UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number:
1-6523
Exact name of registrant as specified in its charter:
Bank of America Corporation
State of incorporation:
Delaware
IRS Employer Identification Number:
56-0906609
Address of principal executive offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrants telephone number, including area code:
(704) 386-8486
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).
Yes þ No ¨
On July 31, 2003, there were 1,494,629,792 shares of Bank of America Corporation Common Stock outstanding.
June 30, 2003 Form 10-Q
INDEX
Page | ||||||
Part I |
Item 1. | Financial Statements: | ||||
Financial Information |
Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 2003 and 2002 |
2 | ||||
Consolidated Balance Sheet at June 30, 2003 and December 31, 2002 |
3 | |||||
4 | ||||||
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2003 and 2002 |
5 | |||||
6 | ||||||
Item 2. | Managements Discussion and Analysis of Results of Operations and Financial Condition |
19 | ||||
Item 3. | 54 | |||||
Item 4. | 54 | |||||
| ||||||
Part II |
||||||
Other Information |
Item 1. | 54 | ||||
Item 2. | 55 | |||||
Item 4. | 55 | |||||
Item 6. | 56 | |||||
Signature | 57 | |||||
Index to Exhibits | 58 |
Part I. Financial Information
Item 1. Financial Statements
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Three Months Ended June 30 |
Six Months Ended June 30 |
||||||||||||||
(Dollars in millions, except per share information) |
2003 |
2002 |
2003 |
2002 |
|||||||||||
Interest income |
|||||||||||||||
Interest and fees on loans and leases |
$ | 5,412 | $ | 5,530 | $ | 10,760 | $ | 10,975 | |||||||
Interest and dividends on securities |
1,011 | 924 | 1,789 | 1,870 | |||||||||||
Federal funds sold and securities purchased under agreements to resell |
193 | 270 | 387 | 485 | |||||||||||
Trading account assets |
1,007 | 948 | 2,049 | 1,826 | |||||||||||
Other interest income |
372 | 312 | 735 | 699 | |||||||||||
Total interest income |
7,995 | 7,984 | 15,720 | 15,855 | |||||||||||
Interest expense |
|||||||||||||||
Deposits |
1,269 | 1,384 | 2,452 | 2,728 | |||||||||||
Short-term borrowings |
514 | 529 | 967 | 1,006 | |||||||||||
Trading account liabilities |
316 | 344 | 624 | 629 | |||||||||||
Long-term debt |
531 | 633 | 1,103 | 1,245 | |||||||||||
Total interest expense |
2,630 | 2,890 | 5,146 | 5,608 | |||||||||||
Net interest income |
5,365 | 5,094 | 10,574 | 10,247 | |||||||||||
Noninterest income |
|||||||||||||||
Consumer service charges |
793 | 732 | 1,570 | 1,423 | |||||||||||
Corporate service charges |
577 | 566 | 1,154 | 1,133 | |||||||||||
Total service charges |
1,370 | 1,298 | 2,724 | 2,556 | |||||||||||
Consumer investment and brokerage services |
401 | 420 | 779 | 801 | |||||||||||
Corporate investment and brokerage services |
204 | 178 | 369 | 348 | |||||||||||
Total investment and brokerage services |
605 | 598 | 1,148 | 1,149 | |||||||||||
Mortgage banking income |
559 | 136 | 964 | 331 | |||||||||||
Investment banking income |
488 | 464 | 866 | 805 | |||||||||||
Equity investment gains (losses) |
43 | (36 | ) | (25 | ) | (10 | ) | ||||||||
Card income |
762 | 621 | 1,443 | 1,198 | |||||||||||
Trading account profits |
93 | 263 | 207 | 608 | |||||||||||
Other income |
335 | 137 | 613 | 284 | |||||||||||
Total noninterest income |
4,255 | 3,481 | 7,940 | 6,921 | |||||||||||
Total revenue |
9,620 | 8,575 | 18,514 | 17,168 | |||||||||||
Provision for credit losses |
772 | 888 | 1,605 | 1,728 | |||||||||||
Gains on sales of securities |
296 | 93 | 569 | 137 | |||||||||||
Noninterest expense |
|||||||||||||||
Personnel |
2,695 | 2,386 | 5,154 | 4,832 | |||||||||||
Occupancy |
498 | 441 | 970 | 873 | |||||||||||
Equipment |
253 | 279 | 537 | 541 | |||||||||||
Marketing |
238 | 170 | 468 | 340 | |||||||||||
Professional fees |
281 | 122 | 406 | 213 | |||||||||||
Amortization of intangibles |
54 | 55 | 108 | 110 | |||||||||||
Data processing |
262 | 226 | 528 | 431 | |||||||||||
Telecommunications |
137 | 123 | 261 | 242 | |||||||||||
Other general operating |
640 | 688 | 1,343 | 1,402 | |||||||||||
Total noninterest expense |
5,058 | 4,490 | 9,775 | 8,984 | |||||||||||
Income before income taxes |
4,086 | 3,290 | 7,703 | 6,593 | |||||||||||
Income tax expense |
1,348 | 1,069 | 2,541 | 2,193 | |||||||||||
Net income |
$ | 2,738 | $ | 2,221 | $ | 5,162 | $ | 4,400 | |||||||
Net income available to common shareholders |
$ | 2,737 | $ | 2,220 | $ | 5,160 | $ | 4,398 | |||||||
Per common share information |
|||||||||||||||
Earnings |
$ | 1.83 | $ | 1.45 | $ | 3.45 | $ | 2.86 | |||||||
Diluted earnings |
$ | 1.80 | $ | 1.40 | $ | 3.39 | $ | 2.77 | |||||||
Dividends paid |
$ | 0.64 | $ | 0.60 | $ | 1.28 | $ | 1.20 | |||||||
Average common shares issued and outstanding (in thousands) |
1,494,094 | 1,533,783 | 1,496,827 | 1,538,600 | |||||||||||
See accompanying notes to consolidated financial statements.
2
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
June 30 2003 |
December 31 2002 |
|||||||
(Dollars in millions) |
||||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 25,220 | $ | 24,973 | ||||
Time deposits placed and other short-term investments |
6,790 | 6,813 | ||||||
Federal funds sold and securities purchased under agreements to resell (includes $61,976 and $44,779 pledged as collateral) |
64,314 | 44,878 | ||||||
Trading account assets (includes $47,644 and $35,515 pledged as collateral) |
66,947 | 63,996 | ||||||
Derivative assets |
38,587 | 34,310 | ||||||
Securities: |
||||||||
Available-for-sale (includes $61,159 and $32,919 pledged as collateral) |
114,250 | 68,122 | ||||||
Held-to-maturity, at cost (market value$290 and $1,001) |
279 | 1,026 | ||||||
Total securities |
114,529 | 69,148 | ||||||
Loans and leases |
360,305 | 342,755 | ||||||
Allowance for credit losses |
(6,841 | ) | (6,851 | ) | ||||
Loans and leases, net of allowance for credit losses |
353,464 | 335,904 | ||||||
Premises and equipment, net |
5,899 | 6,717 | ||||||
Mortgage banking assets |
1,748 | 2,110 | ||||||
Goodwill |
11,426 | 11,389 | ||||||
Core deposit intangibles and other intangibles |
1,010 | 1,095 | ||||||
Other assets(1) |
79,245 | 59,125 | ||||||
Total assets |
$ | 769,179 | $ | 660,458 | ||||
Liabilities |
||||||||
Deposits in domestic offices: |
||||||||
Noninterest-bearing |
$ | 132,851 | $ | 122,686 | ||||
Interest-bearing |
256,602 | 232,320 | ||||||
Deposits in foreign offices: |
||||||||
Noninterest-bearing |
2,206 | 1,673 | ||||||
Interest-bearing |
30,276 | 29,779 | ||||||
Total deposits |
421,935 | 386,458 | ||||||
Federal funds purchased and securities sold under agreements to repurchase |
104,821 | 65,079 | ||||||
Trading account liabilities |
27,708 | 25,574 | ||||||
Derivative liabilities |
23,435 | 23,566 | ||||||
Commercial paper and other short-term borrowings |
43,584 | 25,234 | ||||||
Accrued expenses and other liabilities |
28,943 | 17,052 | ||||||
Long-term debt |
61,681 | 61,145 | ||||||
Trust preferred securities |
6,056 | 6,031 | ||||||
Total liabilities |
718,163 | 610,139 | ||||||
Commitments and contingencies (Note 5) |
||||||||
Shareholders equity |
||||||||
Preferred stock, $0.01 par value; authorized100,000,000 shares; issued and outstanding1,306,463 and 1,356,749 shares |
56 | 58 | ||||||
Common stock, $0.01 par value; authorized5,000,000,000 shares; issued and outstanding1,496,314,280 and 1,500,691,103 shares |
15 | 496 | ||||||
Retained earnings |
51,374 | 48,517 | ||||||
Accumulated other comprehensive income |
(251 | ) | 1,232 | |||||
Other |
(178 | ) | 16 | |||||
Total shareholders equity |
51,016 | 50,319 | ||||||
Total liabilities and shareholders equity |
$ | 769,179 | $ | 660,458 | ||||
(1) | Other assets includes loans held for sale totaling $17,261 and $13,833 at June 30, 2003 and December 31, 2002, respectively. |
See accompanying notes to consolidated financial statements.
3
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders Equity
Preferred |
Common Stock |
Retained |
Accumulated Other |
Other |
Total Share- Equity |
Comprehensive |
|||||||||||||||||||||||||
(Dollars in millions, shares in thousands) |
Shares |
Amount |
|||||||||||||||||||||||||||||
Balance, December 31, 2001 |
$ |
65 |
|
1,559,297 | $ | 5,076 | $ | 42,980 | $ | 437 | $ | (38 | ) | $ | 48,520 | ||||||||||||||||
Net income |
4,400 | 4,400 | $ | 4,400 | |||||||||||||||||||||||||||
Net unrealized gains on available-for-sale and marketable equity securities |
620 | 620 | 620 | ||||||||||||||||||||||||||||
Net unrealized losses on derivatives |
(397 | ) | (397 | ) | (397 | ) | |||||||||||||||||||||||||
Cash dividends paid: |
|||||||||||||||||||||||||||||||
Common |
(1,844 | ) | (1,844 | ) | |||||||||||||||||||||||||||
Preferred |
(2 | ) | (2 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits |
38,612 | 1,979 | 9 | 1,988 | |||||||||||||||||||||||||||
Common stock repurchased |
(82,422 | ) | (5,679 | ) | (5,679 | ) | |||||||||||||||||||||||||
Conversion of preferred stock |
(5 | ) | 173 | 5 | |||||||||||||||||||||||||||
Other |
7 | 118 | 12 | 28 | 158 | ||||||||||||||||||||||||||
Balance, June 30, 2002 |
$ | 60 | 1,515,667 | $ | 1,499 | $ | 45,546 | $ | 660 | $ | (1 | ) | $ | 47,764 | $ | 4,623 | |||||||||||||||
Balance, December 31, 2002 |
$ | 58 | 1,500,691 | $ | 496 | $ | 48,517 | $ | 1,232 | $ | 16 | $ | 50,319 | ||||||||||||||||||
Net income |
5,162 | 5,162 | $ | 5,162 | |||||||||||||||||||||||||||
Net unrealized gains on available-for-sale and marketable equity securities |
307 | 307 | 307 | ||||||||||||||||||||||||||||
Net unrealized gains on foreign currency translation adjustments |
59 | 59 | 59 | ||||||||||||||||||||||||||||
Net unrealized losses on derivatives |
(1,849 | ) | (1,849 | ) | (1,849 | ) | |||||||||||||||||||||||||
Cash dividends paid: |
|||||||||||||||||||||||||||||||
Common |
(1,920 | ) | (1,920 | ) | |||||||||||||||||||||||||||
Preferred |
(2 | ) | (2 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits |
44,239 | 2,591 | (155 | ) | 2,436 | ||||||||||||||||||||||||||
Common stock repurchased |
(48,700 | ) | (3,157 | ) | (382 | ) | (3,539 | ) | |||||||||||||||||||||||
Conversion of preferred stock |
(2 | ) | 84 | 2 | | ||||||||||||||||||||||||||
Other |
| 83 | (1 | ) | (39 | ) | 43 | ||||||||||||||||||||||||
Balance, June 30, 2003 |
$ | 56 | 1,496,314 | $ | 15 | $ | 51,374 | $ | (251 | ) | $ | (178 | ) | $ | 51,016 | $ | 3,679 | ||||||||||||||
(1) | At June 30, 2003 and December 31, 2002, Accumulated Other Comprehensive Income (Loss) included net unrealized gains on available-for-sale and marketable equity securities of $801 and $494, respectively; foreign currency translation adjustments of $(109) and $(168), respectively; and net unrealized gains (losses) on derivatives of $(854) and $995, respectively. |
See accompanying notes to consolidated financial statements.
