BAC-6.30.2014-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant's telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ü No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ü No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (check one).
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Large accelerated filer ü | | Accelerated filer | | Non-accelerated filer (do not check if a smaller reporting company) | | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes No ü
On July 28, 2014, there were 10,515,862,599 shares of Bank of America Corporation Common Stock outstanding.
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Bank of America Corporation | |
June 30, 2014 | |
Form 10-Q | |
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This report on Form 10-Q, the documents that it incorporates by reference and the documents into which it may be incorporated by reference may contain, and from time to time Bank of America Corporation (collectively with its subsidiaries, the Corporation) and its management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as "anticipates," "targets," "expects," "hopes," "estimates," "intends," "plans," "goal," "believes," "continue" and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” The forward-looking statements made represent the Corporation's current expectations, plans or forecasts of its future results and revenues, and future business and economic conditions more generally, and other matters. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed elsewhere in this report, under Item 1A. Risk Factors of the Corporation's 2013 Annual Report on Form 10-K, and in any of the Corporation's subsequent Securities and Exchange Commission filings: the potential negative impacts of the Corporation’s prior adjustment to its regulatory capital ratios, including, without limitation, the results of the Federal Reserve's review of the information pursuant to the Comprehensive Capital Analysis and Review, or the revised capital actions that have been submitted to the Federal Reserve; the Corporation’s ability to resolve representations and warranties repurchase claims made by monolines and private-label and other investors, including as a result of any adverse court rulings, and the chance that the Corporation could face related servicing, securities, fraud, indemnity or other claims from one or more counterparties, including monolines or private-label and other investors; the possibility that final court approval of negotiated settlements is not obtained; the possibility that the court decision with respect to the BNY Mellon Settlement is overturned on appeal in whole or in part; potential claims, damages, penalties and fines resulting from pending or future litigation, governmental proceedings or inquiries, and regulatory proceedings, including proceedings instituted by the U.S. Department of Justice, state Attorneys General and other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force concerning mortgage-related matters; the possibility that the European Commission will impose remedial measures in relation to its investigation of the Corporation’s competitive practices; the possible outcome of LIBOR, other reference rate and foreign exchange inquiries and investigations; the possibility that future representations and warranties losses may occur in excess of the Corporation’s recorded liability and estimated range of possible loss for its representations and warranties exposures; the possibility that the Corporation may not collect mortgage insurance claims; the possibility that future claims, damages, penalties and fines may occur in excess of the Corporation's recorded liability and estimated range of possible losses for litigation exposures; uncertainties about the financial stability, growth rates and the geopolitical environment of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation’s exposures to such risks, including direct, indirect and operational; uncertainties related to the timing and pace of Federal Reserve tapering of quantitative easing, and the impact on global interest rates, currency exchange rates, and economic conditions in a number of countries; the possibility of future inquiries or investigations regarding pending or completed foreclosure activities; the possibility that unexpected foreclosure delays could impact the rate of decline of default-related servicing costs; uncertainty regarding timing and the potential impact of regulatory capital and liquidity requirements (including Basel 3); the negative impact of the Financial Reform Act on the Corporation’s businesses and earnings, including as a result of additional regulatory interpretation and rulemaking and the success of the Corporation’s actions to mitigate such impacts; the potential impact of implementing and conforming to the Volcker Rule; the potential impact of future derivative regulations; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation’s assets and liabilities; reputational damage that may result from negative publicity, fines and penalties from regulatory violations and judicial proceedings; the Corporation’s ability to fully realize the anticipated cost savings in Legacy Assets & Servicing and the anticipated cost savings and other benefits from Project New BAC, including in accordance with currently anticipated timeframes; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyber attacks; the impact on the Corporation’s business, financial condition and results of operations of a potential higher interest rate environment; and other similar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-period amounts have been reclassified to conform to current period presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.
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Executive Summary |
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Business Overview |
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, "the Corporation" may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation's subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbanking subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbanking financial services and products through five business segments: Consumer & Business Banking (CBB), Consumer Real Estate Services (CRES), Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under two national bank charters: Bank of America, National Association (Bank of America, N.A. or BANA) and FIA Card Services, National Association (FIA Card Services, N.A. or FIA). On April 16, 2014, FIA and BANA filed an application with the Office of the Comptroller of the Currency (OCC) for consent to merge FIA into BANA and, if approved, we expect to complete the merger on October 1, 2014. At June 30, 2014, the Corporation had approximately $2.2 trillion in assets and approximately 233,000 full-time equivalent employees.
As of June 30, 2014, we operated in all 50 states, the District of Columbia and more than 40 countries. Our retail banking footprint covers approximately 80 percent of the U.S. population and we serve approximately 49 million consumer and small business relationships with approximately 5,000 banking centers, 16,000 ATMs, nationwide call centers, and leading online (www.bankofamerica.com) and mobile banking platforms. We offer industry-leading support to more than three million small business owners. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.
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Second Quarter 2014 Economic and Business Environment |
In the U.S., economic growth rebounded in the second quarter of 2014 following contraction in the first quarter of 2014. Improved weather conditions positively impacted manufacturing, housing activity and retail spending. Exports continued to increase, while the trade deficit continued to widen. Employment gains strengthened during the quarter and the unemployment rate dropped to 6.1 percent at quarter end. Inflation, while moving slightly higher during the quarter due to higher transportation, food and housing costs, remained below the Board of Governors of the Federal Reserve System's (Federal Reserve) longer-term target of two percent.
Amid expectations that accommodative monetary policy would be only gradually removed, longer-term U.S. Treasury yields continued to decline over the quarter, while equity markets increased. The Federal Reserve continued to reduce its securities purchases, bringing targeted monthly purchases to $35 billion in July. The Federal Reserve also indicated that it would likely end its securities purchases in October.
Internationally, modest economic growth continued in the Eurozone in the second quarter of 2014, while healthy expansion continued in the U.K. The economy slowed in Japan following accelerated gains ahead of a consumption tax increase in the first quarter of 2014. China’s economy stabilized in the second quarter of 2014 after slowing modestly in recent quarters. For more information on our international exposure, see Non-U.S. Portfolio on page 113.
AIG Settlement
On July 15, 2014, the Corporation and certain of its subsidiaries entered into a settlement agreement with American International Group, Inc. (AIG) to resolve all outstanding residential mortgage-backed securities (RMBS) litigation claims between the parties in exchange for a payment to AIG of $650 million. The settlement also provides for the withdrawal by AIG of its objection in the Bank of New York Mellon Settlement (BNY Mellon Settlement) court approval proceeding, including its participation in all pending appeals. Separately, on July 15, 2014, certain of our subsidiaries entered into a settlement agreement to resolve all outstanding mortgage insurance (MI) disputes brought by the Corporation against three AIG subsidiaries (the United Guaranty entities). This settlement will resolve all of the Corporation's pending MI litigation with the United Guaranty entities regarding legacy first- and second-lien mortgages originated or acquired by certain of our subsidiaries prior to 2009. The settlement with the United Guaranty entities with respect to policies related to first-lien mortgages is subject to the consent of the GSEs; and the inclusion of loans other than GSE-insured loans is subject to obtaining any other necessary consents.
