Bank of America Corporation — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports fourth-quarter results; the figures below distinguish full-year results from Q4. Bank of America is a diversified financial institution operating through Consumer Banking, Global Wealth & Investment Management, Global Banking and Global Markets, with other activities in All Other.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue, net of interest expense | $91.2 billion | $91.0 billion |
| Net interest income | $48.9 billion | $48.2 billion |
| Provision for credit losses | $3.6 billion | $3.3 billion |
| Noninterest expense | $54.9 billion | $53.2 billion |
| Net income | $27.4 billion | $28.1 billion |
| Net income applicable to common shareholders | $26.0 billion | $26.7 billion |
| Diluted earnings per share | $2.75 | $2.61 |
| Efficiency ratio | 60.17% | 58.40% |
| Return on average assets | 1.14% | 1.21% |
| Net interest yield, FTE basis | 2.43% | 2.45% |
Amounts are rounded. Net interest yield is presented on a fully taxable-equivalent (FTE) basis, a non-GAAP measure.
- Fourth quarter: Revenue was $22.35 billion versus $22.68 billion in Q4 2018; net income was $6.99 billion versus $7.28 billion; diluted EPS was $0.74 versus $0.70. Q4 2019 noninterest expense was $13.24 billion versus $13.07 billion.
- Balance sheet at year-end: Assets were $2.43 trillion, loans and leases $983.4 billion, deposits $1.43 trillion, long-term debt $240.9 billion, and shareholders’ equity $264.8 billion. Year over year, assets rose 3%, loans 4%, and deposits 4%.
- Cash flows: Operating activities provided $61.8 billion; investing activities used $80.6 billion; financing activities provided $3.4 billion. Cash and cash equivalents ended the year at $161.6 billion, down from $177.4 billion.
- Credit quality: Net charge-offs were $3.65 billion, or 0.38% of average loans, versus $3.76 billion and 0.41% in 2018. Nonperforming loans, leases and foreclosed properties were $3.84 billion, down from $5.24 billion. The allowance for credit losses was $10.2 billion, including $813 million for unfunded commitments.
- Capital and liquidity: The Corporation’s standardized CET1 ratio was 11.2% and supplementary leverage ratio (SLR) 6.4%; management said it met the applicable well-capitalized definition. Average Global Liquidity Sources were $576 billion in Q4; average consolidated liquidity coverage ratio (LCR) was 116%.
Changes versus the prior comparable period
- Annual revenue increased modestly, as higher net interest income—supported by loan and deposit growth—more than offset slightly lower noninterest income. Net interest yield declined 2 basis points.
- Net income fell 2.5%, primarily because noninterest expense rose $1.7 billion, including a $2.1 billion non-cash pretax impairment of the merchant-services joint-venture investment. Higher credit-loss provision and lower noninterest income also weighed on results; a lower effective tax rate partly offset these pressures.
- The annual effective tax rate declined to 16.3% from 18.6%, reflecting recurring tax benefits and net benefits from resolutions of tax matters. Common stock repurchases increased to $28.1 billion from $20.1 billion; dividends paid per common share rose to $0.66 from $0.54.
- Segment results were mixed: Consumer Banking net income increased to $13.0 billion; GWIM to $4.3 billion; Global Banking declined to $8.1 billion; and Global Markets declined to $3.5 billion. All Other reported a $1.4 billion net loss, primarily reflecting the merchant-services impairment.
Outlook, management commentary, risks and unusual items
- Outlook: Assuming a stable economic and interest-rate environment from December 31, 2019, management expected quarterly net interest income to be lower in the first two quarters of 2020 than in Q4 2019, then rise modestly in the second half, partly reflecting expected loan and deposit growth. Management expected a 2020 effective tax rate of approximately 18%, absent unusual items.
- Credit outlook: Assuming a stable economic environment, management expected net charge-offs of approximately $1 billion per quarter in 2020 and provision modestly above net charge-offs, reflecting the newly adopted expected-credit-loss accounting standard and assumed loan growth and mix.
- Merchant services: The Corporation gave notice to terminate its 49%-owned joint venture at the end of its term in 2020 and expected to pursue its own merchant-services strategy beginning in Q3 2020. The impairment was non-cash; service continuity arrangements with the partner extended through at least June 2023.
- Accounting change: On January 1, 2020, the Corporation adopted the current expected credit loss standard. It recorded a $3.3 billion increase in the credit-loss allowance and a $2.4 billion reduction in retained earnings after deferred-tax and other adoption effects.
- Material exposures: Key disclosed risks include sensitivity to interest rates and market conditions; credit deterioration and concentrated exposures; funding access, deposit outflows and rating downgrades; cyber and third-party operational failures; extensive regulatory requirements; U.K.–EU transition uncertainty; and the transition from LIBOR and other benchmarks. The Corporation reported $10.7 billion of unresolved mortgage repurchase claims and a $1.8 billion related representations-and-warranties liability. Management estimated aggregate reasonably possible loss for certain litigation and representations-and-warranties matters at $0 to $1.6 billion above accrued liabilities, while noting actual losses could differ and the estimate is not a maximum exposure.
- Audit and controls: PwC issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The auditor identified the allowance for loan and lease losses and valuation of certain Level 3 financial instruments as critical audit matters.
Important facts for investors to verify
- How much of the expense increase and weaker earnings reflects the one-time merchant-services impairment, versus recurring cost growth; also track the planned standalone merchant-services transition.
- Whether net interest income, deposit costs and margins develop in line with management’s 2020 outlook as rates and loan and deposit balances change.
- Whether credit performance supports the 2020 charge-off outlook, particularly as card portfolios season and commercial criticized and nonperforming exposures increased.
- The effects of CECL adoption on reported provisions, allowance adequacy and capital, beyond the disclosed opening adjustment.
- Progress on repurchase claims, litigation and regulatory matters, including whether losses exceed recorded liabilities or the disclosed estimated range.
- Capital and liquidity buffers, regulatory constraints on distributions, and the sustainability of substantial repurchases and dividends.