UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2017
or
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from          to
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State or other jurisdiction of incorporation or organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant's telephone number, including area code:
(704) 386-5681
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ü No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ü No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act (check one).
Large accelerated filer ü
 
Accelerated filer
 
Non-accelerated filer
(do not check if a smaller
reporting company)
 
Smaller reporting company
Emerging growth company
Yes No ü
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes No
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes No ü
On May 1, 2017, there were 9,951,898,904 shares of Bank of America Corporation Common Stock outstanding.
 
 
 
 
 



Bank of America Corporation and Subsidiaries
March 31, 2017
Form 10-Q
INDEX
Part I. Financial Information
Item 1. Financial Statements
 
Page
Consolidated Statement of Income
 
Consolidated Statement of Comprehensive Income
 
Consolidated Balance Sheet
 
Consolidated Statement of Changes in Shareholders' Equity
 
Consolidated Statement of Cash Flows
 
Notes to Consolidated Financial Statements
 
Note 1 – Summary of Significant Accounting Principles
 
Note 2 – Derivatives
 
Note 3 – Securities
 
Note 4 – Outstanding Loans and Leases
 
Note 5 – Allowance for Credit Losses
 
Note 6 – Securitizations and Other Variable Interest Entities
 
Note 7 – Representations and Warranties Obligations and Corporate Guarantees
 
Note 8 – Goodwill and Intangible Assets
 
Note 9 – Federal Funds Sold or Purchased, Securities Financing Agreements and Short-term Borrowings
 
Note 10 – Commitments and Contingencies
 
Note 11 – Shareholders’ Equity
 
Note 12 – Accumulated Other Comprehensive Income (Loss)
 
Note 13 – Earnings Per Common Share
 
Note 14 – Fair Value Measurements
 
Note 15 – Fair Value Option
 
Note 16 – Fair Value of Financial Instruments
 
Note 17 – Business Segment Information
 
Glossary
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Risk Management for the Banking Book
 
 
 
Non-GAAP Reconciliations
 
 
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
Item 4. Controls and Procedures
 

1 Bank of America




Part II. Other Information
Item 1. Legal Proceedings
 
Item 1A. Risk Factors
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6. Exhibits
 
Signature
 
Index to Exhibits
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation (the "Corporation") and its management may make certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “anticipates,” “targets,” “expects,” “hopes,” “estimates,” “intends,” “plans,” “goals,” “believes,” “continue,” "suggests" and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Forward-looking statements represent the Corporation's current expectations, plans or forecasts of its future results, revenues, expenses, efficiency ratio, capital measures, and future business and economic conditions more generally, and other future matters. These statements are not guarantees of future results or performance and involve certain known and unknown risks, uncertainties and assumptions that are difficult to predict and are often beyond the Corporation's control. Actual outcomes and results may differ materially from those expressed in, or implied by, any of these forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties more fully discussed under Item 1A. Risk Factors of our 2016 Annual Report on Form 10-K and in any of the Corporation’s subsequent Securities and Exchange Commission filings: potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation and regulatory proceedings, including inquiries into our retail sales practices, and the possibility that amounts may be in excess of the Corporation’s recorded liability and estimated range of possible loss for litigation exposures; the possibility that the Corporation could face increased servicing, securities, fraud, indemnity, contribution or other claims from one or more counterparties, including trustees, purchasers of loans, underwriters, issuers, other parties involved in securitizations, monolines or private-label and other investors; the possibility that future representations and warranties losses may occur in excess of the Corporations recorded liability and estimated range of possible loss for its representations and warranties exposures; the Corporation’s ability to resolve representations and warranties repurchase and related claims, including claims brought by investors or trustees seeking to avoid the statute of limitations for repurchase claims; uncertainties about the financial stability and growth rates of non-U.S. jurisdictions, the risk that those jurisdictions may face difficulties servicing their sovereign debt, and related stresses on financial markets, currencies and trade, and the Corporations exposures to such risks, including direct, indirect and operational; the impact of U.S. and global interest rates, currency
 
exchange rates and economic conditions; the impact on the Corporation's business, financial condition and results of operations of a potential higher interest rate environment; the possibility that future credit losses may be higher than currently expected due to changes in economic assumptions, customer behavior, adverse developments with respect to U.S. or global economic conditions, and other uncertainties; the impact on the Corporations business, financial condition and results of operations from a protracted period of lower oil prices or ongoing volatility with respect to oil prices; the Corporation's ability to achieve its expense targets or net interest income or other projections; adverse changes to the Corporations credit ratings from the major credit rating agencies; estimates of the fair value of certain of the Corporations assets and liabilities; uncertainty regarding the content, timing and impact of regulatory capital and liquidity requirements, including the approval of our internal models methodology for calculating counterparty credit risk for derivatives; the potential impact of total loss-absorbing capacity requirements; potential adverse changes to our global systemically important bank (G-SIB) surcharge; the impact of Federal Reserve actions on the Corporation’s capital plans; the possible impact of the Corporation's failure to remediate shortcomings identified by banking regulators in the Corporation's Resolution Plan; the impact of implementation and compliance with U.S. and international laws, regulations and regulatory interpretations, including, but not limited to, recovery and resolution planning requirements, Federal Deposit Insurance Corporation (FDIC) assessments, the Volcker Rule, fiduciary standards and derivatives regulations; a failure in or breach of the Corporation’s operational or security systems or infrastructure, or those of third parties, including as a result of cyberattacks; the impact on the Corporation's business, financial condition and results of operations from the planned exit of the United Kingdom (U.K.) from the European Union (EU); and other similar matters.
Forward-looking statements speak only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement to reflect the impact of circumstances or events that arise after the date the forward-looking statement was made.
Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference into the MD&A. Certain prior-year amounts have been reclassified to conform to current-year presentation. Throughout the MD&A, the Corporation uses certain acronyms and abbreviations which are defined in the Glossary.