For additional information, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees and Note 10 – Commitments and Contingencies to the Consolidated Financial Statements.
Capital Management
On April 28, 2014, we announced the revision of certain regulatory capital amounts and ratios that had previously been reported, and suspended our previously announced 2014 capital actions stating that we would resubmit information pursuant to the 2014 Comprehensive Capital Analysis and Review (CCAR) to the Federal Reserve. On May 27, 2014, subsequent to a third-party review, we updated and resubmitted our requested capital actions and certain 2014 CCAR schedules to the Federal Reserve and we addressed the quantitative adjustments to our original capital plan as part of that resubmission. The requested capital actions contained in the resubmission are less than the 2014 capital actions previously submitted to the Federal Reserve. Pursuant to CCAR capital plan rules, the Federal Reserve has until August 10, 2014 to respond to our resubmitted 2014 CCAR items, including the requested capital actions.
Until the Federal Reserve acts on our 2014 CCAR resubmission, we must obtain the Federal Reserve's approval prior to any capital distributions. However, the Federal Reserve approved certain capital actions, including continued payment of a quarterly common stock dividend of $0.01 per share, subject to declaration by the Corporation's Board of Directors (the Board), the amendment to the terms of the Corporation’s 6% Cumulative Perpetual Preferred Stock, Series T (Series T Preferred Stock) as described below and the redemption or repurchase of a limited amount of trust preferred securities and subordinated debt. Additional common share buybacks were not included in this approval. In April 2014, prior to the suspension of our previously announced 2014 capital actions, we repurchased and retired 14.4 million common shares for an aggregate purchase price of approximately $233 million.
For additional information, see Capital Management on page 64.
Regulatory and Governmental Investigations
We are subject to inquiries and investigations, and may be subject to litigation, penalties and fines by the U.S. Department of Justice (DOJ), state Attorneys General and other members of the RMBS Working Group of the Financial Fraud Enforcement Task Force (collectively, the Governmental Authorities) regarding our RMBS and other mortgage-related matters. We are also a party to civil litigation proceedings brought by the DOJ and certain other Governmental Authorities regarding our RMBS. We continue to cooperate with and have had discussions about a potential resolution of these matters with certain Governmental Authorities. There can be no assurances that these discussions will lead to a resolution of any or all of these matters and additional litigation may be filed by the DOJ or certain other Governmental Authorities regarding our RMBS. For additional information regarding the risks associated with matters of this nature, see Note 10 – Commitments and Contingencies to the Consolidated Financial Statements herein, Item 1A. Risk Factors of the Corporation's 2013 Annual Report on Form 10-K and Note 12 – Commitments and Contingencies to the Consolidated Financial Statements of the Corporation's 2013 Annual Report on Form 10-K.
Series T Preferred Stock
At the Corporation's annual meeting of stockholders on May 7, 2014, our stockholders approved an amendment to our Series T Preferred Stock such that it qualifies as Tier 1 capital, and the amendment became effective during the three months ended June 30, 2014. This resulted in a Tier 1 capital increase of approximately $2.9 billion, which benefited our Tier 1 capital and leverage ratios. For additional information on the Series T Preferred Stock, see Capital Management – Regulatory Capital on page 65.
Table 1 provides selected consolidated financial data for the three and six months ended June 30, 2014 and 2013, and at June 30, 2014 and December 31, 2013.
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Table 1 |
Selected Financial Data |
| Three Months Ended June 30 | | Six Months Ended June 30 |
(Dollars in millions, except per share information) | 2014 | | 2013 | | 2014 | | 2013 |
Income statement | | | | | | | |
Revenue, net of interest expense (FTE basis) (1) | $ | 21,960 |
| | $ | 22,949 |
| | $ | 44,727 |
| | $ | 46,357 |
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Net income | 2,291 |
| | 4,012 |
| | 2,015 |
| | 5,495 |
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Diluted earnings per common share | 0.19 |
| | 0.32 |
| | 0.14 |
| | 0.42 |
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Dividends paid per common share | 0.01 |
| | 0.01 |
| | 0.02 |
| | 0.02 |
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Performance ratios | | | | | |
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Return on average assets | 0.42 | % | | 0.74 | % | | 0.19 | % | | 0.50 | % |
Return on average tangible shareholders' equity (1) | 5.64 |
| | 9.98 |
| | 2.49 |
| | 6.84 |
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Efficiency ratio (FTE basis) (1) | 84.43 |
| | 69.80 |
| | 91.17 |
| | 76.62 |
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Asset quality | | | | | |
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Allowance for loan and lease losses at period end | | | | | $ | 15,811 |
| | $ | 21,235 |
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Allowance for loan and lease losses as a percentage of total loans and leases outstanding at period end (2) | | | | | 1.75 | % | | 2.33 | % |
Nonperforming loans, leases and foreclosed properties at period end (2) | | | | | $ | 15,300 |
| | $ | 21,280 |
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Net charge-offs (3) | $ | 1,073 |
| | $ | 2,111 |
| | 2,461 |
| | 4,628 |
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Annualized net charge-offs as a percentage of average loans and leases outstanding (2, 3) | 0.48 | % | | 0.94 | % | | 0.55 | % | | 1.04 | % |
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the purchased credit-impaired loan portfolio (2) | 0.49 |
| | 0.97 |
| | 0.56 |
| | 1.07 |
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Annualized net charge-offs and purchased credit-impaired write-offs as a percentage of average loans and leases outstanding (2) | 0.55 |
| | 1.07 |
| | 0.67 |
| | 1.29 |
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (3) | 3.67 |
| | 2.51 |
| | 3.19 |
| | 2.28 |
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the purchased credit-impaired loan portfolio | 3.25 |
| | 2.04 |
| | 2.82 |
| | 1.85 |
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Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and purchased credit-impaired write-offs | 3.20 |
| | 2.18 |
| | 2.60 |
| | 1.82 |
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| | | | | June 30
2014 | | December 31
2013 |
Balance sheet | | | | | | | |
Total loans and leases | | | | | $ | 911,899 |
| | $ | 928,233 |
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Total assets | | | | | 2,170,557 |
| | 2,102,273 |
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Total deposits | | | | | 1,134,329 |
| | 1,119,271 |
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Total common shareholders' equity | | | | | 222,565 |
| | 219,333 |
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Total shareholders' equity | | | | | 237,411 |
| | 232,685 |
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Capital ratios (4) | | | | | | | |
Common equity tier 1 capital | | | | | 12.0 | % | | n/a |
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Tier 1 common capital | | | | | n/a |
| | 10.9 | % |
Tier 1 capital | | | | | 12.5 |
| | 12.2 |
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Total capital | | | | | 15.3 |
| | 15.1 |
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Tier 1 leverage | | | | | 7.7 |
| | 7.7 |
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(1) | Fully taxable-equivalent basis (FTE), return on average tangible shareholders' equity and the efficiency ratio are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these measures and ratios, and a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 16. |
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(2) | Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 99 and corresponding Table 46, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 108 and corresponding Table 55. |
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(3) | Net charge-offs exclude $160 million and $551 million of write-offs in the purchased credit-impaired loan portfolio for the three and six months ended June 30, 2014 compared to $313 million and $1.2 billion for the same periods in 2013. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For more information on purchased credit-impaired write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 93. |
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(4) | On January 1, 2014, the Basel 3 rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity tier 1 capital and Tier 1 capital. We reported under Basel 1 (which included the Market Risk Final Rules) at December 31, 2013. |
n/a = not applicable
Net income was $2.3 billion, or $0.19 per diluted share and $2.0 billion, or $0.14 per diluted share for the three and six months ended June 30, 2014 compared to $4.0 billion, or $0.32 and $5.5 billion, or $0.42 for the same periods in 2013. Although the establishment of additional reserves primarily for previously disclosed legacy mortgage-related matters resulted in increases of $3.5 billion and $7.3 billion in litigation expense compared to the same periods in 2013, our capital and liquidity levels remained strong, credit quality continued to improve, and we continue to focus on streamlining processes and achieving cost savings.
