Document
 
 
 
 
 
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 September 30, 2018
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 ☑ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes ☑ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
 
Accelerated filer o
 
Non-accelerated filer o

 
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o


Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes o No ☑
On October 26, 2018, there were 9,814,196,864 shares of Bank of America Corporation Common Stock outstanding.
 
 
 
 
 


Bank of America Corporation and Subsidiaries
September 30, 2018
Form 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1     Bank of America

 
 




Part II. Other Information
 
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (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,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent the Corporation’s current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, strategy and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown 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 under Item 1A. Risk Factors of our 2017 Annual Report on Form 10-K and in any of the Corporation’s subsequent Securities and Exchange Commission filings: the Corporation’s potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions, including inquiries into our retail sales practices, and the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possibility that the Corporation could face increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, monolines, private-label and other investors, or other parties involved in securitizations; 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 Corporation’s ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to avoid the statute of limitations for repurchase claims; uncertainties about the financial stability and growth rates 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;
 
the impact of U.S. and global interest rates, currency exchange rates, economic conditions, trade policies, including tariffs, and potential geopolitical instability; the impact on the Corporation’s business, financial condition and results of operations of a potential higher interest rate environment; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions and other uncertainties; the Corporation’s ability to achieve its expense targets, net interest income expectations, or other projections; 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, which may change; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements; the potential impact of total loss-absorbing capacity requirements; potential adverse changes to our global systemically important bank surcharge; the potential impact of Federal Reserve actions on the Corporation’s capital plans; the possible impact of the Corporation’s failure to remediate a shortcoming identified by banking regulators in the Corporation’s Resolution Plan; the effect of regulations, other guidance or additional information on our estimated impact of the Tax Cuts and Jobs Act; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation assessments, the Volcker Rule, fiduciary standards and derivatives regulations; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks; the impact on the Corporation’s business, financial condition and results of operations from the planned exit of the United Kingdom from the European Union; 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.



 
 
Bank of America     2

Executive Summary
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 nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, 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 the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At September 30, 2018, the Corporation had approximately $2.3 trillion in assets and a headcount of approximately 205,000 employees.
As of September 30, 2018, we served clients through operations across the United States, its territories and more than 35 countries. Our retail banking footprint covers approximately 85 percent of the U.S. population, and we serve approximately 67 million consumer and small business clients with approximately 4,400 retail financial centers, approximately 16,100 ATMs, and
 
leading digital banking platforms (www.bankofamerica.com) with more than 36 million active users, including nearly 26 million active mobile users. We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of approximately $2.8 trillion, provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. 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.
Recent Events
Capital Management
During the third quarter of 2018, we repurchased $5.0 billion of common stock pursuant to the Board of Directors’ (the Board) 2018 repurchase authorization of approximately $20.6 billion announced on June 28, 2018. For additional information, see Capital Management on page 22. On July 26, 2018, the Board declared a quarterly common stock dividend of $0.15 per share, payable on September 28, 2018 to shareholders of record as of September 7, 2018. Additionally, on October 24, 2018, the Board declared a quarterly common stock dividend of $0.15 per share, payable on December 28, 2018 to shareholders of record as of December 7, 2018.
Financial Highlights
 
 
 
 
 
 
 
 
 
Table 1
Summary Income Statement and Selected Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions, except per share information)
2018
 
2017
 
2018
 
2017
Income statement
 

 
 

 
 
 
 
Net interest income
$
11,870

 
$
11,161

 
$
35,128

 
$
33,205

Noninterest income
10,907

 
10,678

 
33,383

 
33,711

Total revenue, net of interest expense
22,777


21,839


68,511


66,916

Provision for credit losses
716

 
834

 
2,377

 
2,395

Noninterest expense
13,067

 
13,394

 
40,248

 
41,469

Income before income taxes
8,994


7,611


25,886


23,052

Income tax expense
1,827

 
2,187

 
5,017

 
7,185

Net income
7,167


5,424


20,869


15,867

Preferred stock dividends
466

 
465

 
1,212

 
1,328

Net income applicable to common shareholders
$
6,701


$
4,959


$
19,657


$
14,539

 
 
 
 
 
 
 
 
 
Per common share information
 
 
 
 
 
 
 
