subsegment within Consumer Real Estate Services was moved to Consumer Banking, and Legacy Assets and Servicing became a separate segment. A portion of the Business Banking business, based on the size of the client relationship, was moved from Consumer Banking to Global Banking. Also, the company´s merchant processing joint venture moved from Consumer Banking to All Other. Prior periods have been restated to conform to the new segment alignment.

The company reports results through five business segments: Consumer Banking, Global Wealth and Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets and Servicing (LAS), with the remaining operations recorded in All Other.

Consumer Banking

1 Return on average allocated capital is a non-GAAP financial measure. The company believes the use of this non-GAAP financial measure provides additional clarity in assessing the results of the segments. Other companies may define or calculate this measure differently. For reconciliation to GAAP financial measures, refer to pages 21-23 of this press release.

Business Highlights

• Average deposit balances increased $26.5 billion, or 5 percent, from the year-ago quarter to $531.4 billion.
• Client brokerage assets increased $18.3 billion, or 18 percent, from the year-ago quarter to $118.5 billion, driven primarily by new client accounts, strong account flows as well as market valuations.
• Credit card issuance remained strong. The company issued 1.2 million new credit cards in the first quarter of 2015, up 13 percent from the 1.0 million cards issued in the year-ago quarter. Approximately 66 percent of these cards went to existing relationship customers during the first quarter of 2015.
• The number of mobile banking customers increased 13 percent from the year-ago quarter to 16.9 million users, and 13 percent of deposit transactions by consumers were done through mobile banking compared to 10 percent in the year-ago quarter.
• The company originated $13.7 billion in first-lien residential mortgage loans and $3.2 billion in home equity loans in the first quarter of 2015, compared to $11.6 billion and $3.4 billion, respectively, in the fourth quarter of 2014, and $8.9 billion and $2.0 billion, respectively, in the year-ago quarter.

Financial Overview

Consumer Banking reported net income of $1.5 billion, up slightly from the year-ago quarter, as reductions in noninterest expense and provision for credit losses were partially offset by a decline in net interest income.

Revenue was down 3 percent from the first quarter of 2014 to $7.5 billion, reflecting lower net interest income from the allocation of the company´s market-related adjustments to net interest income, as well as lower card yields and card loan balances. Noninterest income of $2.6 billion remained stable as higher mortgage banking income and higher card income offset a portfolio divestiture gain in the year-ago quarter.

Provision for credit losses decreased $93 million from the year-ago quarter to $716 million in the first quarter of 2015, primarily as a result of continued improvement in credit quality within the credit card portfolio, partially offset by a slower pace of credit quality improvement within the home loans portfolio.

Noninterest expense was $4.4 billion, down from the year-ago quarter as the company continued to optimize its delivery network. Driven by the continued growth in mobile banking and other self-service customer touchpoints, the company continued to refine its retail footprint and has closed or divested 287 locations and added 27 locations since the first quarter of 2014, resulting in a total of 4,835 financial centers at the end of the first quarter of 2015.

Return on average allocated capital was 21 percent in the first quarter of 2015, compared to 20 percent in the first quarter of 2014.

Global Wealth and Investment Management (GWIM)

1 Return on average allocated capital is a non-GAAP financial measure. The company believes the use of this non-GAAP financial measure provides additional clarity in assessing the results of the segments. Other companies may define or calculate this measure differently. For reconciliation to GAAP financial measures, refer to pages 21-23 of this press release.
2 Total client balances are defined as assets under management, client brokerage assets, assets in custody, client deposits and loans (including margin receivables).

Business Highlights

• Total client balances increased 5 percent from the year-ago quarter to more than $2.5 trillion, driven by higher market levels and net inflows.
• First-quarter 2015 long-term assets under management (AUM) flows of $14.7 billion were the 23rd consecutive quarter of positive flows.
• The company reported asset management fees of $2.1 billion, up 10 percent from the year-ago quarter.
• The number of wealth advisors increased from the year-ago quarter by 1,027 advisors, including an additional 394 advisors in Consumer Banking, to 17,508; first-quarter 2015 attrition levels continued at historic lows.
• Average loan balances increased 9 percent from the year-ago quarter.