 
 
Bank of America     2


Executive Summary
Business Overview
The Corporation is a Delaware corporation, a bank holding company (BHC) and a financial holding company. When used in this report, “the Corporation” may refer to Bank of America Corporation individually, Bank of America Corporation and its subsidiaries, or certain of Bank of America Corporation’s subsidiaries or affiliates. Our principal executive offices are located in Charlotte, North Carolina. Through our banking and various nonbank subsidiaries throughout the U.S. and in international markets, we provide a diversified range of banking and nonbank financial services and products through four business segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking and Global Markets, with the remaining operations recorded in All Other. We operate our banking activities primarily under the Bank of America, National Association (Bank of America, N.A. or BANA) charter. At March 31, 2017, the Corporation had approximately $2.2 trillion in assets and approximately 209,000 full-time equivalent employees.
As of March 31, 2017, we operated in all 50 states, the District of Columbia, the U.S. Virgin Islands, Puerto Rico and more than 35 countries. Our retail banking footprint covers approximately 83 percent of the U.S. population, and we serve approximately 47 million consumer and small business relationships with approximately 4,600 retail financial centers, approximately 15,900 ATMs, and leading digital banking platforms (www.bankofamerica.com) with approximately 35 million active users, including more than 22 million mobile active users. We offer industry-leading support to approximately three million small business owners. Our wealth management businesses, with client balances of approximately $2.6 trillion, provide tailored solutions to meet client needs through a full set of investment management, brokerage, banking, trust and retirement products. We are a global leader in corporate and investment banking and trading across a broad range of asset classes serving corporations, governments, institutions and individuals around the world.
First Quarter 2017 Economic and Business Environment
Macroeconomic trends in the U.S. were largely stable during the first quarter. Following a pronounced deceleration in economic growth in the fourth quarter of 2016, there was little sign of a first quarter acceleration to start 2017. Consumer spending softened, as vehicle sales flattened at high levels and utility consumption was restrained by warmer than normal temperatures. Partially offsetting slower consumer spending, business investment (including energy-related equipment and infrastructure) strengthened on stabilizing energy costs and a lift in business confidence. Domestic final sales growth may have declined slightly below two percent on an annualized basis despite solid growth in housing construction. The labor market remained healthy, with sustained strong non-farm payroll gains in excess of 200,000 in both January and February. With signs of gradually firming inflation, the Federal Reserve raised the federal funds rate target range by 25 basis points (bps) to a range of 0.75 percent to one percent in March, in line with market expectations.
 
Consumer and business attitudes on the economy improved markedly, continuing trends that began with the Presidential election last November. Financial markets also responded to several ongoing developments: first, in response to the March rate hike and the potential for several additional hikes over 2017, the treasury yield curve flattened as short-term yields rose while longer term rates remained relatively unchanged. Second, with expectations of more expansionary fiscal policy and regulatory relief from the new Presidential Administration, equity markets rallied, with the S&P 500 index gaining over five percent in the first quarter of 2017. Meanwhile, the U.S. Dollar weakened, erasing some of the previous quarter’s gains. Forward markets captured the shift in financial market expectations and risks with federal fund futures falling and equity volatility remaining stable at historically low levels throughout the quarter.
Abroad, the impact of the U.K. vote to exit the EU (Brexit) has been muted to date, even as the British government approached and then triggered Article 50 of the Treaty on EU in late March. The resilient economic outlook, combined with a stronger than expected pickup in inflation, has shifted the Bank of England from a loosening to a tightening bias. Recent indicators suggest that the recovery in the eurozone has continued to gain momentum and move closer to historical trends. Inflationary pressures showed signs of building, as headline inflation moved closer to the European Central Bank’s inflation target. However, the pickup was mainly driven by food and energy prices; core inflation remained at historical low levels. As a result, although the European Central Bank kept its policy rate unchanged, it adopted a slightly more hawkish tone.
The upward revision of the fourth quarter GDP indicated that the Japanese recovery has gathered momentum, driven by a strengthening of domestic demand. The new monetary policy regime of yield curve targeting has kept the Japanese yield curve in check against the global rise in long-term interest rates. Underlying inflation also showed signs of bottoming and turning positive over the quarter. In China, the service sector remained a key driver of economic growth amid signs that activity in the industrial sector could pick up steam in the coming months. The Yuan was stable against the dollar during the quarter as efforts to stem capital outflows by the government started to show improvements.
Recent Events
Capital Management
During the first quarter of 2017, we repurchased approximately $2.7 billion of common stock pursuant to the Board of Directors’ (the Board) authorization of our 2016 Comprehensive Capital Analysis and Review (CCAR) capital plan and to offset equity-based compensation awards. This also included repurchases related to the January 13, 2017 announcement of our plan to repurchase an additional $1.8 billion of common stock during the first half of 2017. For additional information, see Capital Management on page 21.


3 Bank of America




Selected Financial Data
Table 1 provides selected consolidated financial data for the three months ended March 31, 2017 and 2016, and at March 31, 2017 and December 31, 2016.
 
 
 
 
Table 1
Selected Financial Data
 
 
 
 
Three Months Ended March 31
(Dollars in millions, except per share information)
2017
2016
Income statement
 

 

Revenue, net of interest expense
$
22,248

$
20,790

Net income
4,856

3,472

Diluted earnings per common share
0.41

0.28

Dividends paid per common share
0.075

0.05

Performance ratios
 

 

Return on average assets
0.88
%
0.64
%
Return on average common shareholders' equity
7.27

5.11

Return on average tangible common shareholders’ equity (1)
10.28

7.33

Efficiency ratio
66.74

71.27

 
 
 
 
March 31
2017
December 31
2016
Balance sheet
 

 

Total loans and leases
$
906,242

$
906,683

Total assets
2,247,701

2,187,702

Total deposits
1,272,141

1,260,934

Total common shareholders’ equity
242,933

241,620

Total shareholders’ equity
268,153

266,840

(1) 
Return on average tangible common shareholders' equity is a non-GAAP financial measure. For additional information and a corresponding reconciliation to accounting principles generally accepted in the United States of America (GAAP) financial measures, see Non-GAAP Reconciliations on page 61.
Financial Highlights
Net income was $4.9 billion, or $0.41 per diluted share for the three months ended March 31, 2017 compared to $3.5 billion, or $0.28 per diluted share for the same period in 2016. The results for the three months ended March 31, 2017 compared to the same period in 2016 were driven by higher revenue and lower provision for credit losses.
Total assets increased $60.0 billion from December 31, 2016 to $2.2 trillion at March 31, 2017 primarily driven by higher cash and cash equivalents from seasonal increases in deposits and higher short-term bank funding as well as seasonal increases in trading account assets due to increased client financing activities and securities borrowed or purchased under agreements to resell. Total liabilities increased $58.7 billion from December 31, 2016 to $2.0 trillion at March 31, 2017 primarily driven by higher securities loaned or sold under agreements to repurchase and short-term borrowings due to increased Federal Home Loan Bank (FHLB) advances for liquidity purposes as well as increases in trading account liabilities and a seasonal increase in deposits. Shareholders' equity increased $1.3 billion from December 31, 2016 primarily due to net income, partially offset by $2.7 billion of common stock repurchases.
 
