Bank of America Reports Third-quarter 2014 Net Income of $168 Millionon Revenue of $21.4 Billion(A); Loss of $0.01 per Share After Preferred Dividends

Bank of America Corporation today reported net income of $168 million for the third quarter of 2014. After deducting dividends on preferred shares, the company reported a loss of $0.01 per share. The results include the previously announced pretax charge of $5.3 billion for the settlement with the Department of Justice, certain federal agencies and six states (DoJ Settlement), which impacted earnings per share by $0.43. Earnings in the year-ago period were $2.5 billion or $0.20 per diluted share.

Revenue, net of interest expense, on an FTE basis declined 1 percent from the third quarter of 2013 to $21.4 billion. Revenue, net of interest expense, on an FTE basis, excluding equity investment gains ($9 million in the third quarter of 2014 and $1.2 billion in the third quarter of 2013) and valuation adjustments related to changes in the company´s credit spreads, increased 1 percent from the year-ago quarter to $21.2 billion from $21.0 billion^(G).

“We saw solid customer and client activity and improved profitability in most of our businesses relative to the year-ago quarter,” said Chief Executive Officer Brian Moynihan. “We remain focused on streamlining and simplifying our company and connecting customers and clients with the real economy, an approach that is paying dividends for them and for our shareholders.”

"We continued to focus on optimizing the balance sheet this quarter so we can best serve the core financial needs of our customers and clients and still be in a position to meet new capital and liquidity requirements in an evolving regulatory framework," said Chief Financial Officer Bruce Thompson. "We also made significant progress on our cost structure, staying on track to meet the goals we established three years ago, and our credit quality metrics reflect both the improved environment and our risk underwriting."

^{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 $10.2 billion, $10.0 billion and $10.3 billion for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively. Total revenue, net of interest expense, on a GAAP basis was $21.2 billion, $21.7 billion and $21.5 billion for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively.}

^{2 Represents a non-GAAP financial measure. Net DVA gains (losses) were $205 million, $69 million and $(444) million for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively.}

^{3 Noninterest expense includes litigation expense of $5.6 billion, $4.0 billion and $1.1 billion for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively.}

Net interest income, on an FTE basis, was comparable to the year-ago quarter at $10.4 billion^(A) as lower loan balances and yields were largely offset by reductions in long-term debt and improved funding costs.

Noninterest income was down 2 percent from the third quarter of 2013 to $11.0 billion. Excluding net debit valuation adjustments (DVA) and equity investment income in both periods, noninterest income was up 2 percent from the year-ago quarter, as modest increases across most categories were largely offset by a decline in mortgage banking income^(G).

The provision for credit losses increased $340 million from the third quarter of 2013 to $636 million, driven by $400 million in incremental credit costs associated with the consumer relief portion of the DoJ Settlement. Net charge-offs declined 38 percent from the third quarter of 2013 to $1.0 billion, with the net charge-off ratio falling to 0.46 percent in the third quarter of 2014 from 0.73 percent in the year-ago quarter. Including the incremental credit costs associated with the DoJ Settlement, the reserve release was $407 million in the third quarter of 2014, compared to a reserve release of $1.4 billion in the third quarter of 2013.

Noninterest expense was $19.7 billion, compared to $16.4 billion in the year-ago quarter, driven by higher mortgage-related litigation expense, partially offset by reduced personnel expense. Excluding litigation expense of $5.6 billion in the third quarter of 2014 and $1.1 billion in the year-ago quarter, noninterest expense decreased 7 percent from the year-ago quarter to $14.2 billion, reflecting continued progress by the company to realize cost savings in its Legacy Assets and Servicing business and, to a lesser degree, Project New BAC^(C).

The effective tax rate for the third quarter of 2014 was driven by the non-deductible portion of the DoJ Settlement charge, partially offset by certain discrete tax benefits contributing approximately $0.04 of earnings per share, which included the resolution of certain tax examinations, and by recurring tax preference items. The effective tax rate for the third quarter of 2013 was primarily driven by a $1.1 billion negative impact on the company´s deferred tax asset as a result of the change in the U.K. corporate income tax rate enacted in July.

