The FINANCIAL -- Bank of America Corporation on January 20 reported full-year 2009 net income of $6.3 billion, compared with net income of $4.0 billion in 2008.
Including preferred stock dividends and the negative impact from the repayment of the U.S. government's $45 billion preferred stock investment in the company under the Troubled Asset Relief Program (TARP), income applicable to common shareholders was a net loss of $2.2 billion, or $0.29 per diluted share.
Those results compared with 2008 net income applicable to common shareholders of $2.6 billion, or $0.54 per diluted share.
"In the fourth quarter of 2009, the company's net loss narrowed to $194 million from a loss of $1.8 billion a year earlier. Including dividends on preferred stock and the one-time $4.0 billion negative impact associated with repaying TARP, income applicable to common shareholders in the period was a net loss of $5.2 billion, or $0.60 per diluted share, compared with a net loss of $2.4 billion, or $0.48 per diluted share, in the year-ago quarter," Bank of America informs.
Results in the fourth quarter reflected continued elevated credit costs, although lower than in the third quarter of 2009. While net interest income declined from the year-ago quarter as a result of lower asset liability management portfolio levels and reduced loan demand, noninterest income was up sharply due to an improvement in trading and significantly higher income from investment and brokerage services, equity investments and investment banking.
"While it's disappointing to report a loss for the fourth quarter, there were a number of important accomplishments worth noting," said Chief Executive Officer and President Brian T. Moynihan. "First, we repaid the American taxpayer, with interest, for the TARP investment. Second, we have taken steps to strengthen our balance sheet through successful securities offerings. And third, all of our non-credit businesses recorded positive contributions to our results.
"As we look at 2010, we are encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer businesses. That said, economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth."
Full-Year and Fourth-Quarter 2009 Business Highlights
During the quarter, Bank of America funded $86.6 billion in first mortgages, helping more than 400,000 people either purchase homes or refinance their existing mortgages. This funding included $22.9 billion in mortgages made to 151,000 low- and moderate-income borrowers. Approximately 42 percent of first mortgages were for home purchases.
In 2009, Bank of America has provided home ownership retention opportunities to approximately 460,000 customers. This includes 260,000 loan modifications with total unpaid principal balances of approximately $55 billion and approximately 200,000 customers who were in trial-period modifications under the government's Making Home Affordable program at December 31.
Bank of America Home Loans expanded its home retention staff to more than 15,000 to help customers experiencing difficulty with their home loans. This represents more than double the size of the team since Bank of America acquired Countrywide.
In 2009, Bank of America extended $756 billion in credit, including commercial renewals of $208 billion, according to preliminary data. New credit included $378 billion in first mortgages, $282 billion in commercial non-real estate, $39 billion in commercial real estate, $18 billion in domestic consumer and small business card, $13 billion in home equity products and nearly $26 billion in other consumer credit.
In 2009, Small Business Lending extended more than $14 billion in credit comprised of $12 billion in Business Banking and $2 billion to more than 146,000 Small Business Banking businesses. Bank of America recently announced an initiative to increase lending to small- and medium-sized businesses in 2010 by at least $5 billion from 2009 levels.
Average retail deposits during the quarter increased $89.9 billion, or 15 percent, from a year earlier. Excluding the initial impact of the Merrill Lynch acquisition and the expected decline in higher-yielding Countrywide deposits, average retail deposits experienced strong organic growth of $29.1 billion as momentum in the affluent and mass affluent customer base continued.
Bank of America introduced the Clarity Commitment™ for home mortgages, home refinancing and credit cards. The Clarity Commitment is a simple, easy-to-read and understand, one-page summary for customers that includes important information on payments, interest rates and fees. Bank of America began presenting these improved materials to more than 40 million of its customers in 2009.
The integration of Merrill Lynch remained on track with cost savings surpassing original estimates for the first year.
Bank of America Merrill Lynch ranked No. 2 in global and U.S. investment banking fees, according to Dealogic 2009 league tables.
