Bank of America Corporation today reported net income of $3.4 billion, or $0.29 per diluted share, for the fourth quarter of 2013, compared to $732 million, or $0.03 per diluted share in the year-ago period. Revenue, net of interest expense, on an FTE basisA rose 15 percent from the fourth quarter of 2012 to $21.7 billion.
For the year ended December 31, 2013, net income increased to $11.4 billion, or $0.90 per diluted share, from $4.2 billion, or $0.25 per diluted share, in 2012. Revenue, net of interest expense, on an FTE basisA rose 7 percent to $89.8 billion.
"We are pleased to see the core businesses continue to perform well, serving our customers and clients," said Chief Executive Officer Brian Moynihan. "While work remains on past issues, our two hundred forty thousand teammates continue to do a great job winning in the marketplace."
“We enter this year with one of the strongest balance sheets in our company’s history,” said Chief Financial Officer Bruce Thompson. “Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum.”
Selected Financial Highlights
| Three Months Ended | Year Ended | ||||||||||||||
| (Dollars in millions, except per share data) | December 31 | December 31 2012 | December 31 2013 | December 31 2012 | |||||||||||
| Net interest income, FTE basis1 | $ | 10,999 | $ | 10,555 | $ | 43,124 | $ | 41,557 | |||||||
| Noninterest income | 10,702 | 8,336 | 46,677 | 42,678 | |||||||||||
| Total revenue, net of interest expense, FTE basis | 21,701 | 18,891 | 89,801 | 84,235 | |||||||||||
| Total revenue, net of interest expense, FTE basis, excluding DVA and FVO2 | 22,319 | 19,610 | 90,958 | 91,819 | |||||||||||
| Provision for credit losses | 336 | 2,204 | 3,556 | 8,169 | |||||||||||
| Noninterest expense | 17,307 | 18,360 | 69,214 | 72,093 | |||||||||||
| Net income | $ | 3,439 | $ | 732 | $ | 11,431 | $ | 4,188 | |||||||
| Diluted earnings per common share | $ | 0.29 | $ | 0.03 | $ | 0.90 | $ | 0.25 | |||||||
1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-25 of this press release. Net interest income on a GAAP basis was $10.8 billion and $10.3 billion for the three months ended December 31, 2013 and 2012, and $42.3 billion and $40.7 billion for the years ended December 31, 2013 and 2012. Total revenue, net of interest expense, on a GAAP basis was $21.5 billion and $18.7 billion for the three months ended December 31, 2013 and 2012, and $88.9 billion and $83.3 billion for the years ended December 31, 2013 and 2012.
2 Total revenue, net of interest expense, on an FTE basis excluding DVA and FVO adjustments is a non-GAAP financial measure. DVA losses were $201 million and $277 million for the three months ended December 31, 2013 and 2012, and $508 million and $2.5 billion for the years ended December 31, 2013 and 2012. Valuation losses related to FVO were $417 million and $442 million for the three months ended December 31, 2013 and 2012, and $649 million and $5.1 billion for the years ended December 31, 2013 and 2012.
Revenue, net of interest expense, on an FTE basisA rose $2.8 billion from the fourth quarter of 2012 to $21.7 billion. Excluding the impact of debit valuation adjustments (DVA) and fair value option (FVO) adjustmentsB, revenue was $22.3 billion in the fourth quarter of 2013, compared to $19.6 billion in the fourth quarter of 2012.
Net interest income, on an FTE basis, rose 4 percent from the year-ago quarter to $11.0 billionA. The improvement was driven by reductions in long-term debt balances and yields, favorable market-related adjustments from lower premium amortization, lower rates paid on deposits, and higher commercial loan balances. These factors were partially offset by lower consumer loan balances and lower asset yields. Net interest margin was 2.56 percent in the fourth quarter of 2013, compared to 2.35 percent in the fourth quarter of 2012.
Noninterest income increased 28 percent from the year-ago quarter, to $10.7 billion, driven by lower representations and warranties provision and year-over-year improvement in both investment banking fees and investment and brokerage income. This was partially offset by lower equity investment income compared to the fourth quarter of 2012.
