Bank of America Reports Third Quarter Earnings of $3.76 Billion, or $.91 Per Share
Successful brand rollout continues across Northeast
Fleet merger transition on target
Consumer bank momentum continues
CHARLOTTE, N.C., Oct. 14 /PRNewswire-FirstCall/ -- Bank of America Corporation today reported third quarter earnings of $3.76 billion, or $.91 per share (diluted), compared to earnings of $2.92 billion, or $.96 per share, a year ago. Under purchase accounting rules, year-ago results do not include the impact of FleetBoston Financial Corporation, which was acquired on April 1, 2004.
Return on common equity in the third quarter was 15.56 percent.
In addition to the impact of Fleet, the company's net income improvement was driven by continued momentum in consumer banking, merger-driven cost savings, lower provision expense and gains on the sale of debt securities.
Third quarter earnings included merger and restructuring charges of $221 million pre-tax, which reduced earnings by 4 cents per share. These included $156 million for the Fleet merger and $65 million for severance related to the infrastructure initiative announced last week.
For the first nine months of 2004, Bank of America earned $10.29 billion, or $2.76 per share, compared to $8.08 billion, or $2.65 per share, a year earlier.
"Business momentum remains strong," said Kenneth D. Lewis, president and chief executive officer. "Our results show we are attracting and deepening customer relationships across the franchise. This is evident from the growth in consumer accounts and card usage to the improvement in market penetration in corporate banking products to the significant growth in Premier Banking relationships. We are also particularly pleased with the progress in integrating Fleet, where we are meeting, or exceeding, the plans we announced last fall."
"We are beginning to tap into the wealth in the Northeast; GCIB is gaining market share in key product lines and should gain strength as we invest more than $600 million into the business. Commercial is seeing positive growth trends and the consumer business remains our workhorse. "
Fleet Merger Highlights from the Quarter
- The company opened 87,000 net new consumer checking accounts in the former Fleet franchise during the quarter, more than double the 42,000 in the prior quarter.
- In the Northeast, the company opened 81,000 net new consumer savings accounts, compared to 37,000 in the prior quarter.
- Product sales in the six new Manhattan banking centers averaged 12 sales per associate per day, which is twice the average rate across the franchise.
- 399 Premier banking client managers were added, 50 percent in New England and 50 percent in the New York City area.
- To date, 621 Fleet banking centers, or more than a third of the total, have been re-branded.
- Attesting to the convenience of the national network, "legacy" Bank of America and Fleet customers have begun to make cross-footprint transactions in increasing volumes. In the last week of September alone, customers completed 25,000 cross-footprint transactions, 60 percent of which were performed by "legacy" Bank of America customers in former Fleet banking centers.
Third Quarter Business Highlights
To provide a meaningful period-to-period comparison and one that is more reflective of ongoing operations, this section's highlights are calculated by combining Bank of America and Fleet results on a pro forma basis for the applicable comparisons.
- The company announced a new national business designed to serve the needs of ultra high net worth individuals and families.
- Retail deposits grew 11 percent to $399.6 billion.
- The number of consumer checking accounts grew by net 537,000 during the quarter. Year to date, the company has increased accounts by 1,515,000 and is on target to exceed its goal of 2.0 million for the year.
- The number of consumer savings accounts grew by net 624,000 during the quarter. Year to date, the company has increased accounts by 1,876,000 and is on target to exceed its goal of 2.0 million for the year.
- The company opened 1.6 million new credit card accounts during the quarter. This growth was driven by targeted direct mail marketing campaigns, strong co-brand programs and effective cross selling of cards in banking centers.
- During the quarter, the company opened 38 new banking centers, bringing total openings to 83 for the year.
- Customers continued to expand their use of debit cards. Both purchase volumes and total transactions increased 19 and 18 percent, respectively, from a year ago.
- Online banking active users increased 5 percent, to 11.8 million. Of those users, 4.8 million use bill pay. During the quarter, bill pay volume increased 10 percent.
- In the first nine months of the year, the company became the top U.S. deal manager in commercial mortgage-backed securities.
- In the first nine months of the year, the company's market share in syndicated loans increased to 20.0 percent. High yield debt market share increased to 12.2 percent.
Third Quarter Financial Summary
These are GAAP-reported results, which exclude Fleet results in the year- ago period.
Revenue on a fully taxable-equivalent basis grew to $12.73 billion from $9.92 billion the previous year.
Net interest income on a fully taxable-equivalent basis was $7.84 billion compared to $5.48 billion a year earlier. In addition to the impact of Fleet, this increase was driven by the impact of higher asset/liability management portfolio and rate levels, consumer loan growth and domestic deposit growth. These increases were partially offset by the impact of lower large corporate and foreign loan balances in addition to lower trading-related margins and mortgages held-for-sale.
