| Bank of America Reports Operating Earnings of $2.09 Billion, or $1.28 Per Share, in the Third Quarter
CHARLOTTE, N.C., Oct. 15 /PRNewswire/ -- Bank of America Corporation (NYSE: BAC) today reported third quarter operating earnings of $2.09 billion, or $1.28 per share (diluted), compared to $2.18 billion, or $1.31 per share, a year ago. Operating earnings increased 3 percent from the second quarter of 2001. The return on common equity was 16.9 percent.
Operating earnings excluded the previously announced $1.25 billion in after-tax costs to exit the auto leasing and subprime real estate lending businesses. Including exit charges, net income for the third quarter was $841 million, or $0.51 per share.
For the first nine months of 2001, operating earnings were $5.98 billion, or $3.66 per share (diluted). This compared to operating earnings of $6.48 billion, or $3.87 per share, reported during the same period in 2000.
``The strength and diversity of our business has enabled us to produce solid bottom line results even in the face of a rapidly declining economy,'' said Kenneth D. Lewis, chairman and chief executive officer. ``Like many other companies who were affected by the tragic events of September 11, we focused on doing the right thing for our customers and associates. While we cannot predict the financial impact of these events on our company, we remain optimistic about the future and that our efforts to build our core businesses will create significant increases in shareholder value over time.
``We continue to successfully execute our customer-focused strategy to attract new customers, and deepen existing customer relationships,'' continued Lewis. ``We are implementing process improvements and reengineering businesses to make our customers' experience with us even better, while at the same time reducing costs. In addition, we are changing measurements and incentives for associates that reward them for building better customer relationships, not just selling products. And we are implementing new tools and technology that help associates manage customer information better to ensure that we continually increase relationship value for our customers.''
Third quarter operating earnings highlights (compared to a year ago)
- The company achieved solid results despite a $421 million increase in provision expense.
- Net interest income increased 14 percent. The net interest yield increased 68 basis points to 3.78 percent.
- Consumer-based fee income continued its momentum with growth of 5 percent led by service charges and card fee income due to higher business volumes and increased customer activity.
- Trading account profits and investment and brokerage service fees showed strong results, up 8 percent and 12 percent, respectively.
- Average customer deposits grew 5 percent to $307 billion, driven by a 22 percent balance increase in money-market savings.
Revenue
Revenue grew 5 percent to $8.72 billion in the third quarter from the previous year, driven by a significant increase in net interest income.
Fully taxable-equivalent net interest income rose 14 percent to $5.29 billion. The company continued to benefit from falling interest rates and a steepened yield curve, which again allowed it to shed lower yielding assets. Benefits also were achieved from trading activities and higher deposit and equity levels. These factors resulted in a 68 basis-point improvement in the net yield to 3.78 percent.
Noninterest income declined 7 percent to $3.43 billion. While the company experienced growth in card fee income and service charges, this growth was more than offset by lower market-related revenue across business lines. In particular, equity investment gains were down $400 million from a year ago.
In connection with the repositioning of the investment portfolio, the company realized $97 million in securities gains.
Efficiency
Noninterest expense increased 4 percent from the prior year. Primary drivers of expenses were increases in marketing related to the company's national brand-building campaign, costs associated with various international activities and increases in professional fees. Direct losses associated with the events of September 11, such as property losses and costs to re-establish business operations, are expected to be substantially covered by insurance. The efficiency ratio was 52.82 percent on an operating basis, an improvement of 19 basis points over a year ago.
Costs associated with the exit of consumer finance businesses
In August, the company announced that it was exiting both its auto leasing and subprime real estate lending businesses, because these businesses did not fit its strategic and profitability objectives. To cover the cost of exiting these businesses, the company incurred $1.7 billion in pre-tax ($1.25 billion after-tax) related charges during the third quarter. The components included:
- Noninterest expense charges of $1.31 billion, representing goodwill write-offs, adjustments to auto lease residual and subprime real estate
servicing asset values and miscellaneous expenses.