Earnings
$
0.67

 
$
0.49

 
$
1.93

 
$
1.44

Diluted earnings
0.66

 
0.46

 
1.91

 
1.36

Dividends paid
0.15

 
0.12

 
0.39

 
0.27

Performance ratios
 

 
 

 
 
 
 
Return on average assets
1.23
%
 
0.95
%
 
1.20
%
 
0.94
%
Return on average common shareholders’ equity
10.99

 
7.89

 
10.86

 
7.91

Return on average tangible common shareholders’ equity (1)
15.48

 
10.98

 
15.30

 
11.10

Efficiency ratio
57.37

 
61.33

 
58.75

 
61.97

 
 
 
 
 
 
 
 
 
 
 
 
 
September 30
2018
 
December 31
2017
Balance sheet
 

 
 

 
 

 
 

Total loans and leases
 
 
 
 
$
929,801

 
$
936,749

Total assets
 
 
 
 
2,338,833

 
2,281,234

Total deposits
 
 
 
 
1,345,649

 
1,309,545

Total common shareholders’ equity
 
 
 
 
239,832

 
244,823

Total shareholders’ equity
 
 
 
 
262,158

 
267,146

(1) 
Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 52.

3     Bank of America

 
 




Net income was $7.2 billion and $20.9 billion, or $0.66 and $1.91 per diluted share for the three and nine months ended September 30, 2018 compared to $5.4 billion and $15.9 billion, or $0.46 and $1.36 per diluted share for the same periods in 2017. The improvement in net income for the three and nine months ended September 30, 2018 was driven by a decrease in income tax expense due to the impacts of the Tax Cuts and Jobs Act (the Tax Act), an increase in net interest income, higher noninterest income in the three-month period, lower provision for credit losses and a decline in noninterest expense, partially offset by a decline in noninterest income in the nine-month period. Impacts from the Tax Act include a reduction in the federal tax rate to 21 percent from 35 percent.
Total assets increased $57.6 billion from December 31, 2017 to $2.3 trillion at September 30, 2018 driven by higher cash and cash equivalents from liquidity management actions and an increase in securities borrowed or purchased under agreements to resell primarily due to short-term investments of cash largely resulting from deposit growth.
Total liabilities increased $62.6 billion from December 31, 2017 to $2.1 trillion at September 30, 2018 primarily driven by higher deposits due to organic growth and several large short-term
 
placements at the end of the quarter, increases in accrued expenses and other liabilities primarily due to trading-related payables, and higher trading account liabilities driven by client activity in Global Markets. Shareholders’ equity decreased $5.0 billion from December 31, 2017 primarily due to returns of capital to shareholders through common stock repurchases and common and preferred stock dividends, market value declines in debt securities and the redemption of preferred stock, partially offset by net income and issuances of preferred stock.
Net Interest Income
Net interest income increased $709 million to $11.9 billion, and $1.9 billion to $35.1 billion for the three and nine months ended September 30, 2018 compared to the same periods in 2017. The net interest yield increased eight basis points (bps) to 2.39 percent, and four bps to 2.36 percent for the same periods. These increases were primarily driven by higher interest rates as well as loan and deposit growth, partially offset by tightening spreads, and for the nine-month period, the impact of the sale of the non-U.S. consumer credit card business in the second quarter of 2017. For more information regarding interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 49.
Noninterest Income
 
 
 
 
 
 
 
 
 
Table 2
Noninterest Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions)
2018
 
2017
 
2018
 
2017
Card income
$
1,470

 
$
1,429

 
$
4,469

 
$
4,347

Service charges
1,961

 
1,968

 
5,836

 
5,863

Investment and brokerage services
3,494

 
3,437

 
10,616

 
10,314

Investment banking income
1,204

 
1,477

 
3,979

 
4,593

Trading account profits
1,893

 
1,837

 
6,907

 
6,124

Other income
885

 
530

 
1,576

 
2,470

Total noninterest income
$
10,907


$
10,678


$
33,383


$
33,711

Noninterest income increased $229 million to $10.9 billion, and decreased $328 million to $33.4 billion for the three and nine months ended September 30, 2018 compared to the same periods in 2017. The following highlights the significant changes.
●
Card income increased $41 million and $122 million primarily driven by an increase in credit and debit card spending, as well as increased late fees and annual fees, partially offset by higher rewards costs and lower cash advance fees, and for the nine-month period, the sale of the non-U.S. consumer credit card business.
•
Investment and brokerage services income increased $57 million and $302 million primarily due to assets under management (AUM) flows and higher market valuations, partially offset by the impact of changing market dynamics on transactional revenue, and AUM pricing.
●
Investment banking income decreased $273 million and $614 million primarily due to declines in leveraged finance and advisory fees, partially offset by an increase in equity underwriting fees.
 
