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Bank of America Reports Second-Quarter 2012 Net Income of $2.5 Billion or $0.19 Per Diluted Share

    Bank of America Corporation today reported net income of $2.5 billion, or $0.19 per diluted share, for the second quarter of 2012, compared to a net loss of $8.8 billion, or $0.90 per diluted share in the second quarter of 2011. The year-ago quarter included a total of $18.2 billion in pretax charges for certain mortgage-related items and other selected adjustments, including provisions for representations and warranties and goodwill impairment.2

    Relative to the same quarter a year ago, the results for the second quarter of 2012 reflect higher mortgage banking income, driven largely by lower provisions for representations and warranties, the absence of the goodwill impairment charge and improved credit quality across most major portfolios. In addition, the company had solid contributions from the wealth management and corporate and commercial banking businesses. This was partially offset by lower net interest income from the continued low-rate environment and lower loan levels.

    "In a challenging global economy, we still see opportunities to do more with our customers and clients. Lending to commercial businesses increased for the sixth straight quarter -- with small business lending and commitments up 23 percent in a year -- and consumer credit is in the best shape in years," said Brian Moynihan, chief executive officer. "This quarter we surpassed 10 million mobile banking customers, up 34 percent in a year. With about 45,000 new mobile customers a week, we are adapting to meet customer needs and to do more with them."

    "Once again, we had strong capital generation this quarter through a combination of earnings growth and a reduction in risk-weighted assets," said Chief Financial Officer Bruce Thompson. "In one year, our Tier 1 common capital ratios have gone from being the lowest of the major U.S. banks to among the highest, and we´ve maintained our strong liquidity levels even as we reduced our long-term debt by $125 billion."

    As of June 30, 2012, the company´s Basel 3 Tier 1 common capital ratio on a fully phased-in basis was estimated at 8.10 percent. This compares with the company´s previous guidance of achieving a Basel 3 Tier 1 common capital ratio of more than 7.50 percent on a fully phased-in basis by year-end 2012.

    "The fact that we exceeded our previous guidance for Basel 3 six months ahead of schedule points to the significant progress we have made this year to build capital, reduce risk-weighted assets and position the company for long-term growth," Thompson added.

    1

    		   The Basel Tier 1 common capital ratio is based on certain assumptions with respect to the final Basel 3 rules and is expected to evolve over time, as the Basel 3 rules evolve and the Company´s businesses change. For more information, see Capital and Liquidity section of this press release on page 15.
    2
    		Refer to pages 15-16 of the company´s second-quarter 2011 earnings press release dated July 19, 2011 for table indicating mortgage-related items and other selected adjustments.


    		 

    Selected Financial Highlights
     

    		    Three Months Ended
    (Dollars in millions except per share data)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Net interest income, FTE basis1

    		$ 9,782     $ 11,053     $ 11,493
    Noninterest income


    		12,420


    		11,432


    		1,990
    Total revenue, net of interest expense, FTE basis


    		22,202


    		22,485


    		13,483
    Provision for credit losses


    		1,773


    		2,418


    		3,255
    Noninterest expense2


    		17,048


    		19,141


    		22,856
    Net income (loss)


    		2,463


    		653


    		(8,826 )
    Diluted earnings per common share     $ 0.19     $ 0.03     $ (0.90 )

    1

    		   Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 24-27 of this press release. Net interest income on a GAAP basis was $9.5 billion, $10.8 billion and $11.2 billion for the three months ended June 30, 2012, March 31, 2012 and June 30, 2011. Total revenue, net of interest expense on a GAAP basis, was $22.0 billion, $22.3 billion and $13.2 billion for the three months ended June 30, 2012, March 31, 2012 and June 30, 2011.
    2
    		Includes a goodwill impairment charge of $2.6 billion in the second quarter of 2011.


    		 

    Key Business Highlights

    The company made significant progress in the second quarter of 2012 in line with its operating principles, including the following developments:

