CHARLOTTE, October 18 /PRNewswire/ --
- Capital Markets Losses Offset Solid Revenue Growth in Most Businesses
Bank of America Corporation today reported third quarter net income
declined 32 percent to US$3.70 billion from US$5.42 billion a year earlier.
Diluted earnings per share fell 31 percent to US$0.82 from US$1.18.
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Lower net income resulted from a US$1.33 billion decline in earnings in
Global Corporate and Investment Banking given the significant disruption in
the financial markets during the quarter. Provision expense increased
US$865 million due to consumer and small business credit costs rising from
post bankruptcy reform lows, growth and seasoning in various portfolios and
stress in several portfolios driven by the weakened U.S. housing market.
"While the significant dislocations in the capital markets have hurt most
participants, we are still very disappointed in our third quarter
performance," said Kenneth D. Lewis, chairman and chief executive officer.
"However, the majority of our businesses experienced solid revenue growth as
sales momentum continued, demonstrating the value of our diverse business
mix. We continued to invest in our businesses for the long term and to
introduce innovative products and services to differentiate Bank of America
in the marketplace. While we cannot predict the near term, I am confident
that such innovation and execution combined with the advantages of scale and
reach are the formula for future success."
Impact of Capital Markets on Financial Results
-- Unprecedented market disruptions impacted trading results. As a
result, Global Corporate and Investment Banking net income fell
93 percent to US$100 million from US$1.43 billion a year earlier.
-- Capital Markets and Advisory Services, a business within GCIB which
includes Liquid Products, Credit Products, Structured Products and
Equities, posted a US$717 million net loss compared with net income of
US$298 million a year earlier. Included in the net loss for the
quarter were US$247 million in markdowns, net of fees, on leveraged
and non-leveraged loans and commitments.
- Contributing to the loss in Credit Products was a US$607 million
trading revenue loss due principally to the breakdowns in
traditional pricing relationships, which made hedges ineffective,
and the widening of credit spreads.
- Structured Products, which includes asset-backed and residential
mortgage-backed securities, commercial mortgages, collateralized
debt obligations (CDOs) and structured credit trading had a net
revenue loss of US$527 million. The loss arose from lower investment
banking fees and trading declines principally due to the same
conditions affecting Credit Products.
Third Quarter 2007 Business Highlights (vs. a year earlier)
-- Total sales of retail products rose 12 percent, generated by strong
growth in sales of first mortgages, checking and savings accounts and
online banking activations. Net new retail checking accounts grew to a
record 757,000.
-- Retail deposits increased US$16.52 billion, or 4 percent. Debit card
purchase volume increased 11 percent and an increase in retail
accounts drove service charge income higher by 8 percent.
-- First mortgage originations rose 27 percent helped by the success of
No Fee Mortgage PLUS, which accounted for 21 percent of first mortgage
production in the third quarter.
-- Average loans and leases in Business Lending increased 9 percent to
nearly US$240 billion.
-- Total unit sales to small businesses with less than US$2.5 million in
annual sales rose 24 percent, while average deposits grew 9 percent.
-- Total assets under management (AUM) in Global Wealth and Investment
Management increased to a record of nearly US$710 billion helped by
the addition of U.S. Trust and strong net flows. On a 1-year and
3-year AUM weighted basis, 63 percent and 96 percent, respectively, of
the Columbia Funds and Excelsior equity funds were in the top
2 performance quartiles compared with their peer group.(1)
(1) Results shown are defined by Global Wealth and Investment
Management's calculation of the percentage of assets under management in the
top two quartiles of categories based on Morningstar as of August 31, 2007.
The category percentile rank was calculated by ranking the three year net
return of share classes within the categories. The assets of the number of
funds within the top 2 quartile results were added and then divided by Global
Wealth and Investment Management's total assets under management. Past
performance is no guarantee of future results. The share class earning the
ranking may have limited eligibility and may not be available to all
investors.
Third Quarter 2007 Financial Summary
Revenue
Revenue net of interest expense on a fully taxable-equivalent basis
declined 12 percent to US$16.30 billion from US$18.49 billion in the third
quarter 2006.
Noninterest income fell 24 percent to US$7.31 billion from
US$9.60 billion in the third quarter of 2006. The decrease was mainly due to
trading account losses of US$1.46 billion and the absence of a gain on the
sale of the company's operations in Brazil recognized in the third quarter
of last year. The decrease was partially offset by the absence of a
US$469 million loss on the sale of debt securities a year earlier and
improvements in investment and brokerage services and equity investment
income.