 
 
 
 
 
Table 2
Summary Income Statement
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Net interest income
$
11,058

 
$
10,485

Noninterest income
11,190

 
10,305

Total revenue, net of interest expense
22,248

 
20,790

Provision for credit losses
835

 
997

Noninterest expense
14,848

 
14,816

Income before income taxes
6,565

 
4,977

Income tax expense
1,709

 
1,505

Net income
4,856

 
3,472

Preferred stock dividends
502

 
457

Net income applicable to common shareholders
$
4,354

 
$
3,015

 
 
 
 
 
Per common share information
 
 
 
Earnings
$
0.43

 
$
0.29

Diluted earnings
0.41

 
0.28

Net Interest Income
Net interest income increased $573 million to $11.1 billion for the three months ended March 31, 2017 compared to the same period in 2016, and the net interest yield increased six bps to 2.35 percent. Among other factors, these increases were primarily driven by the higher interest rate environment, primarily short-end rates, and growth in loans and deposits. For information regarding interest rate risk management, see Interest Rate Risk Management for the Banking Book on page 58.

 
 
Bank of America     4


Noninterest Income
 
 
 
 
 
Table 3
Noninterest Income
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Card income
$
1,449

 
$
1,430

Service charges
1,918

 
1,837

Investment and brokerage services
3,262

 
3,182

Investment banking income
1,584

 
1,153

Trading account profits
2,331

 
1,662

Mortgage banking income
122

 
433

Gains on sales of debt securities
52

 
190

Other income
472

 
418

Total noninterest income
$
11,190

 
$
10,305

Noninterest income increased $885 million to $11.2 billion for the three months ended March 31, 2017 compared to the same period in 2016. The following highlights the more significant changes.
Investment banking income increased $431 million driven by higher debt and equity issuance fees, and advisory fees driven by an increase in overall client activity and market fee pools.
Trading account profits increased $669 million due to a stronger performance across credit products led by mortgages, improved trading performance and increased client financing activity in equities.
Mortgage banking income decreased $311 million primarily driven by lower net servicing income and a decline in production income. Net servicing income decreased primarily due to lower mortgage servicing rights (MSR) results, net of the related hedge performance and lower servicing fees driven by a smaller servicing portfolio. Production income declined primarily due to lower volume.
Gains on sales of debt securities decreased $138 million primarily driven by lower sales volume.
Provision for Credit Losses
The provision for credit losses decreased $162 million to $835 million for the three months ended March 31, 2017 compared to the same period in 2016 primarily driven by credit quality improvements in energy exposures in the commercial portfolio. We expect the provision for credit losses will approximate net charge-offs for the second quarter of 2017. For more information on the provision for credit losses, see Provision for Credit Losses on page 51. For more information on our energy sector exposure, see Commercial Portfolio Credit Risk Management – Industry Concentrations on page 47.
 
Noninterest Expense
 
 
 
 
 
Table 4
Noninterest Expense
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Personnel
$
9,158

 
$
8,852

Occupancy
1,000

 
1,028

Equipment
438

 
463

Marketing
332

 
419

Professional fees
456

 
425

Amortization of intangibles
162

 
187

Data processing
794

 
838

Telecommunications
191

 
173

Other general operating
2,317

 
2,431

Total noninterest expense
$
14,848

 
$
14,816

Noninterest expense of $14.8 billion remained relatively unchanged for the three months ended March 31, 2017 compared to the same period in 2016 reflecting broad-based reductions in operating and support costs, offset by higher personnel and FDIC expenses. Personnel expense increased $306 million and included retirement-eligible incentive costs of $964 million compared to $850 million as well as seasonally elevated payroll tax costs. Also impacting the increase were higher incentive costs due to the impact of changes in share price on employee stock awards, and higher revenue-related incentive costs. Other general operating expense decreased $114 million largely driven by lower litigation expense.
Income Tax Expense
 
 
 
 
 
Table 5
Income Tax Expense
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Income before income taxes
$
6,565

 
$
4,977

Income tax expense
1,709

 
1,505

Effective tax rate
26.0
%
 
30.2
%
The effective tax rates for the three months ended March 31, 2017 and 2016 were driven by the impact of our recurring tax preference benefits. The effective tax rate for the three months ended March 31, 2017 also included a tax benefit of $222 million related to new accounting guidance for the tax impact associated with share-based compensation. For additional information, see Note 11 – Shareholders’ Equity to the Consolidated Financial Statements. We expect our effective tax rate to be approximately 30 percent for the remainder of 2017, absent unusual items.


5 Bank of America




 
 
 
 
 
 
 
 
 
 
 
Table 6
Selected Quarterly Financial Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 Quarter
 
2016 Quarters
(Dollars in millions, except per share information)
First
 
Fourth
 
Third
 
Second
 
First
Income statement
 

 
 

 
 

 
 

 
 

Net interest income
$
11,058

 
$
10,292

 
$
10,201

 
$
10,118

 
$
10,485

Noninterest income
11,190

 
9,698

 
11,434

 
11,168

 
10,305

Total revenue, net of interest expense
22,248

 
19,990

 
21,635

 
21,286

 
20,790

Provision for credit losses
835

 
774

 
850

 
976

 
997

Noninterest expense
14,848

 
13,161

 
13,481

 
13,493

 
14,816

Income before income taxes
6,565

 
6,055

 
7,304

 
6,817

 
4,977

Income tax expense
1,709

 
1,359

 
2,349

 
2,034

 
1,505

Net income
4,856

 
4,696

 
4,955

 
4,783

 
3,472

Net income applicable to common shareholders
4,354

 
4,335

 
4,452

 
4,422

 
3,015

Average common shares issued and outstanding
10,100

 
10,170

 
10,250

 
10,328

 
10,370

Average diluted common shares issued and outstanding
10,915

 
10,959

 
11,000

 
11,059

 
11,100

Performance ratios
 

 
 

 
 

 
 

 
 