Noninterest income was $4.90 billion compared to $4.45 billion a year earlier. In addition to the impact of Fleet, these results were driven by record card income, higher service charges, investment and brokerage income and equity investment gains, offset by a loss of $250 million in mortgage banking income, which resulted from lower origination volume and a writedown of mortgage servicing rights.
During the quarter, the company realized $732 million in securities gains as it repositioned its mortgage-backed securities to reduce mortgage prepayment risk.
Noninterest expense was $6.99 billion compared to $5.08 billion a year ago, driven by the addition of Fleet. Pre-tax cost savings from the merger were $309 million during the quarter.
Overall credit quality continued to improve. Both net charge-offs and nonperforming assets continued to decline. All major commercial asset quality indicators showed positive trends and consumer asset quality remained stable as credit card charge-offs grew in line with card portfolio growth.
- Provision for credit losses was $650 million, down from $789 million in the second quarter of 2004 and $651 million a year earlier.
- Net charge-offs were 0.57 percent of average loans and leases, or $719 million, down from 0.67 percent, or $829 million, in the second quarter and 0.86 percent of loans and leases, or $776 million, a year earlier.
- Nonperforming assets were 0.55 percent of total loans, leases and foreclosed properties, or $2.84 billion, as of September 30, 2004. This compared to 0.64 percent, or $3.18 billion, on June 30, 2004 and 0.98 percent, or $3.66 billion, on September 30, 2003.
- The allowance for loan and lease losses stood at 1.70 percent of loans and leases, or $8.72 billion, on September 30, 2004. This compared to 1.76 percent or $8.77 billion on June 30, 2004 and 1.68 percent or $6.26 billion on September 30, 2003. As of September 30, 2004, the allowance for loan and lease losses represented 343 percent of nonperforming loans and leases, compared to 305 percent on June 30, 2004 and 183 percent on September 30, 2003.
Total shareholders' equity was $98.0 billion on September 30, 2004, compared to $50.4 billion a year ago. This represented 9 percent of period- end assets of $1.09 trillion. The Tier 1 Capital Ratio was 8.08 percent, compared to 8.20 percent on June 30, 2004 and 8.25 percent a year ago.
During the quarter, Bank of America paid a cash dividend of $.45 per share, a 12.5 percent increase from the prior quarter's dividend. The company also issued 26.8 million shares primarily related to employee options and stock ownership plans and repurchased 40.4 million shares. Average common shares issued and outstanding were 4.05 billion in the third quarter compared to 4.06 billion in the second quarter and 2.98 billion a year earlier. The company's stock split 2-for-1 on August 27, 2004.
Business Segment Results
Effective April 1, 2004, the company reorganized its business segments. What was formerly Consumer and Commercial Banking has been separated into two segments -- Consumer and Small Business Banking; and Commercial Banking. Wealth and Investment Management has added Premier Banking and the NYSE Specialist firm. Global Corporate and Investment Banking is relatively unchanged and Corporate Other includes Latin America, equity investments, liquidating businesses and treasury.
Consumer and Small Business Banking
Consumer and Small Business Banking earned $1.68 billion on total revenue of $7.03 billion.
During the quarter, successful execution of the company's customer relationship strategy continued to provide momentum for this business. Product sales per associate continued to grow as customer relationships deepened. This trend was reflected in continued solid growth in checking and savings accounts. Home equity and credit card balances increased significantly during the quarter. Credit card purchase volume increased and the number of cardholders continued to grow.
Revenue and profit were negatively impacted by a loss of $250 million in mortgage banking income, which resulted from lower origination volume and a writedown of mortgage servicing rights. Results were also impacted by higher provision expense due to growth in the credit card portfolio.
Commercial Banking earned $824 million on total revenue of $1.82 billion.
During the quarter, service charges and investment banking fees grew as the company recorded lower provision and personnel expense. Loans continued to grow modestly.
Global Corporate and Investment Banking
Global Corporate and Investment Banking earned $475 million on total revenue of $2.06 billion.
A slow economy, flattening yield curve, normal summer slowdown and continued geo-political risk impacted results. Investment banking results, while lower than the second quarter, were above year-ago levels, reflecting the company's continuing platform build-out. Growth in loan syndications and advisory services drove investment banking fees.
Trading results were below the record set in second quarter and lower than a year ago. A flattening yield curve and tightening credit spreads created a difficult trading environment. Offsetting this was continued strong demand for commercial mortgage-backed and asset-backed securities. Provision expense was negative for the fourth straight quarter, reflecting continued improvement in credit quality.
Wealth and Investment Management
Wealth and Investment Management earned $469 million on total revenue of $1.57 billion.
