10-Q 1 bac-331201810xq.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 March 31, 2018
or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from          to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant’s telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No o
Indicate by check mark whether the registrant has submitted electronically 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 No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer o
 
Non-accelerated filer o
(do not check if a smaller
reporting company)
 
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes o No
On April 27, 2018, there were 10,139,354,414 shares of Bank of America Corporation Common Stock outstanding.
 
 
 
 
 



Bank of America Corporation and Subsidiaries
March 31, 2018
Form 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1     Bank of America

 
 





Part II. Other Information
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the “Corporation”) and its management may make certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent the Corporation’s current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, strategy and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation’s control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed under Item 1A. Risk Factors of our 2017 Annual Report on Form 10-K and in any of the Corporations subsequent Securities and Exchange Commission filings: the Corporation’s potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings and enforcement actions, including inquiries into our retail sales practices, and the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possibility that the Corporation could face increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, 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; the Corporation’s ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to avoid the statute of limitations for repurchase claims; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporation’s exposures to such risks, including direct, indirect and operational;
 
the impact of U.S. and global interest rates, currency exchange rates, economic conditions, trade policies and potential geopolitical instability; the impact on the Corporation’s business, financial condition and results of operations of a potential higher interest rate environment; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions and other uncertainties; the Corporation’s ability to achieve its expense targets, net interest income expectations, or other projections; adverse changes to the Corporation’s credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporation’s assets and liabilities, which may change; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements; the potential impact of total loss-absorbing capacity requirements; potential adverse changes to our global systemically important bank surcharge; the potential impact of Federal Reserve actions on the Corporation’s capital plans; the possible impact of the Corporation’s failure to remediate a shortcoming identified by banking regulators in the Corporation’s Resolution Plan; the effect of regulations, other guidance or additional information on our estimated impact of the Tax Cuts and Jobs Act; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation assessments, the Volcker Rule, fiduciary standards and derivatives regulations; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyber attacks; the impact on the Corporation’s business, financial condition and results of operations from the planned exit of the United Kingdom from the European Union; and other similar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-period amounts have been reclassified to conform to current-period presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.



 
 
Bank of America     2


Executive Summary
Business Overview
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “the Corporation” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At March 31, 2018, the Corporation had approximately $2.3 trillion in assets and a headcount of approximately 208,000 employees. Headcount has remained relatively unchanged since December 31, 2017.
As of March 31, 2018, we served clients through operations across the United States, its territories and more than 35 countries. Our retail banking footprint covers approximately 85 percent of the U.S. population, and we serve approximately 47 million consumer and small business relationships with approximately 4,400 retail financial centers, approximately 16,000 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 36 million active users, including approximately 25 million active mobile users. We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of over $2.7 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.
First Quarter 2018 Economic and Business Environment
U.S. macroeconomic trends in the first quarter were characterized by moderate economic growth, low inflation and a strong labor market. Gross domestic product (GDP) growth for the first quarter of 2018 was moderate and lower than previously estimated, with actual GDP growth of 2.3 percent, well below the fourth quarter’s 2.9 percent annualized pace. Notably, retail sales slowed in the first quarter compared to the fourth quarter. Nevertheless, economic fundamentals point to a second-quarter pickup. Consumer confidence remains near cyclical highs, which along with the robust labor market, point to the likelihood of a household spending rebound in the second quarter. Business investment in equipment and software accelerated over 2017. Both manufacturing and non-manufacturing investments are near their highs of the current economic expansion.
Housing activity showed some signs of growth during the first quarter, with continued solid price appreciation when compared to the fourth quarter of 2017. Selling rates are near year-ago levels with continued persistent supply shortages.
 
Labor market conditions remain strong. Nonfarm payroll growth has been volatile month-to-month but solid on a trend basis. Initial jobless claims are near historic lows. The unemployment rate was 4.1 percent at the end of the quarter, unchanged for six consecutive months, as strong employment gains have been met with solid increases in labor force growth. Wage growth, however, has been relatively muted.
Inflation strengthened in the first quarter, led by gains in apparel, health care and energy. The core Consumer Price Index increased at a three-percent annualized rate, the fastest quarterly rise of the current business expansion, although the less volatile year-on-year rate remained at 2.1 percent.
Equity markets increased substantially through the end of 2017 and into early 2018, with anticipation and enactment of corporate tax reform being the main catalysts, as well as a synchronous global economic expansion. However, equity volatility increased sharply in early February and periodically in March. The S&P 500 finished the first quarter down 1.2 percent from the year end. The 10-year Treasury yield finished the first quarter at 2.76 percent, up from 2.41 percent at the end of 2017. Although the Treasury yield curve steepened during the equity sell-off, the curve subsequently flattened back to levels that prevailed at the end of 2017. The U.S. dollar index trended lower through most of the first quarter.
The Federal Reserve raised its target Federal funds rate corridor to 1.5 to 1.75 percent, the sixth 25-basis point (bp) rate increase of the current cycle. Current Federal Reserve baseline forecasts suggest gradual rate increases will continue into 2018 against a backdrop of solid economic expansion and a tightening labor market. The Federal Open Market Committee also upgraded their economic forecasts, with somewhat faster GDP growth expected this year and in 2019, and a lower trough anticipated for the unemployment rate. Federal Reserve balance sheet normalization is continuing as initially scheduled.
International trade tensions escalated in the first quarter. The U.S. Administration announced plans for broad-based tariffs on steel and aluminum, although subsequently gave exemptions to various trading partners. The Administration also announced plans for tariffs on imports from China, and the Chinese government announced retaliatory measures. Full enactment of the tariffs remains subject to negotiation and further review by the Administration.
After posting its strongest annual GDP growth in 10 years in 2017, economic activity in the eurozone lost some momentum in the first quarter of the year. Despite the positive trend in growth, underlying inflationary pressures have remained dormant. In this context, the European Central Bank continued with the tapering of its quantitative easing program. The impact of the 2016 U.K. referendum vote in favor of leaving the European Union (EU) continues to weigh on the U.K. economy which, in line with the eurozone, has also showed some signs of slowing in the first three months of the year.
Supported by a very accommodative monetary policy stance and sustained growth in external demand, the Japanese economy has continued to expand with headline inflation reaching its highest level since 2015. Across emerging nations, economic activity was supported by China’s continued transition towards a more consumption-based growth model.


