Bank of America Corporation today reported net income of $3.1 billion, or $0.25 per diluted share, for the fourth quarter of 2014, compared to $3.4 billion, or $0.29 per diluted share in the year-ago period. Revenue, net of interest expense, on an FTE basis(B) was $19.0 billion, compared to $21.7 billion in the fourth quarter of 2013.
Results for the most recent quarter include three adjustments that, in aggregate, reduced revenue in the fourth quarter of 2014 by $1.2 billion (pretax) and lowered earnings per share by $0.07. These adjustments were a $578 million negative market-related net interest income (NII) adjustment, driven by the acceleration of bond premium amortization on the company´s debt securities portfolio due to lower long-term interest rates; a one-time transitional charge of $497 million related to the adoption of funding valuation adjustments on uncollateralized derivatives in the company´s Global Markets business; and $129 million in net DVA losses related to a tightening of the company´s credit spreads. This compares with $210 million in positive market-related NII adjustments and $618 million in net DVA losses in the year-ago quarter. Excluding the impact of FVA in the current period and the net DVA and market-related NII adjustments in both periods, revenue was $20.2 billion in the fourth quarter of 2014 compared to $22.1 billion in the year-ago quarter(H). Approximately $720 million of the decline from the fourth quarter of 2013 was due to lower gains from the sales of debt securities and equity investment income, and the remainder was attributable to lower mortgage banking income and lower trading account profits.
Noninterest expense declined from $17.3 billion in the fourth quarter of 2013 to $14.2 billion in the fourth quarter of 2014, the lowest quarterly expense reported by the company since the Merrill Lynch merger. Credit quality also continued to improve, with the provision for credit losses declining from $336 million in the fourth quarter of 2013 to $219 million in the fourth quarter of 2014, while the charge-off ratio was the lowest in a decade.
2014 Calendar Year Net Income $4.8 Billion
For the full year, net income was $4.8 billion, or $0.36 per diluted share, compared to $11.4 billion, or $0.90 per diluted share in 2013. Revenue, net of interest expense, on an FTE basis(B) was $85.1 billion in 2014, compared to $89.8 billion in 2013.
Noninterest expense was $75.1 billion, compared to $69.2 billion in 2013. Excluding litigation expense of $16.4 billion in 2014 and $6.1 billion in 2013, noninterest expense was $58.7 billion in 2014, down $4.4 billion, or 7 percent, from 2013(C).
"In 2014, we continued to invest in our businesses while reducing expenses and resolving our most significant litigation matters," said Chief Executive Officer Brian Moynihan. "Last quarter, consumer deposits and loan originations were solid; wealth management client balances grew to $2.5 trillion; we increased lending to middle-market and large companies; and we retained a leadership position in investment banking. There´s more work and tremendous opportunity ahead as we improve on the platform we´ve built to serve our customers and clients, and we enter 2015 in good shape to manage both the opportunities and the challenges the markets and economy will offer."
"We continued our focus on optimizing the balance sheet this quarter, building capital and managing expenses in a challenging interest rate and geopolitical environment," said Chief Financial Officer Bruce Thompson. "Credit quality remained strong, reflecting the improving economy and our solid risk underwriting."
Selected Financial Highlights
| Three Months Ended | Year Ended | |||||||||||||||
| (Dollars in millions, except per share data) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | ||||||||||||
| Net interest income, FTE basis1 | $ | 9,865 | $ | 10,999 | $ | 40,821 | $ | 43,124 | ||||||||
| Noninterest income | 9,090 | 10,702 | 44,295 | 46,677 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | 18,955 | 21,701 | 85,116 | 89,801 | ||||||||||||
| Total revenue, net of interest expense, FTE basis, excluding DVA/FVA2 | 19,581 | 22,319 | 85,356 | 90,959 | ||||||||||||
| Provision for credit losses | 219 | 336 | 2,275 | 3,556 | ||||||||||||
| Noninterest expense3 | 14,196 | 17,307 | 75,117 | 69,214 | ||||||||||||
| Net income | $ | 3,050 | $ | 3,439 | $ | 4,833 | $ | 11,431 | ||||||||
| Diluted earnings per common share | $ | 0.25 | $ | 0.29 | $ | 0.36 | $ | 0.90 | ||||||||
1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release. Net interest income on a GAAP basis was $9.6 billion and $10.8 billion for the three months ended December 31, 2014 and 2013, and $40.0 billion and $42.3 billion for the years ended December 31, 2014 and 2013. Total revenue, net of interest expense, on a GAAP basis was $18.7 billion and $21.5 billion for the three months ended December 31, 2014 and 2013, and $84.2 billion and $88.9 billion for the years ended December 31, 2014 and 2013.