    Be customer-driven

    • Bank of America extended approximately $107 billion in credit in the second quarter of 2012. This included $68.4 billion in commercial non-real estate loans, $18.0 billion in residential first mortgages, $8.2 billion in commercial real estate loans, $4.3 billion in U.S. consumer and small business card, $930 million in home equity products and $6.7 billion in other consumer credit.
    • The $18.0 billion in residential first mortgages funded in the second quarter helped more than 72,000 homeowners either purchase a home or refinance an existing mortgage. This included more than 5,000 first-time homebuyer mortgages originated by retail channels, and nearly 22,000 mortgages to low- and moderate-income borrowers. Approximately 19 percent of funded first mortgages were for home purchases and 81 percent were refinances.
    • The company originated approximately $4.0 billion in small business loans and commitments in the first six months of 2012, up 23 percent from the year-ago period, reflecting its continued focus on supporting small businesses.
    • The company raised $125 billion in capital for clients in the second quarter of 2012, which helped clients support the economy.
    • Period-end loan balances in Global Wealth and Investment Management grew $2.5 billion, or 2.4 percent, from the first quarter of 2012 to a record $105.4 billion on higher securities-based lending.
    • Bank of America continued to add to its team of more than 17,500 Financial Advisors during the second quarter of 2012. The total number of Wealth Advisors in Global Wealth and Investment Management, including those Financial Advisors in Consumer and Business Banking, rose for the 12th consecutive quarter.
    • The company continued to deepen relationships with customers. The number of mobile banking customers rose 34 percent from the year-ago quarter to 10.3 million customers, and the number of new U.S. consumer credit card accounts opened in the second quarter of 2012 was up 7 percent from the year-ago quarter.
    • The company continued to expand relationships with corporate and commercial banking clients, with average commercial and industrial loan and lease balances up 11.5 percent from the second quarter of 2011.
    • Bank of America Merrill Lynch (BofA Merrill) continued to rank No. 2 globally in net investment banking fees during the first half of 2012, including self-led deals, as reported by Dealogic.

    Continue to build a fortress balance sheet

    • Regulatory capital ratios increased significantly, with the Tier 1 common capital ratio under Basel 1 increasing to 11.24 percent in the second quarter of 2012, up 46 bps from the first quarter of 2012 and 301 bps higher than the second quarter of 2011.
    • The Tier 1 common capital ratio under Basel 3 on a fully phased-in basis was estimated at 8.10 percent as of June 30, 2012. This compares with the company´s previous guidance of achieving a Basel 3 Tier 1 common capital ratio of more than 7.50 percent on a fully phased-in basis at year-end 2012.1
    • The company continued to maintain strong liquidity in the second quarter of 2012 while significantly reducing long-term debt. Global Excess Liquidity Sources totaled $378 billion at June 30, 2012, compared to $406 billion at March 31, 2012 and $402 billion at June 30, 2011. Long-term debt declined to $302 billion at June 30, 2012 from $355 billion at March 31, 2012 and $427 billion at June 30, 2011.
    • Time-to-required funding increased to a record 37 months at June 30, 2012, from 31 months at March 31, 2012 and 22 months at June 30, 2011.

    1

    		  

    The Basel Tier 1 common capital ratio is based on certain assumptions with respect to the final Basel 3 rules and is expected to evolve over time, as the Basel 3 rules evolve and the company´s businesses change. For more information, see the Capital and Liquidity section of this press release on page 15.


    		 

    Manage risk well

    • The provision for credit losses declined 46 percent from the year-ago quarter, reflecting improved credit quality across most major consumer and commercial portfolios and the impact of underwriting changes implemented over the past several years.
    • The allowance for loan and lease losses to annualized net charge-off coverage ratio was 2.08 times in the second quarter of 2012, compared with 1.97 times in the first quarter of 2012 and 1.64 times in the second quarter of 2011. Excluding purchased credit-impaired loans, the allowance to annualized net charge-off coverage ratio was 1.46 times, 1.43 times and 1.28 times for the same periods, respectively.
    • The company continued to manage its sovereign and non-sovereign exposures in Europe. Total exposure to Greece, Italy, Ireland, Portugal and Spain, including net credit default protection, declined to $9.6 billion at June 30, 2012, from $9.8 billion at March 31, 2012 and $16.7 billion at June 30, 2011.

    Deliver for our shareholders

    • The company continued to focus on strengthening the balance sheet by increasing capital and maintaining strong liquidity and reserve levels.
    • Tangible book value per share1 increased to $13.22 at June 30, 2012, compared to $12.87 at March 31, 2012 and $12.65 at June 30, 2011. Book value per share was $20.16 at June 30, 2012, compared to $19.83 at March 31, 2012 and $20.29 at June 30, 2011.
    • During the quarter, the company retired $5.5 billion of debt and trust-preferred securities for cash that resulted in total gains of $505 million. These actions, combined with the debt maturities in the second quarter of 2012 and additional liability management actions announced for the third quarter of 2012, are expected to benefit quarterly net interest income by approximately $300 million, of which $60 million was recognized in the second quarter of 2012.
    1   Tangible book value per share of common stock is a non-GAAP measure. Other companies may define or calculate this measure differently. For reconciliation to GAAP measures, refer to pages 24-27 of this press release.