4
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Six Months Ended June 30 |
||||||||
(Dollars in millions) |
2003 |
2002 |
||||||
Operating activities |
||||||||
Net income |
$ | 5,162 | $ | 4,400 | ||||
Reconciliation of net income to net cash provided by (used in) operating activities: |
||||||||
Provision for credit losses |
1,605 | 1,728 | ||||||
Gains on sales of securities |
(569 | ) | (137 | ) | ||||
Depreciation and premises improvements amortization |
447 | 440 | ||||||
Amortization of intangibles |
108 | 110 | ||||||
Deferred income tax benefit |
(227 | ) | (35 | ) | ||||
Net increase in trading and hedging instruments |
(8,592 | ) | (6,209 | ) | ||||
Net (increase) decrease in other assets |
(23,505 | ) | 10,087 | |||||
Net increase in accrued expenses and other liabilities |
12,975 | 7,292 | ||||||
Other operating activities, net |
1,698 | 2,078 | ||||||
Net cash provided by (used in) operating activities |
(10,898 | ) | 19,754 | |||||
Investing activities |
||||||||
Net (increase) decrease in time deposits placed and other short-term investments |
23 | (375 | ) | |||||
Net increase in federal funds sold and securities purchased under agreements to resell |
(19,436 | ) | (7,341 | ) | ||||
Proceeds from sales of available-for-sale securities |
70,968 | 77,809 | ||||||
Proceeds from maturities of available-for-sale securities |
17,569 | 12,200 | ||||||
Purchases of available-for-sale securities |
(133,947 | ) | (86,661 | ) | ||||
Proceeds from maturities of held-to-maturity securities |
747 | 29 | ||||||
Proceeds from sales of loans and leases |
20,699 | 11,603 | ||||||
Other changes in loans and leases, net |
(34,648 | ) | (21,719 | ) | ||||
Purchases and originations of mortgage banking assets |
(735 | ) | (385 | ) | ||||
Net purchases of premises and equipment |
371 | (531 | ) | |||||
Proceeds from sales of foreclosed properties |
30 | 100 | ||||||
Investment in unconsolidated subsidiary |
(1,600 | ) | | |||||
Acquisition of business activities, net |
(100 | ) | (110 | ) | ||||
Other investing activities, net |
1,200 | 867 | ||||||
Net cash used in investing activities |
(78,859 | ) | (14,514 | ) | ||||
Financing activities |
||||||||
Net increase (decrease) in deposits |
35,477 | (12,726 | ) | |||||
Net increase in federal funds purchased and securities sold under agreements to repurchase |
39,742 | 8,951 | ||||||
Net increase in commercial paper and other short-term borrowings |
18,350 | 4,156 | ||||||
Proceeds from issuance of long-term debt and trust preferred securities |
5,917 | 6,615 | ||||||
Retirement of long-term debt and trust preferred securities |
(6,474 | ) | (12,193 | ) | ||||
Proceeds from issuance of common stock |
2,451 | 1,979 | ||||||
Common stock repurchased |
(3,539 | ) | (5,679 | ) | ||||
Cash dividends paid |
(1,922 | ) | (1,846 | ) | ||||
Other financing activities, net |
(59 | ) | (11 | ) | ||||
Net cash provided by (used in) financing activities |
89,943 | (10,754 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
61 | (14 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
247 | (5,528 | ) | |||||
Cash and cash equivalents at January 1 |
24,973 | 26,837 | ||||||
Cash and cash equivalents at June 30 |
$ | 25,220 | $ | 21,309 | ||||
Net transfers of loans and leases from loans held for sale (included in other assets) to the loan portfolio amounted to $5,341 and $3,003 for the six months ended June 30, 2003 and 2002, respectively.
Loans transferred to foreclosed properties amounted to $135 and $150 for the six months ended June 30, 2003 and 2002, respectively.
See accompanying notes to consolidated financial statements.
5
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Bank of America Corporation and its subsidiaries (the Corporation) through its banking and nonbanking subsidiaries, provide a diverse range of financial services and products throughout the United States and in selected international markets. At June 30, 2003, the Corporation operated its banking activities primarily under two charters: Bank of America, National Association (Bank of America, N.A.) and Bank of America, N.A. (USA).
Note 1Significant Accounting Principles
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The information contained in the consolidated financial statements is unaudited. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made. Certain prior period amounts have been reclassified to conform to current period classifications.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46 Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 provides a new framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 is effective immediately for VIEs created after January 31, 2003 and is effective beginning in the third quarter of 2003 for VIEs created prior to the issuance of the interpretation. For additional information on VIEs, see Note 8 of the consolidated financial statements.
Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based CompensationTransition and Disclosurean amendment of FASB Statement No. 123, (SFAS 148) was adopted by the Corporation on January 1, 2003. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation, to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Under the provisions of SFAS 148, the Corporation transitioned to the fair value-based method of accounting for stock-based employee compensation costs using the prospective method as of January 1, 2003. Under the prospective method, all stock options granted under plans before the adoption date will continue to be accounted for under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) unless these stock options are modified or settled subsequent to adoption.
6
In accordance with SFAS 148, the Corporation provides disclosures as if the Corporation had adopted the fair value based method of measuring all outstanding employee stock options in 2003 and 2002 as indicated in the following table. The disclosure requirement of SFAS 148 recognizes the impact of all outstanding employee stock options while the prospective method that the Corporation is following recognizes the impact of only newly issued employee stock options. The following table presents the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards for the three months and six months ended June 30, 2003 and 2002.
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||||||||||
(Dollars in millions, except per share data) |
2003 |
2002 |
2003 |
2002 |
||||||||||||||||||||
Net income |
$ | 2,738 | $ | 2,221 | $ | 5,162 | $ | 4,400 | ||||||||||||||||
Stock-based employee compensation expense recognized |
21 | | 38 | | ||||||||||||||||||||
Stock-based employee compensation expense determined |
(64 | ) | (109 | ) | (140 | ) | (191 | ) | ||||||||||||||||
Pro forma net income |
$ | 2,695 | $ | 2,112 | $ | 5,060 | $ | 4,209 | ||||||||||||||||
As reported |
||||||||||||||||||||||||
Earnings per common share |
$ | 1.83 | $ | 1.45 | $ | 3.45 | $ | 2.86 | ||||||||||||||||
Diluted earnings per common share |
1.80 | 1.40 | 3.39 | 2.77 | ||||||||||||||||||||
Pro forma |
||||||||||||||||||||||||
Earnings per common share |
1.80 | 1.38 | 3.38 | 2.74 | ||||||||||||||||||||
Diluted earnings per common share |
1.77 | 1.33 | 3.32 | 2.66 | ||||||||||||||||||||
(1) Includes all awards granted, modified or settled for which the fair value was required to be measured under SFAS 123, except restricted stock. Restricted stock expense, included in net income, for the three months ended June 30, 2003 and 2002 was $82 and $73, respectively, and for the six months ended June 30, 2003 and 2002 was $168 and $108, respectively. |
On May 15, 2003, the FASB issued SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity and is effective May 31, 2003 for all new and modified financial instruments and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities (or assets in some circumstances). The adoption of this rule did not have a material impact on the Corporations results of operations or financial condition.
For additional information on recently issued accounting pronouncements and other significant accounting principles, see Note 1 of the consolidated financial statements of the Corporations 2002 Annual Report and Note 1 of the consolidated financial statements of the Corporations Form 10-Q for the three months ended March 31, 2003.
7
Note 2Trading Activities
Trading-Related Revenue
Trading account profits represent the net amount earned from the Corporations trading positions, which include trading account assets and liabilities as well as derivative positions and mortgage banking certificates. Trading account profits, as reported in the Consolidated Statement of Income, does not include the net interest income recognized on trading positions or the related funding charge or benefit.
Trading account profits and trading-related net interest income (trading-related revenue) are presented in the following table as they are both considered in evaluating the overall profitability of the Corporations trading activities. Trading-related revenue is derived from foreign exchange spot, forward and cross-currency contracts, fixed income and equity securities, and derivative contracts in interest rates, equities, credit, commodities and mortgage banking certificates.
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | ||||||||||
Trading account profitsas reported |
$ | 93 | $ | 263 | $ | 207 | $ | 608 | ||||||
Trading-related net interest income(1) |
552 | 469 | 1,160 | 902 | ||||||||||
Total trading-related revenue |
$ | 645 | $ | 732 | $ | 1,367 | $ | 1,510 | ||||||
Trading-related revenue by product |
||||||||||||||
Interest rate(1) |
$ | 270 | $ | 225 | $ | 423 | $ | 481 | ||||||
Credit(2) |
228 | 228 | 489 | 464 | ||||||||||
Foreign exchange |
123 | 139 | 259 | 268 | ||||||||||
Equities |
105 | 110 | 224 | 242 | ||||||||||
Commodities |
(81 | ) | 30 | (28 | ) | 55 | ||||||||
Total trading-related revenue |
$ | 645 | $ | 732 | $ | 1,367 | $ | 1,510 | ||||||
(1) | Presented on a fully taxable-equivalent basis. |
(2) | Credit includes credit fixed income, credit derivatives used for trading and credit risk management and mortgage banking assets. |
Trading Account Assets and Liabilities
The fair values of the components of trading account assets and liabilities at June 30, 2003 and December 31, 2002 were:
(Dollars in millions) |
June 30 2003 |
December 31 2002 | ||||
Trading account assets |
||||||
U.S. government and agency securities |
$ | 18,074 | $ | 19,875 | ||
Foreign sovereign debt |
9,185 | 8,752 | ||||
Corporate securities, trading loans, and other |
24,336 | 21,286 | ||||
Equity securities |
7,166 | 5,380 | ||||
Mortgage trading loans and asset-backed securities |
8,186 | 8,703 | ||||
Total |
$ | 66,947 | $ | 63,996 | ||
Trading account liabilities |
||||||
U.S. government and agency securities |
$ | 10,250 | $ | 8,531 | ||
Foreign sovereign debt |
2,633 | 3,465 | ||||
Corporate securities, trading loans, and other |
5,890 | 7,320 | ||||
Equity securities |
8,808 | 4,825 | ||||
Mortgage trading loans and asset-backed securities |
127 | 1,433 | ||||
Total |
$ | 27,708 | $ | 25,574 | ||
8
Note 3Derivatives
Credit risk associated with derivatives is measured as the net replacement cost should the counterparties with contracts in a gain position to the Corporation completely fail to perform under the terms of those contracts assuming no recoveries of underlying collateral. A detailed discussion of derivative trading and asset and liability management (ALM) activities is presented in Note 5 of the consolidated financial statements of the Corporations 2002 Annual Report.
