Bank of America Second Quarter Net Income Rises 12 Percent
Revenue increases 7 percent as expenses decline Consumer and middle market business loan growth vibrant Efficiency ratio again under 50 percent Retail sales momentum continues
CHARLOTTE, N.C., July 18, 2005 /PRNewswire-FirstCall via COMTEX/ -- Bank of America Corporation today reported that second quarter net income rose 12 percent to $4.30 billion from $3.85 billion a year earlier. Earnings per share increased 14 percent to $1.06 per share (diluted) from $0.93. Return on average common shareholders' equity in the second quarter was 17.54 percent.
Second quarter earnings included merger and restructuring charges of $121 million pre-tax, which reduced earnings per share by 2 cents.
Improved results were driven by a 7 percent increase in revenue and 3 percent decrease in noninterest expense. The revenue increase was primarily due to strong noninterest income growth, led by the growth in card income and service charges. Also contributing were gains from whole loan sales and equity investment gains. Noninterest expense fell due to savings created by the merger with FleetBoston Financial Corporation.
Nearly all major customer-related actions related to the Fleet integration have now been accomplished as several major systems conversions were completed during the quarter. Direct cost savings achieved in the second quarter totaled $441 million. Total savings from the Fleet merger are projected to be $1.85 billion for 2005.
For the first six months of 2005, Bank of America earned $8.99 billion, or $2.20 per share (diluted), compared to $6.53 billion, or $1.85 per share, a year earlier.
During the second quarter Bank of America agreed to buy approximately 9 percent of the stock of China Construction Bank for $3 billion, with the option of increasing its stake in future years. Bank of America also announced a definitive agreement to acquire MBNA Corporation. The MBNA acquisition is expected to close in the fourth quarter.
"I am very pleased with our continued strong performance in 2005," said Kenneth D. Lewis, chairman and chief executive officer. "Our ability to achieve profitable growth in the midst of a challenging interest rate environment demonstrates the value and resilience of our balanced business mix as well as the efficiency advantages of our large-scale enterprise."
"As we successfully complete the Fleet integration, and look ahead to the MBNA acquisition, we will build upon a successful customer-centric formula to provide continued long-term growth for investors from our expanded and enhanced financial services platform," Lewis said. "I am very proud that we are continuing to achieve customer growth while completing our integration of Fleet."
- Average managed consumer credit card outstandings rose to $58.5 billion as the company added a record 1.6 million consumer credit card accounts in the quarter.
- The bank added a record 629,000 net new retail checking accounts in the quarter.
- Debit card purchase volume rose to over $35 billion in the quarter, an increase of 27 percent from second quarter 2004.
- Average loans and leases in Global Business and Financial Services grew $5 billion from first quarter 2005, which was an annualized growth rate of more than 11 percent.
- Total retail deposits grew 11 percent from the second quarter of 2004 to more than $428 billion in the second quarter of 2005.
- Active online banking users increased to 13.6 million, while 6.6 million active online bill-payers paid more than $30 billion worth of bills, an increase of 41 percent from the second quarter of 2004.
- Seventy-two percent of Columbia Management Group's total funds were ranked in the top half of Lipper's overall rankings of the mutual fund industry as of the end of second quarter 2005 (Assets under Management weighted over 1 year). Thirty-nine percent were in Lipper's top quartile.(1) Fleet Merger Highlights
- The accounts of more than 1.9 million customers in Rhode Island, Massachusetts, New Hampshire, Maine and Florida have been converted to Bank of America's retail platform, including all deposit and loan accounts, overdraft protection and online banking and bill pay. Final conversion of remaining customers in the Fleet footprint will take place later this month.
- Net new retail checking accounts in the former Fleet footprint increased 78,000 in the second quarter of 2005, as compared to 16,000 net new retail checking accounts in the second quarter of 2004.
- Middle market and business banking loans in the former Fleet footprint grew by more than $600 million during the quarter. This was an annualized increase of more than 17 percent.
Revenue on a fully taxable-equivalent basis grew to $14.21 billion from $13.22 billion the same quarter last year.
Net interest income on a fully taxable-equivalent basis was $7.84 billion, up 1 percent from $7.75 billion a year earlier. The increase was due to growth in consumer and business loans, a larger asset-liability management portfolio and higher domestic deposit levels. These increases were partially offset by the impact of further flattening of the yield curve, a lower trading-related contribution and lower levels of large corporate and foreign loans.
Noninterest income rose 16 percent to $6.37 billion from $5.47 billion a year earlier. These results were driven by gains from whole loan sales, card income, service charges and equity investment gains. These improvements were offset by weaker trading profits and investment banking income as well as lower mortgage banking income.