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Table 2 | | | | | | | |
Summary Income Statement |
| Three Months Ended June 30 | | Six Months Ended June 30 |
(Dollars in millions) | 2014 | | 2013 | | 2014 | | 2013 |
Net interest income (FTE basis) (1) | $ | 10,226 |
| | $ | 10,771 |
| | $ | 20,512 |
| | $ | 21,646 |
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Noninterest income | 11,734 |
| | 12,178 |
| | 24,215 |
| | 24,711 |
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Total revenue, net of interest expense (FTE basis) (1) | 21,960 |
| | 22,949 |
| | 44,727 |
| | 46,357 |
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Provision for credit losses | 411 |
| | 1,211 |
| | 1,420 |
| | 2,924 |
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Noninterest expense | 18,541 |
| | 16,018 |
| | 40,779 |
| | 35,518 |
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Income before income taxes | 3,008 |
| | 5,720 |
| | 2,528 |
| | 7,915 |
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Income tax expense (FTE basis) (1) | 717 |
| | 1,708 |
| | 513 |
| | 2,420 |
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Net income | 2,291 |
| | 4,012 |
| | 2,015 |
| | 5,495 |
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Preferred stock dividends | 256 |
| | 441 |
| | 494 |
| | 814 |
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Net income applicable to common shareholders | $ | 2,035 |
| | $ | 3,571 |
| | $ | 1,521 |
| | $ | 4,681 |
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Per common share information | | | | | | | |
Earnings | $ | 0.19 |
| | $ | 0.33 |
| | $ | 0.14 |
| | $ | 0.43 |
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Diluted earnings | 0.19 |
| | 0.32 |
| | 0.14 |
| | 0.42 |
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(1) | FTE basis is a non-GAAP financial measure. For more information on this measure and for a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 16. |
Net Interest Income
Net interest income on a fully taxable-equivalent (FTE) basis decreased $545 million to $10.2 billion, and $1.1 billion to $20.5 billion for the three and six months ended June 30, 2014 compared to the same periods in 2013. The decreases were primarily due to the negative impact of market-related premium amortization expense on debt securities, lower consumer loan balances as well as lower loan yields, and decreased trading-related net interest income, partially offset by reductions in long-term debt balances and yields, higher commercial loan balances and lower rates paid on deposits. The net interest yield on a FTE basis decreased 13 basis points (bps) to 2.22 percent, and 10 bps to 2.26 percent for the three and six months ended June 30, 2014 compared to the same periods in 2013 due to the same factors as described above. Given the additional liquidity during the first half of 2014, coupled with the average balance impact of lower consumer loan balances, we expect that net interest income in the second half of 2014 will improve modestly from the second quarter of 2014 level, excluding market-related adjustments. For more information on our liquidity position, see Liquidity Risk on page 75.
Noninterest Income
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Table 3 | | | | |
Noninterest Income |
| Three Months Ended June 30 | | Six Months Ended June 30 |
(Dollars in millions) | 2014 | | 2013 | | 2014 | | 2013 |
Card income | $ | 1,441 |
| | $ | 1,469 |
| | $ | 2,834 |
| | $ | 2,879 |
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Service charges | 1,866 |
| | 1,837 |
| | 3,692 |
| | 3,636 |
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Investment and brokerage services | 3,291 |
| | 3,143 |
| | 6,560 |
| | 6,170 |
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Investment banking income | 1,631 |
| | 1,556 |
| | 3,173 |
| | 3,091 |
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Equity investment income | 357 |
| | 680 |
| | 1,141 |
| | 1,243 |
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Trading account profits | 1,832 |
| | 1,938 |
| | 4,299 |
| | 4,927 |
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Mortgage banking income | 527 |
| | 1,178 |
| | 939 |
| | 2,441 |
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Gains on sales of debt securities | 382 |
| | 457 |
| | 759 |
| | 525 |
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Other income (loss) | 407 |
| | (80 | ) | | 818 |
| | (201 | ) |
Total noninterest income | $ | 11,734 |
| | $ | 12,178 |
| | $ | 24,215 |
| | $ | 24,711 |
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Noninterest income decreased $444 million to $11.7 billion, and $496 million to $24.2 billion for the three and six months ended June 30, 2014 compared to the same periods in 2013. The following highlights the significant changes.
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• | Investment and brokerage services income increased $148 million and $390 million primarily driven by higher market levels and the impact of long-term assets under management (AUM) inflows. |
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• | Equity investment income decreased $323 million and $102 million. The three-month decline was due to gains on the sales of portions of an equity investment in All Other in the prior-year period, partially offset by a gain in the current-year period related to an initial public offering of an equity investment in Global Markets. The six-month decline was due to lower Global Principal Investments (GPI) gains compared to the prior-year period, partially offset by the gain in Global Markets. |
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• | Trading account profits decreased $106 million and $628 million primarily due to declines in market volumes and reduced volatility. |
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• | Mortgage banking income decreased $651 million and $1.5 billion primarily driven by lower core production revenue and servicing income, partially offset by lower representations and warranties provision. |
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• | Other income increased to $407 million from a loss of $80 million, and to $818 million from a loss of $201 million compared to the prior-year periods. The first quarter of 2013 included a write-down of $450 million on a monoline receivable. Other income included positive debit valuation adjustments (DVA) on structured liabilities of $68 million and $265 million in the current-year periods compared to positive DVA of $10 million and negative DVA of $80 million for the same periods in 2013. |
Provision for Credit Losses
The provision for credit losses decreased $800 million to $411 million, and $1.5 billion to $1.4 billion for the three and six months ended June 30, 2014 compared to the same periods in 2013. The provision for credit losses was $662 million and $1.0 billion lower than net charge-offs resulting in reductions in the allowance for credit losses. The reductions in provision were driven by portfolio improvement, including increased home prices in the home loans portfolio, as well as lower levels of delinquencies in the consumer lending portfolio within CBB. This was partially offset by higher provision for credit losses in the commercial portfolio due to reserve increases.
