Bank of America beats by $0.12, beats on revs
Reports Q2 (Jun) earnings of $0.19 per share, $0.12 better than the Capital IQ Consensus Estimate of $0.07; revenues fell 4.3% year/year to $21.96 bln vs the $21.67 bln consensus. BAC reported net income of $2.3 billion compared to net income of $4.0 billion in prior year period.
- Net interest income declined 5% y/y to $10.2 billion. The decline was driven by lower yields on debt securities due to a $528 million change in market-related premium amortization expense. Net interest margin was 2.26% in Q2 compared to 2.28% in prior year.
- Noninterest income was down 4% y/y, driven primarily by declines in mortgage banking income and equity investment income. The provision for credit losses declined 66 percent from the second quarter of 2013 to $411 million, driven by improved credit quality.
- The effective tax rate of 18.0% for Q2 driven by the impact of recurring tax preference benefits on the lower level of pretax income. The effective tax rate for prior year of 27.0% was primarily driven by recurring tax preference benefits and an increase in tax benefits from the 2012 non-U.S. restructurings.
- On July 15, 2014, BAC executed a definitive settlement agreement with AIG to resolve all outstanding residential mortgage-backed securities (RMBS) litigation between the parties. Under the terms of the settlement, AIG will file notices of dismissal in its securities lawsuits against BAC and its affiliates pending in California and New York federal courts. Also, AIG has agreed to withdraw its objection to the Bank of New York Mellon private-label securities settlement. The AIG settlement amount of $650 million was covered by litigation reserves as of June 30, 2014. Bank of America has now resolved approximately 95 percent of the unpaid principal balance of all RMBS as to which RMBS securities litigation has been filed or threatened for all Bank of America-related entities.
- Average deposit balances increased $21.3 billion, or 4% y/y to $543.6 billion. The increase was primarily driven by growth in liquid products in the current low-rate environment.
- Return on average allocated capital was 24.3%, compared to 18.6% in 2Q13.
- CBB reported net income of $1.8 billion, up $397 million, or 2% y/y, reflecting lower provision for credit losses and continued progress on the company's strategy of deepening relationships and reducing costs by optimizing the delivery network. Revenue was relatively stable y/y as higher service charge income was offset by lower net interest income and slightly lower card income.
- Consumer Real Estate Services reported a net loss of $2.8 billion for Q2, compared to a net loss of $930 million from prior year, driven largely by a $3.6 billion increase in litigation expense. Revenue declined $725 million from 2Q13 to $1.4 billion, driven primarily by lower core production revenue due to fewer loan originations as well as lower servicing income, primarily due to a smaller servicing portfolio.
- CRES first-mortgage originations declined 59% y/y compared to the same period in 2013, reflecting a decline in overall market demand for refinance mortgages. Core production revenue decreased $542 million y/y to $318 million due primarily to lower volume and a reduction in revenues from sales of loans that had returned to performing status. Noninterest expense increased $2.5 billion from the year-ago quarter to $5.9 billion, due to a $3.6 billion increase in litigation expense, partially offset by lower LAS default-related staffing and other default-related servicing expenses, and lower Home Loans expenses as refinance demand slowed.
- Unit reported net income of $724 million, compared to $759 million in 2Q13. Revenue increased 2% y/y to a record $4.6 billion, driven by higher noninterest income related to improved market valuation and long-term AUM flows.
- Return on average allocated capital was 24.3 percent in the second quarter of 2014, down from 30.6 percent in the year-ago quarter, as relatively stable earnings were more than offset by increased capital allocations.
- Unit reported net income of $1.4 billion in Q2, compared to $1.3 billion in prior year as a decline in the provision for credit losses was partially offset by higher noninterest expense. Revenue of $4.2 billion was relatively stable compared to the second quarter of 2013.
- Global Corporate Banking revenue increased to $1.6 billion in Q2, up $29 million y/y, and Global Commercial Banking revenue decreased $59 million to $1.7 billion. Included in these results are Business Lending revenue of $1.8 billion, down $80 million from the year-ago quarter, and Global Transaction Services revenue of $1.5 billion, up $50 million from the year-ago period.
- Global Banking investment banking fees, excluding self-led deals, increased $33 million y/y. Return on average allocated capital was 17.5% in Q2, down from 22.6% in the year-ago quarter, as modest earnings improvement was more than offset by increased capital allocations..
- Fixed Income, Currency and Commodities (FICC) sales and trading revenue, excluding net DVA, increased 5% y/y to $2.4 billion. Return on average allocated capital was 13.0% in Q2, compared to 12.9% in 2Q13, reflecting increased net income which was largely offset by an increase in allocated capital compared to the year-ago quarter. Global Markets reported net income of $1.1 billion in Q2, up 14% y/y. Revenue increased $389 million, or 9% y/y to $4.6 billion, reflecting higher equity investment gains and increased investment banking fees.
- Total sales and trading revenue was comparable to the year-ago quarter at $3.5 billion. Excluding net DVA, sales and trading revenue was $3.4 billion in both periods. FICC sales and trading revenue, excluding net DVA, was $2.4 billion in the second quarter of 2014, an increase of $117 million, or 5 percent, from the year-ago quarter, reflecting improved performance in mortgage and municipal products, partially offset by declines in foreign exchange and commodities.
- Equities sales and trading revenue, excluding net DVA, was $1.0 billion, a decrease of $162 million, or 14 percent, from the year-ago quarter as low volatility depressed secondary market volumes and reduced client activity. Noninterest expense was $2.9 billion compared to $2.8 billion in the year-ago quarter.
- The common equity tier 1 capital ratio was 12.0% at June 30, 2014, up from 11.8% at March 31, 2014.
- The estimated common equity tier 1 capital ratio was 9.5%, up from 9.0% at March 31, 2014.
- BAC's estimated supplementary leverage ratios were above the 5%; both of the company's primary bank subsidiaries were above the 6%
- Tangible book value per share was $14.24 at June 30, 2014, compared to $13.81 at March 31, 2014 and $13.32 at June 30, 2013.
- Book value per share was $21.16 at June 30, 2014, compared to $20.75 at March 31, 2014 and $20.18 at June 30, 2013.