The following table presents the contract/notional and credit risk amounts at June 30, 2003 and December 31, 2002 of the Corporations derivative positions held for trading and hedging purposes. These derivative positions are primarily executed in the over-the-counter market. The credit risk amounts presented in the following table do not consider the value of any collateral held but take into consideration the effects of legally enforceable master netting agreements. The Corporation held $21.6 billion and $16.7 billion of collateral on derivative positions, of which $14.7 billion and $11.4 billion could be applied against credit risk at June 30, 2003 and December 31, 2002, respectively.
Derivatives(1) |
||||||||||||
June 30, 2003 |
December 31, 2002 | |||||||||||
(Dollars in millions) |
Contract/ Notional |
Credit Risk |
Contract/ Notional |
Credit Risk | ||||||||
Interest rate contracts |
||||||||||||
Swaps |
$ | 7,508,849 | $ | 21,519 | $ | 6,781,629 | $ | 18,981 | ||||
Futures and forwards |
2,917,976 | 82 | 2,510,259 | 283 | ||||||||
Written options |
1,041,777 | | 973,113 | | ||||||||
Purchased options |
1,018,197 | 3,900 | 907,999 | 3,318 | ||||||||
Foreign exchange contracts |
||||||||||||
Swaps |
215,916 | 2,961 | 175,680 | 2,460 | ||||||||
Spot, futures and forwards |
904,241 | 2,505 | 724,039 | 2,535 | ||||||||
Written options |
181,030 | | 81,263 | | ||||||||
Purchased options |
176,478 | 481 | 80,395 | 452 | ||||||||
Equity contracts |
||||||||||||
Swaps |
22,800 | 487 | 16,830 | 679 | ||||||||
Futures and forwards |
1,273 | | 48,470 | | ||||||||
Written options |
23,818 | | 19,794 | | ||||||||
Purchased options |
20,392 | 3,716 | 23,756 | 2,885 | ||||||||
Commodity contracts |
||||||||||||
Swaps |
33,166 | 1,719 | 11,776 | 1,117 | ||||||||
Futures and forwards |
5,878 | | 3,478 | | ||||||||
Written options |
13,353 | | 12,158 | | ||||||||
Purchased options |
8,536 | 330 | 19,115 | 347 | ||||||||
Credit derivatives |
123,203 | 887 | 92,098 | 1,253 | ||||||||
Total derivative assets |
$ | 38,587 | $ | 34,310 | ||||||||
(1) Includes both long and short derivative positions. |
The average fair value of derivative assets for the six months ended June 30, 2003 and 2002 was $36.4 billion and $21.4 billion, respectively. The average fair value of derivative liabilities for the six months ended June 30, 2003 and 2002 was $24.6 billion and $14.0 billion, respectively. The change in the average fair value largely reflects the impact of the decrease in interest rates.
Fair Value and Cash Flow Hedges
The Corporation uses various types of interest rate and foreign currency exchange rate derivative contracts to protect against changes in the fair value of its fixed-rate assets and liabilities due to fluctuations in interest rates and
9
exchange rates. The Corporation also uses these contracts to protect against changes in the cash flows of its variable-rate assets and liabilities and anticipated transactions. For the six months ended June 30, 2003, the Corporation recognized in the Consolidated Statement of Income a net loss of $94 million (included in interest income) related to fair value hedges. This loss represents the expected change in the forward values of forward contracts and is defined as ineffectiveness by SFAS 133, Accounting for Derivative Instruments and Hedging Activities. For the six months ended June 30, 2002, there was no significant gain or loss recognized which represented the ineffective portion of fair value hedges. For the six months ended June 30, 2003, the Corporation recognized in the Consolidated Statement of Income net gains of $13 million (included in mortgage banking income), which represented the ineffective portion of cash flow hedges. For the six months ended June 30, 2002, there was no significant gain or loss recognized which represented the ineffective portion of cash flow hedges. At June 30, 2003 and December 31, 2002, the Corporation has determined that there were no cash flow hedging positions where it was probable that certain forecasted transactions may not occur within the originally designated time period.
For cash flow hedges, gains and losses on derivative contracts reclassified from accumulated other comprehensive income to current period earnings are included in the line item in the Consolidated Statement of Income in which the hedged item is recorded and in the same period the hedged item affects earnings. During the next 12 months, losses on derivative instruments included in accumulated other comprehensive income, of approximately $139 million (pre-tax) are expected to be reclassified into earnings. These net losses reclassified into earnings are expected to decrease income or increase expense on the respective hedged items.
Hedges of Net Investments in Foreign Operations
The Corporation uses forward exchange contracts, currency swaps and nonderivative cash instruments that provide an economic hedge on portions of its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the six months ended June 30, 2003 and 2002, the Corporation experienced net unrealized foreign currency pre-tax gains of $229 million and $92 million, respectively, related to its net investments in foreign operations. These unrealized gains were partially offset by net unrealized pre-tax losses of $137 million and $92 million, respectively, related to derivative and nonderivative instruments designated as hedges of the foreign currency exposure during these same periods. These unrealized gains and losses were recorded as components of accumulated other comprehensive income.
Note 4Outstanding Loans and Leases
Outstanding loans and leases at June 30, 2003 and December 31, 2002 were:
(Dollars in millions) |
June 30, 2003 |
December 31, 2002 | ||||||
Commercialdomestic |
$ | 97,099 | $ | 105,053 | ||||
Commercialforeign |
17,473 | 19,912 | ||||||
Commercial real estatedomestic |
19,922 | 19,910 | ||||||
Commercial real estateforeign |
264 | 295 | ||||||
Total commercial |
134,758 | 145,170 | ||||||
Residential mortgage |
133,831 | 108,197 | ||||||
Home equity lines |
22,670 | 23,236 | ||||||
Direct/Indirect consumer |
32,786 | 31,068 | ||||||
Consumer finance |
6,874 | 8,384 | ||||||
Credit card |
27,419 | 24,729 | ||||||
Foreign consumer |
1,967 | 1,971 | ||||||
Total consumer |
225,547 | 197,585 | ||||||
Total |
$ | 360,305 | $ | 342,755 | ||||
10
The following table summarizes the changes in the allowance for credit losses for the three months and six months ended June 30, 2003 and 2002:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
||||||||||||
Balance, beginning of period |
$ | 6,853 | $ | 6,869 | $ | 6,851 | $ | 6,875 | ||||||||
Loans and leases charged off |
(933 | ) | (1,076 | ) | (1,915 | ) | (2,145 | ) | ||||||||
Recoveries of loans and leases previously charged off |
161 | 188 | 310 | 417 | ||||||||||||
Net charge-offs |
(772 | ) | (888 | ) | (1,605 | ) | (1,728 | ) | ||||||||
Provision for credit losses |
772 | 888 | 1,605 | 1,728 | ||||||||||||
Other, net |
(12 | ) | 4 | (10 | ) | (2 | ) | |||||||||
Balance, June 30 |
$ | 6,841 | $ | 6,873 | $ | 6,841 | $ | 6,873 | ||||||||
The following table presents the recorded investment in specific loans that were considered individually impaired at June 30, 2003 and December 31, 2002 in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as described in the Corporations 2002 Annual Report on page 80:
(Dollars in millions) |
June 30, 2003 |
December 31, 2002 | ||||
Commercialdomestic |
$ | 2,143 | $ | 2,553 | ||
Commercialforeign |
1,052 | 1,355 | ||||
Commercial real estatedomestic |
161 | 157 | ||||
Commercial real estateforeign |
2 | 2 | ||||
Total impaired loans |
$ | 3,358 | $ | 4,067 | ||
At June 30, 2003 and December 31, 2002, nonperforming loans, including certain loans that were considered impaired, totaled $4.2 billion and $5.0 billion, respectively. In addition, included in other assets was $98 million and $120 million of nonperforming assets at June 30, 2003 and December 31, 2002, respectively. Foreclosed properties amounted to $243 million and $225 million at June 30, 2003 and December 31, 2002, respectively.
Note 5Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and market risk limitation reviews as those recorded on the balance sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of its customers. For additional information on credit extension commitments, see Note 13 of the consolidated financial statements of the Corporations 2002 Annual Report. The following table summarizes outstanding unfunded commitments to extend credit at June 30, 2003 and December 31, 2002. These unfunded commitments have been reduced by amounts participated to other financial institutions.
(Dollars in millions) |
June 30 2003 |
December 31 2002 | ||||
Loan commitments |
$ | 213,259 | $ | 212,704 | ||
Standby letters of credit and financial guarantees |
30,493 | 30,837 | ||||
Commercial letters of credit |
3,538 | 3,109 | ||||
Legally binding commitments |
247,290 | 246,650 | ||||
Credit card lines |
77,403 | 73,779 | ||||
Total commitments |
$ | 324,693 | $ | 320,429 | ||
11
Other Commitments
When-issued securities are commitments to purchase or sell securities during the time period between the announcement of a securities offering and the issuance of those securities. Changes in market price between commitment date and issuance are reflected in trading account profits. At June 30, 2003, the Corporation had commitments to purchase and sell when-issued securities of $203.5 billion and $204.9 billion, respectively. At December 31, 2002, the Corporation had commitments to purchase and sell when-issued securities of $166.1 billion and $164.5 billion, respectively.
At June 30, 2003, the Corporation had forward whole mortgage loan purchase commitments of $15.4 billion of which $9.1 billion were settled in July 2003. The remaining commitments of $2.6 billion and $3.7 billion are expected to settle in August and September 2003, respectively. At December 31, 2002, the Corporation had forward whole mortgage loan purchase commitments of $10.8 billion, all of which were settled in January 2003. At June 30, 2003, the Corporation had $6.4 billion of forward whole mortgage loan sale commitments of which $6.2 billion settled in July 2003 and the remaining are expected to settle in August 2003. At December 31, 2002, the Corporation had no forward whole mortgage loan sale commitments. For further discussion on ALM activities, see Interest Rate and Foreign Exchange Derivative Contracts beginning on page 50.
Other Guarantees
The Corporation sells products that offer book value protection primarily to plan sponsors of ERISA-governed pension plans such as 401(k) plans, 457 plans, etc. The Corporation also sells products that guarantee the return of principal to investors at a preset future date. At June 30, 2003 and December 31, 2002, the notional amount of these guarantees totaled $27.7 billion and $23.8 billion, respectively. As of June 30, 2003 and December 31, 2002, the Corporation has not made a payment under these products, and management believes that the probability of payments under these guarantees is remote.
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law.
The Corporation has provided protection on a subset of one consumer finance securitization in the form of a guarantee with a maximum payment of $220 million that is only paid out if over-collateralization is not sufficient to absorb losses and certain other conditions are met. The Corporation anticipates no material payments will be due over the life of the contract, which is approximately four years.
The Corporation has entered into additional guarantee agreements, including lease end obligation agreements, partial credit guarantees on certain leases, sold risk participation swaps and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $2.1 billion and $575 million at June 30, 2003 and December 31, 2002, respectively. This increase was primarily due to written put options requiring gross settlement.
For additional information on the guarantees discussed above, see Note 13 of the consolidated financial statements of the Corporations 2002 Annual Report.
Litigation
On May 14, 2003, plaintiffs in the Enron Corporation (Enron) Securities Litigation, pending before the United States District Court for the Southern District of Texas, filed a second amended complaint adding Banc of America Securities LLC (BAS) as a defendant to the action. The claims against the Corporation and BAS in the second amended complaint include claims under Sections 11 and 15 of the 1933 Securities Act relating to two securities
12
offerings, and a claim under Sections 12(a)(2) and 15 of the 1933 Securities Act relating to a third securities offering.
