10-Q 1 bac-630201610xq.htm 10-Q 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 June 30, 2016
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 July 29, 2016, there were 10,204,798,799 shares of Bank of America Corporation Common Stock outstanding.
 
 
 
 
 

                


Bank of America Corporation
 
June 30, 2016
 
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," "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, 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, including under Item 1A. Risk Factors of the Corporation's 2015 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, including claims brought by investors or trustees seeking to distinguish certain aspects of the New York Court of Appeals' ACE Securities Corp v. DB Structured Products, Inc. (ACE) decision or to assert other claims seeking to avoid the impact of the ACE decision; 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, other parties involved in securitizations, monolines or private-label and other investors; 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; 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 loss for litigation exposures; the possible outcome of LIBOR, other reference rate, financial instrument and foreign exchange inquiries, investigations and litigation; 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 (including negative or continued low interest rates), currency exchange rates and economic conditions; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior and other uncertainties; the impact on the Corporation's business, financial condition and results of operations of a potential higher interest rate environment; the impact on the Corporation's business, financial condition and results of operations from a protracted period of lower oil prices or ongoing volatility with respect to oil prices; our ability to achieve our expense targets; 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 the potential adoption of total loss-absorbing capacity requirements; the potential for payment protection insurance exposure to increase as a result of Financial Conduct Authority actions; the impact of recent proposed U.K. tax law changes including a further limitation on how much net operating losses can offset annual profits and a reduction to the U.K. corporate tax rate which, if enacted, will result in a tax charge upon enactment; the possible impact of Federal Reserve actions on the Corporation's capital plans; the possible impact of the Corporation's failure to remediate deficiencies identified by banking regulators in the Corporation's Recovery and Resolution plans; 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, FDIC assessments, the Volcker Rule, 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 potential 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.


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 June 30, 2016, the Corporation had approximately $2.2 trillion in assets and approximately 211,000 full-time equivalent employees.

In the Annual Report on Form 10-K for the year ended December 31, 2015, we reported our results of operations through 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. Effective April 1, 2016, to align the segments with how we now manage our businesses, we changed our basis of presentation to eliminate the LAS segment, and following such change, 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. Consumer real estate loans, including loans previously held in or serviced by LAS, have been designated as either core or non-core based on criteria described in Business Segment Operations on page 24. Following the realignment, core loans owned by the Corporation, which include all loans originated after the realignment, are held in the Consumer Banking and GWIM segments. Non-core loans owned by the Corporation, which are principally run-off portfolios, as well as loans held for asset and liability management (ALM) activities, are held in All Other. Mortgage servicing rights (MSRs) pertaining to core and non-core loans serviced for others are held in Consumer Banking and All Other, respectively. Prior periods have been reclassified to conform to current period presentation.

As of June 30, 2016, 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 47 million consumer and small business relationships with approximately 4,700 retail financial centers, approximately 16,000 ATMs, and leading online and mobile banking platforms with approximately 33 million active accounts and more than 20 million mobile active users (www.bankofamerica.com). We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of $2.4 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.

Second-Quarter 2016 Economic and Business Environment

In the U.S., the economy showed renewed signs of momentum in the second quarter of 2016. Consumer spending accelerated, as retail sales and service spending increased. The housing sector continued to expand, reflecting continued low mortgage rates and growing disposable income, but the pace of expansion slowed from recent quarters. While oil prices slightly rebounded from earlier declines, business spending remained suppressed by the delayed impact on the demand for capital goods in the energy sector. With numerous uncertainties during the quarter, businesses continued to reduce inventory accumulation, restraining the manufacturing sector. As a result, production growth lagged behind strong gains in domestic final sales, which exclude net exports and inventory investments. However, an increase in manufacturing activity late in the quarter signaled a positive business response to strengthening domestic demand.

In contrast to the increase in consumer demand, payroll gains slowed further, showing almost no net new job creation earlier in the quarter before rebounding in June. The unemployment rate moved slightly lower, largely as a result of a stagnant labor force as recent gains in participation rates were partially reversed. The split between stronger domestic demand and a softer labor market is expected to be resolved in the second half of the year. Core inflation maintained the momentum gained early in the year, but remained below the Board of Governors of the Federal Reserve System's (Federal Reserve) longer-term annual target of two percent.

The Federal Open Market Committee (FOMC) left its federal funds rate target unchanged in the quarter. Members of the FOMC remained concerned about conditions abroad (including the outcome of the U.K.’s Referendum on exiting the European Union (EU) (U.K. Referendum)) and the slowdown in payroll gains. At the June meeting, members both slowed their projected pace of tightening and lowered the expected longer-run level of the federal funds rate. In response, treasury yields fell during the quarter, especially in the first few days after the U.K. Referendum. Equities rose slightly during the quarter.


4


International concerns centered on Europe where the run-up to the U.K. Referendum, as well as the result, increased uncertainty. When the U.K. voted on June 23, 2016 to leave the EU, the British pound fell and market volatility temporarily increased. For more information on the U.K. Referendum, see Executive Summary – Recent Events on page 5. Financial markets settled down in the ensuing days, but the outcome of the U.K. Referendum was generally seen as reducing confidence and is expected to have a negative impact on the British economy in the near term. The European Central Bank and the Bank of Japan maintained accommodative conditions during the quarter by expanding the overall monetary supply in order to boost slowed economic growth. International yields fell, with German 10-year Bund yields dropping into negative territory. Among emerging nations, Brazil continued to struggle with a deep recession and high inflation, and Venezuela experienced unrest related to a rapidly shrinking economy and deteriorating political situation. Russia benefited from the recovery in oil prices, with economic growth likely to resume in the second half of the year. The Chinese economy was stable during the quarter. In early July, a coup attempt in Turkey increased political instability, although the current government remained in power and financial market reaction outside of Turkey was minimal.

