Bank of America Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Comparisons below are year over year unless noted. Bank of America is a diversified U.S. and international banking and financial-services company, reporting Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, Global Markets, and All Other.
Financial results and condition
| Metric | Q1 2022 | Comparison |
|---|---|---|
| Total revenue, net of interest expense | $23.2 billion | Up 1.8% from $22.8 billion |
| Net interest income | $11.6 billion | Up $1.4 billion; FTE net interest yield was 1.69%, up 1 basis point |
| Noninterest income | $11.7 billion | Down $968 million |
| Provision for credit losses | $30 million expense | Versus a $1.86 billion benefit |
| Noninterest expense | $15.3 billion | Down $196 million |
| Net income / diluted EPS | $7.1 billion / $0.80 | Versus $8.1 billion / $0.86 |
| Efficiency ratio | 65.95% | Improved from 67.98% |
| Return on average assets | 0.89% | Down from 1.13% |
Net income applicable to common shareholders was $6.6 billion, compared with $7.6 billion. The effective tax rate was 10.3%, primarily reflecting recurring tax-preference benefits, including tax credits from affordable-housing and renewable-energy investments; without those credits, management estimated a rate of approximately 24%.
Balance sheet at March 31: Assets were $3.238 trillion, loans and leases $993.1 billion, deposits $2.072 trillion, long-term debt $278.7 billion, and total shareholders’ equity $266.6 billion. Since December 31, 2021, assets rose $68.7 billion, loans rose $14.0 billion, and deposits rose $8.0 billion. Common shareholders’ equity fell $5.9 billion; total shareholders’ equity fell $3.4 billion, reflecting market-value losses and capital returns, partly offset by earnings and preferred-stock issuance.
Cash flow: Cash and cash equivalents declined $74.3 billion to $273.9 billion. Cash flow was negative $45.4 billion from operating activities and negative $68.4 billion from investing activities, offset by $40.9 billion provided by financing activities. These cash-flow figures reflect large banking balance-sheet and securities movements and should be interpreted with the balance sheet and liquidity disclosures.
Credit and capital: Allowance for credit losses was $13.5 billion, down $360 million from year-end; net charge-offs were $392 million, or 0.16% annualized of average loans, versus $823 million and 0.37%. Nonperforming loans and leases were $4.8 billion. The standardized Common Equity Tier 1 ratio was 10.4%, above the 9.5% minimum cited for avoiding distribution restrictions; the company reported that it remained well capitalized. The supplementary leverage ratio was 5.4%. The company repurchased $2.6 billion of common stock and paid $0.21 per common share in dividends during the quarter.
Liquidity: Average Global Liquidity Sources were $1.109 trillion. Average consolidated high-quality liquid assets, net, were $616 billion and the average Liquidity Coverage Ratio was 116%. The company reported compliance with the Net Stable Funding Ratio requirement. Liquidity held at bank subsidiaries is generally subject to restrictions on transfers to the parent or nonbank entities.
Material changes and segment performance
- Revenue mix: Higher net interest income reflected deposit inflows deployed into securities, loan growth and lower premium amortization. Noninterest income declined mainly because investment banking fees fell $789 million and market-making income fell $291 million. Investment and brokerage services income increased $229 million.
- Credit costs: The year-over-year provision increase largely reflects comparison with the substantial prior-year reserve release as the economic outlook improved. In Q1 2022, credit-quality improvement and reserve releases were offset by reserves for Russian exposure and loan growth.
- Consumer Banking: Net income rose 11% to $3.0 billion, supported by higher revenue and lower expenses. Average deposits increased 14% to $1.1 trillion. Consumer card purchase volumes rose to $80.9 billion.
- GWIM: Net income rose 28% to $1.1 billion. Revenue increased 10%; quarter-end client balances were $3.7 trillion. Assets under management declined during the quarter by $67.2 billion, as positive net flows were more than offset by market valuation declines.
- Global Banking: Net income declined 21% to $1.7 billion, principally due to the reserve build versus a prior-year reserve benefit. Revenue increased 12%, helped by net interest income and ESG investment activity; investment banking fees were lower.
- Global Markets: Net income declined 22% to $1.6 billion and revenue declined 15%. Lower investment banking fees and FICC trading revenue were partly offset by stronger Equities performance and lower expenses.
- All Other: Reported a $364 million net loss versus $256 million of net income, reflecting lower revenue, higher expenses and losses associated with ESG partnerships and a business realignment.
Outlook, risks and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management reported that the company remained asset-sensitive: its model estimated a $5.383 billion pretax increase in banking-book net interest income over the next 12 months for an instantaneous parallel 100-basis-point rate increase. This is a sensitivity estimate, not guidance, and assumes no response to the rate shock or change in deposit size or mix.
- Management cited uncertainty from inflation, higher interest rates, supply-chain disruptions, the economic recovery and geopolitical developments. It warned these factors could adversely affect credit quality, markets, operations and results.
- Russia exposure was $759 million net at quarter-end, mainly $679 million in loans and leases. All Russian loans were downgraded and classified as reservable criticized exposure; Ukraine exposure was described as not significant. Indirect effects of the conflict and sanctions remain uncertain.
- Rising rates reduced the value of securities and derivatives and contributed to an $8.3 billion after-tax other-comprehensive loss in the quarter. Accumulated other comprehensive loss increased to $13.4 billion. Management noted that securities losses can pressure capital, while higher rates may benefit future net interest income.
- Litigation and regulatory matters remain uncertain. The estimated range of possible loss in excess of accrued liabilities, where estimable, was $0 to $1.0 billion; management said actual losses could vary and the range is not the maximum exposure. Litigation-related expense was $106 million in the quarter.
- The company continued its transition from LIBOR; it said a significant majority of relevant USD LIBOR contractual exposure had fallback provisions, while remaining exposures require client engagement or other solutions.
- On April 27, 2022, the Board declared a $0.21 common dividend payable June 24, 2022. The company submitted its 2022 capital plan in April; Federal Reserve results were expected by June 30, 2022.
Most important facts for investors to verify
- Whether net interest income growth persists as rates rise, and how deposit pricing, mix and customer behavior affect the company’s rate-sensitivity estimates.
- Whether credit losses remain low and the $13.5 billion allowance adequately reflects inflation, economic and geopolitical downside risks, including Russian exposure.
- How unrealized securities and derivative losses affect accumulated other comprehensive income, tangible equity and regulatory capital.
- Whether fee income and Global Markets performance recover from lower investment banking fees and weaker FICC results.
- Capital distributions, including buybacks and dividends, relative to regulatory buffers, the forthcoming stress capital buffer and liquidity needs.
- Developments in litigation and regulatory matters, LIBOR remediation, and the indirect financial effects of the Russia/Ukraine conflict.