UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2006
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) 386-5681
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 x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ¨ No x
On April 30, 2006, there were 4,563,502,347 shares of Bank of America Corporation Common Stock outstanding.
March 31, 2006 Form 10-Q
INDEX
Page | ||||||
Part I. | Item 1. | Financial Statements: | ||||
Financial Information | Consolidated Statement of Income for the Three Months Ended March 31, 2006 and 2005 |
2 | ||||
Consolidated Balance Sheet at March 31, 2006 and December 31, 2005 |
3 | |||||
4 | ||||||
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2006 and 2005 |
5 | |||||
6 | ||||||
Item 2. | Managements Discussion and Analysis of Results of Operations and Financial Condition | 30 | ||||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 88 | ||||
Item 4. | Controls and Procedures | 88 | ||||
Part II. | ||||||
Other Information | Item 1. | Legal Proceedings | 88 | |||
Item 2. | Unregistered Sales of Equity Securities and the Use of Proceeds | 88 | ||||
Item 6. | Exhibits | 89 | ||||
Signature | 90 | |||||
Index to Exhibits | 91 |
1
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Three Months Ended March 31 | ||||||
(Dollars in millions, except per share information) |
2006 | 2005 | ||||
Interest income |
||||||
Interest and fees on loans and leases |
$ | 11,127 | $ | 8,080 | ||
Interest and dividends on securities |
3,014 | 2,533 | ||||
Federal funds sold and securities purchased under agreements to resell |
1,709 | 904 | ||||
Trading account assets |
1,548 | 1,182 | ||||
Other interest income |
727 | 437 | ||||
Total interest income |
18,125 | 13,136 | ||||
Interest expense |
||||||
Deposits |
3,007 | 2,182 | ||||
Short-term borrowings |
4,309 | 1,988 | ||||
Trading account liabilities |
517 | 427 | ||||
Long-term debt |
1,516 | 1,033 | ||||
Total interest expense |
9,349 | 5,630 | ||||
Net interest income |
8,776 | 7,506 | ||||
Noninterest income |
||||||
Service charges |
1,901 | 1,777 | ||||
Investment and brokerage services |
1,103 | 1,013 | ||||
Mortgage banking income |
137 | 221 | ||||
Investment banking income |
501 | 366 | ||||
Equity investment gains |
660 | 399 | ||||
Card income |
3,436 | 1,289 | ||||
Trading account profits |
1,074 | 685 | ||||
Other income |
89 | 282 | ||||
Total noninterest income |
8,901 | 6,032 | ||||
Total revenue |
17,677 | 13,538 | ||||
Provision for credit losses |
1,270 | 580 | ||||
Gains on sales of debt securities |
14 | 659 | ||||
Noninterest expense |
||||||
Personnel |
4,813 | 3,701 | ||||
Occupancy |
701 | 636 | ||||
Equipment |
344 | 297 | ||||
Marketing |
575 | 337 | ||||
Professional fees |
218 | 177 | ||||
Amortization of intangibles |
440 | 208 | ||||
Data processing |
410 | 364 | ||||
Telecommunications |
220 | 206 | ||||
Other general operating |
1,105 | 1,019 | ||||
Merger and restructuring charges |
98 | 112 | ||||
Total noninterest expense |
8,924 | 7,057 | ||||
Income before income taxes |
7,497 | 6,560 | ||||
Income tax expense |
2,511 | 2,167 | ||||
Net income |
$ | 4,986 | $ | 4,393 | ||
Net income available to common shareholders |
$ | 4,981 | $ | 4,388 | ||
Per common share information |
||||||
Earnings |
$ | 1.08 | $ | 1.09 | ||
Diluted earnings |
$ | 1.07 | $ | 1.07 | ||
Dividends paid |
$ | 0.50 | $ | 0.45 | ||
Average common shares issued and outstanding (in thousands) |
4,609,481 | 4,032,550 | ||||
Average diluted common shares issued and outstanding (in thousands) |
4,666,405 | 4,099,062 | ||||
See accompanying Notes to Consolidated Financial Statements.
2
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in millions) |
March 31 2006 |
December 31 2005 |
||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 32,575 | $ | 36,999 | ||||
Time deposits placed and other short-term investments |
11,157 | 12,800 | ||||||
Federal funds sold and securities purchased under agreements to resell (includes $137,066 and $148,299 pledged as collateral) |
137,081 | 149,785 | ||||||
Trading account assets (includes $85,925 and $68,223 pledged as collateral) |
117,181 | 131,707 | ||||||
Derivative assets |
23,291 | 23,712 | ||||||
Securities: |
||||||||
Available-for-sale (includes $90,403 and $116,659 pledged as collateral) |
237,987 | 221,556 | ||||||
Held-to-maturity, at cost (market value - $86 and $47) |
86 | 47 | ||||||
Total securities |
238,073 | 221,603 | ||||||
Loans and leases |
619,525 | 573,791 | ||||||
Allowance for loan and lease losses |
(9,067 | ) | (8,045 | ) | ||||
Loans and leases, net of allowance |
610,458 | 565,746 | ||||||
Premises and equipment, net |
9,267 | 7,786 | ||||||
Mortgage servicing rights (includes $2,925 measured at fair value at March 31, 2006) |
3,070 | 2,806 | ||||||
Goodwill |
66,271 | 45,354 | ||||||
Core deposit intangibles and other intangibles |
10,681 | 3,194 | ||||||
Other assets |
115,975 | 90,311 | ||||||
Total assets |
$ | 1,375,080 | $ | 1,291,803 | ||||
Liabilities |
||||||||
Deposits in domestic offices: |
||||||||
Noninterest-bearing |
$ | 179,358 | $ | 179,571 | ||||
Interest-bearing |
415,769 | 384,155 | ||||||
Deposits in foreign offices: |
||||||||
Noninterest-bearing |
6,874 | 7,165 | ||||||
Interest-bearing |
80,448 | 63,779 | ||||||
Total deposits |
682,449 | 634,670 | ||||||
Federal funds purchased and securities sold under agreements to repurchase |
236,919 | 240,655 | ||||||
Trading account liabilities |
51,100 | 50,890 | ||||||
Derivative liabilities |
15,541 | 15,000 | ||||||
Commercial paper and other short-term borrowings |
99,389 | 116,269 | ||||||
Accrued expenses and other liabilities (includes $395 and $395 of reserve for unfunded lending commitments) |
37,078 | 31,938 | ||||||
Long-term debt |
123,178 | 100,848 | ||||||
Total liabilities |
1,245,654 | 1,190,270 | ||||||
Commitments and contingencies (Notes 8 and 10) |
||||||||
Shareholders equity |
||||||||
Preferred stock, $0.01 par value; authorized - 100,000,000 shares; issued and outstanding - 1,090,189 shares |
271 | 271 | ||||||
Common stock and additional paid-in capital, $0.01 par value; authorized - 7,500,000,000 shares; issued and outstanding - 4,581,317,964 and 3,999,688,491 shares |
68,705 | 41,693 | ||||||
Retained earnings |
70,204 | 67,552 | ||||||
Accumulated other comprehensive income (loss) |
(8,981 | ) | (7,556 | ) | ||||
Other |
(773 | ) | (427 | ) | ||||
Total shareholders equity |
129,426 | 101,533 | ||||||
Total liabilities and shareholders equity |
$ | 1,375,080 | $ | 1,291,803 | ||||
See accompanying Notes to Consolidated Financial Statements.
3
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders Equity
Accumulated Other Comprehensive Income (Loss) (1) |
Other |
Total Shareholders Equity |
Comprehensive Income |
|||||||||||||||||||||||||||
Preferred Stock |
Common Stock and Paid-in Capital |
Retained Earnings |
||||||||||||||||||||||||||||
(Dollars in millions, shares in thousands) |
Shares | Amount | ||||||||||||||||||||||||||||
Balance, December 31, 2004 |
$ | 271 | 4,046,546 | $ | 44,236 | $ | 58,773 | $ | (2,764 | ) | $ | (281 | ) | $ | 100,235 | |||||||||||||||
Net income |
4,393 | 4,393 | $ | 4,393 | ||||||||||||||||||||||||||
Net unrealized losses on available-for-sale debt and marketable equity securities |
(1,541 | ) | (1,541 | ) | (1,541 | ) | ||||||||||||||||||||||||
Net unrealized losses on foreign currency translation adjustments |
(5 | ) | (5 | ) | (5 | ) | ||||||||||||||||||||||||
Net losses on derivatives |
(1,306 | ) | (1,306 | ) | (1,306 | ) | ||||||||||||||||||||||||
Cash dividends paid: |
||||||||||||||||||||||||||||||
Common |
(1,830 | ) | (1,830 | ) | ||||||||||||||||||||||||||
Preferred |
(5 | ) | (5 | ) | ||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits |
31,987 | 1,343 | (344 | ) | 999 | |||||||||||||||||||||||||
Common stock repurchased |
(43,214 | ) | (1,990 | ) | (1,990 | ) | ||||||||||||||||||||||||
Other |
(22 | ) | (1 | ) | (23 | ) | (1 | ) | ||||||||||||||||||||||
Balance, March 31, 2005 |
$ | 271 | 4,035,319 | $ | 43,589 | $ | 61,309 | $ | (5,617 | ) | $ | (625 | ) | $ | 98,927 | $ | 1,540 | |||||||||||||
Balance, December 31, 2005 |
$ | 271 | 3,999,688 | $ | 41,693 | $ | 67,552 | $ | (7,556 | ) | $ | (427 | ) | $ | 101,533 | |||||||||||||||
Net income |
4,986 | 4,986 | $ | 4,986 | ||||||||||||||||||||||||||
Net unrealized losses on available-for-sale debt and marketable equity securities |
(2,019 | ) | (2,019 | ) | (2,019 | ) | ||||||||||||||||||||||||
Net unrealized gains on foreign currency translation adjustments |
42 | 42 | 42 | |||||||||||||||||||||||||||
Net gains on derivatives |
552 | 552 | 552 | |||||||||||||||||||||||||||
Cash dividends paid: |
||||||||||||||||||||||||||||||
Common |
(2,329 | ) | (2,329 | ) | ||||||||||||||||||||||||||
Preferred |
(5 | ) | (5 | ) | ||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits |
38,935 | 1,704 | (346 | ) | 1,358 | |||||||||||||||||||||||||
Stock issued in acquisition (2) |
631,145 | 29,377 | 29,377 | |||||||||||||||||||||||||||
Common stock repurchased |
(88,450 | ) | (4,069 | ) | (4,069 | ) | ||||||||||||||||||||||||
Balance, March 31, 2006 |
$ | 271 | 4,581,318 | $ | 68,705 | $ | 70,204 | $ | (8,981 | ) | $ | (773 | ) | $ | 129,426 | $ | 3,561 | |||||||||||||
(1) | At March 31, 2006 and December 31, 2005, Accumulated Other Comprehensive Income (Loss) includes Net Unrealized Gains (Losses) on Available-for-sale (AFS) Debt and Marketable Equity Securities of $(4,997) million and $(2,978) million; Net Unrealized Gains (Losses) on Foreign Currency Translation Adjustments of $(80) million and $(122) million; Net Gains (Losses) on Derivatives of $(3,786) million and $(4,338) million; and Other of $(118) million and $(118) million. Amounts shown are net of tax. For additional information on Accumulated OCI, see Note 11 of the Consolidated Financial Statements. |
(2) | Includes adjustment for the fair value of outstanding MBNA Corporation (MBNA) stock options of $435 million. |
See accompanying Notes to Consolidated Financial Statements
4
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Operating activities |
||||||||
Net income |
$ | 4,986 | $ | 4,393 | ||||
Reconciliation of net income to net cash provided by (used in) operating activities: |
||||||||
Provision for credit losses |
1,270 | 580 | ||||||
Gains on sales of debt securities |
(14 | ) | (659 | ) | ||||
Depreciation and premises improvements amortization |
278 | 240 | ||||||
Amortization of intangibles |
440 | 208 | ||||||
Deferred income tax expense (benefit) |
326 | (267 | ) | |||||
Net (increase) decrease in trading and derivative instruments |
18,388 | (12,697 | ) | |||||
Net (increase) decrease in other assets |
(15,790 | ) | 4,283 | |||||
Net increase (decrease) in accrued expenses and other liabilities |
487 | (4,489 | ) | |||||
Stock-based compensation expense |
479 | 193 | ||||||
Other operating activities, net |
(2,352 | ) | (3,669 | ) | ||||
Net cash provided by (used in) operating activities |
8,498 | (11,884 | ) | |||||
Investing activities |
||||||||
Net decrease in time deposits placed and other short-term investments |
2,671 | 1,138 | ||||||
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell |
12,704 | (48,036 | ) | |||||
Proceeds from sales of available-for-sale securities |
7,032 | 38,451 | ||||||
Proceeds from maturities of available-for-sale securities |
5,357 | 10,181 | ||||||
Purchases of available-for-sale securities |
(26,548 | ) | (74,552 | ) | ||||
Proceeds from maturities of held-to-maturity securities |
| 55 | ||||||
Proceeds from sales of loans and leases |
6,819 | 1,113 | ||||||
Other changes in loans and leases, net |
(16,442 | ) | (9,574 | ) | ||||
Additions to mortgage servicing rights, net |
(149 | ) | (168 | ) | ||||
Net (purchases) dispositions of premises and equipment |
140 | (254 | ) | |||||
Proceeds from sales of foreclosed properties |
32 | 26 | ||||||
Net cash paid for business acquisitions |
(3,519 | ) | | |||||
Other investing activities, net |
(231 | ) | (72 | ) | ||||
Net cash used in investing activities |
(12,134 | ) | (81,692 | ) | ||||
Financing activities |
||||||||
Net increase in deposits |
19,021 | 11,417 | ||||||
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase |
(4,521 | ) | 67,911 | |||||
Net increase (decrease) in commercial paper and other short-term borrowings |
(18,828 | ) | 14,842 | |||||
Proceeds from issuance of long-term debt |
10,197 | 4,768 | ||||||
Retirement of long-term debt |
(1,330 | ) | (2,702 | ) | ||||
Proceeds from issuance of common stock |
948 | 987 | ||||||
Common stock repurchased |
(4,069 | ) | (1,990 | ) | ||||
Cash dividends paid |
(2,334 | ) | (1,835 | ) | ||||
Excess tax benefits of share-based payments |
75 | | ||||||
Other financing activities, net |
50 | (37 | ) | |||||
Net cash provided by (used in) financing activities |
(791 | ) | 93,361 | |||||
Effect of exchange rate changes on cash and cash equivalents |
3 | (23 | ) | |||||
Net decrease in cash and cash equivalents |
(4,424 | ) | (238 | ) | ||||
Cash and cash equivalents at January 1 |
36,999 | 28,936 | ||||||
Cash and cash equivalents at March 31 |
$ | 32,575 | $ | 28,698 | ||||
There were no net transfers of Loans and Leases from the loan portfolio to loans held-for-sale (included in Other Assets) during the three months ended March 31, 2006. There were $114 million related transfers during the three months ended March 31, 2005.