Net interest income on a fully taxable-equivalent basis was
US$8.99 billion compared with US$8.89 billion the previous year. The net
interest yield narrowed 12 basis points to 2.61 percent.
Efficiency
Noninterest expense decreased 4 percent to US$8.54 billion from
US$8.86 billion a year earlier as a result of lower capital markets incentive
compensation and pretax merger and restructuring charges. Pretax merger and
restructuring charges mainly related to the U.S. Trust acquisition were
US$84 million compared with US$269 million a year earlier which were
associated with the MBNA purchase. The efficiency ratio on a fully
taxable-equivalent basis was 52.40 percent.
Credit Quality
Credit costs continued to rise from the unusually low levels experienced
in 2006 post bankruptcy reform. Given weakened housing and capital markets
conditions, certain sectors began to experience some weakness. However,
overall credit quality remained sound as credit card losses stabilized,
declining from the second quarter.
Provision expense in the third quarter rose from a year ago due to higher
net charge-offs and increased reserves from the seasoning of the small
business and home equity portfolios, reflecting growth in these businesses.
The company also added reserves for its home equity and homebuilder loan
portfolios in view of the impact of the weakened U.S. housing market.
-- Provision for credit losses was US$2.03 billion, up from
US$1.81 billion in the second quarter of 2007, and US$1.17 billion in
the third quarter of 2006.
-- Net charge-offs were US$1.57 billion, or 0.80 percent of total average
loans and leases. This compared with US$1.50 billion, or 0.81 percent,
in the second quarter of 2007 and US$1.28 billion, or 0.75 percent, in
the third quarter of 2006.
-- Total managed net losses were US$2.84 billion, or 1.27 percent of
total average managed loans and leases compared with US$2.77 billion,
or 1.31 percent, in the second quarter of 2007 and US$2.20 billion, or
1.11 percent, in the third quarter of 2006.
-- Nonperforming assets were US$3.37 billion, or 0.43 percent of total
loans, leases and foreclosed properties, at September 30 compared with
US$2.39 billion, or 0.32 percent, at June 30, 2007 and US$1.66
billion, or 0.25 percent at September 30, 2006.
-- The allowance for loan and lease losses was US$9.54 billion, or
1.21 percent of total loans and leases measured at historical cost at
September 30 compared with US$9.06 billion, or 1.20 percent, at
June 30 and US$8.87 billion, or 1.33 percent, at September 30, 2006.
Capital Management
Total shareholders' equity was US$138.51 billion at September 30.
Period-end assets were US$1.6 trillion. The Tier 1 capital ratio was
8.22 percent, down from 8.52 percent at June 30, 2007 and 8.48 percent a year
ago due to the impact of the U.S. Trust acquisition.
During the quarter, Bank of America paid a cash dividend of US$0.64 per
share. The company also issued 9.5 million common shares related to employee
stock options and ownership plans and repurchased 9.6 million common shares.
Period-ending common shares issued and outstanding were 4.44 billion for the
third quarter of 2007, compared with 4.44 billion for the second quarter of
2007 and 4.50 billion for the third quarter of 2006.
Third Quarter 2007 Business Segment Results
Global Consumer and Small Business Banking(1)
(US Dollars in millions) Q3 2007 Q3 2006
Total managed revenue net of
interest expense(2) $11,985 $11,284
Provision for credit losses 3,121 2,049
Noninterest expense 4,971 4,619
Net Income 2,452 2,919
Efficiency ratio 41.48 % 40.94 %
Return on average equity 15.63 18.70
Managed loans and leases(3) $331,656 $291,028
Deposits(3) 321,552 332,500
(1) Managed basis. Managed basis assumes that loans that have been
securitized were not sold and presents earnings on these loans in a
manner similar to the way loans that have not been sold (i.e. held
loans) are presented. For more information and detailed
reconciliation, please refer to the data pages supplied with this
Press Release.
(2) Fully taxable-equivalent basis
(3) Balances averaged for period
Managed net revenue rose 6 percent as higher card income and service
charge income helped generate an 11 percent increase in noninterest income.
Net income decreased 16 percent from a year ago as credit costs rose.
The provision for credit losses increased 52 percent to US$3.12 billion.