Return on average assets
0.88
%
 
0.85
%
 
0.90
%
 
0.88
%
 
0.64
%
Four quarter trailing return on average assets (1)
0.88

 
0.82

 
0.76

 
0.74

 
0.73

Return on average common shareholders’ equity
7.27

 
7.04

 
7.27

 
7.40

 
5.11

Return on average tangible common shareholders’ equity (2)
10.28

 
9.92

 
10.28

 
10.54

 
7.33

Return on average shareholders' equity
7.35

 
6.91

 
7.33

 
7.25

 
5.36

Return on average tangible shareholders’ equity (2)
10.00

 
9.38

 
9.98

 
9.93

 
7.40

Total ending equity to total ending assets
11.93

 
12.20

 
12.30

 
12.23

 
12.03

Total average equity to total average assets
12.01

 
12.24

 
12.28

 
12.13

 
11.98

Dividend payout
17.37

 
17.68

 
17.32

 
11.73

 
17.13

Per common share data
 

 
 

 
 

 
 

 
 

Earnings
$
0.43

 
$
0.43

 
$
0.43

 
$
0.43

 
$
0.29

Diluted earnings
0.41

 
0.40

 
0.41

 
0.41

 
0.28

Dividends paid
0.075

 
0.075

 
0.075

 
0.05

 
0.05

Book value
24.36

 
24.04

 
24.19

 
23.71

 
23.14

Tangible book value (2)
17.23

 
16.95

 
17.14

 
16.71

 
16.19

Market price per share of common stock
 

 
 

 
 

 
 

 
 

Closing
$
23.59

 
$
22.10

 
$
15.65

 
$
13.27

 
$
13.52

High closing
25.50

 
23.16

 
16.19

 
15.11

 
16.43

Low closing
22.05

 
15.63

 
12.74

 
12.18

 
11.16

Market capitalization
$
235,291

 
$
222,163

 
$
158,438

 
$
135,577

 
$
139,427

(1) 
Calculated as total net income for four consecutive quarters divided by annualized average assets for four consecutive quarters.
(2) 
Tangible equity ratios and tangible book value per share of common stock are non-GAAP financial measures. For more information on these ratios and for corresponding reconciliations to GAAP financial measures, see Non-GAAP Reconciliations on page 61.
(3) 
For more information on the impact of the purchased credit-impaired (PCI) loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 31.
(4) 
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.
(5) 
Balances and ratios do not include loans accounted for under the fair value option. For additional exclusions from nonperforming loans, leases and foreclosed properties, see Consumer Portfolio Credit Risk Management – Nonperforming Consumer Loans, Leases and Foreclosed Properties Activity on page 41 and corresponding Table 31, and Commercial Portfolio Credit Risk Management – Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity on page 46 and corresponding Table 38.
(6) 
Asset quality metrics include $242 million and $243 million of non-U.S. credit card allowance for loan and lease losses and $9.5 billion and $9.2 billion of non-U.S. credit card loans in the first quarter of 2017 and in the fourth quarter of 2016, which are included in assets of business held for sale on the Consolidated Balance Sheet.
(7) 
Primarily includes amounts allocated to the U.S. credit card and unsecured consumer lending portfolios in Consumer Banking, PCI loans and the non-U.S. credit card portfolio in All Other.
(8) 
Net charge-offs exclude $33 million, $70 million, $83 million, $82 million, and $105 million of write-offs in the PCI loan portfolio in the first quarter of 2017 and in the fourth, third, second and first quarters of 2016, respectively. For more information on PCI write-offs, see Consumer Portfolio Credit Risk Management – Purchased Credit-impaired Loan Portfolio on page 39.
(9) 
Includes net charge-offs of $44 million and $41 million on non-U.S. credit card loans, which are included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017 and December 31, 2016.
(10) 
Risk-based capital ratios are reported under Basel 3 Advanced - Transition. For additional information, see Capital Management on page 21.

 
 
Bank of America     6


 
 
 
 
 
 
 
 
 
 
 
Table 6
Selected Quarterly Financial Data (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017 Quarter
 
2016 Quarters
(Dollars in millions)
First
 
Fourth
 
Third
 
Second
 
First
Average balance sheet
 

 
 

 
 

 
 

 
 

Total loans and leases
$
914,144

 
$
908,396

 
$
900,594

 
$
899,670

 
$
892,984

Total assets
2,231,420

 
2,208,039

 
2,189,490

 
2,188,241

 
2,173,922

Total deposits
1,256,632

 
1,250,948

 
1,227,186

 
1,213,291

 
1,198,455

Long-term debt
221,468

 
220,587

 
227,269

 
233,061

 
233,654

Common shareholders’ equity
242,883

 
245,139

 
243,679

 
240,376

 
237,229

Total shareholders’ equity
268,103

 
270,360

 
268,899

 
265,354

 
260,423

Asset quality (3)
 

 
 

 
 

 
 

 
 

Allowance for credit losses (4)
$
11,869

 
$
11,999

 
$
12,459

 
$
12,587

 
$
12,696

Nonperforming loans, leases and foreclosed properties (5)
7,637

 
8,084

 
8,737

 
8,799

 
9,281

Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5, 6)
1.25
%
 
1.26
%
 
1.30
%
 
1.32
%
 
1.35
%
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5, 6)
156

 
149

 
140

 
142

 
136

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the PCI loan portfolio (5, 6)
150

 
144

 
135

 
135

 
129

Amounts included in allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (7)
$
4,047

 
$
3,951

 
$
4,068

 
$
4,087

 
$
4,138

Allowance for loan and lease losses as a percentage of total nonperforming loans and leases, excluding the allowance for loan and lease losses for loans and leases that are excluded from nonperforming loans and leases (5, 7)
100
%
 
98
%
 
91
%
 
93
%
 
90
%
Net charge-offs (8, 9)
$
934

 
$
880

 
$
888

 
$
985

 
$
1,068

Annualized net charge-offs as a percentage of average loans and leases outstanding (5, 8)
0.42
%
 
0.39
%
 
0.40
%
 
0.44
%
 
0.48
%
Annualized net charge-offs as a percentage of average loans and leases outstanding, excluding the PCI loan portfolio (5)
0.42

 
0.39

 
0.40

 
0.45

 
0.49

Annualized net charge-offs and PCI write-offs as a percentage of average loans and leases outstanding (5)
0.43

 
0.42

 
0.43

 
0.48

 
0.53

Nonperforming loans and leases as a percentage of total loans and leases outstanding (5, 6)
0.80

 
0.85

 
0.93

 
0.94

 
0.99

Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5, 6)
0.84

 
0.89

 
0.97

 
0.98

 
1.04

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (6, 8)
3.00

 
3.28

 
3.31

 
2.99

 
2.81

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs, excluding the PCI loan portfolio (6)
2.88

 
3.16

 
3.18

 
2.85

 
2.67

Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs and PCI write-offs (6)
2.90

 
3.04

 
3.03

 
2.76

 
2.56

Capital ratios at period end (10)
 

 
 

 
 

 
 

 
 

Risk-based capital:
 

 
 

 
 

 
 

 
 

Common equity tier 1 capital
11.0
%
 
11.0
%
 
11.0
%
 
10.6
%
 
10.3
%
Tier 1 capital
12.5

 
12.4

 
12.4

 
12.0

 
11.5

Total capital
14.4

 
14.3

 
14.2

 
13.9

 
13.4

Tier 1 leverage
8.8

 
8.9

 
9.1

 
8.9

 
8.7

Tangible equity (2)
9.1

 
9.2

 
9.4

 
9.3

 
9.1

Tangible common equity (2)
7.9

 
8.1

 
8.2

 
8.1

 
7.9

For footnotes see page 6.


