10-Q 1 bac-331201510xq.htm 10-Q BAC-3.31.2015 10-Q


 
 
 
 
 

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 March 31, 2015
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).
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 April 28, 2015, there were 10,502,100,218 shares of Bank of America Corporation Common Stock outstanding.
 
 
 
 
 

                


Bank of America Corporation
 
March 31, 2015
 
Form 10-Q
 
 
 
INDEX
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1




2


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 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 elsewhere in this report, and under Item 1A. Risk Factors of the Corporation's 2014 Annual Report on Form 10-K and in any of the Corporation's subsequent Securities and Exchange Commission filings: the Corporation's ability to resolve representations and warranties repurchase and related claims and the chance that the Corporation could face related servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that final court approval of negotiated settlements is not obtained, including the possibility that all of the conditions necessary to obtain final approval of the BNY Mellon Settlement do not occur; 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; potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory proceedings, including the possibility that amounts may be in excess of the Corporation's recorded liability and estimated range of possible losses for litigation exposures; 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; 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 and economic conditions; the impact on the Corporation's business, financial condition and results of operations of a potential higher interest rate environment; 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; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements, including, but not limited to, any G-SIB surcharge; the possibility that in connection with our effort to exit our Advanced approaches parallel run, our internal analytical models will either not be approved by U.S. banking regulators, or will be approved with significant modifications, which could, for example, increase our risk-weighted assets and, as a result, negatively impact our capital ratios under the Advanced approaches, including an estimated 100 bps negative impact to our Common equity tier 1 ratio; the possible impact of Federal Reserve actions on the Corporation's capital plans; the impact of implementation and compliance with new and evolving U.S. and international regulations, including, but not limited to, recovery and resolution planning requirements, the Volcker Rule and derivatives regulations; the impact of the U.K tax law change limiting how much net operating losses can offset annual profit; 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 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.


3


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. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At March 31, 2015, the Corporation had approximately $2.1 trillion in assets and approximately 220,000 full-time equivalent employees.

In the Annual Report on Form 10-K for the year ended December 31, 2014, we reported our results of operations 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. Effective January 1, 2015, to align the segments with how we manage the businesses in 2015, we changed our basis of presentation, and following such change, we report our results of operations through the following five business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and Legacy Assets & Servicing (LAS), with the remaining operations recorded in All Other. The Home Loans business, which was included in the former CRES segment, is now included in Consumer Banking, and LAS (also in the former CRES segment) has become a separate segment. A portion of the Business Banking business, based on the size of the client, was moved from the former CBB segment to Global Banking, and the former CBB segment was renamed Consumer Banking. Also, our merchant services joint venture moved from the former CBB segment to All Other. In addition, certain management accounting methodologies, including the treatment of intersegment assets and liabilities, and related allocations were refined. Prior periods have been reclassified to conform to the current period presentation.

As of March 31, 2015, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Our retail banking footprint covers approximately 80 percent of the U.S. population, and we serve approximately 48 million consumer and small business relationships with approximately 4,800 financial centers, 15,900 ATMs, nationwide call centers, and leading online and mobile banking platforms (www.bankofamerica.com). We offer industry-leading support to approximately three million small business owners. Our industry leading wealth management and trust businesses, with client balances of $2.5 trillion, provide tailored solutions to meet client needs through a full set of 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.

First-Quarter 2015 Economic and Business Environment

In the U.S., economic growth slowed in the first quarter of 2015, restrained by severe winter weather and other temporary factors, including the capital-spending impact of large oil price declines. Retail spending was weak, following an acceleration during the second half of 2014. In addition to reduced energy-industry investment, U.S. Dollar strength was a contributor to export weakness in the first quarter.

In contrast, various measures showed continued gradual labor market improvement, though payroll gains weakened in March and wage gains remained historically low. The unemployment rate also continued to fall during the quarter, ending at 5.5 percent. The sharp decline in energy prices pushed inflation to just above zero during the quarter, while core inflation (excluding food and energy) also remained well below the Board of Governors of the Federal Reserve System's (Federal Reserve) longer-term annual target of two percent.

In March 2015, the Federal Reserve continued to indicate that it would likely be appropriate to raise the target range for the federal funds rate, but emphasized the need for further improvement in the labor market and reasonable confidence that inflation would move back to its two percent objective over the medium term.

Internationally, despite anxiety over Greece, European prospects improved during the quarter, supported by lower energy prices and the European Central Bank's announcement of open-ended quantitative easing. Japanese growth during the first quarter of 2015 remained modest. With Chinese economic growth continuing to moderate, China's monetary authorities and central banks throughout developing Asia continue to display a preference towards easing. The large decline in energy prices, along with international sanctions, continued to pressure the declining Russian economy.


4


Recent Events

BNY Mellon Settlement

On March 5, 2015, the New York Appellate Division, First Department issued an order unanimously approving the Bank of New York Mellon (BNY Mellon) Settlement in all respects, reversing the portion of the New York Supreme Court's decision not to approve the Trustee's conduct with respect to the Trustee's consideration of a potential claim that a loan must be repurchased if the servicer modifies its term. The deadline for further appeal has passed. The BNY Mellon Settlement remains subject to certain conditions, including that an Internal Revenue Service (IRS) private letter ruling be obtained confirming that the settlement will not impact the real estate mortgage investment conduit (REMIC) tax status of the trusts. As part of the BNY Mellon Settlement, agreement was reached on certain servicing related matters. For information on servicing matters associated with the BNY Mellon Settlement, see Mortgage-related Settlements – Servicing Matters on page 45, and for more information on the BNY Mellon Settlement, see Note 7 – Representations and Warranties Obligations and Corporate Guarantees to the Consolidated Financial Statements.