The segment benefited from its diversified business model with significant increases in loans and deposits in the Private Bank and Premier Banking. This more than offset lower brokerage fees, which reflected lower retail trading in the debt and equity markets.
Net interest income grew 12 percent during the quarter as deposits in this segment increased 14 percent, reflecting strong deposit efforts by Premier Banking and the Private Bank. Loans increased 3 percent during the quarter. Assets under management were $430 billion, which was down from the prior quarter.
Corporate Other earned $314 million. Principal Investing continued to show improvements, reporting cash gains of $257 million in the third quarter offset by $59 million in impairments and $27 million in mark-to-market adjustments. Latin America earned $151 million on total revenue of $264 million, primarily due to lower provision.
Note: Marc D. Oken, chief financial officer, will discuss third quarter results in a conference call at 9:30 a.m. (Eastern Time) today. The call can be accessed via a webcast available on the Bank of America Web site at http://www.bankofamerica.com/investor/ .
Bank of America is one of the world's largest financial institutions, serving individual consumers, small businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving 33 million consumer relationships with 5,800 retail banking offices, more than 16,500 ATMs and award-winning online banking with more than eleven million active users. Bank of America is the No. 1 Small Business Administration Lender in the United States by the SBA. The company serves clients in 150 countries and has relationships with 96 percent of the U.S. Fortune 500 companies and 82 percent of the Global Fortune 500. Bank of America Corporation stock (ticker: BAC) is listed on the New York Stock Exchange.
This press release contains forward-looking statements, including statements about the financial conditions, results of operations and earnings outlook of Bank of America Corporation. The forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results or earnings to differ materially from such forward-looking statements include, among others, the following: 1) projected business increases following process changes and other investments are lower than expected; 2) competitive pressure among financial services companies increases significantly; 3) general economic conditions are less favorable than expected; 4) political conditions including the threat of future terrorist activity and related actions by the United States military abroad may adversely affect the company's businesses and economic conditions as a whole; 4) changes in the interest rate environment reduce interest margins and impact funding sources; 5) changes in foreign exchange rates increases exposure; 6) changes in market rates and prices may adversely impact the value of financial products; 7) legislation or regulatory environments, requirements or changes adversely affect the businesses in which the company is engaged; 8) litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect the company or its businesses; and 9) decisions to downsize, sell or close units or otherwise change the business mix of any of the company. For further information regarding Bank of America Corporation, please read the Bank of America reports filed with the SEC and available at http://www.sec.gov .
Bank of America Selected Financial Data(1) Three Months Nine Months Ended September 30 Ended September 30 2004 2003 2004 2003 (Dollars in millions, except per share data; shares in thousands) Financial Summary Earnings $3,764 $2,922 $10,294 $8,084 Earnings per common share 0.93 0.98 2.80 2.70 Diluted earnings per common share 0.91 0.96 2.76 2.65 Dividends paid per common share 0.45 0.40 1.25 1.04 Closing market price per common share 43.33 39.02 43.33 39.02 Average common shares issued and outstanding 4,052,304 2,980,206 3,666,298 2,988,739 Average diluted common shares issued and outstanding 4,121,375 3,039,282 3,729,120 3,047,046 Summary Income Statement Net interest income $7,665 $5,304 $21,047 $15,878 Total noninterest income 4,895 4,446 14,052 12,401 Total revenue 12,560 9,750 35,099 28,279 Provision for credit losses 650 651 2,063 2,256 Gains on sales of debt securities 732 233 2,022 802 Other noninterest expense 6,773 5,077 19,266 14,867 Merger and restructuring charges 221 - 346 - Income before income taxes 5,648 4,255 15,446 11,958 Income tax expense 1,884 1,333 5,152 3,874 Net income $3,764 $2,922 $10,294 $8,084 Summary Average Balance Sheet Total loans and leases $503,078 $357,288 $458,268 $351,119 Debt securities 169,515 63,423 143,119 74,532 Total earning assets 954,626 677,308 881,377 651,535 Total assets 1,110,124 786,155 1,023,005 758,605 Total deposits 587,878 414,569 531,958 401,985 Shareholders' equity 96,392 48,871 