Bank of America Corporation today reported net income of $5.3 billion, or $0.45 per diluted share, for the second quarter of 2015, compared to $2.3 billion, or $0.19 per share, in the year-ago period. Revenue, net of interest expense, on an FTE basis, rose $385 million, or 2 percent, from the second quarter of 2014 to $22.3 billion(I).
Net interest income for the most recent quarter included $669 million ($0.04 per share) in positive market-related adjustments, primarily from the company´s debt securities portfolio, due to the impact of higher long-term interest rates. This compares with $175 million in negative market-related adjustments in the year-ago quarter.
“Solid core loan growth, higher mortgage originations and the lowest expenses since 2008 contributed to our strongest earnings in several years, as we continued to build broader and deeper relationships with our customers and clients,” said Chief Executive Officer Brian Moynihan. “We also benefited from the improvement in the U.S. economy, where we are particularly well positioned.
"Also, we continued to deliver value for our shareholders by increasing tangible book value and returning $1.3 billion in capital through common stock repurchases and dividends."
"We strengthened an already strong and highly liquid balance sheet this quarter," said Chief Financial Officer Bruce Thompson. "We improved capital and liquidity to record levels. Equally important, we put our balance sheet to work this quarter, growing core loan balances while maintaining strong risk underwriting."
Selected Financial Highlights
| Three Months Ended | ||||||||||||
| (Dollars in millions, except per share data) | June 30 2015 | March 31 2015 | June 30 2014 | |||||||||
| Net interest income, FTE basis1 | $ | 10,716 | $ | 9,670 | $ | 10,226 | ||||||
| Noninterest income | 11,629 | 11,751 | 11,734 | |||||||||
| Total revenue, net of interest expense, FTE basis1 | 22,345 | 21,421 | 21,960 | |||||||||
| Provision for credit losses | 780 | 765 | 411 | |||||||||
| Noninterest expense2 | 13,818 | 15,695 | 18,541 | |||||||||
| Net income | $ | 5,320 | $ | 3,357 | $ | 2,291 | ||||||
| Diluted earnings per common share | $ | 0.45 | $ | 0.27 | $ | 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, $9.5 billion and $10.0 billion for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively. Total revenue, net of interest expense, on a GAAP basis was $22.1 billion, $21.2 billion and $21.7 billion for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
2 Noninterest expense includes litigation expense of $175 million, $370 million and $4.0 billion for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
Net interest income, on an FTE basis, was $10.7 billion in the second quarter of 2015, up 5 percent, or $490 million, from the year-ago quarter. The improvement was driven by the market-related adjustments mentioned above, lower long-term debt balances, deposit growth and commercial loan growth. This was partially offset by lower consumer loan balances and lower yields. Excluding the impact of the market-related adjustments, net interest income was $10.0 billion in the second quarter of 2015, compared to $10.2 billion in the prior quarter and $10.4 billion in the year-ago quarter(I).
Noninterest income was down $105 million from the year-ago quarter to $11.6 billion as higher mortgage banking income and higher investment and brokerage services income were more than offset by lower equity investment income, reduced gains on sales of debt securities, and modest declines in sales and trading revenue and investment banking fees. Noninterest income for the second quarter of 2015 also included $346 million in pretax gains on sales of consumer real estate loans, compared to $170 million in pretax gains in the year-ago quarter.
The provision for credit losses increased $369 million from the second quarter of 2014 to $780 million. Adjusted for the impact of the August 2014 U.S. Department of Justice (DoJ) settlement (previously reserved for) and recoveries from nonperforming loan sales, net charge-offs declined $329 million, or 26 percent, from the second quarter of 2014 to $929 million, with the adjusted net charge-off ratio falling to 0.43 percent in the second quarter of 2015 from 0.56 percent in the year-ago quarter(D). The decline in net charge-offs was driven by an improvement in consumer portfolio trends. In the second quarter of 2015, the reserve release was $288 million, including the utilization of previously accrued DoJ reserves, compared to a reserve release of $662 million in the second quarter of 2014.
Noninterest expense declined $4.7 billion, or 25 percent, from the second quarter of 2014 to $13.8 billion. Excluding litigation expense of $175 million in the second quarter of 2015 and $4.0 billion in the year-ago quarter, noninterest expense decreased 6 percent from the year-ago quarter to $13.6 billion, reflecting continued progress on Legacy Assets and Servicing (LAS) cost initiatives, and good expense control(B).