Capital Management

On March 11, 2015, we announced that the Federal Reserve completed its 2015 Comprehensive Capital Analysis and Review (CCAR) and advised that it did not object to our 2015 capital plan but gave a conditional, non-objection under which we are required to resubmit our capital plan by September 30, 2015 and address certain weaknesses identified in the capital planning process. The requested capital actions included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015, and to maintain the quarterly common stock dividend at the current rate of $0.05 per share. If identified weaknesses are not satisfactorily addressed when the Federal Reserve reviews our resubmitted capital plan, the Federal Reserve may restrict our future capital distributions. Pending the resubmission and Federal Reserve review, we are permitted, and intend to proceed with our stock repurchase program and to maintain our common stock dividend at the current rate. For additional information, see Capital Management on page 46.

5


Selected Financial Data

Table 1 provides selected consolidated financial data for the three months ended March 31, 2015 and 2014, and at March 31, 2015 and December 31, 2014.

Table 1
Selected Financial Data
 
Three Months Ended March 31
(Dollars in millions, except per share information)
2015
 
2014
Income statement
 
 
 
Revenue, net of interest expense (FTE basis) (1)
$
21,421

 
$
22,767

Net income (loss)
3,357

 
(276
)
Diluted earnings (loss) per common share (2)
0.27

 
(0.05
)
Dividends paid per common share
0.05

 
0.01

Performance ratios
 
 
 
Return on average assets
0.64
%
 
n/m

Return on average tangible common shareholders' equity (1)
7.88

 
n/m

Efficiency ratio (FTE basis) (1)
73.27

 
97.68
%
Asset quality
 
 
 
Allowance for loan and lease losses at period end
$
13,676

 
$
16,618

Allowance for loan and lease losses as a percentage of total loans and leases outstanding at period end (3)
1.57
%
 
1.84
%
Nonperforming loans, leases and foreclosed properties at period end (3)
$
12,101

 
$
17,732

Net charge-offs (4)
1,194

 
1,388

Annualized net charge-offs as a percentage of average loans and leases outstanding (3, 4)
0.56
%
 
0.62
%
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the purchased credit-impaired loan portfolio (3)
0.57

 
0.64

Annualized net charge-offs and purchased credit-impaired write-offs as a percentage of average loans and leases outstanding (3)
0.70

 
0.79

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (4)
2.82

 
2.95

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the purchased credit-impaired loan portfolio
2.55

 
2.58

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and purchased credit-impaired write-offs
2.28

 
2.30

 
 
 
 
 
March 31
2015
 
December 31
2014
Balance sheet
 
 
 
Total loans and leases
$
877,956

 
$
881,391

Total assets
2,143,545

 
2,104,534

Total deposits
1,153,168

 
1,118,936

Total common shareholders' equity
227,915

 
224,162

Total shareholders' equity
250,188

 
243,471

Capital ratios under Basel 3 Standardized – Transition
 
 
 
Common equity tier 1 capital
11.1
%
 
12.3
%
Tier 1 capital
12.3

 
13.4

Total capital
15.3

 
16.5

Tier 1 leverage
8.4

 
8.2

(1) 
Fully taxable-equivalent basis (FTE), return on average tangible common 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 14.
(2) 
The diluted earnings (loss) per common share excludes 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 applicable to common shareholders.
(3) 
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 82 and corresponding Table 43, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 91 and corresponding Table 52.
(4) 
Net charge-offs exclude $288 million of write-offs in the purchased credit-impaired loan portfolio for the three months ended March 31, 2015 compared to $391 million for the same period in 2014. 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 77.
n/m = not meaningful

6


Financial Highlights

Net income was $3.4 billion, or $0.27 per diluted share for the three months ended March 31, 2015 compared to a net loss of $276 million, or a loss of $0.05 per share for the same period in 2014. The results for the three months ended March 31, 2015 compared to the prior-year period were primarily driven by a $5.6 billion decrease in litigation expense, as well as decreases in certain other noninterest expense categories, and lower provision for credit losses, partially offset by lower net interest income and noninterest income.

Total assets increased $39.0 billion from December 31, 2014 to $2.1 trillion at March 31, 2015 primarily related to increased cash and cash equivalents resulting from strong domestic customer deposit inflows driven by seasonality. For additional information on the increase in total assets, see Executive Summary – Balance Sheet Overview on page 10. During the quarter, we maintained our strong capital position with Common equity tier 1 capital of $147.2 billion at March 31, 2015 compared to $141.2 billion at December 31, 2014 with estimated Common equity tier 1 capital ratios of 10.3 percent compared to 10.0 percent as measured under Basel 3 Standardized approach, on a fully phased-in basis. Our supplementary leverage ratio was 6.3 percent and 5.9 percent at March 31, 2015 and December 31, 2014, both above the 5.0 percent required minimum. Our Global Excess Liquidity Sources were $478 billion with time-to-required funding at 37 months at March 31, 2015 compared to $439 billion and 39 months at December 31, 2014. For additional information, see Capital Management on page 46 and Liquidity Risk on page 56.