During the quarter, the company realized $325 million in securities gains, down significantly from $795 million in the second quarter of 2004.
Noninterest expense declined 3 percent to $7.02 billion compared to $7.23 billion a year ago. The efficiency ratio improved to 49.42 percent (48.56 percent excluding merger and restructuring charges). For 2005 year-to-date, the company has achieved operating leverage of 13.5 percent.
Most major credit quality indicators showed positive trends. The company recorded net recoveries on commercial loans. Credit card charge-offs increased from the second quarter of 2004 reflecting growth and seasoning in the portfolio, the impact of last year's changes in minimum payment requirements and bankruptcy reform. Consumer credit quality remained strong in all other categories.
- Provision for credit losses was $875 million, up from $580 million in the first quarter of 2005 and $789 million a year earlier.
- Net charge-offs were $880 million, or 0.68 percent of average loans and leases. This compared to $889 million, or 0.69 percent, in the first quarter of 2005 and $829 million, or 0.67 percent of average loans and leases in the second quarter of 2004.
- Nonperforming assets decreased to $1.90 billion, or 0.36 percent of total loans, leases and foreclosed properties, at June 30, 2005. This compared to $2.34 billion, or 0.44 percent, at March 31, 2005 and $3.18 billion, or 0.64 percent, at June 30, 2004.
- The allowance for loan and lease losses was $8.32 billion, or 1.57 percent of loans and leases, at June 30, 2005. This compared to $8.31 billion, or 1.57 percent, at March 31, 2005 and $8.77 billion, or 1.76 percent, at June 30, 2004. At June 30, 2005, the allowance for loan and lease losses represented 470 percent of total nonperforming loans and leases, compared to 401 percent at March 31, 2005 and 305 percent at June 30, 2004. Capital Management
Total shareholders' equity was $100.54 billion at June 30, 2005. Period-end assets grew to $1.25 trillion. The Tier 1 Capital Ratio was 8.06 percent, compared to 8.20 percent at March 31, 2005 and a year ago.
During the quarter, Bank of America paid a cash dividend of $0.45 per share. The Board of Directors has increased the quarterly dividend to $0.50 per share, effective with the payment in the third quarter. The company issued 22 million shares, primarily related to employee stock options and ownership plans, and repurchased 40 million shares. Average common shares issued and outstanding were 4.01 billion in the second quarter, compared to 4.03 billion in the first quarter of 2005 and 4.06 billion in the second quarter of 2004.
Second Quarter 2005 Business Segment Results
Global Consumer and Small Business Banking
Global Consumer and Small Business Banking earnings decreased 8 percent to $1.60 billion from $1.74 billion a year earlier. Revenue rose 5 percent to $7.06 billion.
The decline in earnings occurred because of an increase in provision expense due to increased credit card charge-offs. Also, included in this quarter's provision was $210 million to establish a reserve for anticipated net charge-offs from additional minimum payment requirements for consumer credit cardholders, which will be implemented in the fourth quarter.
Business momentum continued to be solid, led by growth in card income and service charges as well as increases in home equity loans. Service charges rose 12 percent and benefited from a growing number of new consumer and business accounts. Card income increased 25 percent from a year ago due to significant growth in debit and credit card volumes as well as the acquisition of NPC, which closed in the fourth quarter of 2004.
Global Business and Financial Services
Global Business and Financial Services earnings rose 43 percent to $1.22 billion from $849 million a year earlier. Revenue increased 11 percent to $2.69 billion.
Strong loan and deposit growth fueled a $149 million increase in net interest income while growth in service charges was the major driver of higher noninterest income. A negative provision expense of $164 million and a 7 percent decline in noninterest expense added to the earnings improvement. The business also recorded gains on sales of debt securities in Latin America.
Global Capital Markets and Investment Banking
Global Capital Markets and Investment Banking earnings increased 12 percent to $461 million from $411 million a year ago. Revenue declined 19 percent to $2.12 billion.
The earnings increase was primarily driven by the absence of litigation expense incurred in the second quarter of 2004. Revenue declined as trading profits and investment banking income decreased in the face of weak market conditions. However, the company outperformed the market in mergers and acquisitions, advisory services and investment grade and high yield debt offerings. Investment and brokerage service fees rose. Credit quality continued to be strong.
Global Wealth and Investment Management
Global Wealth and Investment Management earnings increased 48 percent to $590 million from $398 million a year earlier. Revenue rose 19 percent to $1.84 billion.
Asset management fees rose as assets under management increased. Earnings also benefited from continued strong expense management.
