Bank of America (BAC) said Thursday that its first-quarter net income dropped 13% from a year ago on weaker trading revenue and interest income. Like other banks, including Wells Fargo (WFC), it put aside more energy-related loan loss reserves.
BofA’s net income was $2.7 billion in Q1’16 vs. $3.1 billion in Q1’15. Earnings per share were $0. 21, just beating equity analysts’ average estimate.
Total revenue, including net interest income and noninterest income, was $19.7 billion – a drop of 7% from last year and below analysts’ estimate of $20.3 billion for the quarter.
“This quarter, we benefited from good consumer and commercial banking activity. Our business segments earned $4.5 billion, up 16% from the year-ago quarter,” said CEO Brian Moynihan, in a statement. “This was partially offset by valuation adjustments from lower long-term interest rates and annual compensation expenses.”
Its net interest income was $9.2 billion vs. $9.4 billion in Q1’15 while its credit loss reserves were $997 million, up from $765 million a year ago, due to the commercial portfolio’s exposure to the energy sector.
The bank reported some $21.9 billion in energy loans vs. $21.3 billion in Q4’15. It has put aside $525 million to cover potential energy loan losses and says its exposure to high-risk subsectors of the energy sector represent less than 1% of its total loans and leases.
The wealth and investment management unit’s revenue dropped about 2% to $4.4 billion on weaker noninterest income. The unit’s net income, though, rose 13% year over year to $740 million due to “solid expense management.” Its pretax margin for the period was 26% vs. 23% in Q1’15.
The number of advisors with Merrill Lynch stands at 14, 413, up slightly from the prior year’s headcount of 14,185 but down from the earlier quarter’s 14,499.
Advisors produced an average level of yearly fees and commissions of $983,000 as of Q1’16 vs. $1.04 million in the year-ago period and $995,000 in the prior quarter.
Average deposit balances grew nearly by $17 billion, or 7%, as average loans and leases improved by nearly $12 billion, or 9%.
Total client balances were $2.46 trillion vs. $2.51 trillion a year ago. Moreover, client flows went into negative territory at -$600 million in Q1’16 vs. positive flows of $14.7 billion in the year-ago period and $6.76 billion in the prior quarter.
The unit says it had a “strong quarter in the institutional retirement business with $7 billion of funded sales from large 401(k) plan wins.”
Wells Fargo Earnings
Wells Fargo said Thursday that its first-quarter profits dropped 6% from a year ago, weakening to about $5.5 billion vs. $5.8 billion a year ago. Earnings per share were $0.99, which beat analysts’ estimates of $0.97 cents, but fell short of last year’s EPS of $1.04. Revenue for the quarter grew 4% $22.2 billion, topping estimates of $21.6 billion.
“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,” said CEO John Stumpf in a statement. “We again generated solid growth in the fundamental drivers of long-term value creation: loans, deposits and capital.”
In the first quarter, Wells Fargo charged off $204 million in energy loans, roughly 75% more than it charged off in the fourth quarter. The bank also added $200 million to funds for loans that could be hurt due to weakness in the energy and its impact on the bank’s oil and gas portfolio.
According to the Wall Street Journal, this is the first time since 2009 that Wells Fargo has moved to build up reserves for loan losses. The bank’s portfolio of energy loans represents totals about $18 billion, or about 2% of all outstanding loans.
“While substantially all of the loan portfolio continues to perform well, the oil and gas portfolio remains under significant stress due to low prices and excess leverage in this industry,” explained Chief Risk Officer Mike Loughlin during a call with analysts.
Wells Fargo’s wealth and investment management unit had a 3% year-over-year decline in revenue to about $3.9 billion. Net income also dropped 3% year over year and 14% from the prior period, weakening to $512 million on lower brokerage transaction revenue and asset-based fees. The unit’s total assets were $1.6 trillion, down 2% from last year.
Client assets for the retail brokerage – which includes 15,064 financial advisors – also fell 2% to $1.4 trillion. Advisory assets of $428 billion were down 1%.
The unit had strong loan growth, with average balances growing 22% from Q1’15 “largely due to continued growth in nonconforming mortgage loans and security-based lending.”
Wealth management operations reported client assets of $225 billion, down 1% from the year-ago period. Average loan balances rose 9%.
IRA assets of $357 billion were down 2%, while institutional retirement plan assets of $331 billion fell 5%. Asset management operations reported AUM of $481 billion, down 2% from the prior year “due to equity outflows and lower market valuations, partially offset by favorable fixed income and money market net client inflows.”
The wealth and investment management unit’s cross-sell ratio for Q1’16 was 10.55 products per household, up from 10.44 a year ago, according to the bank.
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