Bank of America Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are primarily to December 31, 2023. Bank of America is a diversified U.S. and international financial-services company operating through Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets and All Other. It reported $3.27 trillion of assets and approximately 212,000 employees.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 or comparison |
|---|---|---|
| Total revenue, net of interest expense | $25.82 billion | $26.26 billion, down 2% |
| Net interest income | $14.03 billion | $14.45 billion, down 3%; FTE net interest yield was 1.99%, down 21 basis points |
| Noninterest income | $11.79 billion | $11.81 billion, approximately flat |
| Provision for credit losses | $1.32 billion | $931 million |
| Noninterest expense | $17.24 billion | $16.24 billion, up 6% |
| Net income | $6.67 billion | $8.16 billion, down 18% |
| Net income applicable to common shareholders; diluted EPS | $6.14 billion; $0.76 | $7.66 billion; $0.94 |
| Efficiency ratio; return on average assets | 66.77%; 0.83% | 61.84%; 1.07% |
Management attributed lower earnings to increased expenses, lower revenue and higher credit-loss provision. Noninterest expense included a $700 million pretax FDIC special-assessment charge. The effective tax rate was 8.1%, reflecting recurring tax credits and a discrete benefit related to that charge; the company said the rate would have been approximately 26% without recurring credits and discrete benefits.
Balance sheet, funding and capital
- At March 31, total assets were $3.27 trillion, deposits $1.95 trillion, loans and leases $1.05 trillion, total liabilities $2.98 trillion and shareholders’ equity $293.6 billion. Versus year-end, assets rose $93.7 billion, deposits rose $22.7 billion and loans declined $4.6 billion.
- Long-term debt was $296.3 billion, down $5.9 billion from year-end. The company issued $15.4 billion of long-term debt and had $15.0 billion of maturities and redemptions during the quarter.
- Standardized CET1 capital ratio was 11.9%, against a 10.0% minimum requirement; the supplementary leverage ratio was 6.0%. The company reported that it and its banking subsidiaries met applicable well-capitalized requirements.
- Average Global Liquidity Sources were $909 billion; average consolidated liquidity coverage ratio was 113%. The company also reported $326 billion of potential borrowing capacity against specifically identified eligible assets. These measures and funding sources are subject to entity-level transfer restrictions and other conditions.
- Cash and cash equivalents ended the quarter at $313.4 billion, down from $333.1 billion at year-end. Cash flows were negative $15.5 billion from operating activities and negative $71.3 billion from investing activities, offset by $68.7 billion of financing cash inflows; net cash decreased $19.7 billion.
Material changes and business trends
- Net interest income: Higher deposit and funding costs more than offset higher asset yields, Global Markets-related interest income and modest loan growth.
- Fee and trading mix: Investment-banking fees rose to $1.57 billion from $1.16 billion, and investment and brokerage services income increased with higher market valuations and positive client flows. Market-making income fell to $3.89 billion from $4.71 billion, mainly due to weaker FICC macro-products trading.
- Segment results: Consumer Banking net income fell 15% to $2.66 billion, reflecting weaker revenue and higher credit costs. GWIM net income rose 10% to $1.01 billion, supported by asset-management fees. Global Banking net income fell 22% to $1.99 billion, with lower net interest income and higher provision. Global Markets net income rose 2% to $1.72 billion, as higher investment-banking and Equities revenue partly offset lower FICC revenue and higher expenses. All Other reported a $696 million net loss, including the FDIC assessment.
- Credit quality: Net charge-offs increased to $1.50 billion from $807 million; the annualized ratio rose to 0.58% from 0.32%. Nonperforming loans, leases and foreclosed properties increased to $6.03 billion from $5.63 billion at year-end. The allowance for credit losses declined $180 million to $14.37 billion, while the allowance for loan and lease losses equaled 1.26% of loans.
- Consumer and commercial credit: Credit-card net charge-offs increased to $899 million from $501 million. Commercial real-estate net charge-offs rose to $304 million from $22 million. Commercial nonperforming loans increased to $3.19 billion from $2.77 billion, primarily due to office exposure. Commercial criticized utilized exposure rose to $24.5 billion from $23.3 billion.
- Shareholder returns: The company repurchased $2.5 billion of common stock and paid $0.24 per share in common dividends during the quarter. The Board declared another $0.24 quarterly dividend, payable June 28, 2024.
Outlook, risks and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management describes the company as asset-sensitive: its model estimates that an instantaneous parallel 100-basis-point rate increase would add $3.04 billion to pretax net interest income over the next 12 months, while a 100-basis-point decrease would reduce it by $2.87 billion. These are scenario estimates, not forecasts, and assume no management response or change in deposit size or mix.
- The allowance model’s weighted economic outlook improved from year-end. It assumes U.S. unemployment just below 5% by Q4 2024 and real GDP growth of 0.6% and 1.7% year over year in Q4 2024 and Q4 2025, respectively. Management cautions that inflation, elevated rates and geopolitical conditions could adversely affect credit quality.
- The $700 million FDIC assessment charge increased the recorded accrual for the company’s estimated share to $2.8 billion; that estimate may change as the FDIC updates its loss estimate.
- Management reported a possible-loss range of $0 to $0.8 billion in excess of accrued liabilities for specified litigation, regulatory matters and representations-and-warranties exposures. It said an adverse outcome could materially affect results for a particular period or cause reputational harm, although it did not expect the matters to materially affect consolidated financial condition or liquidity.
- Interest-rate exposure includes substantial unrealized losses on securities: held-to-maturity securities had a $109.2 billion fair-value shortfall to amortized cost at quarter-end. The filing also reports accumulated unrealized losses on available-for-sale debt securities. These amounts are sensitive to rates and relevant to capital and liquidity analysis.
- Other risks identified include deposit pricing and retention, credit deterioration, commercial real-estate office demand and maturities, market volatility, regulatory capital and liquidity changes, litigation, cybersecurity and operational disruption, and geopolitical and macroeconomic uncertainty. The filing reports no material change to the risk factors in the 2023 Form 10-K.
Important facts for investors to verify
- Whether deposit costs and mix continue to pressure net interest income and whether reported rate sensitivity assumptions remain appropriate.
- Whether credit-card delinquencies and charge-offs, office real-estate nonperforming loans, criticized exposures and related reserves continue to rise.
- The FDIC special assessment’s final amount and timing, and the effect of the charge on expenses and taxes.
- The scale and duration of securities-related unrealized losses, their implications for capital and liquidity, and the assumptions underlying any interest-rate sensitivity estimates.
- Capital requirements and distributions after the 2024 CCAR process, including the company’s planned repurchases and dividends.
- Updates to litigation and regulatory exposures, including whether actual losses exceed recorded accruals or the disclosed estimated range.