Table 2
 
 
 
Summary Income Statement
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Net interest income (FTE basis) (1)
$
9,670

 
$
10,286

Noninterest income
11,751

 
12,481

Total revenue, net of interest expense (FTE basis) (1)
21,421

 
22,767

Provision for credit losses
765

 
1,009

Noninterest expense
15,695

 
22,238

Income (loss) before income taxes (FTE basis) (1)
4,961

 
(480
)
Income tax expense (benefit) (FTE basis) (1)
1,604

 
(204
)
Net income (loss)
3,357

 
(276
)
Preferred stock dividends
382

 
238

Net income (loss) applicable to common shareholders
$
2,975

 
$
(514
)
 
 
 
 
Per common share information
 
 
 
Earnings (loss)
$
0.28

 
$
(0.05
)
Diluted earnings (loss)
0.27

 
(0.05
)
(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 14.

Net Interest Income

Net interest income on a fully taxable-equivalent (FTE) basis decreased $616 million to $9.7 billion, and the net interest yield on an FTE basis decreased 12 basis points (bps) to 2.17 percent for the three months ended March 31, 2015 compared to the same period in 2014. These declines were driven by negative market-related adjustments, lower loan yields and consumer loan balances, and lower net interest income from the asset and liability management (ALM) portfolio. Market-related adjustments on debt securities resulted in an expense of $484 million for the three months ended March 31, 2015 compared to an expense of $273 million for the same period in 2014. Partially offsetting these declines were reductions in funding yields, lower long-term debt balances and commercial loan growth. Market-related adjustments include acceleration of premium amortization (or discount accretion) on debt securities as the decline in long-term interest rates shortened the estimated lives of mortgage-related debt securities. Also included in market-related adjustments is hedge ineffectiveness that impacted net interest income. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K.

7


Noninterest Income
Table 3
Noninterest Income
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Card income
$
1,394

 
$
1,393

Service charges
1,764

 
1,826

Investment and brokerage services
3,378

 
3,269

Investment banking income
1,487

 
1,542

Equity investment income
27

 
784

Trading account profits
2,247

 
2,467

Mortgage banking income
694

 
412

Gains on sales of debt securities
268

 
377

Other income
492

 
411

Total noninterest income
$
11,751

 
$
12,481


Noninterest income decreased $730 million to $11.8 billion for the three months ended March 31, 2015 compared to the same period in 2014. The following highlights the significant changes.

Investment and brokerage services income increased $109 million primarily from increased asset management fees driven by the impact of long-term assets under management (AUM) inflows and higher market levels.

Equity investment income decreased $757 million primarily driven by the gain on the sale of a portion of an equity investment in the first quarter of 2014.

Trading account profits decreased $220 million. Excluding net debit valuation adjustments (DVA), trading account profits decreased $259 million due to lower trading volumes driven by client flows primarily in our mortgage and credit-related businesses.

Mortgage banking income increased $282 million primarily driven by improved mortgage servicing rights (MSR) net-of-hedge performance, an increase in core production revenue and lower representations and warranties provision, partially offset by a decline in servicing fees.

Other income increased $81 million due to gains associated with the sales of residential mortgage loans, partially offset by a decrease in net DVA gains on structured liabilities.

Provision for Credit Losses

The provision for credit losses decreased $244 million to $765 million for the three months ended March 31, 2015 compared to the same period in 2014. The provision for credit losses was $429 million lower than net charge-offs, resulting in a reduction in the allowance for credit losses. The decrease in provision for credit losses from the prior-year period was due to improvement in the credit card portfolios primarily driven by lower unemployment levels, as well as lower provision in the commercial portfolio, primarily in U.S. commercial. We expect reserve releases to be lower than the first quarter for the remaining quarters of 2015.

Net charge-offs totaled $1.2 billion, or 0.56 percent of average loans and leases for the three months ended March 31, 2015 compared to $1.4 billion, or 0.62 percent, for the same period in 2014. The decrease in net charge-offs was due to credit quality improvement across most major portfolios. For more information on the provision for credit losses, see Provision for Credit Losses on page 98.

8


Noninterest Expense
Table 4
 
 
 
Noninterest Expense
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Personnel
$
9,614

 
$
9,749

Occupancy
1,027

 
1,115

Equipment
512

 
546

Marketing
440

 
442

Professional fees
421

 
558

Amortization of intangibles
213

 
239

Data processing
852

 
833

Telecommunications
171

 
370

Other general operating
2,445

 
8,386

Total noninterest expense
$
15,695

 
$
22,238


Noninterest expense decreased $6.5 billion to $15.7 billion for the three months ended March 31, 2015 compared to the same period in 2014, primarily driven by declines in litigation expense as well as in certain other noninterest expense categories. Litigation expense, which is included in other general operating expense, decreased $5.6 billion to $370 million as the first quarter of 2014 included costs associated with the settlement with the Federal Housing Finance Agency and the establishment of additional reserves primarily for legacy mortgage-related matters. Telecommunications expense decreased $199 million due to efficiencies gained as we have simplified our operating model, including in-sourcing certain functions. Professional fees decreased $137 million primarily due to lower default-related servicing expenses and legal fees. Personnel expense decreased $135 million as we have continued to streamline processes and achieve cost savings. Personnel expense included approximately $1.0 billion of annual retirement-eligible incentive costs in both periods.

