Bank of America Corporation (NYSE: BAC) today reported that second-quarter 2013 net income rose 63 percent to $4.0 billion from $2.5 billion in the second quarter of 2012. Earnings per diluted share increased to $0.32 from $0.19 in the second quarter of 2012. Revenue, net of interest expense, on a fully taxable-equivalent (FTE)A basis rose 3 percent to $22.9 billion from $22.2 billion a year ago.
The results for the second quarter of 2013 were driven by year-over-year improvements in net interest income, investment and brokerage income, investment banking fees, sales and trading revenue, equity investment income and credit quality as well as expense reductions. These items were partially offset by the absence of year-ago gains related to liability management actions and lower mortgage banking income.
"We are doing more business with our customers and clients, and gaining momentum across every customer group we serve," said Chief Executive Officer Brian Moynihan. "We must keep improving, but with the consumer recovering and businesses strong, we have lots of opportunity ahead.”
"At the beginning of the year, we said we would focus on three things – revenue stability, strengthening the balance sheet and managing costs," said Chief Financial Officer Bruce Thompson. "This quarter, we delivered on all three. Revenue increased 3 percent, we continued to build capital ratios, despite the negative impact of higher interest rates on our bond portfolio, and we reduced expenses related to servicing delinquent mortgage loans at a faster rate than we originally expected."
| Selected Financial Highlights | ||||||||||||||
| Three Months Ended | ||||||||||||||
| (Dollars in millions, except per share data) | June 30 2013 | March 31 2013 | June 30 2012 | |||||||||||
| Net interest income, FTE basis1 | $ | 10,771 | $ | 10,875 | $ | 9,782 | ||||||||
| Noninterest income | 12,178 | 12,533 | 12,420 | |||||||||||
| Total revenue, net of interest expense, FTE basis | 22,949 | 23,408 | 22,202 | |||||||||||
| Provision for credit losses | 1,211 | 1,713 | 1,773 | |||||||||||
| Noninterest expense | 16,018 | 19,500 | 17,048 | |||||||||||
| Net income | $ | 4,012 | $ | 1,483 | $ | 2,463 | ||||||||
| Diluted earnings per common share | $ | 0.32 | $ | 0.10 | $ | 0.19 | ||||||||
1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliations to GAAP financial measures, refer to pages 22-24 of this press release. Net interest income on a GAAP basis was $10.5 billion, $10.7 billion and $9.5 billion for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively. Total revenue, net of interest expense, on a GAAP basis was $22.7 billion, $23.2 billion and $22.0 billion for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.
Revenue, net of interest expense, on an FTE basisA rose $747 million, or 3 percent, from the second quarter of 2012, to $22.9 billion, led by higher net interest income.
Net interest income, on an FTE basis, totaled $10.8 billion in the second quarter of 2013, compared to $10.9 billion in the first quarter of 2013 and $9.8 billion in the second quarter of 2012A. The improvement from the year-ago quarter was driven by favorable market-related impacts of $850 million from lower premium amortization and hedge ineffectiveness, reductions in long-term debt balances, lower rates paid on deposits and higher commercial loan balances, partially offset by lower consumer loan balances as well as lower asset yields. Net interest margin was 2.44 percent in the second quarter of 2013, compared to 2.43 percent in the first quarter of 2013 and 2.21 percent in the second quarter of 2012.
Noninterest income decreased $242 million from the year-ago quarter, as increases in investment banking fees, equity investment income and investment and brokerage income were more than offset by a decline in other income, as the year-ago quarter included gains related to liability management actions, and lower mortgage banking income
Noninterest expense decreased $1.0 billion compared to the year-ago quarter to $16.0 billion, driven primarily by lower litigation expense, reduced expenses in Legacy Assets and Servicing (LAS) and lower personnel expense as the company continued to streamline processes and achieve cost savings.
Previously, Bank of America stated that by the end of 2013, noninterest expense in LAS, excluding litigation expenses, was expected to decline to $2.1 billion a quarter and the number of 60+ days delinquent mortgage loans would decline to 400,000. Based on the progress in the first half of 2013, the company now expects that by the fourth quarter of 2013, noninterest expense in LAS, excluding litigation costs will be below $2.0 billion and that the number of 60+ days delinquent mortgage loans will decline below 375,000.