The increase resulted mainly from portfolio seasoning due to growth in the
businesses and increased losses post bankruptcy reform. The weak housing
market also contributed to adding reserves for the home equity portfolio.
-- Deposits net revenue rose 4 percent to US$4.42 billion and net income
increased 3 percent to US$1.32 billion as service charges and debit
card income rose.
-- Card Services managed net revenue rose 6 percent to US$6.50 billion
while net income of US$1.08 billion declined 25 percent as credit
costs increased. Card losses stabilized and declined from the second
quarter.
-- Consumer Real Estate had US$837 million in net revenue, a 15 percent
increase, as home equity balances rose and first mortgage originations
grew. Net income fell 55 percent to US$73 million on higher credit
costs.
Global Corporate and Investment Banking
(US Dollars in millions) Q3 2007 Q3 2006
Total revenue net of interest
expense(1) $2,885 $5,168
Provision for credit losses 228 36
Noninterest expense 2,486 2,861
Net Income 100 1,433
Efficiency ratio 86.19 % 55.36 %
Return on average equity 0.91 13.82
Loans and leases(2) $267,758 $234,800
Trading-related assets(2) 356,867 339,119
Deposits(2) 217,632 194,806
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
Net revenue fell 44 percent as sales and trading-related revenue
declined, reducing noninterest income by 95 percent. Net income fell
93 percent due to the revenue decrease and higher provision expense (see
Impact of Capital Markets on Financial Results on page 2 for details).
The provision for credit losses increased to US$228 million from
US$36 million a year ago, reflecting the impact of the weak housing market
particularly on the homebuilder sector.
Spread compression continued to dampen results in Business Lending and
Treasury Services, which otherwise continued to deepen client relationships
while recording solid business activity.
-- Business Lending net revenue rose 1 percent to US$1.39 billion while
net income decreased 27 percent to US$379 million because of higher
credit costs and continued spread compression. Average loans and
leases increased 9 percent to nearly US$240 billion.
-- Capital Markets and Advisory Services had a net revenue loss of
US$184 million, reflecting declines in trading associated with the
disruption in the credit markets. The business had a net loss of
US$717 million on sales and trading losses, declines in investment
banking fees and markdowns on loans held for sale and unfunded
commitments partially offset by lower incentive compensation. While
results in Credit Products and Structured Products were sharply lower,
Liquid Products registered good gains.
-- Treasury Services net revenue declined 8 percent to US$1.75 billion,
while net income decreased 12 percent to US$558 million reflecting the
sale of a merchant services business a year earlier and spread
compression.
Global Wealth and Investment Management
(US Dollars in millions) Q3 2007 Q3 2006
Total revenue net of interest
expense(1) $2,200 $1,778
Provision for credit losses (29) 0
Noninterest expense 1,274 965
Net Income 599 513
Efficiency ratio 57.91 % 54.31 %
Return on average equity 19.98 20.95
Loans and leases(2) $77,041 $61,684
Deposits(2) 127,819 100,915
(in billions) At 9/30/07 At 9/30/06
Assets under management $709.9 $517.0
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
In July, Bank of America completed the acquisition of U.S. Trust,
creating U.S. Trust, Bank of America Private Wealth Management, within Global
Wealth and Investment Management to serve wealthy and ultra-wealthy clients.
Net revenue in Global Wealth and Investment Management increased
24 percent as higher customer activity and improved client asset inflows
resulted in a 34 percent increase in noninterest income. Net income increased
17 percent from a year ago as fee income increased. The acquisition of U.S.
Trust contributed about 10 percent to net revenue and 5 percent to net
income.
Asset management fees increased 42 percent to a record US$976 million
driven by higher assets under management helped by nearly US$116 billion in
assets added from the acquisition of U.S. Trust, net asset inflows of more
than US$44 billion and increased market values of more than US$38 billion.
-- U.S. Trust, Bank of America Private Wealth Management net revenue rose
48 percent to US$674 million and net income rose 55 percent to
US$143 million due to the acquisition of U.S. Trust, which contributed
nearly 30 percent to net revenue and 22 percent to net income,
increased lending and deposits volume and strong customer activity.
-- Columbia Management net revenue rose 30 percent to US$488 million
supported by strong client inflows, increased market values and the
addition of U.S. Trust, which contributed 6 percent to net revenue.
Net income increased 46 percent to US$114 million, with U.S. Trust
contributing 4 percent.
