Bank of America Corporation — 2009 Form 10-K
Reporting period: Fiscal year ended December 31, 2009. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are identified where relevant. Bank of America operates consumer and commercial banking, cards, mortgages, investment banking, markets and wealth management. Merrill Lynch was acquired January 1, 2009, substantially expanding wealth management and markets; Countrywide contributed a full year of results.
Financial performance and position
| Metric | 2009 | 2008 |
|---|---|---|
| Revenue, net of interest expense, GAAP | $119.6 billion | $72.8 billion |
| Revenue, fully taxable-equivalent (FTE) | $120.9 billion | $74.0 billion |
| Net interest income, FTE | $48.4 billion | $46.6 billion |
| Net interest yield, FTE | 2.65% | 2.98% |
| Net income | $6.3 billion | $4.0 billion |
| Net income (loss) applicable to common shareholders | $(2.2) billion | $2.6 billion |
| Diluted earnings (loss) per common share | $(0.29) | $0.54 |
| Provision for credit losses | $48.6 billion | $26.8 billion |
| Net charge-offs | $33.7 billion; 3.58% of average loans | $16.2 billion; 1.79% |
| Noninterest expense | $66.7 billion | $41.5 billion |
| Efficiency ratio, FTE | 55.16% | 56.14% |
| Return on average assets | 0.26% | 0.22% |
Revenue growth reflected the Merrill Lynch acquisition, the full-year impact of Countrywide, improved trading, investment and brokerage income, and gains on investments and securities. These increases were partly offset by lower card income and $4.9 billion of negative credit valuation adjustments on Merrill Lynch structured notes. Net income improved, but common shareholders recorded a loss after $8.5 billion of preferred dividends and accretion, including a $4.0 billion accelerated accretion charge on TARP preferred stock repayment.
Year-end balance sheet: assets were $2.22 trillion, loans and leases $900.1 billion, deposits $991.6 billion, long-term debt $438.5 billion, and shareholders’ equity $231.4 billion. Compared with year-end 2008, assets rose 22%, deposits rose 12%, loans fell 3%, and long-term debt rose substantially, mainly reflecting Merrill Lynch and new debt issuance. Operating cash flow was $129.7 billion, investing cash flow $157.9 billion, and financing cash flow $(199.6) billion; cash and cash equivalents increased $88.5 billion to $121.3 billion. These cash-flow totals reflect significant banking and trading balance-sheet movements.
Capital ratios at year-end were 7.81% Tier 1 common, 10.40% Tier 1, 14.66% total risk-based capital, and 6.91% Tier 1 leverage. Global Excess Liquidity Sources totaled $214 billion; the parent-company “Time to Required Funding” measure was 25 months against a 21-month minimum target. The allowance for loan and lease losses was $37.2 billion, or 4.16% of loans; nonperforming loans, leases and foreclosed properties totaled $35.7 billion.
Material changes and segment results
- Credit deterioration was a central year-over-year change: provision for credit losses rose $21.7 billion; nonperforming loans, leases and foreclosed properties nearly doubled to $35.7 billion.
- Global Markets swung to $7.2 billion net income from a $4.9 billion loss, reflecting Merrill Lynch, stronger trading conditions and lower legacy-asset write-downs.
- Global Card Services reported a $5.6 billion net loss, compared with $1.2 billion net income; managed card net losses rose to $26.7 billion, or 12.30% of average managed loans.
- Home Loans & Insurance reported a $3.8 billion net loss, wider than the prior-year $2.5 billion loss, as higher mortgage production and servicing revenue was outweighed by credit costs and expenses.
- Global Banking net income fell to $3.0 billion from $4.5 billion as higher credit costs and expenses outweighed revenue growth. Deposits net income declined to $2.5 billion from $5.5 billion, chiefly due to spread compression and higher expenses.
- GWIM net income increased to $2.5 billion from $1.4 billion, substantially reflecting Merrill Lynch. Net client assets were $2.17 trillion at year-end.
- The fourth quarter recorded a $194 million net loss and a $5.2 billion loss applicable to common shareholders.
Outlook, management commentary and key risks
- Management described the economy as showing signs of stabilization but cautioned that weak employment, housing markets and credit performance could continue to pressure results in 2010. The filing provides no consolidated earnings or revenue guidance.
- The Corporation announced an objective to increase lending to small- and medium-sized businesses to approximately $21 billion in 2010, from approximately $16 billion in 2009.
- Credit risks include worsening consumer, residential mortgage, home equity, credit-card and commercial real estate losses; uncertain recovery; and possible further reserve needs. Mortgage loan repurchase demands and disputes over representations and warranties could materially increase losses.
- Regulatory changes were expected to pressure revenue: the CARD Act could constrain card repricing and fees, and Regulation E could reduce overdraft-fee income. Higher FDIC assessments and proposed capital, liquidity and trading rules could also raise costs or capital needs.
- The Corporation repaid $45 billion of TARP preferred stock in December 2009, using $25.7 billion of liquidity and $19.3 billion of CES proceeds. It agreed to add $3 billion of equity through asset sales by June 30, 2010 and up to approximately $1.7 billion through restricted-stock compensation. Repayment was expected to save approximately $3.6 billion annually in dividends and accretion.
- New consolidation accounting adopted January 1, 2010 was expected, preliminarily, to add approximately $100 billion of assets, including $70 billion from credit-card trusts, and an $11 billion loan-loss allowance. The filing estimated a 65–75 basis-point decline in Tier 1 and Tier 1 common capital ratios; the final impact remained subject to change.
- Other material exposures include litigation and regulatory investigations, counterparty and derivatives risk, market and valuation uncertainty, reliance on credit ratings and funding markets, and integration of Merrill Lynch and Countrywide. S&P affirmed ratings but changed the outlook to negative in February 2010.
Most important facts for investors to verify
- Whether credit losses, nonperforming assets and reserve coverage improved or worsened after year-end, particularly in mortgages, cards and commercial real estate.
- How much of reported revenue and earnings depended on acquired businesses, trading gains, CCB and BlackRock gains, securities sales, and the merchant-processing joint-venture gain.
- Execution of the agreed $3 billion asset sales and the remaining capital, liquidity and funding effects of TARP repayment and 2010 accounting consolidation.
- Actual effects of the CARD Act, Regulation E, FDIC assessments and other regulatory changes on revenue, expenses and capital.
- Developments in mortgage repurchase claims, litigation and regulatory matters, including the Merrill Lynch acquisition-related proceedings and settlements.