Income Tax Expense
Table 5
 
 
 
Income Tax Expense (Benefit)
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Income (loss) before income taxes
$
4,742

 
$
(681
)
Income tax expense (benefit)
1,385

 
(405
)
Effective tax rate
29.2
%
 
59.5
%

The effective tax rates for the three months ended March 31, 2015 and 2014 were primarily driven by our recurring tax preference items. The effective tax rate for the three months ended March 31, 2014 was also impacted by certain nondeductible accruals, largely offset by discrete tax benefits principally from the resolution of certain tax matters. We expect an effective tax rate of approximately 30 percent, absent any unusual items, for the remainder of 2015.


9


Balance Sheet Overview
 
 
 
Table 6
Selected Balance Sheet Data
 
 
 
 
 
 
 
Average Balance
 
 
 
March 31
2015
 
December 31
2014
 
% Change
 
Three Months Ended
March 31
 
% Change
(Dollars in millions)
 
 
 
2015
 
2014
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
162,543

 
$
138,589

 
17
 %
 
$
153,884

 
$
140,828

 
9
 %
Federal funds sold and securities borrowed or purchased under agreements to resell
206,708

 
191,823

 
8

 
213,931

 
212,504

 
1

Trading account assets
186,860

 
191,785

 
(3
)
 
194,391

 
203,836

 
(5
)
Debt securities
383,989

 
380,461

 
1

 
383,120

 
329,711

 
16

Loans and leases
877,956

 
881,391

 

 
872,393

 
919,482

 
(5
)
Allowance for loan and lease losses
(13,676
)
 
(14,419
)
 
(5
)
 
(14,247
)
 
(17,144
)
 
(17
)
All other assets
339,165

 
334,904

 
1

 
335,102

 
350,049

 
(4
)
Total assets
$
2,143,545

 
$
2,104,534

 
2

 
$
2,138,574

 
$
2,139,266

 

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Deposits
$
1,153,168

 
$
1,118,936

 
3

 
$
1,130,725

 
$
1,118,178

 
1

Federal funds purchased and securities loaned or sold under agreements to repurchase
203,758

 
201,277

 
1

 
214,722

 
204,804

 
5

Trading account liabilities
74,791

 
74,192

 
1

 
78,787

 
90,449

 
(13
)
Short-term borrowings
33,270

 
31,172

 
7

 
29,412

 
48,168

 
(39
)
Long-term debt
237,858

 
243,139

 
(2
)
 
240,127

 
253,678

 
(5
)
All other liabilities
190,512

 
192,347

 
(1
)
 
199,057

 
187,430

 
6

Total liabilities
1,893,357

 
1,861,063

 
2

 
1,892,830

 
1,902,707

 
(1
)
Shareholders' equity
250,188

 
243,471

 
3

 
245,744

 
236,559

 
4

Total liabilities and shareholders' equity
$
2,143,545

 
$
2,104,534

 
2

 
$
2,138,574

 
$
2,139,266

 


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.


10


Balance Sheet Analysis

Assets

At March 31, 2015, total assets were approximately $2.1 trillion, up $39.0 billion from December 31, 2014. The key drivers were increased cash and cash equivalents primarily due to higher interest-bearing deposits with the Federal Reserve as a result of strong domestic deposit inflows driven by seasonality related to income tax refunds and growth in customer and client activity, higher securities borrowed or purchased under agreements to resell due to a shift in mix between reverse repos and debt securities and an increase in commercial loan balances. These increases were partially offset by a decline in consumer loan balances due to loan sales and portfolio run-off outpacing new originations, and a reduction in trading account assets.

Average total assets remained relatively unchanged for the three months ended March 31, 2015 compared to the same period in 2014. Consumer loans declined primarily due to loan sales and continued portfolio run-off. There were also declines in all other assets primarily due to decreases in other nonearning assets, time deposits placed and customer receivables as well as lower trading account assets primarily due to a reduction in non-U.S. sovereign debt inventory. These decreases were largely offset by increases in debt securities due to a shift from whole loans to securities, an increase in U.S. Treasury holdings and increases in the valuation of the debt securities portfolio. There were also increases in cash and cash equivalents primarily driven by higher interest-bearing deposits with the Federal Reserve and non-U.S. central banks and increases in derivative dealer assets.

Liabilities and Shareholders' Equity

At March 31, 2015, total liabilities were approximately $1.9 trillion, up $32.3 billion from December 31, 2014, primarily driven by an increase in deposits as well as increases in securities loaned or sold under agreements to repurchase and short-term borrowings. The increases were partially offset by declines in long-term debt and all other liabilities.

Average total liabilities decreased $9.9 billion for the three months ended March 31, 2015 compared to the same period in 2014. The decline was primarily driven by planned reductions in short-term borrowings driving decreases in Federal Home Loan Bank (FHLB) advances, decreases in long-term debt as maturities outpaced new issuances, and decreases in trading account liabilities primarily due to lower levels of short U.S. Treasury and non-U.S. sovereign debt positions. These decreases were partially offset by growth in deposits, increases in securities loaned or sold under agreements to repurchase and all other liabilities.

Shareholders' equity of $250.2 billion at March 31, 2015 increased $6.7 billion from December 31, 2014 driven by preferred stock issuances, earnings and an increase in accumulated other comprehensive income (OCI) due to a positive net change in the fair value of available-for-sale (AFS) debt securities.