- A one-time provision expense of $395 million, which combined with existing reserves of $240 million, was used to write the loan portfolio down to estimated market value. As a result, charge-offs of $635 million were recorded. In addition, $21 billion in loans, including $1.2 billion in nonperforming loans, were transferred to assets held for sale as part of the exit initiative, significantly reducing the company's loan portfolio.
Credit quality
In line with the company's expectations, credit quality declined as the economy continued to slow.
- Net charge-offs were $1.5 billion, or 1.65 percent of loans and leases, up from $435 million, or 0.43 percent, a year ago. The third quarter included $635 million in charge-offs resulting from the exit of the subprime business and $135 million from the sale of problem commercial and consumer loans.
Excluding exit-related charge-offs, net charge-offs were $856 million, or 0.95 percent of loans and leases. Commercial charge-offs increased $267 million from a year ago, with growth largely concentrated in the commercial domestic portfolio. Excluding exit-related charge-offs, consumer charge-offs rose $154 million from a year earlier primarily due to an increase in consumer bankcard outstandings and personal bankruptcy filings. On a managed basis, consumer bankcard charge-offs remained consistent with second quarter levels.
- The provision for credit losses in the third quarter was $1.3 billion compared to $435 million a year earlier. The provision for credit losses was equal to net charge-offs, excluding the $240 million allowance reduction associated with exiting the subprime lending business. Excluding the exit charge, provision was $856 million.
- Nonperforming assets were $4.5 billion, or 1.33 percent of loans, leases and foreclosed properties at September 30, 2001, compared to $4.4 billion, or 1.09 percent, a year earlier. An increase in nonperforming assets in the domestic commercial loan portfolio was offset by the transfer of $1.2 billion of nonperforming loans to assets held for sale as part of the exit of the subprime real estate business. As a result of the loan transfer and the sale of nonperforming loans during the third quarter, nonperforming assets declined 27 percent, or $1.7 billion, from the second quarter.
- At September 30, 2001, the allowance for credit losses totaled $6.7 billion, or 1.97 percent of loans and leases, up from 1.67 percent a year ago. The allowance for credit losses represented 162 percent of nonperforming loans, up from 118 percent at June 30, 2001.
Capital management
Total shareholders' equity was $50.2 billion at September 30, 2001, up 7 percent from 12 months earlier and representing 7.83 percent of period-end assets of $640 billion. The Tier 1 Capital Ratio rose 63 basis points from September 30, 2000 to 7.95 percent.
During the quarter, Bank of America repurchased 24 million shares, as the company intensified its repurchase program following the events of September 11. Since June 1999, 199 million shares have been repurchased, representing an investment in Bank of America stock of $11.1 billion. As of September 30, 2001, the remaining buyback authority for common stock under the currently authorized program totaled 31 million shares. Average (diluted) common shares outstanding were 1.63 billion in the third quarter, down 2 percent from 1.66 billion a year earlier.
Consumer and Commercial Banking
Consumer and Commercial Banking (CCB) earned $1.25 billion, essentially unchanged from a year ago, despite a $222 million increase in provision expense. Total revenues grew 6 percent while expenses increased 3 percent from a year ago. Return on equity was 25.7 percent and Shareholder Value Added (SVA) remained steady at $828 million.
Net interest income increased 7 percent over a year ago, as loan and deposit growth was partially offset by the additional cost of the money market savings pricing initiative. Managed loans grew 5 percent, led by consumer loan growth of 16 percent, primarily in residential first mortgage, bankcard and home equity.
Average customer deposits grew 4 percent, led by a 22 percent increase in money market savings account balances. This growth was partially offset by declining balances in time and savings accounts.
Noninterest income was up 4 percent compared to a year ago.
- Service charges grew 7 percent, reflecting higher business volumes.