 
 
 
 
 
 
 
 
 
 
 



 
 
 
 
 
 
 
 
 
 
 


7 Bank of America




Supplemental Financial Data
In this Form 10-Q, we present certain non-GAAP financial measures. Non-GAAP financial measures exclude certain items or otherwise include components that differ from the most directly comparable measures calculated in accordance with GAAP. Non-GAAP financial measures are provided as additional useful information to assess our financial condition, results of operations (including period-to-period operating performance) or compliance with prospective regulatory requirements. These non-GAAP financial measures are not intended as a substitute for GAAP financial measures and may not be defined or calculated the same way as non-GAAP financial measures used by other companies.
We view net interest income and related ratios and analyses on an fully taxable-equivalent (FTE) basis, which when presented on a consolidated basis, are non-GAAP financial measures. To derive the FTE basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent and a representative state tax rate. In addition, certain performance measures including the efficiency ratio and net interest yield utilize net interest income (and thus total revenue) on an FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield measures the bps we earn over the cost of funds. We believe that presentation of these items on an FTE basis allows for comparison of amounts from both taxable and tax-exempt sources and is consistent with industry practices.
We may present certain key performance indicators and ratios excluding certain items (e.g., debit valuation adjustment (DVA)) which result in non-GAAP financial measures. We believe that the presentation of measures that exclude these items are useful because they provide additional information to assess the underlying operational performance and trends of our businesses and to allow better comparison of period-to-period operating performance.
 
We also evaluate our business based on certain ratios that utilize tangible equity, a non-GAAP financial measure. Tangible equity represents an adjusted shareholders’ equity or common shareholders’ equity amount which has been reduced by goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities. These measures are used to evaluate our use of equity. In addition, profitability, relationship and investment models use both return on average tangible common shareholders’ equity and return on average tangible shareholders’ equity as key measures to support our overall growth goals. These ratios are as follows:
Return on average tangible common shareholders’ equity measures our earnings contribution as a percentage of adjusted common shareholders’ equity. The tangible common equity ratio represents adjusted ending common shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Return on average tangible shareholders’ equity measures our earnings contribution as a percentage of adjusted average total shareholders’ equity. The tangible equity ratio represents adjusted ending shareholders’ equity divided by total assets less goodwill and certain acquired intangible assets (excluding MSRs), net of related deferred tax liabilities.
Tangible book value per common share represents adjusted ending common shareholders’ equity divided by ending common shares outstanding.
We believe that the use of ratios that utilize tangible equity provides additional useful information because they present measures of those assets that can generate income. Tangible book value per share provides additional useful information about the level of tangible assets in relation to outstanding shares of common stock.
The aforementioned supplemental data and performance measures are presented in Table 6.
Table 7 presents certain non-GAAP financial measures and performance measurements on an FTE basis.

 
 
 
 
 
Table 7
Supplemental Financial Data
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Fully taxable-equivalent basis data
 

 
 

Net interest income
$
11,255

 
$
10,700

Total revenue, net of interest expense
22,445

 
21,005

Net interest yield
2.39
%
 
2.33
%
Efficiency ratio
66.15

 
70.54



 
 
Bank of America     8


 
 
 
 
 
 
 
 
 
 
 
 
 
Table 8
Quarterly Average Balances and Interest Rates – FTE Basis
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter 2017
 
First Quarter 2016
(Dollars in millions)
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Earning assets
 

 
 

 
 

 
 

 
 

 
 

Interest-bearing deposits with the Federal Reserve, non-U.S. central banks and other banks
$
123,921

 
$
202

 
0.66
%
 
$
138,574

 
$
155

 
0.45
%
Time deposits placed and other short-term investments
11,497

 
47

 
1.65

 
9,156

 
32

 
1.41

Federal funds sold and securities borrowed or purchased under agreements to resell
216,402

 
439

 
0.82

 
209,183

 
276

 
0.53

Trading account assets
125,661

 
1,111

 
3.58

 
136,306

 
1,212

 
3.57

Debt securities (1)
430,234

 
2,573

 
2.39

 
399,978

 
2,537

 
2.56

Loans and leases (2):
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage
193,627

 
1,661

 
3.44

 
186,980

 
1,629

 
3.49

Home equity
65,508

 
639

 
3.94

 
75,328

 
711

 
3.79

U.S. credit card
89,628

 
2,111

 
9.55

 
87,163

 
2,021

 
9.32

Non-U.S. credit card
9,367

 
211

 
9.15

 
9,822

 
253

 
10.36

Direct/Indirect consumer (3)
93,291

 
608

 
2.65

 
89,342

 
550

 
2.48

Other consumer (4)
2,547

 
27

 
4.07

 
2,138

 
16

 
3.03

Total consumer
453,968

 
5,257

 
4.68

 
450,773

 
5,180

 
4.61

U.S. commercial
287,468

 
2,222

 
3.14

 
270,511

 
1,936

 
2.88

Commercial real estate (5)
57,764

 
479

 
3.36

 
57,271

 
434

 
3.05

Commercial lease financing
22,123

 
231

 
4.17

 
21,077

 
182

 
3.46

Non-U.S. commercial
92,821

 
595

 
2.60

 
93,352

 
585

 
2.52

Total commercial
460,176

 
3,527

 
3.11

 
442,211

 
3,137

 
2.85

Total loans and leases (1)
914,144

 
8,784

 
3.88

 
892,984

 
8,317

 
3.74

Other earning assets
73,514

 
751

 
4.13

 
58,641

 
694

 
4.75

Total earning assets (6)
1,895,373

 
13,907

 
2.96

 
1,844,822

 
13,223

 
2.88

Cash and due from banks (1)
27,196

 
 