All Other reflected $433 million of net income for the quarter. This included securities gains of $204 million and whole loan sale gains of $278 million related to asset-liability management. The Equity Investments business earned $167 million compared to a loss of $13 million in the second quarter of 2004.
Note: Marc Oken, chief financial officer, will discuss second 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 through more than 5,800 retail banking offices and 16,600 ATMs and through award-winning online banking with more than 13 million active users. Bank of America is ranked 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 85 percent of the Global Fortune 500 companies. Bank of America Corporation stock (NYSE: 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 abroad may adversely affect the company's businesses and economic conditions as a whole; 5) changes in the interest rate environment reduce interest margins and impact funding sources; 6) changes in foreign exchange rates increases exposure; 7) changes in market rates and prices may adversely impact the value of financial products; 8) legislation or regulatory environments, requirements or changes adversely affect the businesses in which the company is engaged; 9) litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect the company or its businesses; and 10) 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.
(1) Lipper Inc. is an independent mutual fund performance monitor. Lipper ranks mutual funds' total performance (assuming reinvestment of distributions) against other funds having similar investment objectives and strategies. Lipper makes no adjustment for the effect of sales loads. Bank of America Selected Financial Data(1) Three Months Six Months Ended June 30 Ended June 30 2005 2004 2005 2004 (Dollars in millions, except per share data; shares in thousands) Financial Summary Earnings $ 4,296 $ 3,849 $ 8,991 $ 6,530 Earnings per common share 1.07 0.95 2.23 1.88 Diluted earnings per common share 1.06 0.93 2.20 1.85 Dividends paid per common share 0.45 0.40 0.90 0.80 Closing market price per common share 45.61 42.31 45.61 42.31 Average common shares issued and outstanding 4,005,356 4,062,384 4,019,089 3,471,516 Average diluted common shares issued and outstanding 4,065,355 4,131,290 4,081,921 3,531,038 Summary Income Statement Net interest income $ 7,650 $ 7,581 $15,523 $13,382 Total noninterest income 6,365 5,467 12,514 9,197 Total revenue 14,015 13,048 28,037 22,579 Provision for credit losses 875 789 1,455 1,413 Gains on sales of debt securities 325 795 984 1,290 Other noninterest expense 6,898 7,103 13,843 12,533 Merger and restructuring charges 121 125 233 125 Income before income taxes 6,446 5,826 13,490 9,798 Income tax expense 2,150 1,977 4,499 3,268 Net income $ 4,296 $ 3,849 $ 8,991 $ 6,530 Summary Average Balance Sheet Total loans and leases $520,424 $497,158 $522,672 $435,618 Securities 227,182 159,797 215,940 129,776 Total earning assets 1,118,527 938,520 1,081,924 836,664 Total assets 1,277,489 1,094,459 1,239,398 963,825 Total deposits 640,593 582,305 634,043 503,690 Shareholders' equity 98,417 93,266 98,614 70,976 Common shareholders' equity 98,145 92,943 98,343 70,787 Performance Indices Return on average assets 1.35 % 1.41 % 1.46 % 1.36 % Return on average common shareholders' equity 17.54 16.63 18.42 18.54 Credit Quality Net charge-offs $ 880 $ 829 $ 1,769 $ 1,549 Annualized net charge-offs as a % of average loans and leases outstanding 0.68 % 0.67 % 0.68 % 0.72 % Managed credit card net losses as a % of average managed credit card receivables 6.23 5.88 6.20 5.54 At June 30 2005 2004 Balance Sheet Highlights Loans and leases $ 529,418 $ 498,481 Total securities 233,586 166,653 Total earning assets 1,086,666 876,714 Total assets 1,246,330 1,024,731 Total deposits 635,417 575,413 Total shareholders' equity 100,540 95,821 Common shareholders' equity 100,268 95,499 Book value per share 24.96 23.51 Total equity to assets ratio (period-end) 8.07 % 9.35 % Risk-based capital ratios: Tier 1 8.06 * 8.20 Total 11.12 * 11.97 Leverage ratio 5.59 * 5.83 Period-end common shares issued and outstanding 4,016,704 4,062,657 