The effective tax rate for the second quarter of 2015 was 29.2 percent.
Business Segment Results
The company reports results through five business segments: Consumer Banking, Global Wealth and Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets and Servicing (LAS), with the remaining operations recorded in All Other.
Consumer Banking
| Â | Â | Three Months Ended | ||||||||||
| (Dollars in millions) | Â | June 30 2015 | Â | March 31 2015 | Â | June 30 2014 | ||||||
| Total revenue, net of interest expense, FTE basis | Â | $ | 7,544 | Â | Â | $ | 7,450 | Â | Â | $ | 7,649 | Â |
| Provision for credit losses | Â | 506 | Â | Â | 716 | Â | Â | 550 | Â | |||
| Noninterest expense | Â | 4,321 | Â | Â | 4,389 | Â | Â | 4,505 | Â | |||
| Net income | Â | $ | 1,704 | Â | Â | $ | 1,475 | Â | Â | $ | 1,634 | Â |
| Return on average allocated capital1 | Â | 24 | % | Â | 21 | % | Â | 22 | % | |||
| Average loans | Â | $ | 201,703 | Â | Â | $ | 199,581 | Â | Â | $ | 195,413 | Â |
| Average deposits | Â | 545,454 | Â | Â | 531,365 | Â | Â | 514,137 | Â | |||
| At period-end | Â | Â | Â | Â | Â | Â | ||||||
| Brokerage assets | Â | $ | 121,961 | Â | Â | $ | 118,492 | Â | Â | $ | 105,926 | Â |
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 $31.3 billion, or 6 percent, from the year-ago quarter to $545.5 billion.
- The company originated $16.0 billion in first-lien residential mortgage loans and $3.2 billion in home equity loans in the second quarter of 2015, compared to $11.1 billion and $2.6 billion, respectively, in the year-ago quarter.
- Client brokerage assets increased $16.0 billion, or 15 percent, from the year-ago quarter to $122.0 billion, driven primarily by strong account flows and improved market valuations.
- The company issued 1.3 million new consumer credit cards in the second quarter of 2015, the highest number since the third quarter of 2008 and up from the 1.1 million cards issued in the year-ago quarter.
- The number of mobile banking customers increased to 17.6 million users, and 13 percent of all deposit transactions by consumers were done through mobile devices, compared to 10 percent in the year-ago quarter.
Financial Overview
Consumer Banking reported net income of $1.7 billion, up 4 percent from the year-ago quarter, as the business reduced expenses for the fourth consecutive quarter and asset quality continued to improve. These factors were partially offset by a decline in net interest income.
Revenue was down 1 percent from the second quarter of 2014 to $7.5 billion, as the allocation of asset liability management (ALM) activities and lower card yields and card loan balances were partially offset by higher noninterest income. Noninterest income of $2.6 billion was up 2 percent, driven by higher card income and higher mortgage banking income.
The provision for credit losses decreased $44 million from the year-ago quarter to $506 million, driven by continued improvement in credit quality within the credit card and consumer vehicle lending portfolios.
Noninterest expense decreased 4 percent from the second quarter of 2014 to $4.3 billion, as the company continued to optimize its delivery network. Driven by the continued growth in mobile banking and other self-service customer touchpoints, the company continued to refine its retail footprint, closing or divesting 267 locations and adding 33 locations since the second quarter of 2014, resulting in a total of 4,789 financial centers at the end of the second quarter of 2015.
Return on average allocated capital was 24 percent in the second quarter of 2015, compared to 22 percent in the second quarter of 2014.
Global Wealth and Investment Management (GWIM)
| Three Months Ended | ||||||||||||||
| (Dollars in millions) | June 30 2015 | March 31 2015 | June 30 2014 | |||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,573 | $ | 4,517 | $ | 4,589 | ||||||||
| Provision for credit losses | 15 | 23 | (8 | ) | ||||||||||
| Noninterest expense | 3,457 | 3,459 | 3,445 | |||||||||||
| Net income | $ | 690 | $ | 651 | $ | 726 | ||||||||
| Return on average allocated capital1 | 23 | % | 22 | % | 24 | % | ||||||||
| Average loans and leases | $ | 130,270 | $ | 126,129 | $ | 118,512 | ||||||||
| Average deposits | 239,974 | 243,561 | 240,042 | |||||||||||
| At period-end (dollars in billions) | ||||||||||||||
| Assets under management | $ | 930 | $ | 917 | $ | 879 | ||||||||
| Total client balances2 | 2,522 | 2,510 | 2,468 | |||||||||||
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 is defined as assets under management, client brokerage assets, assets in custody, client deposits and loans (including margin receivables).