In Global Wealth and Investment Management, the financial advisor network of more than 15,000 was up slightly from the third quarter as the retention rate stood at the highest level in recent years and the company increased hiring, training and development of new advisors.
Bank of America agreed to sell the long-term asset management business of Columbia Management to Ameriprise Financial, Inc. The company also agreed to sell First Republic Bank to a number of investors, including investment funds managed by Colony Capital, LLC and General Atlantic LLC, led by First Republic's existing management. Both sales are expected to close in the second quarter of 2010.
Bank of America repaid the $45 billion of the U.S. taxpayers' preferred stock investment in the company as part of TARP. Repayment followed the successful completion of a securities offering. In 2009, Bank of America raised a total of $57 billion in additional Tier 1 common capital through various measures, further strengthening its liquidity and capital position.
Fourth-Quarter 2009 Financial Summary
Revenue and Expense
Revenue net of interest expense on a fully taxable-equivalent basis rose 59 percent to $25.4 billion from $16.0 billion a year ago, reflecting in part the addition of Merrill Lynch.
Net interest income on a fully taxable-equivalent basis declined 11 percent to $11.9 billion, compared with $13.4 billion a year earlier. The decrease was a result of lower asset liability management portfolio levels, reduced loan levels and the unfavorable impact of higher nonperforming loans. This was partially offset by the addition of Merrill Lynch. The net interest yield narrowed 69 basis points to 2.62 percent.
Noninterest income rose to $13.5 billion from $2.6 billion a year earlier. Higher trading account profits, investment and brokerage services fees and investment banking income reflected the addition of Merrill Lynch and significantly lower market disruption losses. The current quarter also included a $1.1 billion gain on the company's investment in BlackRock as a result of its purchase of Barclay's asset management business. These increases were partially offset by $1.6 billion in losses mostly related to mark-to-market adjustments on the Merrill Lynch structured notes, as the company's credit spreads improved during the quarter. Card income declined $1.3 billion mainly due to higher credit losses on securitized credit card loans and lower fee income.
Noninterest expense increased to $16.4 billion from $10.9 billion a year earlier. Personnel costs and other general operating expenses rose, driven in part by the Merrill Lynch acquisition. Pretax merger and restructuring charges rose to $533 million from $306 million a year earlier.
The efficiency ratio on a fully taxable-equivalent basis was 64.47 percent, compared with 68.51 percent a year earlier.
Pretax, pre-provision income on a fully taxable-equivalent basis was $9.0 billion compared with $5.0 billion a year earlier. The company had a tax benefit of $1.2 billion in the quarter compared with a benefit of $2.0 billion the same period last year.
Credit Quality
Credit quality showed signs of improvement in most portfolios compared with the prior quarter, although credit costs remained high as global economic conditions remained challenging. Rising unemployment and underemployment kept consumers under stress and individuals spent longer periods without work. Losses, however, declined in most consumer portfolios from the prior quarter.
The impact of the weak economy on the commercial portfolios moderated somewhat with criticized loans decreasing and the growth of nonperforming loans slowing. Losses in the homebuilder portfolio dropped from the prior quarter and losses in the commercial domestic portfolio declined across a broad range of borrowers and industries.
Net charge-offs were $1.2 billion lower than the prior quarter, driven by improvements across most consumer portfolios. Net charge-offs declined from the previous quarter for the first time in nearly four years. Nonperforming assets were $35.7 billion, compared with $33.8 billion at September 30, 2009, reflecting a slower rate of increase than in recent quarters.
The provision for credit losses was $10.1 billion, $1.6 billion lower than the third quarter and $1.6 billion higher than the same period a year earlier. The $1.7 billion addition to the reserve for credit losses was lower than the third quarter, driven by lower additions on the purchased impaired consumer portfolios obtained through acquisitions and improved delinquencies in certain consumer and small business portfolios. These decreases were partially offset by additions to increase reserve coverage on the consumer credit card portfolio.
