Bank of America Reports 3rd Quarter Operating Earnings of $1.31 Per Share
October 16, 2000
Reporters May Contact
Bob Stickler or Sharon Tucker, Bank of America, 1.704.386.8465
Investors May Contact
Susan Carr, Bank of America, 1.704.386.8059
Kevin Stitt, Bank of America, 1.704.386.5667
Third quarter earnings analyst conference call handout
CHARLOTTE, N.C.-Bank of America Corporation today reported that third quarter operating earnings rose 7 percent to $1.31 per share (diluted) from $1.23 per share a year ago.
Operating earnings of $2.18 billion included a $257 million pre-tax reduction in income related to the deterioration of auto lease residual values. Including that reduction, operating earnings were still up from net income of $2.15 billion a year earlier.
Third quarter results also contained a $346 million after-tax charge primarily to cover severance costs related to growth initiatives announced July 28. After that charge, net income in the latest quarter was $1.83 billion, equal to $1.10 per share.
The return on common equity in the latest quarter was 18.2 percent while the return on assets was 1.26 percent.
Cash-basis operating earnings - which exclude the amortization of intangibles - were $2.39 billion, or $1.44 per share, in the latest quarter. The return on average tangible common shareholders? equity was 27.8 percent.
For the first nine months of 2000, Bank of America operating earnings totaled $6.48 billion, up 6 percent from $6.13 billion a year ago. Operating earnings per share rose 12 percent to $3.87 from $3.45. Net income was $6.13 billion, or $3.66 per share, up from $5.98 billion, or $3.37 per share, a year earlier.
"Bank of America in the third quarter faced the same head wind of higher interest rates and a slowing economy as other banks," said Hugh L. McColl Jr., chairman and chief executive officer. "Despite those factors, we recorded real progress in building our targeted growth businesses, which was reflected in better core revenue growth.
"Our money management business continues to grow rapidly. We are gaining recognition as the leading bank in e-space, and our card business continues to expand at a double-digit pace. In addition, our investment banking team was recently recognized by a major international consultant as having made the most progress during the past 12 months of any financial company in the history of its annual survey," he continued.
"Our entire team is focused on creating and growing lasting customer relationships to increase revenue and build shareholder value. Momentum has been building steadily during 2000, laying a strong foundation for 2001," he said.
Third Quarter Strategic Highlights
- All five card services businesses (consumer, commercial, government, debit and merchant processing) had double digit increases in both volume and in new accounts compared to last year.
- Assets under management rose to $275 billion, up $47 billion, or 21 percent, from the prior year and up $14 billion from the second quarter of 2000. The Nations Funds family of funds reached $100 billion in mutual fund assets, driven by increases in equity, fixed income and money market funds.
- The bank launched prototype offices in Atlanta in October as the start of a redesign of the company?s 4,500 banking centers. Accelerated by the needs of customers who use online services, the redesigned banking centers follow three models. Financial centers will offer greater access to financial experts, enabling customers to get their banking, mortgage and financial planning advice in one place. Traditional banking centers will add more capabilities, including mortgage loan officers and new technology. Transaction centers will accommodate customers who want to make limited transactions through tellers and ATMs.
- The company announced an intent to form an alliance with Exult, Inc., a provider of Web-enabled integrated services designed to manage the human resources function for large multinational corporations. The alliance is expected to reduce by 10 percent the cost of delivering key administrative staff functions to the bank and to provide Bank of America with new revenue through the delivery of financial products to other Exult clients.
- The Bank of America Business Center was launched. It is an integrated, online destination for small business customers, providing access to online tools, information, financial products and services and marketplace procurement for business-to-business commerce. It enables small business owners and managers to streamline and automate many of their back-office operations, saving both time and money. After only one month, 1,300 clients had registered to use these capabilities.
Third Quarter Financial Highlights (compared to a year ago)
Earnings momentum in consumer and small-business areas increased due to targeted growth initiatives:
- Total card fee revenue grew 7 percent to $594 million as a result of a successful promotional campaign.
- Investment and brokerage income rose 13 percent to $471 million as a result of new asset management business and productivity increases in consumer brokerage.
- Average managed consumer loans and leases grew 17 percent, led by growth in residential mortgage, home equity lines and card services.
Corporate banking continued its strong performance:
- Trading account profits increased 19 percent to $372 million, with growth in equity-related trading activity.
- Investment banking income rose 4 percent to $376 million due to growth in the underwriting and advisory businesses.
- Equity investment gains were up 24 percent to $422 million, including venture capital gains of $224 million and strategic investment gains of $153 million.
- Lower personnel costs and professional fees helped drive down total noninterest expense by 3 percent.
- Net charge-offs decreased to an annualized .43 percent of loans and leases - an improvement of 8 basis points.
Revenue rose 3 percent over the previous year, excluding the impact of lease residuals.
Fully taxable-equivalent net interest income increased 2 percent to $4.67 billion, including a $71 million charge related to auto lease residuals.
- The increase reflected 13 percent average managed loan growth plus higher levels of core deposits and equity. These factors were partially offset by the impact of loan sales and securitizations in 1999, margin compression, auto lease residuals and the cost of share repurchases. These factors also contributed to the decline in the net interest yield of 34 basis points to 3.12 percent.
- Average managed loans and leases rose 13 percent to $428 billion.
- Average core deposits grew by 3 percent, or $10 billion, to $301 billion.
Noninterest income declined 3 percent to $3.65 billion, including a charge of $186 million related to auto lease residuals. Absent that charge, noninterest income was up 3 percent.