On May 28, 2003, judges in the Enron Securities Litigation and the Enron bankruptcy issued a joint order requiring Enron, plaintiffs in the Enron Securities Litigation and certain financial institution defendants, including the Corporation, to participate in a nonbinding mediation of claims presented in both the Enron Securities Litigation and the Enron bankruptcy. The mediation is currently scheduled to take place September 29 and 30, 2003.
The number of actions, in addition to WorldCom, Inc. (Worldcom) Securities Litigation, in which the Corporation or BAS has been named as a defendant arising out of alleged accounting irregularities in the books and records of WorldCom, has increased to approximately 50 actions. Of these actions, approximately 29 have been consolidated with WorldCom Securities Litigation pending in the United States District Court for the Southern District of New York.
For a more detailed discussion on Litigation, see Note 13 of the consolidated financial statements of the Corporations 2002 Annual Report.
Note 6Shareholders Equity and Earnings Per Common Share
On January 22, 2003, the Board authorized a stock repurchase program of up to 130 million shares of the Corporations common stock at an aggregate cost of $12.5 billion. At June 30, 2003, the remaining buyback authority for common stock under this program totaled $10.6 billion, or 105 million shares. The 2001 repurchase plan was completed during the second quarter of 2003. During the six months ended June 30, 2003, the Corporation repurchased approximately 49 million shares of its common stock in open market repurchases and as a result of put options exercised, at an average per-share price of $72.67, which reduced shareholders equity by $3.5 billion and increased earnings per share by approximately $0.04. These repurchases were partially offset by the issuance of 44 million shares of common stock under employee plans, which increased shareholders equity by $2.4 billion, net of $155 million of deferred compensation related to restricted stock awards, and decreased earnings per share by approximately $0.03 for the six months ended June 30, 2003. For the six months ended June 30, 2002, the Corporation repurchased approximately 82 million shares of its common stock in open market repurchases and under an accelerated repurchase program at an average per-share price of $68.92, which reduced shareholders equity by $5.7 billion and increased earnings per share by approximately $0.05 for the six months ended June 30, 2002. These repurchases were partially offset by the issuance of 39 million shares of common stock under employee plans, which increased shareholders equity by $2.0 billion and decreased earnings per share by approximately $0.03 for the six months ended June 30, 2002. The Corporation anticipates it will continue to repurchase shares at least equal to shares issued under its various stock option plans.
Accumulated other comprehensive income (OCI) includes pre-tax net unrealized gains (losses) related to available-for-sale and marketable equity securities, foreign currency translation adjustments, derivatives and other of $(1.8) billion and $1.3 billion for the six months ended June 30, 2003 and 2002, respectively. The net change in accumulated OCI also includes reclassification adjustments for gains (losses) to net income during the current period that had been included in accumulated OCI in previous period ends. Pre-tax reclassification adjustments for gains included in the Consolidated Statement of Income for the six months ended June 30, 2003 and 2002 were $475 million and $310 million, respectively. The related income tax expense (benefit) was $(798) million and $727 million for the six months ended June 30, 2003 and 2002, respectively.
The Corporation sells put options on its common stock to independent third parties. The put option program was designed to partially offset the cost of share repurchases. For additional information on the put option program, see Note 14 of the consolidated financial statements of the Corporations 2002 Annual Report.
13
The calculation of earnings per common share and diluted earnings per common share for the three months and six months ended June 30, 2003 and 2002 is presented below.
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
(Dollars in millions, except per share information; shares in thousands) |
2003 |
2002 |
2003 |
2002 |
||||||||||||
Earnings per common share |
||||||||||||||||
Net income |
$ | 2,738 | $ | 2,221 | $ | 5,162 | $ | 4,400 | ||||||||
Preferred stock dividends |
(1 | ) | (1 | ) | (2 | ) | (2 | ) | ||||||||
Net income available to common shareholders |
$ | 2,737 | $ | 2,220 | $ | 5,160 | $ | 4,398 | ||||||||
Average common shares issued and outstanding |
1,494,094 | 1,533,783 | 1,496,827 | 1,538,600 | ||||||||||||
Earnings per common share |
$ | 1.83 | $ | 1.45 | $ | 3.45 | $ | 2.86 | ||||||||
Diluted earnings per common share |
||||||||||||||||
Net income available to common shareholders |
$ | 2,737 | $ | 2,220 | $ | 5,160 | $ | 4,398 | ||||||||
Preferred stock dividends |
1 | 1 | 2 | 2 | ||||||||||||
Net income available to common shareholders and assumed conversions |
$ | 2,738 | $ | 2,221 | $ | 5,162 | $ | 4,400 | ||||||||
Average common shares issued and outstanding |
1,494,094 | 1,533,783 | 1,496,827 | 1,538,600 | ||||||||||||
Dilutive potential common shares(1, 2) |
29,212 | 58,467 | 27,888 | 48,236 | ||||||||||||
Total diluted average common shares issued and outstanding |
1,523,306 | 1,592,250 | 1,524,715 | 1,586,836 | ||||||||||||
Diluted earnings per common share |
$ | 1.80 | $ | 1.40 | $ | 3.39 | $ | 2.77 | ||||||||
(1) | For the three months and six months ended June 30, 2003, average options to purchase 13 million and 16 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive. For the three months and six months ended June 30, 2002, average options to purchase 18 million and 23 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive. |
(2) | Includes incremental shares from assumed conversions of convertible preferred stock, restricted stock units and stock options. |
Note 7Business Segment Information
The Corporation reports the results of its operations through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. Certain operating segments have been aggregated into a single business segment.
Consumer and Commercial Banking provides a diversified range of products and services to individuals and small businesses through multiple delivery channels. The segment also includes commercial lending and treasury management services primarily to middle market companies with annual revenue between $10 million and $500 million. Asset Management offers investment, fiduciary and comprehensive banking and credit expertise; asset management services to institutional clients, high-net-worth individuals and retail customers; and investment, securities and financial planning services to affluent and high-net-worth individuals. Global Corporate and Investment Banking provides capital raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for our corporate, commercial and institutional clients as well as traditional bank deposit and loan products, cash management and payment services to large corporations and institutional clients. Equity Investments includes Principal Investing, which is comprised of a diversified portfolio of investments in privately held and publicly traded companies at all stages, from start-up to buyout.
Corporate Other consists primarily of certain amounts associated with ALM activities and certain consumer finance and commercial lending businesses that are being liquidated. Beginning in the first quarter of 2003, net interest income from certain additional ALM activities was allocated directly to the business units. Prior periods have been restated to reflect this change in methodology. In addition, compensation expense related to stock-based employee compensation plans is included in Corporate Other.
Total revenue includes net interest income on a fully-taxable equivalent basis and noninterest income. The net interest income of the business segments includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net interest income also reflects an allocation of net interest income generated by assets and liabilities used in the Corporations ALM activities.
14
The following table presents results of operations, selected performance ratios and selected average balance sheet categories for the three months and six months ended June 30, 2003 and 2002 for each business segment. Certain prior period amounts have been reclassified among segments to conform to the current period presentation.
Business Segment Summary |
||||||||||||||||||||||||
For the three months ended June 30 |
||||||||||||||||||||||||
Total Corporation |
Consumer and Commercial Banking(1) |
Asset Management(1) |
||||||||||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
||||||||||||||||||
Net interest income(2) |
$ | 5,524 | $ | 5,262 | $ | 3,968 | $ | 3,713 | $ | 189 | $ | 185 | ||||||||||||
Noninterest income |
4,255 | 3,481 | 2,622 | 2,010 | 423 | 437 | ||||||||||||||||||
Total revenue |
9,779 | 8,743 | 6,590 | 5,723 | 612 | 622 | ||||||||||||||||||
Provision for credit losses |
772 | 888 | 522 | 449 | 3 | 143 | ||||||||||||||||||
Gains on sales of securities |
296 | 93 | 2 | 6 | | | ||||||||||||||||||
Amortization of intangibles |
54 | 55 | 45 | 44 | 1 | 1 | ||||||||||||||||||
Other noninterest expense |
5,004 | 4,435 | 3,057 | 2,721 | 384 | 379 | ||||||||||||||||||
Income before income taxes |
4,245 | 3,458 | 2,968 | 2,515 | 224 | 99 | ||||||||||||||||||
Income tax expense |
1,507 | 1,237 | 1,097 | 928 | 80 | 33 | ||||||||||||||||||
Net income |
$ | 2,738 | $ | 2,221 | $ | 1,871 | $ | 1,587 | $ | 144 | $ | 66 | ||||||||||||
Shareholder value added |
$ | 1,414 | $ | 834 | $ | 1,381 | $ | 1,056 | $ | 70 | $ | (2 | ) | |||||||||||
Net interest yield (fully taxable-equivalent basis) |
3.33 | % | 3.75 | % | 4.69 | % | 5.34 | % | 3.19 | % | 2.98 | % | ||||||||||||
Return on average equity |
21.9 | 18.5 | 38.5 | 33.1 | 21.1 | 11.4 | ||||||||||||||||||
Efficiency ratio (fully taxable-equivalent basis) |
51.7 | 51.3 | 47.1 | 48.3 | 63.2 | 61.0 | ||||||||||||||||||
Average: |
||||||||||||||||||||||||
Total loans and leases |
$ | 350,279 | $ | 335,684 | $ | 187,811 | $ | 182,012 | $ | 22,866 | $ | 24,308 | ||||||||||||
Total assets |
774,644 | 646,599 | 362,036 | 303,119 | 25,657 | 26,150 | ||||||||||||||||||
Total deposits |
405,307 | 365,986 | 306,447 | 280,161 | 12,710 | 11,776 | ||||||||||||||||||
Common equity/Allocated equity |
50,212 | 48,213 | 19,510 | 19,249 | 2,751 | 2,337 | ||||||||||||||||||
For the three months ended June 30 | ||||||||||||||||||||||||
Global Corporate and Investment Banking(1) |
Equity Investments(1) |
Corporate Other |
||||||||||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
||||||||||||||||||
Net interest income(2) |
$ | 1,204 | $ | 1,161 | $ | (36 | ) | $ | (41 | ) | $ | 199 | $ | 244 | ||||||||||
Noninterest income |
1,058 | 1,145 | 24 | (43 | ) | 128 | (68 | ) | ||||||||||||||||
Total revenue |
2,262 | 2,306 | (12 | ) | (84 | ) | 327 | 176 | ||||||||||||||||
Provision for credit losses |
172 | 216 | 3 | | 72 | 80 | ||||||||||||||||||
Gains (losses) on sales of securities |
(4 | ) | (18 | ) | | | 298 | 105 | ||||||||||||||||
Amortization of intangibles |
7 | 8 | 1 | 1 | | 1 | ||||||||||||||||||
Other noninterest expense |
1,412 | 1,288 | 28 | 8 | 123 | 39 | ||||||||||||||||||
Income before income taxes |
667 | 776 | (44 | ) | (93 | ) | 430 | 161 | ||||||||||||||||
Income tax expense |
227 | 267 | (16 | ) | (38 | ) | 119 | 47 | ||||||||||||||||
Net income |
$ | 440 | $ | 509 | $ | (28 | ) | $ | (55 | ) | $ | 311 | $ | 114 | ||||||||||
Shareholder value added |
$ | 175 | $ | 183 | $ | (84 | ) | $ | (120 | ) | $ | (128 | ) | $ | (283 | ) | ||||||||