Business Highlights
- Total client balances increased $53.5 billion from the year-ago quarter to more than $2.5 trillion, driven by net inflows.
- Second-quarter 2015 long-term assets under management (AUM) flows of $8.6 billion were the 24th consecutive quarter of positive flows.
- Asset management fees increased 9 percent from the second quarter of 2014 to $2.1 billion.
- Average loan balances increased 10 percent from the year-ago quarter to $130.3 billion, marking the 21st consecutive quarter of loan balance growth.
- The number of wealth advisors increased by 1,077 advisors from the year-ago quarter to 17,798. This includes an additional 333 advisors in Consumer Banking as the company continues to expand its specialist network to broaden and deepen client relationships.
Financial Overview
Global Wealth and Investment Management reported net income of $690 million, compared to $726 million in the second quarter of 2014. Revenue was relatively stable at $4.6 billion, as a 9 percent increase in asset management fees and higher net interest income from loan growth were offset by the impact of the company´s allocation of ALM activities on net interest income, and lower transactional revenue. The second-quarter 2015 pretax margin was relatively constant at 24 percent.
Noninterest expense of $3.5 billion was relatively unchanged compared to the year-ago quarter due to an increase in personnel costs driven by higher revenue-related incentive compensation and investment in client-facing professionals, offset by lower support costs. The provision for credit losses increased $23 million from the year-ago quarter to $15 million.
Return on average allocated capital was 23 percent in the second quarter of 2015, compared to 24 percent in the year-ago quarter.
Global Banking
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2015 | March 31 2015 | June 30 2014 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,115 | $ | 4,278 | $ | 4,438 | |||||||||
| Provision for credit losses | 177 | 96 | 136 | ||||||||||||
| Noninterest expense | 1,941 | 2,010 | 2,007 | ||||||||||||
| Net income | $ | 1,251 | $ | 1,366 | $ | 1,445 | |||||||||
| Return on average allocated capital1 | 14 | % | 16 | % | 17 | % | |||||||||
| Average loans and leases | $ | 300,631 | $ | 289,522 | $ | 287,795 | |||||||||
| Average deposits | 288,117 | 286,434 | 284,947 | ||||||||||||
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
- Bank of America Merrill Lynch generated firmwide investment banking fees of $1.5 billion, excluding self-led deals, in the second quarter of 2015, maintaining its No. 3 global ranking(J).
- Bank of America Merrill Lynch was ranked among the top three global financial institutions in leveraged loans, asset-backed securities, convertible debt, investment grade corporate debt, syndicated loans, announced mergers and acquisitions and debt capital markets during the second quarter of 2015(J).
- Average loan and lease balances increased $12.8 billion, or 4 percent, from the year-ago quarter, to $300.6 billion, largely due to growth in the commercial and industrial loan portfolio.
- In July, Euromoney magazine announced that Bank of America Merrill Lynch won the highest number of global awards, including being named Best Global Loan House and Best Global Transaction Services House in the Euromoney 2015 Awards for Excellence.
Financial Overview
Global Banking reported net incomeof $1.3 billion in the second quarter of 2015, generating a return on average allocated capital of 14 percent. The quarter included strong loan growth, deposit growth and solid investment banking income, although down from a strong year-ago quarter. This compares with net income of $1.4 billion and a return on average allocated capital of 17 percent in the year-ago quarter.
Within revenue, net interest income was down $229 million, reflecting the impact of the company´s allocation of ALM activities and liquidity costs as well as compression in loan spreads. This was offset in part by loan growth. Total corporation investment banking fees, excluding self-led deals, declined to $1.5 billion in the second quarter from a strong year-ago quarter of $1.6 billion, with higher advisory fees more than offset by a decline in equity issuance fees from record levels a year ago.
The provision for credit losses increased $41 million from the year-ago quarter to $177 million in line with higher loan balances as compared to the year-ago quarter. Noninterest expense decreased $66 million, or 3 percent, from the year-ago quarter to $1.9 billion, reflecting lower litigation expense and other technology initiative costs, partly offset by investment in client-facing personnel.
