Net Loss of $7.3 Billion, or $0.77 per Diluted Share, Includes Goodwill Impairment Charge of $10.4 Billion
Excluding Goodwill Impairment Charge, Net Income Was $3.1 Billion, or $0.27 per Diluted Share1
Credit Costs Decline for Fifth Consecutive Quarter
Tier 1 Capital Ratios Continue to Strengthen
Strong Asset Management Fees in Wealth Management Business
Investment Bank Remains No. 2 in Global Investment Banking Fees
CHARLOTTE, N.C., Oct 19, 2010 (BUSINESS WIRE) --
Bank of America Corporation today reported a net loss of $7.3 billion, or $0.77 per diluted share, in the third quarter of 2010, including a non-cash, non-tax deductible goodwill impairment charge of $10.4 billion. Excluding this charge, net income was $3.1 billion, or $0.27 per diluted share, compared with a net loss of $1.0 billion, or $0.26 per diluted share, in the third quarter of 2009.
About the Goodwill Impairment Charge
As previously announced, the goodwill impairment charge is a non-cash, non-tax deductible charge applicable to the Global Card Services segment. The goodwill impairment charge does not impact regulatory capital or tangible equity ratios or liquidity, and has no impact on the company's ability to serve its customers and clients around the world. The charge results from the limits to be placed on debit interchange fees under the financial reform legislation enacted in July 2010, which will reduce future revenues in the Global Card Services business.
1 Excluding the goodwill impairment charge from certain financial measures represents a non-GAAP measure. For reconciliation to GAAP measures, refer to page 21 of this press release.
New Consumer Bank Strategy
As a result of the legislation and other changes in the environment, the company is changing the way its consumer bank does business, focusing on a relationship enhancement strategy designed to incent customers to bring more business and to make pricing more upfront and transparent. This change moves away from a dependence on penalty fees, which the industry had adopted over the years, and provides the customer with a better banking experience. These changes are expected to result in additional revenue.
Bank of America has begun to introduce new customer solutions designed to meet these goals. In August, the company began offering eBanking, which allows customers who primarily use such alternative channels as online banking and ATMs, to be rewarded with better pricing. The bank plans to begin testing new offerings in December that will provide customers choices on how to pay for their banking services and reward them for using certain products or bringing more balances. The company is also considering other new products in the payments area that would meet the evolving needs of specific customer groups with testing scheduled to begin next year.
Operating Results
Third-quarter 2010 results compared to a year ago benefited from lower credit costs, higher net interest income due in part to the adoption of new consolidation guidance on January 1, 2010, and increases in other income, mortgage banking income and card income. These improvements were partially offset by lower service charges, lower trading account profits and a decrease in insurance income.
"Our results this quarter demonstrate continued traction with each customer group - consumers, businesses, and institutional investors," said President and Chief Executive Officer Brian Moynihan. "Our strategy is to leave nothing to chance in our goal of doing everything we can for each of our customers.
"We are adapting to the regulatory environment, credit quality continues to improve, and we are managing risk and building capital. We are realistic about the near-term challenges, and optimistic about the long-term opportunity."
Third-Quarter Business Highlights
Bank of America continued to leverage its global franchise. Through the third quarter of 2010, approximately 200,000 loan and deposit products have been sold to Bank of America Merrill Lynch customers. In addition, referrals between Global Wealth and Investment Management and the company's Global Commercial Bank and Global Banking and Markets businesses totaled approximately 3,500 in the third quarter and approximately 10,700 year to date. The company's retirement business continues to win more business.
Global Wealth and Investment Management reported strong growth in client assets driven by higher market prices and increased inflows into higher-yielding products. These included a $14 billion increase in deposits and a $6 billion increase in long-term assets under management. Global Wealth and Investment Management increased the number of its client-facing associates for the fifth consecutive quarter.
Bank of America Merrill Lynch ranked No. 2 in global investment banking revenues with a 7 percent market share, according to Dealogic's third-quarter 2010 league tables. The company has No. 1 positions in both global and U.S. rankings in leveraged loans, syndicated loans, mortgage- and asset-backed securities and high-yield corporate debt.
Bank of America Merrill Lynch participated in five of the top 10 merger and acquisition transactions in the third quarter. The company had the lead role in the largest U.S. equity deal this year (Metlife) and was the global coordinator for the largest equity deal in history (Petrobras).