●
Trading account profits increased $56 million for the three-month period primarily due to increased client activity in equity financing and derivatives, partially offset by weakness in rates products and municipal bonds, and increased $783 million for the nine-month period primarily due to increased client activity in equity financing and derivatives, and strong trading performance in equity derivatives and macro-related products, partially offset by weakness in credit products.
●
Other income increased $355 million for the three-month period primarily due to increased results from economic hedging activities, lower provision for representations and warranties and a gain on the sale of an equity investment. The $894 million decrease for the nine-month period also reflected a $729 million charge related to the redemption of certain trust preferred securities, partially offset by $656 million of gains on the sale of certain loans, primarily non-core. The nine-month period in 2017 included a $793 million pretax gain recognized in connection with the sale of the non-U.S. consumer credit card business.


 
 
Bank of America     4

Provision for Credit Losses
The provision for credit losses decreased $118 million to $716 million for the three months ended September 30, 2018 compared to the same period in 2017 primarily due to asset quality improvement in the commercial portfolio including energy exposures and a lower reserve build in the U.S. credit card portfolio. The provision for credit losses decreased $18 million to $2.4 billion for the nine months ended September 30, 2018
 
compared to the same period in 2017 primarily due to asset quality improvement in the commercial portfolio including energy exposures and the impact of the sale of the non-U.S. consumer credit card business during the second quarter of 2017, largely offset by portfolio seasoning and loan growth in the U.S. credit card portfolio and a slower pace of improvement in the consumer real estate portfolio. For more information on the provision for credit losses, see Provision for Credit Losses on page 44.
Noninterest Expense
 
 
 
 
 
 
 
 
 
Table 3
Noninterest Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions)
2018
 
2017
 
2018
 
2017
Personnel
$
7,721

 
$
7,811

 
$
24,145

 
$
24,326

Occupancy
1,015

 
999

 
3,051

 
3,000

Equipment
421

 
416

 
1,278

 
1,281

Marketing
421

 
461

 
1,161

 
1,235

Professional fees
439

 
476

 
1,219

 
1,417

Data processing
791

 
777

 
2,398

 
2,344

Telecommunications
173

 
170

 
522

 
538

Other general operating
2,086

 
2,284

 
6,474

 
7,328

Total noninterest expense
$
13,067


$
13,394


$
40,248


$
41,469

Noninterest expense decreased $327 million to $13.1 billion and $1.2 billion to $40.2 billion for the three and nine months ended September 30, 2018 compared to the same periods in 2017. The decrease for both periods was primarily due to lower other general operating expense, primarily driven by a decline in litigation expense and, for the nine-month period, a $295 million impairment charge recognized in the second quarter of 2017 related to certain data centers. Personnel expense also declined for both periods.
Income Tax Expense
 
 
 
 
 
 
 
 
 
Table 4
Income Tax Expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
September 30
 
Nine Months Ended
September 30
(Dollars in millions)
2018
 
2017
 
2018
 
2017
Income before income taxes
$
8,994

 
$
7,611

 
$
25,886

 
$
23,052

Income tax expense
1,827

 
2,187

 
5,017

 
7,185

Effective tax rate
20.3
%

28.7
%

19.4
%

31.2
%
The effective tax rates for the three and nine months ended September 30, 2018 reflect the 21 percent federal tax rate and the other provisions of the Tax Act, as well as the impact of our recurring tax preference benefits. The nine-month effective rate also included tax benefits related to stock-based compensation.
The effective tax rates for the three and nine months ended September 30, 2017 were driven by the impact of our recurring
 
tax preference benefits. The nine-month effective tax rate also included a tax charge related to the sale of the non-U.S. consumer credit card business during the second quarter of 2017, partially offset by tax benefits related to stock-based compensation recognized earlier in the year.
We expect the effective tax rate for 2018 to be approximately 20 percent, absent unusual items.