Financial Overview

Global Wealth and Investment Management reported net income of $651 million, compared to $729 million in the first quarter of 2014. Revenue was stable at $4.5 billion, as a 10 percent increase in asset management fees and higher net interest income from loan growth was offset by the allocation of the company´s market-related adjustments to net interest income, and lower transactional revenue.

Noninterest expense increased 3 percent to $3.5 billion, due to an increase in personnel costs driven by higher revenue-related incentive compensation and investment in client-facing professionals.

Return on average allocated capital was 22 percent in the first quarter of 2015, down from 25 percent in the year-ago quarter.

Global Banking

1 Return on average allocated capital is a non-GAAP financial measure. The company believes the use of this non-GAAP financial measure provides additional clarity in assessing the results of the segments. Other companies may define or calculate this measure differently. For reconciliation to GAAP financial measures, refer to pages 21-23 of this press release.

Business Highlights

• Bank of America Merrill Lynch generated firmwide investment banking fees of $1.5 billion, excluding self-led deals, in the first quarter of 2015 with the highest quarterly advisory fees since the Merrill Lynch merger.
• Bank of America Merrill Lynch ranked among the top three financial institutions globally in leveraged loans, mortgage-backed securities, asset-backed securities, convertible debt, investment grade corporate debt and syndicated loans during the first quarter of 2015(I).
• Ending loan and lease balances were $295.7 billion in the first quarter of 2015, up $6.7 billion, or 2 percent, from the prior quarter and $6.0 billion, or 2 percent, from the year-ago quarter. The middle-market utilization rate ended the first quarter of 2015 at the highest level in six years.

Financial Overview

Global Banking reported net incomeof $1.4 billion in the first quarter of 2015, up $74 million, or 6 percent, from the year-ago quarter, driven by a decline in noninterest expense and a reduction in the provision for credit losses, partly offset by lower net interest income. The net interest income decline reflects the company´s allocation of negative market-related adjustments, the push out of the company´s costs for Liquidity Coverage Ratio requirements and loan spread compression.

The provision for credit losses decreased $185 million from the year-ago quarter to $96 million in the first quarter of 2015, driven by lower reserve build. Noninterest expense decreased $168 million, or 8 percent, from the year-ago quarter to $2.0 billion, reflecting lower technology initiative costs, lower litigation expense and lower incentive compensation expense.

Return on average allocated capital was 16 percent in both the first quarter of 2015 and the first quarter of 2014.

Global Markets

1 Represents a non-GAAP financial measure. Net DVA gains were $19 million and $112 million for the three months ended March 31, 2015 and 2014, respectively and net DVA/FVA losses were $626 million for the three months ended December 31, 2014.
2 Return on average allocated capital is a non-GAAP financial measure. The company believes the use of this non-GAAP financial measure provides additional clarity in assessing the results of the segments. Other companies may define or calculate this measure differently. For reconciliation to GAAP financial measures, refer to pages 21-23 of this press release.

Business Highlights

• Fixed Income, Currencies and Commodities (FICC) recorded the highest foreign exchange sales and trading revenue since the Merrill Lynch merger, doubling from the first quarter of 2014, as increased FX volatility led to higher client flows and revenues.
• Equities sales and trading revenue, excluding net DVA, of $1.2 billion was steady from the year-ago quarter(J).

Financial Overview

Global Markets reported net income of $945 million in the first quarter of 2015, compared to $1.3 billion in the year-ago quarter, reflecting lower FICC sales and trading revenue, and higher litigation expense.

Revenue decreased $414 million, or 8 percent, from the year-ago quarter to $4.6 billion. Excluding net DVA, revenue decreased $321 million, or 7 percent, to $4.6 billion driven by the sales and trading decline(K). Net DVA gains were $19 million, compared to $112 million in the year-ago quarter.

Fixed Income, Currencies and Commodities sales and trading revenue, excluding net DVA, decreased 7 percent from the year-ago quarter, due to declines in credit and mortgages, offset in part by record results in foreign exchangedue to increased market volatility(L). Equities sales and trading revenue, excluding net DVA, was comparable to the year-ago quarter(J).

Noninterest expense of $3.1 billion increased $45 million from the year-ago quarter, as a reduction in revenue-related incentive compensation was more than offset by higher litigation expense.