At September 30, 2014, the company had 229,538 full-time employees, down 7 percent from the year-ago quarter and 2 percent below the second quarter of 2014.

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.

^{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 22-24 of this press release.}

Business Highlights

• Average deposit balances increased $23.1 billion, or 4 percent, from the year-ago quarter to $545.1 billion. The increase was primarily driven by growth in liquid products in the current low-rate environment.
• Client brokerage assets increased $19.0 billion, or 21 percent, from the year-ago quarter to $108.5 billion, driven by increased account flows and market valuations.
• Credit card issuance remained strong. The company issued 1.2 million new credit cards in the third quarter of 2014, up 15 percent from the 1.0 million cards issued in the year-ago quarter. Approximately 64 percent of these cards went to existing relationship customers during the third quarter of 2014.
• The number of mobile banking customers increased 15 percent from the year-ago quarter to 16.1 million users, and 11 percent of deposit transactions by consumers were done through mobile compared to 8 percent in the year-ago quarter.
• Return on average allocated capital was 25.0 percent in the third quarter of 2014, compared to 23.7 percent in the third quarter of 2013.

Financial Overview

Consumer and Business Banking reported net income of $1.9 billion, up $69 million, or 4 percent, from the year-ago quarter, driven by lower provision for credit losses. Revenue was relatively stable compared to the year-ago quarter, as lower net interest income resulting from lower loan balances and yields was partially offset by higher noninterest income due to higher service charges and card income.

The provision for credit losses decreased $144 million from the year-ago quarter to $617 million, driven by continued improvement in credit quality. Noninterest expense was $4.0 billion, in line with the year-ago quarter. The company reduced its retail footprint by another 76 banking centers during the third quarter of 2014 to 4,947 locations as a result of continued growth in mobile banking and other self-service customer touchpoints.

^{1 Noninterest expense includes litigation expense of $5.3 billion, $3.8 billion and $338 million for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013.}

Business Highlights

• The company originated $11.7 billion in first-lien residential mortgage loans and $3.2 billion in home equity loans in the third quarter of 2014, compared to $11.1 billion and $2.6 billion, respectively, in the second quarter of 2014, and $22.6 billion and $1.8 billion, respectively, in the year-ago quarter.
• The number of 60+ days delinquent first mortgage loans serviced by Legacy Assets and Servicing (LAS) declined 16 percent during the third quarter of 2014 to 221,000 loans from 263,000 loans at the end of the second quarter of 2014. Year-over-year, these loans are down 44 percent from 398,000 loans at the end of the third quarter of 2013.
• Noninterest expense in LAS, excluding litigation, declined to $1.3 billion in the third quarter of 2014 from $1.4 billion in the second quarter of 2014 and $2.2 billion in the year-ago quarter as the company continued to focus on reducing the number of delinquent mortgage loans^(H).

Financial Overview

Consumer Real Estate Services reported a loss of $5.2 billion for the third quarter of 2014, compared to a loss of $990 million for the same period in 2013, driven largely by the impact of the DoJ Settlement, including the non-deductible treatment of a portion of the settlement.

Revenue declined $484 million from the third quarter of 2013 to $1.1 billion, driven primarily by lower servicing fees due to a smaller servicing portfolio, lower mortgage servicing rights (MSR) results, net of hedges, and lower core production revenue due to fewer loan originations. These reductions were partially offset by lower representations and warranties provision compared to the year-ago quarter. Core production revenue decreased $172 million from the year-ago quarter to $293 million due primarily to lower volume.

The provision for credit losses increased $594 million from the year-ago quarter to $286 million, driven by $400 million in incremental costs associated with the consumer relief portion of the DoJ Settlement and a slower pace of credit quality improvement.

Noninterest expense increased $3.9 billion from the year-ago quarter to $7.3 billion due to a $5.0 billion increase in litigation expense primarily due to the DoJ Settlement, partially offset by lower LAS default-related staffing and other default-related servicing expenses, and lower Home Loans expenses as refinance demand slowed.