 
 
 
28,844

 
 
 
 
Other assets, less allowance for loan and lease losses (1)
308,851

 
 
 
 
 
300,256

 
 
 
 
Total assets
$
2,231,420

 
 
 
 
 
$
2,173,922

 
 
 
 
Interest-bearing liabilities
 

 
 

 
 

 
 

 
 

 
 

U.S. interest-bearing deposits:
 

 
 

 
 

 
 

 
 

 
 

Savings
$
52,193

 
$
1

 
0.01
%
 
$
47,845

 
$
1

 
0.01
%
NOW and money market deposit accounts
617,749

 
74

 
0.05

 
577,779

 
71

 
0.05

Consumer CDs and IRAs
46,711

 
31

 
0.27

 
49,617

 
35

 
0.28

Negotiable CDs, public funds and other deposits
33,695

 
52

 
0.63

 
31,739

 
29

 
0.37

Total U.S. interest-bearing deposits
750,348

 
158

 
0.09

 
706,980

 
136

 
0.08

Non-U.S. interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Banks located in non-U.S. countries
2,616

 
5

 
0.76

 
4,123

 
9

 
0.84

Governments and official institutions
1,013

 
2

 
0.81

 
1,472

 
2

 
0.53

Time, savings and other
58,418

 
117

 
0.81

 
56,943

 
78

 
0.55

Total non-U.S. interest-bearing deposits
62,047

 
124

 
0.81

 
62,538

 
89

 
0.57

Total interest-bearing deposits
812,395

 
282

 
0.14

 
769,518

 
225

 
0.12

Federal funds purchased, securities loaned or sold under agreements to repurchase and short-term borrowings
231,717

 
647

 
1.13

 
221,990

 
613

 
1.11

Trading account liabilities
69,695

 
264

 
1.53

 
72,299

 
292

 
1.63

Long-term debt
221,468

 
1,459

 
2.65

 
233,654

 
1,393

 
2.39

Total interest-bearing liabilities (6)
1,335,275

 
2,652

 
0.80

 
1,297,461

 
2,523

 
0.78

Noninterest-bearing sources:
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing deposits
444,237

 
 
 
 
 
428,937

 
 
 
 
Other liabilities
183,805

 
 
 
 
 
187,101

 
 
 
 
Shareholders’ equity
268,103

 
 
 
 
 
260,423

 
 
 
 
Total liabilities and shareholders’ equity
$
2,231,420

 
 
 
 
 
$
2,173,922

 
 
 
 
Net interest spread
 
 
 
 
2.16
%
 
 
 
 
 
2.10
%
Impact of noninterest-bearing sources
 
 
 
 
0.23

 
 
 
 
 
0.23

Net interest income/yield on earning assets
 
 
$
11,255

 
2.39
%
 
 
 
$
10,700

 
2.33
%
(1) 
Includes assets of the Corporation's non-U.S. consumer credit card business, which are included in assets of business held for sale on the Consolidated Balance Sheet at March 31, 2017. The impact on net interest yield of the earning assets included in assets of business held for sale is not significant.
(2) 
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is generally recognized on a cost recovery basis. PCI loans were recorded at fair value upon acquisition and accrete interest income over the estimated life of the loan.
(3) 
Includes non-U.S. consumer loans of $2.9 billion and $3.8 billion in the first quarter of 2017 and 2016.
(4) 
Includes consumer finance loans of $454 million and $551 million; consumer leases of $1.9 billion and $1.4 billion, and consumer overdrafts of $170 million and $161 million in the first quarter of 2017 and 2016, respectively.
(5) 
Includes U.S. commercial real estate loans of $54.7 billion and $53.8 billion, and non-U.S. commercial real estate loans of $3.1 billion and $3.4 billion in the first quarter of 2017 and 2016, respectively.
(6) 
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets by $17 million and $35 million in the first quarter of 2017 and 2016. Interest expense includes the impact of interest rate risk management contracts, which decreased interest expense on the underlying liabilities by $424 million and $565 million in the first quarter of 2017 and 2016. For additional information, see Interest Rate Risk Management for the Banking Book on page 58.



9 Bank of America




Business Segment Operations
Segment Description and Basis of Presentation
We report our results of operations through the following four business segments: Consumer Banking, GWIM, Global Banking and Global Markets, with the remaining operations recorded in All Other. We periodically review capital allocated to our businesses and allocate capital annually during the strategic and capital planning processes. We utilize a methodology that considers the effect of regulatory capital requirements in addition to internal risk-
 
based capital models. Our internal risk-based capital models use a risk-adjusted methodology incorporating each segment’s credit, market, interest rate, business and operational risk components. For more information on the nature of these risks, see Managing Risk on page 21. For more information on the basis of presentation for business segments and reconciliations to consolidated total revenue, net income and period-end total assets, see Note 17 – Business Segment Information to the Consolidated Financial Statements.
Consumer Banking
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
 
Deposits
 
Consumer
Lending
 
Total Consumer Banking
 
 
(Dollars in millions)
2017
2016
 
2017
2016
 
2017
2016
 
% Change

Net interest income (FTE basis)
$
3,063

$
2,692

 
$
2,718

$
2,636

 
$
5,781

$
5,328

 
9
 %
Noninterest income:
 
 
 
 
 
 
 
 
 
 
Card income
2

3

 
1,222

1,208

 
1,224

1,211

 
1

Service charges
1,050

997

 


 
1,050

997

 
5

Mortgage banking income (1)


 
119

190

 
119

190

 
(37
)
All other income
102

115

 
8

16

 
110

131

 
(16
)
Total noninterest income
1,154

1,115

 
1,349

1,414

 
2,503

2,529

 
(1
)
Total revenue, net of interest expense (FTE basis)
4,217

3,807

 
4,067

4,050

 
8,284

7,857

 
5

 
 
 
 
 
 
 
 
 
 
 
Provision for credit losses
55

48

 
783

483

 
838

531

 
58

Noninterest expense
2,523

2,455

 
1,883

2,083

 
4,406

4,538

 
(3
)
Income before income taxes (FTE basis)
1,639

1,304

 
1,401

1,484

 
3,040

2,788

 
9

Income tax expense (FTE basis)
618

479

 
528

545

 
1,146

1,024

 
12

Net income
$
1,021

$
825

 
$
873

$
939

 
$
1,894

$
1,764

 
7

 
 