Net charge-offs totaled $1.1 billion, or 0.48 percent, and $2.5 billion, or 0.55 percent of average loans and leases for the three and six months ended June 30, 2014 compared to $2.1 billion, or 0.94 percent, and $4.6 billion, or 1.04 percent for the same periods in 2013. The decreases in net charge-offs were due to credit quality improvement across all major portfolios.
If the economy and our asset quality continue to improve, we expect net charge-offs to continue to show modest improvement from the second quarter amount of $1.3 billion, which excludes recoveries of $185 million on the nonperforming loan sales. We would also expect reserve releases to decline modestly through the balance of 2014. For more information on the provision for credit losses, see Provision for Credit Losses on page 117.
Noninterest Expense
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Table 4 | | | | | | | |
Noninterest Expense |
| Three Months Ended June 30 | | Six Months Ended June 30 |
(Dollars in millions) | 2014 | | 2013 | | 2014 | | 2013 |
Personnel | $ | 8,306 |
| | $ | 8,531 |
| | $ | 18,055 |
| | $ | 18,422 |
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Occupancy | 1,079 |
| | 1,109 |
| | 2,194 |
| | 2,263 |
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Equipment | 534 |
| | 532 |
| | 1,080 |
| | 1,082 |
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Marketing | 450 |
| | 437 |
| | 892 |
| | 866 |
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Professional fees | 626 |
| | 694 |
| | 1,184 |
| | 1,343 |
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Amortization of intangibles | 235 |
| | 274 |
| | 474 |
| | 550 |
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Data processing | 761 |
| | 779 |
| | 1,594 |
| | 1,591 |
|
Telecommunications | 324 |
| | 411 |
| | 694 |
| | 820 |
|
Other general operating | 6,226 |
| | 3,251 |
| | 14,612 |
| | 8,581 |
|
Total noninterest expense | $ | 18,541 |
| | $ | 16,018 |
| | $ | 40,779 |
| | $ | 35,518 |
|
Noninterest expense increased $2.5 billion to $18.5 billion, and $5.3 billion to $40.8 billion for the three and six months ended June 30, 2014 compared to the same periods in 2013 primarily driven by higher other general operating expense. These increases in other general operating expense reflected increases in litigation expense, primarily related to previously disclosed legacy mortgage-related matters, of $3.5 billion to $4.0 billion for the three months ended June 30, 2014, and $7.3 billion to $10.0 billion for the six months ended June 30, 2014 compared to the same periods in 2013, partially offset by a decline in other general operating expenses in Legacy Assets & Servicing. Personnel expense decreased $225 million and $367 million as we continued to streamline processes and achieve cost savings.
In connection with Project New BAC, which was first announced in the third quarter of 2011, we continue to achieve cost savings in certain noninterest expense categories as we further streamline workflows, simplify processes and align expenses with our overall strategic plan and operating principles. We expect total cost savings from Project New BAC, since inception of the project, to reach $8 billion on an annualized basis, or $2 billion per quarter. Our New BAC expense program is ahead of schedule, and we now expect to reach a quarterly level of $2 billion in cost savings in the fourth quarter of 2014, as opposed to mid-2015.
Income Tax Expense
|
| | | | | | | | | | | | | | | |
Table 5 | | | | | | | |
Income Tax Expense | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 |
(Dollars in millions) | 2014 | | 2013 | | 2014 | | 2013 |
Income before income taxes | $ | 2,795 |
| | $ | 5,498 |
| | $ | 2,114 |
| | $ | 7,482 |
|
Income tax expense | 504 |
| | 1,486 |
| | 99 |
| | 1,987 |
|
Effective tax rate | 18.0 | % | | 27.0 | % | | 4.7 | % | | 26.6 | % |
The effective tax rates for the three and six months ended June 30, 2014 were driven by the impact of recurring tax preference benefits on the lower level of pre-tax income. Also reflected in the effective tax rate for the six months ended June 30, 2014 were discrete tax benefits, principally from the resolution of certain tax matters, offset by the impact of certain accruals estimated to be nondeductible. We expect an effective tax rate of approximately 31 percent, absent any unusual items, for the remainder of 2014.
The effective tax rates for the three and six months ended June 30, 2013 were primarily driven by our recurring tax preference benefits and an increase in tax benefits from the 2012 non-U.S. restructurings.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance Sheet Overview | | | | | | | | |
| | |
Table 6 | | |
Selected Balance Sheet Data | | |
| | | | | | | Average Balance |
| June 30
2014 | | December 31
2013 | | % Change | | Three Months Ended
June 30 | | % Change | | Six Months Ended
June 30 | | % Change |
(Dollars in millions) | | | | 2014 | | 2013 | | | 2014 | | 2013 | |
Assets | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 152,899 |
| | $ | 131,322 |
| | 16 | % | | $ | 150,959 |
| | $ | 104,486 |
| | 44 | % | | $ | 145,921 |
| | $ | 98,698 |
| | 48 | % |
Federal funds sold and securities borrowed or purchased under agreements to resell | 229,449 |
| | 190,328 |
| | 21 |
| | 235,393 |
| | 233,394 |
| | 1 |
| | 224,012 |
| | 235,417 |
| | (5 | ) |
Trading account assets | 196,952 |
| | 200,993 |
| | (2 | ) | | 201,113 |
| | 227,241 |
| | (11 | ) | | 202,467 |
| | 233,568 |
| | (13 | ) |
Debt securities | 352,883 |
| | 323,945 |
| | 9 |
| | 345,889 |
| | 343,260 |
| | 1 |
| | 337,845 |
| | 349,794 |
| | (3 | ) |
Loans and leases | 911,899 |
| | 928,233 |
| | (2 | ) | | 912,580 |
| | 914,234 |
| | — |
| | 916,012 |
| | 910,269 |
| | 1 |
|
Allowance for loan and lease losses | (15,811 | ) | | (17,428 | ) | | (9 | ) | | (16,392 | ) | | (22,060 | ) | | (26 | ) | | (16,766 | ) | | (22,822 | ) | | (27 | ) |
All other assets | 342,286 |
| | 344,880 |
| | (1 | ) | | 340,013 |
| | 384,055 |
| | (11 | ) | | 345,003 |
| | 393,519 |
| | (12 | ) |
Total assets | $ | 2,170,557 |
| | $ | 2,102,273 |
| | 3 |
| | $ | 2,169,555 |
| | $ | 2,184,610 |
| | (1 | ) | | $ | 2,154,494 |
| | $ | 2,198,443 |
| | (2 | ) |
Liabilities | | | | | | | | | | | | | | | | | |
Deposits | $ | 1,134,329 |
| | $ | 1,119,271 |
| | 1 |
| | $ | 1,128,563 |
| | $ | 1,079,956 |
| | 5 |
| | $ | 1,123,399 |
| | $ | 1,077,631 |
| | 4 |
|
Federal funds purchased and securities loaned or sold under agreements to repurchase | 217,829 |