Full-Year 2009 Financial Summary
Revenue and Expense
Revenue net of interest expense on a fully taxable-equivalent basis rose 63 percent to $120.9 billion from $74.0 billion a year ago, reflecting in part the addition of Countrywide and Merrill Lynch.
Net interest income on a fully taxable-equivalent basis was $48.4 billion, compared with $46.6 billion for 2008. The increase was a result of increased deposit levels, a favorable rate environment, the acquisitions of Merrill Lynch and Countrywide, offset in part by asset liability management portfolio levels, lower consumer loan balances and an increase in nonperforming loans. The net interest yield narrowed 33 basis points to 2.65 percent.
Noninterest income rose to $72.5 billion from $27.4 billion a year earlier. Higher trading account profits, equity investment income, investment and brokerage services fees and investment banking income reflected the addition of Merrill Lynch and significantly lower market disruption losses. These increases, as well as the increase in mortgage banking income related to the Countrywide acquisition and gains on the sale of debt securities, were partially offset by $4.9 billion in net losses mostly related to mark-to-market adjustments on the Merrill Lynch structured notes, as the company's credit spreads improved, and approximately $800 million in net credit valuation adjustments on derivative liabilities. Card income declined $5.0 billion mainly from higher credit losses on securitized credit card loans and lower fee income.
Noninterest expense increased to $66.7 billion from $41.5 billion a year earlier. Personnel costs and other general operating expenses rose due to the full-year impact of Countrywide and the addition of Merrill Lynch. Pretax merger and restructuring charges rose to $2.7 billion from $935 million a year earlier.
The efficiency ratio on a fully taxable-equivalent basis was 55.16 percent compared with 56.14 percent a year earlier.
Pretax, pre-provision income on a fully taxable-equivalent basis was $54.2 billion compared with $32.4 billion a year earlier. For the year, the company recognized a tax benefit of $1.9 billion, compared with a tax expense of $420 million in 2008. The decrease in tax expense was due to certain tax benefits, as well as a shift in the geographic mix of the company's earnings driven by the addition of Merrill Lynch.
Credit Quality
Weakness in global economies drove higher credit costs in 2009. The provision for credit losses was $48.6 billion, $21.7 billion higher than 2008, reflecting higher net charge-offs and additions to reserves. Higher reserve additions resulted from further deterioration on the purchased impaired consumer portfolios obtained through acquisitions, broad-based deterioration in the core commercial portfolio and the impact of deterioration in the housing markets on the residential mortgage portfolio.
Net charge-offs were $17.5 billion higher than the prior year across all portfolios. Nonperforming assets were $35.7 billion, compared with $18.2 billion at December 31, 2008. The 2008 ratios and amounts shown in the following table do not include Merrill Lynch, which was acquired on January 1, 2009.
Capital Management
Bank of America increased its Tier 1 common capital by $57 billion through multiple capital actions taken during 2009 that included issuing shares of common stock, issuing common equivalent securities, exchanging certain non-government preferred stock for common stock and asset sales.
Tangible common equity benefited from the positive impact of market movement on available-for-sale securities.
During the year, cash dividends of $0.04 per common share were paid and the company reported $8.5 billion in preferred dividends including the cost associated with TARP repayment.
Deposits
Deposits net income fell 55 percent from a year ago as revenue declined and noninterest expense rose. Revenue declined mainly due to lower residual net interest income impacted by the corporation's asset liability management activities and spread compression as interest rates declined. Noninterest expense increased as a result of higher Federal Deposit Insurance Corp. (FDIC) insurance and special assessment costs.
Average customer deposits rose 14 percent, or $49.2 billion, from a year ago due to strong organic growth and the transfer of certain client deposits from Global Wealth and Investment Management. Organic growth was driven by the continuing need of customers to manage their liquidity as illustrated by growth in higher spread deposits from new money, as well as movement from certificates of deposit to other products. The increase was partially offset by the expected decline in higher-yielding Countrywide deposits.