3     Bank of America

 
 





Recent Events
Capital Management
During the first quarter of 2018, we repurchased approximately $4.9 billion of common stock pursuant to the Board of Directors’ (the Board) June 2017 repurchase authorization under our 2017 Comprehensive Capital Analysis and Review (CCAR) capital plan, including repurchases to offset equity-based compensation awards, and an additional share repurchase authorization in December 2017. For more information, see Capital Management on page 18.
Trust Preferred Securities Redemption
On April 30, 2018, the Corporation announced that it has submitted redemption notices for 11 series of trust preferred securities, which will result in the redemption of such trust
 
preferred securities, along with the trust common securities (held by the Corporation or its affiliates), on June 6, 2018. The Corporation has received all necessary approvals for these redemptions. Upon the redemption of the trust preferred securities and the extinguishment of the related junior subordinated notes issued by the Corporation, expected to occur in the second quarter of 2018, the Corporation will record a charge to other income and pretax income estimated to be approximately $800 million, subject to certain redemption price calculations at that time. For additional information, see the Corporation’s Current Report on Form 8-K filed on April 30, 2018.
Selected Financial Data
Table 1 provides selected consolidated financial data for the three months ended March 31, 2018 and 2017, and at March 31, 2018 and December 31, 2017.
 
 
 
 
 
Table 1
Selected Financial Data
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions, except per share information)
2018
 
2017
Income statement
 
 
 
Revenue, net of interest expense
$
23,125

 
$
22,248

Net income
6,918

 
5,337

Diluted earnings per common share
0.62

 
0.45

Dividends paid per common share
0.12

 
0.075

Performance ratios
 
 
 
Return on average assets
1.21
%
 
0.97
%
Return on average common shareholders’ equity
10.85

 
8.09

Return on average tangible common shareholders’ equity (1)
15.26

 
11.44

Efficiency ratio
60.09

 
63.34

 
 
 
 
 
March 31
2018
 
December 31
2017
Balance sheet
 

 
 

Total loans and leases
$
934,078

 
$
936,749

Total assets
2,328,478

 
2,281,234

Total deposits
1,328,664

 
1,309,545

Total common shareholders’ equity
241,552

 
244,823

Total shareholders’ equity
266,224

 
267,146

(1) 
Return on average tangible common shareholders’ equity is a non-GAAP financial measure. For more information and a corresponding reconciliation to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 48.
Financial Highlights
 
 
 
 
 
Table 2
Summary Income Statement
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Net interest income
$
11,608

 
$
11,058

Noninterest income
11,517

 
11,190

Total revenue, net of interest expense
23,125

 
22,248

Provision for credit losses
834

 
835

Noninterest expense
13,897

 
14,093

Income before income taxes
8,394

 
7,320

Income tax expense
1,476

 
1,983

Net income
$
6,918

 
$
5,337

Preferred stock dividends
428

 
502

Net income applicable to common shareholders
$
6,490

 
$
4,835

 
 
 
 
 
Per common share information
 
 
 
Earnings
$
0.63

 
$
0.48

Diluted earnings
0.62

 
0.45

 
Net income was $6.9 billion, or $0.62 per diluted share for the three months ended March 31, 2018 compared to $5.3 billion, or $0.45 per diluted share for the same period in 2017. The results for the three months ended March 31, 2018 compared to the same period in 2017 were driven by an increase in net interest income and noninterest income, and a decline in noninterest expense as well as lower income tax expense due to the impacts of the Tax Cuts and Jobs Act (the Tax Act). These impacts include a reduction in the federal tax rate to 21 percent from 35 percent, an increase in U.S. taxes related to our non-U.S. operations and the elimination of tax deductions for Federal Deposit Insurance Corporation (FDIC) premiums. These changes resulted in a net reduction to our estimated annual effective tax rate of approximately nine percentage points.
Total assets increased $47.2 billion from December 31, 2017 to $2.3 trillion at March 31, 2018 driven by higher cash and cash equivalents from seasonally higher deposits and an increase in securities borrowed or purchased under agreements to resell to support Global Markets client activity. These increases were partially offset by a decrease in debt securities due to lower reinvestment-related purchases as well as market value declines.

