Bank of America Reports Third-Quarter 2013 Net Income of $2.5 Billion, or $0.20 per Diluted Share, o

Bank of America Reports Third-Quarter 2013 Net Income of $2.5 Billion, or $0.20 per Diluted Share, on Revenue of $21.7 Billion^(A)

Effects of Previously Announced Items

• Pretax Gain of $0.8 Billion on Sale of Remaining China Construction Bank Shares Partially Offset by $0.4 Billion in Negative Valuation Adjustments, Resulting in $0.02 Benefit to EPS

• Charge Related to Reduction in U.K. Tax Rate of $1.1 Billion, or $0.10 EPS

Continued Business Momentum

• Total Consolidated Deposit Balances up 4 Percent From Q3-12 to a Record $1.1 Trillion

• Funded $24 Billion in Residential Home Loans and Home Equity Loans in Q3-13

• More Than 1 Million New Credit Cards Issued in Q3-13

• Global Wealth and Investment Management Reports Record Asset Management Fees of $1.7 Billion; Pretax Margin of 25.5 Percent

• Commercial Loan Balances up 19 Percent From Q3-12 to $395 Billion

• Bank of America Merrill Lynch Maintained No. 2 Ranking in Global Investment Banking Fees and Was Ranked No. 1 in the Americas in Q3-13^B

• Expense Reduction Initiatives Remain on Track

• Credit Quality Continued to Improve With Net Charge-offs Down 59 Percent From Q3-12^C

Capital and Liquidity Remain Strong

• Basel 1 Tier 1 Common Capital of $143 Billion, Ratio of 11.08 Percent, up From 10.83 Percent in Prior Quarter

• Estimated Basel 3 Tier 1 Common Capital Ratio of 9.94 Percent, up From 9.60 Percent in Prior Quarter^D

• Estimated Bank Holding Company Supplementary Ratio Improved to Above Proposed 5 Percent Minimum^E

• Long-term Debt Down $31 Billion From Year-ago Quarter, Driven by Maturities and Liability Management Actions

• Parent Company Liquidity Remained Strong With Time-to-required Funding at 35 Months

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Bank of America Corporation today reported net income rose to $2.5 billion in the third quarter of 2013 from $340 million in the year-ago quarter. Earnings per diluted share increased to $0.20 from $0.00 in the third quarter of 2012. For the nine months ended September 30, 2013, net income increased to $8.0 billion from $3.5 billion in the same period a year ago.

Relative to the year-ago quarter, the results for the third quarter of 2013 were driven by reduced negative credit valuation adjustments on the company's credit spreads and increases in equity investment income, net interest income and investment and brokerage income. The company also benefited from improved credit quality and lower expenses. These factors were partially offset by lower mortgage banking income and the negative impact from remeasuring certain deferred tax assets due to the U.K. corporate income tax rate reduction enacted in July 2013.

"This quarter, we saw good loan growth, improved credit quality and record deposit balances. Our customers and clients continue to do more business with us," said Chief Executive Officer Brian Moynihan. "The economy and business climate will improve even more quickly as conditions normalize, and we are well positioned to benefit from that."

"We continued to make good progress on our expense initiatives, and we further strengthened our capital and leverage ratios," said Chief Financial Officer Bruce Thompson.

^{1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliations to GAAP financial measures, refer to pages 22-24 of this press release. Net interest income on a GAAP basis was $10.3 billion, $10.5 billion and $9.9 billion for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively. Total revenue, net of interest expense, on a GAAP basis was $21.5 billion, $22.7 billion and $20.4 billion for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively.}

^{2 Total revenue, net of interest expense, on an FTE basis excluding debit valuation adjustments (DVA) and fair value option (FVO) adjustments is a non-GAAP financial measure. DVA gains (losses) were $(292) million, $39 million and $(583) million for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively. Valuation gains (losses) related to FVO were $(152) million, $10 million and $(1.3) billion for the three months ended September 30, 2013, June 30, 2013 and September 30, 2012, respectively.}

Revenue, net of interest expense, on an FTE basis^A rose $1.1 billion from the third quarter of 2012 to $21.7 billion. Excluding the impact of debit valuation adjustments (DVA) and fair value option (FVO) adjustments, revenue was $22.2 billion in the third quarter of 2013, compared to $22.5 billion in the third quarter of 2012.

Net interest income, on an FTE basis, totaled $10.5 billion in the third quarter of 2013, compared to $10.2 billion in the third quarter of 2012^A. The improvement was driven by reductions in long-term debt balances, less negative market-related premium amortization, lower rates paid on deposits, and higher commercial loan balances. These factors were partially offset by lower consumer loan balances and lower asset yields. Net interest margin was 2.44 percent in the third quarter of 2013, compared to 2.32 percent in the third quarter of 2012.