 
 
 
 
 
 
 
 
 
Net interest yield (FTE basis)
1.96
%
1.88
%
 
4.34
%
4.52
%
 
3.50
%
3.53
%
 
 
Return on average allocated capital
35

28

 
14

17

 
21

21

 
 
Efficiency ratio (FTE basis)
59.85

64.50

 
46.29

51.43

 
53.19

57.77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
Average
 
2017
2016
 
2017
2016
 
2017
2016
 
% Change

Total loans and leases
$
4,979

$
4,732

 
$
252,966

$
233,176

 
$
257,945

$
237,908

 
8
 %
Total earning assets (2)
634,704

576,634

 
254,066

234,362

 
668,865

607,302

 
10

Total assets (2)
661,769

603,429

 
265,783

246,781

 
707,647

646,516

 
9

Total deposits
629,337

571,462

 
6,257

6,731

 
635,594

578,193

 
10

Allocated capital
12,000

12,000

 
25,000

22,000

 
37,000

34,000

 
9

 
 
 
 
 
 
 
 
 
 
 
 
Period end
 
March 31
2017
December 31
2016
 
March 31
2017
December 31
2016
 
March 31
2017
December 31
2016
 
% Change

Total loans and leases
$
4,938

$
4,938

 
$
253,483

$
254,053

 
$
258,421

$
258,991

 
 %
Total earning assets (2)
660,888

631,172

 
254,291

255,511

 
694,883

662,698

 
5

Total assets (2)
688,277

658,316

 
266,106

268,002

 
734,087

702,333

 
5

Total deposits
655,714

625,727

 
5,893

7,059

 
661,607

632,786

 
5

(1) 
Total consolidated mortgage banking income of $122 million and $433 million for the three months ended March 31, 2017 and 2016 was recorded primarily in Consumer Lending and All Other.
(2) 
In segments and businesses where the total of liabilities and equity exceeds assets, we allocate assets from All Other to match the segments’ and businesses’ liabilities and allocated shareholders’ equity. As a result, total earning assets and total assets of the businesses may not equal total Consumer Banking.
Consumer Banking, which is comprised of Deposits and Consumer Lending, offers a diversified range of credit, banking and investment products and services to consumers and small businesses. Our customers and clients have access to a coast to
 
coast network including financial centers in 33 states and the District of Columbia. Our network includes approximately 4,600 financial centers, 15,900 ATMs, nationwide call centers, and online and mobile platforms.


 
 
Bank of America     10


Consumer Banking Results
Net income for Consumer Banking increased $130 million to $1.9 billion for the three months ended March 31, 2017 compared to the same period in 2016 primarily driven by higher net interest income and lower noninterest expense, partially offset by higher provision for credit losses. Net interest income increased $453 million to $5.8 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits. Noninterest income decreased $26 million to $2.5 billion.
The provision for credit losses increased $307 million to $838 million due to loan growth and portfolio seasoning in the U.S. credit card portfolio. The three months ended March 31, 2017 included a net reserve increase of $66 million compared to a $208 million release for the same period in 2016. Noninterest expense decreased $132 million to $4.4 billion driven by improved operating efficiencies, partially offset by higher FDIC expense.
The return on average allocated capital remained unchanged at 21 percent. For more information on capital allocations, see Business Segment Operations on page 10.
Deposits
Deposits includes the results of consumer deposit activities which consist of a comprehensive range of products provided to consumers and small businesses. Our deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Net interest income is allocated to the deposit products using our funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Deposits generates fees such as account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts. Merrill Edge is an integrated investing and banking service targeted at customers with less than $250,000 in investable assets. Merrill Edge provides investment advice and guidance, client brokerage asset services, a self-directed online investing platform and key banking capabilities including access to the Corporation’s network of financial centers and ATMs.
Deposits includes the net impact of migrating customers and their related deposit and brokerage asset balances between Deposits and GWIM as well as other client-managed businesses. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 14.
Net income for Deposits increased $196 million to $1.0 billion for the three months ended March 31, 2017 compared to the same period in 2016 driven by higher revenue, partially offset by higher noninterest expense. Net interest income increased $371 million to $3.1 billion primarily due to the beneficial impact of an increase in investable assets as a result of higher deposits. Noninterest income increased $39 million to $1.2 billion primarily due to higher service charges. The prior-year period also included gains on certain divestitures.
The provision for credit losses increased $7 million to $55 million. Noninterest expense increased $68 million to $2.5 billion primarily driven by higher FDIC expense.
Average deposits increased $57.9 billion to $629.3 billion driven by strong organic growth. Growth in checking, traditional
 
savings and money market savings of $61.4 billion was partially offset by a decline in time deposits of $3.5 billion.
 
 
 
 
Key Statistics  Deposits
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
2017
 
2016
Total deposit spreads (excludes noninterest costs) (1)
1.67
%
 
1.65
%
 
 
 
 
Period end
 
 
 
Client brokerage assets (in millions)
$
153,786

 
$
126,921

Digital banking active users (units in thousands)
34,527

 
32,647

Mobile banking active users (units in thousands)
22,217

 
19,595

Financial centers
4,559

 
4,689

ATMs
15,939

 
16,003

(1) 
Includes deposits held in Consumer Lending.
Client brokerage assets increased $26.9 billion driven by strong client flows and market performance. Mobile banking active users increased 2.6 million reflecting continuing changes in our customers’ banking preferences. The number of financial centers declined 130 driven by changes in customer preferences to self-service options as we continue to optimize our consumer banking network and improve our cost-to-serve.
Consumer Lending
Consumer Lending offers products to consumers and small businesses across the U.S. The products offered include credit and debit cards, residential mortgages and home equity loans, and direct and indirect loans such as automotive, recreational vehicle and consumer personal loans. In addition to earning net interest spread revenue on its lending activities, Consumer Lending generates interchange revenue from credit and debit card transactions, late fees, cash advance fees, annual credit card fees, mortgage banking fee income and other miscellaneous fees. Consumer Lending products are available to our customers through our retail network, direct telephone, and online and mobile channels. Consumer Lending results also include the impact of servicing residential mortgages and home equity loans in the core portfolio, including loans held on the balance sheet of Consumer Lending and loans serviced for others.
We classify consumer real estate loans as core or non-core based on loan and customer characteristics such as origination date, product type, loan-to-value (LTV), Fair Isaac Corporation (FICO) score and delinquency status. For more information on the core and non-core portfolios, see Consumer Portfolio Credit Risk Management on page 31. At March 31, 2017, total owned loans in the core portfolio held in Consumer Lending were $103.7 billion, an increase of $11.3 billion from March 31, 2016, primarily driven by higher residential mortgage balances, partially offset by a decline in home equity.
Consumer Lending includes the net impact of migrating customers and their related loan balances between Consumer Lending and GWIM. For more information on the migration of customer balances to or from GWIM, see GWIM – Net Migration Summary on page 14.