79,510 49,512 Common shareholders' equity 96,120 48,816 79,293 49,455 Performance Indices Return on average assets 1.35 % 1.48 % 1.34 % 1.43 % Return on average common shareholders' equity 15.56 23.74 17.32 21.85 Credit Quality Net charge-offs $719 $776 $2,268 $2,381 Annualized net charge-offs as a % of average loans and leases outstanding 0.57 % 0.86 % 0.66 % 0.91 % Managed credit card net losses as a % of average managed credit card receivables 5.48 5.33 5.55 5.44 At September 30 2004 2003 Balance Sheet Highlights Loans and leases $511,639 $373,098 Total debt securities 163,858 63,279 Total earning assets 933,479 627,721 Total assets 1,088,996 737,546 Total deposits 591,258 408,510 Total shareholders' equity 98,011 50,445 Common shareholders' equity 97,740 50,390 Book value per share 24.14 16.92 Total equity to assets ratio (period end) 9.00 % 6.84 % Risk-based capital ratios: Tier 1 8.08 * 8.25 Total 11.70 * 12.17 Leverage ratio 5.92 * 5.95 Period-end common shares issued and outstanding 4,049,063 2,978,874 Allowance for credit losses: Allowance for loan and lease losses $8,723 $6,258 Reserve for unfunded lending commitments 446 458 Total $9,169 $6,716 Allowance for loan and lease losses as a % of total loans and leases 1.70 % 1.68 % Allowance for loan and lease losses as a % of total nonperforming loans and leases 343 183 Total nonperforming loans and leases $2,546 $3,429 Total nonperforming assets 2,836 3,657 Nonperforming assets as a % of: Total assets 0.26 % 0.50 % Total loans, leases and foreclosed properties 0.55 0.98 Nonperforming loans and leases as a % of total loans and leases 0.50 0.92 Other Data Full-time equivalent employees 175,523 132,749 Number of banking centers - domestic 5,829 4,211 Number of ATMs - domestic 16,728 13,120 * Preliminary data Information for periods after April 1, 2004 includes the FleetBoston acquisition; prior periods have not been restated. BUSINESS SEGMENT RESULTS Global Corporate Consumer and and Small Business Commercial Investment Banking Banking Banking Three Months Ended September 30, 2004 Total revenue (FTE) (2) $7,025 $1,821 $2,064 Net income 1,682 824 475 Shareholder value added 754 222 185 Return on average equity 17.35 % 14.42 % 17.30 % Average loans and leases $150,334 $139,983 $35,881 Three Months Ended September 30, 2003 Total revenue (FTE) (2) $5,561 $1,165 $2,064 Net income 1,679 400 435 Shareholder value added 1,348 244 216 Return on average equity 50.13 % 27.26 % 21.30 % Average loans and leases $92,509 $93,451 $33,805 n/m = not meaningful Information for periods after April 1, 2004 includes the FleetBoston acquisition; prior periods have not been restated. BUSINESS SEGMENT RESULTS Wealth and Investment Corporate Management Other Three Months Ended September 30, 2004 Total revenue (FTE) (2) $1,573 $248 Net income 469 314 Shareholder value added 246 46 Return on average equity 21.27 % n/m Average loans and leases $45,646 $131,234 Three Months Ended September 30, 2003 Total revenue (FTE) (2) $959 $174 Net income 256 152 Shareholder value added 166 (350) Return on average equity 29.70 % n/m Average loans and leases $37,159 $100,364 n/m = not meaningful Three Months Ended Nine Months Ended September 30 September 30 2004 2003 2004 2003 SUPPLEMENTAL FINANCIAL DATA Fully taxable-equivalent basis data (2) Net interest income $7,836 $5,477 $21,557 $16,362 Total revenue 12,731 9,923 35,609 28,763 Net interest yield 3.28 % 3.22 % 3.26 % 3.35 % Efficiency ratio 54.94 51.16 55.07 51.69 Reconciliation of net income to operating earnings Net income $3,764 $2,922 $10,294 $8,084 Merger and restructuring charges 221 - 346 - Related income tax benefit (74) - (116) - Operating earnings $3,911 $2,922 $10,524 $8,084 Operating Basis Diluted earnings per common share $0.95 $0.96 $2.82 $2.65 Return on average assets 1.40 % 1.48 % 1.37 % 1.42 % Return on avg common shareholders' equity 16.17 23.74 17.71 21.85 Efficiency ratio 53.20 51.16 54.10 51.69 Reconciliation of net income to shareholder value added Net income $3,764 $2,922 $10,294 $8,084 Amortization of intangibles 200 55 455 163 Merger and restructuring charges, net of tax benefit 147 - 230 - Capital charge (2,658) (1,353) (6,530) (4,069) Shareholder value added $1,453 $1,624 $4,449 $4,178 (1) Certain prior period amounts have been reclassified to conform to current period presentation. (2) Fully taxable-equivalent (FTE) basis is a performance measure used by management in operating the business that management believes provides investors with a more accurate picture of the interest margin for comparative purposes. Information for periods after April 1, 2004 includes the FleetBoston acquisition; prior periods have not been restated.
SOURCE Bank of America
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Leyla Pakzad, +1-704-386-2024
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