Bank of America: Increased Net Income, Reduced Expenses in 2Q15



Non-interest expense declined

In its second quarter, Bank of America’s (BAC) total non-interest expense was $13.8 billion. Expenses include $175 million in litigation costs. Excluding litigation, non-interest expenses declined by 6% compared to the same quarter a year ago. Lower LAS (legacy assets and servicing) costs as well as the bank’s expense control initiatives contributed to the decline. The bank is cutting legacy loans to reduce its operating costs.

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The above graph shows a reduction in Bank of America’s non-interest expense. The right axis shows the bank’s efficiency ratio. Efficiency ratio is the ratio of a bank’s operating expenses to the sum of non-interest revenue and net interest income. The bank’s efficiency ratio has improved over the last five quarters.

Workforce reduction 

Bank of America reduced its workforce by 7% compared to the same quarter a year ago. The number of full-time equivalent employees has fallen to ~217,000, down from ~233,000 at the end of the second quarter of 2014.

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Technology use

All of the banks, including J.P. Morgan (JPM), Citigroup (C), and Wells Fargo (WFC), are increasingly focusing on technology-based solutions to both cut costs and cater to changing customer preferences. One such trend is the growth of mobile banking. Bank of America is adding an average of 5,000 new customers each day to its mobile banking platform. The bank has more than 17.6 million mobile banking customers.

As the use of digital channels, such as computers and mobile, is increasing, banks are able to eliminate some of their branches. This helps banks reduce costs as well, as maintaining branches is more expensive. The number of Bank of America’s branches fell to 4,789 by the end of 2Q15, down from 5,023 at the end of 2Q14.

The banking sector makes up 37% of the Financial Select Sector SPDR Fund (XLF).


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