Litigation expense was $471 million in the second quarter of 2013, compared to $2.2 billion in the first quarter of 2013 and $963 million in the second quarter of 2012.
Income tax expense for the second quarter of 2013 was $1.5 billion on $5.5 billion of pretax income, resulting in a 27 percent effective tax rate. This compares to income tax expense of $684 million on $3.1 billion of pretax income resulting in a 22 percent effective tax rate in the year-ago quarter.
At June 30, 2013, the company had 257,158 full-time employees, down from 262,812 at March 31, 2013 and 275,460 at June 30, 2012.
Business Segment Results
The company reports results through five business segments: Consumer and Business Banking (CBB), Consumer Real Estate Services (CRES), Global Wealth and Investment Management (GWIM), Global Banking, and Global Markets, with the remaining operations recorded in All Other.
Unless otherwise noted, business segment revenue, on an FTE basis, is net of interest expense.
| Consumer and Business Banking (CBB)1 | ||||||||||||
| Three Months Ended | ||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | |||||||||
| Total revenue, net of interest expense, FTE basis | $ | 7,434 | $ | 7,412 | $ | 7,495 | ||||||
| Provision for credit losses | 967 | 952 | 1,157 | |||||||||
| Noninterest expense | 4,183 | 4,170 | 4,420 | |||||||||
| Net income | $ | 1,392 | $ | 1,439 | $ | 1,208 | ||||||
| Return on average allocated capital2, 3 | 18.64 | % | 19.48 | % | — | |||||||
| Return on average economic capital2, 3 | — | — | 20.46 | % | ||||||||
| Average loans | $ | 163,593 | $ | 165,845 | $ | 173,565 | ||||||
| Average deposits | 522,259 | 502,508 | 474,328 | |||||||||
| At period-end | ||||||||||||
| Brokerage assets | $ | 84,182 | $ | 82,616 | $ | 72,226 | ||||||
1 During the second quarter of 2013, the results of consumer Dealer Financial Services (DFS), previously reported in Global Banking, were moved into CBB and prior periods have been reclassified to conform to current period presentation.
2 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.
3 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.
Business Highlights
- Average deposit balances of $522.3 billion increased $47.9 billion, or 10 percent, from the same period a year ago. The increase was driven by growth in liquid products in a low-rate environment and an $18 billion average impact of deposit transfers primarily from Global Wealth and Investment Management. The average rate paid on deposits in the second quarter of 2013 declined 7 basis points from the year-ago quarter due to pricing discipline and a shift in the mix of deposits.
- The number of mobile banking customers increased 28 percent from the year-ago quarter to 13.2 million, and 11.7 million checks were deposited this quarter via Mobile Check Deposits, reflecting a continued focus on enhancing the customer experience.
- U.S. consumer credit card retail spending per average active account increased 9 percent from the second quarter of 2012.
- Merrill Edge brokerage assets increased 17 percent from the same period a year ago to $84.2 billion due to positive account flows and market growth.
- Small business loan originations and commitments rose 24 percent from the year-ago quarter to $2.8 billion.
- The company´s specialized sales force of financial solutions advisors, mortgage loan officers and small business bankers increased to more than 6,800 specialists in the second quarter of 2013, up 21 percent from the same period a year ago, reflecting the company´s continued commitment to deepening customer relationships.
Financial Overview
Consumer and Business Banking reported net income of $1.4 billion, up $184 million, or 15 percent, from the year-ago quarter, driven by higher net interest income, lower provision expense and lower noninterest expense, partially offset by lower noninterest income.
Net interest income of $5.0 billion was up $156 million from the year-ago quarter, reflecting higher asset and liability management (ALM) activities, partially offset by the impact of the continued low-rate environment on deposit spreads, and lower average loans. Noninterest income decreased $217 million due to lower card income primarily from the exit from consumer protection products.