- Equity investments, service charges, card services, trading, investment banking and asset management had year-over-year increases.
- The absence of loan sales and securitizations, which boosted the year-ago results, and the impact of the auto lease residuals in the current quarter were the primary factors in reducing other income to $93 million from $408 million.
Noninterest expense declined 3 percent to $4.41 billion, reflecting lower personnel, equipment and professional fee costs. The cash-basis efficiency ratio declined to 50 percent.
The provision for credit losses in the third quarter was $435 million, down from $450 million a year earlier. Net charge-offs were $435 million, down from $460 million a year ago, driven primarily by lower losses on loans to consumers.
Net charge-offs were equal to an annualized .43 percent of loans and leases, down from .51 percent 12 months earlier.
Nonperforming assets were $4.40 billion, or 1.09 percent of loans, leases and foreclosed properties at September 30, 2000, compared to $3.04 billion, or .84 percent a year earlier. The increase mostly reflects a rise in nonperforming loans in the corporate portfolio centered in specific industries. Nonperforming loans also increased in real estate-secured consumer finance loans, reflecting the growth and maturing of that portfolio.
The allowance for credit losses totaled $6.7 billion at September 30, 2000, equal to 1.67 percent of loans and leases.
Total shareholders' equity was $46.9 billion at September 30, 2000, up 2 percent from 12 months earlier. This represented 6.98 percent of period-end assets of $672 billion. The Tier 1 Capital Ratio was 7.32 percent.
During the quarter, the company repurchased 15.8 million shares. Since June 1999, 128 million shares have been repurchased, representing an investment in Bank of America stock of $7.3 billion. Average (diluted) common shares outstanding were 1.661 billion in the third quarter, down 5 percent from 1.755 billion a year earlier.
Business Segment Results (year to date)
Consumer and Commercial Banking, which serves individuals and businesses with annual sales of up to $500 million, earned $3.47 billion and had a return on equity of 19.2 percent. This segment represented 54 percent of the company?s operating earnings.
Asset Management, which encompasses the private bank, trust, investment management, mutual funds and retail brokerage, earned $472 million, representing 7 percent of operating earnings. The return on equity was 35.8 percent.
Global Corporate and Investment Banking, which serves large corporate, institutional and government customers, earned $1.89 billion, representing 29 percent of the company?s earnings. The return on equity was 18.3 percent.
Equity Investments earned $533 million, representing 8 percent of the company?s earnings. The return on equity was 39.5 percent.
Bank of America is the largest bank in the United States. It has full-service operations in 21 states and the District of Columbia and provides financial products and services to 30 million households and two million businesses, as well as providing international corporate financial services for business transactions in 190 countries. The company?s stock (ticker: BAC) is listed on the New York, Pacific and London stock exchanges and certain shares are listed on the Tokyo Stock Exchange.
NOTE: James H. Hance Jr., vice chairman and chief financial officer, will discuss the quarter in a conference call at 9:30 a.m. (EDT) today. The call can be accessed through a webcast available on the Bank of America website, http://www.bankofamerica.com/investor.
Forward Looking Statements
This press release contains forward-looking statements with respect to the financial conditions and results of operations of Bank of America, including, without limitation, statements relating to the earnings outlook of the company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) projected business increases following process changes and other investments are lower than expected; (2) competitive pressure among financial services companies increases significantly; (3) costs or difficulties related to the integration of acquisitions are greater than expected; (4) general economic conditions, internationally, nationally or in the states in which the company does business, are less favorable than expected; (5) changes in the interest rate environment reduce interest margins and affect funding sources; (6) changes in market rates and prices may adversely affect the value of financial products; and (7) legislation or regulatory requirements or changes adversely affect the businesses in which the company is engaged.
Bank of America
SEPTEMBER 30 2000 1999 Balance Sheet highlights (In billions, except per share data) Loans and leases $402.592 $360.236 Securities 81.103 79.836 Earning assets 584.352 534.431 Total assets 671.725 620.652 Deposits 353.988 337.011 Shareholders' equity 46.859 45.889 Common shareholders' equity 46.785 45.811 Per share 28.69 26.79 Total equity to assets ratio (period-end) 6.98% 7.39% Risk-based capital ratios: Tier 1 7.32 7.71 Total 10.80 11.39 Leverage ratio (supervisory mode) 6.06 6.59 Period-end common shares issued and outstanding (in millions) 1,630.824 1,710.039 Allowance for credit losses $6.739 $7.076 Allowance for credit losses as a % of loans and leases 1.67% 1.96% Allowance for credit losses as a % of nonperforming loans 161.32 251.85 Nonperforming loans $4.177 $2.810 Nonperforming assets 4.403 3.038 Nonperforming assets as a % of: Total assets .65% .49% Loans, leases and foreclosed properties 1.09 .84 OTHER DATA Full-time equivalent employees 146,346 158,886 Number of banking centers 4,419 4,535 Number of ATM?s 13,878 14,042 BUSINESS SEGMENT RESULTS - Three Months Ended September 30, 2000 (in millions) TOTAL OPERATING AVG LOANS RETURN ON REVENUE NET INCOME AND LEASES EQUITY Consumer and Commercial Banking $5,142 $1,180 $265,267 19.4% Asset Management Group 555 154 22,634 34.5 Global Corporate and Investment Banking 2,189 592 114,580 16.5 Equity Investments 346 196 450 39.7 Other 85 53 n/m n/m n/m = not meaningful