e10vq
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 June 30, 2011
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 Number:
56-0906609
Address of Principal Executive Offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrants 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, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting 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 |
Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule
12b-2).
Yes No ü
On
July 31, 2011, there were 10,134,295,342 shares of Bank of America Corporation Common Stock
outstanding.
1
Bank of America Corporation
June 30, 2011 Form 10-Q
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
|
|
|
Part I.
Financial
Information |
|
Item 1. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
|
|
|
|
|
|
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
133 |
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
137 |
|
|
|
|
|
|
|
|
|
|
145 |
|
|
|
|
|
|
|
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
173 |
|
|
|
|
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
196 |
|
|
|
|
|
|
|
|
|
|
197 |
|
|
|
|
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 2. |
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
|
|
|
|
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
69 |
|
|
|
|
|
|
|
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
76 |
|
|
|
|
|
|
|
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
107 |
|
|
|
2
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report on Form 10-Q, the documents that it incorporates by reference and the
documents into which it may be incorporated by reference may contain, and from time to time Bank
of America Corporation (collectively with its subsidiaries, 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 expects, anticipates, believes, estimates, targets, intends,
plans, goal and other similar expressions or future or conditional verbs such as will,
may, might, should, would and could. The forward-looking statements made represent the
current expectations, plans or forecasts of the Corporation regarding the Corporations future
results and revenues, and future business and economic conditions more generally, including
statements concerning: 2011 expense levels; higher revenue and expense reductions in 2012;
improving performance in retail businesses; home price assumptions and Home Price Index (HPI)
estimates; the impact of the agreement with Assured Guaranty Ltd. and its subsidiaries (Assured
Guaranty) and its cost, including the expected value
of the loss-sharing reinsurance arrangement;
the adequacy of the liability for the remaining representations and warranties exposure to
government-sponsored enterprises, Fannie Mae (FNMA) and Freddie Mac (FHLMC) (collectively, the
GSEs) and the future impact to earnings, including the impact on such estimated liability arising
from the recent announcement by FNMA regarding mortgage rescissions, cancellations and claim
denials and the Corporations ability to resolve such rescissions, cancellations or claim denials within the
appeal period allowed by FNMA; the expected repurchase claims on the 2004-2008 loan vintages; the
Corporations belief that with the provision recorded in connection with the agreement to resolve
nearly all of the legacy Countrywide-issued first-lien non-GSE residential mortgage-backed
securitization repurchase exposures (the BNY Mellon Settlement), and the additional
representations and warranties provisions recorded in the six months ended June 30, 2011, the
Corporation will provide for a substantial portion of its non-GSE representations and warranties
exposure; in connection with the BNY Mellon Settlement, the Corporations obligations to pay, and
estimates of, attorneys fees and costs of the group of 22 institutional investors supporting the
BNY Mellon Settlement (the Investor Group) and the fees and expenses incurred by the trustee; the
impact of the BNY Mellon Settlement on costs related to mortgage servicing obligations; the
potential assertion and impact of additional claims not addressed by the BNY Mellon Settlement or
any of the prior agreements entered into between the Corporation and the GSEs, monoline insurers
and other investors; the resolution of certain related claims being litigated by investors in the
event that final court approval of the BNY Mellon Settlement is obtained; the Corporations belief
that private letter rulings from the U.S. Internal Revenue Service (IRS) and other tax rulings and
opinions will be obtained during the period prior to final court approval of the BNY Mellon
Settlement; representations and warranties liabilities (also commonly referred to as reserves),
and the estimated range of possible loss, expenses and repurchase claims and resolution of those
claims, and any related servicing, securities, fraud, indemnity or other claims; the Corporations
intention to vigorously contest any requests for repurchase for which it concludes that a valid
basis does not exist; future impact of complying with the terms of the recent consent orders with
federal bank regulators regarding the foreclosure process and potential civil monetary penalties
that may be levied in connection therewith; the impact of delays in connection with the Corporations temporary
halt of foreclosure proceedings in late 2010; the progress toward achieving a resolution in
negotiations with law enforcement authorities and federal agencies, including the U.S. Department
of Justice (DOJ) and the U.S. Department of Housing and Urban Development (HUD), involving
mortgage servicing practices; the impact on economic conditions and on the Corporation arising
from any changes to the credit rating or perceived creditworthiness of instruments issued, insured or guaranteed by the U.S. government, or of
institutions, agencies or instrumentalities directly linked to the U.S. government; charges to income tax
expense resulting from reductions in the United Kingdom (U.K.) corporate income tax rate; future
payment protection insurance (PPI) claims in the U.K.; future risk-weighted assets and any
mitigation efforts to reduce risk-weighted assets; net interest income; credit trends and
conditions, including credit losses, credit reserves, charge-offs, delinquency, collection and
bankruptcy trends, and nonperforming asset levels; consumer and commercial service charges,
including the impact of changes in the Corporations overdraft policy and the Corporations
ability to mitigate a decline in revenues; liquidity; capital levels determined by or established
in accordance with accounting principles generally accepted in the United States of America (GAAP)
and with the requirements of
various regulatory agencies, including our ability to comply with any
Basel capital requirements endorsed by U.S. regulators without raising additional capital and
within any applicable regulatory timelines; the revenue impact of the Credit Card Accountability
Responsibility and Disclosure Act of 2009 (the CARD Act); the revenue impact and the impact on the
value of our assets and liabilities resulting from, and any mitigation actions taken in response
to, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Financial Reform Act),
including the impact of the Durbin Amendment, the Volcker Rule, the Consumer Financial Protection
Bureau (the CFPB); the risk retention rules and derivatives regulations; mortgage production
levels; long-term debt levels; short-term debt levels, including the expected reduction of certain
short-term unsecured borrowings, including commercial paper, in the
4
third quarter of 2011; run-off
of loan portfolios; that it is the Corporations objective to
maintain high-quality credit ratings; the estimated range of
possible loss and the impact of various legal proceedings discussed in Litigation and
Regulatory Matters in Note 11 Commitments and Contingencies to the Consolidated Financial
Statements; the number of delayed foreclosure sales and the resulting financial impact and other
similar matters; the amount and timing of any clawback or earn-out payments relating to the sale
of certain assets and liabilities of Balboa Insurance Company (Balboa); and other matters relating
to the Corporation and the securities that it may offer from time to time. The foregoing is not an
exclusive list of all forward-looking statements the Corporation makes. These statements are not
guarantees of future results or performance and involve certain risks, uncertainties and
assumptions that are difficult to predict and often are beyond the Corporations control. Actual
outcomes and results may differ materially from those expressed in, or implied by, the
Corporations 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
elsewhere in this report, under Item 1A. Risk Factors of the Corporations 2010 Annual Report on
Form 10-K, and in any of the Corporations subsequent Securities and Exchange Commission (SEC)
filings: the Corporations timing and determinations regarding any potential revised comprehensive
capital plan submission and the Federal Reserves response; the Corporations intent to build
capital through retaining earnings, reducing legacy asset portfolios
and implementing other non-dilutive capital related
initiatives; the accuracy and variability of estimates and assumptions in determining the expected
total cost of the BNY Mellon Settlement to the Corporation; the accuracy and variability of
estimates and assumptions in determining the estimated liability and/or estimated range of
possible loss for representations and warranties exposures to the GSEs, monolines and private-label
and other investors; the accuracy and the variability of estimates and assumptions in determining
the portion of the Corporations repurchase obligations for residential mortgage obligations sold
by the Corporation and its affiliates to investors that has been paid or reserved after giving
effect to the BNY Mellon Settlement and the charges in the quarter ended June 30, 2011; the
possibility that a substantial number of objections to the approval of the BNY Mellon Settlement
will be made and that these objections will delay or prevent receipt of final court approval;
whether the conditions to the BNY Mellon Settlement will be satisfied, including the receipt of
final court approval and private letter rulings from the IRS and other tax rulings and opinions;
whether conditions in the BNY Mellon Settlement that would permit the Corporation and legacy
Countrywide to withdraw from the settlement will occur and whether the Corporation and legacy
Countrywide will determine to withdraw from the settlement pursuant to the terms of the BNY Mellon
Settlement; the impact of performance and enforcement of obligations under, and provisions
contained in, the BNY Mellon Settlement and the agreement with the Investor Group, including
performance of obligations under the BNY Mellon Settlement by the Corporation and the trustee and
the performance of obligations under the agreement with the Investor Group by the Corporation and
the Investor Group; the Corporation and certain of its affiliates ability to comply with the
servicing and documentation obligations under the BNY Mellon Settlement; the potential assertion
and impact of additional claims not addressed by the BNY Mellon Settlement or any of the prior
agreements entered into between the Corporation and the GSEs, monoline insurers and other
investors; the accuracy and variability of estimates and assumptions in determining the expected
value of the loss-sharing reinsurance arrangement relating to the agreement with Assured Guaranty
and the total cost of the agreement to the Corporation; the
Corporations resolution
of certain
representations and warranties obligations with the GSEs and our ability to resolve its remaining
claims; the Corporations ability to resolve its representations and warranties obligations, and
any related servicing, securities, fraud, indemnity or other claims with monolines, and
private-label investors and other investors, including those monolines and investors from whom we
have not yet received claims or with whom we have not yet reached any resolutions; failure to
satisfy our obligations as servicer in the residential mortgage securitization process; the
adequacy of the liability and/or the estimated range of possible loss for the representations and
warranties exposures to the GSEs, monolines and private-label and other investors; the foreclosure
review and assessment process, the effectiveness of the Corporations response and any
governmental findings or penalties or private third-party claims asserted in connection with these
foreclosure matters; the ability to achieve resolution in negotiations with law enforcement
authorities and federal agencies, including the DOJ and HUD, involving mortgage servicing
practices, including the timing and any settlement terms; the adequacy of the reserve for future
PPI claims in the U.K.; and the risk of a credit rating downgrade of the U.S. government; negative
economic conditions generally including continued weakness in the U.S. housing market, high
unemployment in the U.S., as well as economic challenges in many non-U.S. countries in which we
operate and sovereign debt challenges; the Corporations mortgage modification policies and
related results; the level and volatility of the capital markets, interest rates, currency values
and other market indices; changes in consumer, investor and counterparty confidence in, and the
related impact on, financial markets and institutions, including the Corporation as well as its
business partners; the Corporations credit ratings and the credit ratings of its securitizations;
the impact resulting from international and domestic sovereign credit uncertainties; the timing
and amount of any potential dividend increase; estimates of the fair value of certain of the
Corporations assets and liabilities; legislative and regulatory actions in the U.S. (including
the impact of the Financial Reform Act, the Electronic Fund Transfer Act, the CARD Act and related
regulations and interpretations) and internationally; the identification and effectiveness of any
initiatives to mitigate the
5
negative impact of the Financial Reform Act; the impact of litigation
and regulatory investigations, including costs,
expenses, settlements and judgments as well as any collateral effects on our ability to do
business and access the capital markets; various monetary, tax and fiscal policies and regulations
of the U.S. and non-U.S. governments; changes in accounting standards, rules and interpretations,
inaccurate estimates or assumptions in the application of accounting policies, including in
determining reserves, applicable guidance regarding goodwill accounting and the impact on the
Corporations financial statements; increased globalization of the financial services industry and
competition with other U.S. and international financial institutions; adequacy of the
Corporations risk management framework; the Corporations ability to attract new employees and
retain and motivate existing employees; technology changes instituted by the Corporation, its
counterparties or competitors; mergers and acquisitions and their integration into the
Corporation, including the Corporations ability to realize the benefits and cost savings from the
Merrill Lynch & Co., Inc. (Merrill Lynch) and Countrywide Financial Corporation (Countrywide)
acquisitions; the Corporations reputation, including the effects of continuing intense public and
regulatory scrutiny of the Corporation and the financial services industry; the effects of any
unauthorized disclosures of our or our customers private or confidential information and any
negative publicity directed toward the Corporation; and decisions to downsize, sell or close units
or otherwise change the business mix of the Corporation.
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 Managements Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) are incorporated by reference
into the MD&A. Certain prior period amounts have been reclassified to conform to current period
presentation. Throughout the MD&A, we use certain acronyms and abbreviations which are defined in
the Glossary.
Executive Summary
Business Overview
The Corporation is a Delaware corporation, a bank holding company and a financial
holding company. When used in this report, the Corporation may refer to the Corporation
individually, the Corporation and its subsidiaries, or certain of the Corporations subsidiaries
or affiliates. Our principal executive offices are located in the Bank of America Corporate Center
in Charlotte, North Carolina. Through our banking and various nonbanking subsidiaries throughout
the United States and in certain international markets, we provide a diversified range of banking
and nonbanking financial services and products through six business segments: Deposits, Global
Card Services, Consumer Real Estate Services (CRES), Global Commercial Banking, Global Banking &
Markets (GBAM) and Global Wealth & Investment Management (GWIM), with the remaining operations
recorded in All Other. At June 30, 2011, the Corporation had $2.3 trillion in assets and
approximately 288,000 full-time equivalent employees.
As of June 30, 2011, we operated in all 50 states, the District of Columbia and more than 40
non-U.S. countries. Our retail banking footprint covers approximately 80 percent of the U.S.
population and in the U.S., we serve approximately 58 million consumer and small business
relationships with approximately 5,700 banking centers, 18,000 ATMs, nationwide call centers, and
leading online and mobile banking platforms. We have banking centers in 13 of the 15 fastest
growing states and have leadership positions in market share for deposits in seven of those
states. We offer industry-leading support to approximately four million small business owners. 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.
6
Table 1 provides selected consolidated financial data for the three and six months ended
June 30, 2011 and 2010 and at June 30, 2011 and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 1 |
Selected Financial Data |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
|
(Dollars in millions, except per share information) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net of interest expense (FTE basis) (1) |
|
$ |
13,483 |
|
|
$ |
29,450 |
|
|
$ |
40,578 |
|
|
$ |
61,740 |
|
Net income (loss) |
|
|
(8,826 |
) |
|
|
3,123 |
|
|
|
(6,777 |
) |
|
|
6,305 |
|
Net income (loss), excluding goodwill impairment charge (2) |
|
|
(6,223 |
) |
|
|
3,123 |
|
|
|
(4,174 |
) |
|
|
6,305 |
|
Diluted earnings (loss) per common share |
|
|
(0.90 |
) |
|
|
0.27 |
|
|
|
(0.73 |
) |
|
|
0.55 |
|
Diluted earnings (loss) per common share, excluding goodwill impairment charge (2) |
|
|
(0.65 |
) |
|
|
0.27 |
|
|
|
(0.48 |
) |
|
|
0.55 |
|
Dividends paid per common share |
|
$ |
0.01 |
|
|
$ |
0.01 |
|
|
$ |
0.02 |
|
|
$ |
0.02 |
|
|
|
Performance ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
n/m |
|
|
|
0.50 |
% |
|
|
n/m |
|
|
|
0.51 |
% |
Return on average assets, excluding goodwill impairment charge (2) |
|
|
n/m |
|
|
|
0.50 |
|
|
|
n/m |
|
|
|
0.51 |
|
Return on average tangible shareholders equity (1) |
|
|
n/m |
|
|
|
8.98 |
|
|
|
n/m |
|
|
|
9.26 |
|
Return on average tangible shareholders equity, excluding goodwill impairment charge (1, 2) |
|
|
n/m |
|
|
|
8.98 |
|
|
|
n/m |
|
|
|
9.26 |
|
Efficiency ratio (FTE basis) (1) |
|
|
n/m |
|
|
|
58.58 |
|
|
|
n/m |
|
|
|
56.73 |
|
Efficiency ratio (FTE basis), excluding goodwill impairment charge (1, 2) |
|
|
n/m |
|
|
|
58.58 |
|
|
|
n/m |
|
|
|
56.73 |
|
|
|
Asset quality |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan and lease losses at period end |
|
|
|
|
|
|
|
|
|
$ |
37,312 |
|
|
$ |
45,255 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at period end (3) |
|
|
|
|
|
|
|
|
|
|
4.00 |
% |
|
|
4.75 |
% |
Nonperforming loans, leases and foreclosed properties at period end (3) |
|
|
|
|
|
|
|
|
|
$ |
30,058 |
|
|
$ |
35,598 |
|
Net charge-offs |
|
$ |
5,665 |
|
|
$ |
9,557 |
|
|
|
11,693 |
|
|
|
20,354 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (3) |
|
|
2.44 |
% |
|
|
3.98 |
% |
|
|
2.53 |
% |
|
|
4.21 |
% |
Annualized net charge-offs as a percentage of average loans and leases outstanding excluding purchased
credit-impaired loans (3) |
|
|
2.54 |
|
|
|
4.11 |
|
|
|
2.63 |
|
|
|
4.36 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs (3) |
|
|
1.64 |
|
|
|
1.18 |
|
|
|
1.58 |
|
|
|
1.10 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs excluding
purchased credit-impaired loans (3) |
|
|
1.28 |
|
|
|
1.05 |
|
|
|
1.23 |
|
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
2011 |
|
2010 |
Balance sheet |
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
941,257 |
|
|
$ |
940,440 |
|
Total assets |
|
|
2,261,319 |
|
|
|
2,264,909 |
|
Total deposits |
|
|
1,038,408 |
|
|
|
1,010,430 |
|
Total common shareholders equity |
|
|
205,614 |
|
|
|
211,686 |
|
Total shareholders equity |
|
|
222,176 |
|
|
|
228,248 |
|
|
Capital ratios |
|
|
|
|
|
|
|
|
Tier 1 common equity |
|
|
8.23 |
% |
|
|
8.60 |
% |
Tier 1 capital |
|
|
11.00 |
|
|
|
11.24 |
|
Total capital |
|
|
15.65 |
|
|
|
15.77 |
|
Tier 1 leverage |
|
|
6.86 |
|
|
|
7.21 |
|
|
(1) |
|
FTE basis, return on average tangible shareholders
equity and the efficiency ratio are non-GAAP measures.
Other companies may define or calculate these measures
differently. For additional information on these
measures and ratios, and for a corresponding
reconciliation to GAAP financial measures, see
Supplemental Financial Data on page 19. |
|
(2) |
|
Net income (loss), diluted earnings (loss) per common
share, return on average assets, return on average
tangible shareholders equity and the efficiency ratio
have been calculated excluding the impact of the
goodwill impairment charge of $2.6 billion in the
second quarter of 2011 and accordingly, these are
non-GAAP measures. For additional information on these
measures and ratios, and for a corresponding
reconciliation to GAAP financial measures, see
Supplemental Financial Data on page 19. |
|
(3) |
|
Balances and ratios do not include loans accounted for
under the fair value option. For additional exclusions
on nonperforming loans, leases and foreclosed
properties, see Nonperforming Consumer Loans and
Foreclosed Properties Activity on page 90 and
corresponding Table 42, and Nonperforming Commercial
Loans, Leases and Foreclosed Properties Activity on page 98 and corresponding Table 51. |
|
n/m |
|
= not meaningful |
Second Quarter 2011 Economic and Business Environment
The banking environment and markets in which we conduct our businesses, particularly in
Europe, have continued to be strongly influenced by developments in the U.S. and global economies,
as well as the continued implementation and rulemaking from recent financial reforms. The U.S.
economic momentum slowed in the first quarter of 2011, and remained weak in the second quarter.
The sharp rise in prices of gasoline and food pushed up inflation and slowed consumer spending for
a wide array of goods and services, while supply chain effects following the Japanese natural
disaster aggravated the slowdown, especially in the motor vehicle sector. In response, businesses
trimmed production and scaled back growth in investment spending on equipment and software. In
addition, job layoffs rose and hiring moderated, contributing to a renewed upward drift in the
unemployment rate to 9.2 percent in June, from 8.9 percent in March. Economic and financial
performance ended the second quarter 2011 on a fairly weak note, with soft growth and concerns
about Europes financial crisis and the recent political situation in Washington, D.C. regarding the U.S. Federal debt ceiling.
These concerns heightened uncertainty and dampened confidence.
7
The housing market remained depressed, with weak sales and continued modest declines in home
prices as measured by the HPI. Declines in home prices added uncertainty about future home prices,
dampening home sales. The magnitude of distressed mortgages remained very high, and there were
ongoing delays in foreclosure processes. Loans to businesses rose modestly, while loans to
households remained weak. Credit quality of bank loans to businesses and households continued to
improve.
While the global economy showed signs of moderating, the impact of Japans disaster is
expected to be temporary and the focus has once more shifted to Europes financial crisis. Core
European economies, led by Germanys strength, were healthy, but peripheral European Union nations
were mired in recession-type conditions and Greece teetered toward a debt service liquidity
crisis. As the second quarter of 2011 ended, a coordinated European financial support package for
Greece temporarily eased financial market concerns.
Key emerging nations, particularly China, experienced further inflation pressures during the
second quarter of 2011, and their central banks tightened monetary policy and credit in efforts to
constrain excess demand. Although there was some concern that these restrictive policies would
generate sharper-than-desired economic slowdowns that would adversely impact global economic
performance, economic growth in those countries remained healthy. For more information on our
exposure in Europe, Asia, Latin America and Japan, see Non-U.S. Portfolio on page 103.
Recent Events
Private-label Securitization Settlement with the Bank of New York Mellon
As previously announced, on June 28, 2011, the Corporation, BAC Home Loans Servicing, LP (BAC
HLS, which subsequently merged with and into Bank of America, N.A. (BANA) in July 2011), and
certain Countrywide affiliates entered into a settlement agreement with The Bank of New York
Mellon (BNY Mellon), as trustee (Trustee), to resolve all outstanding and potential claims related
to alleged representations and warranties breaches (including repurchase claims), substantially
all historical loan servicing claims and certain other historical claims with respect to 525
legacy Countrywide first-lien and five second-lien non-GSE residential mortgage-backed
securitization trusts (the Covered Trusts) with loans principally originated between 2004 and 2008
and for which BNY Mellon acts as trustee or indenture trustee (the BNY Mellon Settlement). The
Covered Trusts had an original principal balance of approximately $424 billion, of which $409
billion was originated between 2004 and 2008, and a total current unpaid principal balance
(calculated as outstanding principal plus the unpaid principal balance of defaulted loans) of
approximately $220 billion, of which $217 billion was originated between 2004 and 2008, as of June
28, 2011. The BNY Mellon Settlement is supported by a group of 22 institutional investors (the
Investor Group) and is subject to final court approval and certain other conditions. The BNY
Mellon Settlement provides for a cash payment of $8.5 billion (the Settlement Payment) to the
Trustee for distribution to the Covered Trusts after final court approval of the settlement and an
estimated $100 million in additional expenses and fees to the Investor Groups counsel and the
Trustee. We are also obligated to pay certain other fees and expenses of the Trustee
and the Investor Group. The BNY Mellon Settlement also includes provisions related to specific
mortgage servicing standards and other servicing matters.
The Trustee has determined that the BNY Mellon Settlement is in the best interests of the
Covered Trusts and is seeking the necessary court approval of the BNY Mellon Settlement. Under an
order entered by the court, certificateholders and noteholders in the Covered Trusts have the
opportunity to file objections until August 30, 2011 and responses to those objections and
statements in support of the settlement until October 31, 2011. In connection with the BNY Mellon
Settlement, we entered into an agreement with the Investor Group, which provides that, among other
things, the Investor Group will use reasonable best efforts and cooperate in good faith to
effectuate the settlement, including obtaining final court approval. The Investor Group has filed,
and the court has granted, a petition to intervene as a party to the proceeding so that it may
support of the BNY Mellon Settlement. Several alleged investors outside the Investor Group have
filed, and the court has granted, petitions to intervene as parties in the pending court
proceeding. Certain of these intervenors have stated that they intend to object to the BNY Mellon
Settlement, while others have said that they need more information in order to determine whether
to object, and indicated that they, therefore, intend to seek discovery. In addition, it is possible that a
substantial number of additional investors outside the Investor Group will also seek to intervene
as parties, and some intervenors and other investors may object to the BNY Mellon Settlement. The
resolutions of the objections of intervenors and/or other investors who object may delay or
ultimately prevent receipt of final court approval. There can be no assurance that final court
approval of the BNY Mellon Settlement will be obtained, that all conditions will be satisfied or,
if certain conditions to the BNY Mellon Settlement permitting withdrawal are met, that we and
legacy Countrywide will not determine to withdraw from the BNY Mellon Settlement. The court is
scheduled to hold a hearing on the Trustees request for entry of an order approving the BNY
Mellon Settlement on November 17, 2011.
8
For additional information about the BNY Mellon Settlement, see
Off-Balance Sheet Arrangements and
Contractual Obligations Representations and Warranties on page 51 and Other
Mortgage-related Matters on page 60. For more information about the risks associated with the BNY
Mellon Settlement, see Item 1A. Risk Factors on page 219.
U.S. Debt Ceiling and the Risk of U.S. Downgrade; EU Sovereign Risks
The U.S. government recently increased its borrowing capacity under the federal debt ceiling.
However, there continues to be a perceived risk of a sovereign credit ratings downgrade of the
U.S. government, including the ratings of U.S. Treasury securities.
In July 2011, Moodys Investors Service, Inc. (Moodys) placed the U.S. government under review for a possible credit
rating downgrade, and on August 2, 2011 it confirmed the U.S. governments existing
sovereign rating, but stated that the
U.S. governments rating outlook is negative. Also in July 2011
Standard & Poors Financial
Services LLC (S&P) placed
its sovereign credit ratings of the U.S. government on CreditWatch with negative implications. On August 2, 2011 Fitch,
Inc. (Fitch) affirmed its existing sovereign rating of the U.S. government, but stated that the rating is under review.
A downgrade of U.S. sovereign credit
ratings could correspondingly impact the credit ratings of instruments issued, insured or
guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government.
We cannot predict if, when or how any changes to the credit ratings of these organizations will
affect economic conditions or the resulting impact on the Corporation. Such ratings actions could
result in a significant adverse impact to the Corporation. For additional information about the
risks associated with the statutory debt limit and any resulting downgrade of the U.S. government,
see Item 1A. Risk Factors on page 219.
In addition, certain European nations continue to experience varying degrees of financial
stress, and yields on government-issued bonds in Greece, Ireland, Italy, Portugal and Spain have
risen and remain volatile. Despite assistance packages to Greece, Ireland and Portugal, the
creation of a joint EU-IMF European Financial Stability Facility in May 2010, and a recently
announced plan to expand financial assistance to Greece, uncertainty over the outcome of the EU
governments financial support programs and worries about sovereign finances persist. Market
concerns over the direct and indirect exposure of European banks and insurers to these EU
peripheral nations has resulted in a widening of credit spreads and increased costs of funding for
some European financial institutions. For additional information about the risks associated with
the financial stability of certain EU sovereigns, see Item 1A. Risk Factors on page 219.
Department of Justice / Attorney General Matters
Law
enforcement authorities in all 50 states and the DOJ and other federal agencies continue to investigate alleged irregularities in the foreclosure practices
of residential mortgage servicers, including the Corporation. Authorities have publicly stated
that the scope of the investigations extends beyond foreclosure documentation practices to
mortgage loan modification and loss mitigation practices, including
compliance with the HUD requirements related to Federal Housing
Administration (FHA)-insured loans. We
continue to cooperate with these investigations and are dedicating significant resources to
address these issues. We and the other largest mortgage servicers continue to engage in ongoing
negotiations regarding these matters with law enforcement authorities and federal agencies. The
negotiations continue to focus on the amount of any settlement payment and settlement terms,
including principal forgiveness, servicing standards, enforcement mechanisms and releases.
Although we cannot be certain as to the ultimate outcome that may result from these negotiations
or the timing of such outcome, the parties continue to make progress
toward achieving a resolution of these matters. For additional information, see Off-Balance Sheet
Arrangement and Contractual Obligations Other Mortgage-related Matters on page 60.
9
Performance Overview
Net income (loss) was $(8.8) billion and $(6.8) billion for the three and six months
ended June 30, 2011 compared to $3.1 billion and $6.3 billion for the same periods in 2010. The
principal contributors to the net loss for the three and six months ended June 30, 2011 were the
following: $14.0 billion of representations and warranties provision
in the second quarter largely related to the BNY Mellon Settlement as well as other mortgage-related costs, including a
$2.6 billion non-cash, non-tax deductible goodwill impairment charge,
higher mortgage-related
litigation expense and increased mortgage assessments and waivers costs. The three- and
six-month periods were positively affected by lower credit costs which decreased by $4.9 billion
and $10.8 billion compared to the same periods in 2010, or approximately a 60 percent decrease for
both periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 2 |
Summary Income Statement |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Net interest income (1) |
|
$ |
11,493 |
|
|
$ |
13,197 |
|
|
$ |
23,890 |
|
|
$ |
27,267 |
|
Noninterest income |
|
|
1,990 |
|
|
|
16,253 |
|
|
|
16,688 |
|
|
|
34,473 |
|
|
Total revenue, net of interest expense (1) |
|
|
13,483 |
|
|
|
29,450 |
|
|
|
40,578 |
|
|
|
61,740 |
|
Provision for credit losses |
|
|
3,255 |
|
|
|
8,105 |
|
|
|
7,069 |
|
|
|
17,910 |
|
Goodwill impairment |
|
|
2,603 |
|
|
|
- |
|
|
|
2,603 |
|
|
|
- |
|
All other noninterest expense |
|
|
20,253 |
|
|
|
17,253 |
|
|
|
40,536 |
|
|
|
35,028 |
|
|
Income (loss) before income taxes |
|
|
(12,628 |
) |
|
|
4,092 |
|
|
|
(9,630 |
) |
|
|
8,802 |
|
Income tax expense (benefit) (1) |
|
|
(3,802 |
) |
|
|
969 |
|
|
|
(2,853 |
) |
|
|
2,497 |
|
|
Net income (loss) |
|
|
(8,826 |
) |
|
|
3,123 |
|
|
|
(6,777 |
) |
|
|
6,305 |
|
Preferred stock dividends |
|
|
301 |
|
|
|
340 |
|
|
|
611 |
|
|
|
688 |
|
|
Net income (loss) applicable to common shareholders |
|
$ |
(9,127 |
) |
|
$ |
2,783 |
|
|
$ |
(7,388 |
) |
|
$ |
5,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) |
|
$ |
(0.90 |
) |
|
$ |
0.28 |
|
|
$ |
(0.73 |
) |
|
$ |
0.56 |
|
Diluted earnings (loss) |
|
|
(0.90 |
) |
|
|
0.27 |
|
|
|
(0.73 |
) |
|
|
0.55 |
|
|
(1) |
|
FTE basis is a non-GAAP measure. Other companies may
define or calculate this measure differently. For
additional information on this measure and for a
corresponding reconciliation to GAAP financial
measures, see Supplemental Financial Data on page 19. |
Net interest income on a fully taxable-equivalent (FTE) basis decreased $1.7 billion and
$3.4 billion for the three and six months ended June 30, 2011 compared to the same periods in
2010. The decrease was mainly due to lower consumer loan balances and yields, partially offset by
the benefits of reductions in long-term debt and lower rates paid on deposits. The net interest
yield on a FTE basis was 2.50 percent and 2.58 percent for the three and six months ended June 30,
2011.
Noninterest
income decreased by $14.3 billion and $17.8 billion for the
three and six months ended June 30, 2011
compared to the same periods in 2010 as a result of the aforementioned increase in representations
and warranties provision. For additional information about representations and warranties, see
Off-Balance Sheet Arrangements and Contractual Obligations
Representations and Warranties on page 51. Other components of the period-over-period change in
noninterest income included a decrease in service charges due to the impact of overdraft policy
changes in conjunction with the implementation of Regulation E, a decrease in equity investment
income as gains on sales of certain investments in the prior-year period outpaced those in 2011
and an increase in trading account profits for the three-month period due to a strong second
quarter in 2011, and a decrease for the six month period due to very
strong first quarter 2010 results.
The provision for credit losses was lower than net charge-offs for the three and six months
ended June 30, 2011 resulting in reserve reductions reflecting improving portfolio trends across most of the consumer and commercial businesses,
particularly the U.S. credit card portfolio. The improvement was offset in part by additions to
purchased credit-impaired (PCI) loan portfolio reserves, largely in the consumer portfolios.
Noninterest expense increased $5.6 billion and $8.1 billion for the three and six months
ended June 30, 2010 compared to the same periods in 2010. The increases were driven by the
goodwill impairment charge and by increases in other general operating expense which includes
mortgage-related assessments and waivers costs and litigation expense both of which increased
significantly compared to the same periods in 2010. Additionally, an increase in personnel costs
for the six months ended June 30, 2011 contributed to the increase as we continue the build-out of
several businesses and increase default-related staffing levels in the mortgage servicing
business.
10
Segment Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 3 |
Business Segment Results |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
|
|
Total Revenue (1) |
|
Net Income (Loss) |
|
Total Revenue (1) |
|
Net Income (Loss) |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Deposits |
|
$ |
3,301 |
|
|
$ |
3,695 |
|
|
$ |
430 |
|
|
$ |
674 |
|
|
$ |
6,490 |
|
|
$ |
7,413 |
|
|
$ |
785 |
|
|
$ |
1,372 |
|
Global Card Services |
|
|
5,536 |
|
|
|
6,948 |
|
|
|
2,035 |
|
|
|
826 |
|
|
|
11,223 |
|
|
|
13,838 |
|
|
|
3,770 |
|
|
|
1,794 |
|
Consumer Real Estate Services |
|
|
(11,315 |
) |
|
|
2,704 |
|
|
|
(14,520 |
) |
|
|
(1,542 |
) |
|
|
(9,252 |
) |
|
|
6,237 |
|
|
|
(16,935 |
) |
|
|
(3,619 |
) |
Global Commercial Banking |
|
|
2,810 |
|
|
|
2,883 |
|
|
|
1,381 |
|
|
|
815 |
|
|
|
5,461 |
|
|
|
5,975 |
|
|
|
2,304 |
|
|
|
1,520 |
|
Global Banking & Markets |
|
|
6,796 |
|
|
|
5,904 |
|
|
|
1,558 |
|
|
|
898 |
|
|
|
14,682 |
|
|
|
15,597 |
|
|
|
3,692 |
|
|
|
4,137 |
|
Global Wealth & Investment Management |
|
|
4,490 |
|
|
|
4,189 |
|
|
|
506 |
|
|
|
329 |
|
|
|
8,982 |
|
|
|
8,230 |
|
|
|
1,039 |
|
|
|
768 |
|
All Other |
|
|
1,865 |
|
|
|
3,127 |
|
|
|
(216 |
) |
|
|
1,123 |
|
|
|
2,992 |
|
|
|
4,450 |
|
|
|
(1,432 |
) |
|
|
333 |
|
|
Total FTE basis |
|
|
13,483 |
|
|
|
29,450 |
|
|
|
(8,826 |
) |
|
|
3,123 |
|
|
|
40,578 |
|
|
|
61,740 |
|
|
|
(6,777 |
) |
|
|
6,305 |
|
FTE adjustment |
|
|
(247 |
) |
|
|
(297 |
) |
|
|
- |
|
|
|
- |
|
|
|
(465 |
) |
|
|
(618 |
) |
|
|
- |
|
|
|
- |
|
|
Total Consolidated |
|
$ |
13,236 |
|
|
$ |
29,153 |
|
|
$ |
(8,826 |
) |
|
$ |
3,123 |
|
|
$ |
40,113 |
|
|
$ |
61,122 |
|
|
$ |
(6,777 |
) |
|
$ |
6,305 |
|
|
(1) |
|
Total revenue is net of interest expense and is on a
FTE basis which is a non-GAAP measure. For more
information on this measure and for a corresponding
reconciliation to a GAAP financial measure, see
Supplemental Financial Data on page 19. |
Deposits net income decreased for the three and six months ended June 30, 2011 compared
to the same periods in the prior year due to a decline in revenue driven by lower noninterest
income, partially offset by higher net interest income. Noninterest income decreased due to the
impact of overdraft policy changes in conjunction with Regulation E, which became effective in the
third quarter of 2010. Net interest income was up slightly due to a customer shift to more liquid
products and continued pricing discipline.