 
 
Bank of America     4


Total liabilities increased $48.2 billion from December 31, 2017 to $2.1 trillion at March 31, 2018 primarily driven by seasonally higher deposits and an increase in trading account liabilities from increased activity in Global Markets. Shareholders’ equity decreased $922 million from December 31, 2017 primarily due to returns of capital to shareholders through common stock repurchases and common and preferred stock dividends, and market value declines on debt securities, largely offset by net income and issuances of preferred stock.
Net Interest Income
Net interest income increased $550 million to $11.6 billion for the three months ended March 31, 2018 compared to the same period in 2017, and the net interest yield increased one bp to 2.36 percent. These increases were primarily driven by the benefits from higher interest rates along with loan and deposit growth, partially offset by the sale of the non-U.S. consumer credit card business in the second quarter of 2017 and higher funding costs in Global Markets. For more information regarding interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 45.
Noninterest Income
 
 
 
 
 
Table 3
Noninterest Income
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Card income
$
1,457

 
$
1,449

Service charges
1,921

 
1,918

Investment and brokerage services
3,664

 
3,417

Investment banking income
1,353

 
1,584

Trading account profits
2,699

 
2,331

Other income
423

 
491

Total noninterest income
$
11,517

 
$
11,190

Noninterest income increased $327 million to $11.5 billion for the three months ended March 31, 2018 compared to the same period in 2017. The following highlights the significant changes.
Investment and brokerage services income increased $247 million primarily driven by higher market valuations and the impact of assets under management (AUM) flows, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing.
Investment banking income decreased $231 million primarily due to declines in advisory fees and equity and debt issuance fees.
Trading account profits increased $368 million primarily due to increased client activity and a strong trading performance in equity derivatives, partially offset by lower activity and less favorable markets in credit products.
Other income decreased $68 million primarily due to lower equity investment gains.
 
Provision for Credit Losses
The provision for credit losses remained relatively unchanged for the three months ended March 31, 2018 compared to the same period in 2017 with continued improvement in the consumer real estate portfolio and the impact of the sale of the non-U.S. credit card business during the second quarter of 2017, largely offset by an increase in U.S. credit card due to portfolio seasoning and loan growth. For more information on the provision for credit losses, see Provision for Credit Losses on page 41.
Noninterest Expense
 
 
 
 
 
Table 4
Noninterest Expense
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Personnel
$
8,480

 
$
8,475

Occupancy
1,014

 
1,000

Equipment
442

 
438

Marketing
345

 
332

Professional fees
381

 
456

Data processing
810

 
794

Telecommunications
183

 
191

Other general operating
2,242

 
2,407

Total noninterest expense
$
13,897

 
$
14,093

Noninterest expense decreased $196 million to $13.9 billion for the three months ended March 31, 2018 compared to the same period in 2017 driven by lower non-personnel costs, primarily litigation expense and professional fees.
Income Tax Expense
 
 
 
 
 
Table 5
Income Tax Expense
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Income before income taxes
$
8,394

 
$
7,320

Income tax expense
1,476

 
1,983

Effective tax rate
17.6
%
 
27.1
%
The effective tax rate for 2018 reflects the new 21 percent federal tax rate and the other provisions of the Tax Act. Further, the effective tax rates for the three months ended March 31, 2018 and 2017 were lower than the applicable federal and state statutory rates due to our recurring tax preference benefits and tax benefits related to stock-based compensation. We expect the effective tax rate for 2018 to be approximately 20 percent, absent unusual items.

5     Bank of America

 
 





 
 
 
 
 
 
 
 
 
 
 
Table 6
Selected Quarterly Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 Quarter Quarter
 
2017 Quarters
(In millions, except per share information)
First
 
Fourth
 
Third
 
Second
 
First
Income statement
 
 
 
 
 

 
 

 
 

Net interest income
$
11,608

 
$
11,462

 
$
11,161

 
$
10,986

 
$
11,058

Noninterest income (1)
11,517

 
8,974

 
10,678

 
11,843

 
11,190

Total revenue, net of interest expense
23,125

 
20,436

 
21,839

 
22,829

 
22,248

Provision for credit losses
834

 
1,001

 
834

 
726

 
835

Noninterest expense
13,897

 
13,274

 
13,394

 
13,982

 
14,093

Income before income taxes
8,394

 
6,161

 
7,611

 
8,121

 
7,320

Income tax expense (1)
1,476

 
3,796

 
2,187

 
3,015

 
1,983

Net income (1)
6,918

 
2,365

 
5,424

 
5,106

 
5,337

Net income applicable to common shareholders
6,490

 
2,079

 
4,959

 
4,745

 
4,835

Average common shares issued and outstanding
10,322.4

 
10,470.7

 
10,197.9

 
10,013.5

 
10,099.6

Average diluted common shares issued and outstanding
10,472.7

 
10,621.8

 
10,746.7

 
10,834.8

 
10,919.7

Performance ratios
 

 
 

 
 

 
 

 
 