The provision for credit losses declined $1.9 billion from the fourth quarter of 2012 to $336 million, driven by improved credit quality. Net charge-offs declined significantly to $1.6 billion in the fourth quarter of 2013 from $3.1 billion in the fourth quarter of 2012, with the net charge-off ratio falling to 0.68 percent in the fourth quarter of 2013 from 1.40 percent in the year-ago quarter. The provision for credit losses in the fourth quarter of 2013 included a $1.2 billion reduction in the allowance for credit losses, compared to a $900 million reduction in the allowance in the fourth quarter of 2012.
Noninterest expense was $17.3 billion, compared to $18.4 billion in the year-ago quarter, driven primarily by reduced expenses in Legacy Assets and Servicing (LAS) and lower personnel expense as the company continued to streamline processes and achieve cost savings. This was partially offset by higher litigation expense reflecting continued evaluation of legacy exposures largely related to residential mortgage-backed securities (RMBS) litigation. Litigation expense rose to $2.3 billion in the fourth quarter of 2013 from $1.1 billion in the third quarter of 2013 and $916 million in the fourth quarter of 2012. In addition, the year-ago quarter included a $1.1 billion expense related to the Independent Foreclosure Review (IFR) acceleration agreement.
Income tax expense for the fourth quarter of 2013 was $406 million on $3.8 billion of pretax income, compared to an income tax benefit of $2.6 billion on $1.9 billion of pretax loss in the year-ago quarter. The effective tax rate for the quarter of 10.6 percent was driven by recurring tax preference items and certain discrete tax benefits. At December 31, 2013, the company had 242,117 full-time employees, down 9 percent 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 Wealth and Investment Management (GWIM), Global Banking, and Global Markets, with the remaining operations recorded in All Other.
Unless otherwise noted, business segment revenue, net of interest expense, is on an FTE basis.
Consumer and Business Banking (CBB)
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions) | December 31 2013 | December 31 2012 | December 31 2013 | December 31 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 7,497 | $ | 7,401 | $ | 29,867 | $ | 29,790 | ||||||||
| Provision for credit losses | 427 | 1,078 | 3,107 | 4,148 | ||||||||||||
| Noninterest expense | 4,042 | 4,174 | 16,357 | 16,995 | ||||||||||||
| Net income | $ | 1,967 | $ | 1,446 | $ | 6,588 | $ | 5,546 | ||||||||
| Return on average allocated capital1, 2 | 26.03 | % | — | % | 21.98 | % | — | % | ||||||||
| Return on average economic capital1, 2 | — | 23.46 | — | 23.12 | ||||||||||||
| Average loans | $ | 163,152 | $ | 167,219 | $ | 164,570 | $ | 173,036 | ||||||||
| Average deposits | 528,808 | 484,086 | 518,980 | 475,180 | ||||||||||||
| At period-end | ||||||||||||||||
| Brokerage assets | $ | 96,048 | $ | 75,946 | ||||||||||||
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 23-25 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 23-25 of this press release.
Business Highlights
- Average deposit balances for the quarter of $528.8 billion increased $44.7 billion, or 9 percent, from the year-ago quarter. The increase was driven by growth in liquid products in the current low-rate environment and the $20 billion average impact of deposit transfers primarily from Global Wealth and Investment Management (GWIM). The average rate paid on deposits declined to 8 basis points in the fourth quarter of 2013 from 16 basis points in the year-ago quarter, due to pricing discipline and a shift in the mix of deposits.
- The number of active mobile banking customers increased 20 percent from the year-ago quarter to 14.4 million.
- Total Corporate U.S. Consumer Credit Card (including balances in GWIM) retail spending per average active account increased 6 percent from the fourth quarter of 2012.
- Total Corporate U.S. Consumer Credit Card net credit loss rate for the fourth quarter of 2013 was 3.19 percent, the lowest since the first quarter of 2006.
- Return on average allocated capital increased to 26.03 percent in the fourth quarter of 2013 from 23.55 percent in the third quarter of 2013.
Financial Overview
Consumer and Business Banking reported net income of $2.0 billion, up $521 million, or 36 percent, from the year-ago quarter, driven by lower provision for credit losses, lower noninterest expense and higher revenue.