11 Bank of America




Net income for Consumer Lending decreased $66 million to $873 million for the three months ended March 31, 2017 compared to the same period in 2016 driven by higher provision for credit losses and lower noninterest income, partially offset by lower noninterest expense and higher net interest income. Net interest income increased $82 million to $2.7 billion primarily driven by the impact of an increase in loan balances. Noninterest income decreased $65 million to $1.3 billion driven by lower mortgage banking income, partially offset by higher card income.
The provision for credit losses increased $300 million to $783 million due to loan growth and portfolio seasoning in the U.S. credit card portfolio. The three months ended March 31, 2017 included a net reserve increase of $62 million compared to a $204 million release for the same period in 2016. Noninterest expense decreased $200 million to $1.9 billion primarily driven by improved operating efficiencies.
Average loans increased $19.8 billion to $253.0 billion primarily driven by increases in residential mortgages and consumer vehicle loans, partially offset by lower home equity loan balances.
 
 
 
 
Key Statistics  Consumer Lending
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Total U.S. credit card (1)
 
 
 
Gross interest yield
9.55
%
 
9.32
%
Risk-adjusted margin
8.89

 
9.05

New accounts (in thousands)
1,184

 
1,208

Purchase volumes
$
55,321

 
$
51,154

Debit card purchase volumes
$
70,611

 
$
69,147

(1) 
In addition to the U.S. credit card portfolio in Consumer Banking, the remaining U.S. credit card portfolio is in GWIM.
During the three months ended March 31, 2017, the total U.S. credit card risk-adjusted margin decreased 16 bps primarily driven by higher credit card rewards costs. Total U.S. credit card purchase volumes increased $4.2 billion to $55.3 billion and debit card purchase volumes increased $1.5 billion to $70.6 billion, reflecting higher levels of consumer spending.
Mortgage Banking Income
Mortgage banking income in Consumer Banking includes production income and net servicing income. Production income is comprised primarily of revenue from the fair value gains and losses recognized on our interest rate lock commitments (IRLCs) and loans held-for-sale (LHFS), the related secondary market execution, and costs related to representations and warranties made in the sales transactions along with other obligations
 
incurred in the sales of mortgage loans. Production income decreased $84 million to $54 million for the three months ended March 31, 2017 compared to the same period in 2016 due to a decision to retain a higher percentage of residential mortgage production in Consumer Banking, as well as the impact of a higher interest rate environment driving lower refinances.
Net servicing income within Consumer Banking includes income earned in connection with servicing activities and MSR valuation adjustments for the core portfolio, net of results from risk management activities used to hedge certain market risks of the MSRs. Net servicing income increased $13 million to $65 million for the three months ended March 31, 2017 compared to the same period in 2016.
Mortgage Servicing Rights
At March 31, 2017, the core MSR portfolio, held within Consumer Lending, was $1.9 billion compared to $1.8 billion at March 31, 2016. The increase was primarily driven by changes in fair value as well as new additions, which exceeded the amortization of expected cash flows. For more information on MSRs, see Note 14 – Fair Value Measurements to the Consolidated Financial Statements.
 
 
 
 
Key Statistics
 
 
 
 
 
 
 
 
Three Months Ended March 31
(Dollars in millions)
2017
 
2016
Loan production (1):
 

 
 

Total (2):
 
 
 
First mortgage
$
11,442

 
$
12,623

Home equity
4,053

 
3,805

Consumer Banking:
 
 
 
First mortgage
$
7,629

 
$
9,078

Home equity
3,667

 
3,515

(1) 
The loan production amounts represent the unpaid principal balance of loans and in the case of home equity, the principal amount of the total line of credit.
(2) 
In addition to loan production in Consumer Banking, there is also first mortgage and home equity loan production in GWIM.
First mortgage loan originations in Consumer Banking and for the total Corporation decreased $1.4 billion and $1.2 billion in the three months ended March 31, 2017 compared to the same period in 2016 primarily driven by a higher interest rate environment driving lower first-lien mortgage refinances.
Home equity production in Consumer Banking and for the total Corporation increased $152 million and $248 million for the three months ended March 31, 2017 compared to the same period in 2016 due to a higher demand in the market based on improving housing trends.


 
 
Bank of America     12


Global Wealth & Investment Management
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
(Dollars in millions)
 
2017
 
2016
 
% Change
Net interest income (FTE basis)
 
$
1,560

 
$
1,513

 
3
 %
Noninterest income:
 
 
 
 
 
 
Investment and brokerage services
 
2,648

 
2,536

 
4

All other income
 
384

 
420

 
(9
)
Total noninterest income
 
3,032

 
2,956

 
3

Total revenue, net of interest expense (FTE basis)
 
4,592

 
4,469

 
3

 
 
 
 
 
 
 
Provision for credit losses
 
23

 
25

 
(8
)
Noninterest expense
 
3,333

 
3,273

 
2

Income before income taxes (FTE basis)
 
1,236

 
1,171

 
6

Income tax expense (FTE basis)
 
466

 
430

 
8

Net income
 
$
770

 
$
741

 
4

 
 
 
 
 
 
 
Net interest yield (FTE basis)
 
2.28
%
 
2.18
%
 
 
Return on average allocated capital
 
22

 
23

 
 
Efficiency ratio (FTE basis)
 
72.58

 
73.25

 
 
 
 
 
 
 
 
 
Balance Sheet
 
 
 
 
 
 
 
 
 
Three Months Ended March 31
 
 
Average
 
2017
 
2016
 
% Change
Total loans and leases
 
$
148,405

 
$
139,098

 
7
 %
Total earning assets
 
277,989

 
279,605

 
(1
)
Total assets
 
293,432

 
295,710

 
(1
)
Total deposits
 
257,386

 
260,482

 
(1
)
Allocated capital
 
14,000

 
13,000

 
8

 
 
 
 
 
 
 
Period end
 
March 31
2017
 
December 31
2016
 
% Change
Total loans and leases
 
$
149,110

 
$
148,179

 
1
 %
Total earning assets
 
275,214<