Return on average assets
1.21
%
 
0.41
%
 
0.95
%
 
0.90
%
 
0.97
%
Four quarter trailing return on average assets (2)
0.86

 
0.80

 
0.91

 
0.89

 
0.88

Return on average common shareholders’ equity
10.85

 
3.29

 
7.89

 
7.75

 
8.09

Return on average tangible common shareholders’ equity (3)
15.26

 
4.56

 
10.98

 
10.87

 
11.44

Return on average shareholders’ equity
10.57

 
3.43

 
7.88

 
7.56

 
8.09

Return on average tangible shareholders’ equity (3)
14.37

 
4.62

 
10.59

 
10.23

 
11.01

Total ending equity to total ending assets
11.43

 
11.71

 
11.91

 
12.00

 
11.92

Total average equity to total average assets
11.41

 
11.87

 
12.03

 
11.94

 
12.00

Dividend payout
19.06

 
60.35

 
25.59

 
15.78

 
15.64

Per common share data
 

 
 

 
 

 
 

 
 

Earnings
$
0.63

 
$
0.20

 
$
0.49

 
$
0.47

 
$
0.48

Diluted earnings
0.62

 
0.20

 
0.46

 
0.44

 
0.45

Dividends paid
0.12

 
0.12

 
0.12

 
0.075

 
0.075

Book value
23.74

 
23.80

 
23.87

 
24.85

 
24.34

Tangible book value (3)
16.84

 
16.96

 
17.18

 
17.75

 
17.22

Market price per share of common stock
 

 
 

 
 
 
 
 
 

Closing
$
29.99

 
$
29.52

 
$
25.34

 
$
24.26

 
$
23.59

High closing
32.84

 
29.88

 
25.45

 
24.32

 
25.50

Low closing
29.17

 
25.45

 
22.89

 
22.23

 
22.05

Market capitalization
$
305,176

 
$
303,681

 
$
264,992

 
$
239,643

 
$
235,291

Average balance sheet
 

 
 

 
 

 
 

 
 

Total loans and leases
$
931,915

 
$
927,790

 
$
918,129

 
$
914,717

 
$
914,144

Total assets
2,325,878

 
2,301,687

 
2,271,104

 
2,269,293

 
2,231,649

Total deposits
1,297,268

 
1,293,572

 
1,271,711

 
1,256,838

 
1,256,632

Long-term debt
229,603

 
227,644

 
227,309

 
224,019

 
221,468

Common shareholders’ equity
242,713

 
250,838

 
249,214

 
245,756

 
242,480

Total shareholders’ equity
265,480

 
273,162

 
273,238

 
270,977

 
267,700

Asset quality
 

 
 

 
 

 
 

 
 

Allowance for credit losses (4)
$
11,042

 
$
11,170

 
$
11,455

 
$
11,632

 
$
11,869

Nonperforming loans, leases and foreclosed properties (5)
6,694

 
6,758

 
6,869

 
7,127

 
7,637

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6, 7)
1.11
%
 
1.12
%
 
1.16
%
 
1.20
%
 
1.25
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6)
161

 
161

 
163

 
160

 
156

Net charge-offs (7, 8)
$
911

 
$
1,237

 
$
900

 
$
908

 
$
934

Annualized net charge-offs as a percentage of average loans and leases outstanding (6, 8)
0.40
%
 
0.53
%
 
0.39
%
 
0.40
%
 
0.42
%
Capital ratios at period end (9)
 

 
 

 
 

 
 

 
 

Common equity tier 1 capital
11.3
%
 
11.5
%
 
11.9
%
 
11.5
%
 
11.0
%
Tier 1 capital
13.0

 
13.0

 
13.4

 
13.2

 
12.6

Total capital
14.8

 
14.8

 
15.1

 
15.0

 
14.3

Tier 1 leverage
8.4

 
8.6

 
8.9

 
8.8

 
8.8

Supplementary leverage ratio
6.8

 
n/a

 
n/a

 
n/a

 
n/a

Tangible equity (3)
8.7

 
8.9

 
9.1

 
9.2

 
9.1

Tangible common equity (3)
7.6

 
7.9

 
8.1

 
8.0

 
7.9

(1) 
Net income for the fourth quarter of 2017 included an estimated charge of $2.9 billion related to the Tax Act effects which consisted of $946 million in noninterest income and $1.9 billion in income tax expense.
(2) 
Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(3) 
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios, see Supplemental Financial Data on page 7, and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 48.
(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 33 and corresponding Table 28, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 37 and corresponding Table 35.
(6) 
Asset quality metrics for the first quarter of 2017 include $242 million of non-U.S. credit card allowance for loan and lease losses and $9.5 billion of non-U.S. credit card loans, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017. The Corporation sold its non-U.S. consumer credit card business in the second quarter of 2017.
(7) 
Net charge-offs exclude $35 million, $46 million, $73 million, $55 million and $33 million of write-offs in the purchased credit-impaired (PCI) loan portfolio in the first quarter of 2018, and in the fourth, third, second and first quarters of 2017, respectively. For more information, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 31.
(8) 
Includes net charge-offs of $31 million and $44 million on non-U.S. credit card loans in the second and first quarters of 2017, which were included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017.
(9) 
Basel 3 transition provisions for regulatory capital adjustments and deductions were fully phased-in as of January 1, 2018. Prior periods are presented on a fully phased-in basis. For more information, see Capital Management on page 18.
n/a = not applicable

 
 
Bank of America     6


Supplemental Financial Data
In this Form 10-Q, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses on a fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 21 percent for 2018 (35 percent for all prior periods) and a representative state tax rate. In addition, certain performance measures, including the efficiency ratio and net interest yield, utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds. We believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA) gains (losses)) which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items is useful because such measures provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance.
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible
 
equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and certain acquired intangible assets (excluding mortgage servicing rights (MSRs)), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible shareholders’ equity as key measures to support our overall growth goals. These ratios are as follows:
Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Return on average tangible shareholders’ equity measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.
We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Table 6.
For more information on the reconciliation of these non-GAAP financial measures to GAAP financial measures, see Non-GAAP Reconciliations on page 48.