Global Card Services net income increased for the three and six months ended June 30, 2011
compared
to the same periods in the prior year due primarily to a decrease in the provision for credit losses. Revenue decreased as a result of a
decline in net interest income from lower average loans and yields as well as lower noninterest
income. Provision for credit losses decreased reflecting improving economic conditions and
continued expectations of improving delinquency, collection and bankruptcy trends.
CRES net loss increased for the three and six months ended June 30, 2011
compared
to the same periods in the prior year
due to a decline in
revenue and increased noninterest expense. This was partially offset by a decline in provision for
credit losses. The decline in revenue was driven primarily by an increase in representations and
warranties provision, higher expected servicing costs and lower core
production income. Noninterest expense increased due to a non-cash goodwill impairment charge,
higher litigation expenses and mortgage-related assessments and waivers costs.
Global Commercial Banking net income increased for the three and six months ended June 30,
2011 compared to the same periods in the prior year largely due to a decrease in the provision for
credit losses from improved asset quality, particularly in the commercial real estate portfolio.
Revenue decreased primarily due to lower loan balances partially offset by earnings on higher
deposits. Noninterest income increased largely due to a gain on the termination of a purchase
contract.
GBAM net income increased for the three months ended June 30, 2011 compared to the same
period in the prior year reflecting higher investment banking fees and increased sales and trading
revenue. Net income decreased for the six months ended June 30, 2011 compared to the same period
in the prior year due to a less favorable trading environment compared to the first quarter of
2010 and higher noninterest expense driven by investments in infrastructure. This was partially
offset by higher investment banking fees as noted above for the three
months ended June 30, 2011.
GWIM net income increased for the three and six months ended June 30, 2011 compared to the
same periods in the prior year driven by higher revenue as well as lower credit costs, partially
offset by higher noninterest expense. Net income for the three months ended June 30, 2010
included the gain and the tax-related charge from the sale of the Columbia Management long-term asset
management business. Revenue increased driven by asset management fees as well as higher net
interest income due to strong deposit balance growth. The provision for credit losses decreased
driven by improving portfolio trends. Noninterest expense increased due to higher revenue-related
expenses and personnel costs associated with the continued build-out of the business.
11
All Other reported a net loss for the three and six months ended June 30, 2011 compared to
net income for the same periods in the prior year due to lower revenue and higher provision for
credit losses. Revenue decreased due primarily to a decline in equity investment income, including
an impairment write-down on our merchant services joint venture during the three months ended June
30, 2011, and lower fair value adjustments on structured liabilities. These items were partially
offset by an increase in gains on sales of debt securities. The increase in the provision for
credit losses was primarily attributable to reserve additions in the Countrywide PCI discontinued
real estate and residential mortgage loan portfolios due to the impact of further declines in home
prices. Also, merger and restructuring charges decreased as integration efforts with the Merrill
Lynch acquisition continue to progress as planned.
Financial Highlights
Net Interest Income
Net interest income on a FTE basis decreased $1.7 billion to $11.5 billion and $3.4
billion to $23.9 billion for the three and six months ended June 30, 2011 compared to the same
periods in 2010. The decrease was primarily due to lower consumer loan balances, a decrease in
consumer loan and asset and liability management (ALM) portfolio yields, a drop in long-term
interest rates negatively impacting hedge results and lower trading-related revenues. Partially
offsetting these items were benefits associated with ongoing reductions in long-term debt and
lower rates paid on deposits. The net interest yield on a FTE basis decreased 27 basis points
(bps) to 2.50 percent and 27 bps to 2.58 percent for the three and six months ended June 30, 2011
compared to the same periods in 2010 due to these same factors.
Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 4 |
Noninterest Income |
|
|
Three Months Ended
June 30 |
|
Six Months Ended
June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Card income |
|
$ |
1,967 |
|
|
$ |
2,023 |
|
|
$ |
3,795 |
|
|
$ |
3,999 |
|
Service charges |
|
|
2,012 |
|
|
|
2,576 |
|
|
|
4,044 |
|
|
|
5,142 |
|
Investment and brokerage services |
|
|
3,009 |
|
|
|
2,994 |
|
|
|
6,110 |
|
|
|
6,019 |
|
Investment banking income |
|
|
1,684 |
|
|
|
1,319 |
|
|
|
3,262 |
|
|
|
2,559 |
|
Equity investment income |
|
|
1,212 |
|
|
|
2,766 |
|
|
|
2,687 |
|
|
|
3,391 |
|
Trading account profits |
|
|
2,091 |
|
|
|
1,227 |
|
|
|
4,813 |
|
|
|
6,463 |
|
Mortgage banking income (loss) |
|
|
(13,196 |
) |
|
|
898 |
|
|
|
(12,566 |
) |
|
|
2,398 |
|
Insurance income |
|
|
400 |
|
|
|
678 |
|
|
|
1,013 |
|
|
|
1,393 |
|
Gains on sales of debt securities |
|
|
899 |
|
|
|
37 |
|
|
|
1,445 |
|
|
|
771 |
|
Other income |
|
|
1,957 |
|
|
|
1,861 |
|
|
|
2,218 |
|
|
|
3,065 |
|
Net impairment losses recognized in earnings on AFS debt securities |
|
|
(45 |
) |
|
|
(126 |
) |
|
|
(133 |
) |
|
|
(727 |
) |
|
Total noninterest income |
|
$ |
1,990 |
|
|
$ |
16,253 |
|
|
$ |
16,688 |
|
|
$ |
34,473 |
|
|
Noninterest income decreased $14.3 billion to $2.0 billion and $17.8 billion to $16.7
billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The
following highlights the significant changes.
|
|
|
Service charges decreased $564 million and $1.1 billion for the three and six months
ended June 30, 2011 largely due to the impact of overdraft policy changes in conjunction
with Regulation E, which became effective in the third quarter of 2010. |
|
|
|
|
Investment banking income increased $365 million and $703 million for the three and
six months ended June 30, 2011 reflecting strong performance in
advisory services and debt
and equity issuances. |
|
|
|
|
Equity investment income decreased $1.6 billion and $704 million for the three and six
months ended June 30, 2011. The three months ended June 30, 2011 included an $837 million
China Construction Bank (CCB) dividend, a $377 million pre-tax gain on the sale of our
investment in BlackRock, Inc. (BlackRock) and a $500 million impairment write-down on our
merchant services joint venture. The three months ended June 30, 2010 included net gains
of $751 million on sales of certain strategic investments and a $535 million dividend on
CCB. The six months ended June 30, 2011 included a $1.1 billion pre-tax gain related to
an initial public offering (IPO) of an equity investment which occurred in the first
quarter of 2011. |
12
|
|
|
Trading account profits increased $864 million for the three months ended June 30,
2011 and decreased $1.7 billion for the six-month period. The six-month decline reflects
a less favorable trading environment in the first quarter compared to record results in
the first quarter of 2010. |
|
|
|
|
Mortgage banking income decreased $14.1 billion and $15.0 billion for the three and
six months ended June 30, 2011 due to a $12.8 billion and $13.3 billion increase in the
representations and warranties provision and less favorable mortgage
servicing rights (MSR) results, net of hedges,
of $885 million and $1.1 billion as a result of higher servicing costs. |
|
|
|
|
Other income increased $96 million and decreased $847 million for the three and six
months ended June 30, 2011. For the six months ended June 30, 2011, the decrease was
primarily due to negative fair value adjustments on structured liabilities of $372
million compared to positive adjustments of $1.4 billion for the same period in 2010,
partially offset by the gain of $771 million on the sale of the lender-placed insurance
business of Balboa in the three months ended June 30, 2011. |
Provision for Credit Losses
The provision for credit losses decreased $4.9 billion to $3.3 billion and $10.8 billion
to $7.1 billion for the three and six months ended June 30, 2011 compared to the same periods in
2010. The provision for credit losses was $2.4 billion and $4.6 billion lower than net charge-offs
for the three and six months ended June 30, 2011 which is after an addition to reserves for the
PCI loan portfolio of $412 million and $2.0 billion. The reduction in the allowance
for credit losses in the three and six months ended June 30, 2011 was driven primarily by
improving delinquencies, collections and bankruptcies across the Global Card Services portfolios.
The provision for credit losses related to our consumer portfolio decreased $3.4 billion to
$3.8 billion and $7.7 billion to $7.7 billion for the three and six months ended June 30, 2011
compared to the same periods in 2010. The provision for credit losses related to our commercial
portfolio including the provision for unfunded lending commitments decreased $1.5 billion to a
benefit of $523 million and $3.1 billion to a benefit of $636 million for the three and six months
ended June 30, 2011 compared to the same periods in 2010.
Net charge-offs totaled $5.7 billion, or 2.44 percent and $11.7 billion, or 2.53 percent of
average loans and leases for the three and six months ended June 30, 2011 compared with $9.6
billion, or 3.98 percent and $20.4 billion, or 4.21 percent for the three and six months ended
June 30, 2010. The decrease in net charge-offs was primarily driven by improvements in general
economic conditions that resulted in fewer delinquencies, improved collection rates and lower
bankruptcy filings across the Global Card Services U.S. loan portfolio. For more information on
the provision for credit losses, see Provision for Credit Losses on page 107.
13
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 5 |
Noninterest Expense |
|
|
Three Months Ended
June 30 |
|
Six Months Ended
June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Personnel |
|
$ |
9,171 |
|
|
$ |
8,789 |
|
|
$ |
19,339 |
|
|
$ |
17,947 |
|
Occupancy |
|
|
1,245 |
|
|
|
1,182 |
|
|
|
2,434 |
|
|
|
2,354 |
|
Equipment |
|
|
593 |
|
|
|
613 |
|
|
|
1,199 |
|
|
|
1,226 |
|
Marketing |
|
|
560 |
|
|
|
495 |
|
|
|
1,124 |
|
|
|
982 |
|
Professional fees |
|
|
766 |
|
|
|
644 |
|
|
|
1,412 |
|
|
|
1,161 |
|
Amortization of intangibles |
|
|
382 |
|
|
|
439 |
|
|
|
767 |
|
|
|
885 |
|
Data processing |
|
|
643 |
|
|
|
632 |
|
|
|
1,338 |
|
|
|
1,280 |
|
Telecommunications |
|
|
391 |
|
|
|
359 |
|
|
|
762 |
|
|
|
689 |
|
Other general operating |
|
|
6,343 |
|
|
|
3,592 |
|
|
|
11,800 |
|
|
|
7,475 |
|
Goodwill impairment |
|
|
2,603 |
|
|
|
- |
|
|
|
2,603 |
|
|
|
- |
|
Merger and restructuring charges |
|
|
159 |
|
|
|
508 |
|
|
|
361 |
|
|
|
1,029 |
|
|
Total noninterest expense |
|
$ |
22,856 |
|
|
$ |
17,253 |
|
|
$ |
43,139 |
|
|
$ |
35,028 |
|
|
Noninterest expense increased $5.6 billion to $22.9 billion and $8.1 billion to $43.1
billion for the three and six months ended June 30, 2011 compared to the same periods in 2010. The
increases were driven by a $2.6 billion goodwill impairment charge in our mortgage business in the
three months ended June 30, 2011 and by increases in general operating expense of $2.8 billion and
$4.3 billion for the three and six months ended June 30, 2011 compared to the same periods in the
prior year. Other general operating expense includes mortgage-related assessments and waivers
costs of $716 million and $1.6 billion for the three and six months ended June 30, 2011.
Litigation expenses within other general operating expense increased to $2.3 billion and $3.2
billion for the three and six months ended June 30, 2011, of which $2.0 billion and $2.8 billion
were in our mortgage business. Additionally, an increase of $1.4 billion in personnel costs for
the year-to-date period contributed to the increase in noninterest expense as we continue to add
client-facing professionals in GWIM, expand our international capabilities in GBAM and increase
default-related staffing levels in the mortgage business.
Income Tax Expense
The
income tax benefit was $4.0 billion on a pre-tax loss of $12.9 billion for the three
months ended June 30, 2011 compared to an income tax expense of $672 million on pre-tax income of
$3.8 billion for the same period in 2010 and resulted in an
effective tax rate of a 31.4 percent benefit
on the loss compared to an effective tax rate of 17.7 percent in the prior year. The effective
tax rates for the three and six months ended June 30, 2011 excluding the $2.6 billion goodwill
impairment charge from pre-tax income were 39.4 percent and
44.3 percent benefit rates. The income tax benefit was
$3.3 billion on the pre-tax loss of $10.1 billion for the six months ended June 30, 2011 compared to
an income tax expense of $1.9 billion on pre-tax income of $8.2 billion for the same period in
2010 and resulted in an effective tax rate of a 32.9 percent
benefit on the loss compared to an
effective tax rate of 23.0 percent in the prior year.
The
effective tax benefit rates for the three and six months ended June 30, 2011 were higher than the
tax rates for the same periods in 2010 because the benefits for net tax preference items increased
the income tax benefit recorded on the pre-tax loss while the impact of such benefits was a
decrease in tax expense recorded on pre-tax income for the same periods in 2010.
On July 19, 2011, the U.K. 2011 Finance Bill was enacted which reduced the corporate income
tax rate to 26 percent beginning on April 1, 2011, and then to 25 percent effective April 1, 2012.
These rate reductions will favorably affect income tax expense on future U.K. earnings but also
will require us to remeasure our U.K. net deferred tax assets using the lower tax rates. We will
record a charge to income tax expense of approximately $800 million for this revaluation in the
three months ending September 30, 2011. If corporate income tax rates were to be reduced to 23
percent by 2014 as suggested in U.K. Treasury announcements and assuming no change in the deferred
tax asset balance, a charge to income tax expense of approximately $400 million for each one
percent reduction in the rate would result in each period of enactment.
In addition, it is possible that valuation allowance releases may affect the effective
income tax rate later this year.
14
Balance Sheet Overview
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 6 |
Selected Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
Average Balance |
|
|
June 30 |
|
December 31 |
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold and securities borrowed or
purchased under agreements to resell |
|
$ |
235,181 |
|
|
$ |
209,616 |
|
|
$ |
259,069 |
|
|
$ |
263,564 |
|
|
$ |
243,311 |
|
|
$ |
264,810 |
|
Trading account assets (1) |
|
|
196,939 |
|
|
|
194,671 |
|
|
|
186,760 |
|
|
|
213,927 |
|
|
|
203,806 |
|
|
|
214,233 |
|
Debt securities |
|
|
331,052 |
|
|
|
338,054 |
|
|
|
335,269 |
|
|
|
314,299 |
|
|
|
335,556 |
|
|
|
312,727 |
|
Loans and leases |
|
|
941,257 |
|
|
|
940,440 |
|
|
|
938,513 |
|
|
|
967,054 |
|
|
|
938,738 |
|
|
|
979,267 |
|
Allowance for loan and lease losses |
|
|
(37,312 |
) |
|
|
(41,885 |
) |
|
|
(38,755 |
) |
|
|
(46,740 |
) |
|
|
(39,752 |
) |
|
|
(47,413 |
) |
All other assets (1) |
|
|
594,202 |
|
|
|
624,013 |
|
|
|
658,254 |
|
|
|
782,328 |
|
|
|
657,167 |
|
|
|
781,835 |
|
|
Total assets |
|
$ |
2,261,319 |
|
|
$ |
2,264,909 |
|
|
$ |
2,339,110 |
|
|
$ |
2,494,432 |
|
|
$ |
2,338,826 |
|
|
$ |
2,505,459 |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,038,408 |
|
|
$ |
1,010,430 |
|
|
$ |
1,035,944 |
|
|
$ |
991,615 |
|
|
$ |
1,029,578 |
|
|
$ |
986,344 |
|
Federal funds purchased and securities loaned
or sold under agreements to repurchase |
|
|
239,521 |
|
|
|
245,359 |
|
|
|
276,673 |
|
|
|
383,558 |
|
|
|
291,461 |
|
|
|
399,729 |
|
Trading account liabilities |
|
|
74,989 |
|
|
|
71,985 |
|
|
|
96,108 |
|
|
|
100,021 |
|
|
|
90,044 |
|
|
|
95,105 |
|
Commercial paper and other short-term borrowings |
|
|
50,632 |
|
|
|
59,962 |
|
|
|
62,019 |
|
|
|
70,493 |
|
|
|
63,581 |
|
|
|
81,313 |
|
Long-term debt |
|
|
426,659 |
|
|
|
448,431 |
|
|
|
435,144 |
|
|
|
497,469 |
|
|
|
437,812 |
|
|
|
505,507 |
|
All other liabilities |
|
|
208,934 |
|
|
|
200,494 |
|
|
|
198,155 |
|
|
|
217,815 |
|
|
|
193,420 |
|
|
|
205,766 |
|
|
Total liabilities |
|
|
2,039,143 |
|
|
|
2,036,661 |
|
|
|
2,104,043 |
|
|
|
2,260,971 |
|
|
|
2,105,896 |
|
|
|
2,273,764 |
|
Shareholders equity |
|
|
222,176 |
|
|
|
228,248 |
|
|
|
235,067 |
|
|
|
233,461 |
|
|
|
232,930 |
|
|
|
231,695 |
|
|
Total liabilities and shareholders equity |
|
$ |
2,261,319 |
|
|
$ |
2,264,909 |
|
|
$ |
2,339,110 |
|
|
$ |
2,494,432 |
|
|
$ |
2,338,826 |
|
|
$ |
2,505,459 |
|
|
(1) |
|
For the three and six months ended June 30, 2011,
for average balance and yield calculation purposes, $40.4
billion and $20.3 billion of noninterest-earning equity trading securities were reclassified from trading
account assets to all other assets. Prior period
amounts are immaterial and have not been restated. |
Period-end balance sheet amounts may vary from average balance sheet amounts due to
liquidity and balance sheet management activities, primarily involving our portfolios of highly
liquid assets, that are designed to ensure the adequacy of capital while enhancing our ability to
manage liquidity requirements for the Corporation and our customers, and to position the balance
sheet in accordance with the Corporations risk appetite. The execution of these activities
requires the use of balance sheet and capital-related limits including spot, average and
risk-weighted asset limits, particularly in our trading businesses. One of our key metrics, Tier 1
leverage ratio, is calculated based on adjusted quarterly average total assets. Risk mitigation
activities that contributed to the decrease in average assets during the three and six months
ended June 30, 2011 included reduction of exposure within various types of low quality and
alternative investments, significant loan run-off and the exit of proprietary trading.
Assets
At June 30, 2011, total assets were $2.3 trillion, a decrease of $3.6 billion, or less
than one percent, from December 31, 2010.
Average total assets decreased $155.3 billion and $166.6 billion for the three and six months
ended June 30, 2011 compared to the same periods in 2010. Almost all line items decreased with the
most significant decrease in all other assets largely due to the sale of certain strategic
investments, reductions in MSR hedging activity and our goodwill balance as a result of impairment
charges recorded in 2010.
In the first half of 2011, we have taken certain actions to reduce risk-weighted assets,
including reducing certain capital markets risk exposures, selling assets, reducing our loan
run-off portfolio and exiting proprietary trading activities. For more information, see Capital
Management Regulatory Capital on page 64.
Liabilities and Shareholders Equity
At June 30, 2011, total liabilities were $2.0 trillion, an increase of $2.5 billion, or
less than one percent, from December 31, 2010.
Average total liabilities decreased $156.9 billion and $167.9 billion for the three and six
months ended June 30, 2011 compared to the same periods in 2010. The decreases were primarily
driven by reduced short-term borrowings and long-term debt, and the sale of First Republic Bank in
2010. These decreases were partially offset by deposit growth.
15
Shareholders equity decreased $6.1 billion to $222.2 billion at June 30, 2011 compared to
December 31, 2010. The decrease was driven primarily by the second quarter net loss.
Average shareholders equity increased $1.6 billion and $1.2 billion for the three and six
months ended June 30, 2011 compared to the same periods in 2010. The increases were due to an
increase in accumulated other comprehensive income (OCI) due in large part to net
unrealized gains on available-for-sale (AFS) securities. The charges that drove the net loss for
the three and six months ended June 30, 2011 were recorded at period end and accordingly had
minimal impact on average shareholders equity.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7 |
Selected Quarterly Financial Data |
|
|
2011 Quarters |
|
2010 Quarters |
(In millions, except per share information) |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
Income statement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
11,246 |
|
|
$ |
12,179 |
|
|
$ |
12,439 |
|
|
$ |
12,435 |
|
|
$ |
12,900 |
|
Noninterest income |
|
|
1,990 |
|
|
|
14,698 |
|
|
|
9,959 |
|
|
|
14,265 |
|
|
|
16,253 |
|
Total revenue, net of interest expense |
|
|
13,236 |
|
|
|
26,877 |
|
|
|
22,398 |
|
|
|
26,700 |
|
|
|
29,153 |
|
Provision for credit losses |
|
|
3,255 |
|
|
|
3,814 |
|
|
|
5,129 |
|
|
|
5,396 |
|
|
|
8,105 |
|
Goodwill impairment |
|
|
2,603 |
|
|
|
- |
|
|
|
2,000 |
|
|
|
10,400 |
|
|
|
- |
|
Merger and restructuring charges |
|
|
159 |
|
|
|
202 |
|
|
|
370 |
|
|
|
421 |
|
|
|
508 |
|
All other noninterest expense (1) |
|
|
20,094 |
|
|
|
20,081 |
|
|
|
18,494 |
|
|
|
16,395 |
|
|
|
16,745 |
|
Income (loss) before income taxes |
|
|
(12,875 |
) |
|
|
2,780 |
|
|
|
(3,595 |
) |
|
|
(5,912 |
) |
|
|
3,795 |
|
Income tax expense (benefit) |
|
|
(4,049 |
) |
|
|
731 |
|
|
|
(2,351 |
) |
|
|
1,387 |
|
|
|
672 |
|
Net income (loss) |
|
|
(8,826 |
) |
|
|
2,049 |
|
|
|
(1,244 |
) |
|
|
(7,299 |
) |
|
|
3,123 |
|
Net income (loss) applicable to common shareholders |
|
|
(9,127 |
) |
|
|
1,739 |
|
|
|
(1,565 |
) |
|
|
(7,647 |
) |
|
|
2,783 |
|
Average common shares issued and outstanding |
|
|
10,095 |
|
|
|
10,076 |
|
|
|
10,037 |
|
|
|
9,976 |
|
|
|
9,957 |
|
Average diluted common shares issued and outstanding |
|
|
10,095 |
|
|
|
10,181 |
|
|
|
10,037 |
|
|
|
9,976 |
|
|
|
10,030 |
|
|
Performance ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets |
|
|
n/m |
|
|
|
0.36 |
% |
|
|
n/m |
|
|
|
n/m |
|
|
|
0.50 |
% |
Four quarter trailing return on average assets (2) |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
0.20 |
|
Return on average common shareholders equity |
|
|
n/m |
|
|
|
3.29 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
5.18 |
|
Return on average tangible common shareholders equity (3) |
|
|
n/m |
|
|
|
5.28 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
9.19 |
|
Return on average tangible shareholders equity (3) |
|
|
n/m |
|
|
|
5.54 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
8.98 |
|
Total ending equity to total ending assets |
|
|
9.83 |
% |
|
|
10.15 |
|
|
|
10.08 |
% |
|
|
9.85 |
% |
|
|
9.85 |
|
Total average equity to total average assets |
|
|
10.05 |
|
|
|
9.87 |
|
|
|
9.94 |
|
|
|
9.83 |
|
|
|
9.36 |
|
Dividend payout |
|
|
n/m |
|
|
|
6.06 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
3.63 |
|
|
Per common share data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) |
|
$ |
(0.90 |
) |
|
$ |
0.17 |
|
|
$ |
(0.16 |
) |
|
$ |
(0.77 |
) |
|
$ |
0.28 |
|
Diluted earnings (loss) |
|
|
(0.90 |
) |
|
|
0.17 |
|
|
|
(0.16 |
) |
|
|
(0.77 |
) |
|
|
0.27 |
|
Dividends paid |
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
|
|
0.01 |
|
Book value |
|
|
20.29 |
|
|
|
21.15 |
|
|
|
20.99 |
|
|
|
21.17 |
|
|
|
21.45 |
|
Tangible book value (3) |
|
|
12.65 |
|
|
|
13.21 |
|
|
|
12.98 |
|
|
|
12.91 |
|
|
|
12.14 |
|
|
Market price per share of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing |
|
$ |
10.96 |
|
|
$ |
13.33 |
|
|
$ |
13.34 |
|
|
$ |
13.10 |
|
|
$ |
14.37 |
|
High closing |
|
|
13.72 |
|
|
|
15.25 |
|
|
|
13.56 |
|
|
|
15.67 |
|
|
|
19.48 |
|
Low closing |
|
|
10.50 |
|
|
|
13.33 |
|
|
|
10.95 |
|
|
|
12.32 |
|
|
|
14.37 |
|
|
Market capitalization |
|
$ |
111,060 |
|
|
$ |
135,057 |
|
|
$ |
134,536 |
|
|
$ |
131,442 |
|
|
$ |
144,174 |
|
|
Average balance sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
938,513 |
|
|
$ |
938,966 |
|
|
$ |
940,614 |
|
|
$ |
934,860 |
|
|
$ |
967,054 |
|
Total assets |
|
|
2,339,110 |
|
|
|
2,338,538 |
|
|
|
2,370,258 |
|
|
|
2,379,397 |
|
|
|
2,494,432 |
|
Total deposits |
|
|
1,035,944 |
|
|
|
1,023,140 |
|
|
|
1,007,738 |
|
|
|
973,846 |
|
|
|
991,615 |
|
Long-term debt |
|
|
435,144 |
|
|
|
440,511 |
|
|
|
465,875 |
|
|
|
485,588 |
|
|
|
497,469 |
|
Common shareholders equity |
|
|
218,505 |
|
|
|
214,206 |
|
|
|
218,728 |
|
|
|
215,911 |
|
|
|
215,468 |
|
Total shareholders equity |
|
|
235,067 |
|
|
|
230,769 |
|
|
|
235,525 |
|
|
|
233,978 |
|
|
|
233,461 |
|
|
Asset quality (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit losses (5) |
|
$ |
38,209 |
|
|
$ |
40,804 |
|
|
$ |
43,073 |
|
|
$ |
44,875 |
|
|
$ |
46,668 |
|
Nonperforming loans, leases and foreclosed properties (6) |
|
|
30,058 |
|
|
|
31,643 |
|
|
|
32,664 |
|
|
|
34,556 |
|
|
|
35,598 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (6) |
|
|
4.00 |
% |
|
|
4.29 |
% |
|
|
4.47 |
% |
|
|
4.69 |
% |
|
|
4.75 |
% |
Allowance for loan and lease losses as a percentage of total nonperforming
loans and leases (6) |
|
|
135 |
|
|
|
135 |
|
|
|
136 |
|
|
|
135 |
|
|
|
137 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans
and leases excluding the PCI loan portfolio (6) |
|
|
105 |
|
|
|
108 |
|
|
|
116 |
|
|
|
118 |
|
|
|
121 |
|
Amounts included in allowance that are excluded from nonperforming loans (7) |
|
$ |
19,935 |
|
|
$ |
22,110 |
|
|
$ |
22,908 |
|
|
$ |
23,661 |
|
|
$ |
24,338 |
|
Allowance as a percentage of total nonperforming loans and leases excluding the
amounts included in the allowance that are excluded from nonperforming loans (7) |
|
|
63 |
% |
|
|
60 |
% |
|
|
62 |
% |
|
|
62 |
% |
|
|
63 |
% |
Net charge-offs |
|
$ |
5,665 |
|
|
$ |
6,028 |
|
|
$ |
6,783 |
|
|
$ |
7,197 |
|
|
$ |
9,557 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (6) |
|
|
2.44 |
% |
|
|
2.61 |
% |
|
|
2.87 |
% |
|
|
3.07 |
% |
|
|
3.98 |
% |
Nonperforming loans and leases as a percentage of total loans and leases outstanding (6) |
|
|
2.96 |
|
|
|
3.19 |
|
|
|
3.27 |
|
|
|
3.47 |
|
|
|
3.48 |
|
Nonperforming loans, leases and foreclosed properties as a percentage of
total loans, leases and foreclosed properties (6) |
|
|
3.22 |
|
|
|
3.40 |
|
|
|
3.48 |
|
|
|
3.71 |
|
|
|
3.73 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs |
|
|
1.64 |
|
|
|
1.63 |
|
|
|
1.56 |
|
|
|
1.53 |
|
|
|
1.18 |
|
|
Capital ratios (period end) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-based capital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 common |
|
|
8.23 |
% |
|
|
8.64 |
% |
|
|
8.60 |
% |
|
|
8.45 |
% |
|
|
8.01 |
% |
Tier 1 |
|
|
11.00 |
|
|
|
11.32 |
|
|
|
11.24 |
|
|
|
11.16 |
|
|
|
10.67 |
|
Total |
|
|
15.65 |
|
|
|
15.98 |
|
|
|
15.77 |
|
|
|
15.65 |
|
|
|
14.77 |
|
Tier 1 leverage |
|
|
6.86 |
|
|
|
7.25 |
|
|
|
7.21 |
|
|
|
7.21 |
|
|
|
6.68 |
|
Tangible equity (3) |
|
|
6.63 |
|
|
|
6.85 |
|
|
|
6.75 |
|
|
|
6.54 |
|
|
|
6.14 |
|
Tangible common equity (3) |
|
|
5.87 |
|
|
|
6.10 |
|
|
|
5.99 |
|
|
|
5.74 |
|
|
|
5.35 |
|
|
(1) |
|
Excludes merger and restructuring charges and goodwill impairment charges. |
|
(2) |
|
Calculated as total net income for four consecutive quarters divided by average assets for the period. |
|
(3) |
|
Tangible equity ratios and tangible book value per share of common stock are non-GAAP measures. Other companies may define or calculate these measures differently. For additional
information on these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental Financial Data on page 19 and Table 9 on pages 20 and 21. |
|
(4) |
|
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer Portfolio Credit Risk Management on page 76 and Commercial Portfolio Credit Risk
Management on page 93. |
|
(5) |
|
Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments. |
|
(6) |
|
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
Nonperforming Consumer Loans and Foreclosed Properties Activity on page 90 and corresponding Table 42, and Nonperforming Commercial Loans, Leases and Foreclosed Properties
Activity on page 98 and corresponding Table 51. |
|
(7) |
|
Amounts included in allowance that are excluded from nonperforming loans primarily includes amounts allocated to Global Card Services portfolio and purchased credit-impaired loans. |
|
n/m = not meaningful |
17
|
|
|
|
|
|
|
|
|
Table 8 |
Selected Year-to-Date Financial Data |
|
|
Six Months Ended June 30 |
(In millions, except per share information) |
|
2011 |
|
2010 |
|
Income statement |
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
23,425 |
|
|
$ |
26,649 |
|
Noninterest income |
|
|
16,688 |
|
|
|
34,473 |
|
Total revenue, net of interest expense |
|
|
40,113 |
|
|
|
61,122 |
|
Provision for credit losses |
|
|
7,069 |
|
|
|
17,910 |
|
Goodwill impairment |
|
|
2,603 |
|
|
|
- |
|
Merger and restructuring charges |
|
|
361 |
|
|
|
1,029 |
|
All other noninterest expense (1) |
|
|
40,175 |
|
|
|
33,999 |
|
Income (loss) before income taxes |
|
|
(10,095 |
) |
|
|
8,184 |
|
Income tax expense (benefit) |
|
|
(3,318 |
) |
|
|
1,879 |
|
Net income (loss) |
|
|
(6,777 |
) |
|
|
6,305 |
|
Net income (loss) available to common shareholders |
|
|
(7,388 |
) |
|
|
5,617 |
|
Average common shares issued and outstanding |
|
|
10,085 |
|
|
|
9,570 |
|
Average diluted common shares issued and outstanding |
|
|
10,085 |
|
|
|
10,021 |
|
|
Performance ratios |
|
|
|
|
|
|
|
|
Return on average assets |
|
|
n/m |
|
|
|
0.51 |
% |
Return on average common shareholders equity |
|
|
n/m |
|
|
|
5.45 |
|
Return on average tangible common shareholders equity (2) |
|
|
n/m |
|
|
|
9.48 |
|
Return on average tangible shareholders equity (2) |
|
|
n/m |
|
|
|
9.26 |
|
Total ending equity to total ending assets |
|
|
9.83 |
% |
|
|
9.85 |
|
Total average equity to total average assets |
|
|
9.96 |
|
|
|
9.25 |
|
Dividend payout |
|
|
n/m |
|
|
|
3.60 |
|
|
Per common share data |
|
|
|
|
|
|
|
|
Earnings (loss) |
|
$ |
(0.73 |
) |
|
$ |
0.56 |
|
Diluted earnings (loss) |
|
|
(0.73 |
) |
|
|
0.55 |
|
Dividends paid |
|
|
0.02 |
|
|
|
0.02 |
|
Book value |
|
|
20.29 |
|
|
|
21.45 |
|
Tangible book value (2) |
|
|
12.65 |
|
|
|
12.14 |
|
|
Market price per share of common stock |
|
|
|
|
|
|
|
|
Closing |
|
$ |
10.96 |
|
|
$ |
14.37 |
|
High closing |
|
|
15.25 |
|
|
|
19.48 |
|
Low closing |
|
|
10.50 |
|
|
|
14.37 |
|
|
Market capitalization |
|
$ |
111,060 |
|
|
$ |
144,174 |
|
|
Average balance sheet |
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
938,738 |
|
|
$ |
979,267 |
|
Total assets |
|
|
2,338,826 |
|
|
|
2,505,459 |
|
Total deposits |
|
|
1,029,578 |
|
|
|
986,344 |
|
Long-term debt |
|
|
437,812 |
|
|
|
505,507 |
|
Common shareholders equity |
|
|
216,367 |
|
|
|
207,975 |
|
Total shareholders equity |
|
|
232,930 |
|
|
|
231,695 |
|
|
Asset quality (3) |
|
|
|
|
|
|
|
|
Allowance for credit losses (4) |
|
$ |
38,209 |
|
|
$ |
46,668 |
|
Nonperforming loans, leases and foreclosed properties (5) |
|
|
30,058 |
|
|
|
35,598 |
|
Allowance for loan and lease losses as a percentage of total loans and leases outstanding (5) |
|
|
4.00 |
% |
|
|
4.75 |
% |
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases (5) |
|
|
135 |
|
|
|
137 |
|
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases excluding the
PCI loan portfolio (5) |
|
|
105 |
|
|
|
121 |
|
Amounts included in allowance that are excluded from nonperforming loans (6) |
|
|
19,935 |
|
|
|
24,338 |
|
Allowance as a percentage of total nonperforming loans and leases excluding the
amounts included in the allowance that are excluded from nonperforming loans (6) |
|
|
63 |
% |
|
|
63 |
% |
Net charge-offs |
|
$ |
11,693 |
|
|
$ |
20,354 |
|
Annualized net charge-offs as a percentage of average loans and leases outstanding (5) |
|
|
2.53 |
% |
|
|
4.21 |
% |
Nonperforming loans and leases as a percentage of total loans and leases outstanding (5) |
|
|
2.96 |
|
|
|
3.48 |
|
Nonperforming loans, leases and foreclosed properties as a percentage of total loans, leases and foreclosed properties (5) |
|
|
3.22 |
|
|
|
3.73 |
|
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs |
|
|
1.58 |
|
|
|
1.10 |
|
|
(1) |
|
Excludes merger and restructuring charges and goodwill impairment charge. |
|
(2) |
|
Tangible equity ratios and tangible book value per share of common stock are non-GAAP measures.