Noninterest income increased $774 million from the year-ago quarter, led by lower negative FVO adjustments, higher equity investment income primarily related to the gain on the sale of the company's remaining China Construction Bank (CCB) shares in the current quarter, and improved investment and brokerage income. These improvements were partially offset by a $1.4 billion decrease in mortgage banking income from the third quarter of 2012.

The provision for credit losses was $296 million in the third quarter of 2013, down $915 million from the second quarter of 2013 and $1.5 billion less than the third quarter of 2012. The provision for credit losses was lower than net charge-offs, resulting in a $1.4 billion reduction in the allowance for credit losses in the third quarter of 2013. This compares to a $900 million reduction in the allowance in second quarter of 2013, and a $2.3 billion reduction in the third quarter of 2012.

Noninterest expense was $16.4 billion, compared to $17.5 billion in the year-ago quarter, driven primarily by lower litigation expense, reduced expenses in Legacy Assets and Servicing (LAS) and lower personnel expense as the company continued to streamline processes and achieve cost savings. Litigation expense was $1.1 billion in the third quarter of 2013, compared to $471 million in the second quarter of 2013 and $1.6 billion in the third quarter of 2012.

Income tax expense for the third quarter of 2013 was $2.3 billion on $4.8 billion of pretax income. This includes a charge of $1.1 billion for remeasuring certain deferred tax assets due to the U.K. corporate income tax rate reduction of 3 percent enacted in July 2013. In the year-ago quarter, the company reported income tax expense of $770 million on $1.1 billion of pretax income. This included a $0.8 billion charge for remeasuring certain deferred tax assets due to the enacted U.K. corporate income tax rate reduction of 2 percent.

At September 30, 2013, the company had 247,943 full-time employees, down from 257,158 at June 30, 2013, 272,594 at September 30, 2012 and from a peak of approximately 290,500 at September 30, 2011.

Business Segment Results

The company reports results through five business segments: Consumer and Business Banking (CBB), Consumer Real Estate Services (CRES), Global Wealth and Investment Management (GWIM), Global Banking, and Global Markets, with the remaining operations recorded in All Other.

Unless otherwise noted, business segment revenue, on an FTE basis, is net of interest expense.

^{1 During the second quarter of 2013, the results of consumer Dealer Financial Services (DFS), previously reported in Global Banking, were moved into CBB and prior periods have been reclassified to conform to current period presentation.}

^{2 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.}

^{3 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.}

Business Highlights

• Average deposit balances of $522.0 billion increased $43.9 billion, or 9 percent, from the same period a year ago. The increase was driven by growth in liquid products in the current low-rate environment and a $17.4 billion average impact of deposit transfers primarily from GWIM. The average rate paid on deposits in the third quarter of 2013 declined 9 basis points from the year-ago quarter to 10 basis points due to pricing discipline and a shift in the mix of deposits.

• The number of mobile banking customers increased 26 percent from the year-ago quarter to 14.0 million.

• U.S. Consumer Credit Card retail spending per average active account increased 10.2 percent from the third quarter of 2012.

• The U.S. Consumer Credit Card net credit loss rate for the third quarter of 2013 was 3.47 percent, the lowest since the first quarter of 2006.

• Merrill Edge brokerage assets increased 18 percent from the same period a year ago to $89.5 billion due to market growth and positive account flows.

• Small business loan originations and commitments rose 31 percent from the year-ago quarter to $2.9 billion.

• The company's specialized sales force of financial solutions advisors, mortgage loan officers and small business bankers increased to more than 6,900 specialists in the third quarter of 2013, up 18 percent from the same period a year ago, reflecting the company's continued commitment to deliver a "one company" experience to broaden and deepen customer relationships.

Financial Overview

Consumer and Business Banking reported net income of $1.8 billion, up $428 million, or 32 percent, from the year-ago quarter, driven by higher revenue, lower provision expense and lower noninterest expense.

Revenue of $7.5 billion increased $263 million from the year-ago quarter, driven by higher net interest income, partially offset by the impact of the continued low-rate environment on deposit spreads and lower average loans.

Provision for credit losses decreased $245 million from the year-ago quarter to $761 million, reflecting continued improvement in delinquencies. Noninterest expense decreased $131 million from the year-ago quarter to $4.0 billion primarily due to lower personnel expense and lower FDIC expense.

Business Highlights

• Bank of America funded $24.4 billion in residential home loans and home equity loans during the third quarter of 2013, helping nearly 97,000 homeowners either refinance an existing mortgage or purchase a home through our retail channels. This included more than 5,300 first-time homebuyer mortgages and more than 32,000 mortgages to low- and moderate-income borrowers.

• Approximately 78 percent of funded first mortgages were refinances and 22 percent were for home purchases.

• The number of 60+ days delinquent first mortgage loans serviced by LAS declined 19 percent during the third quarter of 2013 to 398,000 loans from 492,000 loans at the end of the second quarter of 2013, and declined 57 percent from 936,000 loans at the end of the third quarter of 2012.