5     Bank of America

 
 




Supplemental Financial Data
In this Form 10-Q, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses on a fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. 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 21 percent for 2018 (35 percent for all prior periods) and a representative state tax rate. In addition, certain performance measures, including the efficiency ratio and net interest yield, utilize net interest income (and thus total revenue) on an 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 believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items is useful because such measures provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance.
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 certain acquired 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:
●
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 certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
●
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 certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
●
Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.
We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Tables 5 and 6.
For more information on the reconciliation of these non-GAAP financial measures to GAAP financial measures, see Non-GAAP Reconciliations on page 52.


 
 
Bank of America     6

 
 
 
 
 
 
 
 
 
 
 
Table 5
Selected Quarterly Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 Quarters
 
2017 Quarters
(In millions, except per share information)
Third
 
Second
 
First
 
Fourth
 
Third
Income statement
 
 
 
 
 

 
 

 
 

Net interest income
$
11,870

 
$
11,650

 
$
11,608

 
$
11,462

 
$
11,161

Noninterest income (1)
10,907

 
10,959

 
11,517

 
8,974

 
10,678

Total revenue, net of interest expense
22,777

 
22,609

 
23,125

 
20,436

 
21,839

Provision for credit losses
716

 
827

 
834

 
1,001

 
834

Noninterest expense
13,067

 
13,284

 
13,897

 
13,274

 
13,394

Income before income taxes
8,994

 
8,498

 
8,394

 
6,161

 
7,611

Income tax expense (1)
1,827

 
1,714

 
1,476

 
3,796

 
2,187

Net income (1)
7,167

 
6,784

 
6,918

 
2,365

 
5,424

Net income applicable to common shareholders
6,701

 
6,466

 
6,490

 
2,079

 
4,959

Average common shares issued and outstanding
10,031.6

 
10,181.7

 
10,322.4

 
10,470.7

 
10,197.9

Average diluted common shares issued and outstanding
10,170.8

 
10,309.4

 
10,472.7

 
10,621.8

 
10,746.7

Performance ratios
 

 
 

 
 

 
 

 
 

Return on average assets
1.23
%
 
1.17
%
 
1.21
%
 
0.41
%
 
0.95
%
Four quarter trailing return on average assets (2)
1.00

 
0.93

 
0.86

 
0.80

 
0.91

Return on average common shareholders’ equity
10.99

 
10.75

 
10.85

 
3.29

 
7.89

Return on average tangible common shareholders’ equity (3)
15.48

 
15.15

 
15.26

 
4.56

 
10.98

Return on average shareholders’ equity
10.74

 
10.26

 
10.57

 
3.43

 
7.88

Return on average tangible shareholders’ equity (3)
14.61

 
13.95

 
14.37

 
4.62

 
10.59

Total ending equity to total ending assets
11.21

 
11.53

 
11.43

 
11.71

 
11.91

Total average equity to total average assets
11.42

 
11.42

 
11.41

 
11.87

 
12.03

Dividend payout
22.35

 
18.83

 
19.06

 
60.35

 
25.59

Per common share data
 

 
 

 
 

 
 

 
 

Earnings
$
0.67

 
$
0.64

 
$
0.63

 
$
0.20

 
$
0.49

Diluted earnings
0.66

 
0.63

 
0.62

 
0.20

 
0.46

Dividends paid
0.15

 
0.12

 
0.12

 
0.12

 
0.12

Book value
24.33

 
24.07

 
23.74

 
23.80

 
23.87

Tangible book value (3)
17.23

 
17.07

 
16.84

 
16.96

 
17.18

Market price per share of common stock
 

 
 

 
 
 
 
 
 

Closing
$
29.46

 
$
28.19

 
$
29.99

 
$
29.52

 
$
25.34

High closing
31.80

 
31.22

 
32.84

 
29.88

 
25.45

Low closing
27.78

 
28.19

 
29.17

 
25.45

 
22.89

Market capitalization
$
290,424

 
$
282,259

 
$
305,176

 
$
303,681

 
$
264,992

Average balance sheet
 

 
 

 
 

 
 

 
 