Other companies may define or calculate these measures differently. For additional information on
these ratios and corresponding reconciliations to GAAP financial measures, see Supplemental
Financial Data on page 19 and Table 10 on page 22. |
|
(3) |
|
For more information on the impact of the PCI loan portfolio on asset quality, see Consumer
Portfolio Credit Risk Management on page 76 and Commercial Portfolio Credit Risk Management on
page 93. |
|
(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 on nonperforming loans, leases and foreclosed properties, see Nonperforming
Consumer Loans and Foreclosed Properties Activity on page 90 and corresponding Table 42 and
Nonperforming Commercial Loans, Leases and Foreclosed Properties
Activity on page 98 and corresponding Table
51. |
|
(6) |
|
Amounts included in allowance that are excluded from nonperforming loans primarily includes
amounts allocated to Global Card Services portfolio and purchased credit-impaired loans. |
|
n/m = not meaningful |
18
Supplemental Financial Data
We view net interest income and related ratios and analyses (i.e., efficiency ratio and
net interest yield) on a FTE basis. Although these are non-GAAP measures, we believe managing the
business with net interest income on a FTE basis provides a more accurate picture of the interest
margin for comparative purposes. 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. This measure ensures comparability of net interest income arising from taxable and
tax-exempt sources.
As mentioned above, certain performance measures including the efficiency ratio and net
interest yield utilize net interest income (and thus total revenue) on a FTE basis. The efficiency
ratio measures the costs expended to generate a dollar of revenue, and net interest yield
evaluates the bps we earn over the cost of funds. During our annual planning process, we set
efficiency targets for the Corporation and each line of business. We believe the use of these
non-GAAP measures provides additional clarity in assessing our results. Targets vary by year and
by business and are based on a variety of factors including maturity of the business, competitive
environment, market factors and other items including our risk appetite.
We also evaluate our business based on the following ratios that utilize tangible equity, a
non-GAAP measure. Return on average tangible common shareholders equity measures our earnings
contribution as a percentage of common shareholders equity plus any Common Equivalent Securities
(CES) less goodwill and intangible assets (excluding MSRs), net of related deferred tax
liabilities. Return on average tangible shareholders equity (ROTE) measures our earnings
contribution as a percentage of average shareholders equity less goodwill and intangible assets
(excluding MSRs), net of related deferred tax liabilities. The tangible common equity ratio
represents common shareholders equity plus any CES less goodwill and intangible assets (excluding
MSRs), net of related deferred tax liabilities divided by total assets less goodwill and
intangible assets (excluding MSRs), net of related deferred tax liabilities. The tangible equity
ratio represents total shareholders equity less goodwill and intangible assets (excluding MSRs),
net of related deferred tax liabilities divided by total assets less goodwill and intangible
assets (excluding MSRs), net of related deferred tax liabilities. Tangible book value per common
share represents ending common shareholders equity less goodwill and intangible assets (excluding
MSRs), net of related deferred tax liabilities divided by ending common shares outstanding. These
measures are used to evaluate our use of equity (i.e., capital). In addition, profitability,
relationship and investment models all use ROTE as key measures to support our overall growth
goals.
19
The aforementioned supplemental data and performance measures are presented in Tables 7 and
8. In addition, in Tables 9 and 10 we excluded the impact of goodwill impairment charges of $2.6
billion recorded in the second quarter of 2011, and $10.4 billion and $2.0 billion recorded in the
third and fourth quarters of 2010 when presenting earnings (loss) and diluted earnings (loss) per
common share, the efficiency ratio, return on average assets, four quarter trailing return on
average assets, return on average common shareholders equity, return on average tangible common
shareholders equity and ROTE. Accordingly, these are non-GAAP measures. Tables 9 and 10 provide
reconciliations of these non-GAAP measures with financial measures defined by GAAP. We believe the
use of these non-GAAP measures provides additional clarity in assessing the results of the
Corporation. Other companies may define or calculate these measures and ratios differently.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 9 |
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
|
|
2011
Quarters |
|
2010 Quarters |
(Dollars in millions, except per share information) |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
Fully taxable-equivalent basis data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
11,493 |
|
|
$ |
12,397 |
|
|
$ |
12,709 |
|
|
$ |
12,717 |
|
|
$ |
13,197 |
|
Total revenue, net of interest expense |
|
|
13,483 |
|
|
|
27,095 |
|
|
|
22,668 |
|
|
|
26,982 |
|
|
|
29,450 |
|
Net interest yield |
|
|
2.50 |
% |
|
|
2.67 |
% |
|
|
2.69 |
% |
|
|
2.72 |
% |
|
|
2.77 |
% |
Efficiency ratio |
|
|
n/m |
|
|
|
74.86 |
|
|
|
92.04 |
|
|
|
100.87 |
|
|
|
58.58 |
|
|
Performance ratios, excluding goodwill impairment charges
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) |
|
$ |
(0.65 |
) |
|
|
|
|
|
$ |
0.04 |
|
|
$ |
0.27 |
|
|
|
|
|
Diluted earnings (loss) |
|
|
(0.65 |
) |
|
|
|
|
|
|
0.04 |
|
|
|
0.27 |
|
|
|
|
|
Efficiency ratio |
|
|
n/m |
|
|
|
|
|
|
|
83.22 |
% |
|
|
62.33 |
% |
|
|
|
|
Return on average assets |
|
|
n/m |
|
|
|
|
|
|
|
0.13 |
|
|
|
0.52 |
|
|
|
|
|
Four quarter trailing return on average assets (2) |
|
|
n/m |
|
|
|
|
|
|
|
0.43 |
|
|
|
0.39 |
|
|
|
|
|
Return on average common shareholders equity |
|
|
n/m |
|
|
|
|
|
|
|
0.79 |
|
|
|
5.06 |
|
|
|
|
|
Return on average tangible common shareholders equity |
|
|
n/m |
|
|
|
|
|
|
|
1.27 |
|
|
|
8.67 |
|
|
|
|
|
Return on average tangible shareholders equity |
|
|
n/m |
|
|
|
|
|
|
|
1.96 |
|
|
|
8.54 |
|
|
|
|
|
|
(1) |
|
Performance ratios have been calculated excluding the impact of the goodwill impairment charges of
$2.6 billion recorded during the second quarter of 2011, and $2.0 billion and $10.4 billion recorded
during the fourth and third quarters of 2010, respectively. |
|
(2) |
|
Calculated as total net income for four consecutive quarters divided by average assets for the period. |
|
n/m = not meaningful |
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 9 |
Quarterly Supplemental Financial Data and Reconciliations to GAAP Financial Measures (continued) |
|
|
2011
Quarters |
|
2010 Quarters |
(Dollars in millions) |
|
Second |
|
First |
|
Fourth |
|
Third |
|
Second |
|
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
11,246 |
|
|
$ |
12,179 |
|
|
$ |
12,439 |
|
|
$ |
12,435 |
|
|
$ |
12,900 |
|
FTE adjustment |
|
|
247 |
|
|
|
218 |
|
|
|
270 |
|
|
|
282 |
|
|
|
297 |
|
|
Net interest income on a fully taxable-equivalent basis |
|
$ |
11,493 |
|
|
$ |
12,397 |
|
|
$ |
12,709 |
|
|
$ |
12,717 |
|
|
$ |
13,197 |
|
|
Reconciliation of total revenue, net of interest expense to total revenue, net of interest
expense on a fully taxable-equivalent basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
$ |
13,236 |
|
|
$ |
26,877 |
|
|
$ |
22,398 |
|
|
$ |
26,700 |
|
|
$ |
29,153 |
|
FTE adjustment |
|
|
247 |
|
|
|
218 |
|
|
|
270 |
|
|
|
282 |
|
|
|
297 |
|
|
Total revenue, net of interest expense on a fully taxable-equivalent basis |
|
$ |
13,483 |
|
|
$ |
27,095 |
|
|
$ |
22,668 |
|
|
$ |
26,982 |
|
|
$ |
29,450 |
|
|
Reconciliation of total noninterest expense to total noninterest expense, excluding
goodwill impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
22,856 |
|
|
$ |
20,283 |
|
|
$ |
20,864 |
|
|
$ |
27,216 |
|
|
$ |
17,253 |
|
Goodwill impairment charges |
|
|
(2,603 |
) |
|
|
- |
|
|
|
(2,000 |
) |
|
|
(10,400 |
) |
|
|
- |
|
|
Total noninterest expense, excluding goodwill impairment charges |
|
$ |
20,253 |
|
|
$ |
20,283 |
|
|
$ |
18,864 |
|
|
$ |
16,816 |
|
|
$ |
17,253 |
|
|
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully
taxable-equivalent basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
(4,049 |
) |
|
$ |
731 |
|
|
$ |
(2,351 |
) |
|
$ |
1,387 |
|
|
$ |
672 |
|
FTE adjustment |
|
|
247 |
|
|
|
218 |
|
|
|
270 |
|
|
|
282 |
|
|
|
297 |
|
|
Income tax expense (benefit) on a fully taxable-equivalent basis |
|
$ |
(3,802 |
) |
|
$ |
949 |
|
|
$ |
(2,081 |
) |
|
$ |
1,669 |
|
|
$ |
969 |
|
|
Reconciliation of net income (loss) to net income (loss), excluding goodwill
impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(8,826 |
) |
|
$ |
2,049 |
|
|
$ |
(1,244 |
) |
|
$ |
(7,299 |
) |
|
$ |
3,123 |
|
Goodwill impairment charges |
|
|
2,603 |
|
|
|
- |
|
|
|
2,000 |
|
|
|
10,400 |
|
|
|
- |
|
|
Net income (loss), excluding goodwill impairment charges |
|
$ |
(6,223 |
) |
|
$ |
2,049 |
|
|
$ |
756 |
|
|
$ |
3,101 |
|
|
$ |
3,123 |
|
|
Reconciliation of net income (loss) applicable to common shareholders to net income (loss)
applicable to common shareholders, excluding goodwill impairment charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shareholders |
|
$ |
(9,127 |
) |
|
$ |
1,739 |
|
|
$ |
(1,565 |
) |
|
$ |
(7,647 |
) |
|
$ |
2,783 |
|
Goodwill impairment charges |
|
|
2,603 |
|
|
|
- |
|
|
|
2,000 |
|
|
|
10,400 |
|
|
|
- |
|
|
Net income (loss) applicable to common shareholders, excluding goodwill
impairment charges |
|
$ |
(6,524 |
) |
|
$ |
1,739 |
|
|
$ |
435 |
|
|
$ |
2,753 |
|
|
$ |
2,783 |
|
|
Reconciliation of average common shareholders equity to average tangible common
shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
218,505 |
|
|
$ |
214,206 |
|
|
$ |
218,728 |
|
|
$ |
215,911 |
|
|
$ |
215,468 |
|
Goodwill |
|
|
(73,748 |
) |
|
|
(73,922 |
) |
|
|
(75,584 |
) |
|
|
(82,484 |
) |
|
|
(86,099 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,394 |
) |
|
|
(9,769 |
) |
|
|
(10,211 |
) |
|
|
(10,629 |
) |
|
|
(11,216 |
) |
Related deferred tax liabilities |
|
|
2,932 |
|
|
|
3,035 |
|
|
|
3,121 |
|
|
|
3,214 |
|
|
|
3,395 |
|
|
Tangible common shareholders equity |
|
$ |
138,295 |
|
|
$ |
133,550 |
|
|
$ |
136,054 |
|
|
$ |
126,012 |
|
|
$ |
121,548 |
|
|
Reconciliation of average shareholders equity to average tangible shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
235,067 |
|
|
$ |
230,769 |
|
|
$ |
235,525 |
|
|
$ |
233,978 |
|
|
$ |
233,461 |
|
Goodwill |
|
|
(73,748 |
) |
|
|
(73,922 |
) |
|
|
(75,584 |
) |
|
|
(82,484 |
) |
|
|
(86,099 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,394 |
) |
|
|
(9,769 |
) |
|
|
(10,211 |
) |
|
|
(10,629 |
) |
|
|
(11,216 |
) |
Related deferred tax liabilities |
|
|
2,932 |
|
|
|
3,035 |
|
|
|
3,121 |
|
|
|
3,214 |
|
|
|
3,395 |
|
|
Tangible shareholders equity |
|
$ |
154,857 |
|
|
$ |
150,113 |
|
|
$ |
152,851 |
|
|
$ |
144,079 |
|
|
$ |
139,541 |
|
|
Reconciliation of period end common shareholders equity to period end tangible
common shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
205,614 |
|
|
$ |
214,314 |
|
|
$ |
211,686 |
|
|
$ |
212,391 |
|
|
$ |
215,181 |
|
Goodwill |
|
|
(71,074 |
) |
|
|
(73,869 |
) |
|
|
(73,861 |
) |
|
|
(75,602 |
) |
|
|
(85,801 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,176 |
) |
|
|
(9,560 |
) |
|
|
(9,923 |
) |
|
|
(10,402 |
) |
|
|
(10,796 |
) |
Related deferred tax liabilities |
|
|
2,853 |
|
|
|
2,933 |
|
|
|
3,036 |
|
|
|
3,123 |
|
|
|
3,215 |
|
|
Tangible common shareholders equity |
|
$ |
128,217 |
|
|
$ |
133,818 |
|
|
$ |
130,938 |
|
|
$ |
129,510 |
|
|
$ |
121,799 |
|
|
Reconciliation of period end shareholders equity to period end tangible shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
222,176 |
|
|
$ |
230,876 |
|
|
$ |
228,248 |
|
|
$ |
230,495 |
|
|
$ |
233,174 |
|
Goodwill |
|
|
(71,074 |
) |
|
|
(73,869 |
) |
|
|
(73,861 |
) |
|
|
(75,602 |
) |
|
|
(85,801 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,176 |
) |
|
|
(9,560 |
) |
|
|
(9,923 |
) |
|
|
(10,402 |
) |
|
|
(10,796 |
) |
Related deferred tax liabilities |
|
|
2,853 |
|
|
|
2,933 |
|
|
|
3,036 |
|
|
|
3,123 |
|
|
|
3,215 |
|
|
Tangible shareholders equity |
|
$ |
144,779 |
|
|
$ |
150,380 |
|
|
$ |
147,500 |
|
|
$ |
147,614 |
|
|
$ |
139,792 |
|
|
Reconciliation of period end assets to period end tangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
2,261,319 |
|
|
$ |
2,274,532 |
|
|
$ |
2,264,909 |
|
|
$ |
2,339,660 |
|
|
$ |
2,368,384 |
|
Goodwill |
|
|
(71,074 |
) |
|
|
(73,869 |
) |
|
|
(73,861 |
) |
|
|
(75,602 |
) |
|
|
(85,801 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,176 |
) |
|
|
(9,560 |
) |
|
|
(9,923 |
) |
|
|
(10,402 |
) |
|
|
(10,796 |
) |
Related deferred tax liabilities |
|
|
2,853 |
|
|
|
2,933 |
|
|
|
3,036 |
|
|
|
3,123 |
|
|
|
3,215 |
|
|
Tangible assets |
|
$ |
2,183,922 |
|
|
$ |
2,194,036 |
|
|
$ |
2,184,161 |
|
|
$ |
2,256,779 |
|
|
$ |
2,275,002 |
|
|
21
|
|
|
|
|
|
|
|
|
Table 10 |
Year-to-Date Supplemental Financial Data and Reconciliations to GAAP Financial Measures |
|
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
Fully taxable-equivalent basis data |
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
23,890 |
|
|
$ |
27,267 |
|
Total revenue, net of interest expense |
|
|
40,578 |
|
|
|
61,740 |
|
Net interest yield |
|
|
2.58 |
% |
|
|
2.85 |
% |
Efficiency ratio |
|
|
n/m |
|
|
|
56.73 |
|
|
Performance ratios, excluding goodwill impairment charge (1) |
|
|
|
|
|
|
|
|
Per common share information |
|
|
|
|
|
|
|
|
Loss |
|
$ |
(0.48 |
) |
|
|
|
|
Diluted loss |
|
|
(0.48 |
) |
|
|
|
|
Efficiency ratio |
|
|
n/m |
|
|
|
|
|
Return on average assets |
|
|
n/m |
|
|
|
|
|
Return on average common shareholders equity |
|
|
n/m |
|
|
|
|
|
Return on average tangible common shareholders equity |
|
|
n/m |
|
|
|
|
|
Return on average tangible shareholders equity |
|
|
n/m |
|
|
|
|
|
|
Reconciliation of net interest income to net interest income on a fully taxable-equivalent basis |
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
23,425 |
|
|
$ |
26,649 |
|
FTE adjustment |
|
|
465 |
|
|
|
618 |
|
|
Net interest income on a fully taxable-equivalent basis |
|
$ |
23,890 |
|
|
$ |
27,267 |
|
|
Reconciliation of total revenue, net of interest expense to total revenue, net of interest expense
on a fully taxable-equivalent basis |
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
$ |
40,113 |
|
|
$ |
61,122 |
|
FTE adjustment |
|
|
465 |
|
|
|
618 |
|
|
Total revenue, net of interest expense on a fully taxable-equivalent basis |
|
$ |
40,578 |
|
|
$ |
61,740 |
|
|
Reconciliation of total noninterest expense to total noninterest expense, excluding
goodwill impairment charge |
|
|
|
|
|
|
|
|
Total noninterest expense |
|
$ |
43,139 |
|
|
$ |
35,028 |
|
Goodwill impairment charge |
|
|
(2,603 |
) |
|
|
- |
|
|
Total noninterest expense, excluding goodwill impairment charge |
|
$ |
40,536 |
|
|
$ |
35,028 |
|
|
Reconciliation of income tax expense (benefit) to income tax expense (benefit) on a fully
taxable-equivalent basis |
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
$ |
(3,318 |
) |
|
$ |
1,879 |
|
FTE adjustment |
|
|
465 |
|
|
|
618 |
|
|
Income tax expense (benefit) on a fully taxable-equivalent basis |
|
$ |
(2,853 |
) |
|
$ |
2,497 |
|
|
Reconciliation of net income (loss) to net income (loss), excluding goodwill impairment charge |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(6,777 |
) |
|
$ |
6,305 |
|
Goodwill impairment charge |
|
|
2,603 |
|
|
|
- |
|
|
Net income (loss), excluding goodwill impairment charge |
|
$ |
(4,174 |
) |
|
$ |
6,305 |
|
|
Reconciliation of net income (loss) applicable to common shareholders to net income (loss) applicable
to common shareholders, excluding goodwill impairment charge |
|
|
|
|
|
|
|
|
Net income (loss) applicable to common shareholders |
|
$ |
(7,388 |
) |
|
$ |
5,617 |
|
Goodwill impairment charge |
|
|
2,603 |
|
|
|
- |
|
|
Net income (loss) applicable to common shareholders, excluding goodwill impairment charge |
|
$ |
(4,785 |
) |
|
$ |
5,617 |
|
|
Reconciliation of average common shareholders equity to average tangible common
shareholders equity |
|
|
|
|
|
|
|
|
Common shareholders equity |
|
$ |
216,367 |
|
|
$ |
207,975 |
|
Common Equivalent Securities |
|
|
- |
|
|
|
5,848 |
|
Goodwill |
|
|
(73,834 |
) |
|
|
(86,225 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,580 |
) |
|
|
(11,559 |
) |
Related deferred tax liabilities |
|
|
2,983 |
|
|
|
3,446 |
|
|
Tangible common shareholders equity |
|
$ |
135,936 |
|
|
$ |
119,485 |
|
|
Reconciliation of average shareholders equity to average tangible shareholders equity |
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
232,930 |
|
|
$ |
231,695 |
|
Goodwill |
|
|
(73,834 |
) |
|
|
(86,225 |
) |
Intangible assets (excluding MSRs) |
|
|
(9,580 |
) |
|
|
(11,559 |
) |
Related deferred tax liabilities |
|
|
2,983 |
|
|
|
3,446 |
|
|
Tangible shareholders equity |
|
$ |
152,499 |
|
|
$ |
137,357 |
|
|
(1) |
|
Performance ratios have been calculated excluding the impact of the goodwill impairment charge of $2.6 billion recorded during the second quarter of 2011. |
|
n/m = not meaningful |
22
Core Net Interest Income
We manage core net interest income which is reported net interest income on a FTE basis
adjusted for the impact of market-based activities. As discussed in the GBAM business segment
section on page 42, we evaluate our market-based results and strategies on a total market-based
revenue approach by combining net interest income and noninterest income for GBAM. An analysis of
core net interest income, core average earning assets and core net interest yield on earning
assets, all of which adjust for the impact of market-based activities from reported net interest
income on a FTE basis, is shown below. We believe the use of this non-GAAP presentation provides
additional clarity in assessing our results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 11 |
Core Net Interest Income |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Net interest income (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
11,493 |
|
|
$ |
13,197 |
|
|
$ |
23,890 |
|
|
$ |
27,267 |
|
Impact of market-based net interest income (2) |
|
|
(914 |
) |
|
|
(1,049 |
) |
|
|
(1,965 |
) |
|
|
(2,235 |
) |
|
Core net interest income |
|
$ |
10,579 |
|
|
$ |
12,148 |
|
|
$ |
21,925 |
|
|
$ |
25,032 |
|
|
Average earning assets (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported |
|
$ |
1,844,525 |
|
|
$ |
1,910,790 |
|
|
$ |
1,857,124 |
|
|
$ |
1,921,864 |
|
Impact of market-based earning assets (2) |
|
|
(461,775 |
) |
|
|
(530,785 |
) |
|
|
(465,617 |
) |
|
|
(533,180 |
) |
|
Core average earning assets |
|
$ |
1,382,750 |
|
|
$ |
1,380,005 |
|
|
$ |
1,391,507 |
|
|
$ |
1,388,684 |
|
|
Net interest yield contribution (1, 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported (3) |
|
|
2.50 |
% |
|
|
2.77 |
% |
|
|
2.58 |
% |
|
|
2.85 |
% |
Impact of market-based activities (2) |
|
|
0.56 |
|
|
|
0.76 |
|
|
|
0.58 |
|
|
|
0.77 |
|
|
Core net interest yield on earning assets |
|
|
3.06 |
% |
|
|
3.53 |
% |
|
|
3.16 |
% |
|
|
3.62 |
% |
|
(1) |
|
FTE basis |
|
(2) |
|
Represents the impact of market-based amounts included in GBAM. |
|
(3) |
|
For the three and six months
ended June 30, 2011, for average balance and yield calculation
purposes, $40.4
billion and $20.3 billion of noninterest-earning equity trading securities were reclassified from trading account assets to
other non-earning assets. Prior period amounts are immaterial
and have not been restated. |
|
(4) |
|
Calculated on an annualized basis. |
For the three and six months ended June 30, 2011, core net interest income decreased
$1.6 billion to $10.6 billion and $3.1 billion to $21.9 billion compared to the same periods in
2010. The decrease was primarily due to lower consumer and commercial loan balances and yields,
partially offset by lower rates paid on deposits.
For the three and six months ended June 30, 2011, core net interest yield decreased 47 bps to
3.06 percent and 46 bps to 3.16 percent compared to the same periods in 2010 due to the factors
noted above.
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 12 |
Quarterly Average Balances and Interest Rates Fully Taxable-equivalent Basis |
|
|
Second Quarter 2011 |
|
|
First Quarter 2011 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits placed and other short-term investments (1) |
|
$ |
27,298 |
|
|
$ |
106 |
|
|
|
1.56 |
% |
|
$ |
31,294 |
|
|
$ |
88 |
|
|
|
1.14 |
% |
Federal funds sold and securities borrowed or purchased
under agreements to resell |
|
|
259,069 |
|
|
|
597 |
|
|
|
0.92 |
|
|
|
227,379 |
|
|
|
517 |
|
|
|
0.92 |
|
Trading account assets (2) |
|
|
186,760 |
|
|
|
1,576 |
|
|
|
3.38 |
|
|
|
221,041 |
|
|
|
1,669 |
|
|
|
3.05 |
|
Debt securities (3) |
|
|
335,269 |
|
|
|
2,696 |
|
|
|
3.22 |
|
|
|
335,847 |
|
|
|
2,917 |
|
|
|
3.49 |
|
Loans and leases (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (5) |
|
|
265,420 |
|
|
|
2,763 |
|
|
|
4.16 |
|
|
|
262,049 |
|
|
|
2,881 |
|
|
|
4.40 |
|
Home equity |
|
|
131,786 |
|
|
|
1,261 |
|
|
|
3.83 |
|
|
|
136,089 |
|
|
|
1,335 |
|
|
|
3.96 |
|
Discontinued real estate |
|
|
15,997 |
|
|
|
129 |
|
|
|
3.22 |
|
|
|
12,899 |
|
|
|
110 |
|
|
|
3.42 |
|
U.S. credit card |
|
|
106,164 |
|
|
|
2,718 |
|
|
|
10.27 |
|
|
|
109,941 |
|
|
|
2,837 |
|
|
|
10.47 |
|
Non-U.S. credit card |
|
|
27,259 |
|
|
|
760 |
|
|
|
11.18 |
|
|
|
27,633 |
|
|
|
779 |
|
|
|
11.43 |
|
Direct/Indirect consumer (6) |
|
|
89,403 |
|
|
|
945 |
|
|
|
4.24 |
|
|
|
90,097 |
|
|
|
993 |
|
|
|
4.47 |
|
Other consumer (7) |
|
|
2,745 |
|
|
|
47 |
|
|
|
6.87 |
|
|
|
2,753 |
|
|
|
45 |
|
|
|
6.58 |
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
638,774 |
|
|
|
8,623 |
|
|
|
5.41 |
|
|
|
641,461 |
|
|
|
8,980 |
|
|
|
5.65 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial |
|
|
190,479 |
|
|
|
1,827 |
|
|
|
3.85 |
|
|
|
191,353 |
|
|
|
1,926 |
|
|
|
4.08 |
|
Commercial real estate (8) |
|
|
45,762 |
|
|
|
382 |
|
|
|
3.35 |
|
|
|
48,359 |
|
|
|
437 |
|
|
|
3.66 |
|
Commercial lease financing |
|
|
21,284 |
|
|
|
235 |
|
|
|
4.41 |
|
|
|
21,634 |
|
|
|
322 |
|
|
|
5.95 |
|
Non-U.S. commercial |
|
|
42,214 |
|
|
|
339 |
|
|
|
3.22 |
|
|
|
36,159 |
|
|
|
299 |
|
|
|
3.35 |
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
299,739 |
|
|
|
2,783 |
|
|
|
3.72 |
|
|
|
297,505 |
|
|
|
2,984 |
|
|
|
4.06 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
938,513 |
|
|
|
11,406 |
|
|
|
4.87 |
|
|
|
938,966 |
|
|
|
11,964 |
|
|
|
5.14 |
|
|
|
|
|
|
|
|
|
|
|
|
Other earning assets |
|
|
97,616 |
|
|
|
866 |
|
|
|
3.56 |
|
|
|
115,336 |
|
|
|
922 |
|
|
|
3.24 |
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,844,525 |
|
|
|
17,247 |
|
|
|
3.75 |
|
|
|
1,869,863 |
|
|
|
18,077 |
|
|
|
3.92 |
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
|
115,956 |
|
|
|
49 |
|
|
|
|
|
|
|
138,241 |
|
|
|
63 |
|
|
|
|
|
Other assets, less allowance for loan and lease losses (2) |
|
|
378,629 |
|
|
|
|
|
|
|
|
|
|
|
330,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,339,110 |
|
|
|
|
|
|
|
|
|
|
$ |
2,338,538 |
|
|
|
|
|
|
|
|
|
|
(1) |
|
For this presentation, fees earned on overnight deposits placed with the Federal Reserve are included in the cash and cash equivalents line, consistent with the
Corporations Consolidated Balance Sheet presentation of these deposits. Net interest income and net interest yield are calculated excluding these fees. |
|
(2) |
|
For the second quarter of
2011, $40.4 billion of noninterest-earning equity trading securities were reclassified from trading account assets to other assets. Prior period
amounts are immaterial and have not been restated. |
|
(3) |
|
Yields on AFS debt securities are calculated based on fair value rather than the cost basis. The use of fair value does not have a material impact on net interest yield. |
|
(4) |
|
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. PCI loans were recorded at
fair value upon acquisition and accrete interest income over the remaining life of the loan. |
|
(5) |
|
Includes non-U.S. residential mortgage loans of $94 million and $92 million in the second and first quarters of 2011, and $96 million, $502 million and $506 million in
the fourth, third and second quarters of 2010, respectively. |
|
(6) |
|
Includes non-U.S. consumer loans of $8.7 billion and $8.2 billion in the second and first quarters of 2011, and $7.9 billion, $7.7 billion and $7.7 billion in the
fourth, third and second quarters of 2010, respectively. |
|
(7) |
|
Includes consumer finance loans of $1.8 billion and $1.9 billion in the second and first quarters of 2011, and $2.0 billion, $2.0 billion and $2.1 billion in the
fourth, third and second quarters of 2010, respectively; other non-U.S. consumer loans of $840 million and $777 million in the second and first quarters of 2011, and
$791 million, $788 million and $679 million in the fourth, third and second quarters of 2010, respectively; and consumer overdrafts of $79 million and $76 million in
the second and first quarters of 2011, and $34 million, $123 million and $155 million in the fourth, third and second quarters of 2010, respectively. |
|
(8) |
|
Includes U.S. commercial real estate loans of $43.4 billion and $45.7 billion in the second and first quarters of 2011, and $49.0 billion, $53.1 billion and $61.6
billion in the fourth, third and second quarters of 2010, respectively; and non-U.S. commercial real estate loans of $2.4 billion and $2.7 billion in the second and
first quarters of 2011, and $2.6 billion, $2.5 billion and $2.6 billion in the fourth, third and second quarters of 2010, respectively. |
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Average Balances and Interest Rates Fully Taxable-equivalent Basis (continued) |
|
|
Fourth Quarter 2010 |
|
|
Third Quarter 2010 |
|
|
Second Quarter 2010 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits placed and other
short-term investments (1) |
|
$ |
28,141 |
|
|
$ |
75 |
|
|
|
1.07 |
% |
|
$ |
23,233 |
|
|
$ |
86 |
|
|
|
1.45 |
% |
|
$ |
30,741 |
|
|
$ |
70 |
|
|
|
0.93 |
% |
Federal funds sold and securities borrowed
or purchased under agreements to resell |
|
|
243,589 |
|
|
|
486 |
|
|
|
0.79 |
|
|
|
254,820 |
|
|
|
441 |
|
|
|
0.69 |
|
|
|
263,564 |
|
|
|
457 |
|
|
|
0.70 |
|
Trading account assets |
|
|
216,003 |
|
|
|
1,710 |
|
|
|
3.15 |
|
|
|
210,529 |
|
|
|
1,692 |
|
|
|
3.20 |
|
|
|
213,927 |
|
|
|
1,853 |
|
|
|
3.47 |
|
Debt securities (3) |
|
|
341,867 |
|
|
|
3,065 |
|
|
|
3.58 |
|
|
|
328,097 |
|
|
|
2,646 |
|
|
|
3.22 |
|
|
|
314,299 |
|
|
|
2,966 |
|
|
|
3.78 |
|
Loans and leases (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (5) |
|
|
254,051 |
|
|
|
2,857 |
|
|
|
4.50 |
|
|
|
237,292 |
|
|
|
2,797 |
|
|
|
4.71 |
|
|
|
247,715 |
|
|
|
2,982 |
|
|
|
4.82 |
|
Home equity |
|
|
139,772 |
|
|
|
1,410 |
|
|
|
4.01 |
|
|
|
143,083 |
|
|
|
1,457 |
|
|
|
4.05 |
|
|
|
148,219 |
|
|
|
1,537 |
|
|
|
4.15 |
|
Discontinued real estate |
|
|
13,297 |
|
|
|
118 |
|
|
|
3.57 |
|
|
|
13,632 |
|
|
|
122 |
|
|
|
3.56 |
|
|
|
13,972 |
|
|
|
134 |
|
|
|
3.84 |
|
U.S. credit card |
|
|
112,673 |
|
|
|
3,040 |
|
|
|
10.70 |
|
|
|
115,251 |
|
|
|
3,113 |
|
|
|
10.72 |
|
|
|
118,738 |
|
|
|
3,121 |
|
|
|
10.54 |
|
Non-U.S. credit card |
|
|
27,457 |
|
|
|
815 |
|
|
|
11.77 |
|
|
|
27,047 |
|
|
|
875 |
|
|
|
12.84 |
|
|
|
27,706 |
|
|
|
854 |
|
|
|
12.37 |
|
Direct/Indirect consumer (6) |
|
|
91,549 |
|
|
|
1,088 |
|
|
|
4.72 |
|
|
|
95,692 |
|
|
|
1,130 |
|
|
|
4.68 |
|
|
|
98,549 |
|
|
|
1,233 |
|
|
|
5.02 |
|
Other consumer (7) |
|
|
2,796 |
|
|
|
45 |
|
|
|
6.32 |
|
|
|
2,955 |
|
|
|
47 |
|
|
|
6.35 |
|
|
|
2,958 |
|
|
|
46 |
|
|
|
6.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
641,595 |
|
|
|
9,373 |
|
|
|
5.81 |
|
|
|
634,952 |
|
|
|
9,541 |
|
|
|
5.98 |
|
|
|
657,857 |
|
|
|
9,907 |
|
|
|
6.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial |
|
|
193,608 |
|
|
|
1,894 |
|
|
|
3.88 |
|
|
|
192,306 |
|
|
|
2,040 |
|
|
|
4.21 |
|
|
|
195,144 |
|
|
|
2,005 |
|
|
|
4.12 |
|
Commercial real estate (8) |
|
|
51,617 |
|
|
|
432 |
|
|
|
3.32 |
|
|
|
55,660 |
|
|
|
452 |
|
|
|
3.22 |
|
|
|
64,218 |
|
|
|
541 |
|
|
|
3.38 |
|
Commercial lease financing |
|
|
21,363 |
|
|
|
250 |
|
|
|
4.69 |
|
|
|
21,402 |
|
|
|
255 |
|
|
|
4.78 |
|
|
|
21,271 |
|
|
|
261 |
|
|
|
4.90 |
|
Non-U.S. commercial |
|
|
32,431 |
|
|
|
289 |
|
|
|
3.53 |
|
|
|
30,540 |
|
|
|
282 |
|
|
|
3.67 |
|
|
|
28,564 |
|
|
|
256 |
|
|
|
3.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
299,019 |
|
|
|
2,865 |
|
|
|
3.81 |
|
|
|
299,908 |
|
|
|
3,029 |
|
|
|
4.01 |
|
|
|
309,197 |
|
|
|
3,063 |
|
|
|
3.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
940,614 |
|
|
|
12,238 |
|
|
|
5.18 |
|
|
|
934,860 |
|
|
|
12,570 |
|
|
|
5.35 |
|
|
|
967,054 |
|
|
|
12,970 |
|
|
|
5.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other earning assets |
|
|
113,325 |
|
|
|
923 |
|
|
|
3.23 |
|
|
|
112,280 |
|
|
|
949 |
|
|
|
3.36 |
|
|
|
121,205 |
|
|
|
994 |
|
|
|
3.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,883,539 |
|
|
|
18,497 |
|
|
|
3.90 |
|
|
|
1,863,819 |
|
|
|
18,384 |
|
|
|
3.93 |
|
|
|
1,910,790 |
|
|
|
19,310 |
|
|
|
4.05 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
|
136,967 |
|
|
|
63 |
|
|
|
|
|
|
|
155,784 |
|
|
|
107 |
|
|
|
|
|
|
|
209,686 |
|
|
|
106 |
|
|
|
|
|
Other assets, less allowance for loan and
lease losses |
|
|
349,752 |
|
|
|
|
|
|
|
|
|
|
|
359,794 |
|
|
|
|
|
|
|
|
|
|
|
373,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,370,258 |
|
|
|
|
|
|
|
|
|
|
$ |
2,379,397 |
|
|
|
|
|
|
|
|
|
|
$ |
2,494,432 |
|
|
|
|
|
|
|
|
|
|
For footnotes see page 24.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Average Balances and Interest Rates Fully Taxable-equivalent Basis (continued) |
|
|
Second Quarter 2011 |
|
|
First Quarter 2011 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
41,668 |
|
|
$ |
31 |
|
|
|
0.30 |
% |
|
$ |
38,905 |
|
|
$ |
32 |
|
|
|
0.34 |
% |
NOW and money market deposit accounts |
|
|
478,690 |
|
|
|
304 |
|
|
|
0.25 |
|
|
|
475,954 |
|
|
|
316 |
|
|
|
0.27 |
|
Consumer CDs and IRAs |
|
|
113,728 |
|
|
|
281 |
|
|
|
0.99 |
|
|
|
118,306 |
|
|
|
300 |
|
|
|
1.03 |
|
Negotiable CDs, public funds and other time deposits |
|
|
13,842 |
|
|
|
42 |
|
|
|
1.22 |
|
|
|
13,995 |
|
|
|
39 |
|
|
|
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. interest-bearing deposits |
|
|
647,928 |
|
|
|
658 |
|
|
|
0.41 |
|
|
|
647,160 |
|
|
|
687 |
|
|
|
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks located in non-U.S. countries |
|
|
19,234 |
|
|
|
37 |
|
|
|
0.77 |
|
|
|
21,534 |
|
|
|
38 |
|
|
|
0.72 |
|
Governments and official institutions |
|
|
2,131 |
|
|
|
2 |
|
|
|
0.38 |
|
|
|
2,307 |
|
|
|
2 |
|
|
|
0.35 |
|
Time, savings and other |
|
|
64,889 |
|
|
|
146 |
|
|
|
0.90 |
|
|
|
60,432 |
|
|
|
112 |
|
|
|
0.76 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. interest-bearing deposits |
|
|
86,254 |
|
|
|
185 |
|
|
|
0.86 |
|
|
|
84,273 |
|
|
|
152 |
|
|
|
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
734,182 |
|
|
|
843 |
|
|
|
0.46 |
|
|
|
731,433 |
|
|
|
839 |
|
|
|
0.46 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased, securities loaned or sold under
agreements to repurchase and other short-term borrowings |
|
|
338,692 |
|
|
|
1,342 |
|
|
|
1.59 |
|
|
|
371,573 |
|
|
|
1,184 |
|
|
|
1.29 |
|
Trading account liabilities |
|
|
96,108 |
|
|
|
627 |
|
|
|
2.62 |
|
|
|
83,914 |
|
|
|
627 |
|
|
|
3.03 |
|
Long-term debt |
|
|
435,144 |
|
|
|
2,991 |
|
|
|
2.75 |
|
|
|
440,511 |
|
|
|
3,093 |
|
|
|
2.84 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,604,126 |
|
|
|
5,803 |
|
|
|
1.45 |
|
|
|
1,627,431 |
|
|
|
5,743 |
|
|
|
1.43 |
|
|
|
|
|
|
Noninterest-bearing sources: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
301,762 |
|
|
|
|
|
|
|
|
|
|
|
291,707 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
198,155 |
|
|
|
|
|
|
|
|
|
|
|
188,631 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
235,067 |
|
|
|
|
|
|
|
|
|
|
|
230,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,339,110 |
|
|
|
|
|
|
|
|
|
|
$ |
2,338,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.30 |
% |
|
|
|
|
|
|
|
|
|
|
2.49 |
% |
Impact of noninterest-bearing sources |
|
|
|
|
|
|
|
|
|
|
0.19 |
|
|
|
|
|
|
|
|
|
|
|
0.17 |
|
|
|
|
|
|
Net interest income/yield on earning assets (1) |
|
|
|
|
|
$ |
11,444 |
|
|
|
2.49 |
% |
|
|
|
|
|
$ |
12,334 |
|
|
|
2.66 |
% |
|
For footnotes see page 24.