Recent Events

United Kingdom Referendum to Exit the European Union

The U.K. Referendum was held on June 23, 2016, which resulted in a majority vote in favor of exiting the EU. At this time, the ultimate impact of the U.K.'s potential exit from the EU is unknown. The timing of the U.K.'s formal commencement of the exit process is uncertain. Once the exit process begins, negotiations to agree on the terms of the exit are expected to be a multi-year process. During this transition period, the ultimate impact of the U.K.'s potential exit from the EU will remain unclear and economic and market volatility may continue. If uncertainty resulting from the U.K.'s potential exit from the EU negatively impacts economic conditions, financial markets and consumer confidence, our business, results of operations, financial position and/or operational model could be affected. For more information about the potential impact on us of the U.K.'s exit from the EU, see Item 1A. Risk Factors on page 215.

Capital Management

In April 2016, we submitted our 2016 Comprehensive Capital Analysis and Review (CCAR) capital plan which included a request to repurchase $5.0 billion of common stock over four quarters beginning in the third quarter of 2016, and to increase the quarterly common stock dividend from $0.05 per share to $0.075 per share. In addition, our capital plan includes the repurchase of common shares to offset the dilution resulting from certain equity compensation. On June 29, 2016, following the Federal Reserve's non-objection to our 2016 CCAR capital plan, the Board of Directors (the Board) authorized the common stock repurchases described above. The common stock repurchase authorization includes both common stock and warrants. On July 27, 2016, the Board declared a quarterly common stock dividend of $0.075 per share, payable on September 23, 2016 to shareholders of record as of September 2, 2016. For additional information, see the Corporation's Current Report on Form 8-K as filed on June 29, 2016.

During the three and six months ended June 30, 2016, we repurchased $783 million and $1.6 billion of common stock in connection with our 2015 CCAR capital plan, which included a request to repurchase $4.0 billion of common stock over five quarters beginning in the second quarter of 2015. Additionally, on March 18, 2016, the Corporation announced that the Board authorized additional repurchases of common stock up to $800 million outside of the scope of the 2015 CCAR capital plan to offset the share count dilution resulting from equity incentive compensation awarded to retirement-eligible employees, to which the Federal Reserve did not object. In connection with this authorization, the Corporation repurchased $600 million and $800 million of common stock during the three and six months ended June 30, 2016. For additional information, see Capital Management on page 48.


5


Selected Financial Data

Table 1 provides selected consolidated financial data for the three and six months ended June 30, 2016 and 2015, and at June 30, 2016 and December 31, 2015.

Table 1
 
 
 
 
Selected Financial Data (1)
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions, except per share information)
2016
 
2015
 
2016
 
2015
Income statement
 
 
 
 
 
 
 
Revenue, net of interest expense
$
20,398

 
$
21,956

 
$
39,910

 
$
42,870

Net income
4,232

 
5,134

 
6,912

 
8,231

Diluted earnings per common share
0.36

 
0.43

 
0.56

 
0.68

Dividends paid per common share
0.05

 
0.05

 
0.10

 
0.10

Performance ratios
 
 
 
 
 

 
 
Return on average assets
0.78
%
 
0.96
%
 
0.64
%
 
0.77
%
Return on average common shareholders' equity
6.48

 
8.42

 
5.14

 
6.68

Return on average tangible common shareholders' equity (2)
9.24

 
12.31

 
7.34

 
9.79

Efficiency ratio
66.14

 
63.57

 
70.93

 
69.48

 
 
 
 
 
 
 
 
 
 
 
 
 
June 30
2016
 
December 31
2015
Balance sheet
 
 
 
 
 
 
 
Total loans and leases (3)
 
 
 
 
$
903,153

 
$
896,983

Total assets
 
 
 
 
2,186,609

 
2,144,316

Total deposits
 
 
 
 
1,216,091

 
1,197,259

Total common shareholders' equity
 
 
 
 
241,849

 
233,932

Total shareholders' equity
 
 
 
 
267,069

 
256,205

(1) 
Certain amounts in the table that have been reported in previous filings using fully taxable-equivalent (FTE) basis (a non-GAAP financial measure) are now shown on a GAAP basis. See Table 11 for a reconciliation.
(2) 
Return on average tangible common shareholders' equity is a non-GAAP financial measure. Other companies may define or calculate this measure differently. For more information and a corresponding reconciliation to GAAP financial measures, see Supplemental Financial Data on page 16.
(3) 
Beginning in the first quarter of 2016, the Corporation classifies certain leases in other assets. Previously these leases were classified in loans and leases. For December 31, 2015, $6.0 billion of these leases were reclassified from loans and leases to other assets to conform to this presentation.