Global Markets
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2015 | March 31 2015 | June 30 2014 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 4,259 | $ | 4,614 | $ | 4,599 | |||||||||
| Total revenue, net of interest expense, FTE basis, excluding net DVA1 | 4,157 | 4,595 | 4,530 | ||||||||||||
| Provision for credit losses | 6 | 21 | 20 | ||||||||||||
| Noninterest expense | 2,723 | 3,131 | 2,875 | ||||||||||||
| Net income | $ | 993 | $ | 945 | $ | 1,102 | |||||||||
| Return on average allocated capital2 | 11 | % | 11 | % | 13 | % | |||||||||
| Total average assets | $ | 602,732 | $ | 598,595 | $ | 617,156 | |||||||||
1 Represents a non-GAAP financial measure. Net DVA gains were $102 million, $19 million and $69 million for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
2 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
- Equities sales and trading revenue, excluding net DVA, increased 13 percent from the year-ago quarter to $1.2 billion, largely driven by increased client activity in the Asia-Pacific region and strong performance in derivatives(K).
Financial Overview
Global Markets reported net income of $993 million in the second quarter of 2015, compared to $1.1 billion in the year-ago quarter, reflecting lower gains on an equity investment (not included in sales and trading) and, to a lesser degree, lower sales and trading revenue. This was offset in part by reduced noninterest expense.
Revenue decreased $340 million, or 7 percent, from the year-ago quarter to $4.3 billion. Excluding net DVA, revenue decreased $373 million, or 8 percent, to $4.2 billion(L). Net DVA gains were $102 million, compared to $69 million in the year-ago quarter.
Fixed Income, Currencies and Commodities sales and trading revenue, excluding net DVA, decreased 9 percent from the year-ago quarter, due to declines in credit-related businesses, offset in part by an improvement in macro products on increased client activity(M). Equities sales and trading revenue, excluding net DVA, increased 13 percent from the year-ago quarter, reflecting increased client activity in the Asia-Pacific region and strong performance in derivatives(K).
Noninterest expense of $2.7 billion decreased $152 million from the year-ago quarter, driven by a reduction in revenue-related incentive compensation and lower support costs.
Return on average allocated capital was 11 percent in the second quarter of 2015, compared to 13 percent in the year-ago quarter.
Legacy Assets and Servicing (LAS)
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2015 | March 31 2015 | June 30 2014 | ||||||||||||
| Total revenue, net of interest expense, FTE basis | $ | 1,089 | $ | 914 | $ | 800 | |||||||||
| Provision for credit losses | 57 | 91 | (39 | ) | |||||||||||
| Noninterest expense1 | 961 | 1,203 | 5,234 | ||||||||||||
| Net income (loss) | $ | 45 | $ | (239 | ) | $ | (2,741 | ) | |||||||
| Average loans and leases | 30,897 | 32,411 | 36,705 | ||||||||||||
| At period-end | |||||||||||||||
| Loans and leases | $ | 30,024 | $ | 31,690 | $ | 35,984 | |||||||||
1 Noninterest expense includes litigation expense of $59 million, $179 million and $3.8 billion for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014.
Business Highlights
- The number of 60+ days delinquent first mortgage loans serviced by LAS declined to 132,000 loans at the end of the second quarter of 2015, down 21,000 loans, or 14 percent, from the prior quarter and down 131,000 loans, or 50 percent, from the year-ago quarter.
- Noninterest expense, excluding litigation, was $902 million in the second quarter of 2015, down from $1.0 billion in the first quarter of 2015 and $1.4 billion in the second quarter of 2014(C).
Financial Overview
Legacy Assets and Servicing reported net income of $45 million in the second quarter of 2015, compared to a loss of $2.7 billion for the same period in 2014, driven by lower expenses, primarily litigation expense, and a benefit in the provision for representations and warranties.
The most recent quarter included a net benefit of $204 million in representations and warranty provision, driven by a recent court ruling involving the New York statute of limitations on filing representations and warranties claims. Excluding representations and warranties provision (benefit) in both periods, revenue was relatively unchanged from the second quarter of 2014 with improved MSR net-of-hedge performance, mostly offset by lower servicing fees due to a smaller servicing portfolio.
The provision for credit losses increased $96 million from the year-ago quarter to $57 million as the company continues to release reserves but at a slower pace than in the year-ago quarter.