7     Bank of America

 
 





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

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
$
140,247

 
$
422

 
1.22
%
 
$
123,921

 
$
202

 
0.66
%
Time deposits placed and other short-term investments
10,786

 
61

 
2.31

 
11,497

 
47

 
1.65

Federal funds sold and securities borrowed or purchased under agreements to resell (1)
248,320

 
622

 
1.02

 
216,402

 
356

 
0.67

Trading account assets
131,123

 
1,147

 
3.54

 
125,661

 
1,111

 
3.58

Debt securities
433,096

 
2,830

 
2.58

 
430,234

 
2,573

 
2.38

Loans and leases (2):
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
204,830

 
1,782

 
3.48

 
193,627

 
1,661

 
3.44

Home equity
56,952

 
643

 
4.56

 
65,508

 
639

 
3.94

U.S. credit card
94,423

 
2,313

 
9.93

 
89,628

 
2,111

 
9.55

Non-U.S. credit card (3)

 

 

 
9,367

 
211

 
9.15

Direct/Indirect consumer (4)
92,478

 
701

 
3.07

 
93,291

 
608

 
2.65

Other consumer (5)
2,814

 
27

 
4.00

 
2,547

 
27

 
4.07

Total consumer
451,497

 
5,466

 
4.89

 
453,968

 
5,257

 
4.68

U.S. commercial
299,850

 
2,717

 
3.68

 
287,468

 
2,222

 
3.14

Non-U.S. commercial
99,504

 
738

 
3.01

 
92,821

 
595

 
2.60

Commercial real estate (6)
59,231

 
587

 
4.02

 
57,764

 
479

 
3.36

Commercial lease financing
21,833

 
175

 
3.20

 
22,123

 
231

 
4.17

Total commercial
480,418

 
4,217

 
3.56

 
460,176

 
3,527

 
3.11

Total loans and leases (3)
931,915

 
9,683

 
4.20

 
914,144

 
8,784

 
3.88

Other earning assets (1)
84,345

 
984

 
4.72

 
73,514

 
760

 
4.19

Total earning assets (1,7)
1,979,832

 
15,749

 
3.21

 
1,895,373

 
13,833

 
2.96

Cash and due from banks
26,275

 
 
 
 
 
27,196

 
 
 
 
Other assets, less allowance for loan and lease losses
319,771

 
 
 
 
 
309,080

 
 
 
 
Total assets
$
2,325,878

 
 
 
 
 
$
2,231,649

 
 
 
 
Interest-bearing liabilities
 

 
 

 
 

 
 

 
 

 
 

U.S. interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

Savings
$
54,747

 
$
1

 
0.01
%
 
$
52,193

 
$
1

 
0.01
%
NOW and money market deposit accounts
659,033

 
406

 
0.25

 
617,749

 
74

 
0.05

Consumer CDs and IRAs
41,313

 
33

 
0.33

 
46,711

 
31

 
0.27

Negotiable CDs, public funds and other deposits
40,639

 
157

 
1.56

 
33,695

 
52

 
0.63

Total U.S. interest-bearing deposits
795,732

 
597

 
0.30

 
750,348

 
158

 
0.09

Non-U.S. interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Banks located in non-U.S. countries
2,243

 
9

 
1.67

 
2,616

 
5

 
0.76

Governments and official institutions
1,154

 

 
0.02

 
1,013

 
2

 
0.81

Time, savings and other
67,334

 
154

 
0.92

 
58,418

 
117

 
0.81

Total non-U.S. interest-bearing deposits
70,731

 
163

 
0.93

 
62,047

 
124

 
0.81

Total interest-bearing deposits
866,463

 
760

 
0.36

 
812,395

 
282

 
0.14

Federal funds purchased, securities loaned or sold under agreements to repurchase, short-term borrowings and other interest-bearing liabilities (1)
278,931

 
1,135

 
1.65

 
266,837

 
573

 
0.87

Trading account liabilities
55,362

 
357

 
2.62

 
38,731

 
264

 
2.76

Long-term debt
229,603

 
1,739

 
3.06

 
221,468

 
1,459

 
2.65

Total interest-bearing liabilities (1,7)
1,430,359

 
3,991

 
1.13

 
1,339,431

 
2,578

 
0.78

Noninterest-bearing sources:
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
430,805

 
 
 
 
 
444,237

 
 
 
 
Other liabilities (1)
199,234

 
 
 
 
 
180,281

 
 
 
 
Shareholders’ equity
265,480

 
 
 
 
 
267,700

 
 
 
 
Total liabilities and shareholders’ equity
$
2,325,878

 
 
 
 
 
$
2,231,649

 
 
 
 
Net interest spread
 
 
 
 
2.08
%
 
 
 
 
 
2.18
%
Impact of noninterest-bearing sources
 
 
 
 
0.31

 
 
 
 
 
0.21

Net interest income/yield on earning assets
 
 
$
11,758

 
2.39
%
 
 
 