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Average Balances and Interest Rates |
Fully Taxable-equivalent Basis (continued) |
|
|
|
Fourth Quarter 2010 |
|
|
Third Quarter 2010 |
|
|
Second Quarter 2010 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
37,145 |
|
|
$ |
35 |
|
|
|
0.36 |
% |
|
$ |
37,008 |
|
|
$ |
36 |
|
|
|
0.39 |
% |
|
$ |
37,290 |
|
|
$ |
43 |
|
|
|
0.46 |
% |
NOW and money market deposit accounts |
|
|
464,531 |
|
|
|
333 |
|
|
|
0.28 |
|
|
|
442,906 |
|
|
|
359 |
|
|
|
0.32 |
|
|
|
442,262 |
|
|
|
372 |
|
|
|
0.34 |
|
Consumer CDs and IRAs |
|
|
124,855 |
|
|
|
338 |
|
|
|
1.07 |
|
|
|
132,687 |
|
|
|
377 |
|
|
|
1.13 |
|
|
|
147,425 |
|
|
|
441 |
|
|
|
1.20 |
|
Negotiable CDs, public funds and other time deposits |
|
|
16,334 |
|
|
|
47 |
|
|
|
1.16 |
|
|
|
17,326 |
|
|
|
57 |
|
|
|
1.30 |
|
|
|
17,355 |
|
|
|
59 |
|
|
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. interest-bearing deposits |
|
|
642,865 |
|
|
|
753 |
|
|
|
0.46 |
|
|
|
629,927 |
|
|
|
829 |
|
|
|
0.52 |
|
|
|
644,332 |
|
|
|
915 |
|
|
|
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks located in non-U.S. countries |
|
|
16,827 |
|
|
|
38 |
|
|
|
0.91 |
|
|
|
17,431 |
|
|
|
38 |
|
|
|
0.86 |
|
|
|
19,751 |
|
|
|
36 |
|
|
|
0.72 |
|
Governments and official institutions |
|
|
1,560 |
|
|
|
2 |
|
|
|
0.42 |
|
|
|
2,055 |
|
|
|
2 |
|
|
|
0.36 |
|
|
|
4,214 |
|
|
|
3 |
|
|
|
0.28 |
|
Time, savings and other |
|
|
58,746 |
|
|
|
101 |
|
|
|
0.69 |
|
|
|
54,373 |
|
|
|
81 |
|
|
|
0.59 |
|
|
|
52,195 |
|
|
|
77 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. interest-bearing deposits |
|
|
77,133 |
|
|
|
141 |
|
|
|
0.73 |
|
|
|
73,859 |
|
|
|
121 |
|
|
|
0.65 |
|
|
|
76,160 |
|
|
|
116 |
|
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
719,998 |
|
|
|
894 |
|
|
|
0.49 |
|
|
|
703,786 |
|
|
|
950 |
|
|
|
0.54 |
|
|
|
720,492 |
|
|
|
1,031 |
|
|
|
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
funds purchased, securities loaned or sold under agreements to repurchase and other short-term borrowings |
|
|
369,738 |
|
|
|
1,142 |
|
|
|
1.23 |
|
|
|
391,148 |
|
|
|
848 |
|
|
|
0.86 |
|
|
|
454,051 |
|
|
|
891 |
|
|
|
0.79 |
|
Trading account liabilities |
|
|
81,313 |
|
|
|
561 |
|
|
|
2.74 |
|
|
|
95,265 |
|
|
|
635 |
|
|
|
2.65 |
|
|
|
100,021 |
|
|
|
715 |
|
|
|
2.87 |
|
Long-term debt |
|
|
465,875 |
|
|
|
3,254 |
|
|
|
2.78 |
|
|
|
485,588 |
|
|
|
3,341 |
|
|
|
2.74 |
|
|
|
497,469 |
|
|
|
3,582 |
|
|
|
2.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,636,924 |
|
|
|
5,851 |
|
|
|
1.42 |
|
|
|
1,675,787 |
|
|
|
5,774 |
|
|
|
1.37 |
|
|
|
1,772,033 |
|
|
|
6,219 |
|
|
|
1.41 |
|
|
|
|
|
|
|
Noninterest-bearing sources: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
287,740 |
|
|
|
|
|
|
|
|
|
|
|
270,060 |
|
|
|
|
|
|
|
|
|
|
|
271,123 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
210,069 |
|
|
|
|
|
|
|
|
|
|
|
199,572 |
|
|
|
|
|
|
|
|
|
|
|
217,815 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
235,525 |
|
|
|
|
|
|
|
|
|
|
|
233,978 |
|
|
|
|
|
|
|
|
|
|
|
233,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,370,258 |
|
|
|
|
|
|
|
|
|
|
$ |
2,379,397 |
|
|
|
|
|
|
|
|
|
|
$ |
2,494,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.48 |
% |
|
|
|
|
|
|
|
|
|
|
2.56 |
% |
|
|
|
|
|
|
|
|
|
|
2.64 |
% |
Impact of noninterest-bearing sources |
|
|
|
|
|
|
|
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
0.13 |
|
|
|
|
|
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
Net interest income/yield on earning assets (1) |
|
|
|
|
|
$ |
12,646 |
|
|
|
2.66 |
% |
|
|
|
|
|
$ |
12,610 |
|
|
|
2.69 |
% |
|
|
|
|
|
$ |
13,091 |
|
|
|
2.74 |
% |
|
For footnotes see page 24.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 13 |
Year-to-Date Average Balances and Interest Rates Fully Taxable-equivalent Basis |
|
|
Six Months Ended June 30 |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits placed and other short-term investments (1) |
|
$ |
29,285 |
|
|
$ |
194 |
|
|
|
1.34 |
% |
|
$ |
29,179 |
|
|
$ |
130 |
|
|
|
0.90 |
% |
Federal funds sold and securities borrowed or purchased under
agreements to resell |
|
|
243,311 |
|
|
|
1,114 |
|
|
|
0.92 |
|
|
|
264,810 |
|
|
|
905 |
|
|
|
0.69 |
|
Trading account assets (2) |
|
|
203,806 |
|
|
|
3,245 |
|
|
|
3.21 |
|
|
|
214,233 |
|
|
|
3,648 |
|
|
|
3.42 |
|
Debt securities (3) |
|
|
335,556 |
|
|
|
5,613 |
|
|
|
3.35 |
|
|
|
312,727 |
|
|
|
6,139 |
|
|
|
3.93 |
|
Loans and leases (4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage (5) |
|
|
263,744 |
|
|
|
5,644 |
|
|
|
4.28 |
|
|
|
245,785 |
|
|
|
6,082 |
|
|
|
4.95 |
|
Home equity |
|
|
133,926 |
|
|
|
2,596 |
|
|
|
3.90 |
|
|
|
150,365 |
|
|
|
3,123 |
|
|
|
4.18 |
|
Discontinued real estate |
|
|
14,457 |
|
|
|
239 |
|
|
|
3.31 |
|
|
|
14,201 |
|
|
|
287 |
|
|
|
4.05 |
|
U.S. Credit card |
|
|
108,042 |
|
|
|
5,555 |
|
|
|
10.37 |
|
|
|
122,027 |
|
|
|
6,491 |
|
|
|
10.73 |
|
Non-U.S. credit card |
|
|
27,445 |
|
|
|
1,539 |
|
|
|
11.31 |
|
|
|
28,783 |
|
|
|
1,760 |
|
|
|
12.33 |
|
Direct/Indirect consumer (6) |
|
|
89,748 |
|
|
|
1,938 |
|
|
|
4.36 |
|
|
|
99,728 |
|
|
|
2,535 |
|
|
|
5.13 |
|
Other consumer (7) |
|
|
2,748 |
|
|
|
92 |
|
|
|
6.75 |
|
|
|
2,981 |
|
|
|
94 |
|
|
|
6.34 |
|
|
|
|
|
|
|
|
|
|
|
|
Total consumer |
|
|
640,110 |
|
|
|
17,603 |
|
|
|
5.53 |
|
|
|
663,870 |
|
|
|
20,372 |
|
|
|
6.17 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. commercial |
|
|
190,914 |
|
|
|
3,753 |
|
|
|
3.96 |
|
|
|
198,882 |
|
|
|
3,975 |
|
|
|
4.03 |
|
Commercial real estate (8) |
|
|
47,053 |
|
|
|
819 |
|
|
|
3.51 |
|
|
|
66,361 |
|
|
|
1,116 |
|
|
|
3.39 |
|
Commercial lease financing |
|
|
21,458 |
|
|
|
557 |
|
|
|
5.18 |
|
|
|
21,472 |
|
|
|
565 |
|
|
|
5.26 |
|
Non-U.S. commercial |
|
|
39,203 |
|
|
|
638 |
|
|
|
3.28 |
|
|
|
28,682 |
|
|
|
520 |
|
|
|
3.65 |
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial |
|
|
298,628 |
|
|
|
5,767 |
|
|
|
3.89 |
|
|
|
315,397 |
|
|
|
6,176 |
|
|
|
3.94 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
938,738 |
|
|
|
23,370 |
|
|
|
5.01 |
|
|
|
979,267 |
|
|
|
26,548 |
|
|
|
5.45 |
|
|
|
|
|
|
|
|
|
|
|
|
Other earning assets |
|
|
106,428 |
|
|
|
1,788 |
|
|
|
3.39 |
|
|
|
121,648 |
|
|
|
2,047 |
|
|
|
3.39 |
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,857,124 |
|
|
|
35,324 |
|
|
|
3.84 |
|
|
|
1,921,864 |
|
|
|
39,417 |
|
|
|
4.14 |
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
|
127,037 |
|
|
|
112 |
|
|
|
|
|
|
|
203,334 |
|
|
|
198 |
|
|
|
|
|
Other assets, less allowance for loan and lease losses (2) |
|
|
354,665 |
|
|
|
|
|
|
|
|
|
|
|
380,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,338,826 |
|
|
|
|
|
|
|
|
|
|
$ |
2,505,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fees earned on overnight deposits placed with the Federal Reserve, which were included in the time deposits placed and other short-term investments line in prior
periods, have been reclassified in this table to cash and cash equivalents, consistent with the balance sheet presentation of these deposits. Net interest income and
net interest yield are calculated excluding these fees. |
|
(2) |
|
For the six months ended June 30, 2011,
$20.3 billion of noninterest-earning equity trading securities were reclassified from trading account assets to other assets. Prior
period amounts are immaterial and have not been restated. |
|
(3) |
|
Yields on AFS debt securities are calculated based on fair value rather than the cost basis. The use of fair value does not have a material impact on net interest yield. |
|
(4) |
|
Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. Purchased credit-impaired
loans were recorded at fair value upon acquisition and accrete interest income over the remaining life of the loan. |
|
(5) |
|
Includes non-U.S. residential mortgages of $93 million and $522 million for the six months ended June 30, 2011 and 2010. |
|
(6) |
|
Includes non-U.S. consumer loans of $8.4 billion and $7.9 billion for the six months ended June 30, 2011 and 2010. |
|
(7) |
|
Includes consumer finance loans of $1.9 billion and $2.2 billion, and other non-U.S. consumer loans of $809 million and $671 million, and consumer overdrafts of $78
million and $144 million for the six months ended June 30, 2011 and 2010. |
|
(8) |
|
Includes U.S. commercial real estate loans of $44.5 billion and $63.6 billion, and non-U.S. commercial real estate loans of $2.5 billion and $2.8 billion for the six
months ended June 30, 2011 and 2010. |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Average Balances and Interest Rates Fully Taxable-equivalent Basis (continued) |
|
|
Six Months Ended June 30 |
|
|
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
Average |
|
Income/ |
|
Yield/ |
|
Average |
|
Income/ |
|
Yield/ |
(Dollars in millions) |
|
Balance |
|
Expense |
|
Rate |
|
Balance |
|
Expense |
|
Rate |
|
Interest-bearing liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings |
|
$ |
40,294 |
|
|
$ |
63 |
|
|
|
0.32 |
% |
|
$ |
36,214 |
|
|
$ |
86 |
|
|
|
0.48 |
% |
NOW and money market deposit accounts |
|
|
477,330 |
|
|
|
620 |
|
|
|
0.26 |
|
|
|
429,258 |
|
|
|
713 |
|
|
|
0.33 |
|
Consumer CDs and IRAs |
|
|
116,004 |
|
|
|
581 |
|
|
|
1.01 |
|
|
|
156,755 |
|
|
|
1,008 |
|
|
|
1.30 |
|
Negotiable CDs, public funds and other time deposits |
|
|
13,918 |
|
|
|
81 |
|
|
|
1.17 |
|
|
|
18,552 |
|
|
|
122 |
|
|
|
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. interest-bearing deposits |
|
|
647,546 |
|
|
|
1,345 |
|
|
|
0.42 |
|
|
|
640,779 |
|
|
|
1,929 |
|
|
|
0.61 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks located in non-U.S. countries |
|
|
20,378 |
|
|
|
75 |
|
|
|
0.74 |
|
|
|
19,091 |
|
|
|
68 |
|
|
|
0.72 |
|
Governments and official institutions |
|
|
2,219 |
|
|
|
4 |
|
|
|
0.36 |
|
|
|
4,916 |
|
|
|
6 |
|
|
|
0.25 |
|
Time, savings and other |
|
|
62,673 |
|
|
|
258 |
|
|
|
0.83 |
|
|
|
53,534 |
|
|
|
150 |
|
|
|
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
Total non-U.S. interest-bearing deposits |
|
|
85,270 |
|
|
|
337 |
|
|
|
0.80 |
|
|
|
77,541 |
|
|
|
224 |
|
|
|
0.58 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
732,816 |
|
|
|
1,682 |
|
|
|
0.46 |
|
|
|
718,320 |
|
|
|
2,153 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities loaned or sold under
agreements to repurchase and other short-term borrowings |
|
|
355,042 |
|
|
|
2,526 |
|
|
|
1.43 |
|
|
|
481,041 |
|
|
|
1,709 |
|
|
|
0.72 |
|
Trading account liabilities |
|
|
90,044 |
|
|
|
1,254 |
|
|
|
2.81 |
|
|
|
95,105 |
|
|
|
1,374 |
|
|
|
2.91 |
|
Long-term debt |
|
|
437,812 |
|
|
|
6,084 |
|
|
|
2.80 |
|
|
|
505,507 |
|
|
|
7,112 |
|
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,615,714 |
|
|
|
11,546 |
|
|
|
1.44 |
|
|
|
1,799,973 |
|
|
|
12,348 |
|
|
|
1.38 |
|
|
|
|
|
|
Noninterest-bearing sources: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits |
|
|
296,762 |
|
|
|
|
|
|
|
|
|
|
|
268,024 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
193,420 |
|
|
|
|
|
|
|
|
|
|
|
205,767 |
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
232,930 |
|
|
|
|
|
|
|
|
|
|
|
231,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
2,338,826 |
|
|
|
|
|
|
|
|
|
|
$ |
2,505,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread |
|
|
|
|
|
|
|
|
|
|
2.40 |
% |
|
|
|
|
|
|
|
|
|
|
2.76 |
% |
Impact of noninterest-bearing sources |
|
|
|
|
|
|
|
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
0.06 |
|
|
|
|
|
|
Net interest income/yield on earning assets (1) |
|
|
|
|
|
$ |
23,778 |
|
|
|
2.57 |
% |
|
|
|
|
|
$ |
27,069 |
|
|
|
2.82 |
% |
|
|
|
|
|
|
For footnotes see page 28. |
29
Business Segment Operations
Segment Description and Basis of Presentation
We report the results of our operations through six business segments: Deposits, Global
Card Services, CRES, Global Commercial Banking, GBAM and GWIM, with the remaining operations
recorded in All Other. Prior period amounts have been reclassified to conform to current period
presentation.
We prepare and evaluate segment results using certain non-GAAP methodologies and performance
measures, many of which are discussed in Supplemental Financial Data on page 19.
In addition, return on average economic capital for the segments is calculated as net
income, excluding cost of funds and earnings credit on intangibles, divided by average economic
capital. Economic capital represents allocated equity less goodwill and a percentage of intangible
assets. We begin by evaluating the operating results of the segments which by definition exclude
merger and restructuring charges.
The management accounting and reporting process derives segment and business results by
utilizing allocation methodologies for revenue and expense. The net income derived for the
businesses is dependent upon revenue and cost allocations using an activity-based costing model,
funds transfer pricing, and other methodologies and assumptions management believes are
appropriate to reflect the results of the business.
Total revenue, net of interest expense, includes net interest income on a FTE basis and
noninterest income. The adjustment of net interest income to a FTE basis results in a
corresponding increase in income tax expense. The segment results also reflect certain revenue and
expense methodologies that are utilized to determine net income. The net interest income of the
businesses includes the results of a funds transfer pricing process that matches assets and
liabilities with similar interest rate sensitivity and maturity characteristics. For presentation
purposes, in segments where the total of liabilities and equity exceeds assets, which are
generally deposit-taking segments, we allocate assets to match liabilities. Net interest income of
the business segments also includes an allocation of net interest income generated by our ALM
activities.
Our ALM activities include an overall interest rate risk management strategy that
incorporates the use of interest rate contracts to manage fluctuations in earnings that are caused
by interest rate volatility. Our goal is to manage interest rate sensitivity so that movements in
interest rates do not significantly adversely affect net interest income. Our ALM activities are
allocated to the business segments and fluctuate based on performance. ALM activities include
external product pricing decisions including deposit pricing strategies, the effects of our
internal funds transfer pricing process and the net effects of other ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to
the segments. The most significant of these expenses include data and item processing costs and
certain centralized or shared functions. Data processing costs are allocated to the segments based
on equipment usage. Item processing costs are allocated to the segments based on the volume of
items processed for each segment. The costs of certain centralized or shared functions are
allocated based on methodologies that reflect utilization.
Equity is allocated to business segments and related businesses using a risk-adjusted
methodology incorporating each segments credit, market, interest rate, strategic and operational
risk components. The nature of these risks is discussed further on page 64. We benefit from the
diversification of risk across these components which is reflected as a reduction to allocated
equity for each segment. The total amount of average equity reflects both risk-based capital and
the portion of goodwill and intangibles specifically assigned to the business segments. The
risk-adjusted methodology is periodically refined and such refinements are reflected as changes to
allocated equity in each segment.
For more information on selected financial information for the business segments and
reconciliations to consolidated total revenue, net income (loss) and period-end total assets, see
Note 20 Business Segment Information to the Consolidated Financial Statements.
30
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
2,281 |
|
|
$ |
2,144 |
|
|
|
6 |
% |
|
$ |
4,486 |
|
|
$ |
4,319 |
|
|
|
4 |
% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
965 |
|
|
|
1,494 |
|
|
|
(35 |
) |
|
|
1,888 |
|
|
|
2,973 |
|
|
|
(36 |
) |
All other income |
|
|
55 |
|
|
|
57 |
|
|
|
(4 |
) |
|
|
116 |
|
|
|
121 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,020 |
|
|
|
1,551 |
|
|
|
(34 |
) |
|
|
2,004 |
|
|
|
3,094 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
3,301 |
|
|
|
3,695 |
|
|
|
(11 |
) |
|
|
6,490 |
|
|
|
7,413 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
31 |
|
|
|
61 |
|
|
|
(49 |
) |
|
|
64 |
|
|
|
98 |
|
|
|
(35 |
) |
Noninterest expense |
|
|
2,599 |
|
|
|
2,572 |
|
|
|
1 |
|
|
|
5,191 |
|
|
|
5,139 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
671 |
|
|
|
1,062 |
|
|
|
(37 |
) |
|
|
1,235 |
|
|
|
2,176 |
|
|
|
(43 |
) |
Income tax expense (1) |
|
|
241 |
|
|
|
388 |
|
|
|
(38 |
) |
|
|
450 |
|
|
|
804 |
|
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
430 |
|
|
$ |
674 |
|
|
|
(36 |
) |
|
$ |
785 |
|
|
$ |
1,372 |
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
2.15 |
% |
|
|
2.06 |
% |
|
|
|
|
|
|
2.15 |
% |
|
|
2.09 |
% |
|
|
|
|
Return on average equity |
|
|
7.30 |
|
|
|
11.16 |
|
|
|
|
|
|
|
6.70 |
|
|
|
11.45 |
|
|
|
|
|
Return on average economic capital (2, 3) |
|
|
30.41 |
|
|
|
43.52 |
|
|
|
|
|
|
|
27.93 |
|
|
|
44.82 |
|
|
|
|
|
Efficiency ratio (1) |
|
|
78.75 |
|
|
|
69.59 |
|
|
|
|
|
|
|
79.99 |
|
|
|
69.32 |
|
|
|
|
|
Cost per dollar deposit (4) |
|
|
2.44 |
|
|
|
2.46 |
|
|
|
|
|
|
|
2.52 |
|
|
|
2.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
$ |
425,363 |
|
|
$ |
417,132 |
|
|
|
2 |
|
|
$ |
421,313 |
|
|
$ |
416,185 |
|
|
|
1 |
|
Total assets |
|
|
451,554 |
|
|
|
443,520 |
|
|
|
2 |
|
|
|
447,530 |
|
|
|
442,691 |
|
|
|
1 |
|
Total deposits |
|
|
426,684 |
|
|
|
418,480 |
|
|
|
2 |
|
|
|
422,514 |
|
|
|
417,665 |
|
|
|
1 |
|
Allocated equity |
|
|
23,612 |
|
|
|
24,226 |
|
|
|
(3 |
) |
|
|
23,627 |
|
|
|
24,179 |
|
|
|
(2 |
) |
Economic capital (5) |
|
|
5,662 |
|
|
|
6,239 |
|
|
|
(9 |
) |
|
|
5,672 |
|
|
|
6,202 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period
end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
422,646 |
|
|
$ |
414,215 |
|
|
|
2 |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
449,123 |
|
|
|
440,954 |
|
|
|
2 |
|
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,579 |
|
|
|
415,189 |
|
|
|
2 |
|
Client brokerage assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,000 |
|
|
|
63,597 |
|
|
|
8 |
|
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Decreases in the ratios resulted from lower net income partially offset by a slight decrease in economic capital. Economic capital
decreased due to improvements in interest rate risk related to changes in portfolio composition. |
|
(3) |
|
Return on average economic capital is calculated as net income, excluding cost of funds and earnings credit on intangibles,
divided by average economic capital. |
|
(4) |
|
Cost per dollar deposit represents annualized noninterest expense, excluding certain expenses, as a percentage of average deposits. |
|
(5) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets. |
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, and
noninterest- and interest-bearing checking accounts. Deposit products provide a relatively stable
source of funding and liquidity for the Corporation. We earn net interest spread revenue from
investing this liquidity in earning assets through client-facing lending and ALM activities. The
revenue is allocated to the deposit products using our funds transfer pricing process which takes
into account the interest rates and maturity characteristics of the deposits.
Deposits also 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 clients with
less than $250,000 in total assets. Merrill Edge provides team-based investment advice and
guidance, brokerage services, a self-directed online investing platform and key banking
capabilities including access to the Corporations network of banking centers and ATMs. Deposits
includes the net impact of migrating customers and their related deposit balances between Deposits
and other client-managed businesses.
31
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Net income decreased $244 million, or 36 percent, to $430 million due to a decline in revenue
driven by lower noninterest income, partially offset by higher net interest income. Noninterest
income decreased $531 million, or 34 percent, to $1.0 billion due to the impact of overdraft
policy changes in conjunction with Regulation E, which became effective in the third quarter of
2010. For more information on Regulation E, see Regulatory Matters of the Corporations 2010
Annual Report on Form 10-K on page 56. Net interest income increased $137 million, or six percent,
to $2.3 billion driven by a shift to more liquid products and continued pricing discipline in the
low-rate environment resulting in a 16 bps decrease in the rate paid on deposits from a year ago.
Average deposits increased $8.2 billion from a year ago driven by organic growth in liquid
products, including Merrill Edge, partially offset by the impact of transfers with other
client-managed businesses.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Net income decreased $587 million, or 43 percent, to $785 million due to a decrease in
noninterest income of $1.1 billion, or 35 percent, to $2.0 billion. Net interest income increased
$167 million, or four percent, to $4.5 billion. These period over period changes were driven by
the same factors as described in the three-month discussion above.
Average deposits increased $4.8 billion from a year ago driven by the same factors as
described in the three-month discussion above.
32
Global Card Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
3,611 |
|
|
$ |
4,442 |
|
|
|
(19 |
)% |
|
$ |
7,358 |
|
|
$ |
9,262 |
|
|
|
(21 |
)% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Card income |
|
|
1,833 |
|
|
|
1,901 |
|
|
|
(4 |
) |
|
|
3,562 |
|
|
|
3,784 |
|
|
|
(6 |
) |
All other income |
|
|
92 |
|
|
|
605 |
|
|
|
(85 |
) |
|
|
303 |
|
|
|
792 |
|
|
|
(62 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
1,925 |
|
|
|
2,506 |
|
|
|
(23 |
) |
|
|
3,865 |
|
|
|
4,576 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
5,536 |
|
|
|
6,948 |
|
|
|
(20 |
) |
|
|
11,223 |
|
|
|
13,838 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
481 |
|
|
|
3,796 |
|
|
|
(87 |
) |
|
|
1,442 |
|
|
|
7,331 |
|
|
|
(80 |
) |
Noninterest expense |
|
|
1,882 |
|
|
|
1,852 |
|
|
|
2 |
|
|
|
3,851 |
|
|
|
3,664 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,173 |
|
|
|
1,300 |
|
|
|
144 |
|
|
|
5,930 |
|
|
|
2,843 |
|
|
|
109 |
|
Income tax expense (1) |
|
|
1,138 |
|
|
|
474 |
|
|
|
140 |
|
|
|
2,160 |
|
|
|
1,049 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,035 |
|
|
$ |
826 |
|
|
|
146 |
|
|
$ |
3,770 |
|
|
$ |
1,794 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
9.12 |
% |
|
|
9.97 |
% |
|
|
|
|
|
|
9.19 |
% |
|
|
10.13 |
% |
|
|
|
|
Return on average equity |
|
|
32.66 |
|
|
|
8.14 |
|
|
|
|
|
|
|
29.73 |
|
|
|
8.61 |
|
|
|
|
|
Return on average economic
capital (2, 3) |
|
|
66.26 |
|
|
|
19.40 |
|
|
|
|
|
|
|
59.01 |
|
|
|
19.74 |
|
|
|
|
|
Efficiency ratio (1) |
|
|
33.99 |
|
|
|
26.68 |
|
|
|
|
|
|
|
34.31 |
|
|
|
26.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
156,788 |
|
|
$ |
177,076 |
|
|
|
(11 |
) |
|
$ |
159,591 |
|
|
$ |
182,909 |
|
|
|
(13 |
) |
Total earning assets |
|
|
158,861 |
|
|
|
178,646 |
|
|
|
(11 |
) |
|
|
161,462 |
|
|
|
184,326 |
|
|
|
(12 |
) |
Total assets |
|
|
161,776 |
|
|
|
187,138 |
|
|
|
(14 |
) |
|
|
163,761 |
|
|
|
191,913 |
|
|
|
(15 |
) |
Allocated equity |
|
|
24,982 |
|
|
|
40,677 |
|
|
|
(39 |
) |
|
|
25,573 |
|
|
|
41,994 |
|
|
|
(39 |
) |
Economic capital (4) |
|
|
12,341 |
|
|
|
17,501 |
|
|
|
(29 |
) |
|
|
12,915 |
|
|
|
18,767 |
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
153,280 |
|
|
$ |
166,899 |
|
|
|
(8 |
) |
Total earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,058 |
|
|
|
168,706 |
|
|
|
(7 |
) |
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161,756 |
|
|
|
170,311 |
|
|
|
(5 |
) |
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Increases in the ratios resulted from higher net income and a decrease in economic capital.