Revenue of $7.5 billion increased $96 million from the year-ago quarter, driven by higher net interest income. The provision for credit losses decreased $651 million from the year-ago quarter to $427 million, reflecting continued improvement in credit quality. Noninterest expense decreased $132 million from the year-ago quarter to $4.0 billion, primarily due to lower personnel expense and lower FDIC expense, partially offset by higher litigation expense.
Consumer Real Estate Services (CRES)
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions) | December 31 2013 | December 31 2012 | December 31 2013 | December 31 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 1,712 | $ | 475 | $ | 7,716 | $ | 8,751 | ||||||||
| Provision for credit losses | (474 | ) | 485 | (156 | ) | 1,442 | ||||||||||
| Noninterest expense | 3,794 | 5,607 | 16,013 | 17,190 | ||||||||||||
| Net loss | $ | (1,061 | ) | $ | (3,704 | ) | $ | (5,155 | ) | $ | (6,439 | ) | ||||
| Average loans and leases | 89,687 | 96,605 | 90,278 | 103,524 | ||||||||||||
| At period-end | ||||||||||||||||
| Loans and leases | $ | 89,753 | $ | 94,660 | ||||||||||||
Business Highlights
- Bank of America funded $13.5 billion in residential home loans and home equity loans during the fourth quarter of 2013, helping nearly 50,000 homeowners either refinance an existing mortgage or purchase a home through our retail channels. This included nearly 4,200 first-time homebuyer mortgages and more than 17,000 mortgages to low- and moderate-income borrowers.
- Approximately 68 percent of funded first mortgages were refinances and 32 percent were for home purchases.
- The number of 60+ days delinquent first-mortgage loans serviced by LAS declined 18 percent during the fourth quarter of 2013 to 325,000 loans from 398,000 loans at the end of the third quarter of 2013, and declined 58 percent from 773,000 loans at the end of the fourth quarter of 2012.
Financial Overview
Consumer Real Estate Services reported a net loss of $1.1 billion for the fourth quarter of 2013, compared to a net loss of $3.7 billion for the same period in 2012. The year-ago quarter included the settlements with the Federal National Mortgage Association (Fannie Mae) to resolve outstanding and potential repurchase and certain other claims and $1.1 billion of expense related to the IFR acceleration agreement.
Revenue increased $1.2 billion from the fourth quarter of 2012 to $1.7 billion due to a $2.9 billion reduction in representations and warranties provision, partially offset by a $1.1 billion decline in servicing revenue reflecting lower Mortgage Servicing Rights (MSR) net-of-hedge performance and a smaller servicing portfolio, as well as a decline in core production revenue.
CRES first-mortgage originations declined 46 percent in the fourth quarter of 2013 compared to the same period in 2012, reflecting a corresponding decline in the overall market demand for mortgages. Core production revenue declined in the fourth quarter of 2013 to $403 million from $986 million in the year-ago quarter due to lower volume as well as a reduction in margins resulting from the continued industrywide margin compression over the past year. The provision for representations and warranties declined to $70 million in the fourth quarter of 2013 from $3.0 billion in the fourth quarter of 2012, which included the Fannie Mae settlements mentioned above.
The provision for credit losses decreased $959 million from the year-ago quarter to a benefit of $474 million, driven primarily by increased home prices and improved portfolio trends.
Noninterest expense decreased $1.8 billion from the year-ago quarter to $3.8 billion, due to the IFR expense in the year-ago quarter mentioned above, as well as lower LAS default-related servicing expenses as a result of continued staff reductions and lower assessments, waivers and similar costs related to foreclosure delays. These improvements were partially offset by a $522 million increase in litigation expense in LAS from the fourth quarter of 2012 to the fourth quarter of 2013.
A significant contributor to the year-over-year expense reduction was the improvement in the number of 60+ days delinquent first-mortgage loans serviced by LAS, which fell 58 percent to 325,000 loans from 773,000 loans at the end of the fourth quarter of 2012.