$
11,255

 
2.39
%
(1) 
Certain prior-period amounts have been reclassified to conform to current period presentation.
(2) 
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans are recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan.
(3) 
Includes assets of the Corporation’s non-U.S. consumer credit card business, which was sold during the second quarter of 2017.
(4) 
Includes non-U.S. consumer loans of $2.9 billion in both the first quarter of 2018 and 2017.
(5) 
Includes consumer finance loans of $0 and $454 million; consumer leases of $2.6 billion and $1.9 billion, and consumer overdrafts of $167 million and $170 million in the first quarter of 2018 and 2017, respectively.
(6) 
Includes U.S. commercial real estate loans of $55.3 billion and $54.7 billion, and non-U.S. commercial real estate loans of $3.9 billion and $3.1 billion in the first quarter of 2018 and 2017, respectively.
(7) 
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $7 million and $17 million in the first quarter of 2018 and 2017. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $204 million and $424 million in the first quarter of 2018 and 2017. For more information, see Interest Rate Risk Management for the Banking Book on page 45.


 
 
Bank of America     8


Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit,
 
market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 17. The capital allocated to the business segments
is referred to as allocated capital. Allocated equity in the reporting units is comprised of allocated capital plus capital for the portion of goodwill and intangibles specifically assigned to the reporting unit. For more information, see Note 8 – Goodwill and Intangible Assets to the Consolidated Financial Statements.
For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and period-end total assets, see Note 17 – Business Segment Information to the Consolidated Financial Statements.
Consumer Banking
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
Consumer Lending
 
Total Consumer Banking
 
 
 
Three Months Ended March 31
 
 
(Dollars in millions)
2018
2017
 
2018
2017
 
2018
2017
 
% Change

Net interest income (FTE basis)
$
3,741

$
3,063

 
$
2,769

$
2,718

 
$
6,510

$
5,781

 
13
 %
Noninterest income:
 
 
 
 
 
 
 
 
 
 
Card income
2

2

 
1,277

1,222

 
1,279

1,224

 
4

Service charges
1,044

1,050

 


 
1,044

1,050

 
(1
)
All other income
108

102

 
91

127

 
199

229

 
(13
)
Total noninterest income
1,154

1,154

 
1,368

1,349

 
2,522

2,503

 
1

Total revenue, net of interest expense (FTE basis)
4,895

4,217

 
4,137

4,067

 
9,032

8,284

 
9

 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
41

55

 
894

783

 
935

838

 
12

Noninterest expense
2,651

2,527

 
1,829

1,883

 
4,480

4,410

 
2

Income before income taxes (FTE basis)
2,203

1,635

 
1,414

1,401

 
3,617

3,036

 
19

Income tax expense (FTE basis)
561

616

 
361

528

 
922

1,144

 
(19
)
Net income
$
1,642

$
1,019

 
$
1,053

$
873

 
$
2,695

$
1,892

 
42

 
 
 
 
 
 
 
 
 
 
 
Effective tax rate (1)
 
 
 
 
 
 
25.5
%
37.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest yield (FTE basis)
2.25
%
1.96
%
 
4.09
%
4.34
%
 
3.73

3.50

 
 
Return on average allocated capital
55

34

 
17

14

 
30

21

 
 
Efficiency ratio (FTE basis)
54.15

59.94

 
44.21

46.29

 
49.60

53.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
Average
 
2018
2017
 
2018
2017
 
2018
2017
 
% Change

Total loans and leases
$
5,170

$
4,979

 
$
274,387

$
252,966

 
$
279,557

$
257,945

 
8
 %
Total earning assets (2)
673,641

634,704

 
274,748

254,066

 
707,754

668,865

 
6

Total assets (2)
701,418

661,769

 
285,864

265,783

 
746,647

707,647

 
6

Total deposits
668,983

629,337

 
5,368

6,257

 
674,351

635,594

 
6

Allocated capital
12,000

12,000

 
25,000

25,000

 
37,000

37,000

 

 
 
 
 
 
 
 
 
 
 
 
 
Period end
 
March 31
2018
December 31
2017
 
March 31
2018
December 31
2017
 
March 31
2018
December 31
2017
 
% Change

Total loans and leases
$
5,111

$
5,143

 
$
273,944

$
275,330

 
$
279,055

$
280,473

 
(1
)%
Total earning assets (2)
700,420

675,485

 
274,977

275,742

 
735,247

709,832

 
4

Total assets (2)
728,063

703,330

 
286,343

287,390

 
774,256

749,325

 
3

Total deposits
695,514

670,802

 
5,974

5,728

 
701,488

676,530

 
4

 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Estimated at the segment level only.
(2) 
In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking.
Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. For more information about Consumer Banking, including our Deposits and Consumer Lending businesses, see Business Segment Operations in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
 
Consumer Banking Results
Net income for Consumer Banking increased $803 million to $2.7 billion for the three months ended March 31, 2018 compared to the same period in 2017 primarily driven by higher pretax income, and lower tax expense. The impact of the reduction in the federal tax rate was somewhat offset by the elimination of tax deductions for FDIC premiums under the Tax Act. The increase in pretax income