2 Represents a non-GAAP financial measure. Net DVA/FVA losses were $626 million and $618 million for the three months ended December 31, 2014 and 2013, and $240 million and $1.2 billion for the years ended December 31, 2014 and 2013. FVA losses were $497 million for the three months ended December 31, 2014.
3 Includes litigation expense of $393 million and $2.3 billion for the three months ended December 31, 2014 and 2013, and $16.4 billion and $6.1 billion for the years ended December 31, 2014 and 2013.
Net interest income, on an FTE basis(B), was $9.9 billion in the fourth quarter of 2014,down $1.1 billion from the year-ago quarter. The decline was driven by a $788 million negative swing year-over-year in market-related adjustments as discussed above, and lower loan balances and yields. These were partially offset by lower rates paid on deposits and lower long-term debt balances and yields. Excluding the impact of the market-related adjustments, net interest income was $10.4 billion in the fourth quarter of 2014, compared to $10.5 billion in the prior quarter and $10.8 billion in the year-ago quarter.
Noninterest income decreased 15 percent from the year-ago quarter to $9.1 billion. Excluding the impact of the adoption of FVA in the current period, and net DVA and equity investment income in both periods, noninterest income was down 10 percent from the year-ago quarter, driven by declines in sales and trading results as well as mortgage banking(H). This was partially offset by higher card income and higher investment and brokerage services income.
The provision for credit losses declined $117 million from the fourth quarter of 2013 to $219 million, driven by improved credit quality. Net charge-offs declined $703 million, or 44 percent, from the fourth quarter of 2013 to $879 million, with the net charge-off ratio falling to 0.40 percent in the fourth quarter of 2014 from 0.68 percent in the year-ago quarter. The decline in net charge-offs from the fourth quarter of 2013 was driven by continued improvement in the portfolio trends including increased home prices. During the fourth quarter of 2014, the reserve release was $660 million, compared to a reserve release of $1.2 billion in the fourth quarter of 2013.
Noninterest expense was $14.2 billion in the fourth quarter of 2014, compared to $17.3 billion in the year-ago quarter. The decline was driven by lower litigation expense (principally mortgage-related) and reduced personnel expense. Litigation expense declined to $393 million in the fourth quarter of 2014 from $2.3 billion in the year-ago quarter. Excluding litigation expense, noninterest expense decreased 8 percent from the year-ago quarter to $13.8 billion, reflecting continued progress to realize cost savings and improve efficiency(C).
Legacy Assets and Servicing (LAS), the business unit that is responsible for servicing residential mortgage and home equity loans, continued to make solid progress in its efforts to reduce expenses. Noninterest expense, excluding litigation, declined to $1.1 billion in the fourth quarter of 2014, compared to $1.3 billion in the prior quarter and $1.8 billion in the year-ago quarter as the number of 60+ days delinquent loans was reduced to 189,000 from 221,000 in the prior quarter and 325,000 in the year-ago quarter(D).
The effective tax rate for the fourth quarter of 2014 was 29.2 percent, compared to 10.6 percent in the year-ago quarter. The increase in the effective tax rate from the fourth quarter of 2013 was driven by the absence in the current quarter of certain discrete tax benefits 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.
Consumer and Business Banking (CBB)
| Three Months Ended | Year Ended | |||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | ||||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 7,541 | $ | 7,496 | $ | 29,862 | $ | 29,864 | ||||||||||
| Provision for credit losses | 670 | 427 | 2,633 | 3,107 | ||||||||||||||
| Noninterest expense | 4,015 | 4,001 | 15,911 | 16,260 | ||||||||||||||
| Net income | $ | 1,758 | $ | 1,992 | $ | 7,096 | $ | 6,647 | ||||||||||
| Return on average allocated capital1 | 24 | % | 26 | % | 24 | % | 22 | % | ||||||||||
| Average loans | $ | 161,267 | $ | 163,157 | $ | 161,109 | $ | 164,574 | ||||||||||
| Average deposits | 550,399 | 528,733 | 543,441 | 518,904 | ||||||||||||||
| At period-end | ||||||||||||||||||
| Brokerage assets | $ | 113,763 | $ | 96,048 | ||||||||||||||
1 Return on average allocated capital is a non-GAAP financial measure. 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 $21.7 billion, or 4 percent, from the year-ago quarter to $550.4 billion.