Global Wealth and Investment Management (GWIM)
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions) | December 31 2013 | December 31 2012 | December 31 2013 | December 31 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,480 | $ | 4,193 | $ | 17,790 | $ | 16,518 | ||||||||
| Provision for credit losses | 26 | 112 | 56 | 266 | ||||||||||||
| Noninterest expense | 3,264 | 3,196 | 13,038 | 12,721 | ||||||||||||
| Net income | $ | 777 | $ | 576 | $ | 2,974 | $ | 2,245 | ||||||||
| Return on average allocated capital1, 2 | 30.97 | % | — | % | 29.90 | % | — | % | ||||||||
| Return on average economic capital1, 2 | — | 28.36 | — | 30.80 | ||||||||||||
| Average loans and leases | $ | 115,546 | $ | 103,785 | $ | 111,023 | $ | 100,456 | ||||||||
| Average deposits | 240,395 | 249,658 | 242,161 | 242,384 | ||||||||||||
| At period-end (dollars in billions) | ||||||||||||||||
| Assets under management | $ | 821.4 | $ | 698.1 | ||||||||||||
| Total client balances3 | 2,366.4 | 2,151.6 | ||||||||||||||
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 23-25 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 23-25 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
- Pretax margin increased to 26.6 percent from 21.1 percent in the year-ago quarter.
- Asset management fees grew to $1.8 billion, up 15 percent from the year-ago quarter.
- Client balances increased 10 percent to a record $2.37 trillion, driven by higher market levels and net inflows.
- Period-end loan balances increased to a record $115.8 billion, up 9 percent from the year-ago quarter.
- Fourth-quarter 2013 long-term AUM flows of $9.4 billion were the 18th consecutive quarter of positive flows. For the full year, long-term AUM flows were a record $47.8 billion, up $21.4 billion or 81 percent from a year ago.
- Return on average allocated capital increased to 30.97 percent in the fourth quarter of 2013 from 28.68 percent in the third quarter of 2013.
Financial Overview
Global Wealth and Investment Management reported strong results across many measures in the fourth quarter of 2013 with record net income, record asset management fees and strong client flows. Net income rose 35 percent from the fourth quarter of 2012 to a record $777 million, reflecting strong revenue performance and low credit costs.
Revenue increased 7 percent from the year-ago quarter to $4.5 billion, driven by higher noninterest income related to long-term AUM flows and higher market levels.
The provision for credit losses decreased $86 million from the year-ago quarter to $26 million due to improvement in the home loans portfolio. Noninterest expense of $3.3 billion increased 2 percent, driven by higher volume-related expenses, partially offset by lower support and other personnel costs.
Client balances rose 10 percent from a year ago to $2.37 trillion, driven largely by higher market levels, long-term AUM flows of $47.8 billion and period-end client loan growth of $9.5 billion. Assets under management rose $123.4 billion, or 18 percent, from the fourth quarter of 2012 to $821.4 billion, driven by market appreciation and long-term AUM flows. Average deposit balances declined $9.3 billion from the fourth quarter of 2012 to $240.4 billion as the impact of transfers to CBB was partially offset by organic growth.
Global Banking
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions) | December 31 2013 | December 31 2012 | December 31 2013 | December 31 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,305 | $ | 3,951 | $ | 16,481 | $ | 15,674 | ||||||||
| Provision for credit losses | 441 | 62 | 1,075 | (342 | ) | |||||||||||
| Noninterest expense | 1,927 | 1,753 | 7,552 | 7,619 | ||||||||||||
| Net income | $ | 1,267 | $ | 1,392 | $ | 4,974 | $ | 5,344 | ||||||||
| Return on average allocated capital1, 2 | 21.86 | % | — | % | 21.64 | % | — | % | ||||||||
| Return on average economic capital1, 2 | — | 28.97 | — | 27.69 | ||||||||||||
| Average loans and leases | $ | 268,849 | $ | 232,396 | $ | 257,245 | $ | 224,336 | ||||||||
| Average deposits | 259,762 | 242,817 | 237,457 | 223,940 | ||||||||||||
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 23-25 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 23-25 of this press release.
Business Highlights
- Global Banking achieved record revenues and firmwide Investment Banking fees.
- Firmwide investment banking fees of $1.7 billion, excluding self-led deals, increased $441 million, or 34 percent, from the prior quarter and $138 million, or 9 percent, from the year-ago quarter.
- Bank of America Merrill Lynch (BAML) maintained its No. 2 ranking in global net investment banking fees in the fourth quarter of 2013, with an increase in market share to 8.0 percent from 7.3 percent in the third quarter of 2013, and was No. 1 in investment banking fees in the Americas with 10.7 percent market share in the fourth quarter of 2013C. BAML was also ranked among the top three global financial institutions in announced mergers and acquisitions, leveraged loans, investment-grade corporate debt, mortgage-backed securities, asset-backed securities and syndicated loans during the fourth quarter of 2013C.