Average shareholders' equity of $245.7 billion for the three months ended March 31, 2015 increased $9.2 billion from the same period in 2014 driven by preferred stock issuances, earnings and an increase in accumulated OCI due to a positive net change in the fair value of AFS debt securities. These increases were partially offset by common share repurchases.


11


Table 7
 
 
 
 
Selected Quarterly Financial Data
 
 
 
 
 
2015 Quarter
 
2014 Quarters
(In millions, except per share information)
First
 
Fourth
 
Third
 
Second
 
First
Income statement
 
 
 
 
 
 
 
 
 
Net interest income
$
9,451

 
$
9,635

 
$
10,219

 
$
10,013

 
$
10,085

Noninterest income
11,751

 
9,090

 
10,990

 
11,734

 
12,481

Total revenue, net of interest expense
21,202

 
18,725

 
21,209

 
21,747

 
22,566

Provision for credit losses
765

 
219

 
636

 
411

 
1,009

Noninterest expense
15,695

 
14,196

 
20,142

 
18,541

 
22,238

Income (loss) before income taxes
4,742

 
4,310

 
431

 
2,795

 
(681
)
Income tax expense (benefit)
1,385

 
1,260

 
663

 
504

 
(405
)
Net income (loss)
3,357

 
3,050

 
(232
)
 
2,291

 
(276
)
Net income (loss) applicable to common shareholders
2,975

 
2,738

 
(470
)
 
2,035

 
(514
)
Average common shares issued and outstanding
10,519

 
10,516

 
10,516

 
10,519

 
10,561

Average diluted common shares issued and outstanding (1)
11,267

 
11,274

 
10,516

 
11,265

 
10,561

Performance ratios
 
 
 
 
 
 
 
 
 
Return on average assets
0.64
%
 
0.57
%
 
n/m

 
0.42
%
 
n/m

Four quarter trailing return on average assets (2)
0.39

 
0.23

 
0.24
%
 
0.37

 
0.45
%
Return on average common shareholders' equity
5.35

 
4.84

 
n/m

 
3.68

 
n/m

Return on average tangible common shareholders' equity (3)
7.88

 
7.15

 
n/m

 
5.47

 
n/m

Return on average tangible shareholders' equity (3)
7.85

 
7.08

 
n/m

 
5.64

 
n/m

Total ending equity to total ending assets
11.67

 
11.57

 
11.24

 
10.94

 
10.79

Total average equity to total average assets
11.49

 
11.39

 
11.14

 
10.87

 
11.06

Dividend payout
17.68

 
19.21

 
n/m

 
5.16

 
n/m

Per common share data
 
 
 
 
 
 
 
 
 
Earnings (loss)
$
0.28

 
$
0.26

 
$
(0.04
)
 
$
0.19

 
$
(0.05
)
Diluted earnings (loss) (1)
0.27

 
0.25

 
(0.04
)
 
0.19

 
(0.05
)
Dividends paid
0.05

 
0.05

 
0.05

 
0.01

 
0.01

Book value
21.66

 
21.32

 
20.99

 
21.16

 
20.75

Tangible book value (3)
14.79

 
14.43

 
14.09

 
14.24

 
13.81

Market price per share of common stock
 
 
 
 
 
 
 
 
 
Closing
$
15.39

 
$
17.89

 
$
17.05

 
$
15.37

 
$
17.20

High closing
17.90

 
18.13

 
17.18

 
17.34

 
17.92

Low closing
15.15

 
15.76

 
14.98

 
14.51

 
16.10

Market capitalization
$
161,909

 
$
188,141

 
$
179,296

 
$
161,628

 
$
181,117

(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 third and first quarters of 2014 because of the net loss applicable to common shareholders.
(2) 
Calculated as total net income (loss) 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 14.
(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 65.
(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 82 and corresponding Table 43, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 91 and corresponding Table 52.
(7) 
Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, purchased credit-impaired loans and the non-U.S. credit card portfolio in All Other.
(8) 
Net charge-offs exclude $288 million, $13 million, $246 million, $160 million and $391 million of write-offs in the purchased credit-impaired loan portfolio in the first quarter of 2015 and in the fourth, third, second and first quarters of 2014, 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 77.
n/m = not meaningful

12


Table 7
 
 
 
 
Selected Quarterly Financial Data (continued)
 
 
 
 
 
2015 Quarter
 
2014 Quarters
(Dollars in millions)
First
 
Fourth
 
Third
 
Second
 
First
Average balance sheet
 
 
 
 
 
 
 
 
 
Total loans and leases
$
872,393

 
$
884,733

 
$
899,241

 
$
912,580

 
$
919,482

Total assets
2,138,574

 
2,137,551

 
2,136,109

 
2,169,555

 
2,139,266

Total deposits
1,130,725

 
1,122,514

 
1,127,488

 
1,128,563

 
1,118,178

Long-term debt
240,127

 
249,221

 
251,772

 
259,825

 
253,678

Common shareholders' equity
225,357

 
224,479

 
222,374

 
222,221

 
223,207

Total shareholders' equity
245,744

 
243,454

 
238,040

 
235,803

 
236,559

Asset quality (4)
 
 
 
 
 
 
 
 
 