    		 

    Manage efficiency well

    • Noninterest expense declined to $17.0 billion in the second quarter of 2012 from $19.1 billion in the first quarter of 2012 and $22.9 billion in the second quarter of 2011 as the company continued to focus on streamlining and simplifying its businesses.
    • The company continued to approve and implement employee-generated ideas as part of Project New BAC. To date, more than 3,100 employee-submitted ideas have been accepted as initiatives.
    • Bank of America remains on track to exceed its previously announced goal of achieving 20 percent of the $5 billion in annualized targeted cost savings from Phase 1 by the end of 2012. With Phase 2 evaluations now complete, the company expects a total of $8 billion in annualized cost savings from New BAC by mid-2015.
    • At June 30, 2012, the company had 275,460 full-time employees, down 3,228 from the end of the prior quarter, and 12,624 less than June 30, 2011. Excluding FTE increases in Legacy Assets and Servicing to handle increasing government and private programs for housing, the number of full-time employees is down nearly 20,000 from the year-ago quarter.

    Business Segment Results

    The company reports results through five business segments: Consumer and Business Banking (CBB), Consumer Real Estate Services (CRES), Global Banking, Global Markets, and Global Wealth and Investment Management (GWIM), with the remaining operations recorded in All Other.

    Consumer and Business Banking
     

    		    Three Months Ended
    (Dollars in millions)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Total revenue, net of interest expense, FTE basis

    		$ 7,326
    		    $ 7,422
    		    $ 8,681
    Provision for credit losses


    		1,131



    		877



    		400
    Noninterest expense


    		4,359



    		4,247



    		4,377
    Net income


    		1,156



    		1,455



    		2,502
    Return on average equity


    		8.70 %


    		11.05 %


    		19.10 %
    Return on average economic capital1


    		20.31



    		26.16



    		45.87
    Average loans

    		$ 136,872


    		$ 141,578


    		$ 155,122
    Average deposits


    		476,580



    		466,240



    		467,179



    		 



    At June 30
    2012

    		    

    At March 31
    2012

    		    

    At June 30
    2011
    Client brokerage assets     $ 72,226       $ 73,422       $ 69,000  
    1   Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 24-27 of this press release.


    		 

    Business Highlights

    • Successfully integrated 11.0 million customers and 18.5 million deposit accounts into one banking platform, which provides our customers with a convenient and consistent banking network across the franchise.
    • The number of new U.S. credit card accounts opened in the second quarter of 2012 was up 7 percent from the year-ago quarter. During the second quarter of 2012, the number of BankAmericard Cash Rewards cards grew by 37 percent to 1.4 million.
    • Average deposit balances increased 2.0 percent from the year-ago quarter, driven by growth in liquid products in a low rate environment. The rates paid on deposits declined 8 basis points in the second quarter of 2012 from the year-ago quarter due to pricing discipline and a shift in the mix of deposits.

    Financial Overview

    Consumer and Business Banking reported net income of $1.2 billion, down $1.3 billion from the year-ago quarter, due to lower revenue and higher credit costs.

    Revenue of $7.3 billion decreased $1.4 billion from the year-ago quarter. Net interest income of $4.7 billion decreased $845 million primarily from lower average loans and the continued low rate environment.

    Noninterest income declined $510 million to $2.6 billion, primarily from the implementation of debit card interchange fee rules as a result of the Durbin Amendment and a gain on the sale of certain portfolios in the second quarter of 2011. Provision for credit losses, primarily within the Card Services business, increased $731 million from the year-ago quarter to $1.1 billion as portfolio trends began to stabilize. Net charge-offs declined to $1.7 billion in the second quarter of 2012 from $2.6 billion in the year-ago quarter.

    Noninterest expense of $4.4 billion remained relatively flat from the year-ago quarter as lower operating expenses were offset by an increase in litigation expense.

    Consumer Real Estate Services
     

    		    Three Months Ended
    (Dollars in millions)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Total revenue, net of interest expense, FTE basis

    		$ 2,521
    		    $ 2,674
    		    $ (11,315 )
    Provision for credit losses


    		186



    		507



    		1,507
    Noninterest expense1


    		3,556



    		3,905



    		8,625
    Net loss


    		(768 )


    		(1,145 )


    		(14,506 )
    Average loans


    		106,725



    		110,755



    		121,683



    		 



    At June 30
    2012

    		    

    At March 31
    2012

    		    

    At June 30
    2011
    Period-end loans     $ 105,304       $ 109,264       $ 121,553  

