Business context and reporting period
Bank of America Corporation filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The bank holding company reported $3.03 trillion in assets and operated through Consumer Banking, Global Wealth & Investment Management, Global Banking, Global Markets and All Other. Comparisons below are with the corresponding 2020 period unless noted.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 |
|---|---|---|
| Total revenue | $21.5 billion | $22.3 billion |
| Net interest income | $10.2 billion | $10.8 billion |
| Provision for credit losses | $1.6 billion benefit | $5.1 billion expense |
| Noninterest expense | $15.0 billion | $13.4 billion |
| Net income | $9.2 billion | $3.5 billion |
| Net income applicable to common shareholders | $9.0 billion | $3.3 billion |
| Diluted EPS | $1.03 | $0.37 |
| FTE net interest yield | 1.61% | 1.87% |
| Efficiency ratio | 70.09% | 60.06% |
| Return on average assets | 1.23% | 0.53% |
Six-month results: Revenue was $44.3 billion versus $45.1 billion; net income was $17.3 billion versus $7.5 billion; diluted EPS was $1.90 versus $0.77. Provision for credit losses was a $3.5 billion benefit, compared with $9.9 billion of expense in the prior-year period.
Balance sheet and capital at June 30: Assets were $3.03 trillion, deposits $1.91 trillion, loans and leases $918.9 billion, total shareholders’ equity $277.1 billion and long-term debt $274.6 billion. The allowance for credit losses was $15.8 billion, down from $20.7 billion at December 31, 2020. CET1 capital was 11.5% under the Standardized approach; the supplementary leverage ratio was 5.9%.
Cash flow, liquidity and funding: For the first six months, operating cash flow was negative $61.6 billion, investing cash flow negative $221.7 billion and financing cash flow positive $164.9 billion. Cash and cash equivalents fell $120.4 billion to $260.0 billion. Average global liquidity sources were $1.06 trillion; average consolidated liquidity coverage ratio was 117%. The company issued $48.2 billion and repaid or redeemed $29.2 billion of long-term debt during the half.
Material changes versus prior periods
- Quarterly revenue declined 4%, largely as lower net interest income and weaker market-making revenue offset growth in fees. Six-month revenue declined 2%.
- Profit rose sharply, chiefly because credit-loss provisions shifted from large expenses in 2020 to benefits in 2021, reflecting improved economic assumptions and reserve releases.
- Q2 included an approximately $2.0 billion positive tax adjustment from revaluing U.K. deferred tax assets after legislation raised the U.K. corporate tax rate to 25% from 19%, effective April 2023. Without recurring tax preference benefits and this U.K. adjustment, the filing estimates the effective tax rate would have been about 25%.
- Expenses rose 12% in Q2. The filing cites higher compensation, a $500 million Bank of America Foundation contribution, approximately $300 million in state unemployment-card-claim processing costs and increased activity-related costs.
- Deposits increased $113.7 billion from year-end, supported by client inflows and government stimulus. Assets increased $210.3 billion, largely as cash was deployed into debt securities and Global Markets trading assets grew.
- Business results diverged: GWIM Q2 net income rose to $991 million, supported by market valuations and client flows; Global Banking net income increased to $2.4 billion, aided by reserve releases; Global Markets net income fell to $908 million as revenue declined and expenses rose.
Outlook, risks and unusual items
- The filing gives no specific earnings or revenue guidance. Management described an improving but uncertain recovery and highlighted continuing COVID-19 and variant risks. Credit reserves incorporated multiple economic scenarios, including downside, inflation/higher-rate and upside cases.
- Interest rates remain a key sensitivity. The bank estimated a $8.0 billion pretax increase in forecast 12-month net interest income from an instantaneous parallel 100-basis-point rate rise, assuming no management action or deposit-mix change. The company cautioned that customer migration to higher-yielding deposits or market funding could reduce the benefit.
- Management reported a preliminary 2.5% stress capital buffer effective October 1, 2021, unchanged, and a 9.5% minimum CET1 requirement. The Board authorized up to $25 billion of common-stock repurchases; $4.2 billion was repurchased in Q2. A quarterly dividend of $0.21 per share was declared July 21, up 17%.
- Legal, regulatory and operational risks include litigation and investigations, LIBOR transition, cybersecurity and third-party disruptions, changing capital and liquidity rules, climate-related exposures, and pandemic-related uncertainty. The estimated reasonably possible loss range in excess of accrued liabilities for specified litigation and representations-and-warranties exposures was $0–$1.3 billion; management said adverse outcomes could still materially affect a particular period’s results or reputation.
- Commercial real estate, travel and entertainment, leveraged lending and energy remained areas of monitoring. The filing noted improvement in credit quality overall, but said some sectors and real estate markets remained affected by the pandemic.
Important facts for investors to verify
- How much of earnings improvement is sustainable after separating the $2.0 billion U.K. tax benefit and credit-reserve releases from recurring operating performance.
- Whether net interest income and yield stabilize as rates, loan balances and deposit mix change, and whether actual outcomes match the disclosed rate-sensitivity assumptions.
- Whether rising expenses—including compensation, charitable contributions and card-claim processing—moderate, and how the efficiency ratio develops.
- Credit performance as stimulus and payment deferrals unwind, especially consumer real estate nonperformers and exposures to commercial real estate and pandemic-sensitive industries.
- Capital and liquidity headroom after the SLR relief expired, and the pace and scale of repurchases and dividend increases under regulatory and market constraints.
- Developments in legal contingencies, LIBOR transition execution and other disclosed regulatory, cyber, climate and pandemic risks.