-- Premier Banking and Investments net revenue rose 11 percent to
US$948 million on record investment and brokerage services results, up
28 percent from a year ago. Net income increased 12 percent to
US$325 million.
All Other(1)
(US Dollars in millions) Q3 2007 Q3 2006
Total revenue net of interest
expense(2) $(766) $262
Provision for credit losses (1,290) (920)
Noninterest expense (188) 418
Net Income 547 551
Loans and leases(3) $104,061 $85,965
(1) All Other consists primarily of equity 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 the offsetting securitization impact to present Global
Consumer and Small Business Banking on a managed basis. For more
information and detailed reconciliation, please refer to the data
pages supplied with this Press Release.
(2) Fully taxable-equivalent basis
(3) Balances averaged for period
All Other net income was US$547 million compared with US$551 million a
year earlier. Revenue compared with last year was lower without the
contribution from the sale of Brazil operations. This was offset partly by
reduced other expenses from certain liquidating businesses. Equity
investments income rose 24 percent to US$852 million from US$687 million.
Note: Chief Executive Officer Kenneth D. Lewis and Joe L. Price, chief
financial officer, will discuss third quarter 2007 results in a conference
call at 9:30 a.m. (Eastern Time) today. The call can be accessed via a
webcast available on the Bank of America Investor Relations Web site at
http://investor.bankofamerica.com.
Bank of America
Bank of America is one of the world's largest financial institutions,
serving individual consumers, small and middle market businesses and large
corporations with a full range of banking, investing, asset management and
other financial and risk-management products and services. The company
provides unmatched convenience in the United States, serving more than
57 million consumer and small business relationships with more than
5,700 retail banking offices, more than 17,000 ATMs and award-winning online
banking with more than 23 million active users. Bank of America is the No. 1
overall Small Business Administration (SBA) lender in the United States and
the No. 1 SBA lender to minority-owned small businesses. The company serves
clients in 175 countries and has relationships with 99 percent of the U.S.
Fortune 500 companies and 80 percent of the Fortune Global 500. Bank of
America Corporation stock (NYSE: BAC) is listed on the New York Stock
Exchange.
This press release contains forward-looking statements, including
statements about the financial conditions, results of operations and earnings
outlook of Bank of America Corporation. The forward-looking statements
involve certain risks and uncertainties. Factors that may cause actual
results or earnings to differ materially from such forward-looking statements
include, among others, the following: 1) projected business increases
following process changes and other investments are lower than expected;
2) competitive pressure among financial services companies increases
significantly; 3) general economic conditions are less favorable than
expected; 4) political conditions including the threat of future terrorist
activity and related actions by the United States abroad may adversely affect
the company's businesses and economic conditions as a whole; 5) changes in
the interest rate environment and market liquidity reduce interest margins,
impact funding sources and effect the ability to originate and distribute
financial products in the primary and secondary markets; 6) changes in
foreign exchange rates increases exposure; 7) changes in market rates and
prices may adversely impact the value of financial products; 8) legislation
or regulatory environments, requirements or changes adversely affect the
businesses in which the company is engaged; 9) changes in accounting
standards, rules or interpretations, 10) litigation liabilities, including
costs, expenses, settlements and judgments, may adversely affect the company
or its businesses; 11) mergers and acquisitions and their integration into
the company; and 12) decisions to downsize, sell or close units or otherwise
change the business mix of any of the company. Accordingly, readers are
cautioned not to place undue reliance on forward-looking statements, which
speak only as of the date on which they are made. Bank of America does not
undertake to update forward-looking statements to reflect the impact of
circumstances or events that arise after the date the forward-looking
statements are made. For further information regarding Bank of America
Corporation, please read the Bank of America reports filed with the SEC and
available at www.sec.gov.
Columbia Mutual Funds: Please consider the investment objectives, risks,
charges and expenses of Columbia mutual funds carefully before investing.
Contact your financial advisor for a prospectus which contains this and other
important information about the fund. Read it carefully before you invest.
Columbia Management: Columbia Management is the primary investment
management division of Bank of America Corporation. Columbia Management
entities furnish investment management services and advise institutional and
mutual fund portfolios. Columbia Funds are distributed by Columbia Management
Distributors, Inc., member NASD, SIPC. Columbia Management Distributors, Inc.
is part of Columbia Management and an affiliate of Bank of America
Corporation.
www.bankofamerica.com
Web site: http://www.bankofamerica.com
Bank of America