Financial Overview

Consumer Real Estate Services reported a net loss of $1.0 billion for the third quarter of 2013, compared to a net loss of $857 million for the same period in 2012. Revenue declined $1.5 billion from the third quarter of 2012 to $1.6 billion. Noninterest income was $844 million, a decrease of $1.5 billion from the year-ago quarter, primarily due to lower servicing income and lower core production revenue. Core production revenue was $465 million in the third quarter of 2013, down from $944 million in the year-ago quarter, due largely to lower interest rate lock commitments and lower margins. The provision for representations and warranties was $323 million in the third quarter of 2013, compared to $307 million in the third quarter of 2012.

The provision for credit losses decreased $571 million from the year-ago quarter to a provision benefit of $308 million due to continued improvement in portfolio trends including increased home prices and the impact of regulatory guidance in the prior-year period regarding the treatment of loans discharged from Chapter 7 bankruptcy. Noninterest expense decreased to $3.4 billion from $4.2 billion in the third quarter of 2012, due to lower LAS expenses, partially offset by higher expenses in Home Loans. The decline in LAS expenses reflected lower default-related servicing expenses, including continued staff reductions and the divestiture of certain ancillary servicing businesses, while the increase in Home Loan expenses was due primarily to higher loan volume.

^{1 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.}

^{2 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.}

^{3 Total client balances are defined as assets under management, assets in custody, client brokerage assets, client deposits and loans (including margin receivables).}

Business Highlights

• Pretax margin increased to 25.5 percent from 22.2 percent in the year-ago quarter.

• Asset management fees grew to $1.7 billion, up 13 percent from the year-ago quarter.

• Client balances increased to a record $2.28 trillion, driven by higher market levels and net inflows. Period-end loan balances increased to a record $114.2 billion, up 12 percent from the year-ago quarter.

• Long-term assets under management (AUM) flows nearly doubled from the year-ago quarter to $10.3 billion, marking the 17th consecutive quarter of positive flows.

Financial Overview

Global Wealth and Investment Management net income rose 26 percent from the third quarter of 2012 to $719 million, reflecting solid revenue performance and low credit costs.

Revenue increased 8 percent from the year-ago quarter to $4.4 billion, driven by higher asset management fees related to long-term AUM flows and higher market levels, as well as higher net interest income.

The provision for credit losses decreased $38 million from the year-ago quarter to $23 million due to improvement in the home equity portfolio. Noninterest expense of $3.2 billion increased 4 percent, driven by higher support costs and volume-related expenses.

Client balances rose 7 percent from the year-ago quarter to $2.28 trillion, reflecting higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans. Assets under management rose $86.8 billion, or 13 percent, from the third quarter of 2012 to $779.6 billion, driven by long-term AUM flows and market impact.

^{1 During the second quarter of 2013, the results of consumer Dealer Financial Services (DFS), previously reported in Global Banking, were moved into CBB and prior periods have been reclassified to conform to current period presentation.}

^{2 Effective January 1, 2013, the company revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the company updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-24 of this press release.}

^{3 Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The company believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-24 of this press release.}

Business Highlights

• Bank of America Merrill Lynch (BAML) named Most Innovative Investment Bank of the Year for 2013 by The Banker magazine.

• Firmwide investment banking fees of $1.3 billion, excluding self-led deals, was relatively unchanged from the year-ago quarter. BAML maintained its No. 2 ranking in global net investment banking fees with a 7.7 percent market share and was No. 1 in Americas with 11.0 percent market share in the third quarter of 2013^B. BAML was also ranked among the top three financial institutions in announced mergers and acquisitions, high-yield corporate debt, leveraged loans, investment-grade corporate debt, asset-backed securities and syndicated loans during the third quarter^B.

• Average loan and lease balances increased $4.4 billion, or 2 percent, to $260.1 billion from the second quarter of 2013 with growth primarily in the commercial and industrial portfolio and the commercial real estate portfolio. Period-end loan balances increased $8.7 billion, or 3 percent, to $267.2 billion from the second quarter of 2013, reflecting continued loan growth momentum.

• Average deposits rose $12.4 billion, or 5 percent, from the year-ago quarter to $239.8 billion.

Financial Overview

Global Banking reported net incomeof $1.1 billion in the third quarter of 2013, slightly down from the year-ago quarter, as an increase in revenue was offset by higher provision for credit losses as the company continued to build reserves for loan growth. Revenue of $4.0 billion was up $223 million, or 6 percent, from the third quarter of 2012, reflecting higher net interest income driven by loan growth.

Global Corporate Banking revenue increased to $1.6 billion in the third quarter, up $172 million from the year-ago quarter, and Global Commercial Banking revenue increased $44 million to $1.7 billion. Included in these results are Business Lending revenue of $1.8 billion, up $163 million from the year-ago quarter, and Treasury Services revenue of $1.5 billion, up $53 million from the year-ago period. Global Banking investment banking fees, excluding self-led deals, was relatively unchanged from the year-ago quarter.