6


Financial Highlights

Net income was $4.2 billion, or $0.36 per diluted share, and $6.9 billion, or $0.56 per diluted share for the three and six months ended June 30, 2016 compared to $5.1 billion, or $0.43, and $8.2 billion, or $0.68 for the same periods in 2015. The results for the three and six months ended June 30, 2016 compared to the prior-year periods were primarily driven by declines in net interest income and noninterest income, and higher provision for credit losses, partially offset by lower noninterest expense. Included in net interest income were negative market-related adjustments on debt securities of $974 million and $2.2 billion for the three and six months ended June 30, 2016 compared to positive market-related adjustments on debt securities of $669 million and $185 million for the same periods in 2015.

Total assets increased $42.3 billion from December 31, 2015 to $2.2 trillion at June 30, 2016 primarily driven by higher securities borrowed or purchased under agreements to resell due to increased customer financing activity, higher cash and cash equivalents due to strong deposit inflows, and an increase in loans and leases driven by demand for commercial loans outpacing consumer loan sales and run-off. Total liabilities increased $31.4 billion from December 31, 2015 to $1.9 trillion at June 30, 2016 primarily driven by increases in deposits, trading account liabilities and short-term borrowings, partially offset by a decrease in long-term debt. During the six months ended June 30, 2016, we returned $4.2 billion in capital to shareholders through common and preferred stock dividends and common stock repurchases. For more information on the balance sheet, see Executive Summary – Balance Sheet Overview on page 11.

From a capital management perspective, during the six months ended June 30, 2016, we maintained our strong capital position with Common equity tier 1 capital of $161.8 billion, risk-weighted assets of $1,542 billion and a Common equity tier 1 capital ratio of 10.5 percent at June 30, 2016 as measured under the Basel 3 Advanced approaches, on a fully phased-in basis. The Corporation's fully phased-in supplementary leverage ratio (SLR) was 6.9 percent and 6.4 percent at June 30, 2016 and December 31, 2015, both above the 5.0 percent required minimum (including leverage buffer) effective January 1, 2018. Our Global Excess Liquidity Sources (GELS) were $515 billion with time-to-required funding at 35 months at June 30, 2016 compared to $504 billion and 39 months at December 31, 2015. For additional information, see Capital Management on page 48 and Liquidity Risk on page 58.

Table 2
 
 
 
 
 
 
 
Summary Income Statement (1)
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Net interest income
$
9,213

 
$
10,461

 
$
18,384

 
$
19,872

Noninterest income
11,185

 
11,495

 
21,526

 
22,998

Total revenue, net of interest expense
20,398

 
21,956

 
39,910

 
42,870

Provision for credit losses
976

 
780

 
1,973

 
1,545

Noninterest expense
13,493

 
13,958

 
28,309

 
29,785

Income before income taxes
5,929

 
7,218

 
9,628

 
11,540

Income tax expense
1,697

 
2,084

 
2,716

 
3,309

Net income
4,232

 
5,134

 
6,912

 
8,231

Preferred stock dividends
361

 
330

 
818

 
712

Net income applicable to common shareholders
$
3,871

 
$
4,804

 
$
6,094

 
$
7,519

 
 
 
 
 
 
 
 
Per common share information
 
 
 
 
 
 
 
Earnings
$
0.38

 
$
0.46

 
$
0.59

 
$
0.72

Diluted earnings
0.36

 
0.43

 
0.56

 
0.68

(1) 
Certain amounts in the table that have been reported in previous filings using FTE basis (a non-GAAP financial measure) are now shown on a GAAP basis. See Table 11 for a reconciliation.

7


Net Interest Income

Net interest income decreased $1.2 billion to $9.2 billion ($9.4 billion on an FTE basis), and $1.5 billion to $18.4 billion ($18.8 billion on an FTE basis) for the three and six months ended June 30, 2016 compared to the same periods in 2015. The net interest yield decreased 34 basis points (bps) to 1.98 percent (2.03 percent on an FTE basis), and 23 bps to 1.99 percent (2.04 percent on an FTE basis). The decreases for the three- and six-month periods were primarily driven by a negative change in market-related adjustments on debt securities and the impact of lower consumer loan balances, partially offset by growth in commercial loans, the impact of higher short-end interest rates and increased debt securities. Market-related adjustments on debt securities resulted in an expense of $974 million and $2.2 billion for the three and six months ended June 30, 2016 compared to a benefit of $669 million and $185 million for the same periods in 2015. Negative market-related adjustments on debt securities were primarily due to the acceleration of premium amortization 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 2015 Annual Report on Form 10-K.

Noninterest Income

Table 3
 
 
 
 
Noninterest Income
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Card income
$
1,464

 
$
1,477

 
$
2,894

 
$
2,871

Service charges
1,871

 
1,857

 
3,708

 
3,621

Investment and brokerage services
3,201

 
3,387

 
6,383

 
6,765

Investment banking income
1,408

 
1,526

 
2,561

 
3,013

Trading account profits
2,018

 
1,647

 
3,680

 
3,894

Mortgage banking income
312

 
1,001

 
745

 
1,695

Gains on sales of debt securities
267

 
168

 
493

 
436

Other income
644

 
432

 
1,062

 
703

Total noninterest income
$
11,185

 
$
11,495

 
$
21,526

 
$
22,998


Noninterest income decreased $310 million to $11.2 billion, and $1.5 billion to $21.5 billion for the three and six months ended June 30, 2016 compared to the same periods in 2015. The following highlights the significant changes.

Investment and brokerage services income decreased $186 million and $382 million driven by lower advisory fees due to lower market levels and lower transactional revenue.

Investment banking income decreased $118 million and $452 million primarily driven by lower equity issuance fees due to a decline in market fee pools.