Total loans and leases
$
930,736

 
$
934,818

 
$
931,915

 
$
927,790

 
$
918,129

Total assets
2,317,829

 
2,322,678

 
2,325,878

 
2,301,687

 
2,271,104

Total deposits
1,316,345

 
1,300,659

 
1,297,268

 
1,293,572

 
1,271,711

Long-term debt
233,475

 
229,037

 
229,603

 
227,644

 
227,309

Common shareholders’ equity
241,812

 
241,313

 
242,713

 
250,838

 
249,214

Total shareholders’ equity
264,653

 
265,181

 
265,480

 
273,162

 
273,238

Asset quality
 

 
 

 
 

 
 

 
 

Allowance for credit losses (4)
$
10,526

 
$
10,837

 
$
11,042

 
$
11,170

 
$
11,455

Nonperforming loans, leases and foreclosed properties (5)
5,449

 
6,181

 
6,694

 
6,758

 
6,869

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5)
1.05
%
 
1.08
%
 
1.11
%
 
1.12
%
 
1.16
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5)
189

 
170

 
161

 
161

 
163

Net charge-offs (6)
$
932

 
$
996

 
$
911

 
$
1,237

 
$
900

Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 6)
0.40
%
 
0.43
%
 
0.40
%
 
0.53
%
 
0.39
%
Capital ratios at period end (7)
 

 
 

 
 

 
 

 
 

Common equity tier 1 capital
11.4
%
 
11.4
%
 
11.3
%
 
11.5
%
 
11.9
%
Tier 1 capital
12.9

 
13.0

 
13.0

 
13.0

 
13.4

Total capital
14.7

 
14.8

 
14.8

 
14.8

 
15.1

Tier 1 leverage
8.3

 
8.4

 
8.4

 
8.6

 
8.9

Supplementary leverage ratio
6.7

 
6.7

 
6.8

 
n/a

 
n/a

Tangible equity (3)
8.5

 
8.7

 
8.7

 
8.9

 
9.1

Tangible common equity (3)
7.5

 
7.7

 
7.6

 
7.9

 
8.1

(1) 
Net income for the fourth quarter of 2017 included a charge of $2.9 billion related to the Tax Act effects which consisted of $946 million in noninterest income and $1.9 billion in income tax expense.
(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. For more information on these ratios, see Supplemental Financial Data on page 6, and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 52.
(4) 
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(5) 
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 36 and corresponding Table 28 and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 40 and corresponding Table 35.
(6) 
Net charge-offs exclude $95 million, $36 million, $35 million, $46 million and $73 million of write-offs in the purchased credit-impaired (PCI) loan portfolio in the third, second and first quarters of 2018, and in the fourth and third quarters of 2017, respectively. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 34.
(7) 
Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For more information, including which approach is used to assess capital adequacy, see Capital Management on page 22.
n/a = not applicable

 
 
Bank of America     7

 
 
 
 
 
Table 6
Selected Year-to-Date Financial Data
 
 
 
 
 
Nine Months Ended September 30
(In millions, except per share information)
2018
 
2017
Income statement
 
 
 
Net interest income
$
35,128

 
$
33,205

Noninterest income
33,383

 
33,711

Total revenue, net of interest expense
68,511

 
66,916

Provision for credit losses
2,377

 
2,395

Noninterest expense
40,248

 
41,469

Income before income taxes
25,886

 
23,052

Income tax expense
5,017

 
7,185

Net income
20,869

 
15,867

Net income applicable to common shareholders
19,657

 
14,539

Average common shares issued and outstanding
10,177.5

 
10,103.4

Average diluted common shares issued and outstanding
10,317.9

 
10,832.1

Performance ratios
 

 
 

Return on average assets
1.20
%
 
0.94
%
Return on average common shareholders’ equity
10.86

 
7.91

Return on average tangible common shareholders’ equity (1)
15.30

 
11.10

Return on average shareholders’ equity
10.52

 
7.84

Return on average tangible shareholders’ equity (1)
14.31

 
10.61

Total ending equity to total ending assets
11.21

 
11.91

Total average equity to total average assets
11.42

 
11.99

Dividend payout
20.10

 
19.08

Per common share data
 

 
 

Earnings
$
1.93

 
$
1.44

Diluted earnings
1.91

 
1.36

Dividends paid
0.39

 
0.27

Book value
24.33

 
23.87

Tangible book value (1)
17.23

 
17.18

Market price per share of common stock
 

 
 

Closing
$
29.46

 
$
25.34

High closing
32.84

 
25.50

Low closing
27.78

 
22.05

Market capitalization
$
290,424

 
$
264,992

(1) 
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 52.