Bank of America continued to support the economic recovery by extending approximately $173 billion in credit in the third quarter of 2010, according to preliminary data. Credit extensions included $72 billion in first mortgages, $80 billion in commercial non-real estate, $11 billion in commercial real estate, $3 billion in domestic consumer and small business card, $2 billion in home equity products and $5 billion in other consumer credit. Commercial credit extensions include a significant number of credit renewals.
The $72 billion in first mortgages helped nearly 322,000 people either purchase homes or refinance existing mortgages. This included approximately 17,000 first-time homebuyer credit-qualified mortgages and more than 103,000 mortgages to low- and moderate-income borrowers. Approximately 36 percent of funded first mortgages were for home purchases and 64 percent were refinances.
Since the start of 2008, Bank of America and previously Countrywide have completed nearly 700,000 loan modifications with customers. During the third quarter, nearly 50,000 loan modifications were completed, including 13,000 consumers who converted from trial modifications under the U.S. government's Making Home Affordable Program.
Recognizing that small businesses are an important engine for economic activity, Bank of America recently announced plans to hire more than 1,000 small business bankers through early 2012 to provide personalized deposit, credit and cash management solutions to small business owners.
Overall consumer customer satisfaction with Bank of America continued to improve in the third quarter of 2010 as a result of a continued focus on customer service, including several new programs designed to enhance responsiveness to customer questions and concerns.
Average retail deposit balances rose 2 percent from the year-ago period to $633 billion, excluding the reduction associated with the completed sale of First Republic Bank during the quarter. Strong growth in Bank of America Merrill Lynch Global Wealth Management drove the increase.
Third-Quarter 2010 Financial Summary
Revenue and Expense
Three Months Ended
(Dollars in millions) September 30, 2010
June 30, 2010
September 30, 2009
Net interest income, FTE basis1 $ 12,717 $ 13,197 $ 11,753
Noninterest income 14,265 16,253 14,612
Total revenue net of interest expense, FTE basis 26,982 29,450 26,365
Noninterest expense2 $ 16,816 $ 17,253 $ 16,306
Goodwill impairment charge 10,400 - -
Efficiency ratio 100.87% 58.58% 61.84%
Efficiency ratio, excluding goodwill impairment charge 62.33% n/a n/a
1 FTE basis is a non-GAAP measure. For reconciliation to GAAP measures, refer to page 21 of this press release. In the three months ended September 30, 2009, net interest income on a managed FTE basis was $14.3 billion. Managed basis assumes that credit card loans that were securitized were not sold and presented earnings on these loans in a manner similar to the way loans that have not been sold (i.e., held loans) were presented.
2Excludes goodwill impairment charge of $10.4 billion.
n/a = not applicable
Revenue, net of interest expense, on a fully taxable-equivalent (FTE) basis rose 2 percent from the year-ago period. Net interest income on an FTE basis increased 8 percent from a year earlier, reflecting the impact of the adoption of new consolidation guidance, effective January 1, 2010, which added assets of approximately $100 billion to the balance sheet as of that date. The change, while having no impact on net income, primarily increased net interest income and card income offset by increased provision for credit losses.
Compared to the second quarter of 2010, revenue, net of interest expense, on an FTE basis was down 8 percent. Net interest income on an FTE basis was down 4 percent from the second quarter of 2010, reflecting lower loan levels and the impact of the extended low rate environment. The net interest yield widened 11 basis points from the year-ago quarter due primarily to the higher-yielding loans included on our balance sheet related to the adoption of the new consolidation guidance, partially offset by the impact of spread compression. Compared to the second quarter of 2010, the net interest yield decreased 5 basis points due mainly to a shift in the mix of earning assets as higher-yielding assets ran off and were replaced with lower-yielding assets available in the lower rate environment.
Noninterest income declined 2 percent from the year-ago quarter due primarily to lower service charges, reduced trading account profits and lower gains on sales of debt securities. Additionally, insurance income was lower compared to the same period a year ago as a result of a $592 million reserve related to payment protection insurance claims in the U.K. These factors were partially offset by year-over-year improvements in other income driven largely by lower losses of $190 million primarily related to structured liabilities, compared to losses of $1.8 billion in the year-ago period, higher mortgage banking income, and increases in card income.
Noninterest expense was up 67 percent from the year-ago quarter, primarily reflecting the goodwill impairment charge. Excluding the goodwill impairment charge, noninterest expense was up 3 percent from a year ago due primarily to higher personnel costs, increased professional fees and litigation costs
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