Return on average allocated capital was 11 percent in the first quarter of 2015, down from 16 percent in the year-ago quarter, reflecting lower profitability and an increase in capital allocation.

Legacy Assets and Servicing (LAS)

1 Noninterest expense includes litigation expense of $179 million, $256 million and $5.8 billion for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014.

Business Highlights

• The number of 60+ days delinquent first mortgage loans serviced by LAS declined to 153,000 loans at the end of the first quarter of 2015, down 36,000 loans, or 19 percent, from the prior quarter and down 124,000 loans, or 45 percent, from the year-ago quarter.
• Noninterest expense, excluding litigation, declined to $1.0 billion in the first quarter of 2015 from $1.1 billion in the fourth quarter of 2014 and $1.6 billion in the year-ago quarter(M).

Financial Overview

LAS reported a loss of $238 million for the first quarter of 2015, compared to a loss of $4.9 billion for the same period in 2014, driven by lower expenses, primarily litigation expense, and higher mortgage banking income.

Revenue increased $228 million from the first quarter of 2014 to $914 million, driven primarily by higher mortgage banking income due to improved MSR net of hedge results, and lower representations and warranty provision. These improvements were partially offset by lower servicing fees due to a smaller servicing portfolio.

Noninterest expense decreased $6.2 billion from the year-ago quarter to $1.2 billion primarily due to a decrease in litigation expense of $5.7 billion and lower default-related staffing and other default-related servicing expenses.

All Other1

  167,758

1 All Other consists of ALM activities, equity investments, the international consumer card business, liquidating businesses and other ALM activities encompass the whole-loan residential mortgage portfolio and investment securities, interest rate and foreign currency risk management activities including the residual net interest income allocation, the impact of certain allocation methodologies and accounting hedge ineffectiveness.
2 Revenue includes equity investment income (loss) of $1 million, $(36) million and $696 million for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively, and gains on sales of debt securities of $263 million, $161 million and $357 million for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

All Other reported a net loss of $841 million in the first quarter of 2015, compared to a net loss of $197 million for the same period a year ago, primarily due to declines in both net interest income and noninterest income, partially offset by lower noninterest expense.

Net interest income decreased $93 million from the year-ago quarter. Noninterest income decreased $590 million from the year-ago quarter, reflecting lower equity investment income and lower gains on sales of debt securities in the first quarter of 2015. The decline in equity investment income was driven by the sale of a portion of an equity investment in the year-ago quarter.

The benefit in the provision for credit losses increased $47 million from the first quarter of 2014 to $182 million, driven primarily by the impact of recoveries on sales of nonperforming loans.

Noninterest expense declined $214 million primarily as a result of lower litigation expense and infrastructure and support costs compared with the year-ago quarter. Income tax expense was a benefit of $833 million in the first quarter of 2015, compared to a benefit of $1.1 billion in the year-ago quarter.

Credit Quality

1 Excludes write-offs of PCI loans of $288 million, $13 million and $391 million for the three months ended March 31, 2015, December 31, 2014 and March 31, 2014, respectively.
2 Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases during the period.
3 Nonperforming loans, leases and foreclosed properties ratios are calculated as nonperforming loans, leases and foreclosed properties divided by outstanding loans, leases and foreclosed properties at the end of the period.
4 Allowance for loan and lease losses ratios are calculated as allowance for loan and lease losses divided by loans and leases outstanding at the end of the period.
Note: Ratios do not include loans accounted for under the fair value option.

Credit quality continued to improve in the first quarter of 2015 with net charge-offs declining across most major portfolios when compared to the year-ago quarter. The balance of 30+ days performing delinquent loans, excluding fully insured loans, declined across all consumer portfolios from the year-ago quarter, remaining at record low levels in the U.S. credit card portfolio. Additionally, reservable criticized balances and nonperforming loans, leases and foreclosed properties were down 4 percent and 32 percent, respectively, from the year-ago period.

Net charge-offs were $1.2 billion in the first quarter of 2015, up from $879 million in the fourth quarter of 2014 and down from $1.4 billion in the first quarter of 2014. Adjusted for losses associated with the DoJ settlement previously reserved fo