Trading account profits increased $371 million for the three months ended June 30, 2016 compared to the same period in 2015 driven by stronger performance in rates products, as well as improved credit market conditions. Trading account profits decreased $214 million for the six months ended June 30, 2016 compared to the same period in 2015 driven by declines in credit-related products due to challenging market conditions during the first quarter of 2016, as well as reduced client activity in equities in Asia and lower revenue in currencies which performed strongly in the same period in 2015.

Mortgage banking income decreased $689 million and $950 million primarily due to less favorable MSR net-of-hedge performance, a provision for representations and warranties in the current-year periods compared to a benefit in the prior-year periods, as well as declines in production income and, to a lesser extent, servicing fees.

Other income increased $212 million and $359 million primarily due to improvements of $172 million and $497 million in debit valuation adjustments (DVA) on structured liabilities, as well as improved results from loan hedging activities in the fair value option portfolio, partially offset by lower gains on asset sales. DVA losses related to structured liabilities were $23 million and $53 million for the three and six months ended June 30, 2016 compared to $195 million and $550 million in the same periods in 2015.


8


Provision for Credit Losses

Table 4
 
 
 
 
 
 
 
Credit Quality Data
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Provision for credit losses
 
 
 
 
 
 
 
Consumer
$
733

 
$
553

 
$
1,135

 
$
1,172

Commercial
243

 
227

 
838

 
373

Total provision for credit losses
$
976

 
$
780

 
$
1,973

 
$
1,545

 
 
 
 
 
 
 
 
Net charge-offs (1)
$
985

 
$
1,068

 
$
2,053

 
$
2,262

Net charge-off ratio (2)
0.44
%
 
0.49
%
 
0.46
%
 
0.53
%
(1) 
Net charge-offs exclude write-offs in the purchased credit-impaired (PCI) loan portfolio.
(2) 
Net charge-off ratios are calculated as annualized net charge-offs divided by average outstanding loans and leases excluding loans accounted for under the fair value option.

The provision for credit losses increased $196 million to $976 million, and $428 million to $2.0 billion for the three and six months ended June 30, 2016 compared to the same periods in 2015. The provision for credit losses in the consumer portfolio increased $180 million for the three months ended June 30, 2016 compared to the prior-year period due to a slower pace of improvement. The provision for credit losses in the consumer portfolio remained relatively unchanged at $1.1 billion for the six months ended June 30, 2016 compared to the same period in 2015. The provision for credit losses for the commercial portfolio increased $16 million and $465 million compared to the same periods in 2015, with the increase for the six months ended June 30, 2016 primarily driven by an increase in energy sector reserves to increase the allowance coverage for the higher risk sub-sectors. For more information on our energy sector exposure, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 89. The decreases in net charge-offs for the three and six months ended June 30, 2016 were primarily driven by charge-offs related to the consumer relief portion of the settlement with the U.S. Department of Justice (DoJ) in the prior-year periods and credit quality improvement in the consumer portfolio, partially offset by higher energy-related net charge-offs in the commercial portfolio.

For the remainder of 2016, we currently expect that provision expense should approximate net charge-offs. For more information on the provision for credit losses, see Provision for Credit Losses on page 95.

Noninterest Expense

Table 5
 
 
 
 
 
 
 
Noninterest Expense
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Personnel
$
7,722

 
$
7,890

 
$
16,574

 
$
17,504

Occupancy
1,036

 
1,027

 
2,064

 
2,054

Equipment
451

 
500

 
914

 
1,012

Marketing
414

 
445

 
833

 
885

Professional fees
472

 
494

 
897

 
915

Amortization of intangibles
186

 
212

 
373

 
425

Data processing
717

 
715

 
1,555

 
1,567

Telecommunications
189

 
202

 
362

 
373

Other general operating
2,306

 
2,473

 
4,737

 
5,050

Total noninterest expense
$
13,493

 
$
13,958

 
$
28,309

 
$
29,785


Noninterest expense decreased $465 million to $13.5 billion, and $1.5 billion to $28.3 billion for the three and six months ended June 30, 2016 compared to the same periods in 2015. Personnel expense decreased $168 million and $930 million as we continue to manage headcount and achieve cost savings. Continued expense management, as well as the expiration of fully-amortized advisor retention awards, more than offset the increases in client-facing professionals. Other general operating expense decreased $167 million and $313 million primarily due to lower foreclosed properties expense.


9


The Corporation has previously announced an annual noninterest expense target of approximately $53 billion for the year 2018. See information about forward-looking statements described in Item 2. Management’s Discussion and Analysis on page 3.

Income Tax Expense

Table 6
 
 
 
 
 
 
 
Income Tax Expense
 
 
 
 
 
 
 
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Income before income taxes
$
5,929

 
$
7,218

 
$
9,628

 
$
11,540

Income tax expense
1,697

 
2,084

 
2,716

 
3,309

Effective tax rate
28.6
%
 
28.9
%
 
28.2
%
 
28.7
%

The effective tax rates for the three and six months ended June 30, 2016 and 2015 were driven by our recurring tax preference items. We expect an effective tax rate of approximately 29 percent for the remainder of 2016, absent unusual items.