Provision for credit losses decreased $190 million from the year-ago quarter to $967 million reflecting continued improvement in consumer portfolio trends. Noninterest expense was down $237 million from the year-ago quarter to $4.2 billion primarily due to decreased litigation expense and lower operating expense.
| Consumer Real Estate Services (CRES) | |||||||||||||||||
| Three Months Ended | |||||||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | ||||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 2,115 | $ | 2,312 | $ | 2,529 | |||||||||||
| Provision for credit losses | 291 | 335 | 187 | ||||||||||||||
| Noninterest expense | 3,394 | 5,406 | 3,524 | ||||||||||||||
| Net loss | $ | (937 | ) | $ | (2,157 | ) | $ | (744 | ) | ||||||||
| Average loans and leases | 90,114 | 92,963 | 105,507 | ||||||||||||||
| At period-end | |||||||||||||||||
| Loans and leases | $ | 89,257 | $ | 90,971 | $ | 104,079 | |||||||||||
Business Highlights
- Bank of America funded $26.8 billion in residential home loans and home equity loans during the second quarter of 2013, up 7 percent from the first quarter of 2013, and 41 percent higher than the second quarter of 2012.
- The residential fundings helped more than 112,000 homeowners either refinance an existing mortgage or purchase a home through our retail channels, including more than 4,600 first-time homebuyer mortgages and more than 40,000 mortgages to low- and moderate-income borrowers.
- The number of 60+ days delinquent first mortgage loans serviced by LAS declined 26 percent during the second quarter of 2013 to 492,000 loans from 667,000 loans at the end of the first quarter of 2013, and declined 54 percent from 1.06 million loans at the end of the second quarter of 2012.
Financial Overview
Consumer Real Estate Services reported a net loss of $937 million for the second quarter of 2013, compared to a net loss of $744 million for the same period in 2012. Revenue declined $414 million from the second quarter of 2012 to $2.1 billion. Noninterest income was $1.4 billion, a decrease of $400 million from the year-ago quarter, primarily due to lower servicing income driven by a decline in the size of the servicing portfolio. Core production revenue was $860 million in the second quarter of 2013, down from $902 million in the year-ago quarter as higher originations were offset by lower margins. This decline was partially offset by higher revenues from the sale of loans that had returned to performing status.
Approximately 83 percent of funded first mortgages were refinances and 17 percent were for home purchases. The provision for representations and warranties was $197 million in the second quarter of 2013, compared to $395 million in the second quarter of 2012.
The provision for credit losses increased $104 million to $291 million, reflecting a slower rate of improvement compared to the year-ago quarter. Noninterest expense decreased to $3.4 billion from $3.5 billion in the second quarter of 2012, due to lower LAS expenses, partially offset by higher expenses in Home Loans. The decline in LAS expenses reflected continued rightsizing of default-related staff and vendors, while the increase in Home Loan expenses was due primarily to higher loan volume.
| Global Wealth and Investment Management (GWIM) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,499 | $ | 4,421 | $ | 4,094 | |||||||||
| Provision for credit losses | (15 | ) | 22 | 47 | |||||||||||
| Noninterest expense | 3,272 | 3,253 | 3,177 | ||||||||||||
| Net income | $ | 758 | $ | 720 | $ | 548 | |||||||||
| Return on average allocated capital1, 2 | 30.57 | % | 29.38 | % | — | ||||||||||
| Return on average economic capital1, 2 | — | — | 31.76 | % | |||||||||||
| Average loans and leases | $ | 109,589 | $ | 106,082 | $ | 98,964 | |||||||||
| Average deposits | 235,344 | 253,413 | 238,540 | ||||||||||||
| At period-end (Dollars in billions) | |||||||||||||||
| Assets under management | $ | 743.6 | $ | 745.3 | $ | 667.5 | |||||||||
| Total client balances3 | 2,215.1 | 2,231.7 | 2,066.6 | ||||||||||||
1 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.
2 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.
3 Total client balances are defined as assets under management, assets in custody, client brokerage assets, client deposits and loans (including margin receivables).
Business Highlights
- Record quarterly results in revenue, pretax margin, net income, asset management fees and loan balances.
- Client balances rose 8 percent (excluding balances transferred to Consumer and Business Banking) from the year-ago quarter to $2.22 trillion.
- Asset management fees grew to $1.7 billion, up 10 percent from the year-ago quarter.