Net interest yield (fully taxable-equivalent basis) |
2.07 | % | 2.31 | % | n/m | n/m | n/m | n/m | ||||||||||||||||
Return on average equity |
17.8 | 18.3 | (5.5 | )% | (10.1 | )% | n/m | n/m | ||||||||||||||||
Efficiency ratio (fully taxable-equivalent basis) |
62.7 | 56.2 | n/m | n/m | n/m | n/m | ||||||||||||||||||
Average: |
||||||||||||||||||||||||
Total loans and leases |
$ | 51,285 | $ | 64,114 | $ | 414 | $ | 448 | $ | 87,903 | $ | 64,802 | ||||||||||||
Total assets |
286,247 | 238,412 | 6,153 | 6,255 | 94,551 | 72,663 | ||||||||||||||||||
Total deposits |
66,900 | 63,770 | | | 19,250 | 10,279 | ||||||||||||||||||
Common equity/Allocated equity(3) |
9,914 | 11,168 | 2,050 | 2,198 | 15,987 | 13,261 | ||||||||||||||||||
15
Business Segment Summary (continued) | |||||||||||||||||||||||||
For the six months ended June 30 | |||||||||||||||||||||||||
Total Corporation |
Consumer and Commercial Banking(1) |
Asset Management(1) |
|||||||||||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
|||||||||||||||||||
Net interest income(2) |
$ | 10,885 | $ | 10,509 | $ | 7,700 | $ | 7,396 | $ | 368 | $ | 371 | |||||||||||||
Noninterest income |
7,940 | 6,921 | 4,923 | 3,977 | 822 | 849 | |||||||||||||||||||
Total revenue |
18,825 | 17,430 | 12,623 | 11,373 | 1,190 | 1,220 | |||||||||||||||||||
Provision for credit losses |
1,605 | 1,728 | 1,010 | 875 | (1 | ) | 170 | ||||||||||||||||||
Gains on sale of securities |
569 |
|
137 |
|
11 | 31 | | | |||||||||||||||||
Amortization of intangibles |
108 | 110 | 89 | 88 | 3 | 3 | |||||||||||||||||||
Other noninterest expense |
9,667 | 8,874 | 6,030 | 5,454 | 750 | 734 | |||||||||||||||||||
Income before income taxes |
8,014 | 6,855 | 5,505 | 4,987 | 438 | 313 | |||||||||||||||||||
Income tax expense |
2,852 | 2,455 | 2,043 | 1,843 | 154 | 110 | |||||||||||||||||||
Net income |
$ | 5,162 | $ | 4,400 | $ | 3,462 | $ | 3,144 | $ | 284 | $ | 203 | |||||||||||||
Shareholder value added |
$ | 2,554 | $ | 1,666 | $ | 2,480 | $ | 2,080 | $ | 136 | $ | 67 | |||||||||||||
Net interest yield (fully taxable-equivalent basis) |
3.42 | % | 3.80 | % | 4.70 | % | 5.38 | % | 3.13 | % | 2.97 | % | |||||||||||||
Return on average equity |
20.9 | 18.6 | 35.5 | 32.7 | 20.7 | 17.6 | |||||||||||||||||||
Efficiency ratio (fully taxable-equivalent basis) |
51.9 | 51.5 | 48.5 | 48.7 | 63.3 | 60.4 | |||||||||||||||||||
Average: |
|||||||||||||||||||||||||
Total loans and leases |
$ | 347,983 | $ | 331,765 | $ | 186,789 | $ | 181,721 | $ | 22,775 | $ | 24,550 | |||||||||||||
Total assets |
744,141 | 642,163 | 353,356 | 301,595 | 25,411 | 26,442 | |||||||||||||||||||
Total deposits |
395,587 | 365,198 | 301,080 | 278,418 | 12,784 | 11,806 | |||||||||||||||||||
Common equity/Allocated equity |
49,780 | 47,805 | 19,640 | 19,367 | 2,769 | 2,331 | |||||||||||||||||||
For the six months ended June 30 | |||||||||||||||||||||||||
Global Corporate and Investment Banking(1) |
Equity Investments(1) |
Corporate Other |
|||||||||||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
2003 |
2002 |
|||||||||||||||||||
Net interest income(2) |
$ | 2,482 | $ | 2,325 | $ | (73 | ) | $ | (83 | ) | $ | 408 | $ | 500 | |||||||||||
Noninterest income |
2,123 | 2,266 | (46 | ) | (29 | ) | 118 | (142 | ) | ||||||||||||||||
Total revenue |
4,605 | 4,591 | (119 | ) | (112 | ) | 526 | 358 | |||||||||||||||||
Provision for credit losses |
444 | 481 | 4 | | 148 | 202 | |||||||||||||||||||
Gains (losses) on sale of securities |
(17 | ) | (42 | ) | | | 575 | 148 | |||||||||||||||||
Amortization of intangibles |
14 | 16 | 1 | 1 | 1 | 2 | |||||||||||||||||||
Other noninterest expense |
2,729 | 2,583 | 54 | 35 | 104 | 68 | |||||||||||||||||||
Income before income taxes |
1,401 | 1,469 | (178 | ) | (148 | ) | 848 | 234 | |||||||||||||||||
Income tax expense |
480 | 502 | (64 | ) | (61 | ) | 239 | 61 | |||||||||||||||||
Net income |
$ | 921 | $ | 967 | $ | (114 | ) | $ | (87 | ) | $ | 609 | $ | 173 | |||||||||||
Shareholder value added |
$ | 378 | $ | 306 | $ | (225 | ) | $ | (215 | ) | $ | (215 | ) | $ | (572 | ) | |||||||||
Net interest yield (fully taxable-equivalent basis) |
2.17 | % | 2.37 | % | n/m | n/m | n/m | n/m | |||||||||||||||||
Return on average equity |
18.2 | 17.1 | (11.1 | )% | (8.2 | )% | n/m | n/m | |||||||||||||||||
Efficiency ratio (fully taxable-equivalent basis) |
59.6 | 56.6 | n/m | n/m | n/m | n/m | |||||||||||||||||||
Average: |
|||||||||||||||||||||||||
Total loans and leases |
$ | 53,899 | $ | 65,552 | $ | 424 | $ | 437 | $ | 84,096 | $ | 59,505 | |||||||||||||
Total assets |
279,899 | 235,114 | 6,134 | 6,254 | 79,341 | 72,758 | |||||||||||||||||||
Total deposits |
67,106 | 63,492 | | | 14,617 | 11,482 | |||||||||||||||||||
Common equity/Allocated equity(3) |
10,214 | 11,380 | 2,064 | 2,159 | 15,093 | 12,568 | |||||||||||||||||||
n/m | = not meaningful |
(1) | There were no material intersegment revenues among the segments. |
(2) | Net interest income is presented on a fully taxable-equivalent basis. |
(3) | Equity in Corporate Other is primarily unallocated. |
16
Reconciliations of the four business segments revenue and net income to consolidated totals follow:
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
||||||||
Segments revenue |
$9,452 | $8,567 | $18,299 | $17,072 | ||||||||
Adjustments: |
||||||||||||
Asset and liability management activities(1) |
232 | 32 | 396 | 25 | ||||||||
Revenue associated with unassigned capital |
171 | 183 | 343 | 344 | ||||||||
Liquidating businesses |
46 | 123 | 152 | 280 | ||||||||
Fully taxable-equivalent basis adjustment |
(159 | ) | (168 | ) | (311 | ) | (262 | ) | ||||
Other |
(122 | ) | (162 | ) | (365 | ) | (291 | ) | ||||
Consolidated revenue |
$9,620 | $8,575 | $18,514 | $17,168 | ||||||||
Segments net income |
$2,427 | $2,107 | $ 4,553 | $ 4,227 | ||||||||
Adjustments, net of taxes: |
||||||||||||
Gains on sales of securities |
200 | 71 | 385 | 99 | ||||||||
Asset and liability management activities(1) |
147 | (30 | ) | 255 | (41 | ) | ||||||
Earnings associated with unassigned capital |
115 | 124 | 230 | 230 | ||||||||
Liquidating businesses |
(31 | ) | 11 | (30 | ) | 23 | ||||||
Other |
(120 | ) | (62 | ) | (231 | ) | (138 | ) | ||||
Consolidated net income |
$2,738 | $2,221 | $ 5,162 | $ 4,400 | ||||||||
(1) Includeswhole mortgage loan sale gains. |
The adjustments presented in the table above include consolidated income and expense amounts not specifically allocated to individual business segments.
Note 8Special Purpose Financing Entities
Securitizations
The Corporation securitizes assets and may retain a portion or all of the securities, subordinated tranches, interest only strips and, in some cases, a cash reserve account, all of which are considered retained interests in the securitized assets. Those assets may be serviced by the Corporation or by third parties to whom the servicing has been sold.
Variable Interest Entities
In January 2003, the FASB issued FIN 46, which provides a new framework for identifying VIEs and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. As a result of the requirements of FIN 46, the Corporation will begin consolidating certain of our multi-seller conduits in the third quarter of 2003. As of June 30, 2003, the assets of these entities were approximately $15.0 billion. However, management is assessing alternatives with regards to these entities including restructuring the entities and/or alternative sources of cost-efficient funding for the Corporations customers and with the objective that the amount of assets that is ultimately consolidated at September 30, 2003 will be less than the $15.0 billion. The actual amount that will be consolidated and reported as of September 30, 2003 will depend on actions taken by the Corporation and its customers subsequent to June 30, 2003. FIN 46 requires that when entities are consolidated, the assets should be initially recorded at their carrying amounts at the date the requirements of the interpretation first apply. If determining carrying amounts as required is impractical, then the assets are to be measured at fair value on the first date the interpretation applies. Any difference between the net amount added to the Corporations Consolidated Balance Sheet and the amount of any previously recognized interest in the newly consolidated entity shall be recognized as the cumulative effect of an accounting change.
17
Revenues from administration, liquidity, letters of credit and other services provided to these entities were approximately $95 million and $82 million for the six months ended June 30, 2003 and 2002, respectively. There was no material impact to net income as a result of applying FIN 46 on July 1, 2003. At June 30, 2003, the Corporations liquidity and letter of credit exposure associated with the multi-seller conduits administered by the Corporation was approximately $18.1 billion.
Additionally, the Corporation has significant involvement with other VIEs that it will not likely consolidate because it is not deemed to be the primary beneficiary. In such cases, the Corporation does not absorb the majority of the entities expected losses nor does it receive a majority of the entities expected residual returns, or both. These entities facilitate client transactions, and the Corporation functions as administrator for all of these and provides either liquidity and letters of credit or derivatives to the VIE. Total assets of these entities at June 30, 2003 were approximately $18.7 billion. At June 30, 2003, the Corporations loss exposure associated with these VIEs was approximately $14.4 billion, which is net of amounts syndicated. However, management does not believe any losses resulting from its involvement with these entities will be material.
See Notes 1 and 8 of the consolidated financial statements of the Corporations 2002 Annual Report for a more detailed discussion of special purpose financing entities.
18
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
This report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as expects, anticipates, believes, estimates, other similar expressions or future or conditional verbs such as will, should, would and could are intended to identify such forward-looking statements. Readers of the Corporations Form 10-Q should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed in the Corporations 2002 Annual Report. The statements are representative only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement.
Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: changes in general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense; changes in the interest rate environment which may reduce interest margins and impact funding sources; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial instruments and other similar financial instruments; political conditions and related actions by the United States military abroad which may adversely affect the companys businesses and economic conditions as a whole; litigation liabilities, including costs, expenses, settlements and judgments; changes in domestic or foreign tax laws, rules and regulations as well as Internal Revenue Service or other governmental agencies interpretations thereof; various monetary and fiscal policies and regulations, including those determined by the Federal Reserve Board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and state regulators; competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions; ability to grow core businesses; ability to develop and introduce new banking-related products, services and enhancements and gain market acceptance of such products; mergers and acquisitions and their integration into the Corporation; decisions to downsize, sell or close units or otherwise change the business mix of the Corporation; and managements ability to manage these and other risks.