The U.K. Chancellor's Budget 2016 was announced on March 16, 2016 and proposes to further reduce the U.K. corporate income tax rate by one percent to 17 percent effective April 1, 2020. This reduction would favorably affect income tax expense on future U.K. earnings but also would require us to remeasure, in the period of enactment, our U.K. net deferred tax assets using the lower tax rate. Accordingly, upon enactment, we would expect to record a charge to income tax expense of approximately $350 million. In addition, for banking companies, the portion of U.K. taxable income that can be reduced by net operating loss carryforwards would be further restricted from 50 percent to 25 percent retroactive to April 1, 2016.

The majority of our U.K. deferred tax assets, which consist primarily of net operating losses, are expected to be realized by certain subsidiaries over a number of years. Significant changes to management's earnings forecasts for those subsidiaries, such as changes caused by a substantial and prolonged worsening of the condition of Europe's capital markets, changes in applicable laws, further changes in tax laws or the ability of our U.K. subsidiaries to conduct business in the EU, could lead management to reassess our ability to realize the U.K. deferred tax assets. For information on potential impacts of the U.K.’s exit from the EU, see Item 1A. Risk Factors on page 215.
 

10


Balance Sheet Overview
 
 
 
 
 
 
Table 7
Selected Balance Sheet Data
(Dollars in millions)
June 30
2016
 
December 31
2015
 
% Change
Assets
 
 
 
 
 
Cash and cash equivalents
$
171,207

 
$
159,353

 
7
 %
Federal funds sold and securities borrowed or purchased under agreements to resell
213,737

 
192,482

 
11

Trading account assets
175,365

 
176,527

 
(1
)
Debt securities
411,949

 
407,005

 
1

Loans and leases
903,153

 
896,983

 
1

Allowance for loan and lease losses
(11,837
)
 
(12,234
)
 
(3
)
All other assets
323,035

 
324,200

 
<(1)

Total assets
$
2,186,609

 
$
2,144,316

 
2

Liabilities
 
 
 
 
 
Deposits
$
1,216,091

 
$
1,197,259

 
2
 %
Federal funds purchased and securities loaned or sold under agreements to repurchase
178,062

 
174,291

 
2

Trading account liabilities
74,282

 
66,963

 
11

Short-term borrowings
33,051

 
28,098

 
18

Long-term debt
229,617

 
236,764

 
(3
)
All other liabilities
188,437

 
184,736

 
2

Total liabilities
1,919,540

 
1,888,111

 
2

Shareholders' equity
267,069

 
256,205

 
4

Total liabilities and shareholders' equity
$
2,186,609

 
$
2,144,316

 
2


Assets

At June 30, 2016, total assets were approximately $2.2 trillion, up $42.3 billion from December 31, 2015. The increase in assets was primarily driven by higher securities borrowed or purchased under agreements to resell due to increased customer financing activity, higher cash and cash equivalents driven by strong deposit inflows, and an increase in loans and leases driven by demand for commercial loans outpacing consumer loan sales and run-off.

Liabilities and Shareholders' Equity

At June 30, 2016, total liabilities were approximately $1.9 trillion, up $31.4 billion from December 31, 2015, primarily driven by increases in deposits, trading account liabilities and short-term borrowings, partially offset by a decrease in long-term debt.

Shareholders' equity of $267.1 billion at June 30, 2016 increased $10.9 billion from December 31, 2015 driven by earnings, 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 as a result of lower interest rates, and preferred stock issuances, partially offset by returns of capital to shareholders of $4.2 billion through common and preferred stock dividends and common stock repurchases.

11


Table 8
 
 
 
 
Selected Quarterly Financial Data
 
 
 
 
 
2016 Quarters
 
2015 Quarters
(In millions, except per share information)
Second
 
First
 
Fourth
 
Third
 
Second
Income statement
 
 
 
 
 
 
 
 
 
Net interest income
$
9,213

 
$
9,171

 
$
9,756

 
$
9,471

 
$
10,461

Noninterest income
11,185

 
10,341

 
9,911

 
11,042

 
11,495

Total revenue, net of interest expense
20,398

 
19,512

 
19,667

 
20,513

 
21,956

Provision for credit losses
976

 
997

 
810

 
806

 
780

Noninterest expense
13,493

 
14,816

 
14,010

 
13,940

 
13,958

Income before income taxes
5,929

 
3,699

 
4,847

 
5,767

 
7,218

Income tax expense
1,697

 
1,019

 
1,511

 
1,446

 
2,084

Net income
4,232

 
2,680

 
3,336

 
4,321

 
5,134

Net income applicable to common shareholders
3,871

 
2,223

 
3,006

 
3,880

 
4,804

Average common shares issued and outstanding
10,254

 
10,340

 
10,399

 
10,444

 
10,488

Average diluted common shares issued and outstanding
11,059

 
11,100

 
11,153

 
11,197

 
11,238

Performance ratios
 
 
 
 
 
 
 
 
 
Return on average assets
0.78
%
 
0.50
%
 
0.61
%
 
0.79
%
 
0.96
%
Four quarter trailing return on average assets (1)
0.67

 
0.71

 
0.74

 
0.73

 
0.52

Return on average common shareholders' equity
6.48

 
3.77

 
5.08

 
6.65

 
8.42

Return on average tangible common shareholders' equity (2)
9.24

 
5.41

 
7.32

 
9.65

 
12.31

Return on average shareholders' equity
6.42

 
4.14

 
5.15

 
6.75

 
8.20

Return on average tangible shareholders' equity (2)
8.79

 
5.72

 
7.15

 
9.43

 
11.51

Total ending equity to total ending assets
12.21

 
12.02

 
11.95

 
11.89

 
11.71

Total average equity to total average assets
12.12

 
11.98

 
11.79

 
11.71

 
11.67

Dividend payout
13.39

 
23.23

 
17.27

 
13.43

 
10.90

Per common share data
 
 
 