 
 
Bank of America     8

 
 
 
 
 
 
 
 
 
 
 
 
 
Table 7
Quarterly Average Balances and Interest Rates - FTE Basis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
(Dollars in millions)
Third Quarter 2018
 
Third Quarter 2017
Earning assets
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
$
144,411

 
$
523

 
1.44
%
 
$
127,835

 
$
323

 
1.00
%
Time deposits placed and other short-term investments
8,328

 
48

 
2.26

 
12,503

 
68

 
2.17

Federal funds sold and securities borrowed or purchased under agreements to resell (1)
241,426

 
799

 
1.31

 
223,585

 
487

 
0.86

Trading account assets
128,896

 
1,195

 
3.68

 
124,068

 
1,125

 
3.60

Debt securities
445,813

 
3,014

 
2.66

 
436,886

 
2,670

 
2.44

Loans and leases (2):
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
209,460

 
1,857

 
3.54

 
199,240

 
1,724

 
3.46

Home equity
53,050

 
656

 
4.91

 
61,225

 
664

 
4.31

U.S. credit card
94,710

 
2,435

 
10.20

 
91,602

 
2,253

 
9.76

Direct/Indirect and other consumer (3)
91,828

 
787

 
3.40

 
96,272

 
706

 
2.91

Total consumer
449,048

 
5,735

 
5.08

 
448,339

 
5,347

 
4.74

U.S. commercial
303,680

 
3,034

 
3.97

 
293,203

 
2,542

 
3.44

Non-U.S. commercial
96,019

 
831

 
3.43

 
95,725

 
676

 
2.80

Commercial real estate (4)
60,754

 
682

 
4.45

 
59,044

 
552

 
3.71

Commercial lease financing
21,235

 
173

 
3.25

 
21,818

 
160

 
2.92

Total commercial
481,688

 
4,720

 
3.89

 
469,790

 
3,930

 
3.32

Total loans and leases
930,736

 
10,455

 
4.46

 
918,129

 
9,277

 
4.02

Other earning assets (1)
72,827

 
1,082

 
5.91

 
76,496

 
849

 
4.41

Total earning assets (1,5)
1,972,437

 
17,116

 
3.45

 
1,919,502

 
14,799

 
3.06

Cash and due from banks
25,639

 
 
 
 
 
28,990

 
 
 
 
Other assets, less allowance for loan and lease losses
319,753

 
 
 
 
 
322,612

 
 
 
 
Total assets
$
2,317,829

 
 
 
 
 
$
2,271,104

 
 
 
 
Interest-bearing liabilities
 

 
 

 
 

 
 

 
 

 
 

U.S. interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

Savings
$
53,929

 
$
1

 
0.01
%
 
$
54,328

 
$
1

 
0.01
%
NOW and money market deposit accounts
680,285

 
737

 
0.43

 
631,270

 
333

 
0.21

Consumer CDs and IRAs
39,160

 
40

 
0.41

 
44,239

 
31

 
0.27

Negotiable CDs, public funds and other deposits
54,192

 
275

 
2.01

 
38,119

 
101

 
1.05

Total U.S. interest-bearing deposits
827,566

 
1,053

 
0.50

 
767,956

 
466

 
0.24

Non-U.S. interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Banks located in non-U.S. countries
2,353

 
12

 
2.06

 
2,259

 
5

 
0.97

Governments and official institutions
709

 
—

 
0.01

 
1,012

 
3

 
1.04

Time, savings and other
63,179

 
165

 
1.04

 
63,716

 
150

 
0.93

Total non-U.S. interest-bearing deposits
66,241

 
177

 
1.07

 
66,987

 
158

 
0.93

Total interest-bearing deposits
893,807

 
1,230

 
0.55

 
834,943

 
624

 
0.30

Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities (1)
264,168

 
1,526

 
2.30

 
270,364

 
846

 
1.24

Trading account liabilities
50,904

 
335

 
2.60

 
48,390

 
319

 
2.62

Long-term debt
233,475

 
2,004

 
3.42

 
227,309

 
1,609

 
2.82

Total interest-bearing liabilities (1,5)
1,442,354

 
5,095

 
1.40

 
1,381,006

 
3,398

 
0.98

Noninterest-bearing sources:
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
422,538