| | 198,106 |
| | 10 |
| | 222,525 |
| | 270,790 |
| | (18 | ) | | 213,714 |
| | 285,781 |
| | (25 | ) |
Trading account liabilities | 88,342 |
| | 83,469 |
| | 6 |
| | 95,153 |
| | 94,349 |
| | 1 |
| | 92,813 |
| | 93,204 |
| | — |
|
Short-term borrowings | 45,873 |
| | 45,999 |
| | — |
| | 48,722 |
| | 47,238 |
| | 3 |
| | 48,447 |
| | 42,001 |
| | 15 |
|
Long-term debt | 257,071 |
| | 249,674 |
| | 3 |
| | 259,825 |
| | 270,198 |
| | (4 | ) | | 256,768 |
| | 272,088 |
| | (6 | ) |
All other liabilities | 189,702 |
| | 173,069 |
| | 10 |
| | 178,970 |
| | 187,016 |
| | (4 | ) | | 183,180 |
| | 191,714 |
| | (4 | ) |
Total liabilities | 1,933,146 |
| | 1,869,588 |
| | 3 |
| | 1,933,758 |
| | 1,949,547 |
| | (1 | ) | | 1,918,321 |
| | 1,962,419 |
| | (2 | ) |
Shareholders' equity | 237,411 |
| | 232,685 |
| | 2 |
| | 235,797 |
| | 235,063 |
| | — |
| | 236,173 |
| | 236,024 |
| | — |
|
Total liabilities and shareholders' equity | $ | 2,170,557 |
| | $ | 2,102,273 |
| | 3 |
| | $ | 2,169,555 |
| | $ | 2,184,610 |
| | (1 | ) | | $ | 2,154,494 |
| | $ | 2,198,443 |
| | (2 | ) |
Period-end balance sheet amounts may vary from average balance sheet amounts due to liquidity and balance sheet management activities, primarily involving our portfolios of highly liquid assets. These portfolios are designed to ensure the adequacy of capital while enhancing our ability to manage liquidity requirements for the Corporation and our customers, and to position the balance sheet in accordance with the Corporation's risk appetite. The execution of these activities requires the use of balance sheet and capital-related limits including spot, average and risk-weighted asset limits, particularly within the market-making activities of our trading businesses. One of our key regulatory metrics, Tier 1 leverage ratio, is calculated based on adjusted quarterly average total assets.
Assets
At June 30, 2014, total assets were approximately $2.2 trillion, up $68.3 billion from December 31, 2013. The key drivers were higher securities borrowed or purchased under agreements to resell to cover client and firm short positions, higher matched-book trading activity, higher debt securities driven by purchases of U.S. treasuries and fair value increases due to rates, and an increase in cash and cash equivalents primarily due to higher interest-bearing deposits with the Federal Reserve and non-U.S. central banks in connection with anticipated Basel 3 Liquidity Coverage Ratio (LCR) requirements. These increases were partially offset by a decline in consumer loan balances due to paydowns, net charge-offs and nonperforming loan sales outpacing new originations and repurchases of certain consumer loans.
Average total assets decreased $15.1 billion for the three months ended June 30, 2014 compared to the same period in 2013. The decrease was driven by a decline in all other assets primarily due to decreases in customer and other receivables, other earning assets, derivative dealer assets and loans held-for-sale (LHFS). The decrease in average total assets was also driven by decreased trading account assets due to a reduction in U.S. treasuries inventory and agency pass-throughs as well as consumer loans due to run-off, payoffs and nonperforming loan sales outpacing new originations. The decrease in average total assets was partially offset by increases in cash and cash equivalents primarily driven by higher interest-bearing deposits with the Federal Reserve and non-U.S. central banks, and commercial loans driven by higher customer demand.
Average total assets decreased $43.9 billion for the six months ended June 30, 2014 compared to the same period in 2013. The decrease was driven by declines in all other assets primarily due to decreases in other earning assets, customer and other receivables, derivative dealer assets and LHFS. The decrease in average total assets was also driven by a decline in trading account assets due to a reduction in U.S. treasuries inventory and agency pass-throughs, a decline in consumer loans due to run-off and paydowns outpacing originations, lower debt securities from sales of securities in 2013 and paydowns outpacing new purchases, and a decline in securities borrowed or purchased under agreements to resell due to covering short positions and a lower matched-book. The decrease in average total assets was partially offset by increases in cash and cash equivalents primarily driven by higher interest-bearing deposits with the Federal Reserve and non-U.S. central banks, and commercial loans driven by higher customer demand.
Liabilities and Shareholders' Equity
At June 30, 2014, total liabilities were approximately $1.9 trillion, up $63.6 billion from December 31, 2013 primarily driven by higher securities loaned or sold under agreements to repurchase due to an increase in matched-book trading activity, an increase in all other liabilities primarily due to higher dealer payables, and growth in deposits. The increase in total liabilities was also driven by higher long-term debt due to new issuances outpacing maturities, and higher trading account liabilities.
Average total liabilities decreased $15.8 billion for the three months ended June 30, 2014 compared to the same period in 2013. The decrease was primarily driven by a decline in securities loaned or sold under agreements to repurchase due to a decrease in funding of long positions and a lower matched-book, planned reductions in long-term debt and maturities outpacing new issuances, and lower derivative liabilities, partially offset by growth in deposits.
Average total liabilities decreased $44.1 billion for the six months ended June 30, 2014 compared to the same period in 2013. The decrease was due to the same factors as described in the three-month discussion above.
Shareholders' equity of $237.4 billion at June 30, 2014 increased $4.7 billion from December 31, 2013 driven by a positive net change in the fair value of available-for-sale (AFS) debt securities due to decreases in rates, which is recorded in accumulated other comprehensive income (OCI), issuance of preferred stock and earnings, partially offset by capital returns.
Average shareholders' equity of $235.8 billion and $236.2 billion for the three and six months ended June 30, 2014 remained relatively unchanged compared to the same periods in 2013 as increases in earnings were partially offset by common and preferred stock repurchases and changes in unrealized gains and losses on AFS debt securities, which are recorded in accumulated OCI.