 
 
 
 
 
 
Earnings
$
0.38

 
$
0.21

 
$
0.29

 
$
0.37

 
$
0.46

Diluted earnings
0.36

 
0.21

 
0.28

 
0.35

 
0.43

Dividends paid
0.05

 
0.05

 
0.05

 
0.05

 
0.05

Book value
23.67

 
23.12

 
22.54

 
22.41

 
21.91

Tangible book value (2)
16.68

 
16.17

 
15.62

 
15.50

 
15.02

Market price per share of common stock
 
 
 
 
 
 
 
 
 
Closing
$
13.27

 
$
13.52

 
$
16.83

 
$
15.58

 
$
17.02

High closing
15.11

 
16.43

 
17.95

 
18.45

 
17.67

Low closing
12.18

 
11.16

 
15.38

 
15.26

 
15.41

Market capitalization
$
135,577

 
$
139,427

 
$
174,700

 
$
162,457

 
$
178,231

(1) 
Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(2) 
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 16.
(3) 
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 65.
(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 79 and corresponding Table 40, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 88 and corresponding Table 49.
(6) 
Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other.
(7) 
Net charge-offs exclude $82 million, $105 million, $82 million, $148 million and $290 million of write-offs in the PCI loan portfolio in the second and first quarters of 2016 and in the fourth, third and second quarters of 2015, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.
(8) 
Risk-based capital ratios reported under Basel 3 Advanced - Transition beginning in the fourth quarter of 2015. Prior to the fourth quarter of 2015, we were required to report risk-based capital ratios under Basel 3 Standardized - Transition only. For additional information, see Capital Management on page 48.

12


Table 8
 
 
 
 
Selected Quarterly Financial Data (continued)
 
 
 
 
 
2016 Quarters
 
2015 Quarters
(Dollars in millions)
Second
 
First
 
Fourth
 
Third
 
Second
Average balance sheet
 
 
 
 
 
 
 
 
 
Total loans and leases
$
899,670

 
$
892,984

 
$
886,156

 
$
877,429

 
$
876,178

Total assets
2,187,909

 
2,173,618

 
2,180,472

 
2,168,993

 
2,151,966

Total deposits
1,213,291

 
1,198,455

 
1,186,051

 
1,159,231

 
1,146,789

Long-term debt
233,061

 
233,654

 
237,384

 
240,520

 
242,230

Common shareholders' equity
240,166

 
237,123

 
234,851

 
231,620

 
228,780

Total shareholders' equity
265,144

 
260,317

 
257,125

 
253,893

 
251,054

Asset quality (3)
 
 
 
 
 
 
 
 
 
Allowance for credit losses (4)
$
12,587

 
$
12,696

 
$
12,880

 
$
13,318

 
$
13,656

Nonperforming loans, leases and foreclosed properties (5)
8,799

 
9,281

 
9,836

 
10,336

 
11,565

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5)
1.32
%
 
1.35
%
 
1.37
%
 
1.45
%
 
1.50
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5)
142

 
136

 
130

 
129

 
122

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5)
135

 
129

 
122

 
120

 
111

Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (6)
$
4,087

 
$
4,138

 
$
4,518

 
$
4,682

 
$
5,050

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 (5, 6)
93
%
 
90
%
 
82
%
 
81
%
 
75
%
Net charge-offs (7)
$
985

 
$
1,068

 
$
1,144

 
$
932

 
$
1,068

Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 7)
0.44
%
 
0.48
%
 
0.52
%
 
0.43
%
 
0.49
%
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5)
0.45

 
0.49

 
0.53

 
0.43

 
0.50

Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5)
0.48

 
0.53

 
0.55

 
0.49

 
0.63

Nonperforming loans and leases as a percentage of total loans and leases outstanding (5)
0.94

 
0.99

 
1.05

 
1.12

 
1.23

Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5)
0.98

 
1.04

 
1.10

 
1.18

 
1.32

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (7)
2.99

 
2.81

 
2.70

 
3.42

 
3.05

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio
2.85

 
2.67

 
2.52

 
3.18

 
2.79

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs
2.76

 
2.56

 
2.52

 
2.95

 
2.40

Capital ratios at period end
Risk-based capital: (8)
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
10.6
%
 
10.3
%
 
10.2
%
 
11.6
%
 
11.2
%
Tier 1 capital
12.0

 
11.5

 
11.3

 
12.9

 
12.5

Total capital
13.9

 
13.4

 
13.2

 
15.8

 
15.5

Tier 1 leverage
8.9

 
8.7

 
8.6

 
8.5

 
8.5

Tangible equity (2)
9.2

 
9.0

 
8.9

 
8.8

 
8.6

Tangible common equity (2)
8.1

 
7.9

 
7.8

 
7.8

 
7.6

For footnotes see page 12.