The fair values of noncash assets acquired and liabilities assumed in the merger with MBNA were $83.6 billion and $50.7 billion.
Approximately 631 million shares of common stock, valued at approximately $28.9 billion were issued in connection with the merger with MBNA.
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 U.S. and in selected international markets. At March 31, 2006, the Corporation operated its banking activities primarily under three charters: Bank of America, National Association (Bank of America, N.A.), Bank of America, N.A. (USA), and MBNA America Bank, N.A.
On January 1, 2006, the Corporation acquired 100 percent of the outstanding stock of MBNA Corporation (MBNA) (the MBNA Merger). The MBNA Merger was accounted for under the purchase method of accounting. Consequently, MBNAs results of operations were included in the Corporations results beginning as of January 1, 2006.
Note 1 - Summary of Significant Accounting Principles
Principles of Consolidation and Basis of Presentation
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.
The information contained in the Consolidated Financial Statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair statement of the interim period results have been made. Results of operations of companies purchased are included from the dates of acquisition.
As indicated in the Corporations 2005 Annual Report on Form 10-K, certain historical financial statements and other selected financial data were restated to comply with the accounting treatment for certain derivative transactions under the Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133). For additional information on this restatement, see Note 1 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
As part of its credit portfolio management, the Corporation purchases credit protection through credit derivatives. Effective January 1, 2006, the Corporation classifies the impact of these credit derivatives that economically hedge the portfolio in Other Income. Prior to January 1, 2006, the impact was classified in Trading Account Profits. Prior period amounts have been reclassified to conform to current period presentation.
Recently Issued or Proposed Accounting Pronouncements
On March 31, 2006, the Financial Accounting Standards Board (FASB) issued an exposure draft, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R). The exposure draft requires the recognition of a plans over-funded or under-funded status as an asset or liability and an adjustment to accumulated other comprehensive income. Additionally, the exposure draft requires determination of the fair values of a plans assets at a companys year-end and recognition of actuarial gains and losses, and prior service costs and credits, as a component of other comprehensive income. The exposure draft is expected to be effective December 31, 2006. If the provisions in this exposure draft had been applied as of December 31, 2005, Shareholders Equity would have been reduced by approximately $2.9 billion before tax and approximately $1.9 billion after tax. For additional information on the Corporations pension and postretirement plans, see Note 16 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
On March 17, 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (SFAS 156), which permits, but does not require, an entity to account for one or more classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at fair value, with the changes in fair value recorded in the Consolidated Statement of Income. The Corporation elected to early adopt the standard and to account for consumer MSRs using the fair value measurement method on January 1, 2006. Commercial related MSRs continue to be accounted for using the amortization method (i.e. lower of cost or market). The adoption of this standard did not have a material impact on the Corporations results of operations or financial condition. For additional information on MSRs, see Note 7 of the Consolidated Financial Statements.
6
On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155), which permits, but does not require, fair value accounting for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation in accordance with SFAS 133. The statement also subjects beneficial interests issued by securitization vehicles to the requirements of SFAS 133. The statement is effective as of January 1, 2007, with earlier adoption permitted. The adoption of SFAS No. 155 will not have a material impact on the Corporations results of operations and financial condition.
Effective January 1, 2006, the Corporation adopted SFAS No. 123 (revised 2004) Share-based Payment (SFAS 123R). Previously, the Corporation accounted for stock-based employee compensation under the fair value-based method of accounting. For additional information on stock-based employee compensation, see Note 13 of the Consolidated Financial Statements.
For additional information on recently issued accounting pronouncements and other significant accounting principles, see Note 1 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
Note 2 MBNA Merger and Restructuring Activity
The Corporation acquired 100 percent of the outstanding stock of MBNA on January 1, 2006 under the terms of the MBNA Merger. As a result, 1,260 million shares of MBNA common stock were exchanged for 631 million shares of the Corporations common stock. Prior to the MBNA Merger, this represented approximately 16 percent of the Corporations outstanding common stock. MBNA shareholders also received cash of $5.2 billion. The MBNA Merger was a tax-free merger for the Corporation. The acquisition expands the Corporations customer base and its opportunity to deepen customer relationships across the full breadth of the Corporation by delivering innovative deposit, lending and investment products and services to MBNAs customer base. Additionally, the acquisition allows the Corporation to significantly increase its affinity relationships through MBNAs credit card operations and sell these credit cards through its delivery channels (including the retail branch network). MBNAs results of operations were included in the Corporations results beginning January 1, 2006.
7
The MBNA Merger was accounted for under the purchase method of accounting in accordance with SFAS No. 141, Business Combinations. The purchase price has been allocated to the assets acquired and the liabilities assumed based on their estimated fair values at the MBNA Merger date as summarized below. This allocation is based on managements current estimation and could change as the fair value calculations are finalized and more information becomes available.
(In millions, except per share amounts) |
|||||||
Purchase price |
|||||||
Purchase price per share of the Corporations common stock (1) |
$ | 45.856 | |||||
Exchange ratio |
0.5009 | ||||||
Purchase price per share of the Corporations common stock exchanged |
$ | 22.969 | |||||
Cash portion of the MBNA Merger consideration |
4.125 | ||||||
Implied value of one share of MBNA common stock |
27.094 | ||||||
MBNA common stock exchanged |
1,260 | ||||||
Total value of the Corporations common stock and cash exchanged |
$ | 34,139 | |||||
Fair value of outstanding stock options and direct acquisition costs |
467 | ||||||
Total purchase price |
$ | 34,606 | |||||
Allocation of the purchase price |
|||||||
MBNA stockholders equity |
$ | 13,410 | |||||
MBNA goodwill and other intangible assets |
(3,564 | ) | |||||
Adjustments to reflect assets acquired and liabilities assumed at fair value: |
|||||||
Loans and leases |
(270 | ) | |||||
Premises and equipment |
(549 | ) | |||||
Identified intangibles (2) |
7,886 | ||||||
Other assets |
(901 | ) | |||||
Deposits |
(97 | ) | |||||
Exit and termination liabilities |
(468 | ) | |||||
Other personnel-related liabilities |
(685 | ) | |||||
Other liabilities and deferred income taxes |
(603 | ) | |||||
Long-term debt |
(409 | ) | |||||
Estimated fair value of net assets acquired |
13,750 | ||||||
Estimated goodwill resulting from the MBNA Merger (3) |
$ | 20,856 | |||||
(1) | The value of the shares of common stock exchanged with MBNA shareholders was based upon the average of the closing prices of the Corporations common stock for the period commencing two trading days before, and ending two trading days after, June 30, 2005, the date of the MBNA Merger Agreement. |
(2) | Includes purchased credit card relationships of $5,698 million, affinity relationships of $1,642 million, core deposit intangibles of $214 million, and other intangibles of $332 million. The amortization life for core deposit intangibles is 10 years, and purchased credit card relationships and affinity relationships are 15 years. |
(3) | No Goodwill is expected to be deductible for tax purposes. Substantially all Goodwill was allocated to Global Consumer and Small Business Banking. |
As a result of the MBNA Merger, the Corporation acquired certain loans for which there was, at the time of the merger, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. These loans were accounted for in accordance with Statement of Position No. 03-3 Accounting for Certain Loans or Debt Securities Acquired in a Transfer, which requires that purchased impaired loans be recorded at fair value at the time of acquisition. The purchase accounting adjustment to reduce impaired loans to fair value results in an increase in Goodwill. In addition, an adjustment was made to the allowance for loan and lease losses for those impaired loans resulting in a decrease in Goodwill. The outstanding balance and fair value of such loans was approximately $1.3 billion and $940 million as of the merger date. At March 31, 2006 the outstanding balance of such loans was approximately $465 million.
8
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information presents the results of operations of the Corporation had the Merger taken place at January 1, 2005. For more information on the unaudited pro forma condensed combined financial information, refer to the Corporations Current Report on Form 8-K filed on April 10, 2006.
(Dollars in millions) |
Pro Forma Ended March 31, | ||
Net interest income |
$ | 8,341 | |
Noninterest income |
7,775 | ||
Provision for credit losses |
882 | ||
Gains on sales of debt securities |
659 | ||
Merger and restructuring charges |
880 | ||
Other noninterest expense |
8,399 | ||
Income before income taxes |
6,614 | ||
Net income |
4,437 |
Merger and Restructuring Charges in the above table includes a nonrecurring restructuring charge related to legacy MBNA of $768 million. Pro forma Earnings Per Common Share and Diluted Earnings Per Common Share were $0.95 and $0.94 for the three months ended March 31, 2005.
Merger and Restructuring Charges
Merger and Restructuring Charges are recorded in the Consolidated Statement of Income, and include incremental costs to integrate the operations of the Corporation and MBNA. These charges represent costs associated with these one-time activities and do not represent ongoing costs of the fully integrated combined organization. The following table presents severance and employee-related charges, systems integrations and related charges, and other merger related charges. For a discussion of the prior year Merger and Restructuring Charges related to FleetBoston, see Note 2 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
(Dollars in millions) |
Three Months Ended March 31, | ||
Severance and employee-related charges |
$ | 20 | |
Systems integrations and related charges |
48 | ||
Other |
30 | ||
Total merger and restructuring charges |
$ | 98 | |
Exit Costs and Restructuring Reserves
On January 1, 2006, liabilities of $468 million for MBNAs exit and termination costs were recorded as purchase accounting adjustments resulting in an increase in Goodwill. Included in the $468 million were $409 million for severance, relocation and other employee-related expenses and $59 million for contract terminations. Cash payments of $22 million were charged against this liability during the first quarter, including $2 million of severance, relocation and other employee-related costs, and $20 million of contract terminations reducing the balance in the liability to $446 million at March 31, 2006.
Restructuring reserves were established for legacy Bank of America associate severance, other employee-related expenses, and contract terminations. During the quarter, $13 million was recorded to the restructuring reserves related to associate severance and other employee-related expenses, and another $21 million for contract terminations.
9
Payments under exit costs and restructuring reserves associated with the MBNA Merger are expected to be substantially complete by the end of 2007.
Exit Costs and Restructuring Reserves
Three Months Ended March 31, 2006 | |||||||
(Dollars in millions) |
Exit Costs Reserves (1) |
Restructuring Reserves (2) | |||||
Balance, December 31, 2005 |
$ | | $ | | |||
MBNA exit costs |
468 | | |||||
Restructuring charges |
| 34 | |||||
Cash payments |
(22 | ) | | ||||
Balance, March 31, 2006 |
$ | 446 | $ | 34 | |||
(1) | Exit costs reserves were established in purchase accounting resulting in an increase in Goodwill. |
(2) | Restructuring reserves were established by a charge to income. |
Note 3 - Trading Account Assets and Liabilities
The Corporation engages in a variety of trading-related activities that are either for clients or its own account.
The following table presents the fair values of the components of Trading Account Assets and Liabilities at March 31, 2006 and December 31, 2005.
(Dollars in millions) |
March 31 2006 |
December 31 2005 | ||||
Trading account assets |
||||||
Corporate securities, trading loans and other |
$ | 39,719 | $ | 46,554 | ||
U.S. government and agency securities (1) |
29,104 | 31,091 | ||||
Equity securities |
23,723 | 31,029 | ||||
Mortgage trading loans and asset-backed securities |
11,820 | 12,290 | ||||
Foreign sovereign debt |
12,815 | 10,743 | ||||
Total |
$ | 117,181 | $ | 131,707 | ||
Trading account liabilities |
||||||
U.S. government and agency securities (2) |
$ | 18,452 | $ | 23,179 | ||
Equity securities |
13,310 | 11,371 | ||||
Foreign sovereign debt |
9,040 | 8,915 | ||||
Corporate securities and other |
10,285 | 7,407 | ||||
Mortgage trading loans and asset-backed securities |
13 | 18 | ||||
Total |
$ | 51,100 | $ | 50,890 | ||
(1) | Includes $20.8 billion at March 31, 2006 and $22.1 billion at December 31, 2005 of government-sponsored enterprise obligations that are not backed by the full faith and credit of the U.S. government. |
(2) | Includes $1.1 billion at March 31, 2006 and $1.4 billion at December 31, 2005 of government-sponsored enterprise obligations that are not backed by the full faith and credit of the U.S. government. |
Note 4 - Derivatives
All derivatives are recognized on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics.
10
The Corporation designates at inception whether the derivative contract is considered hedging or non-hedging for Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133) accounting purposes. Non-hedging derivatives held for trading purposes are included in Derivative Assets or Derivative Liabilities with changes in fair value reflected in Trading Account Profits. Other non-hedging derivatives that are considered economic hedges, but not designated in a hedging relationship for accounting purposes, are also included in Derivative Assets or Derivative Liabilities with changes in fair value recorded in Mortgage Banking Income or Other Income on the Consolidated Statement of Income. A detailed discussion of derivative trading activities and Asset and Liability Management (ALM) activities are presented in Note 5 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
The following table presents the contract/notional amounts and credit risk amounts at March 31, 2006 and December 31, 2005 of all the Corporations derivative positions. These derivative positions are primarily executed in the over-the-counter market. Credit risk associated with derivatives is measured as the net replacement cost in the event the counterparties with contracts in a gain position to the Corporation completely fail to perform under the terms of those contracts. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements, and on an aggregate basis have been reduced by the cash collateral applied against Derivative Assets. At both March 31, 2006 and December 31, 2005, the cash collateral applied against Derivative Assets on the Consolidated Balance Sheet was $9.3 billion. In addition, at March 31, 2006 and December 31, 2005, the cash collateral placed against Derivative Liabilities was $6.9 billion and $7.6 billion.