- Long-term assets under management (AUM) flows more than doubled from the year-ago quarter to $7.7 billion, marking the 16th consecutive quarter of positive flows.
- Period-end loan balances increased to $111.8 billion, up 11 percent from the year-ago quarter.
- Period-end deposit balances decreased $2.3 billion to $235.0 billion from the year-ago quarter as $15 billion of organic growth was offset by $17 billion of net transfers of deposits to Consumer and Business Banking.
Financial Overview
Global Wealth and Investment Management net income rose 38 percent from the second quarter of 2012 to $758 million. The pretax margin was a record 28 percent for the second quarter of 2013, up from 21 percent in the year-ago quarter.
Revenue increased 10 percent from the year-ago quarter to $4.5 billion, driven by higher asset management fees related to higher market levels and long-term AUM flows, higher transactional revenue and higher net interest income.
The provision for credit losses decreased $62 million from the year-ago quarter to a $15 million benefit driven by credit quality improvement. Noninterest expense of $3.3 billion increased 3 percent, driven by higher volume-related expenses partially offset by lower personnel costs.
Client balances rose 8 percent (excluding balances transferred to Consumer and Business Banking) from the year-ago quarter to $2.22 trillion, reflecting higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans. Assets under management rose $76.2 billion, or 11 percent, from the second quarter of 2012 to $743.6 billion, driven by long-term AUM flows and market impact.
| Global Banking1 | |||||||||||||||
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,139 | $ | 4,030 | $ | 3,908 | |||||||||
| Provision for credit losses | 163 | 149 | (152 | ) | |||||||||||
| Noninterest expense | 1,859 | 1,837 | 1,967 | ||||||||||||
| Net income | $ | 1,291 | $ | 1,284 | $ | 1,318 | |||||||||
| Return on average allocated capital2, 3 | 22.52 | % | 22.65 | % | — | ||||||||||
| Return on average economic capital2, 3 | — | — | 27.24 | % | |||||||||||
| Average loans and leases | $ | 255,674 | $ | 244,068 | $ | 219,504 | |||||||||
| Average deposits | 227,668 | 222,120 | 213,862 | ||||||||||||
1 During the second quarter of 2013, the results of consumer Dealer Financial Services (DFS), previously reported in Global Banking, were moved into CBB and prior periods have been reclassified to conform to current period presentation.
2 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.
3 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.
Business Highlights
- Bank of America Merrill Lynch (BAML) maintained its No. 2 ranking in global net investment banking fees in the second quarter of 2013, with a 7.4 percent market share, according to Dealogic. BAML was also ranked among the top three financial institutions in high-yield corporate debt, leveraged loans, investment-grade corporate debt, asset-backed securities, mortgage-backed securities and syndicated loans during the second quarter, according to Dealogic.
- Average loan and lease balances increased $36.2 billion, or 16 percent, from the year-ago quarter to $255.7 billion and $11.6 billion, or 5 percent, from the prior quarter with growth primarily in the commercial and industrial portfolio and the commercial real estate portfolio. Average international loans increased 29 percent from the year-ago quarter, driven by gains across all regions.
- Average deposits rose $13.8 billion, or 6 percent, from the year-ago quarter to $227.7 billion, due to growth in international deposits, which increased 22 percent from the year-ago quarter, reflecting the strength of the international franchise.
Financial Overview
Global Banking reported net incomeof $1.3 billion in the second quarter of 2013, relatively unchanged from the year-ago quarter, as an increase in revenue and a decline in noninterest expense were offset by higher provision for credit losses. Revenue of $4.1 billion was up $231 million, or 6 percent, from the second quarter of 2012, reflecting higher investment banking fees and higher net interest income driven by loan growth.
Firmwide investment banking fees of $1.6 billion, excluding self-led deals, increased 36 percent from the year-ago quarter, mainly due to a strong performance in debt and equity underwriting fees. Global Banking investment banking fees, excluding self-led deals, increased 24 percent to $785 million from $633 million in the year-ago quarter.
Global Corporate Banking revenue of $1.6 billion and Global Commercial Banking revenue of $1.8 billion increased $91 million and $140 million, respectively, compared to the year-ago quarter. Business Lending revenue of $1.9 billion and Treasury Services revenue of $1.4 billion increased $160 million and $71 million, respectively, compared to the year-ago period.