 
 
 
 
 
436,768

 
 
 
 
Other liabilities (1)
188,284

 
 
 
 
 
180,092

 
 
 
 
Shareholders’ equity
264,653

 
 
 
 
 
273,238

 
 
 
 
Total liabilities and shareholders’ equity
$
2,317,829

 
 
 
 
 
$
2,271,104

 
 
 
 
Net interest spread
 
 
 
 
2.05
%
 
 
 
 
 
2.08
%
Impact of noninterest-bearing sources
 
 
 
 
0.37

 
 
 
 
 
0.28

Net interest income/yield on earning assets
 
 
$
12,021

 
2.42
%
 
 
 
$
11,401

 
2.36
%
(1) 
Certain prior-period amounts have been reclassified to conform to current period presentation.
(2) 
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans are recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan.
(3) 
Includes non-U.S. consumer loans of $2.8 billion and $2.9 billion in the third quarter of 2018 and 2017.
(4) 
Includes U.S. commercial real estate loans of $56.8 billion and $55.2 billion, and non-U.S. commercial real estate loans of $4.0 billion and $3.8 billion in the third quarter of 2018 and 2017, respectively.
(5) 
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $57 million and $7 million in the third quarter of 2018 and 2017. Interest expense includes the impact of interest rate risk management contracts, which increased (decreased) interest expense on the underlying liabilities by $68 million and $(346) million in the third quarter of 2018 and 2017. For more information, see Interest Rate Risk Management for the Banking Book on page 49.

 
 
Bank of America     9

 
 
 
 
 
 
 
 
 
 
 
 
 
Table 8
Year-to-Date Average Balances and Interest Rates - FTE Basis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Nine Months Ended September 30
(Dollars in millions)

2018
 
2017
Earning assets
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
$
143,229

 
$
1,432

 
1.34
%
 
$
127,000

 
$
786

 
0.83
%
Time deposits placed and other short-term investments
9,700

 
157

 
2.16

 
11,820

 
173

 
1.96

Federal funds sold and securities borrowed or purchased under agreements to resell (1)
247,183

 
2,130

 
1.15

 
222,255

 
1,278

 
0.77

Trading account assets
130,931

 
3,574

 
3.65

 
128,547

 
3,435

 
3.57

Debt securities
436,080

 
8,729

 
2.62

 
432,775

 
7,875

 
2.42

Loans and leases (2):
 

 
 

 
 

 
 

 
 

 
 

Residential mortgage
206,808

 
5,437

 
3.51

 
196,288

 
5,082

 
3.45

Home equity
54,941

 
1,939

 
4.72

 
63,339

 
1,967

 
4.15

U.S. credit card
94,222

 
7,046

 
10.00

 
90,238

 
6,492

 
9.62

Non-U.S. credit card (3)
—

 
—

 
—

 
5,253

 
358

 
9.12

Direct/Indirect and other consumer (4)
93,568

 
2,281

 
3.26

 
95,964

 
2,010

 
2.80

Total consumer
449,539

 
16,703

 
4.96

 
451,082

 
15,909

 
4.71

U.S. commercial
302,981

 
8,734

 
3.85

 
290,632

 
7,167

 
3.30

Non-U.S. commercial
98,246

 
2,385

 
3.25

 
93,762

 
1,886

 
2.69

Commercial real estate (5)
60,218

 
1,915

 
4.25

 
58,340

 
1,545

 
3.54

Commercial lease financing
21,501

 
516

 
3.20

 
21,862

 
547

 
3.33

Total commercial
482,946

 
13,550

 
3.75

 
464,596

 
11,145

 
3.21

Total loans and leases (3)
932,485

 
30,253

 
4.34

 
915,678

 
27,054

 
3.95

Other earning assets (1)
78,431

 
3,113

 
5.31

 
74,554

 
2,322

 
4.16

Total earning assets (1,6)
1,978,039

 
49,388

 
3.34

 
1,912,629

 
42,923

 
3.00

Cash and due from banks
25,746

 
 