Fourth-quarter net income fell 62 percent to $595 million compared with the same period last year due to a decline in revenue and an increase in noninterest expense. These period-over-period changes were driven by the same factors as described in the full year discussion above. The decline in revenue included the impact of implementing new initiatives aimed at assisting customers who are economically stressed by reducing the amount of their banking fees. Overdraft fees declined $160 million as a result of these initiatives.
Global Card Services
Global Card Services reported a net loss of $5.6 billion as credit costs continued to rise, reflecting weak economies in the U.S., Europe and Canada. Managed net revenue declined 6 percent to $29.3 billion mainly due to lower fee income and the absence of one-time gains that positively impacted 2008 results. The decline was partially offset by higher net interest income, as lower funding costs outpaced the decline in average managed loans. The revenue decline also was partially driven by enrolling customers who are experiencing financial stress in various card modification programs.
Provision expense increased to $30.1 billion from a year earlier as economic conditions led to higher losses in the consumer card and consumer lending portfolios, including a higher level of bankruptcies. Reserve additions related to maturing securitizations and increased coverage on the consumer credit card portfolio also contributed to the increase. These increases were partially offset by reserve reductions in consumer lending and lower reserve additions for the small business portfolio resulting from improved delinquencies.
Noninterest expense declined 13 percent on lower operating and marketing costs.
The fourth-quarter net loss of $1.0 billion was due to higher credit costs and lower managed revenues driven by the impact of the weak economy. Net revenue fell 11 percent compared with a year ago as net interest and fee income declined, partially offset by lower operating and marketing costs. Additionally, in the fourth quarter, the company helped more than 200,000 customers by reducing their rates and providing them more affordable payment terms.
Home Loans and Insurance
The net loss in Home Loans and Insurance widened to $3.8 billion as higher credit costs continued to negatively impact results. Net revenue increased 82 percent primarily driven by the full-year benefit of Countrywide and higher loan production income from increased refinance activity.
The provision for credit losses rose to $11.2 billion, driven by continued economic weakness and lower home prices. Reserves were increased mainly due to further deterioration in the purchased impaired portfolio.
Noninterest expense rose to $11.7 billion mostly due to the full-year impact of Countrywide as well as increased compensation costs and other expenses related to higher production volume and higher delinquencies. Part of the increase in expenses was a result of more than doubling the staff and other costs in the home retention group.
The fourth-quarter net loss increased 40 percent to $993 million compared with the year-ago quarter. Net revenue rose mostly on higher income from loan production. The increase was partially offset by lower servicing revenue driven by unfavorable mortgage servicing rights results. Higher production volume and delinquencies led to increased expenses. Provision for credit losses increased due to the same factors as described in the full-year discussion above.
Global Banking
Global Banking net income declined to $3.0 billion. Strong deposit growth and the impact of the Merrill Lynch acquisition were more than offset by increased credit costs and higher FDIC insurance and special assessment costs.
The provision for credit losses rose to $8.8 billion driven by higher net charge-offs and additions to reserves in the commercial real estate and commercial domestic portfolios. These increases reflect deterioration across a broad range of industries, property types and borrowers.
Commercial Banking revenue increased to $15.2 billion, reflecting strong deposit growth, credit spread improvement on loan yields and the gain related to the sale of the merchant processing business to a joint venture during the second quarter. This was offset in part by lower residual net interest income, narrower spreads on deposits and reduced loan balances. Net income was negatively impacted by a significant increase in credit costs and higher FDIC insurance and special assessment costs.
Corporate Banking and Investment Banking revenue rose 44 percent, or $2.4 billion, driven by strong investment banking revenues due to the expanded Bank of America Merrill Lynch platform and strong deposit growth. The increase was partially offset by the costs of credit hedging and lower residual net interest income. Net income was further impacted by higher credit costs, operating expenses associated with the Merrill Lynch acquisition and higher FDIC insurance and special assessment costs.
