Bank of America Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Bank of America is a diversified U.S. and international financial services company operating through Consumer Banking, Global Wealth & Investment Management, Global Banking, Global Markets and All Other. It reported $3.0 trillion in assets and approximately 212,000 employees at quarter-end.
Financial performance and position
| Metric | Q1 2021 | Comparable period / reference |
|---|---|---|
| Total revenue, net of interest expense | $22.8 billion | $22.8 billion in Q1 2020 |
| Net interest income | $10.2 billion | $12.1 billion in Q1 2020; FTE net interest yield was 1.68%, down 65 basis points |
| Noninterest income | $12.6 billion | $10.6 billion in Q1 2020 |
| Provision for credit losses | $1.9 billion benefit | $4.8 billion expense in Q1 2020; Q1 2021 included a $2.7 billion allowance release |
| Noninterest expense | $15.5 billion | $13.5 billion in Q1 2020 |
| Net income / diluted EPS | $8.1 billion / $0.86 | $4.0 billion / $0.40 in Q1 2020 |
| Efficiency ratio | 67.98% | 59.19% in Q1 2020 |
| Return on average assets | 1.13% | 0.65% in Q1 2020 |
| Loans and leases / deposits | $903.1 billion / $1.885 trillion | At December 31, 2020: $927.9 billion / $1.795 trillion |
| Total assets / shareholders’ equity | $2.970 trillion / $274.0 billion | At December 31, 2020: $2.820 trillion / $272.9 billion |
Revenue was essentially flat year over year: stronger investment banking, market-making and investment and brokerage income offset lower net interest income. Net income more than doubled, mainly because credit-loss provisioning shifted from a large expense to a benefit. Higher expenses partially offset those gains. The reported effective tax rate was 12.2%; management said it would have been 23% excluding tax credits associated with ESG investments.
Cash flow, debt and liquidity
- Cash and cash equivalents declined $54.4 billion during the quarter to $326.1 billion. Operating cash flow was negative $52.3 billion, investing cash flow negative $113.1 billion and financing cash flow positive $113.6 billion; these banking cash flows include substantial balance-sheet activity.
- Long-term debt was $251.2 billion at quarter-end, down from $262.9 billion at year-end. The company issued $13.1 billion and had $13.9 billion of long-term debt maturities and redemptions during the quarter.
- Average Global Liquidity Sources were $1.003 trillion; average consolidated high-quality liquid assets were $577 billion and the average liquidity coverage ratio was 117%.
- The standardized CET1 ratio was 11.8% (13.0% under the Advanced approaches). The supplementary leverage ratio was 7.0%; excluding temporary regulatory relief, management estimated it at approximately 6.1%, 1.1 percentage points above the 5.0% requirement. The company reported that it met the definition of well capitalized.
Material changes and business segments
- Consumer Banking: Net income rose to $2.7 billion from $1.8 billion, chiefly on a $2.9 billion improvement in credit-loss provision. Revenue fell 12% and expenses rose 14%. Average deposits increased 25% year over year, while average loans declined 8%.
- Global Wealth & Investment Management: Net income was $881 million, up slightly. Client balances increased 31% year over year to $3.48 trillion, reflecting market gains and positive flows; AUM ended the quarter at $1.47 trillion.
- Global Banking: Net income increased to $2.2 billion from $138 million, principally due to a $3.2 billion improvement in credit-loss provision. Revenue was nearly unchanged; net interest income fell 24%, while noninterest income rose 33%.
- Global Markets: Net income increased 20% to $2.1 billion and revenue rose 19% to $6.2 billion, led by sales and trading and investment banking. Expenses increased 22%.
- Credit quality: Total allowance for credit losses declined $2.7 billion from year-end to $18.0 billion. Net charge-offs were $823 million, down from $1.1 billion a year earlier. Consumer nonperforming loans rose to $3.1 billion from $2.7 billion at year-end, mainly due to mortgage deferrals; commercial nonperforming loans declined to $2.1 billion.
Outlook, commentary, risks and unusual items
- The filing provides no specific consolidated earnings or revenue guidance. Management described an improving U.S. economic outlook but emphasized uncertainty about the pandemic’s duration, recovery strength and potential future credit losses.
- At March 31, the company had approximately 278,000 outstanding PPP loans with a carrying value of $21.1 billion. It reported $12.1 billion in SBA repayments through April 22 and $8.7 billion of PPP originations year to date through that date.
- Notable Q1 expense items included a $240 million real estate rationalization impairment, elevated pandemic-related costs, and $269 million of additional compensation expense from changes to certain restricted-stock awards. Management also cited higher severance and revenue-related costs.
- Market-making results benefited from strong performance in credit, mortgage and municipal products and commodity gains associated with a weather-related market event. The prior-year quarter included pandemic-related market write-downs.
- Capital returns in Q1 included $3.5 billion of common-stock repurchases and a $0.18-per-share quarterly dividend. After quarter-end, the Board authorized up to $25 billion of repurchases over time; future distributions remained subject to regulatory limits and other conditions.
- Key risks include COVID-19 effects, interest rates and net interest income, credit deterioration, litigation and regulatory matters, LIBOR transition, cyber and operational disruptions, climate-related risks, and changes in capital or liquidity requirements. The estimated possible loss range for specified litigation, regulatory and representations-and-warranties matters was $0 to $1.3 billion in excess of accrued liabilities; management cautioned actual outcomes could differ.
- The company was transitioning away from LIBOR, including discontinuing LIBOR-linked adjustable-rate mortgages and offering SOFR-linked consumer mortgages. Most U.S. dollar LIBOR settings were expected to become non-representative after June 30, 2023.
Important facts for investors to verify
- How much of the earnings improvement reflects reserve releases versus recurring operating performance, and how future credit provisions evolve.
- Whether deposit growth and asset deployment can offset lower loan balances and pressure on net interest income and yield.
- Drivers of expense growth and whether the higher efficiency ratio improves as pandemic-related, compensation and restructuring costs change.
- Credit trends in consumer real estate, credit cards, commercial real estate and pandemic-sensitive industries, including the effects of expiring deferrals and government support.
- Capital distributions after the stress-test process, including the timing and amount of the announced repurchase authorization and the post-relief SLR level.
- Liquidity and cash-flow trends, recognizing that reported quarterly cash flows are affected by securities, trading and deposit movements.
- Potential exposure from litigation and contingencies, LIBOR transition execution, and the assumptions behind rate-sensitivity estimates and credit-loss reserves.