Economic capital decreased due to lower levels of credit risk as loan balances declined.
Allocated equity decreased as a result of the $10.4 billion goodwill impairment charge recorded
during the third quarter of 2010. |
|
(3) |
|
Return on average economic capital is calculated as net income, excluding cost of funds and
earnings credit on intangibles, divided by average economic capital. |
|
(4) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets. |
Global Card Services provides a broad offering of products including U.S. consumer and
business credit card, consumer lending, and international credit card and debit card to consumers
and small businesses. We provide credit card products to customers in the U.S., U.K., Canada
and Ireland. We offer a variety of co-branded and affinity credit and debit card products
and are one of the leading issuers of credit cards through endorsed marketing in the U.S. and
Europe. For an update on the PPI claims matter, see Note 11 Commitments and Contingencies to
the Consolidated Financial Statements.
The majority of the provisions of the CARD Act became effective on February 22, 2010, while
certain provisions became effective in the third quarter of 2010. The CARD Act has negatively
impacted net interest income due to restrictions on our ability to reprice credit cards based on
risk and card income due to restrictions imposed on certain fees. For more information on the CARD
Act, see Regulatory Matters of the Corporations 2010 Annual Report on Form 10-K on page 56.
On June 29, 2011, the Federal Reserve adopted a final rule, effective October 1, 2011, that
established the maximum allowable interchange fees a bank can receive for a debit transaction,
proposed fraud standards and established network routing requirements, effective April 1, 2012.
For more information on the final interchange rules, see Regulatory
Matters on page 62. The new
interchange fee will result in a reduction of debit card revenue in the fourth quarter of 2011 of
approximately $475 million.
33
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Net income increased $1.2 billion to $2.0 billion due to a $3.3 billion decrease in the
provision for credit losses as a result of continued improvements in credit quality. This was
partially offset by a decrease in revenue of $1.4 billion, or 20 percent, to $5.5 billion,
primarily due to a decline in net interest income from lower average loans and yields.
Net interest income decreased $831 million, or 19 percent, to $3.6 billion driven by lower
average loans and yields. Net interest yield decreased 85 bps to 9.12 percent due to net
charge-offs and paydowns of higher interest rate products.
Noninterest income decreased $581 million, or 23 percent, to $1.9 billion compared to $2.5
billion primarily due to the absence of a $440 million pre-tax gain on the sale of our MasterCard
position in the second quarter of 2010.
The provision for credit losses improved by $3.3 billion, to $481 million compared to $3.8
billion reflecting improving economic conditions and continued expectations of improving
delinquency, collection and bankruptcy trends. For more information on the improvement in the
provision for credit losses, see Provision for Credit Losses on page 107.
Average loans decreased $20.3 billion driven by higher payments, charge-offs and continued
non-core portfolio run-off. In addition, Global Card Services exited $2.1 billion of loans at the
end of the quarter with minimal income statement impact.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Net income increased $2.0 billion to $3.8 billion as the provision for credit losses improved
$5.9 billion to $1.4 billion, partially offset by a $2.6 billion decline in revenue to $11.2
billion. Net interest income of $7.4 billion decreased $1.9 billion, noninterest income declined
$711 million, including approximately $300 million related to
the CARD Act, to $3.9 billion and noninterest expense increased $187 million to $3.9 billion. These
period over period changes were driven by the same factors described in the three-month discussion
above.
34
Consumer Real Estate Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Legacy Asset |
|
|
|
|
|
Real Estate |
|
Three Months Ended |
|
|
(Dollars in millions) |
|
Home Loans |
|
Servicing |
|
Other |
|
Services |
|
June 30, 2010 |
|
% Change |
|
|
|
Net interest income (1) |
|
$ |
481 |
|
|
$ |
129 |
|
|
$ |
(31 |
) |
|
$ |
579 |
|
|
$ |
992 |
|
|
|
(42 |
)% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income (loss) |
|
|
938 |
|
|
|
(13,083 |
) |
|
|
(873 |
) |
|
|
(13,018 |
) |
|
|
1,020 |
|
|
|
n/m |
|
Insurance income |
|
|
299 |
|
|
|
- |
|
|
|
- |
|
|
|
299 |
|
|
|
513 |
|
|
|
(42 |
) |
All other income |
|
|
795 |
|
|
|
30 |
|
|
|
- |
|
|
|
825 |
|
|
|
179 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
Total noninterest income (loss) |
|
|
2,032 |
|
|
|
(13,053 |
) |
|
|
(873 |
) |
|
|
(11,894 |
) |
|
|
1,712 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
2,513 |
|
|
|
(12,924 |
) |
|
|
(904 |
) |
|
|
(11,315 |
) |
|
|
2,704 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
121 |
|
|
|
1,386 |
|
|
|
- |
|
|
|
1,507 |
|
|
|
2,390 |
|
|
|
(37 |
) |
Goodwill impairment |
|
|
- |
|
|
|
- |
|
|
|
2,603 |
|
|
|
2,603 |
|
|
|
- |
|
|
|
n/m |
|
Noninterest expense |
|
|
1,553 |
|
|
|
4,491 |
|
|
|
- |
|
|
|
6,044 |
|
|
|
2,738 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
839 |
|
|
|
(18,801 |
) |
|
|
(3,507 |
) |
|
|
(21,469 |
) |
|
|
(2,424 |
) |
|
|
n/m |
|
Income tax expense (benefit) (1) |
|
|
308 |
|
|
|
(6,924 |
) |
|
|
(333 |
) |
|
|
(6,949 |
) |
|
|
(882 |
) |
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
531 |
|
|
$ |
(11,877 |
) |
|
$ |
(3,174 |
) |
|
$ |
(14,520 |
) |
|
$ |
(1,542 |
) |
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
2.68 |
% |
|
|
0.76 |
% |
|
|
n/m |
|
|
|
1.46 |
% |
|
|
2.13 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
61.80 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
101.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
55,267 |
|
|
$ |
66,416 |
|
|
$ |
- |
|
|
$ |
121,683 |
|
|
$ |
130,662 |
|
|
|
(7 |
) |
Total earning assets |
|
|
71,876 |
|
|
|
68,444 |
|
|
|
18,354 |
|
|
|
158,674 |
|
|
|
186,873 |
|
|
|
(15 |
) |
Total assets |
|
|
73,377 |
|
|
|
84,616 |
|
|
|
40,037 |
|
|
|
198,030 |
|
|
|
227,595 |
|
|
|
(13 |
) |
Allocated equity |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
17,139 |
|
|
|
26,174 |
|
|
|
(35 |
) |
Economic capital (2, 3) |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
14,437 |
|
|
|
21,371 |
|
|
|
(32 |
) |
|
|
|
Six Months Ended June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
Legacy Asset |
|
|
|
|
|
Real Estate |
|
Six Months Ended |
|
|
|
|
Home Loans |
|
Servicing |
|
Other |
|
Services |
|
June 30, 2010 |
|
% Change |
|
|
|
Net interest income (1) |
|
$ |
1,056 |
|
|
$ |
460 |
|
|
$ |
(41 |
) |
|
$ |
1,475 |
|
|
$ |
2,199 |
|
|
|
(33 |
)% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage banking income (loss) |
|
|
1,696 |
|
|
|
(13,149 |
) |
|
|
(870 |
) |
|
|
(12,323 |
) |
|
|
2,661 |
|
|
|
n/m |
|
Insurance income |
|
|
730 |
|
|
|
- |
|
|
|
- |
|
|
|
730 |
|
|
|
1,051 |
|
|
|
(31 |
) |
All other income |
|
|
822 |
|
|
|
44 |
|
|
|
- |
|
|
|
866 |
|
|
|
326 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
Total noninterest income (loss) |
|
|
3,248 |
|
|
|
(13,105 |
) |
|
|
(870 |
) |
|
|
(10,727 |
) |
|
|
4,038 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
4,304 |
|
|
|
(12,645 |
) |
|
|
(911 |
) |
|
|
(9,252 |
) |
|
|
6,237 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
121 |
|
|
|
2,484 |
|
|
|
- |
|
|
|
2,605 |
|
|
|
5,990 |
|
|
|
(57 |
) |
Goodwill impairment |
|
|
- |
|
|
|
- |
|
|
|
2,603 |
|
|
|
2,603 |
|
|
|
- |
|
|
|
n/m |
|
Noninterest expense |
|
|
3,221 |
|
|
|
7,624 |
|
|
|
- |
|
|
|
10,845 |
|
|
|
5,985 |
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
962 |
|
|
|
(22,753 |
) |
|
|
(3,514 |
) |
|
|
(25,305 |
) |
|
|
(5,738 |
) |
|
|
n/m |
|
Income tax expense (benefit) (1) |
|
|
354 |
|
|
|
(8,388 |
) |
|
|
(336 |
) |
|
|
(8,370 |
) |
|
|
(2,119 |
) |
|
|
n/m |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
608 |
|
|
$ |
(14,365 |
) |
|
$ |
(3,178 |
) |
|
$ |
(16,935 |
) |
|
$ |
(3,619 |
) |
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
2.81 |
% |
|
|
1.37 |
% |
|
|
(0.37 |
)% |
|
|
1.80 |
% |
|
|
2.36 |
% |
|
|
|
|
Efficiency ratio (1) |
|
|
74.84 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
95.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
55,632 |
|
|
$ |
65,493 |
|
|
$ |
- |
|
|
$ |
121,125 |
|
|
$ |
132,195 |
|
|
|
(8 |
) |
Total earning assets |
|
|
75,695 |
|
|
|
67,565 |
|
|
|
22,209 |
|
|
|
165,469 |
|
|
|
188,222 |
|
|
|
(12 |
) |
Total assets |
|
|
77,052 |
|
|
|
83,531 |
|
|
|
43,065 |
|
|
|
203,648 |
|
|
|
230,076 |
|
|
|
(11 |
) |
Allocated equity |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
17,933 |
|
|
|
26,641 |
|
|
|
(33 |
) |
Economic capital (2, 3) |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
15,211 |
|
|
|
21,837 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
Period end |
|
June 30, 2011 |
|
December
31, 2010 |
|
|
|
|
Total loans and leases |
|
$ |
55,454 |
|
|
$ |
66,099 |
|
|
$ |
- |
|
|
$ |
121,553 |
|
|
$ |
122,933 |
|
|
|
(1 |
) |
Total earning assets |
|
|
69,822 |
|
|
|
68,114 |
|
|
|
11,972 |
|
|
|
149,908 |
|
|
|
172,082 |
|
|
|
(13 |
) |
Total assets |
|
|
71,723 |
|
|
|
83,411 |
|
|
|
30,264 |
|
|
|
185,398 |
|
|
|
212,413 |
|
|
|
(13 |
) |
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Economic capital decreased due to improvements in credit risk
as loan balances declined and due to a lower MSR balance. Allocated
equity decreased due to the $2.0 billion goodwill impairment charge recorded during the fourth quarter of 2010 and
was minimally impacted by the $2.6 billion goodwill impairment charge recorded late in the second quarter of
2011. |
|
(3) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets (excluding MSRs). |
|
n/m |
|
= not meaningful |
|
n/a |
|
= not applicable |
35
CRES
was realigned effective January 1, 2011 and its activities
are now referred to as
Home Loans, which includes ongoing loan production and servicing activities, Legacy Asset
Servicing, which includes a separately managed legacy mortgage portfolio, and Other, which
includes the results of certain MSR activities and other unallocated assets (e.g., goodwill). This
realignment allows CRES management to lead the ongoing home loan business while also providing
greater focus and transparency on legacy mortgage issues.
CRES includes the impact of transferring customers and their related loan balances between
GWIM and CRES based on client segmentation thresholds. For more information on the migration of
customer balances, see GWIM on page 46.
CRES generates revenue by providing an extensive line of consumer real estate products and
services to customers nationwide. CRES products are available to our customers through our retail
network of approximately 5,700 banking centers, mortgage loan officers in approximately 750
locations and a sales force offering our customers direct telephone and online access to our
products. These products are also offered through our correspondent loan acquisition channels.
CRES products include fixed and adjustable-rate first-lien mortgage loans for home purchase
and refinancing needs, home equity lines of credit and home equity loans. First mortgage products
are either sold into the secondary mortgage market to investors, while we retain MSRs and the Bank
of America customer relationships, or are held on our balance sheet in All Other for ALM purposes.
Home equity lines of credit and home equity loans are retained on the CRES balance sheet. CRES
services mortgage loans, including those loans it owns, loans owned by other business segments and
All Other, and loans owned by outside investors. On February 4, 2011, we announced that we were
exiting the reverse mortgage origination business. In October 2010, we exited the first mortgage
wholesale acquisition channel. These strategic changes were made to allow greater focus on our
retail channels. The financial results of the on-balance sheet loans are reported in the business
segment that owns the loans or All Other. CRES is not impacted by the Corporations first mortgage
production retention decisions as CRES is compensated for loans held for ALM purposes on a
management accounting basis, with a corresponding offset recorded in All Other, and for servicing
loans owned by other business segments and All Other.
Home Loans includes the ongoing loan production activities, certain servicing activities that
are discussed below, and the CRES home equity portfolio not selected for inclusion in the Legacy
Asset Servicing portfolio. Home Loans also included insurance operations through June 30, 2011,
when the ongoing insurance business was transferred to Global Card Services following the sale of
Balboas lender-placed insurance business. Due to the realignment of CRES, the composition of the
Home Loans loan portfolio does not currently reflect a normalized level of credit losses and
noninterest expense which we expect will develop over time.
Legacy Asset Servicing is responsible for servicing and managing the exposures related to
selected residential mortgage, home equity and discontinued real estate loan portfolios. In
addition, it is responsible for servicing all delinquent mortgage loans. These selected loan
portfolios include owned loans and loans serviced for others, including loans held in other
business segments and All Other (collectively, the Legacy Asset Servicing portfolio). The Legacy
Asset Servicing portfolio includes residential mortgage loans, home equity loans and discontinued
real estate loans that would not have been originated under our underwriting standards at December
31, 2010. Countrywide loans that were impaired at the time of acquisition (the Countrywide PCI
portfolio) as well as certain loans that met a pre-defined delinquency status or probability of
default threshold as of January 1, 2011 are also included in the Legacy Asset Servicing portfolio.
Since determining the pool of loans that would be included in Legacy Asset Servicing portfolio as
of January 1, 2011, the criteria have not changed for this portfolio. However, the criteria for
inclusion of certain assets and liabilities in the Legacy Asset Servicing portfolio will continue
to be evaluated over time.
The total owned loans in the Legacy Asset Servicing portfolio were $169.5 billion at June 30,
2011, of which $66.1 billion are reflected on the balance sheet of Legacy Asset Servicing within
CRES. The remainder is held on the balance sheets of Global Commercial Banking, GWIM and All
Other. For more information on the Legacy Asset Servicing portfolio criteria, see Consumer Credit
Portfolio on page 76.
Legacy Asset Servicing results reflect the net cost of legacy exposures that is included in
the results of CRES, including representations and warranties provision, litigation costs and
financial results of the CRES home equity portfolio selected as part of the Legacy Asset Servicing
portfolio. In addition, certain revenue and expenses on loans serviced for others, including loans
serviced for other business segments and All Other, are included in Legacy Asset Servicing
results. The results of the Legacy Asset Servicing residential mortgage and discontinued real
estate portfolios are recorded primarily in All Other.
The Other component within CRES includes the results of certain MSR activities, including net
hedge results, together with any related assets or liabilities used as economic hedges. The change
in the value of the MSRs reflects the change in
36
discount rates and prepayment speed assumptions,
largely due to changes in interest rates, as well as the effect of changes in other assumptions,
including the cost to service. These amounts are not allocated between Home Loans and Legacy Asset
Servicing since the MSRs are managed as a single asset. Goodwill assigned to CRES is also included
in Other; however, the remaining balance of $2.6 billion of goodwill was written off in its
entirety during the three months ended June 30, 2011. For additional information on goodwill, see
Note 10 Goodwill and Intangible Assets to the Consolidated Financial Statements.
Servicing activities include collecting cash for principal, interest and escrow payments from
borrowers, and disbursing customer draws for lines of credit and accounting for and remitting
principal and interest payments to investors and escrow
payments to third parties along with responding to non-default related customer inquiries. These
activities are performed by Home Loans. Our home retention efforts are also part of our servicing
activities, along with supervising foreclosures and property dispositions. These default-related
activities are performed by Legacy Asset Servicing. In an effort to help our customers avoid
foreclosure, Legacy Asset Servicing evaluates various workout options prior to foreclosure sale
which, combined with our temporary halt of foreclosures announced in October 2010, has resulted in
elongated default timelines. We have resumed foreclosure sales in all non-judicial states;
however, while we have recently resumed foreclosure proceedings in nearly all judicial states, our
progress on foreclosure sales in judicial states has been significantly slower than in
non-judicial states. We have also not yet resumed foreclosure sales for certain types of
customers, including those in bankruptcy and those with FHA-insured loans, although we have
resumed foreclosure proceedings with respect to these types of customers. For additional
information on our servicing activities, see Off-Balance Sheet Arrangements and Contractual
Obligations Other Mortgage-related Matters on page 60.
The sale of lender-placed and voluntary property and casualty insurance assets and
liabilities of Balboa closed on June 1, 2011. In connection
with the sale, CRES recognized a
pre-tax gain of $752 million net of an inter-segment advisory fee and an allocation of $193
million of goodwill. The sale agreement included the fair value of certain earn-outs and clawback
provisions which were reflected in the determination of the pre-tax gain. Under the earn-out provisions, the buyer will
make payments to the Corporation if certain future revenue or profitability targets are met
whereas under the clawback provision, the Corporation may be required to pay the buyer if certain
loss projections or gross written premiums vary from targets established in the sale agreement
after certain triggering events occur, including regulatory actions. The amount, if any, and
timing of any clawback or earn-out payments could vary based upon these future performance
metrics.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
The
CRES net loss increased $13.0 billion to $14.5 billion. Revenue declined $14.0 billion to a loss
of $11.3 billion due to $14.0 billion in representations and warranties provision which is
included in mortgage banking income compared to a provision of $1.2 billion in 2010. The
representations and warranties provision included $8.6 billion related to the BNY Mellon
Settlement and $5.4 billion related to other non-GSE exposures, and to a lesser extent, GSE
exposures. Other factors resulting in the revenue decline were the decreases in MSR results, net
of hedges, of $885 million as a result of higher expected servicing costs, and core production
income of $604 million due to a decline in new loan originations caused mainly by lower overall
market demand and a drop in market share in both the retail and correspondent sales channels
partially driven by pricing actions as well as the Corporations exit from wholesale lending.
These declines were partially offset by a pre-tax gain on the sale of Balboas lender-placed
insurance business of $752 million, net of an inter-segment advisory fee. For additional
information on representations and warranties, see Note 9 Representations and Warranties
Obligations and Corporate Guarantees to the Consolidated
Financial Statements and Off-Balance Sheet Arrangements and
Contractual Obligations Representations
and Warranties on page 51.
Provision for credit losses decreased $883 million to $1.5 billion reflecting improved
portfolio trends, including the Countrywide PCI home equity portfolio.
Noninterest expense increased $5.9 billion to $8.6 billion, primarily due to a non-cash,
non-tax deductible goodwill impairment charge of $2.6 billion and $2.0 billion in litigation
expense. Additionally, as a result of elongated default timelines,
our servicing costs have increased
driven by $716 million of mortgage-related assessments and waivers costs, which included $485
million for compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure
delays as our agreements and first mortgage seller/servicer guides with the GSEs provide timelines
to complete the liquidation of delinquent loans. In instances where we fail to meet these
timelines, our agreements provide the GSEs with the option to assess
compensatory fees. The remainder of the $716 million of
mortgage-related assessments and waivers costs are out-of-pocket
costs that we do not expect to recover. We expect such
costs will continue as additional loans are delayed in the foreclosure process and as the GSEs
assert more aggressive criteria. Higher default-related and other loss mitigation expenses also
contributed to increased expenses. Production expense was lower due to lower origination volumes
and lower insurance expenses resulting from the sale of Balboas lender-placed insurance business.
37
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
The
CRES net loss increased $13.3 billion to $16.9 billion. Revenue declined $15.5 billion to a loss
of $9.3 billion due in large part to a decrease in mortgage banking income driven by an increase
in representations and warranties provision of $13.3 billion, a decline in core production income
of $1.2 billion and the decrease in MSR results, net of hedges, of $1.1 billion as a result of
servicing costs. The decline in core production income was primarily due to
lower production volume driven by the same factors noted in the three-month discussion. Net
interest income also contributed to the decline in revenue driven primarily by lower average
balances of loans held-for-sale (LHFS).
Provision for credit losses decreased $3.4 billion to $2.6 billion and noninterest expense
increased $7.5 billion to $13.4 billion due to the same factors noted in the three-month
discussion.
Mortgage Banking Income
CRES mortgage banking income is categorized into production and servicing income. Core
production income is comprised of revenue from the fair value gains and losses recognized on our
interest rate lock commitments (IRLCs) and LHFS, the related secondary market execution, and costs
related to representations and warranties in the sales transactions along with other obligations
incurred in the sales of mortgage loans. In addition, production income includes revenue, which is
offset in All Other, for transfers of mortgage loans from CRES to the ALM portfolio related to the
Corporations mortgage production retention decisions. Ongoing costs related to representations
and warranties and other obligations that were incurred in the sales of mortgage loans in prior
periods are also included in production income.
Servicing income includes income earned in connection with servicing activities and MSR
valuation adjustments, net of economic hedge activities. The costs associated with our servicing
activities are included in noninterest expense.
The table below summarizes the components of mortgage banking income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Banking Income |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Production income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core production revenue |
|
$ |
824 |
|
|
$ |
1,428 |
|
|
$ |
1,492 |
|
|
$ |
2,711 |
|
Representations and warranties provision |
|
|
(14,037 |
) |
|
|
(1,248 |
) |
|
|
(15,050 |
) |
|
|
(1,774 |
) |
|
Total production income (loss) |
|
|
(13,213 |
) |
|
|
180 |
|
|
|
(13,558 |
) |
|
|
937 |
|
|
Servicing income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing fees |
|
|
1,556 |
|
|
|
1,649 |
|
|
|
3,162 |
|
|
|
3,218 |
|
Impact of customer payments (1) |
|
|
(639 |
) |
|
|
(981 |
) |
|
|
(1,345 |
) |
|
|
(2,037 |
) |
Fair value changes of MSRs, net of economic hedge results (2) |
|
|
(873 |
) |
|
|
12 |
|
|
|
(870 |
) |
|
|
209 |
|
Other servicing-related revenue |
|
|
151 |
|
|
|
160 |
|
|
|
288 |
|
|
|
334 |
|
|
Total net servicing income |
|
|
195 |
|
|
|
840 |
|
|
|
1,235 |
|
|
|
1,724 |
|
|
Total CRES mortgage banking income (loss) |
|
|
(13,018 |
) |
|
|
1,020 |
|
|
|
(12,323 |
) |
|
|
2,661 |
|
Eliminations (3) |
|
|
(178 |
) |
|
|
(122 |
) |
|
|
(243 |
) |
|
|
(263 |
) |
|
Total consolidated mortgage banking income (loss) |
|
$ |
(13,196 |
) |
|
$ |
898 |
|
|
$ |
(12,566 |
) |
|
$ |
2,398 |
|
|
|
|
|
(1) |
|
Represents the change in the market value of the MSR asset due to the impact of customer payments received during the period. |
|
(2) |
|
Includes sale of MSRs. |
|
(3) |
|
Includes the effect of transfers of mortgage loans from CRES to the ALM portfolio in All Other. |
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Core production revenue of $824 million represented a decrease of $604 million, due to lower
volumes partially offset by an increase in margins. Representations and warranties provision
increased $12.8 billion to $14.0 billion. For additional information on representations and
warranties, see Note 9 Representations and Warranties Obligations and Corporate Guarantees to
the Consolidated Financial Statements and Off-Balance Sheet Arrangements and
Contractual Obligations Representations and
Warranties on page 51.
Net servicing income decreased $645 million as the lower impact of customer payments was more
than offset by less favorable MSR results, net of hedges. MSRs results, net of hedges, were a loss
of $873 million, driven primarily by a decline in the value of the MSRs of $1.5 billion resulting
from the expectation of higher servicing costs. The increased servicing costs were primarily a result of higher costs
in view of all the changes in servicing delinquent loans, costs associated with additional
servicing obligations under the BNY Mellon Settlement and extending default workout timelines in
judicial states. For additional information on MSRs and the related hedge instruments, see
Mortgage Banking Risk Management on page 119.
38
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Core production revenue of $1.5 billion represented a decrease of $1.2 billion due to a
decline in new loan originations caused mainly by lower overall market demand and a decline in
market share. Representations and warranties provision increased $13.3 billion to $15.1 billion.
Net servicing income decreased $489 million as the lower impact of customer payments was more
than offset by less favorable MSR results, net of hedges. MSR results, net of hedges, were a loss
of $870 million, driven by a decline in the value of the MSRs of $2.0 billion resulting from revised
expectations of cash flows, primarily related to higher servicing costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Statistics |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions, except as noted) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Loan production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CRES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage |
|
$ |
38,320 |
|
|
$ |
69,141 |
|
|
$ |
90,839 |
|
|
$ |
136,106 |
|
Home equity |
|
|
879 |
|
|
|
1,831 |
|
|
|
2,454 |
|
|
|
3,602 |
|
Total Corporation (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First mortgage |
|
$ |
40,370 |
|
|
$ |
71,938 |
|
|
$ |
97,104 |
|
|
$ |
141,440 |
|
Home equity |
|
|
1,054 |
|
|
|
2,137 |
|
|
|
2,782 |
|
|
|
4,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
Period end |
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing portfolio (in billions) (2, 3) |
|
|
|
|
|
|
|
|
|
$ |
1,992 |
|
|
$ |
2,057 |
|
Mortgage loans serviced for investors (in billions) (3) |
|
|
|
|
|
|
|
|
|
|
1,578 |
|
|
|
1,628 |
|
Mortgage servicing rights: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
12,372 |
|
|
|
14,900 |
|
Capitalized mortgage servicing
rights (% of loans serviced for
investors) |
|
|
|
|
|
78 |
bps |
|
|
92 |
bps |
|
|
|
|
(1) |
|
In addition to loan production in
CRES, the remaining first mortgage and home equity loan
production is primarily in GWIM. |
|
(2) |
|
Servicing of residential mortgage loans, home equity lines of credit, home equity loans and discontinued real estate mortgage loans. |
|
(3) |
|
The total Corporation mortgage servicing portfolio consists of $1,079 billion in Home Loans and $913 billion in Legacy Asset
Servicing at June 30, 2011. The total Corporation mortgage loans serviced for investors
consisted of $870 billion in Home Loans and
$708 billion in Legacy Asset Servicing at June 30, 2011. |
First mortgage production was $40.4 billion and $97.1 billion for the three and six
months ended June 30, 2011 compared to $71.9 billion and $141.4 billion for the same periods in
2010. The decrease of $31.5 billion and $44.3 billion was primarily due to a decline in market
share caused primarily by our exit from the wholesale origination channel in the fall of 2010 and
a reduction in market share in both the retail and correspondent sales channels partially driven
by pricing actions.
Home equity production was $1.1 billion and $2.8 billion for the three and six months ended
June 30, 2011 compared to $2.1 billion and $4.2 billion for the same periods in 2010 primarily due
to a decline in reverse mortgage originations based on our decision to exit this business in
February 2011.
At June 30, 2011, the consumer MSR balance was $12.4 billion, which represented 78 bps of the
related unpaid principal balance compared to $14.9 billion, or 92 bps of the related unpaid
principal balance at December 31, 2010. The decline in the consumer MSR balance was primarily
driven by the impact of elevated expected costs to service delinquent loans, which reduced
expected cash flows and the value of the MSRs, the impact of lower mortgage rates and the decline
in value due to customer payments. These declines were partially offset by the addition of new
MSRs recorded in connection with sales of loans. For additional information on our servicing
activities, see Off-Balance Sheet Arrangements and Contractual
Obligations Other
Mortgage-related Matters on page 60.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Commercial Banking |
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
1,827 |
|
|
$ |
2,097 |
|
|
|
(13 |
)% |
|
$ |
3,677 |
|
|
$ |
4,290 |
|
|
|
(14 |
)% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
576 |
|
|
|
589 |
|
|
|
(2 |
) |
|
|
1,182 |
|
|
|
1,188 |
|
|
|
(1 |
) |
All other income |
|
|
407 |
|
|
|
197 |
|
|
|
107 |
|
|
|
602 |
|
|
|
497 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
983 |
|
|
|
786 |
|
|
|
25 |
|
|
|
1,784 |
|
|
|
1,685 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
2,810 |
|
|
|
2,883 |
|
|
|
(3 |
) |
|
|
5,461 |
|
|
|
5,975 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(417 |
) |
|
|
623 |
|
|
|
n/m |
|
|
|
(338 |
) |
|
|
1,559 |
|
|
|
n/m |
|
Noninterest expense |
|
|
1,068 |
|
|
|
974 |
|
|
|
10 |
|
|
|
2,174 |
|
|
|
2,005 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,159 |
|
|
|
1,286 |
|
|
|
68 |
|
|
|
3,625 |
|
|
|
2,411 |
|
|
|
50 |
|
Income tax expense (1) |
|
|
778 |
|
|
|
471 |
|
|
|
65 |
|
|
|
1,321 |
|
|
|
891 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,381 |
|
|
$ |
815 |
|
|
|
69 |
|
|
$ |
2,304 |
|
|
$ |
1,520 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
2.60 |
% |
|
|
3.13 |
% |
|
|
|
|
|
|
2.66 |
% |
|
|
3.26 |
% |
|
|
|
|
Return on average equity |
|
|
13.67 |
|
|
|
7.46 |
|
|
|
|
|
|
|
11.33 |
|
|
|
6.93 |
|
|
|
|
|
Return on average economic capital (2, 3) |
|
|
27.92 |
|
|
|
14.14 |
|
|
|
|
|
|
|
22.85 |
|
|
|
13.04 |
|
|
|
|
|
Efficiency ratio (1) |
|
|
38.01 |
|
|
|
33.80 |
|
|
|
|
|
|
|
39.81 |
|
|
|
33.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
189,346 |
|
|
$ |
206,603 |
|
|
|
(8 |
) |
|
$ |
190,883 |
|
|
$ |
210,450 |
|
|
|
(9 |
) |
Total earning assets |
|
|
281,844 |
|
|
|
268,552 |
|
|
|
5 |
|
|
|
278,272 |
|
|
|
265,125 |
|
|
|
5 |
|
Total assets |
|
|
320,428 |
|
|
|
305,788 |
|
|
|
5 |
|
|
|
316,521 |
|
|
|
301,925 |
|
|
|
5 |
|
Total deposits |
|
|
166,481 |
|
|
|
145,499 |
|
|
|
14 |
|
|
|
163,366 |
|
|
|
144,572 |
|
|
|
13 |
|
Allocated equity |
|
|
40,515 |
|
|
|
43,869 |
|
|
|
(8 |
) |
|
|
41,008 |
|
|
|
44,222 |
|
|
|
(7 |
) |
Economic capital (4) |
|
|
19,817 |
|
|
|
23,159 |
|
|
|
(14 |
) |
|
|
20,309 |
|
|
|
23,558 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
189,434 |
|
|
$ |
194,038 |
|
|
|
(2 |
) |
Total earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,272 |
|
|
|
274,637 |
|
|
|
(12 |
) |
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,289 |
|
|
|
312,802 |
|
|
|
(10 |
) |
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,156 |
|
|
|
161,279 |
|
|
|
6 |
|
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Increases in the ratios resulted from higher net income and lower economic capital. Economic
capital decreased due to improved credit quality, declining loan balances and improvements in
counterparty credit exposure. |
|
(3) |
|
Return on average economic capital is calculated as net income, excluding cost of funds and
earnings credit on intangibles, divided by average economic capital. |
|
(4) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets. |
|
n/m |
|
= not meaningful |
Global Commercial Banking provides a wide range of lending-related products and
services, integrated working capital management and treasury solutions to clients through our
network of offices and client relationship teams along with various product partners. Our clients
include business banking and middle-market companies, commercial real estate firms and
governments, and are generally defined as companies with annual sales up to $2 billion. Our
lending products and services include commercial loans and commitment facilities, real estate
lending, asset-based lending and indirect consumer loans. Our capital management and treasury
solutions include treasury management, foreign exchange and short-term investing options.
Effective in the first quarter of 2011, management responsibility for the merchant processing
joint venture, Banc of America Merchant Services, LLC, was moved from GBAM to Global Commercial
Banking where it more closely aligns with the business model. Prior periods have been restated to
reflect this change. In the three months ended June 30, 2011, we recorded a $500 million
impairment write-down on our investment in the joint venture. Because of the recent transfer of
the joint venture to Global Commercial Banking, the impairment write-down was recorded in All
Other for management accounting purposes. For additional
information, see Note 5 Securities to
the Consolidated Financial Statements.