Allowance for credit losses (5)
$
14,213

 
$
14,947

 
$
15,635

 
$
16,314

 
$
17,127

Nonperforming loans, leases and foreclosed properties (6)
12,101

 
12,629

 
14,232

 
15,300

 
17,732

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6)
1.57
%
 
1.65
%
 
1.71
%
 
1.75
%
 
1.84
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (6)
122

 
121

 
112

 
108

 
97

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (6)
110

 
107

 
100

 
95

 
85

Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (7)
$
5,492

 
$
5,944

 
$
6,013

 
$
6,488

 
$
7,143

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)
73
%
 
71
%
 
67
%
 
64
%
 
55
%
Net charge-offs (8)
$
1,194

 
$
879

 
$
1,043

 
$
1,073

 
$
1,388

Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8)
0.56
%
 
0.40
%
 
0.46
%
 
0.48
%
 
0.62
%
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (6)
0.57

 
0.41

 
0.48

 
0.49

 
0.64

Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (6)
0.70

 
0.40

 
0.57

 
0.55

 
0.79

Nonperforming loans and leases as a percentage of total loans and leases outstanding (6)
1.29

 
1.37

 
1.53

 
1.63

 
1.89

Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (6)
1.39

 
1.45

 
1.61

 
1.70

 
1.96

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (8)
2.82

 
4.14

 
3.65

 
3.67

 
2.95

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio
2.55

 
3.66

 
3.27

 
3.25

 
2.58

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs
2.28

 
4.08

 
2.95

 
3.20

 
2.30

Capital ratios at period end
Risk-based capital under Basel 3 Standardized – Transition:
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
11.1
%
 
12.3
%
 
12.0
%
 
12.0
%
 
11.8
%
Tier 1 capital
12.3

 
13.4

 
12.8

 
12.5

 
11.9

Total capital
15.3

 
16.5

 
15.8

 
15.3

 
14.8

Tier 1 leverage
8.4

 
8.2

 
7.9

 
7.7

 
7.4

 
 
 
 
 
 
 
 
 
 
Tangible equity (3)
8.6

 
8.4

 
8.1

 
7.8

 
7.6

Tangible common equity (3)
7.5

 
7.5

 
7.2

 
7.1

 
7.0

For footnotes see page 12.
 
 
 
 
 
 
 
 

13


Supplemental Financial Data

We view net interest income and related ratios and analyses on an FTE basis, which when presented on a consolidated basis, are non-GAAP financial measures. We believe managing the business with net interest income on an 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 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 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 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 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 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.

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 22 and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.

Tables 8 and 9 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.

Table 8
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures
 
2015 Quarter
 
2014 Quarters
(Dollars in millions)
First
 
Fourth
 
Third
 
Second
 
First
Fully taxable-equivalent basis data
 
 
 
 
 
 
 
 
 
Net interest income
$
9,670

 
$
9,865

 
$
10,444

 
$
10,226

 
$
10,286

Total revenue, net of interest expense
21,421

 
18,955

 
21,434

 
21,960

 
22,767

Net interest yield
2.17
%
 
2.18
%
 
2.29
%
 
2.22
%
 
2.29
%
Efficiency ratio
73.27

 
74.90

 
93.97

 
84.43

 
97.68


14


Table 8
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures (continued)
 
2015 Quarter
 
2014 Quarters
(Dollars in millions)
First
 
Fourth
 
Third
 
Second
 
First
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis
 
 
 
 
 
 
 
 
 
Net interest income
$
9,451

 
$
9,635

 
$
10,219

 
$
10,013

 
$
10,085

Fully taxable-equivalent adjustment
219

 
230

 
225

 
213

 
201

Net interest income on a fully taxable-equivalent basis
$
9,670

 
$
9,865

 
$
10,444

 
$
10,226

 
$
10,286

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
$
21,202

 
$
18,725

 
$
21,209

 
$
21,747

 
$
22,566

Fully taxable-equivalent adjustment
219

 
230

 
225

 
213

 
201

Total revenue, net of interest expense on a fully taxable-equivalent basis
$
21,421

 
$
18,955

 
$
21,434

 
$
21,960

 
$
22,767

Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully taxable-equivalent basis
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
$
1,385

 
$
1,260

 
$
663

 
$
504

 
$
(405
)
Fully taxable-equivalent adjustment
219

 
230

 
225

 
213

 
201

Income tax expense (benefit) on a fully taxable-equivalent basis
$
1,604

 
$
1,490

 
$
888

 
$
717

 
$
(204
)
Reconciliation of average common shareholders' equity to average tangible common shareholders' equity
 
 
 
 
 
 
 
 
 
Common shareholders' equity
$
225,357

 
$
224,479

 
$
222,374

 
$
222,221

 
$
223,207

Goodwill
(69,776
)
 
(69,782
)
 
(69,792
)
 
(69,822
)
 
(69,842
)
Intangible assets (excluding MSRs)
(4,518
)
 
(4,747
)
 
(4,992
)
 
(5,235
)
 
(5,474
)
Related deferred tax liabilities
1,959

 
2,019

 
2,077

 
2,100

 
2,165

Tangible common shareholders' equity
$
153,022

 
$
151,969

 
$
149,667

 
$
149,264

 
$
150,056

Reconciliation of average shareholders' equity to average tangible shareholders' equity
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
245,744

 
$
243,454

 
$
238,040

 
$
235,803

 
$
236,559

Goodwill
(69,776
)
 