13


Table 9
 
 
 
Selected Year-to-Date Financial Data
 
 
 
 
Six Months Ended June 30
(In millions, except per share information)
2016
 
2015
Income statement
 
 
 
Net interest income
$
18,384

 
$
19,872

Noninterest income
21,526

 
22,998

Total revenue, net of interest expense
39,910

 
42,870

Provision for credit losses
1,973

 
1,545

Noninterest expense
28,309

 
29,785

Income before income taxes
9,628

 
11,540

Income tax expense
2,716

 
3,309

Net income
6,912

 
8,231

Net income applicable to common shareholders
6,094

 
7,519

Average common shares issued and outstanding
10,297

 
10,503

Average diluted common shares issued and outstanding
11,080

 
11,252

Performance ratios
 
 
 
Return on average assets
0.64
%
 
0.77
%
Return on average common shareholders' equity
5.14

 
6.68

Return on average tangible common shareholders' equity (1)
7.34

 
9.79

Return on average shareholders' equity
5.29

 
6.68

Return on average tangible shareholders' equity (1)
7.28

 
9.42

Total ending equity to total ending assets
12.21

 
11.71

Total average equity to total average assets
12.05

 
11.58

Dividend payout
16.98

 
13.96

Per common share data
 
 
 
Earnings
$
0.59

 
$
0.72

Diluted earnings
0.56

 
0.68

Dividends paid
0.10

 
0.10

Book value
23.67

 
21.91

Tangible book value (1)
16.68

 
15.02

Market price per share of common stock
 
 
 
Closing
$
13.27

 
$
17.02

High closing
16.43

 
17.90

Low closing
11.16

 
15.15

Market capitalization
$
135,577

 
$
178,231

(1) 
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. Other companies may define or calculate these measures differently. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 16.
(2) 
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 65.
(3) 
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(4) 
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 79 and corresponding Table 40, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 88 and corresponding Table 49.
(5) 
Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other.
(6) 
Net charge-offs exclude $187 million and $578 million of write-offs in the PCI loan portfolio for the six months ended June 30, 2016 and 2015. For more information on purchased credit-impaired write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 76.


14


Table 9
 
 
 
Selected Year-to-Date Financial Data (continued)
 
 
 
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
Average balance sheet
 
 
 
Total loans and leases
$
896,327

 
$
871,699

Total assets
2,180,763

 
2,145,307

Total deposits
1,205,873

 
1,138,801

Long-term debt
233,358

 
241,184

Common shareholders' equity
238,645

 
227,078

Total shareholders' equity
262,731

 
248,413

Asset quality (2)
 
 
 
Allowance for credit losses (3)
$
12,587

 
$
13,656

Nonperforming loans, leases and foreclosed properties (4)
8,799

 
11,565

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (4)
1.32
%
 
1.50
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (4)
142

 
122

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (4)
135

 
111

Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (5)
$
4,087

 
$
5,050

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (4, 5)
93
%
 
75
%
Net charge-offs (6)
$
2,053

 
$
2,262

Annualized net charge-offs as a percentage of average loans and leases outstanding (4, 6)
0.46
%
 
0.53
%
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (4)
0.47

 
0.54

Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (4)
0.51

 
0.66

Nonperforming loans and leases as a percentage of total loans and leases outstanding (4)
0.94

 
1.23

Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (4)
0.98

 
1.32

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6)
2.87

 
2.86

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio
2.74

 
2.62

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs
2.63

 
2.28

For footnotes see page 14.

15


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 meaningful 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 may present certain key performance indicators and ratios excluding certain items (e.g., market-related adjustments on net interest income, DVA, charge-offs related to the settlement with the DoJ) which result in non-GAAP financial measures. We believe the use of these non-GAAP financial measures provides additional clarity in understanding our results of operations and trends.

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 8 and 9.

Table 10 presents certain non-GAAP financial measures and performance measurements on an FTE basis.

Table 10
 
 
 
 
 
 
 
Supplemental Financial Data
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
2016
 
2015
 
2016
 
2015
Fully taxable-equivalent basis data
 
 
 
 
 
 
 
Net interest income
$
9,436

 
$
10,684

 
$
18,822

 
$
20,310

Total revenue, net of interest expense
20,621

 
22,179

 
40,348

 
43,308

Net interest yield
2.03
%
 
2.37
%
 
2.04
%
 
2.27
%
Efficiency ratio
65.43

 
62.93

 
70.16

 
68.77



16


Tables 11 and 12 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 11
Quarterly and Year-to-Date Supplemental Financial Data and Reconciliations to GAAP Financial Measures
 
Three Months Ended June 30
 
2016
 
2015
(Dollars in millions)
As Reported
 
Fully taxable-equivalent adjustment
 
Fully taxable-equivalent basis
 
As Reported
 
Fully taxable-equivalent adjustment
 
Fully taxable-equivalent basis
Net interest income
$
9,213

 
$
223

 
$
9,436

 
$
10,461

 
$
223

 
$
10,684

Total revenue, net of interest expense
20,398

 
223

 
20,621

 
21,956

 
223

 
22,179

Income tax expense
1,697

 
223

 
1,920

 
2,084

 
223

 
2,307

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30
 
2016
 
2015
Net interest income
$
18,384

 
$
438

 
$
18,822

 
$
19,872

 
$
438

 
$
20,310

Total revenue, net of interest expense
39,910

 
438

 
40,348

 
42,870

 
438

 
43,308

Income tax expense
2,716

 
438

 
3,154

 
3,309

 
438

 
3,747


Table 12
 
 
 
 
 
 
 
 
 
 
 
Period-end and Average Supplemental Financial Data and Reconciliations to GAAP Financial Measures
 
 
 
 
 