19
The Corporation is headquartered in Charlotte, North Carolina, operates in 21 states and the District of Columbia and has offices located in 30 countries. The Corporation provides a diversified range of banking and certain nonbanking financial services and products both domestically and internationally through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. At June 30, 2003, the Corporation had $769 billion in assets and approximately 133,000 full-time equivalent employees. Notes to the consolidated financial statements referred to in Managements Discussion and Analysis of Results of Operations and Financial Condition are incorporated by reference into Managements Discussion and Analysis of Results of Operations and Financial Condition.
Performance overview for the six months ended June 30, 2003 compared to the same period in 2002:
Net income totaled $5.2 billion, or $3.39 per diluted common share, 17 percent and 22 percent increases, respectively, from $4.4 billion, or $2.77 per diluted common share. The return on average common shareholders equity was 21 percent compared to 19 percent.
For the first half of 2003, we continued to experience strong core business fundamentals in the areas of customer satisfaction and product/market performance that have created momentum for the remainder of the year.
Customer satisfaction continued to increase, resulting in better retention and increased opportunities to deepen relationships with our customers. Delighted or highly satisfied customers, those who rate us a 9 or 10 on a 10-point scale, increased 14 percent.
We increased net new consumer checking accounts by approximately 581,000 compared to a net increase of approximately 528,000 for all of 2002 driven by increased sales production and strong account retention.
Our active online banking customers reached 5.7 million, a 51 percent increase. This represents 37% of our active checking customers who use this service. Active bill pay customers increased more than 100 percent to 2.4 million. For the second quarter, active bill pay users paid over $10.9 billion of bills.
First mortgage originations increased $41.1 billion to $73.2 billion, as low mortgage interest rates drove home purchase and refinance volumes, coupled with expanded market coverage from our deployment of LoanSolutions®, which was first rolled out in the second quarter of 2002. Total mortgages funded through LoanSolutions® totaled $20.8 billion.
Banc of America Securities continued to maintain overall market share and gained in areas such as US equities, syndications and mortgage-backed securities.
Financial highlights for the six months ended June 30, 2003 compared to the same period in 2002:
Net interest income on a fully taxable-equivalent basis increased $376 million to $10.9 billion. This increase was driven by the impact of credit card loan growth, higher mortgage warehouse levels, higher trading-related net interest income and higher core funding levels, partially offset by reductions in the large corporate, foreign and middle market loans, and exited consumer loan businesses and the net negative impact of rates and discretionary portfolio repositioning in a declining rate environment. The net interest yield on a fully taxable-equivalent basis declined 38 basis points to 3.42% primarily due to the net negative impact of rates and discretionary portfolio repositioning in a declining rate environment and higher trading-related assets, partially offset by credit card loan growth and higher core funding levels.
Noninterest income increased $1.0 billion, primarily due to increases in mortgage banking income driven by gains from mortgage loans sold into the secondary market due to higher levels of refinancing activity and home purchases; card income; consumer-based fee income; and gains recognized in our whole mortgage loan portfolio as we sold some whole mortgage loans to manage prepayment risk due to the longer than anticipated low interest rate environment. Market-based trading activities, primarily credit fixed income showed strong results; however, these results were offset by trading losses in the commodity portfolio primarily due to the adverse impact on jet fuel prices from the outbreak of Severe Acute Respiratory Syndrome (SARS). Also offsetting trading profits were losses of $190 million on derivatives used to hedge credit risk in the loan portfolio and a net reduction in the value of our mortgage banking
20
assets and the related derivative instruments of $162 million mainly attributed to lower interest rates and faster prepayment speeds. Other noninterest income included gains from whole mortgage loan sales of $524 million compared to $138 million. Other noninterest income also included equity in the earnings of our investment in Grupo Financiero Santander Serfin (GFSS) of $55 million.
Gains on sales of securities were $569 million compared to $137 million as we continued to reposition the discretionary portfolio to take advantage of interest rate fluctuations.
The provision for credit losses declined $123 million to $1.6 billion. Net charge-offs were $1.6 billion and represented 0.93 percent of average loans and leases, a decrease of 12 basis points. The decrease in net charge-offs in the commercialdomestic loan portfolio was partially offset by an increase in credit card net charge-offs.
Nonperforming assets decreased $832 million to $4.4 billion, or 1.23 percent of loans, leases and foreclosed properties at June 30, 2003 compared to 1.53 percent at December 31, 2002. This decline was primarily driven by reduced levels of inflows to nonperforming assets in Global Corporate and Investment Banking, together with loan sales and payoffs facilitated by higher levels of liquidity in the capital markets. In addition, commercial asset quality improved in Asset Management and Consumer and Commercial Banking.
Noninterest expense increased $791 million, primarily due to increases in personnel, professional fees, marketing, occupancy expense and data processing. Higher personnel costs resulted from increased costs of certain employee benefits, incentives and initiative related contract labor. Employee benefits expense increased as we began expensing stock options in the first quarter of 2003 and due to the impacts of a change in the expected long-term rate of return on plan assets to 8.5 percent for 2003 and a change in the discount rate from 7.25 percent in 2002 to 6.75 percent in 2003 for the Bank of America Pension Plan. Increase in professional fees was driven by increased litigation accruals of $145 million associated with pending litigation principally related to securities matters. Marketing expense increased primarily due to increased advertising and marketing investments in online banking and bill pay and card products. Higher occupancy costs were due to $32 million associated with vacating space in Tokyo and San Francisco related to exiting businesses and increased security and insurance expense. Data processing expense reflects increases in online bill payers and card processing due to higher volumes.
Income tax expense was $2.5 billion reflecting an estimated effective tax rate of 33.0 percent, compared to $2.2 billion and 33.3 percent, respectively.
21
Table 1
Selected Financial Data
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
(Dollars in millions, except per share information) |
2003 |
2002 |
2003 |
2002 |
||||||||||||
Income statement |
||||||||||||||||
Net interest income |
$ | 5,365 | $ | 5,094 | $ | 10,574 | $ | 10,247 | ||||||||
Noninterest income |
4,255 | 3,481 | 7,940 | 6,921 | ||||||||||||
Total revenue |
9,620 | 8,575 | 18,514 | 17,168 | ||||||||||||
Provision for credit losses |
772 | 888 | 1,605 | 1,728 | ||||||||||||
Gains on sales of securities |
296 | 93 | 569 | 137 | ||||||||||||
Noninterest expense |
5,058 | 4,490 | 9,775 | 8,984 | ||||||||||||
Income before income taxes |
4,086 | 3,290 | 7,703 | 6,593 | ||||||||||||
Income tax expense |
1,348 | 1,069 | 2,541 | 2,193 | ||||||||||||
Net income |
2,738 | 2,221 | 5,162 | 4,400 | ||||||||||||
Average common shares issued and outstanding |
1,494,094 | 1,533,783 | 1,496,827 | 1,538,600 | ||||||||||||
Average diluted common shares issued and outstanding |
1,523,306 | 1,592,250 | 1,524,715 | 1,586,836 | ||||||||||||
Performance ratios |
||||||||||||||||
Return on average assets |
1.42 | % | 1.38 | % | 1.40 | % | 1.38 | % | ||||||||
Return on average common shareholders' equity |
21.86 | 18.47 | 20.90 | 18.55 | ||||||||||||
Total equity to total assets (period end) |
6.63 | 7.48 | 6.63 | 7.48 | ||||||||||||
Total average equity to total average assets |
6.49 | 7.47 | 6.70 | 7.45 | ||||||||||||
Dividend payout ratio |
35.06 | 41.40 | 37.21 | 41.93 | ||||||||||||
Per common share data |
||||||||||||||||
Earnings |
$ | 1.83 | $ | 1.45 | $ | 3.45 | $ | 2.86 | ||||||||
Diluted earnings |
1.80 | 1.40 | 3.39 | 2.77 | ||||||||||||
Dividends paid |
0.64 | 0.60 | 1.28 | 1.20 | ||||||||||||
Book value |
34.06 | 31.47 | 34.06 | 31.47 | ||||||||||||
Average balance sheet |
||||||||||||||||
Total loans and leases |
$ | 350,279 | $ | 335,684 | $ | 347,983 | $ | 331,765 | ||||||||
Total assets |
774,644 | 646,599 | 744,141 | 642,163 | ||||||||||||
Total deposits |
405,307 | 365,986 | 395,587 | 365,198 | ||||||||||||
Long-term debt |
62,767 | 60,410 | 62,071 | 61,058 | ||||||||||||
Trust preferred securities |
6,160 | 5,530 | 6,096 | 5,754 | ||||||||||||
Common shareholders' equity |
50,212 | 48,213 | 49,780 | 47,805 | ||||||||||||
Total shareholders' equity |
50,269 | 48,274 | 49,837 | 47,867 | ||||||||||||
Capital ratios (period end) |
||||||||||||||||
Risk-based: |
||||||||||||||||
Tier 1 capital |
8.08 | % | 8.09 | % | 8.08 | % | 8.09 | % | ||||||||
Total capital |
11.95 | 12.42 | 11.95 | 12.42 | ||||||||||||
Leverage ratio |
5.93 | 6.47 | 5.93 | 6.47 | ||||||||||||
Market price per share of common stock |
||||||||||||||||
Closing |
$ | 79.03 | $ | 70.36 | $ | 79.03 | $ | 70.36 | ||||||||
High |
80.00 | 77.08 | 80.00 | 77.08 | ||||||||||||
Low |
67.20 | 66.82 | 64.26 | 57.51 | ||||||||||||
Supplemental Financial Data
Shareholder value added (SVA) is a performance measure used in managing our growth strategy and is not defined in GAAP (generally accepted accounting principles). We also calculate certain measures, such as net interest income, core net interest income, net interest yield and efficiency ratio, on a fully taxable-equivalent basis. Other companies may define or calculate supplemental financial data differently. See Tables 2 and 3 for supplemental financial data for the three months and six months ended June 30, 2003 and 2002.
SVA is a key measure of performance used in managing our growth strategy orientation and strengthening our focus on generating long-term growth and shareholder value. SVA is used in measuring performance of our different business units and is an integral component for allocating resources. Each business segment has a goal for growth in SVA reflecting the individual segments business and customer strategy. Investment resources and initiatives are aligned with these SVA growth goals during the planning and forecasting process. Investment, relationship and
22
profitability models all have SVA as a key measure to support the implementation of SVA growth goals. SVA is defined as cash basis earnings less a charge for the use of capital. Cash basis earnings is net income adjusted to exclude amortization of intangibles. The charge for the use of capital is calculated by multiplying 11 percent (managements estimate of the shareholders minimum required rate of return on capital invested) by average total common shareholders equity at the corporate level and by average allocated equity at the business segment level. Equity is allocated to the business segments using a risk-adjusted methodology for each segments credit, market, country and operational risk. SVA increased 53 percent to $2.6 billion for the six months ended June 30, 2003 from the comparable 2002 period, due to both the $760 million increase in cash basis earnings and the decrease in capital charge, which was driven by the reduction in managements estimate of the rate used to calculate the charge for the use of capital from 12% to 11% in the first quarter of 2003. See Table 2 for the calculation of SVA and Business Segment Operations beginning on page 25 for additional discussion on SVA.