Allowance for credit losses: Allowance for loan and lease losses $ 8,319 $ 8,767 Reserve for unfunded lending commitments 383 486 Total $ 8,702 $ 9,253 Allowance for loan and lease losses as a % of total loans and leases 1.57 % 1.76 % Allowance for loan and lease losses as a % of total nonperforming loans and leases 470 305 Total nonperforming loans and leases $ 1,770 $ 2,879 Total nonperforming assets 1,895 3,179 Nonperforming assets as a % of: Total assets 0.15 % 0.31 % Total loans, leases and foreclosed properties 0.36 0.64 Nonperforming loans and leases as a % of total loans and leases 0.33 0.58 Other Data Full-time equivalent employees 177,795 179,971 Number of banking centers - domestic 5,880 5,774 Number of ATMs - domestic 16,687 16,672 * Preliminary data BUSINESS SEGMENT RESULTS Global Global Global Consumer and Business and Capital Markets Small Business Financial and Investment Banking Services Banking Three Months Ended June 30, 2005 Total revenue (FTE) (2) $ 7,062 $ 2,691 $ 2,121 Net income 1,595 1,217 461 Shareholder value added 828 458 195 Return on average equity 19.36 % 16.90 % 18.24 % Average loans and leases $140,255 $176,505 $ 32,639 Three Months Ended June 30, 2004 Total revenue (FTE) (2) $ 6,723 $ 2,430 $ 2,634 Net income 1,740 849 411 Shareholder value added 1,022 83 128 Return on average equity 22.51 % 11.66 % 15.28 % Average loans and leases $129,379 $163,905 $ 38,476 Six Months Ended June 30, 2005 Total revenue (FTE) (2) $ 14,024 $ 5,425 $ 4,753 Net income 3,494 2,339 1,182 Shareholder value added 1,982 810 644 Return on average equity 21.43 % 16.12 % 23.13 % Average loans and leases $139,467 $174,019 $ 34,065 Six Months Ended June 30, 2004 Total revenue (FTE) (2) $ 11,448 $ 3,999 $ 4,808 Net income 2,810 1,441 864 Shareholder value added 1,739 479 381 Return on average equity 24.96 % 15.77 % 18.96 % Average loans and leases $107,731 $136,551 $ 33,905 Global Wealth and Investment All Management Other Three Months Ended June 30, 2005 Total revenue (FTE) (2) $ 1,837 $ 495 Net income 590 433 Shareholder value added 329 79 Return on average equity 23.18 % n/m Average loans and leases $ 52,967 $118,058 Three Months Ended June 30, 2004 Total revenue (FTE) (2) $ 1,546 $ (115) Net income 398 451 Shareholder value added 163 195 Return on average equity 17.20 % n/m Average loans and leases $ 44,117 $121,281 Six Months Ended June 30, 2005 Total revenue (FTE) (2) $ 3,631 $ 594 Net income 1,166 810 Shareholder value added 657 101 Return on average equity 23.45 % n/m Average loans and leases $ 51,869 $123,252 Six Months Ended June 30, 2004 Total revenue (FTE) (2) $ 2,647 $ 16 Net income 645 770 Shareholder value added 290 107 Return on average equity 18.70 % n/m Average loans and leases $ 41,280 $116,151 n/m = not meaningful Three Months Ended Six Months Ended June 30 June 30 2005 2004 2005 2004 SUPPLEMENTAL FINANCIAL DATA Fully taxable-equivalent basis data (2) Net interest income $ 7,841 $ 7,751 $15,913 $13,721 Total revenue 14,206 13,218 28,427 22,918 Net interest yield 2.81 % 3.31 % 2.95 % 3.29 % Efficiency ratio 49.42 54.68 49.52 55.23 Reconciliation of net income to operating earnings Net income $ 4,296 $ 3,849 $ 8,991 $ 6,530 Merger and restructuring charges 121 125 233 125 Related income tax benefit (41) (42) (78) (42) Operating earnings $ 4,376 $ 3,932 $ 9,146 $ 6,613 Operating Basis Diluted earnings per common share $ 1.08 $ 0.95 $ 2.24 $ 1.87 Return on average assets 1.37 % 1.44 % 1.49 % 1.38 % Return on average common shareholders' equity 17.87 16.99 18.74 18.77 Efficiency ratio 48.56 53.73 48.70 54.68 Reconciliation of net income to shareholder value added Net income $ 4,296 $ 3,849 $ 8,991 $ 6,530 Amortization of intangibles 204 201 412 255 Merger and restructuring charges, net of tax benefit 80 83 155 83 Capital charge (2,691) (2,542) (5,364) (3,872) Shareholder value added $ 1,889 $ 1,591 $ 4,194 $ 2,996 (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 CorporationInvestors may contact: Kevin Stitt, +1-704-386-5667, Lee McEntire, +1-704-388-6780, Leyla Pakzad, +1-704-386-2024, or Media may contact: Terry Francisco, +1-704-386-4343, all of Bank of America http://www.prnewswire.com