    1 Includes a goodwill impairment charge of $2.6 billion in the second quarter of 2011.

    Business Highlights

    • Bank of America funded $18.9 billion in residential home loans and home equity loans during the second quarter of 2012, compared to $16.0 billion in the first quarter of 2012 and $19.6 billion in the second quarter of 2011, excluding correspondent originations.
    • The mortgage portfolio serviced for investors declined to $1.2 trillion at the end of the second quarter of 2012 from $1.3 trillion at the end of the first quarter of 2012 and $1.6 trillion at the end of the second quarter of 2011. Capitalized mortgage servicing rights (MSR) as a percent of the portfolio declined to 47 basis points at June 30, 2012 from 58 basis points at March 31, 2012 and 78 basis points at June 30, 2011. The MSR balance was $5.7 billion at June 30, 2012, compared with $7.6 billion at March 31, 2012 and $12.4 billion at June 30, 2011.
    • The number of 60+ day delinquent first mortgage loans serviced by Legacy Assets and Servicing declined to 1.06 million loans at the end of the second quarter of 2012 from 1.09 million at the end of the first quarter of 2012, and 1.28 million at the end of the second quarter of 2011.

    Financial Overview

    Consumer Real Estate Services reported a net loss of $768 million for the second quarter of 2012, compared to a net loss of $14.5 billion for the same period in 2011. The improvement was due primarily to higher mortgage-related charges in the prior year period, including $14.0 billion in representations and warranties provision, a $2.6 billion non-cash goodwill impairment charge and $2.6 billion in other mortgage-related costs.

    While the home loan production businesses remained profitable, the continued high costs of managing delinquent and defaulted loans in the servicing portfolio combined with the costs associated with managing other legacy mortgage exposures resulted in the overall net loss for CRES for the quarter.

    Revenue increased $13.8 billion from the second quarter of 2011 to $2.5 billion in the second quarter of 2012, driven by higher mortgage banking income, partially offset by lower insurance income due to the sale of Balboa Insurance in mid-2011. Both revenue and mortgage banking income increased from the year-ago quarter due to lower representations and warranties provision and higher servicing income, driven by more favorable MSR results, net of hedges.

    While CRES loan fundings declined by 62 percent compared to the same period in 2011, largely due to the exit from the correspondent channel in late 2011, core production revenue increased slightly due to the higher margins on direct originations.

    Representations and warranties provision was $395 million in the second quarter of 2012, compared to $14.0 billion in the second quarter of 2011. In the year-ago period, the company recorded $8.6 billion in provision and other expenses related to the agreement to resolve nearly all of the legacy Countrywide-issued first-lien non-GSE RMBS repurchase exposures, and $5.4 billion in provision related to other non-GSE, and to a lesser extent, GSE exposures.

    The provision for credit losses in the second quarter of 2012 decreased $1.3 billion from the year-ago quarter to $186 million, driven by improved portfolio trends.

    Noninterest expense, excluding the $2.6 billion non-cash goodwill impairment charge in the second quarter of 2011, decreased 41 percent to $3.6 billion, primarily due to lower litigation expense and mortgage-related assessments, waivers and other similar costs associated with foreclosure delays, as well as lower direct production expenses due to lower volume and the exit from correspondent lending. These declines were partially offset by higher default related servicing expenses.

    Global Banking
     

    		    Three Months Ended
    (Dollars in millions)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Total revenue, net of interest expense, FTE basis

    		$ 4,285
    		    $ 4,450
    		    $ 4,659
    Provision for credit losses

    		(113 )

    		(238 )

    		(557 )
    Noninterest expense

    		2,165


    		2,177


    		2,221
    Net income

    		1,406


    		1,590


    		1,921
    Return on average equity

    		12.31 %

    		13.98 %

    		16.37 %
    Return on average economic capital1

    		26.83


    		30.67


    		34.06
    Average loans and leases

    		$ 267,812


    		$ 277,074


    		$ 260,144
    Average deposits     239,054       237,531       235,662  
    1   Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 24-27 of this press release.


    		 

    Business Highlights

    • Bank of America Merrill Lynch (BofA Merrill) was ranked No. 2 globally in net investment banking fees, including self-led deals, for the first half of 2012 according to Dealogic. During the second quarter of 2012, based on deal volume, BofA Merrill was ranked No. 1 globally in equity capital markets and was among the top three banks in high-yield corporate debt, leveraged loans, convertible debt, common stock underwriting, investment-grade corporate debt, asset-backed securities and syndicated loans.
    • Average loans and leases increased $7.7 billion, or 3 percent, and average deposits rose $3.4 billion, or 1 percent, from the year-ago quarter.
    • Credit quality continued to improve as nonperforming assets declined by $2.7 billion, or 45 percent, and total reservable criticized loans declined by $12.0 billion, or 45 percent, compared to the year-ago quarter.