40
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Net
income increased $566 million, or 69 percent, to $1.4 billion driven by lower credit costs from improved
asset quality. Revenue decreased $73 million, primarily due to lower loan balances partially
offset by earnings on higher deposit balances and a gain on the termination of a purchase
contract.
Net interest income decreased $270 million due to the decline in average loans and a lower
net interest allocation related to ALM activities. Offsetting this decrease was an increase in
average deposits of $21.0 billion, as clients continue to maintain high levels of liquidity.
Noninterest income increased $197 million, or 25 percent, largely due to a gain on the termination
of a purchase contract.
The provision for credit losses decreased $1.0 billion to a benefit of $417 million driven by
improved overall economic conditions and an accelerated rate of loan resolutions in the commercial
real estate portfolio.
Noninterest expense increased $94 million due to an increase in Federal Deposit Insurance
Corporation (FDIC) expense driven by growth in deposit balances, higher foreclosed property
expense driven by lower gains on real estate owned sales, and higher other support costs.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Net
income increased $784 million, or 52 percent, to $2.3 billion due to an improvement of $1.9 billion in
the provision for credit losses partially offset by lower revenue. The decrease in net interest
income of $613 million was due to a lower net interest allocation related to ALM activities and
lower loan balances. The decrease in provision for credit losses and the increase in noninterest
expense were driven by the same factors described in the three-month discussion above.
Global Commercial Banking Revenue
Global Commercial Banking revenue can also be categorized into treasury services revenue
primarily from capital and treasury management, and business lending
revenue derived from credit-related products and services.
Treasury services revenue for the three and six months ended June 30, 2011 was $1.2 billion
and $2.4 billion, essentially flat compared to the same periods in 2010. Net interest income
increased from $727 million to $746 million for the three months ended June 30, 2011 compared to
the same period in 2010 driven by the impact of an increase of $21.0 billion in average deposits.
Noninterest income decreased from $521 million to $499 million for the three months ended June 30,
2011 compared to the same period in 2010 as the use of certain treasury services declined and
clients continued to convert from paper to electronic services. These actions, combined with our
clients leveraging compensating balances to offset fees, have negatively impacted treasury
services revenue.
Business lending revenue for the three and six months ended June 30, 2011 was $1.6 billion
and $3.0 billion, a decrease of $71 million and $448 million compared to the same periods in 2010.
Net interest income declined from $1.4 billion to $1.1 billion for the three months ended June 30,
2011 and from $2.8 billion to $2.2 billion for the six months ended June 30, 2011 driven by a
lower net interest allocation related to ALM activities and lower
loan balances compared to the same periods in 2010. Noninterest
income increased from $265 million to $483 million for the three months ended June 30, 2011 and
from $688 million to $825 million for the six months ended June 30, 2011 compared to the same
periods in 2010. This increase was due in part to a gain on the termination of a purchase
contract. Average loan and lease balances decreased $17.3 billion and $19.6 billion, or eight
percent and nine percent, for the three and six months ended June 30, 2011 compared to the same
periods in 2010 due to client deleveraging.
41
Global Banking & Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
1,791 |
|
|
$ |
2,002 |
|
|
|
(11 |
)% |
|
$ |
3,828 |
|
|
$ |
4,172 |
|
|
|
(8 |
)% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges |
|
|
442 |
|
|
|
468 |
|
|
|
(6 |
) |
|
|
917 |
|
|
|
931 |
|
|
|
(2 |
) |
Investment and brokerage services |
|
|
587 |
|
|
|
676 |
|
|
|
(13 |
) |
|
|
1,264 |
|
|
|
1,299 |
|
|
|
(3 |
) |
Investment banking fees |
|
|
1,637 |
|
|
|
1,301 |
|
|
|
26 |
|
|
|
3,148 |
|
|
|
2,517 |
|
|
|
25 |
|
Trading account profits |
|
|
2,071 |
|
|
|
1,202 |
|
|
|
72 |
|
|
|
4,691 |
|
|
|
6,273 |
|
|
|
(25 |
) |
All other income |
|
|
268 |
|
|
|
255 |
|
|
|
5 |
|
|
|
834 |
|
|
|
405 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
5,005 |
|
|
|
3,902 |
|
|
|
28 |
|
|
|
10,854 |
|
|
|
11,425 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
6,796 |
|
|
|
5,904 |
|
|
|
15 |
|
|
|
14,682 |
|
|
|
15,597 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
(82 |
) |
|
|
(133 |
) |
|
|
38 |
|
|
|
(284 |
) |
|
|
103 |
|
|
|
n/m |
|
Noninterest expense |
|
|
4,713 |
|
|
|
4,735 |
|
|
|
- |
|
|
|
9,435 |
|
|
|
9,024 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
2,165 |
|
|
|
1,302 |
|
|
|
66 |
|
|
|
5,531 |
|
|
|
6,470 |
|
|
|
(15 |
) |
Income tax expense (1) |
|
|
607 |
|
|
|
404 |
|
|
|
50 |
|
|
|
1,839 |
|
|
|
2,333 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,558 |
|
|
$ |
898 |
|
|
|
73 |
|
|
$ |
3,692 |
|
|
$ |
4,137 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity |
|
|
16.44 |
% |
|
|
7.03 |
% |
|
|
|
|
|
|
18.61 |
% |
|
|
15.99 |
% |
|
|
|
|
Return on average economic capital (2, 3) |
|
|
23.40 |
|
|
|
9.06 |
|
|
|
|
|
|
|
25.86 |
|
|
|
20.28 |
|
|
|
|
|
Efficiency ratio (1) |
|
|
69.35 |
|
|
|
80.19 |
|
|
|
|
|
|
|
64.26 |
|
|
|
57.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
trading-related assets (4, 5) |
|
$ |
460,153 |
|
|
$ |
522,304 |
|
|
|
(12 |
) |
|
$ |
459,278 |
|
|
$ |
519,767 |
|
|
|
(12 |
) |
Total loans and leases |
|
|
109,473 |
|
|
|
95,839 |
|
|
|
14 |
|
|
|
106,604 |
|
|
|
97,427 |
|
|
|
9 |
|
Total
earning assets (4, 5) |
|
|
569,517 |
|
|
|
622,820 |
|
|
|
(9 |
) |
|
|
572,701 |
|
|
|
628,193 |
|
|
|
(9 |
) |
Total assets
(4, 5) |
|
|
750,908 |
|
|
|
779,060 |
|
|
|
(4 |
) |
|
|
730,907 |
|
|
|
781,949 |
|
|
|
(7 |
) |
Total deposits |
|
|
118,133 |
|
|
|
112,565 |
|
|
|
5 |
|
|
|
115,097 |
|
|
|
108,124 |
|
|
|
6 |
|
Allocated equity |
|
|
38,001 |
|
|
|
51,245 |
|
|
|
(26 |
) |
|
|
40,004 |
|
|
|
52,182 |
|
|
|
(23 |
) |
Economic capital (6) |
|
|
27,078 |
|
|
|
40,705 |
|
|
|
(33 |
) |
|
|
29,126 |
|
|
|
41,582 |
|
|
|
(30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period
end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
trading-related assets (4, 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
445,220 |
|
|
$ |
417,714 |
|
|
|
7 |
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,165 |
|
|
|
99,964 |
|
|
|
14 |
|
Total
earning assets (4, 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
557,327 |
|
|
|
514,462 |
|
|
|
8 |
|
Total assets
(4, 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
691,249 |
|
|
|
655,778 |
|
|
|
5 |
|
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123,618 |
|
|
|
110,971 |
|
|
|
11 |
|
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Increases in the ratios resulted from higher net income for the three-month period and a decrease in
economic capital for both the three- and six-month periods. Economic capital decreased due to lower
credit risk and improvements in counterparty credit exposure. |
|
(3) |
|
Return on average economic capital is calculated as net income, excluding cost of funds and earnings
credit on intangibles, divided by average economic capital. |
|
(4) |
|
Includes assets which are not considered earning assets (i.e., derivative assets). |
|
(5) |
|
Total earning assets and total assets include asset allocations to match liabilities (i.e., deposits). |
|
(6) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets. |
|
n/m |
|
= not meaningful |
GBAM provides financial products, advisory services, financing, securities clearing,
settlement and custody services globally to our institutional investor clients in support of their
investing and trading activities. We also work with our commercial and corporate clients to
provide debt and equity underwriting and distribution capabilities, merger-related and other
advisory services, and risk management products using interest rate, equity, credit, currency and
commodity derivatives, foreign exchange, fixed-income and mortgage-related products. As a result
of our market-making activities in these products, we may be required to manage positions in
government securities, equity and equity-linked securities, high-grade and high-yield corporate
debt securities, commercial paper, mortgage-backed securities (MBS) and asset-backed securities
(ABS). Underwriting debt and equity issuances, securities research and certain market-based
activities are executed through our global broker/dealer affiliates which are our primary dealers
in several countries. GBAM is a leader in the global distribution of fixed-income, currency and
energy commodity products and derivatives. GBAM also has one of the largest equity trading
operations in the world and is a leader in the origination and distribution of equity and
equity-related products. Our corporate banking services provide a wide range of lending-related
products and services, integrated working capital management and treasury solutions to clients
through our network of offices and client relationship teams along with various product partners.
Our corporate clients are generally defined as companies with annual sales greater than $2
billion.
42
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Net income increased $660 million to $1.6 billion driven by higher investment banking fees
and increased sales and trading revenue, while noninterest expense remained relatively flat.
Noninterest expense in the current-year period included
higher revenue-related compensation and costs related to investments in infrastructure while the
prior-year period included the U.K. employer bonus tax of $395 million. Provision benefit
decreased $51 million due to lower reserve releases versus prior year.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Net income decreased $445 million to $3.7 billion due to a less favorable trading environment
in the first quarter of 2011 compared to last years record first quarter and higher noninterest
expense driven by increased costs related to investments in
infrastructure. The provision for credit losses decreased $387 million to a provision benefit
of $284 million driven by stabilization in borrower credit profiles and a legal settlement
recovery.
Components of Global Banking & Markets
Sales and Trading Revenue
Sales and trading revenue is segregated into fixed income including investment and
non-investment grade corporate debt obligations, commercial mortgage-backed securities (CMBS),
residential mortgage-backed securities (RMBS), swaps and collateralized debt obligations (CDOs);
currencies including interest rate and foreign exchange contracts; commodities including primarily
futures, forwards and options; and equity income from equity-linked derivatives and cash equity
activity. For additional information on sales and trading revenue, see Note 4 Derivatives to
the Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Sales and trading revenue (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income, currencies and commodities |
|
$ |
2,697 |
|
|
$ |
2,230 |
|
|
$ |
6,343 |
|
|
$ |
7,717 |
|
Equity income |
|
|
1,081 |
|
|
|
882 |
|
|
|
2,330 |
|
|
|
2,396 |
|
|
Total sales and trading revenue |
|
$ |
3,778 |
|
|
$ |
3,112 |
|
|
$ |
8,673 |
|
|
$ |
10,113 |
|
|
|
|
|
(1) |
|
Includes $43 million and $98 million of net interest
income on a FTE basis for the three and six months
ended June 30, 2011 as compared to $76 million and $148
million for the same periods in 2010. |
Sales and trading revenue increased $666 million, or 21 percent, to $3.8 billion for the
three months ended June 30, 2011 compared to the same period in
2010. Fixed income, currencies and
commodities (FICC) revenue increased $467 million to $2.7 billion for the three months ended June
30, 2011 compared to the same period in 2010 driven by credit and commodities. Equity income was
$1.1 billion for the three months ended June 30, 2011 compared to $882 million for the same period
in 2010 with the increase due to favorable market conditions, primarily in the equity derivatives business. Sales
and trading revenue includes total commissions and brokerage fee revenue of $583 million ($547
million from equities and $36 million from FICC) for the three months ended June 30, 2011 compared
to $657 million ($600 million from equities and $57 million from FICC) for the same period in
2010. We recorded DVA gains during the three months ended June 30, 2011 of $121 million compared
to gains of $77 million in the same period in 2010.
Sales and trading revenue decreased $1.4 billion, or 14 percent, to $8.7 billion for the six
months ended June 30, 2011 compared to the same period in 2010 due to a less favorable trading
environment in the first quarter of 2011. FICC revenue decreased $1.4 billion to $6.3 billion for
the six months ended June 30, 2011 compared to the same period in 2010 primarily due to our rates
and currencies business and the wind down of our proprietary trading business. Equity income was
$2.3 billion for the six months ended June 30, 2011 compared to $2.4 billion for the same period
in the prior year with the decrease driven primarily by lower equity derivative trading volumes
partially offset by an increase in commission revenue. Sales and trading revenue includes total
commissions and brokerage fee revenue of $1.3 billion ($1.2 billion from equities and $75 million
from FICC) for the six months ended June 30, 2011 compared to $1.3 billion ($1.2 billion from
equities, and $101 million from FICC) for the same period in 2010. We recorded DVA losses during
the six months ended June 30, 2011 of $236 million compared to gains of
$246 million in the
same period in 2010.
43
In conjunction with regulatory reform measures and our initiative to optimize our balance
sheet, we have exited our proprietary trading business as of June 30, 2011, which involved trading
activities in a variety of products, including stocks,
bonds, currencies and commodities.
Proprietary trading revenue was $231 million and $434 million for the three and six months
ended June 30, 2011 compared to $432 million and $888 million in the same periods in 2010.
For additional information, see
Financial Reform Act Limitations on Certain Activities on page
62.
Investment Banking Fees
Product specialists within GBAM provide advisory services, and underwrite and distribute debt
and equity issuances and certain other loan products. The table below presents total investment
banking fees for GBAM which represents 97 percent of the Corporations total investment banking
income for both the three and six months ended June 30, 2011 and 99 percent and 98 percent for the
same periods in 2010, with the remainder comprised of investment banking income reported in GWIM
and Global Commercial Banking.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Investment banking fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory (1) |
|
$ |
381 |
|
|
$ |
242 |
|
|
$ |
700 |
|
|
$ |
409 |
|
Debt issuance |
|
|
880 |
|
|
|
773 |
|
|
|
1,679 |
|
|
|
1,509 |
|
Equity issuance |
|
|
376 |
|
|
|
286 |
|
|
|
769 |
|
|
|
599 |
|
|
Total investment banking fees |
|
$ |
1,637 |
|
|
$ |
1,301 |
|
|
$ |
3,148 |
|
|
$ |
2,517 |
|
|
|
|
|
(1) |
|
Advisory includes fees on debt and equity advisory
services and mergers and acquisitions. |
Investment banking fees increased $336 million for the three months ended June 30, 2011
compared to the same period in the prior year reflecting strong performance across all categories,
particularly advisory, equity issuance, leveraged finance and investment-grade. Investment banking
fees increased $631 million for the six months ended June 30, 2011 compared to the prior-year
period reflecting strong performance across advisory services and debt and equity issuances.
Global Corporate Banking
Client relationship teams along with product partners work with our customers to provide a
wide range of lending-related products and services, integrated working capital management and
treasury solutions through the Corporations global network of offices. Global Corporate Banking
revenues of $1.4 billion and $2.9 billion for the three and six months ended June 30, 2011
remained in line with the same periods in the prior year. Global treasury services revenues of
$624 million and $1.2 billion for the three and six months ended June 30, 2011 were consistent
with the same periods in the prior year as growth in deposit volumes across all the regions was
offset by a challenging rate environment. Global Corporate Banking average deposits increased six
percent and eight percent to $110.6 billion and
$108.0 billion for the three and six months ended June 30, 2011
compared to the same periods in the prior year resulting
from clients continuing to hold excess liquidity due to restrained spending. Global Corporate
Banking lending activities continued to show strength as average loan balances increased 17
percent and 12 percent to $92.8 billion and $90.2 billion for the three and six months ended June
30, 2011 compared to the same periods in prior year, primarily from increases in non-U.S.
commercial loan and trade finance portfolios.
Collateralized Debt Obligation Exposure
CDO vehicles hold diversified pools of fixed-income securities and issue multiple
tranches of debt securities including commercial paper, and mezzanine and equity securities. Our
CDO-related exposure can be divided into funded and unfunded super senior liquidity commitment
exposure and other super senior exposure (i.e., cash positions and derivative contracts). For more
information on our CDO positions, see Note 8 Securitizations and Other Variable Interest
Entities to the Consolidated Financial Statements. Super senior exposure represents the most
senior class of notes that are issued by the CDO vehicles. These financial instruments benefit
from the subordination of all other securities issued by the CDO vehicles. In the three and six
months ended June 30, 2011, we recorded $3 million of gains and $2 million of losses from our
CDO-related exposure compared to $313 million and $605 million of losses for the same periods in
2010.
44
At June 30, 2011, our super senior CDO exposure before consideration of insurance, net of
write-downs, was $1.1 billion, comprised of $805 million in trading account assets and $283
million in AFS debt securities, compared to $2.0 billion, comprised of $1.3 billion in trading
account assets and $675 million in AFS debt securities at December 31, 2010. Of our super senior
CDO exposure at June 30, 2011, $569 million was hedged and $518 million was unhedged compared to
$772 million hedged and $1.2 billion unhedged at December 31, 2010. Unrealized losses recorded in
accumulated OCI on super senior cash positions and retained positions from liquidated CDOs in
aggregate decreased $14 million and $365 million during the three and six months ended June 30,
2011 to $101 million primarily due to tightening of RMBS and CMBS spreads and the sale of two ABS
CDOs.
The table below presents our original total notional, mark-to-market receivable and credit
valuation adjustment for credit default swaps and other positions with monolines. The receivable
for super senior CDOs reflects hedge gains recorded from inception of the contracts in connection
with write-downs on super senior CDOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Default Swaps with Monoline Financial Guarantors |
|
|
June 30, 2011 |
|
December 31, 2010 |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
Super |
|
Guaranteed |
|
|
|
|
|
Super |
|
Guaranteed |
|
|
(Dollars in millions) |
|
Senior CDOs |
|
Positions |
|
Total |
|
Senior CDOs |
|
Positions |
|
Total |
|
Notional |
|
$ |
2,968 |
|
|
$ |
32,656 |
|
|
$ |
35,624 |
|
|
$ |
3,241 |
|
|
$ |
35,183 |
|
|
$ |
38,424 |
|
Mark-to-market or guarantor
receivable |
|
$ |
2,578 |
|
|
$ |
6,150 |
|
|
$ |
8,728 |
|
|
$ |
2,834 |
|
|
$ |
6,367 |
|
|
$ |
9,201 |
|
Credit valuation adjustment |
|
|
(2,363 |
) |
|
|
(3,314 |
) |
|
|
(5,677 |
) |
|
|
(2,168 |
) |
|
|
(3,107 |
) |
|
|
(5,275 |
) |
|
Total |
|
$ |
215 |
|
|
$ |
2,836 |
|
|
$ |
3,051 |
|
|
$ |
666 |
|
|
$ |
3,260 |
|
|
$ |
3,926 |
|
|
Credit valuation adjustment % |
|
|
92 |
% |
|
|
54 |
% |
|
|
65 |
% |
|
|
77 |
% |
|
|
49 |
% |
|
|
57 |
% |
(Write-downs) gains |
|
$ |
(314 |
) |
|
$ |
(354 |
) |
|
$ |
(668 |
) |
|
$ |
(386 |
) |
|
$ |
362 |
|
|
$ |
(24 |
) |
|
Total monoline exposure, net of credit valuation adjustments decreased $875 million
driven by terminated monoline contracts when compared to December 31, 2010. The increase in the
credit valuation adjustment as a percent of total super senior CDO exposure was driven by
reductions in recovery expectations for a monoline counterparty. Total write-downs for the six
months ended June 30, 2011 were $668 million which included changes in credit valuation
adjustments as well as hedge losses due to breakdowns in correlations.
With the Merrill Lynch acquisition, we acquired a loan with a carrying value of $3.8 billion
as of June 30, 2011 that is collateralized by U.S. super senior ABS CDOs. Merrill Lynch originally
provided financing to the borrower for an amount equal to approximately 75 percent of the fair
value of the collateral. The loan is recorded in All Other and all scheduled payments on the loan
have been received to date. Events of default under the loan are customary events of default,
including failure to pay interest when due and failure to pay principal at maturity. Collateral
for the loan is excluded from our CDO exposure. The loan matures in September 2023.
45
Global Wealth & Investment Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
1,571 |
|
|
$ |
1,443 |
|
|
|
9 |
% |
|
$ |
3,140 |
|
|
$ |
2,907 |
|
|
|
8 |
% |
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and brokerage services |
|
|
2,378 |
|
|
|
2,195 |
|
|
|
8 |
|
|
|
4,756 |
|
|
|
4,303 |
|
|
|
11 |
|
All other income |
|
|
541 |
|
|
|
551 |
|
|
|
(2 |
) |
|
|
1,086 |
|
|
|
1,020 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
2,919 |
|
|
|
2,746 |
|
|
|
6 |
|
|
|
5,842 |
|
|
|
5,323 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
4,490 |
|
|
|
4,189 |
|
|
|
7 |
|
|
|
8,982 |
|
|
|
8,230 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
72 |
|
|
|
122 |
|
|
|
(41 |
) |
|
|
118 |
|
|
|
363 |
|
|
|
(67 |
) |
Noninterest expense |
|
|
3,631 |
|
|
|
3,269 |
|
|
|
11 |
|
|
|
7,230 |
|
|
|
6,368 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
787 |
|
|
|
798 |
|
|
|
(1 |
) |
|
|
1,634 |
|
|
|
1,499 |
|
|
|
9 |
|
Income tax expense (1) |
|
|
281 |
|
|
|
469 |
|
|
|
(40 |
) |
|
|
595 |
|
|
|
731 |
|
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
506 |
|
|
$ |
329 |
|
|
|
54 |
|
|
$ |
1,039 |
|
|
$ |
768 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest yield (1) |
|
|
2.34 |
% |
|
|
2.42 |
% |
|
|
|
|
|
|
2.32 |
% |
|
|
2.49 |
% |
|
|
|
|
Return on average equity |
|
|
11.54 |
|
|
|
7.27 |
|
|
|
|
|
|
|
11.80 |
|
|
|
8.61 |
|
|
|
|
|
Return on average economic capital (2, 3) |
|
|
29.97 |
|
|
|
19.10 |
|
|
|
|
|
|
|
30.21 |
|
|
|
22.76 |
|
|
|
|
|
Efficiency ratio (1) |
|
|
80.88 |
|
|
|
78.05 |
|
|
|
|
|
|
|
80.50 |
|
|
|
77.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
102,200 |
|
|
$ |
98,811 |
|
|
|
3 |
|
|
$ |
101,529 |
|
|
$ |
98,826 |
|
|
|
3 |
|
Total earning assets |
|
|
268,968 |
|
|
|
239,186 |
|
|
|
12 |
|
|
|
272,958 |
|
|
|
235,284 |
|
|
|
16 |
|
Total assets |
|
|
289,050 |
|
|
|
259,801 |
|
|
|
11 |
|
|
|
293,170 |
|
|
|
256,510 |
|
|
|
14 |
|
Total deposits |
|
|
255,219 |
|
|
|
226,276 |
|
|
|
13 |
|
|
|
256,859 |
|
|
|
223,956 |
|
|
|
15 |
|
Allocated equity |
|
|
17,574 |
|
|
|
18,179 |
|
|
|
(3 |
) |
|
|
17,755 |
|
|
|
18,002 |
|
|
|
(1 |
) |
Economic capital (4) |
|
|
6,868 |
|
|
|
7,380 |
|
|
|
(7 |
) |
|
|
7,038 |
|
|
|
7,209 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period
end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
102,878 |
|
|
$ |
100,724 |
|
|
|
2 |
|
Total earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263,867 |
|
|
|
275,260 |
|
|
|
(4 |
) |
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
284,294 |
|
|
|
296,251 |
|
|
|
(4 |
) |
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,580 |
|
|
|
257,982 |
|
|
|
(1 |
) |
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Increases in ratios resulted from higher net income and a decrease in economic capital. Economic
capital decreased modestly due to improvements in interest rate risk due to changes in portfolio
composition. |
|
(3) |
|
Return on average economic capital is calculated as net income, excluding cost of funds and
earnings credit on intangibles, divided by average economic capital. |
|
(4) |
|
Economic capital represents allocated equity less goodwill and a percentage of intangible assets. |
GWIM consists of three primary businesses: Merrill Lynch Global Wealth Management
(MLGWM); U.S. Trust, Bank of America Private Wealth Management (U.S. Trust); and Retirement
Services.
MLGWMs advisory business provides a high-touch client experience through a network of more
than 16,000 financial advisors focused on clients with over $250,000 in total investable assets.
MLGWM provides tailored solutions to meet our clients needs through a full set of brokerage,
banking and retirement products in both domestic and international locations.
U.S. Trust, together with MLGWMs Private Banking & Investments Group, provides comprehensive
wealth management solutions targeted at wealthy and ultra-wealthy clients with investable assets
of more than $5 million, as well as customized solutions to meet clients wealth structuring,
investment management, trust and banking needs, including specialty asset management services.
Retirement Services partners with financial advisors to provide institutional and personal
retirement solutions including investment management, administration, recordkeeping and custodial
services for 401(k), pension, profit-sharing, equity award and non-qualified deferred compensation
plans. Retirement Services also provides comprehensive investment advisory services to
individuals, small to large corporations and pension plans.
46
GWIM results also include the BofA Global Capital Management (BACM) business, which is
comprised primarily of the cash and liquidity asset management business that was retained
following the sale of Columbia Management long-term asset management business in May 2010.
For the three and six months ended June 30, 2011, revenue from MLGWM was $3.5 billion and
$7.0 billion, up 11 percent and 15 percent compared to the same periods in 2010 driven by higher
net interest income and higher asset management fees due to market and long-term assets under
management (AUM) flows. Revenue from U.S. Trust was $711 million and $1.4 billion, up four percent
and six percent compared to the same periods in the prior year driven by higher net interest
income and higher asset management fees. Revenue from Retirement Services was $273 million and
$545 million, up 12 percent and 13 percent compared to the same periods in the prior year
primarily driven by higher investment and brokerage services due to higher market valuations and
long-term flows.
GWIM results include the impact of migrating clients and their related deposit and loan
balances to or from Deposits, CRES and the ALM portfolio, as presented in the table below. Current
years migration includes the additional movement of balances to Merrill Edge, which is in
Deposits. Subsequent to the date of the migration, the associated net interest income, noninterest
income and noninterest expense are recorded in the business to which the clients migrated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Migration Summary |
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits GWIM from / (to) Deposits |
|
$ |
(2,087 |
) |
|
$ |
2,016 |
|
|
$ |
(1,704 |
) |
|
$ |
1,472 |
|
Total loans GWIM to CRES and the ALM portfolio |
|
|
(184 |
) |
|
|
(1,437 |
) |
|
|
(93 |
) |
|
|
(1,254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits GWIM from / (to) Deposits |
|
$ |
1,310 |
|
|
$ |
(652 |
) |
|
$ |
(2,053 |
) |
|
$ |
2,031 |
|
Total loans GWIM to CRES and the ALM portfolio |
|
|
(189 |
) |
|
|
(75 |
) |
|
|
(189 |
) |
|
|
(1,430 |
) |
|
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
Net income increased $177 million, or 54 percent, to $506 million driven by higher net
interest income and noninterest income as well as lower credit costs, partially offset by higher
noninterest expense. The prior-year period net income included a tax-related charge from the sale
of the Columbia Management long-term asset management business. Net interest income increased $128
million, or nine percent, to $1.6 billion driven by a $28.9 billion increase in average deposits
and the related effect on interest expense. Noninterest income increased $173 million, or six
percent, to $2.9 billion primarily due to higher asset management fees from improved equity market
levels and flows into long-term AUM. Brokerage revenue was essentially flat due to slow market
activity. Provision for credit losses decreased $50 million to $72 million driven by improving
portfolio trends within the home equity portfolio, partially offset by the impact of declines in
home prices on the residential mortgage portfolio. Noninterest expense increased $362 million, or
11 percent, to $3.6 billion driven by higher revenue-related expenses, support costs and personnel
costs associated with the continued build-out of the business.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
Net income increased $271 million, or 35 percent, to $1.0 billion driven by the same factors
discussed above. Net interest income increased $233 million, or eight percent, to $3.1 billion
driven by the $32.9 billion increase in average deposits partially offset by a lower allocation of
income related to ALM activities. Noninterest income increased $519 million, or 10 percent, to
$5.8 billion due to higher asset management fees from improved equity market levels and flows into
long-term AUM as well as higher brokerage income. The provision for credit losses decreased $245
million to $118 million driven by improving portfolio trends in the home equity and commercial
portfolios. The increase in noninterest expense of $862 million was driven by the same factors as
described in the three-month discussion above.
47
Client Balances
The table below presents client balances which consist of AUM, client brokerage assets,
assets in custody, client deposits, and loans and leases. The increase in client balances was
driven by inflows into long-term AUM and fee-based brokerage assets
as well as higher market levels offset by liquidity outflows from
BACM and declines in other brokerage assets.
|
|
|
|
|
|
|
|
|
Client Balances by Type |
|
|
June 30 |
|
|
December 31 |
|
(Dollars in millions) |
|
2011 |
|
|
2010 |
|
|
Assets under management |
|
$ |
660,928 |
|
|
$ |
630,498 |
|
Brokerage assets |
|
|
1,066,078 |
|
|
|
1,077,049 |
|
Assets in custody |
|
|
116,499 |
|
|
|
115,033 |
|
Deposits |
|
|
255,580 |
|
|
|
257,982 |
|
Loans and leases |
|
|
102,878 |
|
|
|
100,724 |
|
|
Total client balances |
|
$ |
2,201,963 |
|
|
$ |
2,181,286 |
|
|
48
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
|
|
Six Months Ended June 30 |
|
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
% Change |
|
2011 |
|
2010 |
|
% Change |
|
Net interest income (1) |
|
$ |
(167 |
) |
|
$ |
77 |
|
|
|
n/m |
|
|
$ |
(74 |
) |
|
$ |
118 |
|
|
|
n/m |
|
Noninterest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment income |
|
|
1,139 |
|
|
|
2,253 |
|
|
|
(49 |
)% |
|
|
2,547 |
|
|
|
2,765 |
|
|
|
(8 |
)% |
Gains on sales of debt securities |
|
|
831 |
|
|
|
14 |
|
|
|
n/m |
|
|
|
1,299 |
|
|
|
662 |
|
|
|
96 |
|
All other income (loss) |
|
|
62 |
|
|
|
783 |
|
|
|
(92 |
) |
|
|
(780 |
) |
|
|
905 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
2,032 |
|
|
|
3,050 |
|
|
|
(33 |
) |
|
|
3,066 |
|
|
|
4,332 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total revenue, net of interest expense |
|
|
1,865 |
|
|
|
3,127 |
|
|
|
(40 |
) |
|
|
2,992 |
|
|
|
4,450 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1,663 |
|
|
|
1,246 |
|
|
|
33 |
|
|
|
3,462 |
|
|
|
2,466 |
|
|
|
40 |
|
Merger and restructuring charges |
|
|
159 |
|
|
|
508 |
|
|
|
(69 |
) |
|
|
361 |
|
|
|
1,029 |
|
|
|
(65 |
) |
All other noninterest expense |
|
|
157 |
|
|
|
605 |
|
|
|
(74 |
) |
|
|
1,449 |
|
|
|
1,814 |
|
|
|
(20 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(114 |
) |
|
|
768 |
|
|
|
n/m |
|
|
|
(2,280 |
) |
|
|
(859 |
) |
|
|
(165 |
) |
Income tax expense (benefit) (1) |
|
|
102 |
|
|
|
(355 |
) |
|
|
n/m |
|
|
|
(848 |
) |
|
|
(1,192 |
) |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(216 |
) |
|
$ |
1,123 |
|
|
|
n/m |
|
|
$ |
(1,432 |
) |
|
$ |
333 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
$ |
258,397 |
|
|
$ |
257,322 |
|
|
|
- |
|
|
$ |
258,374 |
|
|
$ |
256,742 |
|
|
|
1 |
|
Total assets (2) |
|
|
167,364 |
|
|
|
291,530 |
|
|
|
(43 |
) |
|
|
183,289 |
|
|
|
300,395 |
|
|
|
(39 |
) |
Total deposits |
|
|
46,684 |
|
|
|
64,709 |
|
|
|
(28 |
) |
|
|
47,642 |
|
|
|
67,770 |
|
|
|
(30 |
) |
Allocated equity (3) |
|
|
73,244 |
|
|
|
29,091 |
|
|
|
152 |
|
|
|
67,030 |
|
|
|
24,475 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
December 31 |
|
|
|
|
Period
end |
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
259,285 |
|
|
$ |
254,516 |
|
|
|
2 |
|
Total assets (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,210 |
|
|
|
243,099 |
|
|
|
(14 |
) |
Total deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,355 |
|
|
|
57,424 |
|
|
|
(26 |
) |
|
|
|
|
(1) |
|
FTE basis |
|
(2) |
|
Includes elimination of segments excess asset
allocations to match liabilities (i.e., deposits) of
$676.7 billion and $672.3 billion for the three and six
months ended June 30, 2011 compared to $611.2 billion
and $600.1 billion for the same periods in 2010, and
$629.6 billion and $647.3 billion at June 30, 2011 and
December 31, 2010. |
|
(3) |
|
Represents the risk-based capital assigned to All Other
as well as the remaining portion of equity not
specifically allocated to the segments. Allocated
equity increased due to excess capital not being
assigned to the business segments. |
All Other consists of two broad groupings, Equity Investments and Other. Equity
Investments includes Global Principal Investments (GPI), Strategic and other investments, and
Corporate Investments. In the second quarter of 2011, we sold our investment in BlackRock,
previously included in Strategic and other investments. During 2010, we sold the equity
investments in Corporate Investments. Other includes liquidating businesses, merger and
restructuring charges, ALM functions (i.e., residential mortgage portfolio and investment
securities) and related activities (i.e., economic hedges and fair value option on structured
liabilities), the impact of certain allocation methodologies and any accounting
hedge ineffectiveness. Other includes certain residential mortgage and discontinued real
estate loans that are managed by Legacy Asset Servicing within CRES. For additional information on
the other activities included in All Other, see Note 26
Business Segment Information to the
Consolidated Financial Statements of the Corporations 2010 Annual Report on Form 10-K.
Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010
All Other reported a net loss of $216 million compared to net income of $1.1 billion due to
lower revenue and higher provision for credit losses. The decrease in revenue was driven by a $1.1
billion decrease in equity investment income (see Equity Investment
Activity on page 50) and lower
positive fair value adjustments of $214 million on structured liabilities compared to $1.2
billion. Additionally, a $500 million impairment write-down on our merchant services joint venture
during the three months ended June 30, 2011 contributed to the decrease in revenue. These were
partially offset by an $817 million increase in gains on sales of debt securities. Also, merger
and restructuring charges decreased $349 million as integration efforts with the Merrill Lynch
acquisition continue to progress as planned.
Provision for credit losses increased $417 million to $1.7 billion driven primarily by
reserve additions to the Countrywide PCI discontinued real estate and residential mortgage
portfolios due to the impact of further declines in the home price outlook and higher credit costs
related to the non-PCI residential mortgage portfolio driven by the impact of refreshed valuations
of underlying collateral.
49
Income tax expense was $102 million compared to a benefit of $355 million for the same period
in 2010. The current-period expense reflects the residual tax expense after allocation of tax
benefits to the segments.
Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010
All Other reported a net loss of $1.4 billion compared to net income of $333 million due to
lower revenue and higher provision for credit losses. The decrease in revenue was driven by
negative fair value adjustments of $372 million on structured liabilities compared to positive
fair value adjustments of $1.4 billion, and a $218 million decrease in equity investment income
(see Equity Investment Activity below). These were partially offset by a $637 million increase in
gains on sales of debt securities. Also, merger and restructuring charges decreased $668 million.
Provision for credit losses increased $996 million to $3.5 billion driven by reserve
additions to the Countrywide PCI discontinued real estate and residential mortgage portfolios.
These increases were partially offset by lower provision for credit losses related to the non-PCI
residential mortgage portfolio due to improving delinquencies in early 2011.
The income tax benefit was $848 million compared to $1.2 billion for the same period
in 2010 driven by the factors described above.
Equity Investment Activity
The tables below present the components of the equity investments in All Other at June
30, 2011 and December 31, 2010, and also a reconciliation to the total consolidated equity
investment income for the three and six months ended June 30, 2011 and 2010.
|
|
|
|
|
|
|
|
|
Equity Investments |
|
|
June 30 |
|
December 31 |
(Dollars in millions) |
|
2011 |
|
2010 |
|
Global Principal Investments |
|
$ |
10,805 |
|
|
$ |
11,656 |
|
Strategic and other investments |
|
|
20,190 |
|
|
|
22,545 |
|
|
Total equity investments included in All Other |
|
$ |
30,995 |
|
|
$ |
34,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investment Income |
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
(Dollars in millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Global Principal Investments |
|
$ |
399 |
|
|
$ |
814 |
|
|
$ |
1,764 |
|
|
$ |
1,391 |
|
Strategic and other investments |
|
|
740 |
|
|
|
1,433 |
|
|
|
783 |
|
|
|
1,679 |
|
Corporate Investments |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
(305 |
) |
|
Total equity investment income included in All Other |
|
|
1,139 |
|
|
|
2,253 |
|
|
|
2,547 |
|
|
|
2,765 |
|
Total equity investment income included in the
business segments |
|
|
73 |
|
|
|
513 |
|
|
|
140 |
|
|
|
626 |
|
|
Total consolidated equity investment income |
|
$ |
1,212 |
|
|
$ |
2,766 |
|
|
$ |
2,687 |
|
|
$ |
3,391 |
|
|
GPI is comprised of a diversified portfolio of investments in private equity, real
estate and other alternative investments. These investments are made either directly in a company
or held through a fund with related income recorded in equity investment income. GPI had unfunded
equity commitments of $1.1 billion and $1.4 billion at June 30, 2011 and December 31, 2010 related
to certain of these investments. During the six months ended June 30, 2011, we recorded a $1.1
billion gain related to an IPO of an equity investment, which occurred in the first quarter of
2011.
Strategic and other investments is primarily comprised of our investment in CCB of $19.6
billion, which decreased by $176 million from December 31, 2010 due to a decline in the CCB share
price. At June 30, 2011, we owned approximately 10 percent, or 25.6 billion common shares of CCB.
In the three months ended June 30, 2011, we recorded an $837 million dividend on our investment in
CCB compared to a $535 million dividend in the same period in 2010. Also in the three months ended
June 30, 2011, we sold our investment in BlackRock, resulting in a $377 million gain and recorded
an impairment write-down of $500 million on our merchant services joint venture, Banc of America
Merchant Services, LLC. After the recent transfer of the merchant services joint venture to Global
Commercial Banking during the first quarter of 2011, the write-down was taken in All Other for
management accounting purposes. In the three months ended March 31, 2010, the $2.7 billion
Corporate Investments equity securities portfolio, which consisted of highly liquid
publicly-traded equity securities, was sold resulting in a loss of $331 million. In the three
months ended June 30, 2010, we sold certain strategic investments, resulting in a net gain of $751
million. For additional information on certain Corporate and
Strategic Investments, see Note 5
Securities to the Consolidated Financial Statements.
50
Off-Balance Sheet Arrangements and Contractual Obligations
We have contractual obligations to make future payments on debt and lease agreements.
Additionally, in the normal course of business, we enter into a number of off-balance sheet
commitments including commitments to extend credit such as loan commitments, standby letters of
credit (SBLCs) and commercial letters of credit to meet the financing needs of our customers. For
additional information on our obligations and commitments, see
Note 11 Commitments and
Contingencies to the Consolidated Financial Statements, page 51 of the MD&A of the Corporations
2010 Annual Report on Form 10-K, as well as Note 13
Long-term Debt and Note 14 Commitments
and Contingencies to the Consolidated Financial Statements of the Corporations 2010 Annual Report
on Form 10-K.
Representations and Warranties
We securitize first-lien residential mortgage loans generally in the form of MBS
guaranteed by the GSEs or by Government National Mortgage Association (GNMA) in the case of the
FHA-insured and U.S. Department of Veterans Affairs-guaranteed mortgage loans. In addition, in prior years, legacy companies and
certain subsidiaries sold pools of first-lien residential mortgage loans and home equity loans as
private-label securitizations (in certain of these securitizations, monolines or financial
guarantee providers insured all or some of the securities), or in the form of whole loans. In
connection with these transactions, we or our subsidiaries or legacy companies make or have made
various representations and warranties. Breaches of these representations and warranties may
result in the requirement to repurchase mortgage loans or to otherwise make whole or provide other
remedies to the GSEs, GNMA, whole-loan buyers, securitization trusts, monoline insurers or other
financial guarantors (collectively, repurchases). In such cases, we would be exposed to any credit
loss on the repurchased mortgage loans.
Subject to the requirements and limitations of the applicable sales and securitization
agreements, these representations and warranties can be enforced by the GSEs, GNMA, the whole-loan
buyer, the securitization trustee, or others as governed by the applicable agreement or, in
certain first-lien and home equity securitizations where monoline insurers or other financial
guarantee providers have insured all or some of the securities issued, by the monoline insurer or
other financial guarantor at any time. In the case of loans sold to parties other than the GSEs or
GNMA, the contractual liability to repurchase typically arises only if there is a breach of the
representations and warranties that materially and adversely affects the interest of the investor,
or investors, in the loan, or of the monoline insurer or other financial guarantor (as
applicable). Contracts with the GSEs and GNMA do not contain an equivalent requirement.
For additional information about accounting for representations and warranties and our
representations and warranties claims and exposures, see Recent
Events Private-label
Securitization Settlement with the Bank of New York Mellon, Complex
Accounting Estimates
Representations and Warranties, Note 9 Representations and Warranties Obligations and Corporate
Guarantees and Note 11 Commitments and Contingencies to the Consolidated Financial Statements,
Item 1A. Risk Factors on page 219 and Item 1A. Risk Factors of the
Corporations 2010 Annual Report on Form 10-K.
Representations and Warranties Bulk Settlement Actions
Beginning in the fourth quarter of 2010, we have settled, or entered into agreements to
settle, certain bulk representations and warranties claims, and in certain settlements bulk
servicing claims, with a trustee, a monoline insurer and with the GSEs. We have contested, and
will continue to vigorously contest any request for repurchase when we conclude that a valid basis
for repurchase does not exist. However, in an effort to resolve these legacy mortgage-related
issues, we have reached bulk settlements, or agreements for bulk settlements, including settlement
amounts which have been material, with certain of the above referenced counterparties in lieu of a
loan-by-loan review process. We may reach other settlements in the future if opportunities arise
on terms determined to be advantageous to us. The following discussion is a summary of the
significant settlement actions we have taken beginning in the fourth quarter of 2010 and the
related impact on the representations and warranties provision and liability.
Settlement with the Bank of New York Mellon, as Trustee
On June 28, 2011, we, BAC HLS and certain legacy Countrywide affiliates entered into the BNY
Mellon Settlement. The Covered Trusts referenced in the BNY Mellon Settlement had an original
principal balance of approximately $424 billion, of which $409 billion was originated between 2004
and 2008, and a total current unpaid principal balance of approximately $220 billion at June 28,
2011, of which $217 billion was originated between 2004 and 2008.
The BNY Mellon Settlement is supported by the Investor Group. As previously disclosed, in
October 2010, BAC HLS received a letter from a law firm on behalf of certain members of the
Investor Group alleging a servicer event of
default and asserting breaches of certain loan servicing obligations, including an alleged failure
to provide notice to the
51
Trustee and other parties to the pooling and servicing agreements of
breaches of representations and warranties with respect to the mortgage loans included in certain
of the Covered Trusts. In connection with the BNY Mellon Settlement, we entered into an agreement
with the Investor Group, which provides that, among other things, the Investor Group will use
reasonable best efforts and cooperate in good faith to effectuate the BNY Mellon Settlement,
including obtaining final court approval.
The BNY Mellon Settlement provides for the Settlement Payment of $8.5 billion to the Trustee
for distribution to the Covered Trusts after final court approval of the BNY Mellon Settlement. In
addition to the Settlement Payment, we are obligated to pay attorneys fees and costs to the
Investor Groups counsel as well as all fees and expenses incurred by the Trustee in connection
with the BNY Mellon Settlement, which are currently estimated at $100 million. We are also
obligated to pay the Investor Groups counsel and the Trustees fees and expenses related to
obtaining final court approval of the BNY Mellon Settlement and certain tax rulings.
The BNY Mellon Settlement also includes provisions related to specific mortgage servicing
standards and other servicing matters, including the transfer of servicing related to certain
high-risk loans to qualified subservicers and the benchmarking of loan servicing against defined
industry standards regarding default-servicing timelines. For additional information about the
servicing matters, see Off-Balance Sheet Arrangements and Contractual
Obligations Other
Mortgage-related Matters on page 60.
The BNY Mellon Settlement does not cover a small number of legacy Countrywide-issued
first-lien non-GSE RMBS transactions with loans originated principally between 2004 and 2008,
including for example, six legacy Countrywide-issued first-lien non-GSE RMBS transactions in which
BNY Mellon is not the trustee. The BNY Mellon Settlement also does not cover legacy
Countrywide-issued second-lien securitization transactions in which a monoline insurer or other
financial guarantor provides financial guaranty insurance. In addition, because the BNY Mellon
Settlement is with the Trustee on behalf of the Covered Trusts and releases rights under the
governing agreements for the Covered Trusts, the BNY Mellon Settlement does not release investors
securities law or fraud claims based upon disclosures made in connection with their decision to
purchase, sell, or hold securities issued by the Covered Trusts. To date, various investors,
including certain members of the Investor Group, are pursuing securities law or fraud claims
related to one or more of the Covered Trusts. We are not able to determine whether any additional
securities law or fraud claims will be made by investors in the Covered Trusts. For those Covered
Trusts where a monoline insurer or other financial guarantor has an independent right to assert
repurchase claims directly, the BNY Mellon Settlement does not release such insurers or
guarantors repurchase claims.
The BNY Mellon Settlement is subject to final court approval and other conditions. The
Trustee has determined that the BNY Mellon Settlement is in the best interests of the Covered
Trusts and is seeking the necessary court approval of the BNY Mellon Settlement by commencing a
judicial proceeding in New York State court requesting that the court approve the BNY Mellon
Settlement as to all the Covered Trusts (the Article 77 Proceeding). The court has signed an order
providing that notice of the settlement terms be provided to certificateholders and noteholders in
the Covered Trusts. Under the courts order, certificateholders and noteholders in the Covered
Trusts have the opportunity to file objections until August 30, 2011 and responses to those
objections and statements in support of the BNY Mellon Settlement until October 31, 2011. The
Investor Group has filed, and the court has granted, a petition to intervene as a party in the
Article 77 Proceeding so that it may support the BNY Mellon Settlement. The court is scheduled to
hold a hearing on the Trustees request for entry of an order approving the BNY Mellon Settlement
on November 17, 2011.
Given the number of Covered Trusts, the number of investors in those Covered Trusts and the
complexity of the BNY Mellon Settlement, it is not possible to predict how many investors will
seek to intervene in the court proceeding, how many of those and other investors may ultimately
object to the BNY Mellon Settlement, or the timing or ultimate outcome of the court approval
process, which can include appeals and could take a substantial period of time. Several alleged
investors outside the Investor Group have filed, and the court has granted, petitions to intervene
as parties in the pending court proceeding. Certain of these intervenors have stated that they
intend to object to the BNY Mellon Settlement, while others have said that they need more
information in order to determine whether to object, and indicated that they therefore intend to
seek discovery. In addition, it is possible that a substantial number of additional investors
outside the Investor Group will also seek to intervene as parties, and some intervenors and other
investors may object to the BNY Mellon Settlement. The resolutions of the objections of
intervenors and/or other investors who object may delay or ultimately prevent receipt of final
court approval. If final court approval is not obtained by December 31, 2015, we and legacy
Countrywide may withdraw from the BNY Mellon Settlement, if the Trustee consents. The BNY Mellon
Settlement also provides that if Covered Trusts representing unpaid principal balance exceeding a
specified amount are excluded from the final BNY Mellon Settlement, based on investor objections
or otherwise, we and legacy Countrywide have the option to withdraw from the BNY Mellon Settlement
pursuant to the terms of the BNY Mellon Settlement agreement.
52
In addition to final court approval, the BNY Mellon Settlement is conditioned on receipt of
private letter rulings from the IRS as well as receipt of legal opinions under California and New
York state tax laws and regulations. While there can be no assurance that such rulings or opinions
will be obtained, we currently anticipate that the process related to these conditions will be
completed during the period prior to final court approval.
There can be no assurance that final court approval of the BNY Mellon Settlement will be
obtained, that all conditions will be satisfied or, if certain conditions to the BNY Mellon
Settlement permitting withdrawal are met, that we and legacy Countrywide will not determine to
withdraw from the settlement. If final court approval is not obtained or if we and legacy
Countrywide determine to withdraw from the BNY Mellon Settlement in accordance with its terms, our
future representations and warranties losses could be substantially different than existing
accruals and the estimated range of possible loss over existing accruals described under
Experience with Investors Other than Government-sponsored Enterprises
on page 57. For more
information about the risks associated with the BNY Mellon Settlement, see Item 1A. Risk Factors
on page 219.
Settlement with Assured Guaranty
On April 14, 2011, we, including certain legacy Countrywide affiliates, entered into an
agreement with Assured Guaranty, to resolve all of this monoline insurers outstanding and
potential repurchase claims related to alleged representations and warranties breaches involving
29 first- and second-lien RMBS trusts where Assured Guaranty provided financial guarantee
insurance (the Assured Guaranty Settlement). The agreement also resolves historical loan servicing
issues and other potential liabilities with respect to these trusts. The agreement covers 21
first-lien RMBS trusts and eight second-lien RMBS trusts, which had an original principal balance
of approximately $35.8 billion and total unpaid principal balance of approximately $20.2 billion
as of April 14, 2011. The agreement includes cash payments totaling approximately $1.1 billion to
Assured Guaranty, as well as a loss-sharing reinsurance arrangement that has an expected value of
approximately $470 million, and other terms, including termination of certain derivative
contracts. The cash payments consist of $850 million paid on April 14, 2011, $57 million paid on
June 30, 2011 and the remainder payable in three equal installments at the end of each quarter
through March 31, 2012. The total cost recognized for the Assured Guaranty Settlement as of June
30, 2011 was approximately $1.6 billion. As a result of this
agreement, we consolidated $5.2 billion in consumer loans and the related trust debt on our
Consolidated Balance Sheet as of June 30, 2011 due to the establishment of reinsurance contracts
at the time of the Assured Guaranty Settlement. For additional information, see
Consumer Credit Risk
Consumer Loans Accounted for Under the Fair Value Option on page 90.
Government-sponsored Enterprises Agreements
On December 31, 2010, we reached separate agreements with each of the GSEs under which we
paid $2.8 billion to resolve repurchase claims involving certain first-lien residential mortgage
loans sold to the GSEs by entities related to legacy Countrywide (the GSE Agreements). The
agreement with FHLMC extinguished all outstanding and potential mortgage repurchase and make-whole
claims arising out of any alleged breaches of selling representations and warranties related to
loans sold directly by legacy Countrywide to FHLMC through 2008, subject to certain exceptions.
The agreement with FNMA substantially resolved the existing pipeline of repurchase and make-whole
claims outstanding as of September 20, 2010 arising out of alleged breaches of selling
representations and warranties related to loans sold directly by legacy Countrywide to FNMA. For
additional information about these agreements, see Note 9 Representations and Warranties
Obligations and Corporate Guarantees and Note 11 Commitments and Contingencies to the
Consolidated Financial Statements, and Item 1A. Risk Factors of the Corporations 2010 Annual
Report on Form 10-K.
Unresolved Claims Status
At June 30, 2011, our total unresolved repurchase claims were approximately $11.6
billion compared to $10.7 billion at December 31, 2010. These repurchase claims include $1.7
billion in demands from investors in the Covered Trusts received in the third quarter of 2010 but
otherwise do not include any repurchase claims related to the Covered Trusts. The increase in
unresolved claims is primarily attributable to an increase in new claims submitted by the GSEs for
both legacy Countrywide originations not covered by the GSE Agreements and legacy Bank of America
originations, in addition to an increase in the volume of claims appealed by us and awaiting
review and response from one GSE. This increase in unresolved claims was partially offset by
resolution of certain monoline claims through the Assured Guaranty Settlement discussed above.
53
Representations and Warranties Liability
The liability for representations and warranties and corporate guarantees is included in
accrued expenses and other liabilities on the Consolidated Balance Sheet and the related provision
is included in mortgage banking income (loss). The methodology used to estimate the liability for
representations and warranties is a function of the representations and warranties given and
considers a variety of factors, which include depending on the counterparty, actual defaults,
estimated future defaults, historical loss experience, estimated home prices, other economic
conditions, estimated probability that a repurchase claim will be received, consideration of
whether presentation thresholds will be met, number of payments made by the borrower prior to
default and estimated probability that a loan will be required to be repurchased as well as other
relevant facts and circumstances, such as bulk settlements and identity of the counterparty or
type of counterparty, as we believe appropriate. The estimate of the liability for representations
and warranties is based on currently available information, significant judgment and a number of
factors, including those set forth above, that are subject to change. Changes to any one of these
factors could significantly impact the estimate of the liability and could have a material adverse
impact on our results of operations for any particular period.
At June 30, 2011 and December 31, 2010, the liability was $17.8 billion and $5.4 billion. For
the three and six months ended June 30, 2011, the provision for representations and warranties and
corporate guarantees was $14.0 billion and $15.1 billion compared to $1.2 billion and $1.8 billion
for the same periods in 2010. Of the $14.0 billion provision recorded in the three months ended
June 30, 2011, $8.6 billion was attributable to the BNY Mellon Settlement and $5.4 billion was
attributable to other non-GSE exposures, and to a lesser extent, GSE exposures. The BNY Mellon
Settlement led to the determination that we now have sufficient experience to record a liability
related to our exposure on certain other private-label securitizations. This determination,
combined with changes in our experience with the behavior of certain counterparties, including the
GSEs, in the first six months of 2011, was the driver of this additional provision. A significant
factor in the estimate of the liability for losses is the repurchase rate, which increased in both
the three and six months ended June 30, 2011.
Our liability at June 30, 2011 for obligations under representations and warranties given to
the GSEs considers, among other things, higher estimated repurchase rates based on recent higher
than expected claims, including claims on loans that defaulted more
than 18 months ago and
on loans where the borrower has made a significant number of payments (e.g., at least 25
payments), in each case in numbers that were not expected based on historical claims during the
three and six months ended June 30, 2011. It also considers the GSE Agreements and their expected
impact on the repurchase rates on future repurchase claims we might receive on loans that have
defaulted or that we estimate will default.
Estimated
Range of Possible Loss
Government-sponsored Enterprises
Our estimated liability for obligations under representations and warranties with respect to
the GSEs is necessarily dependent on, and limited by, our historical claims experience with the
GSEs and may materially change in the future based on factors outside our control. We believe our
predictive repurchase models, utilizing our historical repurchase experience with the GSEs while
considering current developments, including the GSE Agreements and recent GSE behavior,
projections of future defaults as well as certain other assumptions regarding economic conditions,
home prices and other matters, allow us to reasonably estimate the liability for obligations under
representations and warranties on loans sold to the GSEs and our estimate of the liability for
these obligations has been accounted for in the recorded liability for representations and
warranties for these loans. However, future provisions associated with obligations under
representations and warranties made to the GSEs may be materially impacted if actual results are
different from our assumptions regarding economic conditions, home prices and other matters,
including the repurchase behavior of the GSEs and the estimated repurchase rates. While we have an
established history of working with the GSEs on repurchase claims, our experience with them
continues to evolve and impact our estimated repurchase rates and liability. In addition, the
recent FNMA announcement regarding mortgage insurance rescissions, cancellations and claim denials
could result in increased repurchase requests from FNMA that exceed the repurchase requests
contemplated by our estimated liability.
We are not able to anticipate changes in the behavior of the GSEs from our past experiences.
Therefore, it is not possible to reasonably estimate a possible loss or range of possible loss
with respect to any such potential impact in excess of current accruals on future GSE provisions
if the behavior of the GSEs changes from past experience. See Complex
Accounting Estimates
Representations and Warranties on page 123 for information related to the
sensitivity of the assumptions used to estimate our liability for obligations under
representations and warranties.
54
Non-Government-sponsored Enterprises
As
discussed on page 51, the population of private-label securitizations included in the BNY
Mellon Settlement encompasses almost all legacy Countrywide first-lien private-label
securitizations including loans originated principally in the 2004 through 2008 vintage. For the
remainder of the population of private-label securitizations, although we believe it is probable
that other claimants may come forward with claims that meet the requirements of the terms of the
securitizations, we have experienced limited activity that has met the standards required. We
believe that the provisions recorded in connection with the BNY Mellon Settlement and the
additional non-GSE representations and warranties provisions recorded in the three and six months
ended June 30, 2011, have provided for a substantial portion of our non-GSE repurchase claims.
However, it is reasonably possible that future representations and warranties losses may occur in
excess of the amounts recorded for these exposures. In addition, as discussed below, we have not
recorded any representations and warranties liability for certain potential monoline exposures and
certain potential whole loan and other private-label securitization exposures. We
currently estimate that the range of possible loss related to non-GSE representations and
warranties exposure as of June 30, 2011 could be up to $5 billion over existing accruals. This
estimate of the range of possible loss for non-GSE representations and warranties does not represent a
probable loss, is based on currently available information, significant judgment, and a number of
assumptions, including the assumption that the conditions to the BNY
Mellon Settlement are satisfied and those set forth below, that are subject to change.
The methodology used to estimate the non-GSE representations and warranties liability and the
corresponding range of possible loss considers a variety of factors including
our experience related to actual defaults, estimated future defaults and historical loss
experience. Among the factors that impact the non-GSE representations and warranties liability and
the corresponding estimated range of possible loss are: (1) contractual loss causation requirements, (2) the
representations and warranties provided, and (3) the requirement to meet certain presentation
thresholds. The first factor is based on our belief that a non-GSE contractual liability to repurchase a
loan generally arises only if the counterparties prove there is a breach of representations and
warranties that materially and adversely affects the interest of the investor or all investors, or
the monoline insurer (as applicable), in a securitization trust and, accordingly, we believe that
the repurchase claimants must prove that the alleged representations and warranties breach was the
cause of the loss. The second factor is related to the fact that
non-GSE securitizations include
different types of representations and warranties than those provided
to the GSEs. We believe the
non-GSE securitizations representations and warranties are less rigorous and actionable than the
comparable agreements with the GSEs. The third factor is related to the fact that certain
presentation thresholds need to be met in order for any repurchase claim to be asserted under the
non-GSE agreements. A securitization trustee may investigate or demand repurchase on its own
action, and most agreements contain a threshold, for example 25 percent of the voting rights per
trust, that allows investors to declare a servicing event of default under certain circumstances
or to request certain action, such as requesting loan files, that the trustee may choose to accept
and follow, exempt from liability, provided the trustee is acting in good faith. If there is an
uncured servicing event of default, and the trustee fails to bring suit during a 60-day period,
then, under most agreements, investors may file suit. In addition to this, most agreements also
allow investors to direct the securitization trustee to investigate loan files or demand the
repurchase of loans, if security holders hold a specified percentage, for example, 25 percent, of
the voting rights of each tranche of the outstanding securities.
The
methodology used to estimate the non-GSE representations and
warranties liability and the corresponding range of possible loss was updated in the second quarter of 2011 to consider the implied repurchase
experience based on the BNY Mellon Settlement and assumes that the conditions to the BNY Mellon
Settlement are satisfied. It also considers our assumptions regarding economic conditions,
including estimated second quarter 2011 home prices. Since the non-GSE transactions that were
included in the BNY Mellon Settlement differ from those that were not included in the BNY Mellon
Settlement, we adjusted the experience implied in the settlement in order to determine the
estimated non-GSE representations and warranties liability and the
corresponding range of possible loss. The
judgmental adjustments made include consideration of the differences in the mix of products in the
securitizations, loan originator, likelihood of claims differences, the differences in the number
of payments that the borrower has made prior to default, and the sponsor of the securitization.
Although we continue to believe that presentation thresholds, as described above, are a factor in
the determination of probable loss, given the BNY Mellon Settlement,
the upper end of the estimated range of
possible loss assumes that the presentation threshold can be met for all of the non-GSE
securitization transactions.
Future provisions and/or ranges of possible loss for non-GSE representations and warranties
may be significantly impacted if actual results are different from our assumptions in our
predictive models, including, without limitation, those regarding ultimate resolution of the BNY
Mellon Settlement, estimated repurchase rates, economic conditions, home prices, consumer and
counterparty behavior, and a variety of judgmental factors. Adverse developments with respect to
one or more of the assumptions underlying the liability for representations and warranties
and the corresponding estimated range of possible loss could
result in significant increases to future provisions and this
estimated range of possible loss. For example, if courts were to disagree with our interpretation that the underlying
agreements require a claimant to prove that the representations and warranties breach was the
cause of the loss, it could
55
significantly impact this estimated range of possible loss. Additionally, if recent court rulings
related to monoline litigation, including one related to us, that have allowed sampling of loan
files instead of a loan-by-loan review to determine if a representations and warranties breach has
occurred are followed generally by the courts, private-label securitization investors may view
litigation as a more attractive alternative as compared to a loan-by-loan review. Finally,
although we believe that the representations and warranties typically given in non-GSE
transactions are less rigorous and actionable than those given in GSE transactions, we do not have
significant loan-level experience to measure the impact of these differences on the probability
that a loan will be required to be repurchased.
The liability for obligations under representations and warranties with respect to GSE and
non-GSE exposures and the corresponding estimated range of possible loss for non-GSE representations and
warranties exposures do not include any losses related to litigation matters disclosed in
Note 11 Commitments and Contingencies to the Consolidated Financial Statements, nor do they
include any separate foreclosure costs and related costs and assessments or any possible losses
related to potential claims for breaches of performance of servicing obligations, potential
securities law or fraud claims or potential indemnity or other claims against us. We are not able
to reasonably estimate the amount of any possible loss with respect to any such servicing,
securities law (except to the extent reflected in the aggregate range of possible loss for
litigation and regulatory matters disclosed in Note 11 Commitments and Contingencies to the
Consolidated Financial Statements), fraud or other claims against us; however, such loss could be
material.
Government-sponsored Enterprises Experience
Our current repurchase claims experience with the GSEs is predominantly concentrated in the
2004 through 2008 origination vintages where we believe that our exposure to representations and
warranties liability is most significant. Our repurchase claims experience related to loans
originated prior to 2004 has not been significant and we believe that the changes made to our
operations and underwriting policies have reduced our exposure related to loans originated after
2008. The cumulative repurchase claims for 2007 originations exceed all other vintages as the
volume of loans originated in 2007 was significantly higher than any other vintage which, together
with the high delinquency level in this vintage, contributes to the high level of repurchase
claims compared to the other vintages.
Bank of America and legacy Countrywide sold approximately $1.1 trillion of loans originated
from 2004 through 2008 to the GSEs. As of June 30, 2011, 11 percent of the loans in these vintages
have defaulted or are 180 days or more past due (severely delinquent). At least 25 payments have
been made on approximately 61 percent of severely delinquent or defaulted loans. Through June 30,
2011, we have received $27.7 billion in repurchase claims associated with these vintages,
representing approximately two percent of the loans sold to the GSEs in these vintages. Including
the agreement reached with FNMA on December 31, 2010, we have resolved $22.0 billion of these
claims with a net loss experience of approximately 30 percent. The claims resolved and the loss
rate do not include $839 million in claims extinguished as a result of the agreement with FHLMC
due to the global nature of the agreement and, specifically, the absence of a formal apportionment
of the agreement amount between current and future claims. Our collateral loss severity rate on
approved repurchases has averaged approximately 45 to 55 percent.
56
Table 14 highlights our experience with the GSEs related to loans originated from 2004
through 2008.
Table 14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview of GSE Balances 2004-2008 Originations |
|
|
Legacy Originator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of |
(Dollars in billions) |
|
Countrywide |
|
Other |
|
Total |
|
total |
|
Original funded balance |
|
$ |
846 |
|
|
$ |
272 |
|
|
$ |
1,118 |
|
|
|
|
|
Principal payments |
|
|
(431 |
) |
|
|
(144 |
) |
|
|
(575 |
) |
|
|
|
|
Defaults |
|
|
(43 |
) |
|
|
(6 |
) |
|
|
(49 |
) |
|
|
|
|
|
Total outstanding balance at June 30, 2011 |
|
$ |
372 |
|
|
$ |
122 |
|
|
$ |
494 |
|
|
|
|
|
|
Outstanding principal balance 180 days or more past due (severely delinquent) |
|
$ |
58 |
|
|
$ |
13 |
|
|
$ |
71 |
|
|
|
|
|
Defaults plus severely delinquent |
|
|
101 |
|
|
|
19 |
|
|
|
120 |
|
|
|
|
|
|
Payments made by borrower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 13 |
|
|
|
|
|
|
|
|
|
$ |
15 |
|
|
|
13 |
% |
13-24 |
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
26 |
|
25-36 |
|
|
|
|
|
|
|
|
|
|
35 |
|
|
|
29 |
|
More than 36 |
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
32 |
|
|
Total payments made by borrower |
|
|
|
|
|
|
|
|
|
$ |
120 |
|
|
|
100 |
% |
|
Outstanding GSE pipeline of representations and warranties claims (all vintages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
|
|
$ |
2.8 |
|
|
|
|
|
As of June 30, 2011 |
|
|
|
|
|
|
|
|
|
|
5.1 |
|
|
|
|
|
Cumulative GSE representations and warranties losses (2004-2008 vintages) |
|
|
|
|
|
|
|
|
|
$ |
7.8 |
|
|
|
|
|
|
We have an established history of working with the GSEs on repurchase claims. However,
the behavior of the GSEs continues to evolve. Notably in recent periods, we have been experiencing
elevated levels of new claims, including claims on default vintages and loans in which borrowers
have made a significant number of payments (e.g., at least 25 payments), in each case, in numbers
that were not expected based on historical experience. Additionally, the criteria by which the
GSEs are ultimately willing to resolve claims have become more rigid over time.
FNMA recently issued an announcement requiring servicers to report, effective October 1,
2011, all mortgage insurance rescissions, cancellations and claim denials with respect to loans
sold to FNMA. The announcement also confirmed FNMAs position that a mortgage insurance companys
issuance of a rescission, cancellation notice or claim denial constitutes a breach of the lenders
representations and warranties and permits FNMA to require the lender to repurchase the mortgage
loan or promptly remit a make-whole payment covering FNMAs loss even if the lender is contesting
the mortgage insurers rescission cancellation or claim denial. Through June 30, 2012, lenders
have 90 days to appeal FNMAs repurchase request and 30 days (or such other time frame specified
by FNMA) to appeal after that date. To be successful in its appeal, a lender must provide
documentation confirming reinstatement or continuation of coverage according to the FNMA
announcement. This announcement could result in more repurchase requests from FNMA
than the assumptions in our estimated liability contemplate. We also expect that in many cases
(particularly in the context of litigation), we will not be able to resolve rescissions,
cancellations or claim denials with the mortgage insurance companies before the expiration of the
appeal period allowed by FNMA and, as a result, our representations and warranties liability may
increase.
Experience with Investors Other than Government-sponsored Enterprises
In prior years, legacy companies and certain subsidiaries have sold pools of first-lien
mortgage loans and home equity loans as private-label securitizations or in the form of whole
loans. As detailed in Table 15, legacy companies and certain subsidiaries sold loans originated
from 2004 through 2008 with an original principal balance of $963 billion to investors other than
GSEs, of which approximately $495 billion in principal has been paid and $229 billion has
defaulted or are severely delinquent at June 30, 2011.