Derivatives (1)
March 31, 2006 | December 31, 2005 | |||||||||||
(Dollars in millions) |
Contract/ Notional |
Credit Risk |
Contract/ Notional |
Credit Risk | ||||||||
Interest rate contracts |
||||||||||||
Swaps |
$ | 15,792,608 | $ | 11,751 | $ | 14,401,577 | $ | 11,085 | ||||
Futures and forwards |
2,559,817 | 105 | 2,113,717 | | ||||||||
Written options |
1,021,106 | | 900,036 | | ||||||||
Purchased options |
966,694 | 3,266 | 869,471 | 3,345 | ||||||||
Foreign exchange contracts |
||||||||||||
Swaps |
353,358 | 3,383 | 333,487 | 3,735 | ||||||||
Spot, futures and forwards |
1,067,210 | 1,974 | 944,321 | 2,481 | ||||||||
Written options |
308,482 | | 214,668 | | ||||||||
Purchased options |
320,435 | 1,335 | 229,049 | 1,214 | ||||||||
Equity contracts |
||||||||||||
Swaps |
29,827 | 524 | 28,287 | 548 | ||||||||
Futures and forwards |
8,171 | 44 | 6,479 | 44 | ||||||||
Written options |
77,160 | | 69,048 | | ||||||||
Purchased options |
71,349 | 7,368 | 57,693 | 6,729 | ||||||||
Commodity contracts |
||||||||||||
Swaps |
4,586 | 1,790 | 8,809 | 2,475 | ||||||||
Futures and forwards |
6,679 | | 5,533 | | ||||||||
Written options |
6,550 | | 7,854 | | ||||||||
Purchased options |
2,849 | 445 | 3,673 | 546 | ||||||||
Credit derivatives (2) |
813,327 | 651 | 722,190 | 766 | ||||||||
Credit risk before cash collateral |
32,636 | 32,968 | ||||||||||
Less: Cash collateral applied |
9,345 | 9,256 | ||||||||||
Total derivative assets |
$ | 23,291 | $ | 23,712 | ||||||||
(1) | Includes long and short derivative positions. |
(2) | The December 31, 2005 notional amount has been restated to conform with new regulatory guidance, which defined the notional as the contractual loss protection for structured basket transactions. |
11
The average fair value of Derivative Assets for the three months ended March 31, 2006 and December 31, 2005 was $22.6 billion and $25.2 billion. The average fair value of Derivative Liabilities for the three months ended March 31, 2006 and December 31, 2005 was $15.2 billion and $16.9 billion.
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 assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). During the next 12 months, net losses on derivative instruments included in Accumulated OCI of approximately $486 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.
The following table summarizes certain information related to the Corporations derivative hedges accounted for under SFAS 133 for the three months ended March 31, 2006 and 2005:
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Fair value hedges |
||||||||
Hedge ineffectiveness recognized in earnings (1) |
$ | (19 | ) | $ | 5 | |||
Net gain excluded from assessment of effectiveness (2) |
| 6 | ||||||
Cash flow hedges |
||||||||
Hedge ineffectiveness recognized in earnings (3) |
(1 | ) | (2 | ) | ||||
Net investment hedges |
||||||||
Gains included in foreign currency translation adjustments within Accumulated OCI |
10 | 47 |
(1) | Included $(19) million recorded in Net Interest Income in the Consolidated Statement of Income for the three months ended March 31, 2006. Included $5 million recorded in Mortgage Banking Income for the three months ended March 31, 2005. |
(2) | Included $6 million recorded in Mortgage Banking Income in the Consolidated Statement of Income for the three months ended March 31, 2005. |
(3) | Included $(1) million and $4 million recorded in Net Interest Income and $0 and $(6) million recorded in Mortgage Banking Income in the Consolidated Statement of Income for the three months ended March 31, 2006 and 2005. |
12
Note 5 - Outstanding Loans and Leases
Outstanding loans and leases at March 31, 2006 and December 31, 2005 were:
(Dollars in millions) |
March 31 2006 |
December 31 2005 | ||||
Consumer |
||||||
Residential mortgage |
$ | 188,261 | $ | 182,596 | ||
Credit card - domestic |
64,490 | 58,548 | ||||
Credit card - foreign |
7,789 | | ||||
Home equity lines |
65,516 | 62,098 | ||||
Direct/Indirect consumer |
55,127 | 45,490 | ||||
Other consumer (1) |
10,528 | 6,725 | ||||
Total consumer |
391,711 | 355,457 | ||||
Commercial |
||||||
Commercial - domestic |
146,737 | 140,533 | ||||
Commercial real estate (2) |
36,337 | 35,766 | ||||
Commercial lease financing |
20,813 | 20,705 | ||||
Commercial - foreign |
23,927 | 21,330 | ||||
Total commercial |
227,814 | 218,334 | ||||
Total |
$ | 619,525 | $ | 573,791 | ||
(1) | Includes consumer finance of $3.0 billion and $2.8 billion; foreign consumer of $7.6 billion and $3.8 billion; and consumer lease financing of $18 million and $35 million at March 31, 2006 and December 31, 2005. |
(2) | Includes domestic commercial real estate loans of $35.7 billion and $35.2 billion; and foreign commercial real estate loans of $671 million and $585 million at March 31, 2006 and December 31, 2005. |
The following table presents the recorded loan amounts, without consideration for the specific component of the Allowance for Loan and Lease Losses, that were considered individually impaired in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, (SFAS 114) at March 31, 2006 and December 31, 2005. SFAS 114 impairment includes performing troubled debt restructurings and excludes all commercial leases.
(Dollars in millions) |
March 31 2006 |
December 31 2005 | ||||
Commercial - domestic |
$ | 668 | $ | 613 | ||
Commercial real estate |
72 | 49 | ||||
Commercial - foreign |
43 | 34 | ||||
Total impaired loans |
$ | 783 | $ | 696 | ||
At March 31, 2006 and December 31, 2005, nonperforming loans and leases, including impaired loans and nonaccrual consumer loans, totaled $1.6 billion and $1.5 billion. In addition, included in Other Assets were nonperforming loans held-for-sale of $62 million and $50 million at March 31, 2006 and December 31, 2005.
13
Note 6 - Allowance for Credit Losses
The following table summarizes the changes in the allowance for credit losses for the three months ended March 31, 2006 and 2005:
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Allowance for loan and lease losses, January 1 |
$ | 8,045 | $ | 8,626 | ||||
MBNA balance, January 1, 2006 |
577 | | ||||||
Loans and leases charged off |
(1,117 | ) | (1,158 | ) | ||||
Recoveries of loans and leases previously charged off |
295 | 269 | ||||||
Net charge-offs |
(822 | ) | (889 | ) | ||||
Provision for loan and lease losses |
1,270 | 588 | ||||||
Other |
(3 | ) | (12 | ) | ||||
Allowance for loan and lease losses, March 31 |
9,067 | 8,313 | ||||||
Reserve for unfunded lending commitments, January 1 |
395 | 402 | ||||||
Provision for unfunded lending commitments |
| (8 | ) | |||||
Reserve for unfunded lending commitments, March 31 |
395 | 394 | ||||||
Total allowance for credit losses |
$ | 9,462 | $ | 8,707 | ||||
Note 7 Mortgage Servicing Rights
Effective January 1, 2006, the Corporation accounts for consumer MSRs at fair value with changes in fair value recorded in the Consolidated Statement of Income. Prior to January 1, 2006, MSRs were accounted for on a lower of cost or market basis and hedged with derivatives that qualified for SFAS 133 hedge accounting.
The following table presents activity for consumer-related MSRs for the three months ended March 31, 2006 and 2005.
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Balance, January 1 |
$ | 2,673 | $ | 2,358 | ||||
Additions |
143 | 165 | ||||||
Loss in market value from customer payments |
(171 | ) | | |||||
Amortization |
| (144 | ) | |||||
Other changes in MSR market value (1) |
280 | | ||||||
Valuation adjustment of MSRs (2) |
| 168 | ||||||
Balance, March 31 (3) |
$ | 2,925 | $ | 2,547 | ||||
(1) | Reflects changes in discount rates and prepayment speed assumptions, mostly due to changes in interest rates. |
(2) | For the three months ended March 31, 2005, includes $150 million related to change in value attributed to SFAS 133 hedged MSRs and $18 million of net recoveries. |
(3) | Net of impairment allowance of $236 million at March 31, 2005. |
The key economic assumptions used in valuations of MSRs included modeled prepayment rates and resultant weighted average lives of the MSRs and the option adjusted spread levels. Commercial MSRs are accounted for using the amortization method (i.e. lower of cost or market). Commercial MSRs were $145 million and $148 million at March 31, 2006 and December 31, 2005 and are not included in the table above.
14
Note 8 - Securitizations
The Corporation securitizes assets and may continue to hold 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 interests that continue to be held by a transferor in the securitized assets. Those assets may be serviced by the Corporation or by third parties. The Corporation also uses other special purpose financing entities to access the commercial paper market and for other lending, leasing and real estate activities.
As a result of the MBNA Merger, the Corporation acquired interests in credit card, consumer, and commercial loan securitization vehicles. Their aggregate debt securities outstanding as of January 1, 2006 was $81.6 billion in credit card, $5.6 billion in consumer, and $1.5 billion in commercial. These interests include interest-only strips, subordinated tranches, cash reserve accounts, and subordinated accrued interest receivable. Changes in the fair value of the interest-only strips are recorded in earnings.
Key economic assumptions used in measuring the fair value of certain interests that continue to be held by the Corporation (included in Other Assets) in credit card securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are as follows:
Credit Card Data
(Dollars in millions) |
March 31 2006 |
December 31 2005 |
||||||
Carrying amount of residual interests (at fair value) (1) |
$ | 2,451 | $ | 203 | ||||
Balance of unamortized securitized loans |
87,154 | 2,237 | ||||||
Weighted average life to call or maturity (in years) |
0.3 | 0.5 | ||||||
Revolving structures - payment rate |
12.2-20.0 | % | 12.1 | % | ||||
Impact on fair value of 100 bps favorable change |
$ | 22 | $ | 2 | ||||
Impact on fair value of 200 bps favorable change |
46 | 3 | ||||||
Impact on fair value of 100 bps adverse change |
(18 | ) | (2 | ) | ||||
Impact on fair value of 200 bps adverse change |
(35 | ) | (3 | ) | ||||
Expected credit losses (annual rate) |
3.6-5.1 | % | 4.0-4.3 | % | ||||
Impact on fair value of 10% favorable change |
$ | 92 | $ | 3 | ||||
Impact on fair value of 25% favorable change |
228 | 8 | ||||||
Impact on fair value of 10% adverse change |
(84 | ) | (3 | ) | ||||
Impact on fair value of 25% adverse change |
(198 | ) | (8 | ) | ||||
Residual cash flows discount rate (annual rate) |
12.0 | % | 12.0 | % | ||||
Impact on fair value of 100 bps favorable change |
$ | 8 | $ | | ||||
Impact on fair value of 200 bps favorable change |
11 | | ||||||
Impact on fair value of 100 bps adverse change |
(12 | ) | | |||||
Impact on fair value of 200 bps adverse change |
(23 | ) | |
(1) | Residual interests include interest-only strips, one or more subordinated tranches, accrued interest receivable, and in some cases, a cash reserve account. |
15
The sensitivities in the preceding table are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of an interest that continues to be held by the Corporation is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Additionally, the Corporation has the ability to hedge interest rate risk associated with retained residual positions. The above sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk. The other consumer and commercial loan securitization vehicles acquired with MBNA were not material to the Corporation.
Proceeds from collections reinvested in revolving credit card securitizations were $38.8 billion and $0.5 billion for the three months ended March 31, 2006 and 2005. Credit card servicing fee income totaled $440 million and $34 million for the three months ended March 31, 2006 and 2005. Other cash flows received on interests that continued to be held by the Corporation were $1.8 billion and $75 million for the three months ended March 31, 2006 and 2005, for credit card securitizations.