    Financial Overview

    Global Banking reported net income of $1.4 billion, down $515 million from the year-ago quarter, from lower revenues and provision expense benefit partially offset by a decline in noninterest expense. Revenue of $4.3 billion was down 8 percent from the year-ago quarter, primarily due to lower investment banking fees, the lower rate environment and accretion on certain acquired portfolios.

    Global Corporate Banking revenue increased to $1.5 billion in the second quarter of 2012 from $1.4 billion in the year-ago quarter, while Global Commercial Banking revenue declined to $2.0 billion in the second quarter of 2012 from $2.3 billion in the second quarter of 2011. Business Lending revenue was $2.0 billion in the second quarter of 2012, down from $2.2 billion in the year-ago quarter. Treasury Services revenue was $1.5 billion in the second quarter of 2012, compared to $1.6 billion in the second quarter of 2011. Firmwide investment banking fees, including self-led deals, declined to $1.2 billion from $1.7 billion in the year-ago quarter, mainly due to lower underwriting fee revenue.

    The provision for credit losses was a benefit of $113 million in the second quarter of 2012, compared to a benefit of $557 million in the prior-year quarter. Asset quality continued to improve across all major portfolios with declines in reservable criticized loan balances. Noninterest expense was $2.2 billion, down 3 percent from the year-ago quarter, primarily from lower personnel expense.

    Average loans and leases increased $7.7 billion, or 3 percent from the year-ago quarter, due to growth in domestic and international commercial and industrial loans and international trade finance. Average deposits increased $3.4 billion from the prior-year quarter as balances continued to grow from excess market liquidity and limited alternative investment options.

    Global Markets
     

    		    Three Months Ended
    (Dollars in millions)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Total revenue, net of interest expense, FTE basis

    		$ 3,365
    		    $ 4,193
    		    $ 4,413
    Provision for credit losses

    		(14 )

    		(20 )

    		(8 )
    Noninterest expense

    		2,711


    		3,076


    		3,263
    Net income

    		462


    		798


    		911
    Return on average equity

    		10.84 %

    		17.52 %

    		15.90 %
    Return on average economic capital1

    		14.92


    		23.54


    		19.99
    Total average assets     $ 581,952       $ 558,594       $ 622,915  
    1   Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 24-27 of this press release.


    		 

    Business Highlights

    • Sales and trading revenue was $3.2 billion in the second quarter of 2012, compared to $3.8 billion in the first quarter of 2012 and $3.7 billion in the second quarter of 2011. Sales and trading revenue, excluding DVA losses, was $3.3 billion in the second quarter of 2012, compared to $5.2 billion in the first quarter of 2012 and $3.6 billion in the second quarter of 2011.
    • Risk-weighted assets in the Global Markets business declined to $196 billion in the second quarter of 2012 from $243 billion in the second quarter of 2011 as the company continued to reduce legacy risk exposures.

    Financial Overview

    Global Markets revenue declined $1.0 billion from the year-ago quarter to $3.4 billion due to lower trading volumes, new issuance activity and client flows. The current quarter included DVA losses of $156 million, compared to gains of $123 million in the year-ago quarter.

    Net income was $462 million in the second quarter of 2012, compared with net income of $911 million in the year-ago quarter. Noninterest expense of $2.7 billion was $552 million lower than the year-ago quarter primarily driven by a decrease in personnel-related expense.

    Fixed Income, Currency and Commodities sales and trading revenue, excluding DVA, was $2.6 billion in the second quarter of 2012, flat from the year-ago quarter and $1.6 billion lower than the first quarter of 2012. Market uncertainty stemming from the eurozone crisis and slower economic growth contributed to a decline in trading volumes and a lower appetite for risk among investors. Equities sales and trading revenue was $759 million, a decline of $318 million from the year-ago quarter. Volumes remained at low levels impacting trading and commission revenues.

    Global Wealth and Investment Management
     

    		    Three Months Ended
    (Dollars in millions)    

    June 30
    2012

    		    

    March 31
    2012

    		    

    June 30
    2011
    Total revenue, net of interest expense, FTE basis

    		$ 4,317
    		    $ 4,360
    		    $ 4,495
    Provision for credit losses

    		47


    		46


    		72
    Noninterest expense

    		3,408


    		3,450


    		3,624
    Net income

    		543


    		547


    		513
    Return on average equity

    		12.15 %

    		12.78 %

    		11.71 %
    Return on average economic capital1

    		30.03


    		33.81


    		30.45
    Average loans

    		$ 104,102


    		$ 103,036


    		$ 102,201
    Average deposits

    		251,121


    		252,705


    		255,432

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