9     Bank of America

 
 





was driven by an increase in revenue partially offset by higher provision for credit losses and an increase in noninterest expense. Net interest income increased $729 million to $6.5 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits and higher interest rates, as well as pricing discipline and loan growth. Noninterest income increased $19 million to $2.5 billion driven by higher card income, partially offset by lower mortgage banking income.
The provision for credit losses increased $97 million to $935 million due to portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense increased $70 million to $4.5 billion driven by investments in digital capabilities and business growth, including increased primary sales professionals, combined with investments in new financial centers and renovations, as well as higher personnel expense. These increases were largely offset by improved operating efficiencies and lower litigation expense.
The return on average allocated capital was 30 percent, up from 21 percent, driven by higher net income. For additional information on capital allocations, see Business Segment Operations on page 9.
Deposits and Consumer Lending include the net impact of migrating customers and their related deposit, brokerage asset and loan balances between Deposits, Consumer Lending and GWIM, as well as other client-managed business. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 12.
Deposits
Net income for Deposits increased $623 million to $1.6 billion for the three months ended March 31, 2018 compared to the same period in 2017 driven by higher net interest income and lower income taxes, partially offset by higher noninterest expense. Net interest income increased $678 million to $3.7 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits, and pricing discipline. Noninterest income of $1.2 billion remained unchanged.
The provision for credit losses decreased $14 million to $41 million. Noninterest expense increased $124 million to $2.7 billion primarily driven by investments in digital capabilities and business growth, including increased primary sales professionals, combined with investments in new financial centers and renovations, as well as higher personnel expense.
Average deposits increased $39.6 billion to $669.0 billion driven by strong organic growth. Growth in checking, money market savings and traditional savings of $44.0 billion was partially offset by a decline in time deposits of $4.6 billion.
 
 
 
 
Key Statistics  Deposits
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
2018
 
2017
Total deposit spreads (excludes noninterest costs) (1)
2.00
%
 
1.67
%
 
 
 
 
Period End
 
 
 
Client brokerage assets (in millions)
$
182,110

 
$
153,786

Active digital banking users (units in thousands) (2)
35,518

 
33,702

Active mobile banking users (units in thousands)
24,801

 
22,217

Financial centers
4,435

 
4,559

ATMs
16,011

 
15,939

(1) 
Includes deposits held in Consumer Lending.
(2) 
Digital users represents mobile and/or online users across consumer businesses; historical information has been reclassified primarily due to the sale of the Corporation’s non-U.S. consumer credit card business in the second quarter of 2017.
 
Client brokerage assets increased $28.3 billion driven by strong client flows and market performance. Active mobile banking users increased 2.6 million reflecting continuing changes in our customers’ banking preferences. The number of financial centers declined by a net 124 reflecting changes in customer preferences to self-service options as we continue to optimize our consumer banking network and improve our cost-to-serve.
Consumer Lending
We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 25. At March 31, 2018, total owned loans in the core portfolio held in Consumer Lending were $117.9 billion, an increase of $14.2 billion from March 31, 2017, primarily driven by higher residential mortgage balances, based on a decision to retain certain loans on the balance sheet, partially offset by a decline in home equity balances.
Net income for Consumer Lending increased $180 million to $1.1 billion for the three months ended March 31, 2018 compared to the same period in 2017 driven by lower income taxes, higher revenue and lower noninterest expense, partially offset by higher provision for credit losses. Net interest income increased $51 million to $2.8 billion primarily driven by the impact of an increase in loan balances. Noninterest income increased $19 million to $1.4 billion driven by higher card income, partially offset by lower mortgage banking income.
The provision for credit losses increased $111 million to $894 million due to portfolio seasoning and loan growth in the U.S. credit card portfolio. Noninterest expense decreased $54 million to $1.8 billion primarily driven by lower litigation expense and improved operating efficiencies.
Average loans increased $21.4 billion to $274.4 billion driven by increases in residential mortgages, as well as U.S credit card and consumer vehicle loans, partially offset by lower home equity loan balances.
 
 
 
 
Key Statistics  Consumer Lending
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Total U.S. credit card (1)
 
 
 
Gross interest yield
9.93
%
 
9.55
%
Risk-adjusted margin
8.32

 
8.89

New accounts (in thousands)
1,194

 
1,184

Purchase volumes
$
61,347

 
$
55,321

Debit card purchase volumes
$
76,052

 
$
70,611

(1) 
In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM.
During the three months ended March 31, 2018, the total U.S. credit card risk-adjusted margin decreased 57 bps primarily driven by increased net charge-offs and higher credit card rewards costs.
Total U.S. credit card purchase volumes increased $6.0 billion to $61.3 billion, and debit card purchase volumes increased $5.4 billion to $76.1 billion, reflecting higher levels of consumer spending.


 
 
Bank of America     10


 
 
 
 
Key Statistics - Loan Production (1)
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2018
 
2017
Total (2):
 
 
 
First mortgage
$
9,424

 
$
11,442

Home equity
3,749

 
4,053

Consumer Banking:
 
 
 
First mortgage
$
5,964

 
$
7,629

Home equity
3,345

 
3,667

(1) 
The loan production amounts represent the unpaid principal balance of loans and in the case of home equity, the principal amount of the total line of credit.
(2) 
In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM.
 