The Corporation reviews its loans and leases portfolio on a managed basis. Managed loans and leases are defined as on-balance sheet Loans and Leases as well as those loans in revolving securitizations and other securitizations where servicing is retained that are undertaken for liquidity or other corporate purposes, which include credit card, home equity lines, commercial loans, auto and certain mortgage securitizations. Managed loans and leases excludes originate-to-distribute loans and other loans in securitizations where the Corporation has not retained servicing. New advances on accounts for which previous loan balances were sold to the securitization trusts will be recorded on the Corporations Consolidated Balance Sheet after the revolving period of the securitization, which has the effect of increasing Loans and Leases on the Corporations Consolidated Balance Sheet and increasing Net Interest Income and charge-offs, with a corresponding reduction in Noninterest Income. Portfolio balances, delinquency and historical loss amounts of the managed loans and leases portfolio as of March 31, 2006, and December 31, 2005, and for the three months ended March 31, 2006 and 2005 were as follows:
March 31, 2006 | December 31, 2005 (1) | |||||||||||||||||||
(Dollars in millions) |
Total Loans and |
Accruing Loans and Leases Past Due or More |
Nonperforming Leases |
Total Loans and Leases |
Accruing Loans and Leases Past Due or More |
Nonperforming Leases | ||||||||||||||
Residential mortgage |
$ | 193,730 | $ | | $ | 538 | $ | 188,502 | $ | | $ | 570 | ||||||||
Credit card - domestic |
136,785 | 2,810 | | 60,785 | 1,217 | | ||||||||||||||
Credit card - foreign |
22,648 | 484 | | | | | ||||||||||||||
Home equity lines |
65,930 | 3 | 124 | 62,553 | 3 | 117 | ||||||||||||||
Direct/Indirect consumer |
64,699 | 326 | 34 | 49,486 | 75 | 37 | ||||||||||||||
Other consumer |
10,528 | 36 | 92 | 6,725 | 15 | 61 | ||||||||||||||
Total consumer |
494,320 | 3,659 | 788 | 368,051 | 1,310 | 785 | ||||||||||||||
Commercial - domestic |
150,181 | 159 | 631 | 142,437 | 117 | 581 | ||||||||||||||
Commercial real estate |
36,337 | 11 | 72 | 35,766 | 4 | 49 | ||||||||||||||
Commercial lease financing |
20,813 | 12 | 53 | 20,705 | 15 | 62 | ||||||||||||||
Commercial - foreign |
23,927 | 1 | 43 | 21,330 | 32 | 34 | ||||||||||||||
Total commercial |
231,258 | 183 | 799 | 220,238 | 168 | 726 | ||||||||||||||
Total managed loans and leases |
725,578 | $ | 3,842 | $ | 1,587 | 588,289 | $ | 1,478 | $ | 1,511 | ||||||||||
Managed loans in securitizations |
(106,053 | ) | (14,498 | ) | ||||||||||||||||
Total held loans and leases |
$ | 619,525 | $ | 573,791 | ||||||||||||||||
(1) | The amounts for December 31, 2005 have been restated to include certain mortgage and auto securitizations as these are now included in the Corporations definition of managed loans. |
16
Three Months Ended March 31, 2006 | Three Months Ended March 31, 2005 (1) | |||||||||||||||||||||
(Dollars in millions) |
Average Loans and Leases Outstanding |
Loans and Leases Net Losses |
Net Loss Ratio (2) |
Average Loans and Leases Outstanding |
Loans and Leases Net Losses |
Net Loss Ratio (2) |
||||||||||||||||
Residential mortgage |
$ | 190,317 | $ | 10 | 0.02 | % | $ | 181,538 | $ | 4 | 0.01 | % | ||||||||||
Credit card - domestic |
139,355 | 1,073 | 3.12 | 58,145 | 884 | 6.17 | ||||||||||||||||
Credit card - foreign |
22,783 | 173 | 3.08 | | | | ||||||||||||||||
Home equity lines |
64,628 | 9 | 0.06 | 52,073 | 6 | 0.05 | ||||||||||||||||
Direct/Indirect consumer |
64,587 | 134 | 0.85 | 43,115 | 66 | 0.61 | ||||||||||||||||
Other consumer |
10,357 | 42 | 1.67 | 7,305 | 56 | 3.12 | ||||||||||||||||
Total consumer |
492,027 | 1,441 | 1.19 | 342,176 | 1,016 | 1.20 | ||||||||||||||||
Commercial - domestic |
148,142 | 63 | 0.17 | 127,154 | 26 | 0.08 | ||||||||||||||||
Commercial real estate |
36,676 | (1 | ) | (0.01 | ) | 33,016 | | | ||||||||||||||
Commercial lease financing |
20,512 | (23 | ) | (0.45 | ) | 20,745 | 25 | 0.48 | ||||||||||||||
Commercial - foreign |
23,139 | 1 | 0.01 | 17,570 | (29 | ) | (0.66 | ) | ||||||||||||||
Total commercial |
228,469 | 40 | 0.07 | 198,485 | 22 | 0.04 | ||||||||||||||||
Total managed loans and leases |
720,496 | $ | 1,481 | 0.84 | % | 540,661 | $ | 1,038 | 0.78 | % | ||||||||||||
Managed loans in securitizations |
(104,528 | ) | (15,740 | ) | ||||||||||||||||||
Total held loans and leases |
$ | 615,968 | $ | 524,921 | ||||||||||||||||||
(1) | The amounts for the three months ended March 31, 2005 have been restated to include certain mortgage and auto securitizations as these are now included in the Corporations definition of managed loans. |
(2) | The net loss ratio is calculated by dividing annualized managed loans and leases net losses by average managed loans and leases outstanding for each loan and lease category. |
Variable Interest Entities
At March 31, 2006 and December 31, 2005, the assets and liabilities of the Corporations multi-seller asset-backed commercial paper conduits that have been consolidated in accordance with FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 were reflected in Available-for-sale Securities, Other Assets, and Commercial Paper and Other Short-term Borrowings in Global Corporate and Investment Banking. As of March 31, 2006 and December 31, 2005, the Corporation held $8.4 billion and $6.6 billion of assets in these entities, and in the unlikely event that all of the assets in the VIEs become worthless, the Corporations maximum loss exposure associated with these entities including unfunded lending commitments would be approximately $10.6 billion and $8.3 billion. The Corporation also had contractual relationships with other consolidated VIEs that engage in leasing or lending activities or real estate joint ventures. As of March 31, 2006 and December 31, 2005, the amount of assets of these entities was $693 million and $750 million, and in the unlikely event that all of the assets in the VIEs become worthless, the Corporations maximum possible loss exposure would be $258 million and $212 million.
Additionally, the Corporation had significant variable interests in other VIEs that it did not consolidate because it was 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. These entities typically support the financing needs of the Corporations customers by facilitating their access to the commercial paper markets. The Corporation functions as administrator and provides either liquidity and letters of credit, or derivatives to the VIE. The Corporation also provides asset management and related services to other special purpose vehicles that engage in lending, investing, or real estate activities. Total assets of these entities at March 31, 2006 and December 31, 2005 were approximately $33.0 billion and $32.5 billion. Revenues associated with administration, liquidity, letters of credit and other services were approximately $29 million and $75 million for the three months ended March 31, 2006 and 2005. At March 31, 2006 and December 31, 2005, in the unlikely event that all of the assets in the VIEs become worthless, the Corporations maximum loss exposure associated with these VIEs would be approximately $27.7 billion and $26.7 billion, which is net of amounts syndicated.
17
Management does not believe losses resulting from its involvement with the entities discussed above will be material. See Notes 1 and 9 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K for additional discussion of securitizations and special purpose financing entities.
Note 9- Goodwill and Other Intangibles
The following table presents allocated Goodwill at March 31, 2006 and December 31, 2005 for each business segment and All Other.
(Dollars in millions) |
March 31 2006 |
December 31 2005 | ||||
Global Consumer and Small Business Banking |
$ | 39,355 | $ | 18,491 | ||
Global Corporate and Investment Banking |
21,304 | 21,292 | ||||
Global Wealth and Investment Management |
5,333 | 5,333 | ||||
All Other |
279 | 238 | ||||
Total |
$ | 66,271 | $ | 45,354 | ||
The gross carrying value and accumulated amortization related to core deposit intangibles and other intangibles at March 31, 2006 and December 31, 2005 are presented below:
March 31, 2006 | December 31, 2005 | |||||||||||
(Dollars in millions) |
Gross Carrying Value |
Accumulated Amortization |
Gross Carrying Value |
Accumulated Amortization | ||||||||
Purchase credit card relationships |
$ | 6,384 | $ | 411 | $ | 660 | $ | 217 | ||||
Core deposit intangibles |
3,865 | 2,004 | 3,661 | 1,881 | ||||||||
Affinity relationships |
1,642 | 50 | | | ||||||||
Other intangibles |
2,050 | 795 | 1,693 | 722 | ||||||||
Total |
$ | 13,941 | $ | 3,260 | $ | 6,014 | $ | 2,820 | ||||
For additional information on the impact of the MBNA Merger, see Note 2 of the Consolidated Financial Statements.
Amortization expense on core deposit intangibles and other intangibles was $440 million and $208 million for the three months ended March 31, 2006 and 2005. The Corporation estimates that aggregate amortization expense will be approximately $434 million, $433 million and $430 million for the second, third and fourth quarters of 2006, respectively. In addition the Corporation estimates the aggregate amortization expense will be approximately $1.5 billion, $1.3 billion, $1.2 billion, $1.0 billion, and $900 million for 2007, 2008, 2009, 2010 and 2011, respectively.
Note 10 - Commitments 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 instruments recorded on the Corporations Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit and commercial letters of credit to meet the financing needs of its customers. For additional information on commitments to extend credit, see Note 13 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
18
The outstanding unfunded lending commitments shown in the following table have been reduced by amounts participated to other financial institutions of $30.6 billion and $30.4 billion at March 31, 2006 and December 31, 2005. The carrying amount for these commitments, which represents the liability recorded related to these instruments, at March 31, 2006 and December 31, 2005 was $455 million and $458 million. At March 31, 2006, the carrying amount included deferred revenue of $60 million and a reserve for unfunded lending commitments of $395 million. At December 31, 2005, the carrying amount included deferred revenue of $63 million and a reserve for unfunded lending commitments of $395 million.
(Dollars in millions) |
March 31 2006 |
December 31 2005 | ||||
Loan commitments(1) |
$ | 312,823 | $ | 277,757 | ||
Home equity lines of credit |
84,174 | 78,626 | ||||
Standby letters of credit and financial guarantees |
43,147 | 43,095 | ||||
Commercial letters of credit |
4,992 | 5,154 | ||||
Legally binding commitments |
445,136 | 404,632 | ||||
Credit card lines(2) |
802,517 | 192,968 | ||||
Total |
$ | 1,247,653 | $ | 597,600 | ||
(1) | At March 31, 2006 and December 31, 2005, there were equity commitments of $1.3 billion and $1.4 billion, related to obligations to further fund Principal Investing equity investments. |
(2) | As part of the MBNA Merger, on January 1, 2006, the Corporation acquired $588.4 billion of unused credit lines. |
Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrowers ability to pay.
Other Commitments
At March 31, 2006 and December 31, 2005, charge cards (nonrevolving card lines) to individuals and government entities guaranteed by the U.S. government in the amount of $9.3 billion and $9.4 billion were not included in credit card line commitments in the previous table. The outstanding balances related to these charge cards were $227 million and $171 million at March 31, 2006 and December 31, 2005.
At March 31, 2006, the Corporation had whole mortgage loan purchase commitments of $445 million, all of which will settle in the second quarter of 2006. At December 31, 2005, the Corporation had whole mortgage loan purchase commitments of $4.0 billion, all of which settled in the first quarter of 2006.
The Corporation has entered into operating leases for certain of its premises and equipment. Commitments under these leases approximate $1.3 billion in 2006, $1.2 billion in 2007, $1.2 billion in 2008, $900 million in 2009, $750 million in 2010 and $5.0 billion for all years thereafter.
In 2005, the Corporation entered into an agreement for the committed purchase of retail automotive loans over a five-year period, ending June 30, 2010. In 2005, the Corporation purchased $5.0 billion of such loans and at March 31, 2006, the remaining commitment amount was $44.5 billion. For the three months ended March 31, 2006 the Corporation purchased $2.5 billion of such loans. Under the agreement, the Corporation is committed to purchase up to $4.5 billion of such loans for the period April 1, 2006 through June 30, 2006 and up to $10.0 billion in each of the agreements next four fiscal years.
Other Guarantees
The Corporation provides credit and debit card processing services to various merchants, processing credit and debit card transactions on their behalf. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholders favor and the merchant defaults upon its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to four months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the Corporation as the merchant processor. If the Corporation is unable to collect this amount from the merchant, it bears the loss for the amount paid to the cardholder. For the three months ended March 31, 2006 and 2005, the Corporation processed $88.3 billion and $75.8 billion of transactions and recorded losses as a result of these chargebacks of $4 million for both periods.
19
At March 31, 2006 and December 31, 2005, the Corporation held as collateral approximately $404 million and $248 million of merchant escrow deposits which the Corporation has the right to offset against amounts due from the individual merchants. The Corporation also has the right to offset any payments with cash flows otherwise due to the merchant. Accordingly, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last four months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of March 31, 2006 and December 31, 2005, the maximum potential exposure totaled approximately $116.3 billion and $118.2 billion.
For additional information on other guarantees, see Note 13 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K. For additional information on recourse obligations related to residential mortgage loans sold and other guarantees related to securitizations, see Note 9 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
Litigation and Regulatory Matters
The following disclosure supplements the disclosure in the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
Interchange Anti-Trust Litigation
In the In re Payment Card Interchange Fee and Merchant Discount Anti-Trust Litigation case, on April 24, 2006, plaintiffs filed a first consolidated and amended putative class action complaint realleging the claims in the original complaint and alleging, among other additional claims, that defendants violated federal and California antitrust laws by combining to impose certain fees and to adopt rules and practices of Visa and MasterCard that are alleged to constitute restraints of trade.
Pension Plan Matters
In the Donna C. Richards v. FleetBoston Financial Corp. and the FleetBoston Financial Pension Plan case, on March 31, 2006, the court granted defendants motion to dismiss in part and denied it in part. The court certified a class with respect to plaintiffs claims that (i) the cash balance benefit formula reduces the rate of benefit accrual on account of age, (ii) the participants did not receive proper notice of the alleged reduction of future benefit accrual, and (iii) the summary plan description was not adequate. On April 17, 2006, plaintiff filed an amended complaint again alleging the three claims as to which a class was certified and amending two claims the court had dismissed, which alleged violation of ERISAs anti-backloading rule and breach of fiduciary duty.
20
Note 11 - Shareholders Equity and Earnings Per Common Share
The following table presents share repurchase activity for the three months ended March 31, 2006 and 2005, including total common shares repurchased under announced programs, weighted average per share price and the remaining buyback authority under announced programs.
(Dollars in millions, except per share information; shares in thousands) |
Number of Common Shares Repurchased under Announced Programs (1) |
Weighted Average Per Share Price (1) |
Remaining Buyback Authority under Announced Programs (2) | |||||||
Amounts | Shares | |||||||||
January 1-31, 2006 |
4,500 | $ | 44.61 | $ | 9,717 | 149,688 | ||||
February 1-28, 2006 |
5,000 | 45.29 | 9,491 | 144,688 | ||||||
March 1-31, 2006 |
78,950 | 46.15 | 5,847 | 65,738 | ||||||
Three months ended March 31, 2006 |
88,450 | 46.02 | ||||||||
(Dollars in millions, except per share information; shares in thousands) |
Number of Common Shares Repurchased under Announced Programs (3) |
Weighted Average Per Share Price (3) |
Remaining Buyback Authority under Announced Programs (2) | |||||||
Amounts | Shares | |||||||||
January 1-31, 2005 |
9,637 | $ | 46.20 | $ | 4,233 | 70,988 | ||||
February 1-28, 2005 |
9,375 | 46.18 | 3,800 | 61,613 | ||||||
March 1-31, 2005 |
24,202 | 45.94 | 14,688 | 237,411 | ||||||
Three months ended March 31, 2005 |
43,214 | 46.05 | ||||||||
(1) | Reduced Shareholders Equity by $4.1 billion and increased diluted earnings per common share by $0.01 for the three months ended March 31, 2006. These repurchases were partially offset by the issuance of approximately 38.9 million shares of common stock under employee plans, which increased Shareholders Equity by $1.4 billion, net of $0.3 billion of deferred compensation related to restricted stock awards, and had no effect on diluted earnings per common share for the three months ended March 31, 2006. |
(2) | On January 28, 2004, our Board of Directors (the Board) authorized a stock repurchase program of up to 180 million shares of the Corporations common stock at an aggregate cost not to exceed $9.0 billion. At March 31, 2005 there was 37.4 million shares of remaining buyback authority related to the January 2004 plan. This repurchase plan was completed during the third quarter of 2005. On March 22, 2005, the Board authorized an additional stock repurchase program of up to 200 million shares of the Corporations common stock at an aggregate cost not to exceed $12.0 billion and to be completed within a period of 18 months. |
(3) | Reduced Shareholders Equity by $2.0 billion and had no effect on diluted earnings per common share for the three months ended March 31, 2005. These repurchases were partially offset by the issuance of approximately 32 million shares of common stock under employee plans, which increased Shareholders Equity by $1.0 billion, net of $0.3 billion of deferred compensation related to restricted stock awards, and had no effect on diluted earnings per common share for the three months ended March 31, 2005. |
The Corporation will continue to repurchase shares, from time to time, in the open market or in private transactions through the Corporations approved repurchase programs. The Corporation expects to continue to repurchase a number of shares of common stock at least equal to any shares issued under the Corporations employee stock plans.