- Client brokerage assets increased $17.7 billion, or 18 percent, from the year-ago quarter to $113.8 billion, driven primarily by new client accounts, strong account flows as well as market valuations.
- Credit card issuance remained strong. The company issued 1.2 million new credit cards in the fourth quarter of 2014, up 19 percent from the 1.0 million cards issued in the year-ago quarter. Approximately 67 percent of these cards went to existing relationship customers during the fourth quarter of 2014.
- The number of mobile banking customers increased 15 percent from the year-ago quarter to 16.5 million users, and 12 percent of deposit transactions by customers were done through mobile, compared to 9 percent in the year-ago quarter. Since the introduction of Apple Pay™ in October, nearly 800,000 customers have enrolled in the service, adding approximately 1.1 million cards.
- Preferred Rewards continues to expand, resulting in broader and deeper client relationships. Through the end of 2014, approximately 1.2 million clients have enrolled in the program.
Financial Overview
Consumer and Business Banking reported net income of $1.8 billion, compared to $2.0 billion in the year-ago quarter. The decline was driven by higher provision for credit losses as a result of the slowing pace of improvements in credit quality. Higher noninterest income, driven by an increase in card income, was offset by lower net interest income as a result of lower yields and loan balances, leaving revenue stable for the comparative periods.
Noninterest expense was $4.0 billion, in line with the year-ago quarter. Driven by the continued growth in mobile banking and other self-service customer touchpoints, the company reduced its retail footprint by another 92 banking centers during the fourth quarter of 2014 to 4,855 locations. Return on average allocated capital was 24 percent in the fourth quarter of 2014, compared to 26 percent in the fourth quarter of 2013.
Consumer Real Estate Services (CRES)
| Three Months Ended | Year Ended | ||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | |||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 1,174 | $ | 1,712 | $ | 4,848 | $ | 7,715 | |||||||||
| Provision for credit losses | (131 | ) | (474 | ) | 160 | (156 | ) | ||||||||||
| Noninterest expense1 | 1,945 | 3,752 | 23,226 | 15,815 | |||||||||||||
| Net loss | $ | (397 | ) | $ | (1,035 | ) | $ | (13,395 | ) | $ | (5,031 | ) | |||||
| Average loans and leases | 87,978 | 89,687 | 88,277 | 90,278 | |||||||||||||
| At period-end | |||||||||||||||||
| Loans and leases | $ | 87,972 | $ | 89,753 | |||||||||||||
1 Includes litigation expense of $262 million and $1.2 billion for the three months ended December 31, 2014 and 2013, and $15.2 billion and $3.8 billion for the years ended December 31, 2014 and 2013.
Business Highlights
- The company originated $11.6 billion in first-lien residential mortgage loans and $3.4 billion in home equity lines during the fourth quarter of 2014, compared to $11.7 billion and $3.2 billion in the prior quarter.
- The number of 60+ days delinquent first mortgage loans serviced by Legacy Assets and Servicing (LAS) declined by 136,000 loans, or 42 percent, from the fourth quarter of 2013 to 189,000 loans.
- Noninterest expense in LAS, excluding litigation, declined to $1.1 billion in the fourth quarter of 2014 from $1.8 billion in the year-ago quarter(D).
Financial Overview
Consumer Real Estate Services reported a net loss of $397 million for the fourth quarter of 2014, compared to a net loss of $1.0 billion for the same period in 2013, driven primarily by lower litigation expense.
Revenue declined $538 million from the fourth quarter of 2013 to $1.2 billion, driven primarily by lower servicing fees due to a smaller servicing portfolio. Core production revenue declined $107 million from the year-ago quarter to $297 million.
The benefit in the provision for credit losses decreased $343 million from the year-ago quarter to a benefit of $131 million, driven primarily by a slower pace of credit quality improvement.