We review net interest income on a fully taxable-equivalent basis, which is a performance measure used by management in operating the business, that we believe provides investors with a more accurate picture of the interest margin for comparative purposes. In this presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. For purposes of this calculation, we use the federal statutory tax rate. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a fully taxable-equivalent basis is also used in the calculation of the efficiency ratio and the net interest yield. The efficiency ratio, which is calculated by dividing noninterest expense by total revenue, measures how much it costs to produce one dollar of revenue. Net interest income on a fully taxable-equivalent basis is also used in our business segment reporting.
Table 2
Supplemental Financial Data
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
||||||||||||
Shareholder value added |
||||||||||||||||
Net income |
$ | 2,738 | $ | 2,221 | $ | 5,162 | $ | 4,400 | ||||||||
Amortization expense |
54 | 55 | 108 | 110 | ||||||||||||
Capital charge |
(1,378 | ) | (1,442 | ) | (2,716 | ) | (2,844 | ) | ||||||||
Shareholder value added |
$ | 1,414 | $ | 834 | $ | 2,554 | $ | 1,666 | ||||||||
Fully taxable-equivalent basis data |
||||||||||||||||
Net interest income |
$ | 5,524 | $ | 5,262 | $ | 10,885 | $ | 10,509 | ||||||||
Total revenue |
9,779 | 8,743 | 18,825 | 17,430 | ||||||||||||
Net interest yield |
3.33 | % | 3.75 | % | 3.42 | % | 3.80 | % | ||||||||
Efficiency ratio |
51.73 | 51.34 | 51.93 | 51.54 | ||||||||||||
Additionally, we review core net interest income, which adjusts reported net interest income on a fully taxable-equivalent basis for the impact of Global Corporate and Investment Bankings trading-related activities and loans that we originated and sold into revolving credit card and commercial securitizations. Noninterest income, rather than net interest income and provision for credit losses, is recorded for assets that have been securitized as we take on the role of servicer and record servicing income and gains or losses on securitizations, where appropriate. For purposes of internal analysis, we combine trading-related net interest income with trading account profits, as discussed in the Global Corporate and Investment Banking business segment discussion beginning on page 28, as trading strategies are evaluated based on total revenue.
23
Table 3 below provides a reconciliation of net interest income on a taxable-equivalent basis presented in Tables 4 and 5 to core net interest income for the three months and six months ended June 30, 2003 and 2002:
Table 3
Core Net Interest Income
Three Months Ended June 30 |
Six Months Ended June 30 |
|||||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 |
||||||||||||
Net interest income |
||||||||||||||||
As reported on a fully taxable-equivalent basis |
$ | 5,524 | $ | 5,262 | $ | 10,885 | $ | 10,509 | ||||||||
Trading-related net interest income |
(552 | ) | (469 | ) | (1,160 | ) | (902 | ) | ||||||||
Impact of revolving securitizations |
89 | 144 | 187 | 301 | ||||||||||||
Core net interest income |
$ | 5,061 | $ | 4,937 | $ | 9,912 | $ | 9,908 | ||||||||
Average earning assets |
||||||||||||||||
As reported |
$ | 663,500 | $ | 562,192 | $ | 638,435 | $ | 555,688 | ||||||||
Trading-related earning assets |
(169,626 | ) | (124,409 | ) | (164,040 | ) | (118,762 | ) | ||||||||
Impact of revolving securitizations |
3,759 | 6,551 | 4,116 | 7,397 | ||||||||||||
Core average earning assets |
$ | 497,633 | $ | 444,334 | $ | 478,511 | $ | 444,323 | ||||||||
Net interest yield on earning assets |
||||||||||||||||
As reported |
3.33 | % | 3.75 | % | 3.42 | % | 3.80 | % | ||||||||
Impact of trading-related activities |
0.70 | 0.64 | 0.70 | 0.61 | ||||||||||||
Impact of revolving securitizations |
0.04 | 0.06 | 0.04 | 0.07 | ||||||||||||
Core net interest yield on earning assets |
4.07 | % | 4.45 | % | 4.16 | % | 4.48 | % | ||||||||
Core net interest income was virtually unchanged for the six months ended June 30, 2003 from the comparable 2002 period as credit card loan growth, higher mortgage warehouse levels and higher core funding levels were offset by reduced loan levels in the large corporate, foreign and middle market loans, and exited consumer loan businesses and the net negative impact of rates and discretionary portfolio repositioning in the declining rate environment.
Core average earning assets increased $34.2 billion for the six months ended June 30, 2003 from the comparable 2002 period primarily due to higher levels of residential mortgage and credit card loans, securities and loans held for sale, partially offset by reductions in loan levels in the large corporate, foreign and middle market loans, and exited consumer loan businesses.
The core net interest yield decreased 32 basis points for the six months ended June 30, 2003 from the comparable 2002 period mainly due to the net negative impact of rates and discretionary portfolio repositioning in the declining rate environment, partially offset by credit card loan growth and the impact of higher levels of core deposit funding.
Complex Accounting Estimates and Principles
Our significant accounting principles are described in Note 1 of the consolidated financial statements and are essential to understanding Managements Discussion and Analysis of Results of Operations and Financial Condition. Some of these accounting principles require significant judgment to estimate values of either assets or liabilities. In addition, certain accounting principles require significant judgment in applying the complex accounting principles to individual transactions to determine the most appropriate treatment. We have established procedures and processes to facilitate making the judgments necessary to prepare financial statements. For a complete discussion of the more judgmental and complex accounting estimates and principles of the Corporation, see Complex Accounting Estimates and Principles on pages 29 through 30 of the Corporations 2002 Annual Report.
See Note 1 of the consolidated financial statements for Recently Issued Accounting Pronouncements.
24
Business Segment Operations
We provide our customers and clients both traditional banking and nonbanking financial products and services through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. Certain subsegments are managed through a single business segment. Descriptions of each business segment and subsegment can be found in the Corporations 2002 Annual Report on pages 32 through 36.
See Note 7 of the consolidated financial statements for additional business segment information, selected financial information for the business segments, reconciliations to consolidated amounts and information on Corporate Other. Certain prior period amounts have been reclassified among segments and their components to conform to the current period presentation.
Consumer and Commercial Banking
Our Consumer and Commercial Banking strategy is to attract, retain and deepen customer relationships. A critical component of that strategy includes continuously improving customer satisfaction. We believe this focus will help us achieve our goal of being recognized as the best retail bank in America. Customers reporting that they were delighted with their service increased 14 percent at June 30, 2003 compared to June 30, 2002. We added 581,000 net new checking accounts for the six months ended June 30, 2003, surpassing last years total net new checking growth of 528,000. This growth resulted from an 18 percent increase in sales production and strong account retention. Access to our services through online banking, which saw a 51 percent increase in active online subscribers, our network of domestic banking centers, card products, ATMs, telephone and internet channels, and our product innovations such as an expedited mortgage application process through LoanSolutions® contributed to revenue growth and success with our customers.
Net interest income increased $304 million primarily due to overall credit card portfolio and deposit growth. These increases were partially offset by the compression of deposit interest margins and the results of asset and liability management (ALM) activities. SVA increased 19 percent due to the increase in net income and the decrease in the capital charge due to the reduction in the rate used to calculate the charge for the use of capital. Net interest income was positively impacted by the $5.1 billion, or three percent, increase in average loans and leases for the six months ended June 30, 2003, compared to the same period in 2002, as an increase in consumer loans was partially offset by a decline in commercial loans. Average on-balance sheet credit card outstandings increased 28 percent, primarily due to new account growth and an increase in new advances on previously securitized balances that are recorded on our balance sheet after the revolving period of the securitization. Average managed credit card outstandings, which include securitized credit card loans, increased 11 percent. Average residential mortgage loans were relatively unchanged. A six percent increase in average direct/indirect loans and a three percent increase in average home equity lines also contributed to growth in the consumer loan portfolio. Average commercial loans declined three percent for the six months ended June 30, 2003, primarily due to the reduced demand for new loans, compared to the same period in 2002. However, compared to December 31, 2002, average commercial loans increased $2.4 billion as we began to see signs of growth driven by loans to home builders and more general industries.
Deposit growth also positively impacted net interest income. Higher consumer deposit balances as a result of our efforts to add new customers, as evidenced by the increase in net new checking accounts and money market accounts, higher escrow balances and customer preference for stable investments in these uncertain economic times, drove the $22.7 billion, or eight percent, increase in average deposits for the six months ended June 30, 2003.
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Significant Noninterest Income Components | ||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | ||||||||||
Service charges |
$ | 1,072 | $ | 999 | $ | 2,125 | $ | 1,955 | ||||||
Mortgage banking income |
559 | 136 | 964 | 331 | ||||||||||
Card income |
762 | 621 | 1,443 | 1,198 | ||||||||||
Trading account profits |
(49 | ) | 29 | (170 | ) | 21 | ||||||||
Increases in both corporate and consumer service charges led to the $170 million, or nine percent, increase in service charges. Increased levels of deposit fees from new account growth and favorable repricing drove the $148 million, or 11 percent, increase in consumer service charges. Corporate service charges increased $22 million, or four percent, as customers opted to pay service charges rather than maintain additional deposit balances in the current low rate environment.
Gains from mortgage loans sold into the secondary market, due to higher levels of refinancing activity and home purchases, drove the $633 million increase in mortgage banking income. Originated first mortgage loans increased $41.1 billion to $73.2 billion for the six months ended June 30, 2003 substantially the result of elevated refinancing levels. Subsequent to June 30, 2003, we saw a noticeable increase in mortgage rates and a decrease in mortgage applications. While we believe that the mix of channels we originate mortgages through should help to reduce the impact of future decreases in retail origination levels after the current refinancing boom fades away, we are not in a position to determine the ultimate impact on our mortgage banking business at this time. Gains from secondary loan sales increased $246 million to $225 million for the six months ended June 30, 2003 compared to the same period in 2002. First mortgage loan origination volume was composed of approximately $50.2 billion of retail loans and $23.0 billion of wholesale loans for the six months ended June 30, 2003, compared to $22.4 billion of retail loans and $9.7 billion of wholesale loans for the six months ended June 30, 2002. Increased mortgage prepayments resulting from the significant decrease in mortgage interest rates led to a $35.5 billion decline in the average portfolio of first mortgage loans serviced to $255.1 billion for the six months ended June 30, 2003.
Increases in both debit and credit card income resulted in the 20 percent increase in card income. The increase in debit card income of $83 million, or 23 percent, was primarily due to increases in purchase volumes, new account growth and higher activation and penetration levels. Higher interchange fees, primarily driven by increased credit card purchase volumes, as well as higher late and overlimit fees contributed to the $162 million, or 19 percent, increase in credit card income. Card income included activity from the securitized portfolio of $78 million and $72 million for the six months ended June 30, 2003 and 2002, respectively. Noninterest income, rather than net interest income, is recorded for assets that have been securitized as we take on the role of servicer and record servicing income and gains or losses on securitizations, where appropriate. New advances under these previously securitized balances will be recorded on our balance sheet after the revolving period of the securitization, which has the effect of increasing loans on our balance sheet and increasing net interest income and charge-offs, with a corresponding reduction in noninterest income. Beginning in the third quarter of 2003, we expect earnings to be impacted as a result of an agreement entered into by Visa U.S.A. For additional information regarding this agreement, see Visa U.S.A. Settlement on page 52.
Trading account profits represents the net mark-to-market adjustments on mortgage banking assets and related derivative instruments. Impacting trading account profits for the six months ended June 30, 2003 was a net reduction in the value of our mortgage banking assets and related derivative instruments of $162 million, primarily due to the impact of faster prepayment speeds. Mortgage banking assets decreased to $1.7 billion at June 30, 2003 compared to $2.1 billion at December 31, 2002 due to higher prepayments resulting in the decreased value of servicing in the lower interest rate environment.