On April 26, 2006, the Board authorized a stock repurchase program of up to 200 million shares of the Corporations common stock at an aggregate cost not to exceed $12.0 billion to be completed within a period of 18 months.
Also on April 26, 2006, the Board declared a regular quarterly cash dividend on common stock of $0.50 per share, payable on June 23, 2006 to common shareholders of record on June 2, 2006. In January 2006, the Board declared a quarterly cash dividend of $0.50 per common share which was paid on March 24, 2006 to common shareholders of record on March 3, 2006.
21
The following table presents the changes in Accumulated OCI for the three months ended March 31, 2006 and 2005.
(Dollars in millions)(1) |
Securities | Derivatives(2) | Other | Total | ||||||||||||
Balance, December 31, 2004 |
$ | (197 | ) | $ | (2,279 | ) | $ | (288 | ) | $ | (2,764 | ) | ||||
Net change in fair value recorded in Accumulated OCI |
(1,095 | ) | (1,383 | ) | (6 | ) | (2,484 | ) | ||||||||
Less: Net realized gains (losses) reclassified into earnings(3) |
446 | (77 | ) | | 369 | |||||||||||
Balance, March 31, 2005 |
$ | (1,738 | ) | $ | (3,585 | ) | $ | (294 | ) | $ | (5,617 | ) | ||||
Balance, December 31, 2005 |
$ | (2,978 | ) | $ | (4,338 | ) | $ | (240 | ) | $ | (7,556 | ) | ||||
Net change in fair value recorded in Accumulated OCI |
(1,893 | ) | 489 | 42 | (1,362 | ) | ||||||||||
Less: Net realized gains (losses) reclassified into earnings(3) |
126 | (63 | ) | | 63 | |||||||||||
Balance, March 31, 2006 |
$ | (4,997 | ) | $ | (3,786 | ) | $ | (198 | ) | $ | (8,981 | ) | ||||
(1) | Amounts shown are net-of-tax. |
(2) | The amount included in Accumulated OCI for terminated derivative contracts were losses of $2.5 billion and $1.2 billion, net-of-tax at March 31, 2006 and 2005. |
(3) | Included in this line item are amounts related to derivatives used in cash flow hedge relationships. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted transactions affect earnings. This line item also includes gains (losses) on available-for-sale securities. These amounts are reclassified into earnings upon sale of the related security. |
The calculation of earnings per common share and diluted earnings per common share for the three months ended March 31, 2006 and 2005 is presented below:
Three Months Ended March 31 |
||||||||
(Dollars in millions, except per share information; shares in thousands) |
2006 | 2005 | ||||||
Earnings per common share |
||||||||
Net income |
$ | 4,986 | $ | 4,393 | ||||
Preferred stock dividends |
(5 | ) | (5 | ) | ||||
Net income available to common shareholders |
$ | 4,981 | $ | 4,388 | ||||
Average common shares issued and outstanding |
4,609,481 | 4,032,550 | ||||||
Earnings per common share |
$ | 1.08 | $ | 1.09 | ||||
Diluted earnings per common share |
||||||||
Net income available to common shareholders |
$ | 4,981 | $ | 4,388 | ||||
Average common shares issued and outstanding |
4,609,481 | 4,032,550 | ||||||
Dilutive potential common shares (1, 2) |
56,924 | 66,512 | ||||||
Total diluted average common shares issued and outstanding |
4,666,405 | 4,099,062 | ||||||
Diluted earnings per common share |
$ | 1.07 | $ | 1.07 | ||||
(1) | For the three months ended March 31, 2006 and 2005, average options to purchase 60 million and 27 million shares were outstanding but not included in the computation of earnings per common share because they were antidilutive. |
(2) | Includes incremental shares from restricted stock units, restricted stock shares and stock options. |
Note 12 Pension and Postretirement Plans
The Corporation sponsors noncontributory trusteed qualified pension plans that cover substantially all officers and employees, a number of noncontributory nonqualified pension plans, and postretirement health and life plans. The Bank of America Pension Plan (the Pension Plan) allows participants to select from various earnings measures, which are based on the returns of certain funds or common stock of the Corporation. The participant-selected earnings measures determine the earnings rate on the individual participant account balances in the Pension Plan. A detailed discussion of these plans is provided in Note 16 of the Consolidated Financial Statements of the Corporations 2005 Annual Report on Form 10-K.
22
As a result of the MBNA Merger, the Corporation assumed the obligations related to the plans of former MBNA. The MBNA Pension Plan retirement benefits are based on the number of years of benefit service and a percentage of the participants average annual compensation during the five highest paid consecutive years of their last 10 years of employment. The MBNA Supplemental Executive Retirement Plan (SERP) provides certain officers with supplemental retirement benefits in excess of limits imposed on qualified plans by federal tax law. The MBNA Postretirement Health and Life Plan provides certain health care and life insurance benefits for a closed group upon early retirement.
Net periodic benefit cost of the Corporations plans including the MBNA plans, for the three months ended March 31, 2006 and 2005 included the following components:
Three Months Ended March 31 | ||||||||||||||||||||||||
Pension Plan | Nonqualified Pension Plans |
Postretirement Health and Life Plans |
||||||||||||||||||||||
(Dollars in millions) |
2006 (1) | 2005 | 2006 (1) | 2005 | 2006 (1) | 2005 | ||||||||||||||||||
Components of net periodic benefit cost |
||||||||||||||||||||||||
Service cost |
$ | 82 | $ | 77 | $ | 3 | $ | 3 | $ | 4 | $ | 3 | ||||||||||||
Interest cost |
168 | 165 | 22 | 16 | 22 | 19 | ||||||||||||||||||
Expected return on plan assets |
(260 | ) | (248 | ) | | | (2 | ) | (4 | ) | ||||||||||||||
Amortization of transition obligation |
| | | | 8 | 8 | ||||||||||||||||||
Amortization of prior service cost |
10 | 12 | (2 | ) | (2 | ) | | | ||||||||||||||||
Recognized net actuarial loss |
53 | 38 | 5 | 5 | 13 | 17 | ||||||||||||||||||
Recognized loss due to settlements and curtailments |
| | | 9 | | | ||||||||||||||||||
Net periodic benefit cost |
$ | 53 | $ | 44 | $ | 28 | $ | 31 | $ | 45 | $ | 43 | ||||||||||||
(1) | Includes the results of former MBNA. The net periodic benefit cost of the former MBNA Pension Plan, SERP, and Postretirement Health and Life Plan were $13 million, $7 million and $4 million, respectively, for the three months ended March 31, 2006. |
During 2006, the Corporation expects to contribute $85 million, $242 million and $20 million to the former MBNA Pension Plan, SERP, and Postretirement Health and Life Plan, respectively. At March 31, 2006, the Corporation had contributed $0 million, $116 million, and $9 million, respectively, to these plans.
Note 13 Stock-based Compensation Plans
Prior to January 1, 2006, the Corporation accounted for its stock-based compensation plans under SFAS 123. On January 1, 2006, the Corporation adopted SFAS 123R under the modified-prospective application. Under the modified-prospective-application, SFAS 123R applies to new awards and to awards modified, repurchased, or cancelled after adoption.
The compensation cost recognized in income for the plans described below was $479 million and $193 million for the three months ended March 31, 2006 and 2005. The related income tax benefit recognized in income was $178 million and $68 million for the three months ended March 31, 2006 and 2005.
Prior to the adoption of SFAS 123R, awards granted to retirement eligible employees were expensed over the stated vesting period. SFAS 123R requires that the Corporation recognize stock compensation cost immediately for any awards granted to retirement eligible employees, or over the vesting period or the period from the grant date to the date retirement eligibility is achieved, which ever is shorter. For the three months ended March 31, 2006, the Corporation recognized $320 million in equity based compensation due to awards being granted to retirement eligible employees.
23
Prior to the adoption of SFAS 123R, the Corporation presented tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Corporation recognized $75 million in excess tax benefits that were classified as a financing cash inflow for the three months ended March 31, 2006.
Prior to January 1, 2006, the Corporation estimated the fair value of stock options granted on the date of grant using the Black-Scholes option-pricing model. On January 1, 2006, the Corporation began using a lattice option-pricing model to estimate the grant date fair value of stock options granted. The table below presents the assumptions used to estimate the fair value of stock options granted on the date of grant using the lattice option-pricing model for the three months ended March 31, 2006. Lattice option-pricing models incorporate ranges of assumptions for inputs and those ranges are disclosed in the table below. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatilities are based on implied volatilities from traded stock options on the Corporations common stock, historical volatility of the Corporations common stock, and other factors. The Corporation uses historical data to estimate stock option exercise and employee termination within the model. The expected term of stock options granted is derived from the output of the model and represents the period of time that stock options granted are expected to be outstanding. The table below also includes the assumptions used to estimate the fair value of stock options granted on the date of grant using the Black-Scholes option-pricing model for the three months ended March 31, 2005. The estimates of fair value from these models are theoretical values for stock options and changes in the assumptions used in the models could result in materially different fair value estimates. The actual value of the stock options will depend on the market value of the Corporations common stock when the stock options are exercised.
Shareholder Approved Plans | ||||||
Three Months Ended March 31 |
||||||
2006 | 2005 | |||||
Risk-free interest rate |
4.59 - 4.70 | % | 3.94 | % | ||
Dividend yield |
4.50 | % | 4.60 | % | ||
Expected volatility |
17.00 - 27.00 | % | 20.53 | % | ||
Weighted-average volatility |
20.30 | % | n/a | |||
Expected lives (years) |
6.5 | 6 |
The Corporation has certain equity compensation plans that were approved by its shareholders. These plans are the Key Employee Stock Plan and the Key Associate Stock Plan. Descriptions of the material features of these plans follow.
Key Employee Stock Plan
The Key Employee Stock Plan, as amended and restated, provided for different types of awards. These include stock options, restricted stock shares and restricted stock units. Under the plan, ten-year options to purchase approximately 260 million shares of common stock were granted through December 31, 2002, to certain employees at the closing market price on the respective grant dates. Options granted under the plan generally vest in three or four equal annual installments. At March 31, 2006, approximately 86 million options were outstanding under this plan. No further awards may be granted.
Key Associate Stock Plan
On April 24, 2002, the shareholders approved the Key Associate Stock Plan to be effective January 1, 2003. This approval authorized and reserved 200 million shares for grant in addition to the remaining amount under the Key Employee Stock Plan as of December 31, 2002, which was approximately 34 million shares plus any shares covered by awards under the Key Employee Stock Plan that terminate, expire, lapse or are cancelled after December 31, 2002. Upon the FleetBoston Merger, the shareholders authorized an additional 102 million shares for grant under the Key Associate Stock Plan.
24
At March 31, 2006, approximately 155 million options were outstanding under this plan. Approximately 18 million shares of restricted stock and restricted stock units were granted during the three months ended March 31, 2006. These shares of restricted stock generally vest in three equal annual installments beginning one year from the grant date. The Corporation incurred restricted stock expense of $391 million and $114 million during the three months ended March 31, 2006 and 2005.
The following table presents information on equity compensation plans at March 31, 2006:
Number of Shares to be Issued (1,3) |
Weighted Average Exercise Price of Outstanding Options (2) |
Number of Shares Remaining for Future Issuance Under Equity Compensation Plans | |||||
Plans approved by shareholders |
255,771,100 | $ | 37.08 | 123,542,897 | |||
Plans not approved by shareholders |
18,005,585 | 30.68 | | ||||
Total |
273,776,685 | 36.63 | 123,542,897 | ||||
(1) | Includes 14,755,019 unvested restricted stock units. |
(2) | Does not take into account unvested restricted stock units. |
(3) | In addition to the securities presented in the table above, there were outstanding options to purchase 70,402,399 shares of the Corporations common stock and 618,372 unvested restricted stock units granted to employees of predecessor companies assumed in mergers. The weighted average option price of the assumed options was $33.87 at March 31, 2006. |
The following table presents the status of all option plans at March 31, 2006, and changes during the three months ended March 31, 2006:
March 31, 2006 | ||||||
Employee stock options |
Shares | Weighted Average Exercise Price | ||||
Outstanding at January 1, 2006 |
298,132,802 | $ | 35.13 | |||
Options assumed through acquisition |
31,506,268 | 32.70 | ||||
Granted |
30,999,249 | 44.37 | ||||
Exercised |
(29,786,640 | ) | 31.89 | |||
Forfeited |
(1,427,614 | ) | 37.97 | |||
Outstanding at March 31, 2006 (1) |
329,424,065 | 36.04 | ||||
Options exercisable at March 31, 2006 |
257,074,593 | 33.77 | ||||
Options vested and expected to vest at March 31, 2006 (2) |
326,438,576 | 35.96 | ||||
(1) | Included in outstanding options are 13.9 million options that were immediately expensed as they were granted to retirement eligible employees. |
(2) | Includes vested shares and outstanding, nonvested shares after a forfeiture rate is applied. |
The weighted average remaining contractual term and aggregate intrinsic value of options outstanding was 5.7 years and $3.1 billion, options exercisable was 4.8 years and $3.0 billion, and options vested and expected to vest was 5.7 years and $3.1 billion at March 31, 2006.
The weighted average grant-date fair value of options granted during the three months ended March 31, 2006 and 2005 was $6.90 and $6.48. The total intrinsic value of options exercised during the three months ended March 31, 2006 was $409 million.
