Business context and reporting period
Bank of America Corporation’s unaudited Form 10-Q covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The company operates four segments—Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets—with remaining activities in All Other. At quarter-end, it reported $2.38 trillion in assets and approximately 205,000 employees.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue, net of interest expense (GAAP) | $23.0 billion | $23.1 billion; down 0.3% |
| Net interest income | $12.4 billion | $11.8 billion; up 5.1% |
| Net interest yield, FTE | 2.51% | 2.42%; up 9 basis points |
| Net income | $7.31 billion | $6.92 billion; up 5.7% |
| Net income applicable to common shareholders | $6.87 billion | $6.49 billion |
| Diluted earnings per share | $0.70 | $0.62 |
| Provision for credit losses | $1.01 billion | $834 million |
| Noninterest expense / efficiency ratio | $13.22 billion / 57.48% | $13.84 billion / 60.00% |
| Operating cash flow | $15.10 billion | $40.35 billion |
Net income improved on higher net interest income and lower expenses, partly offset by reduced noninterest income and higher credit-loss provision. Lower expenses reflected efficiency savings, reduced FDIC expense and lower intangible amortization, partly offset by business investment. Operating cash flow declined substantially; the filing reports significant period-to-period movements in trading and other operating assets, so this measure should be considered alongside the cash-flow statement details.
Noninterest income fell to $10.63 billion from $11.30 billion. Lower investment and brokerage revenue reflected weaker average market valuations, AUM pricing and transactional activity; trading revenue also declined. Global Markets net income fell 26% to $1.04 billion, with lower FICC and Equities revenue and a $90 million net DVA loss (versus a $64 million gain). Consumer Banking net income rose 25% to $3.25 billion; GWIM rose 14% to $1.05 billion; Global Banking rose 2% to $2.03 billion.
At March 31, 2019, total assets were $2.377 trillion, loans and leases $945.6 billion, deposits $1.379 trillion, and shareholders’ equity $267.0 billion. Long-term debt was $233.9 billion, up from $229.4 billion at year-end 2018. Cash and cash equivalents were $171.6 billion, down $5.8 billion during the quarter. Average global liquidity sources were $546 billion; average consolidated HQLA was $444 billion and average LCR was 115%.
Capital remained above regulatory minimums: the Corporation reported a 11.6% CET1 ratio under the Standardized approach, 6.8% supplementary leverage ratio and 24.8% TLAC-to-risk-weighted-assets ratio. It repurchased $6.3 billion of common stock during the quarter. The allowance for credit losses was $10.38 billion; annualized net charge-offs were 0.43% of average loans, versus 0.40% a year earlier.
Material changes, outlook and risks
- Outlook: Management expected full-year 2019 net interest income to increase approximately 3% versus 2018, assuming the April 16 forward rate curve and loan and deposit growth consistent with its economic outlook. It expected an approximately 19% effective tax rate absent unusual items and net charge-offs in each remaining quarter near Q1’s level if economic conditions continued.
- Credit: The higher provision reflected a single-name utility client charge-off, prior-year energy reserve releases, slower improvement in consumer real estate and seasoning in U.S. credit cards. Management cited continued home-price and labor-market improvement, while commercial criticized exposure and nonperforming loans increased, partly due to individual-name downgrades.
- Accounting: The new lease standard was adopted January 1, 2019, adding $9.7 billion of right-of-use assets and lease liabilities and increasing retained earnings by $165 million. The expected-credit-loss standard takes effect January 1, 2020; management estimated the allowance could rise by up to 20% from its March 2019 level, subject to economic conditions, model validation and management judgment.
- Other developments: The UK’s EU withdrawal deadline was extended to October 31, 2019. The company established operational EU banking and investment entities and began migrating client activity, but counterparties and market infrastructure remain outside its control. A broker-dealer reorganization was expected in Q2 2019.
- Contingencies: The representations-and-warranties reserve was $1.9 billion. Management estimated reasonably possible aggregate losses for certain matters, including these exposures, of $0–$1.9 billion above accrued liabilities; it cautioned that estimates are uncertain and not a maximum exposure. The merchant-services joint venture’s current term ends in June 2020; termination could likely cause a material impairment of the $2.8 billion investment.
- Principal risks: Litigation and regulatory actions, credit deterioration, interest-rate and market movements, Brexit-related disruption, trade tensions, LIBOR transition, cyber and operational failures, regulatory capital or liquidity changes, and access to deposits or capital markets. Forward-looking statements are not guarantees of results.
Important facts for investors to verify
- Track whether net interest income meets the approximately 3% full-year growth outlook and how deposit pricing and funding costs affect margins.
- Monitor credit-card seasoning, commercial single-name exposures, criticized loans, charge-offs and the potential CECL allowance increase.
- Assess whether Global Markets and fee-based businesses recover from lower client activity and market-related revenue declines.
- Review capital distributions, regulatory capital buffers and liquidity measures alongside ongoing repurchases and debt maturities.
- Follow Brexit implementation, litigation outcomes and the merchant-services joint venture renewal decision; assess potential effects against recorded reserves and carrying values.