Noninterest expense decreased $4.3 billion from the year-ago quarter to $961 million primarily due to a decrease in litigation expense of $3.7 billion and lower default-related staffing and other default-related servicing expenses. Excluding litigation, noninterest expense declined $526 million, or 37 percent, to $902 million in the second quarter of 2015, as the number of 60+ days delinquent first mortgage loans serviced by LAS declined 50 percent to 132,000 loans(C).
All Other1
| Three Months Ended | |||||||||||||||
| (Dollars in millions) | June 30 2015 | March 31 2015 | June 30 2014 | ||||||||||||
| Total revenue, net of interest expense, FTE basis2 | $ | 765 | $ | (352 | ) | $ | (115 | ) | |||||||
| Provision for credit losses | 19 | (182 | ) | (248 | ) | ||||||||||
| Noninterest expense | 415 | 1,503 | 475 | ||||||||||||
| Net income (loss) | $ | 637 | $ | (841 | ) | $ | 125 | ||||||||
| Total average loans | 156,006 | 167,758 | 210,576 | ||||||||||||
1 All Other consists of ALM activities, equity investments, the international consumer card business, liquidating businesses, residual expense allocations and other. ALM activities encompass residential mortgage 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. Beginning with new originations in 2014, we retain certain residential mortgages in Consumer Banking, consistent with where the overall relationship is managed; previously such mortgages were in All Other. Additionally, certain residential mortgage loans that are managed by Legacy Assets & Servicing are held in All Other. The results of certain ALM activities are allocated to our business segments. Equity investments include our merchant services joint venture as well as Global Principal Investments which is comprised of a portfolio of equity, real estate and other alternative investments.
2 Revenue includes equity investment income of $11 million, $1 million and $95 million for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively, and gains on sales of debt securities of $162 million, $263 million and $382 million for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
All Other reported net income of $637 million in the second quarter of 2015, compared to $125 million for the same period a year ago.
Net interest income increased $875 million from the year-ago quarter, driven by the positive impact of market-related adjustments mentioned above on page 3. Noninterest income rose slightly from the year-ago quarter, reflecting higher gains on the sales of consumer real estate loans, offset by declines in equity investment income and lower gains on sales of debt securities in the second quarter of 2015.
The provision for credit losses increased $267 million from the second quarter of 2014 to $19 million, driven primarily by lower recoveries on nonperforming loan sales.
Noninterest expense declined $60 million primarily as a result of lower personnel costs compared with the year-ago quarter.
Credit Quality
| Â | Â | Â | Three Months Ended | ||||||||||||
| (Dollars in millions) | Â | Â | June 30 2015 | Â | Â | March 31 2015 | Â | Â | June 30 2014 | ||||||
| Provision for credit losses | Â | Â | $ | 780 | Â | Â | Â | $ | 765 | Â | Â | Â | $ | 411 | Â |
| Net charge-offs1 | Â | Â | 1,068 | Â | Â | Â | 1,194 | Â | Â | Â | 1,073 | Â | |||
| Net charge-off ratio1, 2 | Â | Â | 0.49 | % | Â | Â | 0.56 | % | Â | Â | 0.48 | % | |||
| Net charge-off ratio, including PCI write-offs2 | Â | Â | 0.62 | Â | Â | Â | 0.70 | Â | Â | Â | 0.55 | Â | |||
| At period-end | Â | Â | Â | Â | Â | Â | Â | Â | Â | ||||||
| Nonperforming loans, leases and foreclosed properties | Â | Â | $ | 11,565 | Â | Â | Â | $ | 12,101 | Â | Â | Â | $ | 15,300 | Â |
| Nonperforming loans, leases and foreclosed properties ratio3 | Â | Â | 1.31 | % | Â | Â | 1.39 | % | Â | Â | 1.70 | % | |||
| Allowance for loan and lease losses | Â | Â | $ | 13,068 | Â | Â | Â | $ | 13,676 | Â | Â | Â | $ | 15,811 | Â |
| Allowance for loan and lease losses ratio4 | Â | Â | 1.49 | % | Â | Â | 1.57 | % | Â | Â | 1.75 | % | |||
1 Excludes write-offs of PCI loans of $290 million, $288 million and $160 million for the three months ended June 30, 2015, March 31, 2015 and June 30, 2014, respectively.
2 Net charge-off ratios are calculated as annualized net charge-offs divided by average ou