First mortgage loan originations in Consumer Banking and for the total Corporation decreased $1.7 billion and $2.0 billion in the three months ended March 31, 2018 compared to the same period in 2017 primarily driven by the higher interest rate environment driving lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total Corporation decreased $322 million and $304 million for the three months ended March 31, 2018 compared to the same period in 2017 driven by a smaller market.
Global Wealth & Investment Management
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
(Dollars in millions)
2018
 
2017
 
% Change

Net interest income (FTE basis)
$
1,594

 
$
1,560

 
2
%
Noninterest income:
 
 
 
 
 
Investment and brokerage services
3,040

 
2,791

 
9

All other income
222

 
241

 
(8
)
Total noninterest income
3,262

 
3,032

 
8

Total revenue, net of interest expense (FTE basis)
4,856

 
4,592

 
6

 
 
 
 
 
 
Provision for credit losses
38

 
23

 
65

Noninterest expense
3,428

 
3,329

 
3

Income before income taxes (FTE basis)
1,390

 
1,240

 
12

Income tax expense (FTE basis)
355

 
467

 
(24
)
Net income
$
1,035

 
$
773

 
34

 
 
 
 
 
 
Effective tax rate
25.5
%
 
37.7
%
 
 
 
 
 
 
 
 
Net interest yield (FTE basis)
2.46

 
2.28

 
 
Return on average allocated capital
29

 
22

 
 
Efficiency ratio (FTE basis)
70.60

 
72.51

 
 
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
Average
2018
 
2017
 
% Change

Total loans and leases
$
159,095

 
$
148,405

 
7
 %
Total earning assets
262,775

 
277,989

 
(5
)
Total assets
279,716

 
293,432

 
(5
)
Total deposits
243,077

 
257,386

 
(6
)
Allocated capital
14,500

 
14,000

 
4

 
 
 
 
 
 
Period end
March 31
2018
 
December 31
2017
 
% Change

Total loans and leases
$
159,636

 
$
159,378

 
 %
Total earning assets
262,430

 
267,026

 
(2
)
Total assets
279,331

 
284,321

 
(2
)
Total deposits
241,531

 
246,994

 
(2
)
GWIM consists of two primary businesses: Merrill Lynch Global Wealth Management (MLGWM) and U.S. Trust, Bank of America Private Wealth Management (U.S. Trust). For more information about GWIM, see Business Segment Operations in the MD&A of the Corporation’s 2017 Annual Report on Form 10-K.
Net income for GWIM increased $262 million to $1.0 billion for the three months ended March 31, 2018 compared to the same period in 2017 reflecting higher pretax income, and lower tax expense. The impact of the reduction in the federal tax rate was somewhat offset by the elimination of tax deductions for FDIC premiums under the Tax Act. Pretax results were driven by higher revenue, partially offset by an increase in noninterest expense. The operating margin was 29 percent compared to 27 percent a year ago.
 
Net interest income increased $34 million to $1.6 billion primarily due to higher interest rates and higher loan balances. Noninterest income, which primarily includes investment and brokerage services income, increased $230 million to $3.3 billion. The increase in noninterest income was driven by higher market valuations and AUM flows, partially offset by the impact of changing market dynamics on transactional revenue and AUM pricing. Noninterest expense increased $99 million to $3.4 billion primarily due to higher revenue-related incentive costs.
Return on average allocated capital was 29 percent, up from 22 percent a year ago, primarily due to higher net income, somewhat offset by an increase in allocated capital.


11     Bank of America

 
 





During the three months ended March 31, 2018, revenue from MLGWM of $4.0 billion increased six percent compared to the same period in 2017 due to higher net interest income and asset management fees driven by higher market valuations and AUM
 
flows, partially offset by lower transactional revenue and AUM pricing. U.S. Trust revenue of $860 million increased six percent reflecting higher net interest income and asset management fees primarily due to higher market valuations and AUM flows.
 
 
 
 
Key Indicators and Metrics
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions, except as noted)
2018
 
2017
Revenue by Business
 
 
 
Merrill Lynch Global Wealth Management
$
3,996

 
$
3,782

U.S. Trust
860

 
809

Other

 
1

Total revenue, net of interest expense (FTE basis)
$
4,856

 
$
4,592

 
 
 
 
Client Balances by Business, at period end
 
 
 
Merrill Lynch Global Wealth Management
$
2,284,803

 
$
2,167,536

U.S. Trust
440,683

 
417,841

Total client balances
$
2,725,486

 
$
2,585,377

 
 
 
 
Client Balances by Type, at period end
 
 
 
Assets under management
$
1,084,717

 
$
946,778

Brokerage and other assets
1,236,799

 
1,232,195

Deposits
241,531

 
254,595

Loans and leases (1)
162,439

 
151,809

Total client balances
$
2,725,486

 
$
2,585,377

 
 
 
 
Assets Under Management Rollforward
 
 
 
Assets under management, beginning of period
$
1,080,747

 
$
886,148

Net client flows
24,240

 
29,214

Market valuation/other 
(20,270
)
 
31,416

Total assets under management, end of period
$
1,084,717

 
$
946,778

 
 
 
 
Associates, at period end (2)
 
 
 
Number of financial advisors
17,367

 
16,678

Total wealth advisors, including financial advisors
19,276

 
18,538

Total primary sales professionals, including financial advisors and wealth advisors
20,398

 
19,536

 
 
 
 
Merrill Lynch Global Wealth Management Metric
 
 
 
Financial advisor productivity (3) (in thousands)
$
1,038

 
$
993

 
 
 
 
U.S. Trust Metric, at period end
 
 
 
Primary sales professionals
1,737

 
1,657