Fourth-quarter net income declined 74 percent to $264 million compared with a year earlier due to higher credit, FDIC insurance and compensation costs. Provision for credit losses rose due to higher net charge-offs and reserve additions within the commercial real estate portfolio. Net revenue increased due to the impact of the Merrill Lynch acquisition.
Global Markets
Global Markets net income increased $12.1 billion driven by the addition of Merrill Lynch and a more favorable trading environment. Revenue increased to $20.6 billion due to improved market conditions and the reduced impact of market disruption charges compared with the prior year. Noninterest expense increased due to the Merrill Lynch acquisition. The increase was partially offset by a change in compensation that delivers a greater portion of incentive pay over time.
Fixed Income, Currency and Commodities revenue of $14.9 billion was primarily driven by sales and trading revenues of $12.7 billion. Credit products benefited from improved market liquidity and tighter credit spreads. Investment banking fees were positively impacted by new issuance capabilities.
Equities revenue of $5.7 billion, including sales and trading revenue of $4.9 billion, was driven by the addition of Merrill Lynch and an increase in customer flow due to positive market sentiment and gains from risk positioning.
Fourth-quarter net income increased $4.8 billion compared with a net loss of $3.7 billion in the same period last year. Net revenue increased due to a more favorable trading environment from the prior year, including significantly lower market disruption charges and the addition of Merrill Lynch.
Global Wealth and Investment Management
Global Wealth and Investment Management net income rose to $2.5 billion driven by the addition of Merrill Lynch, partially offset by lower residual net interest income and higher credit costs.
Net revenue more than doubled to $18.1 billion on higher investment and brokerage service income from the addition of Merrill Lynch, a $1.1 billion gain related to the BlackRock equity investment and the lower level of support for certain cash funds.
The provision for credit losses increased $397 million to $1.1 billion driven by higher net charge-offs in the consumer real estate portfolio, as well as higher net charge-offs and reserve increases in the commercial portfolios.
Merrill Lynch Global Wealth Management net income increased 22 percent to $1.5 billion from a year earlier as the impact of lower residual net interest income, the migration of deposits and loan balances to the Deposits and Home Loans and Insurance businesses and higher credit costs were more than offset by the addition of Merrill Lynch.
U.S. Trust, Bank of America Private Wealth Management net income declined to $174 million as net revenue fell and credit costs increased significantly, including the impact of a single large commercial charge-off in the third quarter. Net revenue declined 11 percent to $2.7 billion driven by a lower residual net interest income allocation and the effect of lower valuations in equity markets on asset management fee income.
Columbia Management net loss narrowed to $7 million compared with a net loss of $469 million a year earlier, driven by a $917 million reduction in support provided to certain cash funds, partially offset by the impact of lower valuations in the equity markets, as well as net outflows in the cash complex. As a result of actions taken during the year, Columbia's money market funds no longer have exposure to structured investment vehicles or other troubled assets and all capital support agreements have been terminated.
Fourth-quarter net income increased $816 million to $1.3 billion, compared with the same period last year as revenue increased to $5.5 billion. The increase in revenue was driven primarily by the Merrill Lynch acquisition and the gain related to the BlackRock equity interest.
All Other
All Other reported net income of $478 million. Higher equity investment income and increased gains on the sale of debt securities were offset by $4.9 billion mark-to-market losses mainly related to certain Merrill Lynch structured notes as credit spreads improved. Results were also impacted by other-than-temporary impairment charges related to non-agency collateralized mortgage obligations. Excluding the securitization impact to show Global Card Services on a managed basis, the provision for credit losses increased compared with the same period last year due to higher losses in the residential mortgage portfolio. Noninterest expense increased due to merger and restructuring charges related to the Merrill Lynch acquisition and a pretax charge to pay the U.S. government to terminate its asset guarantee term sheet.
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