25
The following table presents the status of the nonvested shares at March 31, 2006, and changes during the three months ended March 31, 2006:
March 31, 2006 | ||||||
Restricted stock/unit awards |
Shares | Weighted Average Grant Date Fair Value | ||||
Outstanding at January 1, 2006 |
27,278,106 | $ | 42.79 | |||
Share obligations assumed through acquisition |
754,740 | 30.40 | ||||
Granted |
17,569,652 | 44.37 | ||||
Vested |
(9,894,384 | ) | 41.11 | |||
Canceled |
(575,006 | ) | 43.57 | |||
Outstanding March 31, 2006 (1) |
35,133,108 | 43.78 | ||||
(1) | Included in outstanding restricted stock/unit awards are 5.2 million shares that were immediately expensed as they were granted to retirement eligible employees. |
At March 31, 2006, there was $1.5 billion of total unrecognized compensation cost related to share-based compensation arrangements for all awards, that is expected to be recognized over a weighted average period of 1.16 years. The total fair value of restricted stock vested during the three months ended March 31, 2006 was $437 million.
Note 14 - Business Segment Information
The Corporation reports the results of its operations through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management. Effective January 1, 2006, the Corporation combined Global Business and Financial Services and Global Capital Markets and Investment Banking creating a new business segment called Global Corporate and Investment Banking. This new segment enables us to more effectively leverage the full breadth of the Corporation to better service our business clients. The Corporation may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment.
Global Consumer and Small Business Banking provides a diversified range of products and services to individuals and small businesses through its primary businesses: Deposits, Card Services, Mortgage and Home Equity. Global Corporate and Investment Banking serves domestic and international issuer and investor clients, providing financial services, specialized industry expertise and local delivery through its primary businesses: Business Lending, Capital Markets and Advisory Services, and Treasury Services. These businesses provide traditional bank deposit and loan products to large corporations and institutional clients, capital-raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for clients, as well as treasury management and payment services. Global Wealth and Investment Management offers investment services, estate management, financial planning services, fiduciary management, credit and banking expertise, and diversified asset management products to institutional clients, as well as affluent and high-net-worth individuals through its primary businesses: Private Bank, Columbia Management and Premier Banking and Investments.
All Other consists of equity investment activities including Principal Investing and corporate investments, the residual impact of the allowance for credit losses and the cost allocation processes, Merger and Restructuring Charges, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are being liquidated. All Other also includes certain amounts associated with ALM activities, including the residual impact of funds transfer pricing allocation methodologies, amounts associated with the change in the value of derivatives used as economic hedges of interest rate and foreign exchange rate fluctuations that do not qualify for SFAS 133 hedge accounting treatment, gains or losses on sales of whole mortgage loans, and Gains on Sales of Debt Securities.
26
Total Revenue includes Net Interest Income on a fully taxable-equivalent (FTE) basis and Noninterest Income. The adjustment of Net Interest Income to a FTE basis results in a corresponding increase in Income Tax Expense. The adjustment is included in Net Interest Income of each of the businesses and offset in All Other. The Net Interest Income of the businesses include the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net Interest Income of the business segments also includes an allocation of Net Interest Income generated by the Corporations ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to the segments based on pre-determined means. The most significant of these expenses include data processing costs, item processing costs and certain centralized or shared functions. Data processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The cost of certain centralized or shared functions are allocated based on methodologies which reflect utilization.
27
The following table presents Total Revenue on a FTE basis and Net Income for the three months ended March 31, 2006 and 2005, and Total Assets at March 31, 2006 and 2005 for each business segment, as well as All Other.
Business Segments
For the Three Months Ended March 31 | Total Corporation | Global Consumer and Small Business Banking (1) |
Global Corporate and Investment Banking (1) |
||||||||||||||||||
(Dollars in millions) |
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||
Net interest income (FTE basis) |
$ | 9,040 | $ | 7,706 | $ | 5,400 | $ | 4,215 | $ | 2,714 | $ | 2,856 | |||||||||
Noninterest income |
8,901 | 6,032 | 4,801 | 2,638 | 2,846 | 2,591 | |||||||||||||||
Total revenue (FTE basis) |
17,941 | 13,738 | 10,201 | 6,853 | 5,560 | 5,447 | |||||||||||||||
Provision for credit losses |
1,270 | 580 | 1,257 | 710 | 39 | (151 | ) | ||||||||||||||
Gains (losses) on sales of debt securities |
14 | 659 | (1 | ) | (1 | ) | 23 | 30 | |||||||||||||
Amortization of intangibles |
440 | 208 | 378 | 142 | 41 | 45 | |||||||||||||||
Other noninterest expense |
8,484 | 6,849 | 4,315 | 3,096 | 2,985 | 2,660 | |||||||||||||||
Income before income taxes |
7,761 | 6,760 | 4,250 | 2,904 | 2,518 | 2,923 | |||||||||||||||
Income tax expense |
2,775 | 2,367 | 1,575 | 1,026 | 932 | 1,072 | |||||||||||||||
Net income |
$ | 4,986 | $ | 4,393 | $ | 2,675 | $ | 1,878 | $ | 1,586 | $ | 1,851 | |||||||||
Period-end total assets |
$ | 1,375,080 | $ | 1,212,229 | $ | 359,131 | $ | 331,769 | $ | 630,956 | $ | 593,525 | |||||||||
Global Wealth and Investment Management (1) |
All Other | ||||||||||||||
(Dollars in millions) |
2006 | 2005 | 2006 | 2005 | |||||||||||
Net interest income (FTE basis) |
$ | 981 | $ | 955 | $ | (55 | ) | $ | (320 | ) | |||||
Noninterest income |
987 | 858 | 267 | (55 | ) | ||||||||||
Total revenue (FTE basis) |
1,968 | 1,813 | 212 | (375 | ) | ||||||||||
Provision for credit losses |
(1 | ) | 2 | (25 | ) | 19 | |||||||||
Gains (losses) on sales of debt securities |
| | (8 | ) | 630 | ||||||||||
Amortization of intangibles |
19 | 20 | 2 | 1 | |||||||||||
Other noninterest expense |
973 | 889 | 211 | 204 | |||||||||||
Income before income taxes |
977 | 902 | 16 | 31 | |||||||||||
Income tax expense (benefit) |
363 | 318 | (95 | ) | (49 | ) | |||||||||
Net income |
$ | 614 | $ | 584 | $ | 111 | $ | 80 | |||||||
Period-end total assets |
$ | 125,819 | $ | 129,970 | $ | 259,174 | $ | 156,965 | |||||||
(1) | There were no material intersegment revenues among the segments. |
28
The following table presents reconciliations of the three business segments Total Revenue on a FTE basis and Net Income to the Consolidated Statement of Income totals. The adjustments presented in the table below include consolidated income and expense amounts not specifically allocated to individual business segments.
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Segments total revenue (FTE basis) |
$ | 17,729 | $ | 14,113 | ||||
Adjustments: |
||||||||
ALM activities |
(149 | ) | (508 | ) | ||||
Equity investment gains |
513 | 264 | ||||||
Liquidating businesses |
75 | 57 | ||||||
FTE basis adjustment |
(264 | ) | (200 | ) | ||||
Other |
(227 | ) | (188 | ) | ||||
Consolidated revenue |
$ | 17,677 | $ | 13,538 | ||||
Segments net income |
$ | 4,875 | $ | 4,313 | ||||
Adjustments, net of taxes: |
||||||||
ALM activities (1) |
(144 | ) | 41 | |||||
Equity investment gains |
323 | 169 | ||||||
Liquidating businesses |
41 | 20 | ||||||
Merger and restructuring charges |
(61 | ) | (75 | ) | ||||
Other |
(48 | ) | (75 | ) | ||||
Consolidated net income |
$ | 4,986 | $ | 4,393 | ||||
(1) | Includes pre-tax Gains (Losses) on Sales of Debt Securities of $(6) million and $627 million for the three months ended March 31, 2006 and 2005. |
29
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 and 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 Form 10-Q of Bank of America Corporation and its subsidiaries (the Corporation) should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed under Item 1A. Risk Factors of the Corporations Annual Report on Form 10-K for the fiscal year ended December 31, 2005. 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 abroad which may adversely affect the Corporations businesses and economic conditions as a whole; liabilities resulting from litigation and regulatory investigations, 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 Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and state regulators; changes in accounting standards, rules and interpretations; 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.
30
The Corporation, headquartered in Charlotte, North Carolina, operates in 30 states, the District of Columbia and 44 foreign countries. The Corporation provides a diversified range of banking and nonbanking financial services and products domestically and internationally through three business segments: Global Consumer and Small Business Banking, Global Corporate and Investment Banking, and Global Wealth and Investment Management.
At March 31, 2006, we had $1.4 trillion in assets and approximately 202,500 full-time equivalent employees. Notes to 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. Certain prior period amounts have been reclassified to conform to current period presentation.
Recent Events
On April 26, 2006, our Board of Directors (the Board) authorized a stock repurchase program of up to 200 million shares of the Corporations common stock at an aggregate cost not to exceed $12.0 billion to be completed within a period of 18 months.
Also on April 26, 2006, the Board declared a regular quarterly cash dividend on common stock of $0.50 per share, payable on June 23, 2006 to common shareholders of record on June 2, 2006. In January 2006, the Board declared a quarterly cash dividend of $0.50 per common share which was paid on March 24, 2006 to common shareholders of record on March 3, 2006.
On May 2, 2006, we announced an agreement to exchange our BankBoston operations in Brazil for approximately $2.2 billion in equity of Banco Itau, Brazils second largest nongovernment-owned banking company. We further agreed to negotiate exclusively with Banco Itau to sell BankBostons assets in Chile, Uruguay and certain other operations and accounts related to Latin America. Closing of the transaction for the exchange of BankBostons operations in Brazil will be subject to obtaining all necessary regulatory approvals.
MBNA Merger Overview
The Corporation acquired 100 percent of the outstanding stock of MBNA Corporation (MBNA) (the MBNA Merger) on January 1, 2006, for $34.6 billion. In connection therewith 1,260 million shares of MBNA common stock were exchanged for 631 million shares of the Corporations common stock. Prior to the MBNA Merger, this represented approximately 16 percent of the Corporations outstanding common stock. MBNA shareholders also received cash of $5.2 billion. The MBNA Merger was a tax-free merger for the Corporation. The acquisition expands the Corporations customer base and its opportunity to deepen customer relationships across the full breadth of the Corporation by delivering innovative deposit, lending and investment products and services to MBNAs customer base. Additionally, the acquisition allows the Corporation to significantly increase its affinity relationships through MBNAs credit card operations and sell these credit cards through our delivery channels (including the retail branch network). MBNAs results of operations were included in the Corporations results beginning January 1, 2006. The transaction was accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired and the liabilities assumed based on their estimated fair values at the MBNA Merger date. For more information related to the MBNA Merger, see Note 2 of the Corporations Consolidated Financial Statements.
31
Performance Overview
Net Income totaled $5.0 billion for the three months ended March 31, 2006, an increase of 13 percent from $4.4 billion for the three months ended March 31, 2005. For both periods, diluted earnings per common share were $1.07.
Table 1
Business Segment Total Revenue and Net Income
Total Revenue | Net Income | |||||||||||||
Three Months Ended March 31 | ||||||||||||||
(Dollars in millions) |
2006 | 2005 | 2006 | 2005 | ||||||||||
Global Consumer and Small Business Banking |
$ | 10,201 | $ | 6,853 | $ | 2,675 | $ | 1,878 | ||||||
Global Corporate and Investment Banking |
5,560 | 5,447 | 1,586 | 1,851 | ||||||||||
Global Wealth and Investment Management |
1,968 | 1,813 | 614 | 584 | ||||||||||
All Other |
212 | (375 | ) | 111 | 80 | |||||||||
Total FTE basis (1) |
17,941 | 13,738 | 4,986 | 4,393 | ||||||||||
FTE adjustment (1) |
(264 | ) | (200 | ) | | | ||||||||
Total Consolidated |
$ | 17,677 | $ | 13,538 | $ | 4,986 | $ | 4,393 | ||||||
(1) | Total revenue for the segments and All Other is on a fully taxable-equivalent (FTE) basis. For more information on a FTE basis, see Supplemental Financial Data beginning on page 36. |
Global Consumer and Small Business Banking
Net Income increased $797 million, or 42 percent, to $2.7 billion for the three months ended March 31, 2006. Driving the increase was the impact of MBNA, which contributed to increases in Card Income and Net Interest Income. Also impacting the increase in Net Income were higher Service Charges due to new accounts. Partially offsetting these increases were higher Noninterest Expense and Provision for Credit Losses primarily driven by the addition of MBNA. For more information on Global Consumer and Small Business Banking, see page 42.
Global Corporate and Investment Banking
Net Income decreased $265 million, or 14 percent, to $1.6 billion for the three months ended March 31, 2006. Revenues increased by two percent driven mainly by market-based activity in Capital Markets and Advisory Services. Offsetting this revenue growth were higher risk mitigation costs, lower Asset Liability Management (ALM) allocation, higher Noninterest Expense and an increase in Provision for Credit Losses. For more information on Global Corporate and Investment Banking, see page 49.
Global Wealth and Investment Management
Net Income increased $30 million, or five percent, to $614 million for the three months ended March 31, 2006. The increase was due to an increase in asset management fees and gains on the sales of assets. Also impacting the increase in Net Income was higher Net Interest Income as a result of increases in deposit spreads offset by a decline in income from ALM activity. Partially offsetting these increases was higher Personnel Expense. Total assets under management increased $11.5 billion to $493.9 billion at March 31, 2006 compared to December 31, 2005. For more information on Global Wealth and Investment Management, see page 53.
All Other
Net Income increased $31 million, or 39 percent, to $111 million for the three months ended March 31, 2006. This increase was primarily a result of increases in Net Interest Income and Equity Investment Gains offset by a decrease in Gains on Sales of Debt Securities. For more information on All Other, see page 57.
32
Financial Highlights
Net Interest Income
Net Interest Income on a FTE basis increased $1.3 billion to $9.0 billion for the three months ended March 31, 2006 compared to the same period in 2005. The primary drivers of the increase were the MBNA Merger, organic growth in consumer (primarily credit card and home equity) and commercial loans, and increases driven by deposit pricing strategies and a larger securities portfolio. Partially offsetting these increases were lower market-based Net Interest Income and domestic deposit funding levels (excluding the impact of the MBNA Merger). The net interest yield on a FTE basis increased two basis points (bps) to 2.98 percent primarily due to the impact of the MBNA Merger, partially offset by the adverse impact of an increase in lower-yielding, market-based Net Interest Income balances. For more information on Net Interest Income on a FTE basis, see Table 7 on pages 39 and 40.