(69,782
)
 
(69,792
)
 
(69,822
)
 
(69,842
)
Intangible assets (excluding MSRs)
(4,518
)
 
(4,747
)
 
(4,992
)
 
(5,235
)
 
(5,474
)
Related deferred tax liabilities
1,959

 
2,019

 
2,077

 
2,100

 
2,165

Tangible shareholders' equity
$
173,409

 
$
170,944

 
$
165,333

 
$
162,846

 
$
163,408

Reconciliation of period-end common shareholders' equity to period-end tangible common shareholders' equity
 
 
 
 
 
 
 
 
 
Common shareholders' equity
$
227,915

 
$
224,162

 
$
220,768

 
$
222,565

 
$
218,536

Goodwill
(69,776
)
 
(69,777
)
 
(69,784
)
 
(69,810
)
 
(69,842
)
Intangible assets (excluding MSRs)
(4,391
)
 
(4,612
)
 
(4,849
)
 
(5,099
)
 
(5,337
)
Related deferred tax liabilities
1,900

 
1,960

 
2,019

 
2,078

 
2,100

Tangible common shareholders' equity
$
155,648

 
$
151,733

 
$
148,154

 
$
149,734

 
$
145,457

Reconciliation of period-end shareholders' equity to period-end tangible shareholders' equity
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
250,188

 
$
243,471

 
$
238,681

 
$
237,411

 
$
231,888

Goodwill
(69,776
)
 
(69,777
)
 
(69,784
)
 
(69,810
)
 
(69,842
)
Intangible assets (excluding MSRs)
(4,391
)
 
(4,612
)
 
(4,849
)
 
(5,099
)
 
(5,337
)
Related deferred tax liabilities
1,900

 
1,960

 
2,019

 
2,078

 
2,100

Tangible shareholders' equity
$
177,921

 
$
171,042

 
$
166,067

 
$
164,580

 
$
158,809

Reconciliation of period-end assets to period-end tangible assets
 
 
 
 
 
 
 
 
 
Assets
$
2,143,545

 
$
2,104,534

 
$
2,123,613

 
$
2,170,557

 
$
2,149,851

Goodwill
(69,776
)
 
(69,777
)
 
(69,784
)
 
(69,810
)
 
(69,842
)
Intangible assets (excluding MSRs)
(4,391
)
 
(4,612
)
 
(4,849
)
 
(5,099
)
 
(5,337
)
Related deferred tax liabilities
1,900

 
1,960

 
2,019

 
2,078

 
2,100

Tangible assets
$
2,071,278

 
$
2,032,105

 
$
2,050,999

 
$
2,097,726

 
$
2,076,772

 
 
 
 

15


Table 9
 
 
 
Segment Supplemental Financial Data Reconciliations to GAAP Financial Measures (1)
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
 
 
 
 
Consumer Banking
 
 
 
Reported net income
$
1,475

 
$
1,468

Adjustment related to intangibles (2)
1

 
1

Adjusted net income
$
1,476

 
$
1,469

 
 
 
 
Average allocated equity (3)
$
59,348

 
$
60,417

Adjustment related to goodwill and a percentage of intangibles
(30,348
)
 
(30,417
)
Average allocated capital
$
29,000

 
$
30,000

 
 
 
 
Deposits
 
 
 
Reported net income
$
538

 
$
561

Adjustment related to intangibles (2)

 

Adjusted net income
$
538

 
$
561

 
 
 
 
Average allocated equity (3)
$
30,424

 
$
29,425

Adjustment related to goodwill and a percentage of intangibles
(18,424
)
 
(18,425
)
Average allocated capital
$
12,000

 
$
11,000

 
 
 
 
Consumer Lending
 
 
 
Reported net income
$
937

 
$
907

Adjustment related to intangibles (2)
1

 
1

Adjusted net income
$
938

 
$
908

 
 
 
 
Average allocated equity (3)
$
28,923

 
$
30,993

Adjustment related to goodwill and a percentage of intangibles
(11,923
)
 
(11,993
)
Average allocated capital
$
17,000

 
$
19,000

 
 
 
 
Global Wealth & Investment Management
 
 
 
Reported net income
$
651

 
$
729

Adjustment related to intangibles (2)
3

 
3

Adjusted net income
$
654

 
$
732

 
 
 
 
Average allocated equity (3)
$
22,168

 
$
22,243

Adjustment related to goodwill and a percentage of intangibles
(10,168
)
 
(10,243
)
Average allocated capital
$
12,000

 
$
12,000

 
 
 
 
Global Banking
 
 
 
Reported net income
$
1,365

 
$
1,291

Adjustment related to intangibles (2)

 
1

Adjusted net income
$
1,365

 
$
1,292

 
 
 
 
Average allocated equity (3)
$
58,944

 
$
57,453

Adjustment related to goodwill and a percentage of intangibles
(23,944
)
 
(23,953
)
Average allocated capital
$
35,000

 
$
33,500

 
 
 
 
Global Markets
 
 
 
Reported net income
$
945

 
$
1,313

Adjustment related to intangibles (2)
2

 
2

Adjusted net income
$
947

 
$
1,315

 
 
 
 
Average allocated equity (3)
$
40,364

 
$
39,377

Adjustment related to goodwill and a percentage of intangibles
(5,364
)
 