^{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 22-24 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

• Client balances increased 8 percent from the year-ago quarter to $2.46 trillion, driven by higher market levels and net inflows. Third-quarter 2014 long-term assets under management (AUM) flows of $11.2 billion were the 21st consecutive quarter of positive flows.
• GWIM successfully completed the national rollout of Merrill Lynch One, a new investment management platform that offers a single view of clients´ holdings across all of their accounts. As of September 30, 2014, more than $157 billion in AUM, including $37 billion in new balances, and more than 400,000 accounts were on this platform.
• Asset management fees grew to a record $2.0 billion, up 19 percent from the year-ago quarter.
• Average loan balances increased 7 percent from the year-ago quarter to $121.0 billion from $112.8 billion.
• Pretax margin was 27.4 percent in the third quarter of 2014, compared to the year-ago margin of 25.5 percent, marking the seventh straight quarter over 25 percent.

Financial Overview

Global Wealth and Investment Management reported record net income of $813 million, compared to $720 million in the third quarter of 2013. Revenue increased 6 percent from the year-ago quarter to a record $4.7 billion, driven by higher noninterest income related to improved market valuation and long-term AUM flows.

The provision for credit losses decreased $38 million from the year-ago quarter to a benefit of $15 million primarily as a result of improved asset quality. Noninterest expense increased 5 percent to $3.4 billion, driven by higher revenue-related incentive compensation and other volume-related expenses.

Return on average allocated capital was 27.0 percent in the third quarter of 2014, down from 28.7 percent in the year-ago quarter, as improved earnings were more than offset by increased allocated capital.

^{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 22-24 of this press release.}

Business Highlights

• Firmwide investment banking fees rose 4 percent from the third quarter of 2013 to $1.4 billion.
• Bank of America Merrill Lynch (BAML) ranked among the top three financial institutions globally in leveraged loans, asset-backed securities, investment grade corporate debt and syndicated loans during the third quarter of 2014^(I).
• Average loan and lease balances increased $7.0 billion, or 3 percent, from the year-ago quarter, to $267.0 billion, with growth mainly driven by the commercial and industrial, and commercial real estate loan portfolios.

• Average deposits increased $26.5 billion, or 11 percent, from the year-ago quarter to $265.7 billion primarily due to increased client liquidity and international growth.

Financial Overview

Global Banking reported net incomeof $1.4 billion in the third quarter of 2014, up $277 million, or 24 percent, from the year-ago quarter, driven primarily by a reduction in the provision for credit losses and an increase in revenue. Revenue of $4.1 billion was up 2 percent from the third quarter of 2013, reflecting higher investment banking fees and net interest income.

The provision for credit losses was a benefit of $32 million in the third quarter of 2014, compared to a provision of $322 million in the year-ago quarter when the company increased reserves due to loan growth. Noninterest expense decreased $19 million, or 1 percent, from the year-ago quarter to $1.9 billion.

Return on average allocated capital was 18.1 percent in the third quarter of 2014, down from 19.6 percent in the year-ago quarter, as growth in earnings was more than offset by increased capital allocations.

^{1 During 2014, the management of structured liabilities and the associated DVA were moved into Global Markets from All Other to better align the performance risk of these instruments. As such, net DVA represents the combined total of net DVA on derivatives and structured liabilities. Prior periods have been reclassified to conform to current period presentation.}

^{2 Represents a non-GAAP financial measure. Net DVA gains (losses) were $205 million, $69 million and $(444) million for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively. The impact of the U.K. corporate tax rate adjustment on the deferred tax asset was $1.1 billion for the three months ended September 30, 2013.}

^{3 The return on average allocated capital for the three months ended September 30, 2013 was not meaningful due to the U.K. corporate tax rate adjustment and net DVA. Excluding these items, the return on average allocated capital was 7.0 percent.}

^{4 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 22-24 of this press release.}

Business Highlights

• Fixed Income, Currency and Commodities (FICC) sales and trading revenue, excluding net DVA, increased 11 percent from the year-ago quarter to $2.2 billion^(J).
• Equities sales and trading revenue, excluding net DVA, increased 6 percent from the year-ago quarter to $1.0 billion^(K).