Noninterest Income
Table 2
Noninterest Income
Three Months Ended March 31 | ||||||
(Dollars in millions) |
2006 | 2005 | ||||
Service charges |
$ | 1,901 | $ | 1,777 | ||
Investment and brokerage services |
1,103 | 1,013 | ||||
Mortgage banking income |
137 | 221 | ||||
Investment banking income |
501 | 366 | ||||
Equity investment gains |
660 | 399 | ||||
Card income |
3,436 | 1,289 | ||||
Trading account profits |
1,074 | 685 | ||||
Other income |
89 | 282 | ||||
Total noninterest income |
$ | 8,901 | $ | 6,032 | ||
Noninterest Income increased $2.9 billion to $8.9 billion for the three months ended March 31, 2006 compared to the same period in 2005, due primarily to the following:
| Service Charges grew $124 million due to higher levels of customer accounts. |
| Investment and Brokerage Services increased $90 million due to higher asset management fees driven by increased levels of assets under management and higher brokerage sales. |
| Equity Investment Gains increased $261 million due to favorable market conditions, and significant liquidity and exit opportunities in the capital markets. |
| Card Income increased $2.1 billion as a result of increased fee income driven by higher purchase volumes for credit cards and increases in average managed credit card outstandings, all of which were primarily the result of the MBNA Merger. Card Income also benefited from the increase in debit card income. |
| Trading Account Profits increased $389 million due to improved market conditions and increased client activity. |
| Other Income decreased $193 million primarily related to credit risk mitigation activity in Business Lending within Global Corporate and Investment Banking. |
33
Provision for Credit Losses
The Provision for Credit Losses increased $690 million to $1.3 billion for the three months ended March 31, 2006 compared to the same period in 2005. Consumer provision increased due to the addition of MBNA and from an increase in reserves to cover the anticipated return to a more normal level of bankruptcy-related charge-offs. Commercial provision also increased primarily due to the first quarter of 2005 including a provision benefit from actions to reduce certain Latin American portfolio exposures, as well as higher costs driven by a slower rate of improvement in commercial credit quality in the first quarter of 2006 compared to the same period of 2005.
For more information on credit quality, see Credit Risk Management beginning on page 62.
Gains on Sales of Debt Securities
Gains on Sales of Debt Securities for the three months ended March 31, 2006 were $14 million compared to $659 million for the same period in 2005. For more information on Gains on Sales of Debt Securities, see Market Risk Management beginning on page 80.
Noninterest Expense
Table 3
Noninterest Expense
Three Months Ended March 31 | ||||||
(Dollars in millions) |
2006 | 2005 | ||||
Personnel |
$ | 4,813 | $ | 3,701 | ||
Occupancy |
701 | 636 | ||||
Equipment |
344 | 297 | ||||
Marketing |
575 | 337 | ||||
Professional fees |
218 | 177 | ||||
Amortization of intangibles |
440 | 208 | ||||
Data processing |
410 | 364 | ||||
Telecommunications |
220 | 206 | ||||
Other general operating |
1,105 | 1,019 | ||||
Merger and restructuring charges |
98 | 112 | ||||
Total noninterest expense |
$ | 8,924 | $ | 7,057 | ||
Noninterest Expense increased $1.9 billion to $8.9 billion for the three months ended March 31, 2006 compared to the same period in 2005, due primarily to the following:
| Personnel expense increased $1.1 billion due to the MBNA Merger and higher performance-based incentive compensation. |
| Marketing expense increased $238 million primarily due to the MBNA Merger. |
| Amortization expense increased $232 million due to the addition of purchased credit card relationships, affinity relationships, core deposit intangibles and other intangibles as a result of the MBNA Merger. |
Income Tax Expense
Income Tax Expense was $2.5 billion, reflecting an effective tax rate of 33.5 percent, for the three months ended March 31, 2006 compared to $2.2 billion and 33.0 percent for the three months ended March 31, 2005. The increase in the effective tax rate was primarily due to the addition of MBNA.
34
Table 4
Selected Quarterly Financial Data
2006 Quarter | 2005 Quarters | |||||||||||||||||||
(Dollars in millions, except per share information) |
First | Fourth | Third | Second | First | |||||||||||||||
Income statement |
||||||||||||||||||||
Net interest income |
$ | 8,776 | $ | 7,859 | $ | 7,735 | $ | 7,637 | $ | 7,506 | ||||||||||
Noninterest income |
8,901 | 5,951 | 6,416 | 6,955 | 6,032 | |||||||||||||||
Total revenue |
17,677 | 13,810 | 14,151 | 14,592 | 13,538 | |||||||||||||||
Provision for credit losses |
1,270 | 1,400 | 1,159 | 875 | 580 | |||||||||||||||
Gains on sales of debt securities |
14 | 71 | 29 | 325 | 659 | |||||||||||||||
Noninterest expense |
8,924 | 7,320 | 7,285 | 7,019 | 7,057 | |||||||||||||||
Income before income taxes |
7,497 | 5,161 | 5,736 | 7,023 | 6,560 | |||||||||||||||
Income tax expense |
2,511 | 1,587 | 1,895 | 2,366 | 2,167 | |||||||||||||||
Net income |
4,986 | 3,574 | 3,841 | 4,657 | 4,393 | |||||||||||||||
Average common shares issued and outstanding (in thousands) |
4,609,481 | 3,996,024 | 4,000,573 | 4,005,356 | 4,032,550 | |||||||||||||||
Average diluted common shares issued and outstanding (in thousands) |
4,666,405 | 4,053,859 | 4,054,659 | 4,065,355 | 4,099,062 | |||||||||||||||
Performance ratios |
||||||||||||||||||||
Return on average assets |
1.43 | % | 1.09 | % | 1.18 | % | 1.46 | % | 1.49 | % | ||||||||||
Return on average common shareholders equity |
15.44 | 14.21 | 15.09 | 18.93 | 17.97 | |||||||||||||||
Total ending equity to total ending assets |
9.41 | 7.86 | 8.12 | 8.13 | 8.16 | |||||||||||||||
Total average equity to total average assets |
9.26 | 7.66 | 7.82 | 7.74 | 8.28 | |||||||||||||||
Dividend payout |
46.75 | 56.24 | 52.60 | 38.90 | 41.71 | |||||||||||||||
Per common share data |
||||||||||||||||||||
Earnings |
$ | 1.08 | $ | 0.89 | $ | 0.96 | $ | 1.16 | $ | 1.09 | ||||||||||
Diluted earnings |
1.07 | 0.88 | 0.95 | 1.14 | 1.07 | |||||||||||||||
Dividends paid |
0.50 | 0.50 | 0.50 | 0.45 | 0.45 | |||||||||||||||
Book value |
28.19 | 25.32 | 25.28 | 25.16 | 24.45 | |||||||||||||||
Average balance sheet |
||||||||||||||||||||
Total loans and leases |
$ | 615,968 | $ | 563,589 | $ | 539,497 | $ | 520,415 | $ | 524,921 | ||||||||||
Total assets |
1,416,373 | 1,305,057 | 1,294,754 | 1,277,478 | 1,200,859 | |||||||||||||||
Total deposits |
659,821 | 628,922 | 632,771 | 640,593 | 627,420 | |||||||||||||||
Long-term debt |
117,018 | 99,601 | 98,326 | 96,697 | 96,167 | |||||||||||||||
Common shareholders equity |
130,881 | 99,677 | 100,974 | 98,558 | 99,130 | |||||||||||||||
Total shareholders equity |
131,153 | 99,948 | 101,246 | 98,829 | 99,401 | |||||||||||||||
Capital ratios (period end) |
||||||||||||||||||||
Risk-based capital: |
||||||||||||||||||||
Tier 1 |
8.45 | % | 8.25 | % | 8.27 | % | 8.16 | % | 8.26 | % | ||||||||||
Total |
11.33 | 11.08 | 11.19 | 11.23 | 11.52 | |||||||||||||||
Tier 1 Leverage |
6.18 | 5.91 | 5.90 | 5.66 | 5.86 | |||||||||||||||
Market price per share of common stock |
||||||||||||||||||||
Closing |
$ | 45.54 | $ | 46.15 | $ | 42.10 | $ | 45.61 | $ | 44.10 | ||||||||||
High closing |
47.08 | 46.99 | 45.98 | 47.08 | 47.08 | |||||||||||||||
Low closing |
43.09 | 41.57 | 41.60 | 44.01 | 43.66 |
Assets
At March 31, 2006, Total Assets were $1.4 trillion, an increase of $83.3 billion, or six percent, from December 31, 2005. Average Total Assets for the three months ended March 31, 2006 increased $215.5 billion, or 18 percent, compared to the same period in 2005. Growth in period end and average Total Assets was attributable to increases in Loans and Leases, and Other Assets which increased primarily due to the acquisition of MBNA and organic growth. Period end increases in Total Assets were partially offset by decreases in Trading Account Assets and Federal Funds Sold and Securities Purchased under Agreements to Resell.
Liabilities and Shareholders Equity
At March 31, 2006, Total Liabilities were $1.2 trillion, an increase of $55.4 billion, or five percent, from December 31, 2005. Average Total Liabilities for the three months ended March 31, 2006 increased $183.8 billion, or 17 percent, compared to the same period in 2005. Growth in period end and average Total Liabilities was attributable to increases in Deposits and Long-term Debt. Period end and average Total Liabilities were impacted by the assumption of liabilities in connection with the MBNA Merger and organic growth.
35
Period end and average Shareholders Equity increased primarily from the issuance of stock related to the MBNA Merger.
Supplemental Financial Data
Table 5 provides a reconciliation of the supplemental financial data mentioned below with financial measures defined by accounting principles generally accepted in the United States (GAAP). Other companies may define or calculate supplemental financial data differently.
Operating Basis Presentation
In managing our business, we may at times look at performance excluding certain non-recurring items. For example, as an alternative to Net Income, we view results on an operating basis, which represents Net Income excluding Merger and Restructuring Charges. The operating basis of presentation is not defined by GAAP. We believe that the exclusion of Merger and Restructuring Charges, which represent events outside our normal operations, provides a meaningful year-to-year comparison and is more reflective of normalized operations.
Net Interest Income - FTE Basis
In addition, we view Net Interest Income and related ratios and analysis (i.e. efficiency ratio, net interest yield and operating leverage) on a FTE basis. Although this is a non-GAAP measure, we believe managing the business with Net Interest Income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, Net Interest Income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in Income Tax Expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of Net Interest Income arising from taxable and tax-exempt sources.
Performance Measures
As mentioned above, certain performance measures including the efficiency ratio, net interest yield and operating leverage utilize Net Interest Income (and thus Total Revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield evaluates how many basis points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated planning process, we set operating leverage and efficiency targets for the Corporation and each line of business. Targets vary by year and by business, and are based on a variety of factors including: maturity of the business, investment appetite, competitive environment, market factors, and other items (e.g. risk appetite). The aforementioned performance measures and ratios, earnings per common share (EPS), return on average assets, and dividend payout ratio, as well as those measures discussed more fully below, are presented in Table 5.
Return on Average Common Shareholders Equity and Shareholder Value Added
We also evaluate our business based upon return on average common shareholders equity (ROE) and shareholder value added (SVA) measures. ROE and SVA utilize non-GAAP allocation methodologies. ROE measures the earnings contribution of a unit as a percentage of the Shareholders Equity allocated to that unit. SVA is defined as cash basis earnings on an operating basis less a charge for the use of capital. These measures are used to evaluate our use of equity (i.e. capital) at the individual unit level and are integral components in the analytics for resource allocation. Using SVA as a performance measure places specific focus on whether incremental investments generate returns in excess of the costs of capital associated with those investments. Investments and initiatives are analyzed using SVA during the annual planning process for maximizing allocation of corporate resources. In addition, profitability, relationship, and investment models all use ROE and SVA as key measures to support our overall growth goal.
36
Table 5
Supplemental Financial Data and Reconciliations to GAAP Financial Measures
Three Months Ended March 31 |
||||||||
(Dollars in millions, except per share information) |
2006 | 2005 | ||||||
Operating basis (1) |
||||||||
Operating earnings |
$ | 5,047 | $ | 4,468 | ||||
Operating earnings per common share |
1.09 | 1.11 | ||||||
Diluted operating earnings per common share |
1.08 | 1.09 | ||||||
Shareholder value added |
1,937 | 1,987 | ||||||
Return on average assets |
1.45 | % | 1.51 | % | ||||
Return on average common shareholders equity |
15.63 | 18.26 | ||||||
Operating efficiency ratio (FTE basis) |
49.19 | 50.55 | ||||||
Dividend payout ratio |
46.18 | 41.01 | ||||||
Operating leverage |
3.51 | 14.50 | ||||||
FTE basis data |
||||||||
Net interest income |
$ | 9,040 | $ | 7,706 | ||||
Total revenue |
17,941 | 13,738 | ||||||
Net interest yield |
2.98 | % | 2.96 | % | ||||
Efficiency ratio |
49.74 | 51.37 | ||||||
Reconciliation of net income to operating earnings |
||||||||
Net income |
$ | 4,986 | $ | 4,393 | ||||
Merger and restructuring charges |
98 | 112 | ||||||
Related income tax benefit |
(37 | ) | (37 | ) | ||||
Operating earnings |
$ | 5,047 | $ | 4,468 | ||||
Reconciliation of EPS to operating EPS |
||||||||
Earnings per common share |
$ | 1.08 | $ | 1.09 | ||||
Effect of merger and restructuring charges, net of tax benefit |
0.01 | 0.02 | ||||||
Operating earnings per common share |
$ | 1.09 | $ | 1.11 | ||||
Reconciliation of diluted EPS to diluted operating EPS |
||||||||
Diluted earnings per common share |
$ | 1.07 | $ | 1.07 | ||||
Effect of merger and restructuring charges, net of tax benefit |
0.01 | 0.02 | ||||||
Diluted operating earnings per common share |
$ | 1.08 | $ | 1.09 | ||||
Reconciliation of net income to shareholder value added |
||||||||
Net income |
$ | 4,986 | $ | 4,393 | ||||
Amortization of intangibles |
440 | 208 | ||||||
Merger and restructuring charges, net of tax benefit |
61 | 75 | ||||||
Cash basis earnings on an operating basis |
5,487 | 4,676 | ||||||
Capital charge |
(3,550 | ) | (2,689 | ) | ||||
Shareholder value added |
$ | 1,937 | $ | 1,987 | ||||
Reconciliation of return on average assets to operating return on average assets |
||||||||
Return on average assets |
1.43 | % | 1.49 | % | ||||
Effect of merger and restructuring charges, net of tax benefit |
0.02 | 0.02 | ||||||
Operating return on average assets |
1.45 | % | 1.51 | % | ||||
Reconciliation of return on average common shareholders equity to operating return on average common shareholders equity |
||||||||
Return on average common shareholders equity |
15.44 | % | 17.97 | % | ||||
Effect of merger and restructuring charges, net of tax benefit |
0.19 | 0.29 | ||||||
Operating return on average common shareholders equity |
15.63 | % | 18.26 | % | ||||
Reconciliation of efficiency ratio to operating efficiency ratio (FTE basis) |
||||||||
Efficiency ratio |
49.74 | % | 51.37 | % | ||||
Effect of merger and restructuring charges, net of tax benefit |
(0.55 | ) | (0.82 | ) | ||||
Operating efficiency ratio |
49.19 | % | 50.55 | % | ||||
Reconciliation of dividend payout ratio to operating dividend payout ratio |
||||||||
Dividend payout ratio |
46.75 | % | 41.71 | % | ||||
Effect of merger and restructuring charges, net of tax benefit |
(0.57 | ) | (0.70 | ) | ||||
Operating dividend payout ratio |
46.18 | % | 41.01 | % | ||||
Reconciliation of operating leverage to operating basis operating leverage |
||||||||
Operating leverage |
4.14 | % | 12.45 | % | ||||
Effect of merger and restructuring charges |
(0.63 | ) | 2.05 | |||||
Operating basis operating leverage |
3.51 | % | 14.50 | % | ||||
(1) | Operating basis excludes Merger and Restructuring Charges. Merger and Restructuring Charges were $98 million and $112 million for the three months ended March 31, 2006 and 2005. |
37
In managing our business, we review core net interest income on a managed basis, which adjusts reported Net Interest Income on a FTE basis for the impact of market-based activities and certain securitizations. As discussed in the Global Corporate and Investment Banking business segment section beginning on page 49, we evaluate our trading results and strategies based on total market-based revenue by combining net interest income and noninterest income for the Capital Markets and Advisory Services business. We also adjust for loans that we originated and sold into certain securitizations. Noninterest Income, rather than Net Interest Income and Provision for Credit Losses, is recorded for assets that have been securitized as we are compensated for servicing the securitized assets and record servicing income and gains or losses on securitizations, where appropriate. An analysis of core net interest income managed basis, core average earning assets managed basis and core net interest yield on earning assets managed basis, which adjusts for the impact of these two non-core items from reported Net Interest Income on a FTE basis, is shown below.