 
 

 
27,955

 
 
 
 

Other assets, less allowance for loan and lease losses
318,314

 
 

 
 

 
316,909

 
 

 
 

Total assets
$
2,322,099

 
 

 
 

 
$
2,257,493

 
 

 
 

Interest-bearing liabilities
 

 
 

 
 

 
 

 
 

 
 

U.S. interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

Savings
$
54,800

 
$
4

 
0.01
%
 
$
53,679

 
$
4

 
0.01
%
NOW and money market deposit accounts
667,851

 
1,679

 
0.34

 
622,920

 
512

 
0.11

Consumer CDs and IRAs
40,134

 
109

 
0.36

 
45,535

 
92

 
0.27

Negotiable CDs, public funds and other deposits
46,507

 
629

 
1.81

 
35,968

 
221

 
0.82

Total U.S. interest-bearing deposits
809,292

 
2,421

 
0.40

 
758,102

 
829

 
0.15

Non-U.S. interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

Banks located in non-U.S. countries
2,309

 
32

 
1.88

 
2,643

 
16

 
0.82

Governments and official institutions
990

 
—

 
0.01

 
1,002

 
7

 
0.92

Time, savings and other
65,264

 
480

 
0.98

 
60,747

 
400

 
0.88

Total non-U.S. interest-bearing deposits
68,563

 
512

 
1.00

 
64,392

 
423

 
0.88

Total interest-bearing deposits
877,855

 
2,933

 
0.45

 
822,494

 
1,252

 
0.20

Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities (1)
272,192

 
4,123

 
2.03

 
275,731

 
2,244

 
1.09

Trading account liabilities
52,815

 
1,040

 
2.63

 
44,128

 
890

 
2.70

Long-term debt
230,719

 
5,709

 
3.30

 
224,287

 
4,658

 
2.77

Total interest-bearing liabilities (1,6)
1,433,581

 
13,805

 
1.29

 
1,366,640

 
9,044

 
0.88

Noninterest-bearing sources:
 

 
 

 
 

 
 

 
 

 
 

Noninterest-bearing deposits
426,972

 
 

 
 

 
439,288

 
 

 
 

Other liabilities (1)
196,444

 
 

 
 

 
180,907

 
 

 
 

Shareholders’ equity
265,102

 
 

 
 

 
270,658

 
 

 
 

Total liabilities and shareholders’ equity
$
2,322,099

 
 

 
 

 
$
2,257,493

 
 

 
 

Net interest spread
 

 
 

 
2.05
%
 
 

 
 

 
2.12
%
Impact of noninterest-bearing sources
 

 
 

 
0.34

 
 

 
 

 
0.24

Net interest income/yield on earning assets
 

 
$
35,583

 
2.39
%
 
 

 
$
33,879

 
2.36
%
(1) 
Certain prior-period amounts have been reclassified to conform to current period presentation.
(2) 
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan.
(3) 
The nine months ended September 30, 2017 includes assets of the Corporation’s non-U.S. consumer credit card business, which was sold during the second quarter of 2017.
(4) 
Includes non-U.S. consumer loans of $2.9 billion in both the nine months ended September 30, 2018 and 2017.
(5) 
Includes U.S. commercial real estate loans of $56.2 billion and $55.0 billion, and non-U.S. commercial real estate loans of $4.0 billion and $3.4 billion for the nine months ended September 30, 2018 and 2017, respectively.
(6) 
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $113 million and $48 million for the nine months ended September 30, 2018 and 2017. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $103 million and $1.1 billion for the nine months ended September 30, 2018 and 2017. For additional information, see Interest Rate Risk Management for the Banking Book on page 49.


 
 
Bank of America     10

Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit,
 
market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 22. The capital allocated to the business segments
is referred to as allocated capital. 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 more information, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and period-end total assets, see Note 17 – Business Segment Information to the Consolidated Financial Statements.
Consumer Banking
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
Consumer Lending
 
Total Consumer Banking
 
 
 
Three Months Ended September 30
 
 
(Dollars in millions)
2018
2017
 
2018
2017
 
2018
2017
 
% Change
Net interest income (FTE basis)
$
4,068

$
3,440

 
$
2,795