- Card fee income grew 4 percent, reflecting increased purchase volumes in
credit and debit cards as well as new account growth.
Global Corporate and Investment Banking
Global Corporate and Investment Banking (GCIB) earned $476 million, 8 percent below last year's results. Revenue increased 12 percent to $2.21 billion, offset by a $167 million increase in credit costs and higher expenses. Return on equity was 16.6 percent for the quarter. SVA increased $18 million to $169 million.
Net interest income was up 27 percent from a year ago, primarily driven by increased trading activity. Total trading-related revenue in GCIB was $795 million, up 34 percent, as the company adjusted for the rate environment during the quarter, particularly in interest rate and fixed-income products. Investment and brokerage fees were up 44 percent, as a result of higher equity and stock commissions from increased customer flow.
Investment banking income decreased 19 percent to $305 million from last year. While fixed-income originations were strong compared to a year ago, the demand for syndications, equity products, and merger and acquisition services was weak.
Asset Management
Asset Management earnings were down 5 percent to $148 million from a year ago. Revenue remained essentially unchanged, reduced by increased credit costs and increased expenses as the company continued investment in this business. Return on equity was 26.8 percent and SVA decreased $17 million to $96 million.
Assets under management grew 2 percent, or $5 billion, over last year to $280 billion, despite the impact of lower stock valuations. This increase was driven by the growth in the Nations Funds family of mutual funds and the addition of Marsico Funds, which the company acquired in the first quarter.
Equity Investments
Equity Investments reported a loss of $58 million, compared to earnings of $197 million a year earlier. Equity investment gains were $7 million, all in Principal Investing. |
Bank of America
Three months Nine months
Ended September 30 Ended September 30
2001 2000 2001 2000
(Dollars in millions, except
per share data;
shares in thousands)
Financial Summary -
operating basis (1)
Operating earnings $ 2,091 $ 2,175 $ 5,984 $ 6,478
Operating earnings
per common share 1.31 1.33 3.73 3.91
Diluted operating
earnings per
common share 1.28 1.31 3.66 3.87
Cash basis earnings(2) 2,310 2,390 6,649 7,128
Cash basis
earnings per
common share 1.44 1.46 4.14 4.31
Cash basis diluted
earnings per
common share 1.41 1.44 4.07 4.26
Dividends per common
share 0.56 0.50 1.68 1.50
Closing market price
per common share 58.40 52.38 58.40 52.38
Average common shares
issued and
outstanding 1,599,692 1,639,392 1,603,340 1,654,013
Average diluted common
shares issued and
outstanding 1,634,063 1,661,031 1,632,928 1,674,748
Summary Income
Statement - operating
basis (1)
(Taxable-equivalent
basis)
Net interest income $ 5,290 $ 4,642 $ 15,128 $ 13,913
Noninterest income 3,429 3,675 10,950 11,254
Total revenue 8,719 8,317 26,078 25,167
Provision for credit
losses (856) (435) (2,491) (1,325)
Gains on sales of
securities 97 11 82 23
Other noninterest
expense (4,606) (4,410) (14,081) (13,446)
Operating income
before income taxes 3,354 3,483 9,588 10,419
Income taxes -
including taxable-
equivalent basis
adjustment 1,263 1,308 3,604 3,941
Operating net income $ 2,091 $ 2,175 $ 5,984 $ 6,478
Summary Average Balance Sheet
Loans and leases $ 357,726 $ 402,763 $ 376,261 $ 390,296
Managed loans and
leases(3) 376,413 387,772 396,381 392,898
Securities 58,930 83,728 56,637 85,792
Earning assets 557,108 597,248 562,038 581,029