Average
 
Period-end
 
Three Months Ended June 30
 
Six Months Ended June 30
(Dollars in millions)
June 30
2016
 
December 31
2015
 
2016
 
2015
 
2016
 
2015
Common shareholders' equity
$
241,849

 
$
233,932

 
$
240,166

 
$
228,780

 
$
238,645

 
$
227,078

Goodwill
(69,744
)
 
(69,761
)
 
(69,751
)
 
(69,775
)
 
(69,756
)
 
(69,776
)
Intangible assets (excluding MSRs)
(3,352
)
 
(3,768
)
 
(3,480
)
 
(4,307
)
 
(3,584
)
 
(4,412
)
Related deferred tax liabilities
1,637

 
1,716

 
1,662

 
1,885

 
1,684

 
1,922

Tangible common shareholders' equity
$
170,390

 
$
162,119

 
$
168,597

 
$
156,583

 
$
166,989

 
$
154,812

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' equity
$
267,069

 
$
256,205

 
$
265,144

 
$
251,054

 
$
262,731

 
$
248,413

Goodwill
(69,744
)
 
(69,761
)
 
(69,751
)
 
(69,775
)
 
(69,756
)
 
(69,776
)
Intangible assets (excluding MSRs)
(3,352
)
 
(3,768
)
 
(3,480
)
 
(4,307
)
 
(3,584
)
 
(4,412
)
Related deferred tax liabilities
1,637

 
1,716

 
1,662

 
1,885

 
1,684

 
1,922

Tangible shareholders' equity
$
195,610

 
$
184,392

 
$
193,575

 
$
178,857

 
$
191,075

 
$
176,147

 
 
 
 
 
 
 
 
 
 
 
 
Total assets
$
2,186,609

 
$
2,144,316

 
 
 
 
 
 
 
 
Goodwill
(69,744
)
 
(69,761
)
 
 
 
 
 
 
 
 
Intangible assets (excluding MSRs)
(3,352
)
 
(3,768
)
 
 
 
 
 
 
 
 
Related deferred tax liabilities
1,637

 
1,716

 
 
 
 
 
 
 
 
Tangible assets
$
2,115,150

 
$
2,072,503

 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 

 
 
 
 



17


Table 13
Quarterly Average Balances and Interest Rates – FTE Basis
 
Second Quarter 2016
 
First Quarter 2016
(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
$
135,312

 
$
157

 
0.47
%
 
$
138,574

 
$
155

 
0.45
%
Time deposits placed and other short-term investments
7,855

 
35

 
1.79

 
9,156

 
32

 
1.41

Federal funds sold and securities borrowed or purchased under agreements to resell
223,005

 
260

 
0.47

 
209,183

 
276

 
0.53

Trading account assets
127,189

 
1,109

 
3.50

 
136,306

 
1,212

 
3.57

Debt securities (1)
418,748

 
1,378

 
1.33

 
399,809

 
1,224

 
1.23

Loans and leases (2):
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
186,752

 
1,626

 
3.48

 
186,980

 
1,629

 
3.49

Home equity
73,141

 
703

 
3.86

 
75,328

 
711

 
3.79

U.S. credit card
86,705

 
1,983

 
9.20

 
87,163

 
2,021

 
9.32

Non-U.S. credit card
9,988

 
250

 
10.06

 
9,822

 
253

 
10.36

Direct/Indirect consumer (3)
91,643

 
563

 
2.47

 
89,342

 
550

 
2.48

Other consumer (4)
2,220

 
16

 
3.00

 
2,138

 
16

 
3.03

Total consumer
450,449

 
5,141

 
4.58

 
450,773

 
5,180

 
4.61

U.S. commercial
276,640

 
2,006

 
2.92

 
270,511

 
1,936

 
2.88

Commercial real estate (5)
57,772

 
434

 
3.02

 
57,271

 
434

 
3.05

Commercial lease financing
20,874

 
147

 
2.81

 
21,077

 
182

 
3.46

Non-U.S. commercial
93,935

 
564

 
2.42

 
93,352

 
585

 
2.52

Total commercial
449,221

 
3,151

 
2.82

 
442,211

 
3,137

 
2.85

Total loans and leases
899,670

 
8,292

 
3.70

 
892,984

 
8,317

 
3.74

Other earning assets
55,955

 
660

 
4.74

 
58,638

 
694

 
4.76

Total earning assets (6)
1,867,734

 
11,891

 
2.56

 
1,844,650

 
11,910

 
2.59

Cash and due from banks
27,924

 
 
 
 
 
28,844

 
 
 
 
Other assets, less allowance for loan and lease losses
292,251

 
 
 
 
 
300,124

 
 
 
 
Total assets
$
2,187,909

 
 
 
 
 
$
2,173,618

 
 
 
 
(1) 
Yields on debt securities excluding the impact of market-related adjustments were 2.34 percent and 2.45 percent in the second and first quarters of 2016, and 2.47 percent, 2.50 percent and 2.48 percent in the fourth, third and second quarters of 2015, respectively. Yields on debt securities excluding the impact of market-related adjustments are non-GAAP financial measures. The Corporation believes the use of this non-GAAP financial measure provides additional clarity in assessing its results.
(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 remaining life of the loan.
(3) 
Includes non-U.S. consumer loans of $3.4 billion and $3.8 billion in the second and first quarters of 2016, and $4.0 billion for each of the quarters of 2015.
(4) 
Includes consumer finance loans of $526 million and $551 million in the second and first quarters of 2016, and $578 million, $605 million