(5,377
)
Average allocated capital
$
35,000

 
$
34,000

(1) 
There are no adjustments to reported net income (loss) or average allocated equity for LAS.
(2) 
Represents cost of funds, earnings credits and certain expenses related to intangibles.
(3) 
Average allocated equity is comprised of average allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the business segment. For more information on allocated capital, see Business Segment Operations on page 22 and Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
 
 
 
 


16


Net Interest Income Excluding Trading-related Net Interest Income

We manage net interest income on an FTE basis and excluding the impact of trading-related activities. As discussed in Global Markets on page 33, we evaluate our sales and trading results and strategies on a total market-based revenue approach by combining net interest income and noninterest income for Global Markets. An analysis of net interest income, average earning assets and net interest yield on earning assets, all of which adjust for the impact of trading-related net interest income from reported net interest income on an FTE basis, is shown below. We believe the use of this non-GAAP presentation in Table 10 provides additional clarity in assessing our results.

Table 10
Net Interest Income Excluding Trading-related Net Interest Income
 
Three Months Ended March 31
(Dollars in millions)
2015
 
2014
Net interest income (FTE basis)
 
 
 
As reported
$
9,670

 
$
10,286

Impact of trading-related net interest income
(917
)
 
(905
)
Net interest income excluding trading-related net interest income (1)
$
8,753

 
$
9,381

Average earning assets
 
 
 
As reported
$
1,804,399

 
$
1,803,297

Impact of trading-related earning assets
(418,214
)
 
(442,700
)
Average earning assets excluding trading-related earning assets (1)
$
1,386,185

 
$
1,360,597

Net interest yield contribution (FTE basis) (2)
 
 
 
As reported
2.17
%
 
2.29
%
Impact of trading-related activities
0.38

 
0.48

Net interest yield on earning assets excluding trading-related activities (1)
2.55
%
 
2.77
%
(1) 
Represents a non-GAAP financial measure.
(2) 
Calculated on an annualized basis.

For the three months ended March 31, 2015, net interest income excluding trading-related net interest income decreased $628 million to $8.8 billion compared to the same period in 2014. The decrease was due to the negative market-related adjustments, lower loan yields and consumer loan balances, and lower net interest income from the ALM portfolio. Market-related adjustments on debt securities resulted in an expense of $484 million compared to an expense of $273 million for the same period in 2014. Partially offsetting the decrease were reductions in funding yields, lower long-term debt balances and commercial loan growth. For more information on the impact of interest rates, see Interest Rate Risk Management for Non-trading Activities on page 108.

Average earning assets excluding trading-related earning assets for the three months ended March 31, 2015 increased $25.6 billion to $1,386.2 billion compared to the same period in 2014. The increase was primarily in debt securities and interest-bearing deposits with the Federal Reserve, partially offset by a decline in consumer loans.

For the three months ended March 31, 2015, net interest yield on earning assets excluding trading-related activities decreased 22 bps to 2.55 percent compared to the same period in 2014 due to the same factors as described above.


17


Table 11
Quarterly Average Balances and Interest Rates – FTE Basis
 
First Quarter 2015
 
Fourth Quarter 2014
(Dollars in millions)
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Earning assets
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
$
126,189

 
$
84

 
0.27
%
 
$
109,042

 
$
74

 
0.27
%
Time deposits placed and other short-term investments
8,379

 
33

 
1.61

 
9,339

 
41

 
1.73

Federal funds sold and securities borrowed or purchased under agreements to resell
213,931

 
231

 
0.44

 
217,982

 
237

 
0.43

Trading account assets
138,946

 
1,122

 
3.26

 
144,147

 
1,142

 
3.15

Debt securities
383,120

 
1,898

 
2.01

 
371,014

 
1,687

 
1.82

Loans and leases (1):
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage (2)
215,030

 
1,851

 
3.45

 
223,132

 
1,946

 
3.49

Home equity
84,915

 
770

 
3.66

 
86,825

 
808

 
3.70

U.S. credit card
88,695

 
2,027

 
9.27

 
89,381

 
2,087

 
9.26

Non-U.S. credit card
10,002

 
262

 
10.64

 
10,950

 
280

 
10.14

Direct/Indirect consumer (3)
80,713

 
491

 
2.47

 
83,121

 
522

 
2.49

Other consumer (4)
1,847

 
15

 
3.29

 
2,031

 
85

 
16.75

Total consumer
481,202

 
5,416

 
4.54

 
495,440

 
5,728

 
4.60

U.S. commercial
234,907

 
1,645

 
2.84

 
231,215

 
1,648

 
2.83

Commercial real estate (5)
48,234

 
347

 
2.92

 
46,996

 
360

 
3.04

Commercial lease financing
24,495

 
216

 
3.53

 
24,238

 
199

 
3.28

Non-U.S. commercial
83,555

 
485

 
2.35

 
86,844

 
527

 
2.41

Total commercial
391,191

 
2,693

 
2.79

 
389,293

 
2,734

 
2.79

Total loans and leases
872,393

 
8,109

 
3.75

 
884,733

 
8,462

 
3.80

Other earning assets
61,441

 
705

 
4.66

 
65,864

 
739

 
4.46

Total earning assets (6)
1,804,399

 
12,182

 
2.73

 
1,802,121

 
12,382

 
2.73

Cash and due from banks
27,695

 
 
 
 
 
27,590