The provision for credit losses increased $315 million from the year-ago quarter to $163 million, driven by commercial loan growth. In the year-ago quarter, charge-offs exceeded provision, which resulted in a net reduction in the reserve of $272 million. Noninterest expense was $1.9 billion, down 5 percent from the year-ago quarter, primarily from lower personnel-related expenses.
| Global Markets | |||||||||||||||
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,189 | $ | 4,869 | $ | 3,578 | |||||||||
| Total revenue, net of interest expense, FTE basis, excluding DVA1 | 4,151 | 4,924 | 3,734 | ||||||||||||
| Provision for credit losses | (16 | ) | 5 | (1 | ) | ||||||||||
| Noninterest expense | 2,769 | 3,073 | 2,855 | ||||||||||||
| Net income | $ | 959 | $ | 1,169 | $ | 497 | |||||||||
| Net income, excluding DVA1 | 935 | 1,204 | 595 | ||||||||||||
| Return on average allocated capital2, 3 | 12.85 | % | 15.83 | % | — | ||||||||||
| Return on average economic capital2, 3 | — | — | 15.10 | % | |||||||||||
| Total average assets | $ | 653,116 | $ | 667,265 | $ | 596,861 | |||||||||
1 Total revenue, net of interest expense, on an FTE basis excluding DVA and net income excluding DVA are non-GAAP financial measures. DVA gains (losses) were $38 million, $(55) million and $(156) million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.
2 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.
3 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.
Business Highlights
- Equities revenue, excluding DVAD, rose 53 percent from the second quarter of 2012, and was the highest since the first quarter of 2011, driven by increased market share and improved trading performance.
- International revenue,excluding DVAC, increased to 43 percent of global revenue compared to 34 percent in the year-ago quarter.
Financial Overview
Global Markets reported net income nearly doubled from the year-ago quarter to $959 million in the second quarter of 2013, compared to $497 million in the year-ago quarter. Excluding DVAC, net income was $935 million in the second quarter of 2013, compared to $595 million in the year-ago quarter.
Global Markets revenue increased $611 million, or 17 percent, from the year-ago quarter to $4.2 billion. Excluding DVAC, revenue increased $417 million, or 11 percent, to $4.2 billion driven by higher equities sales and trading revenue as well as an increase in debt and equity issuance. DVA gains were $38 million, compared to losses of $156 million in the year-ago quarter.
Fixed Income, Currency and Commodities sales and trading revenue, excluding DVAE, was $2.3 billion in the second quarter of 2013, a decrease of $296 million from the year-ago quarter, reflecting a challenging trading environment toward the end of the quarter as fixed income assets sold off due to market concerns related to the Federal Reserve´s policy announcement in June. Equities sales and trading revenue, excluding DVAD, was $1.2 billion, an increase of $414 million, or 53 percent, from the year-ago quarter due to increased market share and improved trading performance.
Noninterest expense declined $86 million to $2.8 billion from the year-ago quarter primarily driven by lower operating costs.
| All Other1 | |||||||||||||||
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2013 | March 31 2013 | June 30 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis2 | $ | 573 | $ | 364 | $ | 598 | |||||||||
| Provision for credit losses | (179 | ) | 250 | 535 | |||||||||||
| Noninterest expense | 541 | 1,761 | 1,105 | ||||||||||||
| Net income (loss) | $ | 549 | $ | (972 | ) | $ | (364 | ) | |||||||
| Total average loans | 238,910 | 244,557 | 263,649 | ||||||||||||
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, gains/losses on structured liabilities, and the impact of certain allocation methodologies and accounting hedge ineffectiveness. Equity Investments includes Global Principal Investments (GPI), strategic and certain other investments. Other includes certain residential mortgage loans that are managed by Legacy Assets and Servicing within CRES.
2 Revenue includes equity investment income (loss) of $576 million, $520 million and ($36) million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively, and gains on sales of debt securities of $452 million, $67 million and $354 million for the three months ended June 30, 2013, March 31, 2013 and June 30, 2012, respectively.
All Othe