|
| | | | | | | | | | | | | | | | | | | |
Table 7 | | | | |
Selected Quarterly Financial Data | | | | |
| 2014 Quarters | | 2013 Quarters |
(In millions, except per share information) | Second | | First | | Fourth | | Third | | Second |
Income statement | | | | | | | | | |
Net interest income | $ | 10,013 |
| | $ | 10,085 |
| | $ | 10,786 |
| | $ | 10,266 |
| | $ | 10,549 |
|
Noninterest income | 11,734 |
| | 12,481 |
| | 10,702 |
| | 11,264 |
| | 12,178 |
|
Total revenue, net of interest expense | 21,747 |
| | 22,566 |
| | 21,488 |
| | 21,530 |
| | 22,727 |
|
Provision for credit losses | 411 |
| | 1,009 |
| | 336 |
| | 296 |
| | 1,211 |
|
Noninterest expense | 18,541 |
| | 22,238 |
| | 17,307 |
| | 16,389 |
| | 16,018 |
|
Income (loss) before income taxes | 2,795 |
| | (681 | ) | | 3,845 |
| | 4,845 |
| | 5,498 |
|
Income tax expense (benefit) | 504 |
| | (405 | ) | | 406 |
| | 2,348 |
| | 1,486 |
|
Net income (loss) | 2,291 |
| | (276 | ) | | 3,439 |
| | 2,497 |
| | 4,012 |
|
Net income (loss) applicable to common shareholders | 2,035 |
| | (514 | ) | | 3,183 |
| | 2,218 |
| | 3,571 |
|
Average common shares issued and outstanding | 10,519 |
| | 10,561 |
| | 10,633 |
| | 10,719 |
| | 10,776 |
|
Average diluted common shares issued and outstanding (1) | 11,265 |
| | 10,561 |
| | 11,404 |
| | 11,482 |
| | 11,525 |
|
Performance ratios | | | | | | | | | |
Return on average assets | 0.42 | % | | n/m |
| | 0.64 | % | | 0.47 | % | | 0.74 | % |
Four quarter trailing return on average assets (2) | 0.37 |
| | 0.45 | % | | 0.53 |
| | 0.40 |
| | 0.30 |
|
Return on average common shareholders' equity | 3.68 |
| | n/m |
| | 5.74 |
| | 4.06 |
| | 6.55 |
|
Return on average tangible common shareholders' equity (3) | 5.47 |
| | n/m |
| | 8.61 |
| | 6.15 |
| | 9.88 |
|
Return on average tangible shareholders' equity (3) | 5.64 |
| | n/m |
| | 8.53 |
| | 6.32 |
| | 9.98 |
|
Total ending equity to total ending assets | 10.94 |
| | 10.79 |
| | 11.07 |
| | 10.92 |
| | 10.88 |
|
Total average equity to total average assets | 10.87 |
| | 11.06 |
| | 10.93 |
| | 10.85 |
| | 10.76 |
|
Dividend payout | 5.16 |
| | n/m |
| | 3.33 |
| | 4.82 |
| | 3.01 |
|
Per common share data | | | | | | | | | |
Earnings (loss) | $ | 0.19 |
| | $ | (0.05 | ) | | $ | 0.30 |
| | $ | 0.21 |
| | $ | 0.33 |
|
Diluted earnings (loss) (1) | 0.19 |
| | (0.05 | ) | | 0.29 |
| | 0.20 |
| | 0.32 |
|
Dividends paid | 0.01 |
| | 0.01 |
| | 0.01 |
| | 0.01 |
| | 0.01 |
|
Book value | 21.16 |
| | 20.75 |
| | 20.71 |
| | 20.50 |
| | 20.18 |
|
Tangible book value (3) | 14.24 |
| | 13.81 |
| | 13.79 |
| | 13.62 |
| | 13.32 |
|
Market price per share of common stock | | | | | | | | | |
Closing | $ | 15.37 |
| | $ | 17.20 |
| | $ | 15.57 |
| | $ | 13.80 |
| | $ | 12.86 |
|
High closing | 17.34 |
| | 17.92 |
| | 15.88 |
| | 14.95 |
| | 13.83 |
|
Low closing | 14.51 |
| | 16.10 |
| | 13.69 |
| | 12.83 |
| | 11.44 |
|
Market capitalization | $ | 161,628 |
| | $ | 181,117 |
| | $ | 164,914 |
| | $ | 147,429 |
| | $ | 138,156 |
|
| |
(1) | The diluted earnings (loss) per common share excluded the effect of any equity instruments that are antidilutive to earnings per share. There were no potential common shares that were dilutive in the first quarter of 2014 because of the net loss. |
| |
(2) | Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters. |
| |
(3) | Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 16. |
| |
(4) | For more information on the impact of the purchased credit-impaired loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 82. |
| |
(5) | Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. |
| |
(6) | Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 99 and corresponding Table 46, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 108 and corresponding Table 55. |
| |
(7) | Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in CBB, purchased credit-impaired loans and the non-U.S. credit card portfolio in All Other. |
| |
(8) | Net charge-offs exclude $160 million, $391 million, $741 million, $443 million and $313 million of write-offs in the purchased credit-impaired loan portfolio in the second and first quarters of 2014 and in the fourth, third and second quarters of 2013, respectively. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For more information on purchased credit-impaired write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 93. |
| |
(9) | On January 1, 2014, the Basel 3 rules became effective, subject to transition provisions primarily related to regulatory deductions and adjustments impacting common equity tier 1 capital and Tier 1 capital. We reported under Basel 1 (which included the Market Risk Final Rules) for 2013. |
n/a = not applicable; n/m = not meaningful
|
| | | | | | | | | | | | | | | | | | | |
Table 7 | | | | |
Selected Quarterly Financial Data (continued) | | | | |
| 2014 Quarters | | 2013 Quarters |
(Dollars in millions) | Second | | First | | Fourth | | Third | | Second |
Average balance sheet | | | | | | | | | |
Total loans and leases | $ | 912,580 |
| | $ | 919,482 |
| | $ | 929,777 |
| | $ | 923,978 |
| | $ | 914,234 |
|
Total assets | 2,169,555 |
| | 2,139,266 |
| | 2,134,875 |
| | 2,123,430 |
| | 2,184,610 |
|
Total deposits | 1,128,563 |
| | 1,118,178 |
| | 1,112,674 |
| | 1,090,611 |
| | 1,079,956 |
|
Long-term debt | 259,825 |
| | 253,678 |
| | 251,055 |
| | 258,717 |
| | 270,198 |
|
Common shareholders' equity | 222,215 |
| | 223,201 |
| | 220,088 |
| | 216,766 |
| | 218,790 |
|
Total shareholders' equity | 235,797 |
| | 236,553 |
| | 233,415 |
| | 230,392 |
| | 235,063 |
|
Asset quality (4) | | | | | | | | | |
Allowance for credit losses (5) | $ | 16,314 |
| | $ | 17,127 |
| | $ | 17,912 |
| | $ | 19,912 |
| | $ | 21,709 |
|
Nonperforming loans, leases and foreclosed properties (6) | 15,300 |
| | 17,732 |
| | 17,772 |
| | 20,028 |
| | 21,280 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6) | 1.75 | % | | 1.84 | % | | 1.90 | % | | 2.10 | % | | 2.33 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (6) | 108 |
| | 97 |
| | 102 |
| | 100 |
| | 103 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (6) | 95 |
| | 85 |
| | 87 |
| | 84 |
| | 84 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (7) | $ | 6,488 |
| | $ | 7,143 |
| | $ | 7,680 |
| | $ | 8,972 |
| | $ | 9,919 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (6, 7) | 64 | % | | 55 | % | | 57 | % | | 54 | % | | 55 | % |
Net charge-offs (8) | $ | 1,073 |
| | $ | 1,388 |
| | $ | 1,582 |
| | $ | 1,687 |
| | $ | 2,111 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8) | 0.48 | % | | 0.62 | % | | 0.68 | % | | 0.73 | % | | 0.94 | % |
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (6) | 0.49 |
| | 0.64 |
| | 0.70 |
| | 0.75 |
| | 0.97 |
|
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (6) | 0.55 |
| | 0.79 |
| | 1.00 |
| | 0.92 |
| | 1.07 |
|
Nonperforming loans and leases as a percentage of total loans and leases outstanding (6) | 1.63 |
| | 1.89 |
| | 1.87 |
| | 2.10 |
| | 2.26 |
|
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (6) | 1.70 |
| | 1.96 |
| | 1.93 |
| | 2.17 |
| | 2.33 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (8) | 3.67 |
| | 2.95 |
| | 2.78 |
| | 2.90 |
| | 2.51 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio | 3.25 |
| | 2.58 |
| | 2.38 |
| | 2.42 |
| | 2.04 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs | 3.20 |
| | 2.30 |
| | 1.89 |
| | 2.30 |
| | 2.18 |
|
Capital ratios at period end (9) | | | | | | | | | |
Risk-based capital: | | | | | | | | | |
Common equity tier 1 capital | 12.0 | % | | 11.8 | % | | n/a |
| | n/a |
| | n/a |
|
Tier 1 common capital | n/a |
| | n/a |
| | 10.9 | % | | 10.8 | % | | 10.6 | % |
Tier 1 capital | 12.5 |
| | 11.9 |
| | 12.2 |
| | 12.1 |
| | 11.9 |
|
Total capital | 15.3 |
| | 14.8 |
| | 15.1 |
| | 15.1 |
| | 15.0 |
|
Tier 1 leverage | 7.7 |
| | 7.4 |
| | 7.7 |
| | 7.6 |
| | 7.4 |
|
Tangible equity (3) | 7.85 |
| | 7.65 |
| | 7.86 |
| | 7.73 |
| | 7.67 |
|
Tangible common equity (3) | 7.14 |
| | 7.00 |
| | 7.20 |
| | 7.08 |
| | 6.98 |
|
For footnotes see page 12.