- Average loan and lease balances increased $36.5 billion, or 16 percent, from the year-ago quarter, to $268.8 billion with growth primarily in the commercial and industrial loan portfolio and the commercial real estate portfolio.
- Average deposits rose $16.9 billion, or 7 percent, from the year-ago quarter to $259.8 billion due to client liquidity and international growth.
Financial Overview
Global Bankingreportednet incomeof $1.3 billion in the fourth quarter of 2013, down $125 million from the year-ago quarter, as an increase in revenue was more than offset by higher provision for credit losses as the company built reserves associated with loan growth. Net charge-offs declined to $7 million in the fourth quarter of 2013 from $132 million in the fourth quarter of 2012.
Revenue of $4.3 billion was up 9 percent from the year-ago quarter, reflecting higher net interest income, driven by loan growth and higher Investment Banking fees.
Global Corporate Banking revenue increased to $1.6 billion in the fourth quarter, up $125 million from the year-ago quarter, and Global Commercial Banking revenue increased $117 million to $1.8 billion. Included in these results are Business Lending revenue of $1.8 billion, up $180 million from the year-ago quarter, and Treasury Services revenue of $1.5 billion, up $62 million from the year-ago period. Global Banking investment banking fees, excluding self-led deals, increased $101 million from the year-ago quarter.
Noninterest expense increased $174 million, or 10 percent, from the year-ago quarter to $1.9 billion, primarily from higher incentive compensation associated with the strong performance in investment banking.
Global Markets
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions) | December 31 2013 | December 31 2012 | December 31 2013 | December 31 2012 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 3,624 | $ | 3,020 | $ | 16,058 | $ | 14,284 | ||||||||
| Total revenue, net of interest expense, FTE basis, excluding DVA1 | 3,824 | 3,296 | 16,566 | 16,732 | ||||||||||||
| Provision for credit losses | 104 | 17 | 140 | 34 | ||||||||||||
| Noninterest expense | 3,284 | 2,627 | 12,013 | 11,295 | ||||||||||||
| Net income | $ | 215 | $ | 181 | $ | 1,563 | $ | 1,229 | ||||||||
| Net income, excluding DVA and U.K. tax1 | 341 | 355 | 3,009 | 3,552 | ||||||||||||
| Return on average allocated capital, excluding DVA and U.K. tax2, 3, 4 | 4.54 | % | — | 10.06 | % | — | ||||||||||
| Return on average economic capital,excluding DVA and U.K. tax2, 3, 4 | — | 9.98 | % | — | 25.76 | % | ||||||||||
| Total average assets | $ | 603,110 | $ | 645,808 | $ | 632,804 | $ | 606,249 | ||||||||
1 Total revenue, net of interest expense, on an FTE basis excluding DVA and net income excluding DVA and the U.K. corporate tax rate adjustments are non-GAAP financial measures. DVA losses were $200 million and $276 million for the three months ended December 31, 2013 and 2012, and $508 million and $2.4 billion for the years ended December 31, 2013 and 2012. U.K. corporate tax rate adjustments were $1.1 billion and $0.8 billion for the years ended December 31, 2013 and 2012.
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 23-25 of this press release.
3 Return on average allocated capital and return on average economic capital, excluding DVA and U.K. corporate tax rate adjustments, are non-GAAP financial measures. Return on average allocated capital was 5.24 percent for 2013 and return on average economic capital was 8.95 percent for 2012.
4 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 23-25 of this press release.
Business Highlights
- Sales and trading revenue, excluding DVAF, rose 19 percent from the fourth quarter of 2012 to $3.0 billion.
- Equities sales and trading revenue, excluding DVAG, rose 27 percent from the fourth quarter of 2012, due to continued gains in market share and increased market volumes.
- Bank of America Merrill Lynch was named "No. 1 Global Research" firm for the third consecutive year by Institutional Investor.
Financial Overview
Global Markets reported net income of $215 million in the fourth quarter of 2013, compared to $181 million in the year-ago quarter. Excluding DVAF losse
