BANK OF AMERICA CORP quarterly report, Q2 FY2023

Business context and reporting period

Bank of America Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, compared with the same 2022 periods. The company operates through Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets; other activities are reported in All Other. At quarter-end, it reported $3.12 trillion in assets and approximately 216,000 employees.

Financial performance

Metric	Q2 2023	Q2 2022	Six months 2023	Six months 2022
Revenue, net of interest expense	$25.20 billion	$22.69 billion	$51.46 billion	$45.92 billion
Net interest income	$14.16 billion	$12.44 billion	$28.61 billion	$24.02 billion
Provision for credit losses	$1.13 billion	$523 million	$2.06 billion	$553 million
Noninterest expense	$16.04 billion	$15.27 billion	$32.28 billion	$30.59 billion
Net income	$7.41 billion	$6.25 billion	$15.57 billion	$13.31 billion
Diluted EPS	$0.88	$0.73	$1.82	$1.53

Q2 return on average assets was 0.94%, return on average common equity 11.21%, and efficiency ratio 63.65% (67.32% in Q2 2022). FTE net interest yield was 2.06%, up from 1.86%.
Revenue growth reflected higher net interest income and trading revenue. Higher interest rates benefited lending and deposit businesses, while increased deposit funding costs and lower fee income in some businesses were offsets.
Q2 Global Banking net income rose to $2.65 billion from $1.51 billion; Global Markets earned $1.11 billion versus $1.02 billion; Consumer Banking earned $2.85 billion versus $2.89 billion; and GWIM earned $978 million versus $1.15 billion.
At June 30, loans and leases were $1.05 trillion, deposits $1.88 trillion, total assets $3.12 trillion, long-term debt $286.1 billion, and shareholders’ equity $283.3 billion. Deposits declined $53.1 billion from year-end 2022.
Six-month cash flows were $486 million provided by operating activities, $88.7 billion provided by investing activities and $54.4 billion provided by financing activities. Cash and cash equivalents increased $143.4 billion to $373.6 billion; investing and financing flows included significant securities and funding movements.
Average global liquidity sources were $867 billion; average consolidated liquidity coverage ratio was 119% and net stable funding ratio 120%. CET1 was 11.6% under the binding Standardized approach; management said the company met the definition of well capitalized.

Material changes and credit trends

Provision for credit losses increased substantially year over year, chiefly reflecting consumer credit-card growth and higher losses; the prior-year comparison included different reserve-building factors. The allowance for credit losses was $14.3 billion at quarter-end, up $116 million from year-end.
Net charge-offs were $869 million in Q2; the annualized net charge-off ratio was 0.33%, versus 0.23% in Q2 2022. Credit-card net charge-offs increased to $610 million from $323 million.
Management described overall asset quality as relatively healthy but noted delinquency trends rising from unusually low levels. Commercial nonperforming loans rose to $1.4 billion, with deterioration concentrated in commercial real estate office exposure. Commercial criticized utilized exposure increased to $21.5 billion.
Commercial real estate loans totaled $74.3 billion. Office loans were $18.3 billion, approximately 2% of total company loans; $4.5 billion of office exposure was criticized and approximately $9.2 billion of office loans mature by the end of 2024. Management said most remained well secured, while noting uncertain office demand and collateral values.
Available-for-sale securities sales resulted in $194 million of net losses in Q2 and $404 million for the first half. Held-to-maturity securities had a $105.8 billion gross unrealized loss at June 30; these losses do not equal recognized credit losses, and the filing reports a fair value of $508.4 billion against $614.1 billion amortized cost.

Outlook, risks and unusual items

The filing provides no specific consolidated earnings or revenue guidance. Its allowance outlook assumed a recessionary U.S. environment in 2023, unemployment above 4.5% by Q4 2023 and above 5% through Q4 2024, and GDP contraction of 0.2% year over year in Q4 2023.
On July 27, 2023, the Federal Reserve announced a 2.5% stress capital buffer, down from 3.4%, and a 9.5% minimum CET1 requirement effective October 1, 2023. The company expected its minimum CET1 requirement to rise by 50 basis points from January 1, 2024 with the planned G-SIB surcharge increase. Proposed regulatory capital rules were still under evaluation.
The FDIC proposed a special assessment related to the failures of Silicon Valley Bank and Signature Bank. If finalized as proposed, the estimated company expense is approximately $1.9 billion; timing and recognition were not determined in the filing.
After quarter-end, the company announced settlements requiring $120 million in combined OCC and CFPB penalties for representment fees, plus at least $80.4 million in customer refunds under the CFPB order. A separate CFPB credit-card sales and marketing settlement included a $30 million penalty and consumer-redress undertakings.
Management estimated a $0–$0.8 billion range of possible losses in excess of accrued liabilities for specified litigation, regulatory and representations-and-warranties matters. It cautioned that outcomes could vary and that an adverse outcome could materially affect a particular period’s results or reputation.
Other key risks include deposit competition and migration to higher-yielding alternatives, higher funding costs, inflation and rates, potential deterioration in consumer and commercial credit, banking-sector liquidity stress, regulatory changes, litigation, cyber and operational disruption, and geopolitical uncertainty.
The company declared a post-quarter common dividend of $0.24 per share, a 9% increase. It repurchased $550 million of common stock in Q2, predominantly to offset equity compensation awards. The remaining authority under its existing $25 billion authorization was $14.1 billion.

Important facts for investors to verify

Whether deposit balances and funding costs stabilize, and how further rate changes affect net interest income and margins.
Whether credit-card delinquencies, net charge-offs and consumer provisions continue to rise, and how allowance coverage evolves.
Office-property loan performance, criticized exposure, collateral values and upcoming maturities, particularly through 2024.
The finalized FDIC special assessment, including its timing and actual expense, and the financial and reputational effects of regulatory settlements and pending litigation.
Capital requirements after the announced SCB change and proposed rules, and how capital distributions compare with capital generation.
Liquidity and securities-position developments, including realized securities-sale losses and the sensitivity of capital to interest rates.