|
| | | | | | | |
Table 8 | | | |
Selected Year-to-Date Financial Data | | | |
| Six Months Ended June 30 |
(In millions, except per share information) | 2014 | | 2013 |
Income statement | | | |
Net interest income | $ | 20,098 |
| | $ | 21,213 |
|
Noninterest income | 24,215 |
| | 24,711 |
|
Total revenue, net of interest expense | 44,313 |
| | 45,924 |
|
Provision for credit losses | 1,420 |
| | 2,924 |
|
Noninterest expense | 40,779 |
| | 35,518 |
|
Income before income taxes | 2,114 |
| | 7,482 |
|
Income tax expense | 99 |
| | 1,987 |
|
Net income | 2,015 |
| | 5,495 |
|
Net income applicable to common shareholders | 1,521 |
| | 4,681 |
|
Average common shares issued and outstanding | 10,540 |
| | 10,787 |
|
Average diluted common shares issued and outstanding | 10,600 |
| | 11,550 |
|
Performance ratios | | | |
Return on average assets | 0.19 | % | | 0.50 | % |
Return on average common shareholders' equity | 1.38 |
| | 4.32 |
|
Return on average tangible common shareholders' equity (1) | 2.05 |
| | 6.53 |
|
Return on average tangible shareholders' equity (1) | 2.49 |
| | 6.84 |
|
Total ending equity to total ending assets | 10.94 |
| | 10.88 |
|
Total average equity to total average assets | 10.96 |
| | 10.74 |
|
Dividend payout | 13.83 |
| | 4.61 |
|
Per common share data | | | |
Earnings | $ | 0.14 |
| | $ | 0.43 |
|
Diluted earnings | 0.14 |
| | 0.42 |
|
Dividends paid | 0.02 |
| | 0.02 |
|
Book value | 21.16 |
| | 20.18 |
|
Tangible book value (1) | 14.24 |
| | 13.32 |
|
Market price per share of common stock | | | |
Closing | $ | 15.37 |
| | $ | 12.86 |
|
High closing | 17.92 |
| | 13.83 |
|
Low closing | 14.51 |
| | 11.03 |
|
Market capitalization | $ | 161,628 |
| | $ | 138,156 |
|
| |
(1) | Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 16. |
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(2) | For more information on the impact of the purchased credit-impaired loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 82. |
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(3) | Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. |
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(4) | Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 99 and corresponding Table 46, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 108 and corresponding Table 55. |
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(5) | Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in CBB, purchased credit-impaired loans and the non-U.S. credit card portfolio in All Other. |
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(6) | Net charge-offs exclude $551 million and $1.2 billion of write-offs in the purchased credit-impaired loan portfolio for the six months ended June 30, 2014 and 2013. These write-offs decreased the purchased credit-impaired valuation allowance included as part of the allowance for loan and lease losses. For more information on purchased credit-impaired write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 93. |
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Table 8 | | | |
Selected Year-to-Date Financial Data (continued) | | | |
| Six Months Ended June 30 |
(Dollars in millions) | 2014 | | 2013 |
Average balance sheet | | | |
Total loans and leases | $ | 916,012 |
| | $ | 910,269 |
|
Total assets | 2,154,494 |
| | 2,198,443 |
|
Total deposits | 1,123,399 |
| | 1,077,631 |
|
Long-term debt | 256,768 |
| | 272,088 |
|
Common shareholders' equity | 222,705 |
| | 218,509 |
|
Total shareholders' equity | 236,173 |
| | 236,024 |
|
Asset quality (2) | | | |
Allowance for credit losses (3) | $ | 16,314 |
| | $ | 21,709 |
|
Nonperforming loans, leases and foreclosed properties (4) | 15,300 |
| | 21,280 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4) | 1.75 | % | | 2.33 | % |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4) | 108 |
| | 103 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (4) | 95 |
| | 84 |
|
Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (5) | $ | 6,488 |
| | $ | 9,919 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (4, 5) | 64 | % | | 55 | % |
Net charge-offs (6) | $ | 2,461 |
| | $ | 4,628 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (4, 6) | 0.55 | % | | 1.04 | % |
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (4) | 0.56 |
| | 1.07 |
|
Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (4) | 0.67 |
| | 1.29 |
|
Nonperforming loans and leases as a percentage of total loans and leases outstanding (4) | 1.63 |
| | 2.26 |
|
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (4) | 1.70 |
| | 2.33 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6) | 3.19 |
| | 2.28 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio | 2.82 |
| | 1.85 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs | 2.60 |
| | 1.82 |
|
For footnotes see page 14.
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Supplemental Financial Data |
We view net interest income and related ratios and analyses on a FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. We believe managing the business with net interest income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.
Certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders' equity or common shareholders' equity amount which has been reduced by goodwill and intangible assets (excluding mortgage servicing rights (MSRs)), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders' equity and return on average tangible shareholders' equity as key measures to support our overall growth goals. These ratios are as follows:
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• | Return on average tangible common shareholders' equity measures our earnings contribution as a percentage of adjusted common shareholders' equity. The tangible common equity ratio represents adjusted ending common shareholders' equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. |
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• | Return on average tangible shareholders' equity measures our earnings contribution as a percentage of adjusted average total shareholders' equity. The tangible equity ratio represents adjusted ending shareholders' equity divided by total assets less goodwill and intangible assets (excluding MSRs), net of related deferred tax liabilities. |
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• | Tangible book value per common share represents adjusted ending common shareholders' equity divided by ending common shares outstanding. |
The aforementioned supplemental data and performance measures are presented in Tables 7 and 8.
We evaluate our business segment results based on measures that utilize average allocated capital. Return on average allocated capital is calculated as net income adjusted for cost of funds and earnings credits and certain expenses related to intangibles, divided by average allocated capital. Allocated capital and the related return both represent non-GAAP financial measures. In addition, for purposes of goodwill impairment testing, the Corporation utilizes allocated equity as a proxy for the carrying value of its reporting units. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For additional information, see Business Segment Operations on page 28 and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
Tables 9, 10 and 11 provide reconciliations of these non-GAAP financial measures to GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in assessing the results of the Corporation and our segments. Other companies may define or calculate these measures and ratios differently.
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Table 9 |
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
| 2014 Quarters | | 2013 Quarters |
(Dollars in millions) | Second | | First | | Fourth | | Third | | Second |
Fully taxable-equivalent basis data | | | | | | | | | |
Net interest income | $ | 10,226 |
| | $ | 10,286 |
| | $ | 10,999 |
| | $ | 10,479 |
| | $ | 10,771 |
|
Total revenue, net of interest expense | 21,960 |
| | 22,767 |
| | 21,701 |
| | 21,743 |
| | 22,949 |
|
Net interest yield (1) | 2.22 | % | | 2.29 | % | | 2.44 | % | | 2.33 | % | | 2.35 | % |
Efficiency ratio | 84.43 |
| | 97.68 |
| | 79.75 |
| | 75.38 |
| | 69.80 |
|
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(1) | Beginning in 2014, interest-bearing deposits placed with the Federal Reserve and certain non-U.S. central banks are included in earning assets. Prior period yields have been reclassified to conform to current period presentation. |
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Table 9 |
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures (continued) |
| 2014 Quarters | | 2013 Quarters |
(Dollars in millions) | Second | | First | | Fourth | | Third | | Second |
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis | | | | | | | | | |
Net interest income | $ | 10,013 |
| | $ | 10,085 |
| | $ | 10,786 |
| | $ | 10,266 |
| | $ | 10,549 |
|
Fully taxable-equivalent adjustment | 213 |
| | 201 |
| | 213 |
| | 213 |
| | 222 |
|
Net interest income on a fully taxable-equivalent basis | $ | 10,226 |
| | $ | 10,286 |
| | $ | 10,999 |
| | $ | 10,479 |
| | $ | 10,771 |
|
Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense on a fully taxable-equivalent basis | | | | | | | | | |
Total revenue, net of interest expense | $ | 21,747 |
| | $ | 22,566 |
| | $ | 21,488 |
| | $ | 21,530 |
| | $ | 22,727 |
|
Fully taxable-equivalent adjustment | 213 |
| | 201 |
| | 213 |
| | 213 |
| | 222 |
|
Total revenue, net of interest expense on a fully taxable-equivalent basis | $ | 21,960 |
| | $ | 22,767 |
| | $ | 21,701 |
| | $ | 21,743 |
| | $ | 22,949 |
|
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis | | | | | | | | | |
Income tax expense (benefit) | $ | 504 |
| | $ | (405 | ) | | $ | 406 |
| | $ | 2,348 |
| | $ | 1,486 |
|
Fully taxable-equivalent adjustment | 213 |
| | 201 |
| | 213 |
| | 213 |
| | 222 |
|
Income tax expense (benefit) on a fully taxable-equivalent basis | $ | 717 |
| | $ | (204 | ) | | $ | 619 |
| | $ | 2,561 |
| | $ | 1,708 |
|
Reconciliation of average common shareholders' equity to average tangible common shareholders' equity | | | | | | | | | |
Common shareholders' equity | $ | 222,215 |
| | $ | 223,201 |
| | $ | 220,088 |
| | $ | 216,766 |
| | $ | 218,790 |
|
Goodwill | (69,822 | ) | | (69,842 | ) | | (69,864 | ) | | (69,903 | ) | | (69,930 | ) |
Intangible assets (excluding MSRs) | (5,235 | ) | | (5,474 | ) | | (5,725 | ) | | (5,993 | ) | | (6,270 | ) |
Related deferred tax liabilities | 2,100 |
| | 2,165 |
| | 2,231 |
| | 2,296 |
| | 2,360 |
|
Tangible common shareholders' equity | $ | 149,258 |
| | $ | 150,050 |
| | $ | 146,730 |
| | $ | 143,166 |
| | $ | 144,950 |
|
Reconciliation of average shareholders' equity to average tangible shareholders' equity | | | | | | | | | |
Shareholders' equity | $ | 235,797 |
| | $ | 236,553 |
| | $ | 233,415 |
| | $ | 230,392 |
| | $ | 235,063 |
|
Goodwill | (69,822 | ) | | (69,842 | ) | | (69,864 | ) | | (69,903 | ) | | (69,930 | ) |
Intangible assets (excluding MSRs) | (5,235 | ) | | (5,474 | ) | | (5,725 | ) | | (5,993 | ) | | (6,270 | ) |
Related deferred tax liabilities | 2,100 |
| | 2,165 |
| | 2,231 |
| | 2,296 |
| | 2,360 |
|
Tangible shareholders' equity | $ | 162,840 |
| | $ | 163,402 |
| | $ | 160,057 |
| | $ | 156,792 |
| | $ | 161,223 |
|
Reconciliation of period-end common shareholders' equity to period-end tangible common shareholders' equity | | | | | | | | | |
Common shareholders' equity | $ | 222,565 |
| | $ | 218,536 |
| | $ | 219,333 |
| | $ | 218,967 |
| | $ | 216,791 |
|
Goodwill | (69,810 | ) | | (69,842 | ) | | (69,844 | ) | | (69,891 | ) | | (69,930 | ) |
Intangible assets (excluding MSRs) | (5,099 | ) | | (5,337 | ) | | (5,574 | ) | | (5,843 | ) | | (6,104 | ) |
Related deferred tax liabilities | 2,078 |
| | 2,100 |
| | 2,166 |
| | 2,231 |
| | 2,297 |
|
Tangible common shareholders' equity | $ | 149,734 |
| | $ | 145,457 |
| | $ | 146,081 |
| | $ | 145,464 |
| | $ | 143,054 |
|
Reconciliation of period-end shareholders' equity to period-end tangible shareholders' equity | | | | | | | | | |
Shareholders' equity | $ | 237,411 |
| | $ | 231,888 |
| | $ | 232,685 |
| | $ | 232,282 |
| | $ | 231,032 |
|
Goodwill |