Table 6
Core Net Interest Income - Managed Basis
Three Months Ended March 31 |
||||||||
(Dollars in millions) |
2006 | 2005 | ||||||
Net interest income |
||||||||
As reported (FTE basis) |
$ | 9,040 | $ | 7,706 | ||||
Impact of market-based net interest income (1) |
(410 | ) | (546 | ) | ||||
Core net interest income |
8,630 | 7,160 | ||||||
Impact of securitizations |
1,725 | 155 | ||||||
Core net interest income - managed basis |
$ | 10,355 | $ | 7,315 | ||||
Average earning assets |
||||||||
As reported |
$ | 1,219,611 | $ | 1,044,891 | ||||
Impact of market-based earning assets |
(336,496 | ) | (285,414 | ) | ||||
Core average earning assets |
883,115 | 759,477 | ||||||
Impact of securitizations |
96,268 | 11,151 | ||||||
Core average earning assets - managed basis |
$ | 979,383 | $ | 770,628 | ||||
Net interest yield contribution |
||||||||
As reported (FTE basis) |
2.98 | % | 2.96 | % | ||||
Impact of market-based activities |
0.95 | 0.82 | ||||||
Core net interest yield on earning assets |
3.93 | 3.78 | ||||||
Impact of securitizations |
0.32 | 0.03 | ||||||
Core net interest yield on earning assets - managed basis |
4.25 | % | 3.81 | % | ||||
(1) | Market-based Net Interest Income represents Net Interest Income from the Capital Markets and Advisory Services business within Global Corporate and Investment Banking. |
Core net interest income on a managed basis increased $3.0 billion for the three months ended March 31, 2006 from the comparable period in 2005. This increase was primarily driven by the impact of the MBNA Merger, organic growth in consumer (primarily credit card and home equity) and commercial loans, and increases driven by deposit pricing strategies and a larger securities portfolio. Partially offsetting these increases was lower domestic deposit funding levels (excluding the impact of the MBNA Merger).
Core average earning assets on a managed basis increased $208.8 billion primarily due to higher ALM levels (primarily securities) and higher levels of consumer loans (primarily home equity and credit card). The increases in these assets were due to organic growth as well as the impact of the MBNA Merger.
The core net interest yield on a managed basis increased 44 bps as a result of the impact of the MBNA Merger and increases in ALM activity, primarily due to the impact of interest rates.
38
Table 7
Quarterly Average Balances and Interest Rates - FTE Basis
First Quarter 2006 | Fourth Quarter 2005 | |||||||||||||||||
(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 |
$ | 14,347 | $ | 139 | 3.92 | % | $ | 14,619 | $ | 132 | 3.59 | % | ||||||
Federal funds sold and securities purchased under agreements to resell |
174,711 | 1,709 | 3.94 | 165,908 | 1,477 | 3.55 | ||||||||||||
Trading account assets |
133,361 | 1,623 | 4.89 | 139,441 | 1,648 | 4.72 | ||||||||||||
Securities |
234,606 | 3,043 | 5.19 | 221,411 | 2,842 | 5.13 | ||||||||||||
Loans and leases (1): |
||||||||||||||||||
Residential mortgage |
184,796 | 2,524 | 5.48 | 178,764 | 2,424 | 5.42 | ||||||||||||
Credit card - domestic |
68,169 | 2,180 | 12.94 | 56,858 | 1,747 | 12.19 | ||||||||||||
Credit card - foreign |
8,403 | 287 | 13.86 | | | | ||||||||||||
Home equity lines |
64,198 | 1,112 | 7.02 | 60,571 | 1,012 | 6.63 | ||||||||||||
Direct/Indirect consumer |
55,025 | 986 | 7.24 | 47,181 | 703 | 5.91 | ||||||||||||
Other consumer (2) |
10,357 | 272 | 10.59 | 6,653 | 184 | 11.01 | ||||||||||||
Total consumer |
390,948 | 7,361 | 7.60 | 350,027 | 6,070 | 6.90 | ||||||||||||
Commercial - domestic |
144,693 | 2,490 | 6.97 | 137,224 | 2,280 | 6.59 | ||||||||||||
Commercial real estate |
36,676 | 632 | 6.99 | 36,017 | 597 | 6.58 | ||||||||||||
Commercial lease financing |
20,512 | 247 | 4.82 | 20,178 | 241 | 4.79 | ||||||||||||
Commercial - foreign |
23,139 | 427 | 7.48 | 20,143 | 378 | 7.45 | ||||||||||||
Total commercial |
225,020 | 3,796 | 6.83 | 213,562 | 3,496 | 6.50 | ||||||||||||
Total loans and leases |
615,968 | 11,157 | 7.32 | 563,589 | 9,566 | 6.75 | ||||||||||||
Other earning assets |
46,618 | 718 | 6.22 | 40,582 | 596 | 5.83 | ||||||||||||
Total earning assets (3) |
1,219,611 | 18,389 | 6.08 | 1,145,550 | 16,261 | 5.65 | ||||||||||||
Cash and cash equivalents |
34,857 | 33,693 | ||||||||||||||||
Other assets, less allowance for loan and lease losses |
161,905 | 125,814 | ||||||||||||||||
Total assets |
$ | 1,416,373 | $ | 1,305,057 | ||||||||||||||
Interest-bearing liabilities |
||||||||||||||||||
Domestic interest-bearing deposits: |
||||||||||||||||||
Savings |
$ | 35,550 | $ | 76 | 0.87 | % | $ | 35,535 | $ | 68 | 0.76 | % | ||||||
NOW and money market deposit accounts |
227,606 | 908 | 1.62 | 224,122 | 721 | 1.28 | ||||||||||||
Consumer CDs and IRAs |
135,068 | 1,177 | 3.53 | 120,321 | 1,029 | 3.39 | ||||||||||||
Negotiable CDs, public funds and other time deposits |
8,551 | 70 | 3.30 | 5,085 | 27 | 2.13 | ||||||||||||
Total domestic interest-bearing deposits |
406,775 | 2,231 | 2.22 | 385,063 | 1,845 | 1.90 | ||||||||||||
Foreign interest-bearing deposits (4): |
||||||||||||||||||
Banks located in foreign countries |
30,116 | 424 | 5.71 | 24,451 | 355 | 5.77 | ||||||||||||
Governments and official institutions |
10,200 | 107 | 4.25 | 7,579 | 73 | 3.84 | ||||||||||||
Time, savings and other |
35,136 | 245 | 2.83 | 32,624 | 203 | 2.46 | ||||||||||||
Total foreign interest-bearing deposits |
75,452 | 776 | 4.17 | 64,654 | 631 | 3.87 | ||||||||||||
Total interest-bearing deposits |
482,227 | 3,007 | 2.53 | 449,717 | 2,476 | 2.18 | ||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings |
399,896 | 4,309 | 4.37 | 364,140 | 3,855 | 4.20 | ||||||||||||
Trading account liabilities |
52,466 | 517 | 3.99 | 56,880 | 619 | 4.32 | ||||||||||||
Long-term debt |
117,018 | 1,516 | 5.18 | 99,601 | 1,209 | 4.85 | ||||||||||||
Total interest-bearing liabilities (3) |
1,051,607 | 9,349 | 3.60 | 970,338 | 8,159 | 3.34 | ||||||||||||
Noninterest-bearing sources: |
||||||||||||||||||
Noninterest-bearing deposits |
177,594 | 179,205 | ||||||||||||||||
Other liabilities |
56,019 | 55,566 | ||||||||||||||||
Shareholders equity |
131,153 | 99,948 | ||||||||||||||||
Total liabilities and shareholders equity |
$ | 1,416,373 | $ | 1,305,057 | ||||||||||||||
Net interest spread |
2.48 | 2.31 | ||||||||||||||||
Impact of noninterest-bearing sources |
0.50 | 0.51 | ||||||||||||||||
Net interest income/yield on earning assets |
$ | 9,040 | 2.98 | % | $ | 8,102 | 2.82 | % | ||||||||||
39
Third Quarter 2005 |
Second Quarter 2005 |
First Quarter 2005 |
|||||||||||||||||||||||||
(Dollars in millions) |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
Average Balance |
Interest Income/ Expense |
Yield/ Rate |
||||||||||||||||||
Earning assets |
|||||||||||||||||||||||||||
Time deposits placed and other short-term investments |
$ | 14,498 | $ | 125 | 3.43 | % | $ | 13,696 | $ | 113 | 3.31 | % | $ | 14,327 | $ | 101 | 2.87 | % | |||||||||
Federal funds sold and securities purchased under agreements to resell |
176,650 | 1,382 | 3.12 | 185,835 | 1,249 | 2.69 | 147,855 | 904 | 2.46 | ||||||||||||||||||
Trading account assets |
142,287 | 1,578 | 4.42 | 134,196 | 1,454 | 4.34 | 117,748 | 1,203 | 4.10 | ||||||||||||||||||
Securities |
225,952 | 2,820 | 4.99 | 227,182 | 2,825 | 4.98 | 204,574 | 2,559 | 5.01 | ||||||||||||||||||
Loans and leases (1): |
|||||||||||||||||||||||||||
Residential mortgage |
171,012 | 2,298 | 5.37 | 167,263 | 2,285 | 5.47 | 178,075 | 2,415 | 5.44 | ||||||||||||||||||
Credit card - domestic |
55,271 | 1,651 | 11.85 | 52,474 | 1,481 | 11.32 | 51,310 | 1,373 | 10.85 | ||||||||||||||||||
Credit card - foreign |
| | | | | | | | | ||||||||||||||||||
Home equity lines |
58,046 | 910 | 6.22 | 54,941 | 799 | 5.83 | 51,477 | 692 | 5.45 | ||||||||||||||||||
Direct/Indirect consumer |
47,900 | 702 | 5.81 | 43,132 | 612 | 5.69 | 41,620 | 573 | 5.58 | ||||||||||||||||||
Other consumer (2) |
6,715 | 170 | 10.05 | 6,968 | 155 | 8.96 | 7,305 | 158 | 8.75 | ||||||||||||||||||
Total consumer |
338,944 | 5,731 | 6.73 | 324,778 | 5,332 | 6.58 | 329,787 | 5,211 | 6.38 | ||||||||||||||||||
Commercial - domestic |
127,044 | 2,095 | 6.54 | 123,927 | 1,938 | 6.27 | 123,803 | 1,954 | 6.40 | ||||||||||||||||||
Commercial real estate |
34,663 | 542 | 6.20 | 33,484 | 477 | 5.72 | 33,016 | 430 | 5.29 | ||||||||||||||||||
Commercial lease financing |
20,402 | 239 | 4.69 | 20,446 | 252 | 4.93 | 20,745 | 260 | 5.01 | ||||||||||||||||||
Commercial - foreign |
18,444 | 349 | 7.51 | 17,780 | 306 | 6.90 | 17,570 | 259 | 5.97 | ||||||||||||||||||
Total commercial |
200,553 | 3,225 | 6.38 | 195,637 | 2,973 | 6.09 | 195,134 | 2,903 | 6.03 | ||||||||||||||||||
Total loans and leases |
539,497 | 8,956 | 6.60 | 520,415 | 8,305 | 6.40 | 524,921 | 8,114 | 6.25 | ||||||||||||||||||
Other earning assets |
38,745 | 542 | 5.57 | 37,194 | 512 | 5.52 | 35,466 | 455 | 5.19 | ||||||||||||||||||
Total earning assets (3) |
1,137,629 | 15,403 | 5.39 | 1,118,518 | 14,458 | 5.18 | 1,044,891 | 13,336 | 5.14 | ||||||||||||||||||
Cash and cash equivalents |
32,969 | 34,731 | 31,382 | ||||||||||||||||||||||||
Other assets, less allowance for loan and lease losses |
124,156 | 124,229 | 124,586 | ||||||||||||||||||||||||
Total assets |
$ | 1,294,754 | $ | 1,277,478 | $ | 1,200,859 | |||||||||||||||||||||
Interest-bearing liabilities |
|||||||||||||||||||||||||||
Domestic interest-bearing deposits: |