Noninterest expense decreased $1.8 billion from the year-ago quarter to $1.9 billion, due to lower litigation expense and lower LAS default-related staffing and other default-related servicing expenses(D). Home Loans expenses also declined reflecting increased productivity.
Global Wealth and Investment Management (GWIM)
| Three Months Ended | Year Ended | |||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | ||||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,602 | $ | 4,479 | $ | 18,404 | $ | 17,790 | ||||||||||
| Provision for credit losses | 14 | 26 | 14 | 56 | ||||||||||||||
| Noninterest expense | 3,440 | 3,262 | 13,647 | 13,033 | ||||||||||||||
| Net income | $ | 706 | $ | 778 | $ | 2,974 | $ | 2,977 | ||||||||||
| Return on average allocated capital1 | 23 | % | 31 | % | 25 | % | 30 | % | ||||||||||
| Average loans and leases | $ | 123,544 | $ | 115,546 | $ | 119,775 | $ | 111,023 | ||||||||||
| Average deposits | 238,835 | 240,395 | 240,242 | 242,161 | ||||||||||||||
| At period-end (dollars in billions) | ||||||||||||||||||
| Assets under management | $ | 902.9 | $ | 821.4 | ||||||||||||||
| Total client balances2 | 2,498.0 | 2,366.4 | ||||||||||||||||
1 Return on average allocated capital is a non-GAAP financial measure. 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, assets in custody, client brokerage assets, client deposits and loans (including margin receivables).
Business Highlights
- Client balances increased 6 percent from the year-ago quarter to $2.5 trillion, driven by higher market levels and net inflows.
- Fourth-quarter 2014 long-term assets under management (AUM) flows of $9.4 billion were the 22nd consecutive quarter of positive flows. Full-year long-term AUM flows were a record $49.8 billion.
- The company reported record asset management fees of $2.1 billion, up 16 percent from the year-ago quarter.
- The number of wealth advisors increased by 714 advisors from the year-ago quarter to 17,231, and full-year attrition levels were at historical lows since the Merrill Lynch merger.
- Average loan balances increased 7 percent from the year-ago quarter to $123.5 billion from $115.5 billion.
Financial Overview
Global Wealth and Investment Management reported net income of $706 million, compared to $778 million in the fourth quarter of 2013. Revenue increased 3 percent from the year-ago quarter to $4.6 billion, driven by higher noninterest income with record asset management fees, partially offset by lower transactional activity.
Noninterest expense increased 5 percent to $3.4 billion, driven by higher revenue-related incentive compensation and support costs.
Return on average allocated capital was 23 percent in the fourth quarter of 2014, down from 31 percent in the year-ago quarter, driven by increased allocated capital and, to a lesser extent, lower net income.
Global Banking
| Three Months Ended | Year Ended | |||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | ||||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,057 | $ | 4,303 | $ | 16,598 | $ | 16,479 | ||||||||||
| Provision for credit losses | (29 | ) | 441 | 336 | 1,075 | |||||||||||||
| Noninterest expense | 1,849 | 1,943 | 7,681 | 7,551 | ||||||||||||||
| Net income | $ | 1,433 | $ | 1,255 | $ | 5,435 | $ | 4,973 | ||||||||||
| Return on average allocated capital1 | 18 | % | 22 | % | 18 | % | 22 | % | ||||||||||
| Average loans and leases | $ | 270,760 | $ | 268,864 | $ | 270,164 | $ | 257,249 | ||||||||||
| Average deposits | 264,027 | 259,193 | 261,312 | 236,765 | ||||||||||||||
1 Return on average allocated capital is a non-GAAP financial measure. 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
- Bank of America Merrill Lynch was ranked No. 2 in global net investment banking fees in the fourth quarter of 2014 with firmwide investment banking fees of $1.5 billion, excluding self-led deals(I).
- Bank of America Merrill Lynch ranked among the top three financial institutions globally in high-yield corporate debt, leveraged loans, asset-backed securities, investment grade corporate debt, syndicated loans, announced mergers and acquisitions, equity capital markets and debt capital markets during the fourth quarter of 2014(I).
- Average loan and lease balances increased $3.7 billion, or 1.4 percent, from the prior quarter to $270.8 billion with growth mainly driven by the commercial and industrial portfolios.