Total assets 642,184 685,017 648,789 669,598
Deposits 363,328 356,734 360,793 351,863
Shareholders' equity 49,202 47,735 48,597 46,962
Common shareholders'
equity 49,134 47,660 48,528 46,886
Performance Indices -
operating basis (1)
Return on average
assets 1.29 % 1.26 % 1.23 % 1.29 %
Return on average
common shareholders'
equity 16.87 18.15 16.48 18.45
Efficiency ratio 52.82 53.01 53.99 53.42
Cash basis return on
average assets(2) 1.43 1.39 1.37 1.42
Cash basis return on
average shareholder's
common equity(2) 18.64 19.94 18.31 20.30
Cash basis efficiency
ratio(2) 50.32 50.43 51.44 50.84
Net interest yield 3.78 3.10 3.59 3.20
Shareholder value
added $ 824 $ 953 $ 2,293 $ 2,916
Credit Quality
Net charge-offs(4) $ 1,491 $ 435 $ 3,050 $ 1,325
% of average loans
and leases 1.65 % 0.43 % 1.08 % 0.45 %
Managed bankcard net
charge-offs as a % of
average managed bankcard
receivables 4.81 4.16 4.71 4.79
As Reported
Net Income $ 841 $ 1,829 $ 4,734 $ 6,132
Earnings per
common share 0.52 1.11 2.95 3.70
Diluted earnings
per common share 0.51 1.10 2.90 3.66
Return on average
shareholder's common
equity 6.78 % 15.25 % 13.03 % 17.46 %
(1) Operating basis excludes provision for credit losses of $395 million
and noninterest expense of $1.3 billion related to the exit of certain
consumer finance businesses in the third quarter of 2001 and
restructuring charges of $550 million in the third quarter of 2000.
(2) Cash basis calculations exclude goodwill and other intangible
amortization expense.
(3) Prior periods have been restated for comparability (e.g. acquisitions,
divestitures, sales and securitizations).
(4) Net charge-offs includes $635 million related to the exit of certain
consumer finance businesses in the third quarter 2001. Excluding
these charge-offs, the net charge-off ratio for the third quarter of
2001 would be 0.95%.
Bank of America - Continued
(Dollars in millions, except per share data; shares in thousands)
September 30
2001 2000
Balance Sheet Highlights
Loans and leases $ 339,018 $ 402,592
Securities 75,964 81,103
Earning assets 539,249 584,352
Total assets 640,105 671,725
Deposits 359,870 353,988
Shareholders' equity 50,151 46,859
Common shareholders' equity 50,084 46,785
Per share 31.66 28.69
Total equity to assets ratio
(period end) 7.83 % 6.98 %
Risk-based capital ratios:
Tier 1 7.95 7.32
Total 12.12 10.80
Leverage ratio 6.59 6.06
Period-end common shares
issued and outstanding 1,582,129 1,630,824
Allowance for credit losses $ 6,665 $ 6,739
Allowance for credit losses
as a % of loans and leases 1.97 % 1.67 %
Allowance for credit losses
as a % of nonperforming
loans 162 161
Nonperforming loans $ 4,119 $ 4,177
Nonperforming assets(5) 4,523 4,403
Nonperforming assets as a %
of:
Total assets .71 % .65 %
Loans, leases and
foreclosed properties 1.33 1.09
Other Data
Full-time equivalent
employees 143,824 146,346
Number of banking centers 4,274 4,419
Number of ATM's 13,009 12,840
BUSINESS SEGMENT RESULTS -
operating basis (1)
Three months Ended September 30, 2001
Operating Avg Loans Return on
Total Revenue Earnings and Leases Equity
Consumer and Commercial
Banking $ 5,369 $ 1,253 $ 182,792 25.7 %
Asset Management 609 148 24,631 26.8
Global Corporate and
Investment Banking 2,208 476 76,643 16.6
Equity Investments (54) (58) 468 (9.4)
Corporate Other 587 272 73,192 n/m
n/m = not meaningful
(5) In the third quarter of 2001, $1.2 billion of nonperforming subprime
real estate loans were transferred to loans held for sale as a result
of the exit of certain consumer finance businesses.
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