Higher provision in the credit card loan portfolio, partially offset by a decline in provision for commercial loans resulted in a $135 million, or 15 percent, increase in the provision for credit losses. The increase in credit card provision was primarily attributable to the continued seasoning of outstandings from prior years new account growth, new advances on previously securitized balances, and current economic conditions including higher
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bankruptcies. Seasoning refers to the length of time passed since an account was opened. Commercial loan provision declined consistent with the improvement in credit quality.
Noninterest expense increased $577 million, or 10 percent, primarily due to increases in personnel expense, marketing and promotional fees and data processing expense. Personnel expense increased primarily as a result of higher incentive compensation driven by strong mortgage sales production. Marketing and promotional fees were up primarily due to increased advertising and marketing investments in online banking and bill pay and card products. The increase in data processing expense was primarily attributable to increases in online bill payers and card processing associated with higher volumes of activity.
Asset Management
Despite the drop in average market indices of more than 17 percent from a year ago, total revenue declined only $30 million, or two percent, for the six months ended June 30, 2003 and net income increased 40 percent, primarily due to a lower provision charge. SVA more than doubled as the increase in net income and the decrease in the capital charge were partially offset by an increase in capital levels. The increase in capital levels was driven by additional goodwill recorded in 2002 representing final contingent consideration in connection with the acquisition of the remaining 50 percent of Marsico Capital Management, LLC. All conditions related to this contingent consideration have been met. Asset Management is continuing to focus on expanding its distribution capabilities to better serve the financial needs of its clients across the franchise, and is on target with its goal to increase the number of financial advisors in 2003 by approximately 20 percent.
Client Assets | ||||||
June 30 | ||||||
(Dollars in billions) |
2003 |
2002 | ||||
Assets under management |
$ | 314.9 | $ | 295.2 | ||
Client brokerage assets |
90.6 | 90.5 | ||||
Assets in custody |
47.9 | 41.0 | ||||
Total client assets |
$ | 453.4 | $ | 426.7 | ||
Assets under management, which consist largely of mutual funds, equities and bonds, generate fees based on a percentage of their market value. Compared to a year ago, assets under management increased $19.7 billion, or seven percent, primarily due to increased investment flows in money market mutual funds, bonds and equities. Client brokerage assets, a source of commission revenue, remained relatively flat compared to a year ago. Client brokerage assets consist largely of investments in bonds, money market mutual funds, annuities and equities. Assets in custody increased $6.9 billion or 17 percent and represent trust assets managed for customers. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.
Net interest income remained relatively flat as lower loan balances and the results of ALM activities were offset by growth in deposits and increased loan spreads. Average loans and leases declined $1.8 billion, or seven percent, for the six months ended June 30, 2003. Average deposits increased $978 million, or eight percent, for the six months ended June 30, 2003.
Significant Noninterest Income Components | ||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||
(Dollars in billions) |
2003 |
2002 |
2003 |
2002 | ||||||||||
Asset management fees(1) |
$ | 294 | $ | 300 | $ | 571 | $ | 571 | ||||||
Brokerage income |
104 | 111 | 200 | 222 | ||||||||||
Total investment and brokerage services |
$ | 398 | $ | 411 | $ | 771 | $ | 793 | ||||||
(1) Includes personal and institutional asset management fees, mutual fund fees and fees earned on assets in custody. |
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Noninterest income decreased $27 million, or three percent for the six months ended June 30, 2003. This decline was primarily due to a decrease in brokerage income, consistent with the current years market environment. Declines in personal asset management fees were offset by increases in mutual fund fees.
Provision for credit losses decreased $171 million, primarily due to one large charge-off recorded in the second quarter of 2002.
Noninterest expense increased $16 million, or two percent, as increased expenses related to the addition of financial advisors over the past five quarters were partially offset by lower revenue-related incentive compensation.
Global Corporate and Investment Banking
Total revenue was relatively flat for the six months ended June 30, 2003, as increases in net interest income and investment banking income were offset by a decline in trading account profits. Net income decreased $46 million, or five percent. SVA increased by 24 percent as a result of lower economic capital and a decrease in the capital charge.
Net interest income increased $157 million, or seven percent, due to trading-related activities partially offset by lower loan levels and ALM activities. Average loans and leases declined $11.7 billion, or 18 percent, for the six months ended June 30, 2003.
Significant Noninterest Income Components | ||||||||||||||
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | ||||||||||
Service charges |
$ | 290 | $ | 290 | $ | 583 | $ | 582 | ||||||
Investment and brokerage services |
187 | 168 | 338 | 320 | ||||||||||
Investment banking income |
462 | 443 | 835 | 771 | ||||||||||
Trading account profits |
109 | 287 | 413 | 646 | ||||||||||
Noninterest income decreased $143 million, or six percent, for the six months ended June 30, 2003, as a decline in trading account profits was partially offset by increases in investment banking income and investment and brokerage services. Service charges remained flat.
Trading-related net interest income as well as trading account profits in noninterest income (trading-related revenue) are presented in the following table as they are both considered in evaluating the overall profitability of our trading activities.
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Trading-related Revenue in
Global Corporate and Investment Banking
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | ||||||
Net interest income(1) |
$552 | $469 | $1,160 | $902 | ||||||
Trading account profits |
109 | 287 | 413 | 646 | ||||||
Total trading-related revenue |
$661 | $756 | $1,573 | $1,548 | ||||||
Revenue by product |
||||||||||
Foreign exchange |
$124 | $139 | $259 | $268 | ||||||
Interest rate(1) |
239 | 281 | 469 | 545 | ||||||
Credit(2) |
279 | 202 | 658 | 451 | ||||||
Equities |
100 | 104 | 215 | 229 | ||||||
Commodities |
(81 | ) | 30 | (28 | ) | 55 | ||||
Total trading-related revenue |
$661 | $756 | $1,573 | $1,548 | ||||||
(1) Presented on a fully taxable-equivalent basis. (2) Credit includes credit fixed income and credit derivatives used for trading and credit risk management. |
Trading-related revenue increased $25 million, as the $258 million increase in net interest income was partially offset by a $233 million decrease in trading account profits for the six months ended June 30, 2003. The overall increase was primarily due to an increase in revenue from credit related trading of $207 million. For the six months ended June 30, 2003 and 2002, credit trading related revenue included $190 million in losses and $65 million in gains from credit default swaps, that were used in the overall credit risk management of the loan portfolio. See Concentrations of Credit Risk on page 38 for a discussion on credit derivatives used in the credit risk management process. Adjusted for the impact of credit default swaps, credit fixed income trading increased by $462 million for the six months ended June 30, 2003 compared to the same period in 2002. This growth reflects the strength of our debt securities trading platform which capitalized on credit spreads tightening in the high grade and high yield markets. Additionally, revenues from commodities trading declined $83 million in 2003 primarily due to the adverse impact on jet fuel prices from the SARS outbreak and a decline in interest rate products of $76 million resulting from volatile markets after the war in Iraq.
Investment Banking Income in
Global Corporate and Investment Banking
Three Months Ended June 30 |
Six Months Ended June 30 | |||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | ||||
Securities underwriting |
$293 | $231 | $493 | $425 | ||||
Syndications |
112 | 120 | 214 | 188 | ||||
Advisory services |
43 | 80 | 102 | 138 | ||||
Other |
14 | 12 | 26 | 20 | ||||
Total |
$462 | $443 | $835 | $771 | ||||
Investment banking income increased $64 million, or eight percent, for the six months ended June 30, 2003. We continued to maintain overall market share and gained in areas such as U.S. equities, syndications and mortgage-backed securities. The market for securities underwriting declined for high grade and equity offerings; however, our continued strong market share in equity offerings resulted in a 16 percent increase in securities underwriting fees. We also continued to maintain strong market share in syndicated loan products, which drove an increase in syndication fees of $26 million. Advisory services income decreased $36 million.
Improved credit quality in our large corporate portfolio drove the $37 million, or eight percent, decrease in provision for credit losses. In addition to credit losses reflected in provision expense, included in other income for the six months ended June 30, 2003 were losses from writedowns of approximately $31 million related to partnership interests in leveraged leases to the airline industry.
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Noninterest expense increased $144 million, or six percent, primarily due to higher expenses from ongoing litigation and costs associated with downsizing operations in South America and Asia.
While we have begun to see signs of improvement in some markets and realized success in portions of our trading business, it is anticipated that the remainder of 2003 will be challenging for the investment banking industry. We will continue to monitor market developments and take actions necessary to adjust resources accordingly to maintain our focus on revenue, net income and SVA.
Equity Investments
For the six months ended June 30, 2003, revenue decreased $7 million, or six percent and net income decreased $27 million, or 31 percent primarily due to reduced cash gains. The equity investment portfolio in Principal Investing was $5.8 billion at both June 30, 2003 and December 31, 2002.
Net interest income consists primarily of the internal funding cost associated with the carrying value of investments.
Equity Investment Gains (Losses) in Principal Investing | |||||||||
Three Months Ended June 30 |
Six Months Ended June 30 | ||||||||
(Dollars in millions) |
2003 |
2002 |
2003 |
2002 | |||||
Cash gains |
$87 | $135 | $132 | $285 | |||||
Fair value adjustments |
41 | 37 | | 45 | |||||
Impairments |
(107) | (220) | (184) | (362) | |||||
Total |
$21 | $(48 | ) | $(52) | $(32) | ||||
Noninterest income primarily consists of equity investment gains (losses). Weakness in the private equity markets for the six months ended June 30, 2003 was the primary driver for the increase in equity investment losses. Impairments recorded for the six months ended June 30, 2003 and 2002 were driven primarily by continuing depressed levels of economic activity across many sectors both domestically and internationally.
Risk Management
Our corporate governance structure enables us to manage all major aspects of our business through an integrated planning and review process that includes strategic, financial, associate and risk planning. We derive our revenue from assuming and managing customer risk for profit. Through a robust governance structure, risk and return is evaluated with the goal of producing sustainable revenue, to reduce earnings volatility and increase shareholder value. Our business exposes us to four major risks: liquidity, credit, market and operational. For additional detail on risk management activities, see pages 36 through 37 of the Corporations 2002 Annual Report.
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Table 4
Quarterly Average Balances and Interest RatesFully Taxable-Equivalent Basis
Second Quarter 2003 |
First Quarter 2003 |
|||||||||||||||||
(Dollars in millions) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
||||||||||||
Earning assets |
||||||||||||||||||
Time deposits placed and other short-term investments |
$ | 7,888 | $ | 39 | 1.99 | % | $ | 6,987 | $ | 43 | 2.49 | % | ||||||
Federal funds sold and securities purchased under agreements to resell |
70,054 | 194 | 1.11 | 57,873 | 194 | 1.35 | ||||||||||||
Trading account assets |
99,129 | 1,022 | 4.13 | 99,085 | 1,053 | 4.27 | ||||||||||||
Securities |
95,614 | 1,028 | 4.30 | 67,784 | 793 | 4.69 | ||||||||||||
Loans and leases(1): |
||||||||||||||||||
Commercialdomestic |
100,721 | 1,746 | 6.95 | 103,663 | 1,836 | 7.18 | ||||||||||||
Commercialforeign |
18,004 | 170 | 3.79 | 18,876 | 156 | 3.35 | ||||||||||||
Commercial real estatedomestic |
20,039 | 218 | 4.36 | 19,955 | 215 | 4.37 | ||||||||||||
Commercial real estateforeign |
305 | 3 | 3.95 | 301 | 3 | 3.88 | ||||||||||||
Total commercial |
139,069 | 2,137 | 6.16 | 142,795 | 2,210 | 6.27 | ||||||||||||