Financial Overview
Global Bankingreportednet incomeof $1.4 billion in the fourth quarter of 2014, up $178 million, or 14 percent, from the year-ago quarter, driven by a reduction in the provision for credit losses and a decline in noninterest expense partly offset by lower revenue. Revenue of $4.1 billion declined 6 percent from the year-ago quarter, reflecting lower investment banking fees and net interest income.
The provision for credit losses decreased $470 million from the year-ago quarter to a benefit of $29 million in the fourth quarter of 2014, as the prior year included reserve increases from loan growth. Noninterest expense decreased $94 million, or 5 percent, from the year-ago quarter to $1.8 billion, reflecting lower personnel expenses and the completion of certain technology initiatives in the year-ago quarter.
The return on average allocated capital was 18 percent in the fourth quarter of 2014, down from 22 percent in the year-ago quarter, as growth in earnings was more than offset by increased capital allocations.
Global Markets
| Three Months Ended | Year Ended | ||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | |||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 2,370 | $ | 3,198 | $ | 16,119 | $ | 15,390 | |||||||||
| Total revenue, net of interest expense, FTE basis, excluding net DVA/FVA1 | 2,996 | 3,816 | 16,359 | 16,548 | |||||||||||||
| Provision for credit losses | 27 | 104 | 110 | 140 | |||||||||||||
| Noninterest expense | 2,499 | 3,274 | 11,771 | 11,996 | |||||||||||||
| Net income (loss) | $ | (72 | ) | $ | (47 | ) | $ | 2,719 | $ | 1,153 | |||||||
| Return on average allocated capital2 | n/m | n/m | 8 | % | 4 | % | |||||||||||
| Total average assets | $ | 611,714 | $ | 603,012 | $ | 607,538 | $ | 632,681 | |||||||||
1 Represents a non-GAAP financial measure. Net DVA/FVA losses were $626 million and $618 million for the three months ended December 31, 2014 and 2013, and $240 million and $1.2 billion for the years ended December 31, 2014 and 2013. FVA losses were $497 million for the three months ended December 31, 2014.
2 Return on average allocated capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.
Business Highlights
- Equities sales and trading revenue, excluding net DVA/FVA, was up modestly from the fourth quarter of 2013 to $911 million despite a challenging market environment(L).
- Bank of America Merrill Lynch was named No. 1 Global Research firm in 2014 by Institutional Investor magazine for the fourth year in a row.
Financial Overview
Global Markets reported a net loss of $72 million in the fourth quarter of 2014, compared to a net loss of $47 million in the year-ago quarter, reflecting lower sales and trading revenue, mostly offset by lower litigation expense and smaller net DVA losses. The current quarter was also negatively impacted by a one-time transitional charge of $497 million related to the adoption of funding valuation adjustments on uncollateralized derivatives(A).
Revenue decreased $828 million, or 26 percent, from the year-ago quarter to $2.4 billion. Excluding net DVA/FVA losses of $626 million in the current quarter and net DVA losses of $618 million in the year-ago quarter, revenue decreased $820 million to $3.0 billion(J). The year-ago quarter also included approximately $220 million in recoveries on certain legacy Fixed Income, Currencies and Commodities (FICC) positions. Excluding net DVA/FVA losses and the recoveries on legacy positions in the year-ago quarter, Global Markets sales and trading revenue declined approximately $400 million to $2.4 billion(J). On this same basis, FICC sales and trading revenue declined to $1.5 billion in the fourth quarter of 2014 from $1.9 billion in the year-ago quarter, driven by declines in credit and mortgages due to lower client activity, partially offset by stronger results in foreign exchange and rates(K). Equities sales and trading revenue was up modestly from the year-ago quarter to $911 million(L).
Noninterest expense of $2.5 billion decreased $775 million from the year-ago quarter due to a $652 million reduction in litigation expense, as well as a decrease in revenue-related incentives.
All Other1
| Three Months Ended | Year Ended | ||||||||||||||||
| (Dollars in millions) | December 31 2014 | December 31 2013 | December 31 2014 | December 31 2013 | |||||||||||||
| Total revenue, net of interest expense, FTE basis2 | $ | (789 | ) | $ | 513 | $ | (715 | ) | $ | 2,563 | |||||||
| Provision for credit losses | |||||||||||||||||