As it relates to private-label securitizations, a contractual liability to repurchase
mortgage loans generally arises only if counterparties prove there is a breach of the
representations and warranties that materially and adversely affects the interest of the investor
or all investors in a securitization trust or of the monoline insurer or other financial guarantor
(as applicable). We believe that the longer a loan performs, the less likely it is that an alleged
representations and warranties breach had a material impact on the loans performance
or that a breach even exists. Because the majority of the borrowers in this population would have
made a significant number of payments if they are not yet 180 days or more past due, we believe
that the principal balance at the greatest risk for repurchase claims in this population of
private-label securitization investors is a combination of loans that have already defaulted and
those that are currently severely delinquent. Additionally, the obligation to repurchase loans
also requires that counterparties have the contractual right to demand repurchase of the loans
(presentation thresholds). While we believe the agreements for private-label securitizations
generally contain less rigorous representations and warranties and place higher burdens on
investors seeking repurchases than the comparable agreements with the GSEs and GNMA, the
agreements generally include a representation that underwriting practices were prudent and
customary.
57
Any amounts paid related to repurchase claims from a monoline insurer are paid to the
securitization trust and are applied in accordance with the terms of the governing securitization
documents, which may include use by the securitization trust to repay any outstanding monoline
advances or reduce future advances from the monolines. To the extent that a monoline has not
advanced funds or does not anticipate that it will be required to advance funds to the
securitization trust, the likelihood of receiving a repurchase claim from a monoline may be
reduced as the monoline would receive limited or no benefit from the payment of repurchase claims.
Moreover, some monolines are not currently performing their obligations under the financial
guaranty policies they issued which may, in certain circumstances, impact their ability to present
repurchase claims.
Table 15 details the population of loans originated between 2004 and 2008 and the population
of loans sold as whole loans or in non-agency securitizations by entity and product together with
the defaulted and severely delinquent loans stratified by the number of payments the borrower made
prior to default or becoming severely delinquent at June 30, 2011. As shown in Table 15, at least
25 payments have been made on approximately 61 percent of the defaulted and severely delinquent
loans. We believe many of the defaults observed in these securitizations have been, and continue
to be, driven by external factors like the substantial depreciation in home prices, persistently
high unemployment and other negative economic trends, diminishing the likelihood that any loan
defect (assuming one exists at all) was the cause of a loans default. As of June 30, 2011,
approximately 24 percent of the loans sold to non-GSEs that were originated between 2004 and 2008
have defaulted or are severely delinquent. Of the original principal balance for Countrywide, $409
billion is included in the BNY Mellon Settlement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 15 |
|
Overview of Non-Agency Securitization and Whole Loan Balances |
|
(Dollars in billions) |
|
Principal Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defaulted or Severely Delinquent |
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Principal |
|
|
|
|
|
|
Defaulted |
|
|
Borrower Made |
|
|
Borrower Made |
|
|
Borrower Made |
|
|
Borrower Made |
|
|
|
Original |
|
|
Principal Balance |
|
|
Balance 180 Days |
|
|
Defaulted |
|
|
or Severely |
|
|
less than 13 |
|
|
13 to 24 |
|
|
25 to 36 |
|
|
more than 36 |
|
By Entity |
|
Principal Balance |
|
|
June 30, 2011 |
|
|
or More Past Due |
|
|
Principal Balance |
|
|
Delinquent |
|
|
Payments |
|
|
Payments |
|
|
Payments |
|
|
Payments |
|
|
Bank of America |
|
$ |
100 |
|
|
$ |
31 |
|
|
$ |
5 |
|
|
$ |
3 |
|
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
3 |
|
Countrywide (1) |
|
|
716 |
|
|
|
271 |
|
|
|
87 |
|
|
|
90 |
|
|
|
177 |
|
|
|
24 |
|
|
|
45 |
|
|
|
47 |
|
|
|
61 |
|
Merrill Lynch |
|
|
65 |
|
|
|
20 |
|
|
|
6 |
|
|
|
11 |
|
|
|
17 |
|
|
|
3 |
|
|
|
4 |
|
|
|
3 |
|
|
|
7 |
|
First Franklin |
|
|
82 |
|
|
|
22 |
|
|
|
7 |
|
|
|
20 |
|
|
|
27 |
|
|
|
4 |
|
|
|
6 |
|
|
|
5 |
|
|
|
12 |
|
|
Total (2, 3, 4) |
|
$ |
963 |
|
|
$ |
344 |
|
|
$ |
105 |
|
|
$ |
124 |
|
|
$ |
229 |
|
|
$ |
32 |
|
|
$ |
57 |
|
|
$ |
57 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Product |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime |
|
$ |
302 |
|
|
$ |
111 |
|
|
$ |
17 |
|
|
$ |
13 |
|
|
$ |
30 |
|
|
$ |
2 |
|
|
$ |
6 |
|
|
$ |
8 |
|
|
$ |
14 |
|
Alt-A |
|
|
172 |
|
|
|
76 |
|
|
|
21 |
|
|
|
25 |
|
|
|
46 |
|
|
|
7 |
|
|
|
12 |
|
|
|
12 |
|
|
|
15 |
|
Pay option |
|
|
150 |
|
|
|
61 |
|
|
|
30 |
|
|
|
24 |
|
|
|
54 |
|
|
|
5 |
|
|
|
14 |
|
|
|
16 |
|
|
|
19 |
|
Subprime |
|
|
245 |
|
|
|
78 |
|
|
|
36 |
|
|
|
46 |
|
|
|
82 |
|
|
|
16 |
|
|
|
19 |
|
|
|
17 |
|
|
|
30 |
|
Home equity |
|
|
88 |
|
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
|
|
16 |
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
|
|
5 |
|
Other |
|
|
6 |
|
|
|
2 |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
Total |
|
$ |
963 |
|
|
$ |
344 |
|
|
$ |
105 |
|
|
$ |
124 |
|
|
$ |
229 |
|
|
$ |
32 |
|
|
$ |
57 |
|
|
$ |
57 |
|
|
$ |
83 |
|
|
|
|
|
(1) |
|
$409 billion of original principal balance is included in the BNY Mellon Settlement. |
|
(2) |
|
Includes $185 billion of original principal balance related to transactions with monoline participation. |
|
(3) |
|
Excludes transactions sponsored by Bank of America and Merrill Lynch where no representation or warranties were made. |
|
(4) |
|
Includes exposures on third-party sponsored transactions related to legacy entity originations. |
Monoline Insurers
Legacy companies have sold $184.5 billion of loans originated between 2004 and 2008 into
monoline-insured securitizations, which are included in Table 15, including $103.9 billion of
first-lien mortgages and $80.6 billion of second-lien mortgages. Of these balances, $46.0 billion
of the first-lien mortgages and $49.5 billion of the second-lien mortgages have been paid in full
and $33.2 billion of the first-lien mortgages and $16.2 billion of the second-lien mortgages have
defaulted or are severely delinquent at June 30, 2011. At least 25 payments have been made on
approximately 57 percent of the defaulted and severely delinquent loans. Of the first-lien
mortgages sold, $39.1 billion, or 38 percent, were sold as whole loans to other institutions which
subsequently included these loans with those of other originators in private-label securitization
transactions in which the monolines typically insured one or more securities. Through June 30,
2011, we have received $6.5 billion of representations and warranties claims related to the
monoline-insured transactions. Of these repurchase claims, $2.0 billion were resolved through the
Assured Guaranty Settlement, $829 million were resolved through repurchase or indemnification with
losses of $727 million and $125 million were rescinded by the investor or paid in full. The
majority of these resolved claims related to second-lien mortgages.
58
Unresolved Monoline Repurchase Claims
At June 30, 2011, for loans originated between 2004 and 2008,
the unpaid principal balance of
loans related to unresolved monoline repurchase claims was $3.5 billion, including $3.0 billion
that have been reviewed where it is believed
a valid defect has not been identified which would constitute an actionable breach of
representations and warranties and $547 million that are in the process of review. At June 30,
2011, the unpaid principal balance of loans for which the monolines had requested loan files for
review but for which no repurchase claim had been received was $6.1 billion, excluding loans that
had been paid in full and file requests for loans included in the trusts settled with Assured
Guaranty. There will likely be additional requests for loan files in the future leading to
repurchase claims.
We have had limited experience with the monoline insurers, other than Assured Guaranty, in
the repurchase process as each of these monoline insurers has instituted litigation against legacy
Countrywide and/or Bank of America, which limits our ability to enter into constructive dialogue
with these monolines to resolve the open claims. It is not possible at this time to reasonably
estimate probable future repurchase obligations with respect to those monolines with whom we have
limited repurchase experience and, therefore, no representations and warranties liability has been
recorded in connection with these monolines, other than a liability for repurchase claims where we
have determined that there are valid loan defects. Our estimated range of possible loss related to
non-GSE representations and warranties exposure as of June 30, 2011 includes possible losses
related to these monoline insurers.
Whole Loans and Private-label Securitizations
Legacy entities, and to
a lesser extent Bank of America, sold whole loans to investors, and the majority of the sales were executed through
private-label securitizations, including third-party sponsored transactions. The loans sold with total principal
balance of $778.2 billion, included in Table 15, were originated between 2004 and 2008, of which $399.2 billion have
been paid in full and $179.7 billion are defaulted or severely delinquent at June 30, 2011. In connection with these
transactions, we provided representations and warranties, and the whole-loan investors may retain those rights even when
the whole loans were aggregated with other collateral into private-label securitizations sponsored by the whole-loan
investors. At least 25 payments have been made on approximately 62 percent of the defaulted and severely delinquent
loans. We have received approximately $8.4 billion of representations
and warranties claims from whole-loan investors
and private-label securitization investors related to these vintages, including $5.9 billion from whole-loan investors,
$819 million from one private-label securitization counterparty which were submitted prior to 2008 and $1.7 billion in
claims from private-label securitization investors in the Covered Trusts received in the third quarter of 2010.
We
have resolved $5.6 billion of the claims received from whole-loan investors and private-label
securitization investors with losses of $1.2 billion. Approximately $2.4 billion of these claims
were resolved through repurchase or indemnification and $3.2 billion were rescinded by the
investor. Claims outstanding related to these vintages totaled $2.8 billion at June 30, 2011,
substantially all of which we have reviewed and declined to repurchase based on an assessment
of whether a material breach exists.
The
majority of the claims that we have received outside of the GSEs and
monolines are from third-party whole-loan
investors. Certain whole-loan investors have engaged with us in a consistent repurchase process
and we have used that experience to record a liability related to existing and future claims
from such counterparties. The BNY Mellon Settlement led to the determination that we have
sufficient experience to record a liability related to our exposure on certain other
private-label securitizations as of June 30, 2011. However, the BNY Mellon Settlement did not
provide sufficient experience related to certain private-label securitizations sponsored by third-party
whole-loan investors. As it relates to certain private-label securitizations sponsored by third parties
whole-loan investors and certain other whole loan sales, it is not possible to determine whether
a loss has occurred or is probable and, therefore, no representations and warranties liability
has been recorded in connection with these transactions. Our estimated range of possible loss
related to non-GSE representations and warranties exposure as of June 30, 2011 includes possible
losses related to these whole loan sales and private-label securitizations sponsored by
third-party whole-loan investors.
Private-label securitization investors generally do not have the contractual right to demand
repurchase of loans directly or the right to access loan files. The inclusion of the $1.7 billion
in outstanding claims does not mean that we believe these claims have satisfied the contractual
thresholds required for these investors to direct the securitization trustee to take action or
that these claims are otherwise procedurally or substantively valid. One of these claimants has
filed litigation against us relating to certain of these claims; the claims in this litigation
would be extinguished if there is final court approval of the BNY Mellon Settlement. Additionally,
certain private-label securitizations are insured by the monoline insurers, which are not
reflected in these amounts regarding whole loan sales and private-label securitizations.
59
Other Mortgage-related Matters
Servicing Matters and Foreclosure Processes
We service a large portion of the loans we or our subsidiaries have securitized and also
service loans on behalf of third-party securitization vehicles and other investors. Servicing
agreements with the GSEs generally provide the GSEs with broader rights relative to the servicer
than are found in servicing agreements with private investors. For example, each GSE typically has
the right to demand that the servicer repurchase loans that breach the sellers representations
and warranties made in connection with the initial sale of the loans even if the servicer was not
the seller. The GSEs also reserve the contractual right to demand indemnification or loan
repurchase for certain servicing breaches. In addition, our agreements with the GSEs and their
first mortgage seller/servicer guides provide for timelines to resolve delinquent loans through
workout efforts or liquidation, if necessary. In addition, many non-agency RMBS and whole-loan
servicing agreements require the servicer to indemnify the trustee or other investor for or
against failures by the servicer to perform its servicing obligations or acts or omissions that
involve willful malfeasance, bad faith or gross negligence in the performance of, or reckless
disregard of, the servicers duties.
In October 2010, we voluntarily stopped taking residential mortgage foreclosure proceedings
to judgment in states where foreclosure requires a court order following a legal proceeding
(judicial states) and stopped foreclosure sales in all states in order to complete an assessment
of related business processes. We have resumed foreclosure sales in all non-judicial states;
however, while we have recently resumed foreclosure proceedings in nearly all judicial states, our
progress on foreclosure sales in judicial states has been significantly slower than in
non-judicial states. We have also not yet resumed foreclosure sales for certain types of
customers, including those in bankruptcy and those with FHA-insured loans, although we have
resumed foreclosure proceedings with respect to these types of customers. The implementation of
changes in procedures and controls, including loss mitigation procedures related to our ability to
recover on FHA insurance-related claims, as well as governmental, regulatory and judicial actions,
may result in continuing delays in foreclosure proceedings and foreclosure sales, as well as
creating obstacles to the collection of certain fees and expenses, in both judicial and
non-judicial foreclosures.
On April 13, 2011, we entered into a consent order with the Federal Reserve and BANA entered
into a consent order with the Office of the Comptroller of the Currency (OCC) to address the
regulators concerns about residential mortgage servicing practices and foreclosure processes.
Also, on this date, the other 13 largest mortgage servicers in the U.S. separately entered into
consent orders with their respective federal bank regulators related to residential mortgage
servicing practices and foreclosure processes. The orders resulted from an interagency horizontal
review conducted by federal bank regulators of major residential mortgage servicers. While federal
bank regulators found that loans foreclosed upon had been generally considered for other
alternatives (such as loan modifications), were seriously delinquent, and that servicers could
support their standing to foreclose, several areas for process improvement requiring timely and
comprehensive remediation across the industry were also identified. We identified most of these
areas for process improvement after our own review in late 2010 and continue to make significant
progress in these areas. The federal bank regulator consent orders with the mortgage servicers do
not assess civil monetary penalties. However, the consent orders do not preclude the assertion of
civil monetary penalties and a federal bank regulator has stated publicly that it believes
monetary penalties are appropriate.
The consent order with the OCC requires servicers to make several enhancements to their
servicing operations, including implementation of a single point of contact model for borrowers
throughout the loss mitigation and foreclosure processes, adoption of measures designed to ensure
that foreclosure activity is halted once a borrower has been approved for a modification unless
the borrower fails to make payments under the modified loan and implementation of enhanced
controls over third-party vendors that provide default servicing support services. In addition,
the consent order required that servicers retain an independent consultant, approved by the OCC,
in order to conduct a review of all foreclosure actions pending, or foreclosure sales that
occurred, between January 1, 2009 and December 31, 2010 and submit a plan to the OCC to remediate
all financial injury to borrowers caused by any deficiencies identified through the review. The
OCC accepted the independent consultant that we retained to conduct the foreclosure review.
Additionally, we have submitted an action plan to the OCC which will undergo a period of review by
the OCC. The OCC may require changes to the action plan, and may consider the ongoing negotiations
with the DOJ and other federal and state authorities regarding foreclosure and servicing practices
discussed below in its review of our action plan.
In addition, law enforcement authorities in all 50 states and the DOJ and other federal
agencies continue to investigate alleged irregularities in the foreclosure practices of
residential mortgage servicers, including us. Authorities have publicly stated that the scope of
the investigations extends beyond foreclosure documentation practices to mortgage loan
modification and loss mitigation practices, including compliance with HUD requirements related to
FHA-insured loans. We continue to cooperate with these investigations and are dedicating
significant resources to address these issues. We and the
60
other largest mortgage servicers continue to engage in ongoing negotiations regarding these
matters with law enforcement authorities and federal agencies. The negotiations continue to focus
on the amount of any settlement payment and settlement terms, including principal forgiveness,
servicing standards, enforcement mechanisms and releases. Although we cannot be certain as to the
ultimate outcome that may result from these negotiations or the timing of such outcome, the
parties continue to make progress toward achieving a resolution of these matters.
We continue to be subject to additional borrower and non-borrower litigation and governmental
and regulatory scrutiny related to our past and current servicing and foreclosure activities. This
scrutiny may extend beyond our pending foreclosure matters to issues arising out of alleged
irregularities with respect to previously completed foreclosure activities. The current
environment of heightened regulatory scrutiny has the potential to subject us to inquiries or
investigations that could significantly adversely affect our reputation. Such investigations by
state and federal authorities, as well as any other governmental or regulatory scrutiny of our
foreclosure processes, could result in material fines, penalties, equitable remedies, additional
default servicing requirements and process changes, or other enforcement actions, and could result
in significant legal costs in responding to governmental investigations and additional litigation.
In the three and six months ended June 30, 2011, we incurred $716 million and $1.6 billion of
mortgage-related assessments and waivers costs which included $485 million and $1.0 billion for
compensatory fees that we expect to be assessed by the GSEs as a result of foreclosure delays with
the remainder being out-of-pocket costs that we do not expect to recover because of foreclosure
delays. We incurred $230 million in the fourth quarter of 2010. We expect that these costs will
remain elevated as additional loans are delayed in the foreclosure process and as the GSEs assert
more aggressive criteria. We also expect that additional costs related to resources necessary to
perform the foreclosure process assessment, to revise affidavit filings and to implement other
operational changes will continue for at least the remainder of 2011. This will likely result in
continued higher noninterest expense, including higher default servicing costs and legal expenses,
in CRES and has impacted and may continue to impact the value of our MSRs related to these
serviced loans. It is also possible that the delays in foreclosure sales may result in additional
costs and expenses, including costs associated with the maintenance of properties or possible home
price declines while foreclosures are delayed. In addition, required process changes, including
those required under the consent orders with federal bank regulators, are likely to result in
further increases in our default servicing costs over the longer term. Finally, the time to
complete foreclosure sales may continue to be protracted, which may result in a greater number of
nonperforming loans and increased servicing advances and may impact the collectability of such
advances and the value of our MSR asset, MBS and real estate owned properties.
An increase in the time to complete foreclosure sales also may increase the number of
severely delinquent loans in our mortgage servicing portfolio, result in increasing levels of
consumer nonperforming loans and could have a dampening effect on net interest margin as
nonperforming assets increase. Accordingly, delays in foreclosure sales, including any delays
beyond those currently anticipated, our continued process enhancements, including those required
under the OCC and federal bank regulator consent orders and any issues that may arise out of
alleged irregularities in our foreclosure process could significantly increase the costs
associated with our mortgage operations.
Private-label
Securitization Settlement Servicing Matters
In connection with the BNY Mellon Settlement, BAC HLS has agreed to implement certain
servicing changes. On a schedule that began with the signing of the BNY Mellon Settlement, BAC HLS
agreed to transfer the servicing related to certain high-risk loans to qualified subservicers. In
addition, upon final court approval of the BNY Mellon Settlement, BAC HLS has agreed to the
benchmarking of loans not in subservicing arrangements against defined industry standards
regarding default-servicing timelines. The transfer of loans to subservicers will reduce the
servicing fees payable to BAC HLS in the future. Upon final court approval, failure to meet the
established benchmarking standards for loans not in subservicing arrangements can trigger the
payment of agreed-upon fees. BAC HLSs obligations with respect to these servicing changes will
terminate if final court approval is not obtained.
The Trustee and BAC HLS have also agreed to clarify and conform certain servicing standards
related to loss mitigation. In particular, the BNY Mellon Settlement would clarify that it is
permissible to apply the same loss-mitigation strategies to the Covered Trusts as are applied to
BAC HLS affiliates held-for-investment (HFI) portfolios. This provision of the agreement is
effective immediately and is not conditioned on final court approval.
We and legacy Countrywide also have agreed to work to resolve with the Trustee certain note
and mortgage documentation issues related to the enforceability of mortgages in foreclosure (e.g.,
title policy and mortgage recordation issues). If certain documentation issues remain outstanding
when a loan reaches foreclosure, we and/or legacy Countrywide is obligated to reimburse the
related Covered Trust for any loss if BAC HLS is unable to foreclose on the mortgage and the
Covered Trust is not made whole by a title policy because of documentation exceptions. This
agreement will terminate if
final court approval of the BNY Mellon Settlement is not obtained, although we could still have
exposure under the pooling and servicing agreements related to the mortgages in the Covered
Trusts for such documentation issues.
61
Certain servicing and documentation obligations began upon signing of the BNY Mellon
Settlement agreement, while others, including potential payment of servicing-related fees, are
conditioned on final court approval of the BNY Mellon Settlement. We estimate that the costs
associated with additional servicing obligations under the BNY Mellon Settlement contributed $400
million to the second quarter 2011 valuation charge related to the MSR asset. The additional
servicing actions are consistent with the consent orders with the OCC and the Federal Reserve.
Regulatory Matters
For additional information regarding significant regulatory matters including Regulation
E and the CARD Act, refer to Item 1A. Risk Factors, as well as Regulatory Matters on page 56 of
the MD&A of the Corporations 2010 Annual Report on Form 10-K.
Financial Reform Act
The Financial Reform Act, which was signed into law on July 21, 2010, enacts sweeping
financial regulatory reform and has altered and will continue to alter the way in which we conduct
certain businesses, increase our costs and reduce our revenues. Many aspects of the Financial
Reform Act remain subject to final rulemaking and will take effect over several years, making it
difficult to anticipate the precise impact on the Corporation, our customers or the financial
services industry.
Debit Interchange Fees
On June 29, 2011, the Federal Reserve adopted a final rule with respect to the Durbin
Amendment effective on October 1, 2011 which, among other things, establishes a regulatory cap for
many types of debit interchange transactions to equal no more than 21 cents plus five bps of the
value of the transaction. Furthermore, the Federal Reserve adopted an interim rule to allow a
debit card issuer to recover an additional one cent per transaction for fraud prevention purposes
if the issuer complies with certain fraud-related requirements promulgated by the Federal Reserve,
with which we intend to comply. The Federal Reserve also approved rules governing routing and
exclusivity, requiring issuers to offer two unaffiliated networks for routing debit transactions
on each debit or prepaid product, which are effective April 1,
2012. For additional information, see Global Card Services on page 33.
Limitations on Certain Activities
We anticipate that the final regulations associated with the Financial Reform Act will
include limitations on proprietary trading as well as the sponsorship or investment in hedge funds
and private equity funds (the Volcker Rule), as will be defined by various regulators. The
implementing regulations for the Volcker Rule will include clarifications to the definition of
proprietary trading and distinctions between permitted and prohibited activities which have not
yet been finalized. The final regulations are required to be in place by October 21, 2011, and the
Volcker Rule becomes effective twelve months after such rules are final or on July 21, 2012,
whichever is earlier. The Volcker Rule then gives certain financial institutions two years from
the effective date, with opportunities for additional extensions, to bring activities and
investments into conformance. In response to these developments, GBAM has exited its proprietary
trading business as of June 30, 2011.
The ultimate impact of the Volcker Rules prohibition on proprietary trading and the
sponsorship or investment in hedge funds and private equity funds continues to remain uncertain,
including any additional significant operational and compliance costs we may incur. For additional
information about our proprietary trading business, see GBAM on page 42.
Derivatives
The Financial Reform Act includes measures to broaden the scope of derivative instruments
subject to regulation by requiring clearing and exchange trading of certain derivatives; imposing
new capital margins, reporting, registration and business conduct requirements for certain market
participants; and imposing position limits on certain over-the-counter (OTC) derivatives. Although
the Financial Reform Act required regulators to promulgate the rulemakings necessary to implement
these regulations by July 16, 2011, the regulators have indicated that the rulemaking process will
continue through at least the end of 2011. Further, the regulators have granted temporary relief
from certain requirements that would have taken effect on July 16, 2011 absent any rulemaking.
This temporary relief is effective until final rules relevant to each requirement become
effective, or in the case of the Commodity Futures Trading Commission (CFTC), until the earlier of
the effective date of relevant final rules or December 31, 2011. The ultimate impact of these
derivatives regulations and the
62
time it will take to comply continues to remain uncertain. The final regulations will impose
additional operational and compliance costs on us and may require us to restructure certain
businesses, thereby negatively impacting our revenues and results of operations.
FDIC Deposit Insurance Assessments
On February 7, 2011, the FDIC issued a new regulation implementing revisions to the
assessment system mandated by the Financial Reform Act, which became effective on April 1, 2011.
The new regulation was reflected in the June 30, 2011 FDIC fund balance and will be reflected in
the invoices for payments due September 30, 2011. Among other things, the final rule changed the
assessment base for insured depository institutions from adjusted domestic deposits to average
consolidated total assets during an assessment period, less average tangible equity capital during
that assessment period. Additionally, the FDIC has broad discretionary authority to increase
assessments on large and highly complex institutions on a case by case basis. Any future increases
in required deposit insurance premiums or other bank industry fees could have an adverse impact on
our financial condition and results of operations.
Credit Risk Retention
On March 29, 2011, numerous federal regulators jointly issued a proposed rule regarding
credit risk retention that would, among other things, require retention by sponsors of at least
five percent of the credit risk of the assets underlying certain ABS and MBS securitizations and
would limit the ability to transfer or hedge that credit risk. The proposed rule as currently
written would likely have an adverse impact on our ability to engage in many types of the MBS and
ABS securitizations conducted in CRES, GBAM and other business segments, impose additional
operational and compliance costs on us, and negatively influence the value, liquidity and
transferability of ABS or MBS, loans and other assets. However, it remains unclear what
requirements will be included in the final rule and what the ultimate impact of the final rule
will be on our CRES, GBAM and other business segments or on our consolidated results of
operations.
The Consumer Financial Protection Bureau
The activities of the Corporation, as a consumer lender, are subject to regulation under
various U.S. federal laws, including the Truth-in-Lending, Equal Credit Opportunity, Fair Credit
Reporting, Fair Debt Collection Practice, Electronic Funds Transfer and CARD acts, as well as
various state laws. These statutes impose requirements on consumer loan origination and collection
practices. The Financial Reform Act created the CFPB to supervise, enforce and write all federal
consumer financial protection rules. On July 21, 2011, the CFPB assumed its authorities to
supervise and enforce existing consumer financial protection rules. Once a Director of the CFPB
assumes that position, the full authority to write new consumer financial protection rules will be
vested in the CFPB.
Certain Other Provisions
The Financial Reform Act also provides for a new resolution process administered by the FDIC
to unwind large systemically important financial companies; expands the role of state regulators
in enforcing consumer protection requirements over banks; includes new minimum leverage and
risk-based capital requirements for large financial institutions; and disqualifies trust preferred
securities and other hybrid capital securities from Tier 1 capital. Many of the provisions under
the Financial Reform Act have begun to be phased in or will be phased in over the next several
months or years and will be subject both to further rulemaking and the discretion of applicable
regulatory bodies.
The Financial Reform Act will continue to have a significant and negative impact on our
earnings through fee reductions, higher costs and new restrictions, as well as reductions to
available capital. The Financial Reform Act may also continue to have a material adverse impact on
the value of certain assets and liabilities held on our balance sheet. The ultimate impact of the
Financial Reform Act on our businesses and results of operations will depend on regulatory
interpretation and rulemaking, as well as the success of any of our actions to mitigate the
negative earnings impact of certain provisions. For information on the impact of the Financial
Reform Act on our credit ratings, see Liquidity Risk on page 69.
U.K. Bank Levy
The U.K. government bank levy legislation was enacted on July 19, 2011. The rate on banks
operating in the U.K. has been set at 7.5 bps for short-term liabilities and 3.75 bps for
long-term liabilities for 2011 and will increase to 7.8 bps for short-term liabilities and 3.9 bps
for long-term liabilities beginning in 2012. Based on current estimates, the cost of the bank levy
is expected to be approximately $95 million annually beginning this year, and is non-deductible
for U.K. tax purposes.
63
Managing Risk
Overview
Risk is inherent in every activity that we undertake. Our business exposes us to
strategic, credit, market, liquidity, compliance, operational and reputational risk. We must
manage these risks to maximize our long-term results by ensuring the integrity of our assets and
the quality of our earnings. Our risk management infrastructure is continually evolving to meet
the heightened challenges posed by the increased complexity of the financial services industry and
markets, by our increased size and global footprint, and by the 2008 financial crisis. We have a
defined risk framework and risk appetite which is approved annually by the Corporations Board of
Directors (the Board).
We take a comprehensive approach to risk management. Risk management planning is fully
integrated with strategic, financial and customer/client planning so that goals and
responsibilities are aligned across the organization. Risk is managed in a systematic manner by
focusing on the Corporation as a whole as well as managing risk across the enterprise and within
individual business units, products, services and transactions, and across all geographic
locations. We maintain a governance structure that delineates the responsibilities for risk
management activities, as well as governance and oversight of those activities, by executive
management and the Board. For a more detailed discussion of our risk management activities, see
pages 59 through 107 of the MD&A of the Corporations 2010 Annual Report on Form 10-K.
Strategic Risk Management
Strategic risk is embedded in every line of business and is one of the major risk
categories along with credit, market, liquidity, compliance and operational risks. It is the risk
that results from adverse business decisions, ineffective or inappropriate business plans, or
failure to respond to changes in the competitive environment, business cycles, customer
preferences, product obsolescence, regulatory environment, business strategy execution and/or
other inherent risks of the business including reputational and operational risk. In the financial
services industry, strategic risk is elevated due to changing customer, competitive and regulatory
environments. Our appetite for strategic risk is assessed within the context of the strategic
plan, with strategic risks selectively and carefully considered in the context of the evolving
marketplace. Strategic risk is managed in the context of our overall financial condition and
assessed, managed and acted on by the Chief Executive Officer and executive management team.
Significant strategic actions, such as material acquisitions or capital actions, are reviewed and
approved by the Board.
For more information on our Strategic Risk Management activities, refer to pages 62 and 63 of
the MD&A of the Corporations 2010 Annual Report on Form 10-K.
Capital Management
Bank of America manages its capital position to maintain a strong and flexible financial
condition in order to perform through changing economic cycles, take advantage of organic growth
opportunities, maintain ready access to financial markets, remain a source of financial strength
for our subsidiaries, and return capital to our shareholders as appropriate.
To determine the appropriate level of capital, we assess the results of our Internal Capital
Adequacy Assessment Process (ICAAP), the current economic and market environment, and feedback
from investors, ratings agencies and regulators. For additional information regarding the ICAAP,
see page 63 of the MD&A of the Corporations 2010 Annual Report on Form 10-K.
Capital management is integrated into the risk and governance processes, as capital is a key
consideration in development of the strategic plan, risk appetite and risk limits. Economic
capital is allocated to each business unit and used to perform risk-adjusted return analysis at
the business unit, client relationship and transaction level.
Regulatory Capital
As a financial services holding company, we are subject to the risk-based capital
guidelines (Basel I) issued by the banking agencies. At June 30, 2011, we operated banking
activities primarily under two charters: BANA and FIA Card Services, N.A. Under these guidelines,
the Corporation and its affiliated banking entities measure capital adequacy based on Tier 1
common capital, Tier 1 capital and Total capital (Tier 1 plus Tier 2 capital). Capital ratios are
calculated by
64
dividing each capital amount by risk-weighted assets. Additionally, Tier 1 capital is divided by
adjusted quarterly average total assets to derive the Tier 1 leverage ratio.
Certain corporate-sponsored trust companies which issue trust preferred capital debt
securities (Trust Securities) are not consolidated. In accordance with Federal Reserve guidance,
Trust Securities continue to qualify as Tier 1 capital with revised quantitative limits. As a
result, the Corporation includes Trust Securities in Tier 1 capital. The Financial Reform Act
includes a provision under which the Corporations previously issued and outstanding Trust
Securities in the aggregate amount of $20.0 billion (approximately 143 bps of Tier 1 capital) at
June 30, 2011 will no longer qualify as Tier 1 capital effective January 1, 2013. This amount
excludes $1.6 billion of hybrid Trust Securities that are expected to be converted to preferred
stock prior to the date of implementation. The exclusion of Trust Securities from Tier 1 capital
will be phased in incrementally over a three-year phase-in period. The treatment of Trust
Securities during the phase-in period remains unclear and is subject to future rulemaking.
For additional information on these and other regulatory requirements, see Note 18
Regulatory Requirements and Restrictions to the Consolidated Financial Statements of the
Corporations 2010 Annual Report on Form 10-K.
Capital Composition and Ratios
Tier 1 common capital decreased $10.5 billion to $114.7 billion at June 30, 2011 compared to
December 31, 2010. The decrease was driven by the second quarter losses and an increase in
deferred tax assets disallowed for regulatory capital reporting purposes. The $7.9 billion
increase in the deferred tax asset disallowance was due to the expiration of the longer
look-forward period granted by the regulators at the time of the Merrill Lynch acquisition and the
second quarter pre-tax loss. Tier 1 capital and Total capital decreased by $10.5 billion and $11.6
billion at June 30, 2011 compared to December 31, 2010.
Risk-weighted assets declined by $63.2 billion to $1,393 billion at June 30, 2011. The
risk-weighted asset reduction is consistent with our continued efforts to reduce non-core assets
and legacy loan portfolios. The Tier 1 common capital ratio decreased 37 bps to 8.23 percent, the
Tier 1 capital ratio decreased 24 bps to 11.00 percent and the Total capital ratio decreased 12
bps to 15.65 percent driven by the same factors noted above. The Tier 1 leverage ratio decreased
35 bps to 6.86 percent reflecting the decrease in Tier 1 capital and the lower risk-weighted
assets mentioned above.
Table 16 presents the Corporations capital ratios and related information at June 30, 2011
and December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 16 |
Regulatory Capital |
|
|
June 30, 2011 |
|
December 31, 2010 |
|
|
Actual |
|
Minimum |
|
Actual |
|
Minimum |
(Dollars in millions) |
|
Ratio |
|
Amount |
|
Required (1) |
|
Ratio |
|
Amount |
|
Required (1) |
|
Tier 1 common equity ratio |
|
|
8.23 |
% |
|
$ |
114,684 |
|
|
|
n/a |
|
|
|
8.60 |
% |
|
$ |
125,139 |
|
|
|
n/a |
|
Tier 1 capital ratio |
|
|
11.00 |
|
|
|
153,134 |
|
|
$ |
55,710 |
|
|
|
11.24 |
|
|
|
163,626 |
|
|
$ |