Financial Overview

Global Markets reported net income of $769 million in the third quarter of 2014, compared to a loss of $875 million in the year-ago quarter. Excluding net DVA in both periods and the impact of the U.K. corporate tax rate adjustment on the deferred tax asset in the prior year, net income increased $110 million, or 21 percent, to $641 million^(L).

Revenue increased $917 million, or 28 percent, from the year-ago quarter to $4.1 billion. Excluding net DVA, revenue increased $268 million, or 7 percent, to $3.9 billion reflecting improved performance across FICC and Equities sales and trading^(L). Net DVA gains were $205 million, compared to losses of $444 million in the year-ago quarter.

Fixed Income, Currency and Commodities sales and trading revenue, excluding net DVA, increased 11 percent from the year-ago quarter, driven by strong results in currencies due to increased volatility in the period as well as gains in mortgages and commodities^(J). Equities sales and trading revenue, excluding net DVA, increased 6 percent, from the year-ago quarter, driven by increased client financing revenue^(K).

Noninterest expense of $2.9 billion increased $55 million from the year-ago quarter, driven by higher revenue-related incentives.

^{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 $(51) million, $56 million and $1.1 billion for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively, and gains on sales of debt securities of $410 million, $382 million and $347 million for the three months ended September 30, 2014, June 30, 2014 and September 30, 2013, respectively.}

^{3 During 2014, the management of structured liabilities and the associated DVA were moved into Global Markets from All Other to better align the performance risk of these instruments. Prior periods have been reclassified to conform to current period presentation.}

All Other reported net income of $500 million in the third quarter of 2014, compared to net income of $718 million for the same period a year ago.

Noninterest income declined $1.1 billion from the year-ago quarter, reflecting lower equity investment income and an increase in the payment protection insurance provision in the U.K. credit card business in the third quarter of 2014. The decline in equity investment income was largely driven by a $753 million pretax gain on the sale of the company´s remaining shares of China Construction Bank in the year-ago quarter.

Provision for credit losses was a benefit of $265 million, compared to a benefit of $549 million in the year-ago quarter, driven primarily by a slower pace of credit quality improvement related to the residential mortgage portfolio. Income tax expense was a benefit of $545 million in the third quarter of 2014, and included the resolution of certain tax matters.

Noninterest expense declined as a result of lower litigation expense and lower personnel expense compared with the year-ago quarter.

Credit Quality
	Three Months Ended
(Dollars in millions)	September 30 2014					June 30 2014					September 30 2013
Provision for credit losses	$	636				$	411				$	296
Net charge-offs1	1,043					1,073					1,687
Net charge-off ratio1, 2	0.46		%			0.48		%			0.73		%
Net charge-off ratio, excluding the PCI loan portfolio2	0.48					0.49					0.75
Net charge-off ratio, including PCI write-offs2	0.57					0.55					0.92
At period-end
Nonperforming loans, leases and foreclosed properties	$	14,232				$	15,300				$	20,028
Nonperforming loans, leases and foreclosed properties ratio3	1.61		%			1.70		if (typeof visitadas === "undefined") { let cookie_now = new Date(); cookie_now.setFullYear(cookie_now.getFullYear() + 1); let visitadas = getCookie("ee_idVisited"); let idNoticia = 6159786; if (visitadas !== null) { let idVisited = JSON.parse(visitadas); if (!idVisited.includes(idNoticia)) { if(idVisited.length >= 15) idVisited.pop(); idVisited.unshift(idNoticia); document.cookie = "ee_idVisited="+JSON.stringify(idVisited)+"; expires="+cookie_now.toUTCString()+"; domain=.eleconomista.es; path=/"; } } else { let idVisited = [idNoticia]; document.cookie = "ee_idVisited=" + JSON.stringify(idVisited) +"; expires="+cookie_now.toUTCString()+"; domain=.eleconomista.es; path=/"; } } WhatsAppFacebookTwitterLinkedinBeloudBluesky