It was a tough first quarter for Bank of America, as the bank experienced a year-over-year decline of 13 percent in net income down to $2.7 billion, or earnings per diluted share of $0.21, according to the bank's Q1 earnings statement released Thursday.
The bank's net income was also down by $0.6 billion over-the-quarter from Q4's net income of $3.3 billion, according to Bank of America.
Consumer performed well for Bank of American in Q1, with consumer banking's net income jumping by 22 percent up to $1.8 billion as positive operating leverage was created by higher revenue from increased customer activity combined with lower expenses. The bank's sales and trading revenue were down by 16 percent in Q1, however.
"This quarter, we benefited from good consumer and commercial banking activity," said Brian Moynihan, CEO. "Our business segments earned $4.5 billion, up 16 percent from the year-ago quarter. This was partially offset by valuation adjustments from lower long-term interest rates and annual compensation expenses. Despite volatile markets, our Global Markets business produced solid earnings. As always, we are focused on loan and deposit growth and managing expenses. By doing that, we continue to improve on what we do best: helping consumers live their financial lives and helping businesses grow and employ more people."
Bank of America's Legacy Assets and Servicing revenue was down by $235 million, from $914 million down to $669 million due to a decline in net interest income on lower loan balances and a drop in non-interest income. The bank's mortgage banking income declined due to lower servicing fees and mortgage servicing rights net of hedge results. The factors causing the decline were partially offset by gains on certain loan sales, according to the earnings statement. The number of residential loans serviced by Bank of America that were 60-plus days delinquent declined over-the-year by 42 percent, down to 88,000, during Q1.
Non-interest expense declined by $1 billion down to $14.8 billion.
Click here to view Bank of America's complete Q1 earnings statement.
Wells Fargo's Profits Fold Under Pressure
With intense pressure stemming from falling oil prices, historically low interest rates, and volatile financial markets profits at San Francisco-based Wells Fargo did not come in strong for the first quarter of 2016.
Wells Fargo & Company reported in its earnings statement released Thursday, net income at the bank reached $5.5 billion, or $0.99 per diluted common share, for first quarter of 2016. Last year, during this time, the bank reported a net income of $5.8 billion, or $1.04 per share and in the fourth quarter of 2015 it reported $5.6 billion in income, or $1.00 per share.
Chairman and CEO of Wells Fargo, John Stumpf, said, “Wells Fargo's first quarter results reflected the benefit of our diversified business model as we managed challenges presented by a volatile operating environment for our industry. We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital. We also completed two important acquisitions from GE Capital, which are great additions to our company and demonstrate the benefit of our strong financial position. We remain focused on meeting the financial needs of our consumer and business customers, and I believe we are well positioned for the future.”
The statement showed that net interest income in first quarter of 2016 rose $79 million from fourth quarter 2015 to $11.7 billion. The bank attributes this increase to "earning asset growth, including a partial quarter impact from the assets acquired from GE Capital, the benefit of the fourth quarter increase in the federal funds rate and disciplined deposit pricing." However, the net interest income increase was partially offset by reduced income from variable sources (periodic dividends and loans fees) and one less day in the quarter.
Wells Fargo reported that mortgage banking noninterest income was $1.6 billion in the first quarter of 2016, down $62 million from fourth quarter 2015. This decline was "primarily driven by a decrease in mortgage originations and production margins in the first quarter, partially offset by higher servicing income." Residential mortgage loan originations decreased down $3 billion to $44 billion in the first quarter, and the production margin on residential held-for-sale mortgage loan originations was 1.68 percent, compared with 1.83 percent in fourth quarter.
Servicing income, however, experienced an increase, rising from $730 million in fourth quarter to 850 million in the first quarter. Total loans were $947.3 billion at March 31, 2016, up $30.7 billion, or 3 percent, from December 31, 2015, the report stated. This total includes $24.9 billion from the GE Capital acquisitions. Total average loans were $927.2 billion in the first quarter, up $14.9 billion from the prior quarter, and included an $8.8 billion impact from the GE Capital acquisitions.
“Our first quarter results demonstrated an ability to produce consistent revenue and net income across economic and interest rate cycles. While challenges in the energy industry and persistent low rates impacted our bottom line, our diversified business model was again beneficial to our results. We were disciplined in deploying liquidity into investment securities in the quarter, with gross purchases well below recent quarters," said CFO of Wells Fargo John Shrewsberry. "This was partially responsible for the $30 billion increase in our federal funds and short-term investment balances compared with the prior quarter. Our capital remained very strong with Common Equity Tier 1 (fully phased-in) of $142.7 billion. Our net payout ratio was 60 percent in the quarter, as we returned $3.0 billion to shareholders through common stock dividends and net share repurchases."
Click here to view Wells Fargo's First Quarter 2016 Earnings Statement.