Bank of America Corporation reported net income rose 5 percent in the first quarter of 2007 to $5.26 billion from $4.99 billion a year earlier. Diluted earnings per share increased 8 percent to $1.16 from $1.07. Return on average common shareholders’ equity was 16.16 percent.
Excluding pretax merger and restructuring charges of $111 million, equal to 1 cent per share, the company earned $5.33 billion, or $1.17 per share, in the first quarter. A year earlier merger and restructuring charges of $98 million also were equal to 1 cent per share.
These improved results were primarily driven by increases in service fee income, investment banking income, mortgage banking income and equity investment gains. The benefits of doing more business with more customers was somewhat offset on the bottom line by the impact of a flat yield curve and normalizing credit costs.
“Bank of America is off to a solid start in 2007 despite a challenging operating environment,” said Kenneth D. Lewis, chairman and chief executive officer. “We demonstrated strong customer momentum across our lines of business; added thousands of net new checking account customers thanks to innovative products like Keep the Change(TM); generated double-digit loan growth and deepened relationships with business and corporate clients.”
First Quarter 2007 Highlights (vs. a year earlier)
— Card Services posted average managed loan growth of $14.48 billion, an 8 percent increase, and added 3 million new accounts in the first quarter.
— Net new retail checking accounts grew by 487,000 in the first quarter helped by innovative products such as Keep the Change(TM). Since inception, more than 4 million customers have enrolled in Keep the Change(TM) and saved about $400 million.
— Total sales of retail products rose 6 percent to nearly 12 million units resulting from strong growth in checking, savings, credit card, mortgage, small business and online banking activations. E-commerce sales remain strong, representing 20 percent of total retail product sales. Sales of deposit and credit products through E-commerce increased by 47 percent.
— Debit card income rose 16 percent to $500 million and purchase volume grew to $43.57 billion.
— Average loans to small businesses with less than $2.5 million in annual sales increased 30 percent to $14.01 billion.
— Total first quarter average loans and leases rose 10 percent in Global Corporate and Investment Banking to more than $247 billion.
— Investment banking fees rose 35 percent, driven by debt underwriting and mergers and acquisitions deal volume.
— Bank of America began offering $0 Online Equity Trades in late 2006. With the addition of California in the first quarter, the program is now offered nationally. The program helped generate growth in self- directed client brokerage assets, which exceeded $28 billion at March 31, 2007, up 35 percent.
— Investment and brokerage services in Global Wealth and Investment Management rose 12 percent on strong client asset inflows and record brokerage income.
— Total assets under management in Global Wealth and Investment Management increased 11 percent to more than $547 billion. On a 3-year assets under management weighted basis, 89 percent of Columbia’s equity mutual funds were in the top 2 performance quartiles compared with their peer group. (1)
(1) Results shown are defined by Columbia Management’s calculation of its percentage of assets under management in the top two quartiles of categories based on Morningstar. 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 Columbia Managements 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.
First Quarter 2007 Financial Summary
Revenue
Revenue on a fully taxable-equivalent basis increased 3 percent to $18.42 billion from $17.94 billion in the first quarter of 2006. Noninterest income rose 10 percent to $9.83 billion from $8.90 billion in the first quarter of 2006. Results were driven by continued strength in service fee income, investment banking income, mortgage banking income and equity investment gains.
Net interest income on a fully taxable-equivalent basis was $8.60 billion compared with $9.04 billion the previous year. The decline is a result of higher cost deposits, divestitures of businesses and the impact of hedging activities. The net interest yield decreased 37 basis points to 2.61 percent.
Efficiency
The efficiency ratio on a fully taxable-equivalent basis was 49.38 percent for the first quarter of 2007 (48.78 percent excluding merger and restructuring charges). Noninterest expense increased 2 percent to $9.10 billion from $8.92 billion a year earlier. Expenses were up primarily due to higher incentive and personnel expense, reflecting investment in various business platforms.
The quarter’s results also included $397 million, or 6 cents per share, in expense from the impact of SFAS 123R, which accelerates the recognition of certain equity-based compensation expenses for retirement-eligible associates. A year ago the expense was $320 million, or 5 cents per share. Also included in first quarter 2007 expenses were $111 million in pre-tax merger and restructuring charges related to the MBNA acquisition compared with $98 million a year earlier.
Credit Quality
Overall credit quality remained sound. Compared with the first quarter of 2006, net charge-offs increased reflecting portfolio seasoning and the trend toward more normalized levels post bankruptcy reform. Provision expense in the first quarter was down slightly from a year ago as higher net charge-offs were more than offset by reductions in reserves from consumer credit card securitization activities and the sale of the Argentina portfolio.
— Provision for credit losses was $1.24 billion, down from $1.57 billion in the fourth quarter of 2006, and $1.27 billion in the first quarter of 2006.
— Net charge-offs were $1.43 billion, or 0.81 percent of total average loans and leases. This compared with $1.42 billion, or 0.82 percent, in the fourth quarter of 2006 and $822 million, or 0.54 percent, in the first quarter of 2006. Reported net charge-offs in the first quarter of 2006 excluded $210 million, or 0.14 percent, as a result of recording impaired MBNA loans at fair value.
— Total managed losses were $2.57 billion, or 1.26 percent of total average managed loans and leases compared with $2.45 billion, or 1.23 percent, in the fourth quarter of 2006 and $1.48 billion, or 0.84 percent, in the first quarter of 2006. Managed losses in the first quarter of 2006 excluded $210 million, or 0.11 percent, as a result of recording impaired MBNA loans at fair value.
— Nonperforming assets were $2.06 billion, or 0.29 percent of total loans, leases and foreclosed properties, at March 31 compared with $1.86 billion, or 0.26 percent, at December 31, 2006 and $1.68 billion, or 0.27 percent at March 31, 2006.
— The allowance for loan and lease losses was $8.73 billion, or 1.21 percent of total loans and leases, at March 31 compared with $9.02 billion, or 1.28 percent at December 31, 2006 and $9.07 billion, or 1.46 percent, at March 31, 2006.
Capital Management
Total shareholders’ equity was $134.86 billion at March 31. Period-end assets grew to $1.5 trillion. The Tier 1 Capital Ratio was 8.57 percent, down from 8.64 percent at December 31, 2006 and up from 8.45 percent a year ago.
During the quarter, Bank of America paid a cash dividend of $0.56 per share. The company also issued 28.9 million common shares related to employee stock options and ownership plans and repurchased 48.0 million common shares. Period-ending common shares issued and outstanding were 4.44 billion for the first quarter of 2007, compared with 4.46 billion for the fourth quarter of 2006 and 4.58 billion for the first quarter of 2006.
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First Quarter 2007 Business Segment Results
Global Consumer and Small Business Banking^
(Dollars in millions) Q1 2007 Q1 2006
Total Managed Revenue(1) $11,422 $10,842
Managed credit impact 2,411 1,901
Noninterest expense 4,728 4,612
Net Income 2,696 2,724
Efficiency ratio 41.40 % 42.54 %
Return on average equity 17.58 16.73
Managed loans and leases(2) $308,105 $279,382
Deposits(2) 326,552 332,702
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
Managed revenue rose 5 percent as higher card income, service charges and mortgage banking income helped generate a 17 percent increase in noninterest income. Net income decreased 1 percent from a year ago as credit costs increased.
Bank of America’s combination with MBNA continued to show positive results. Increases in card income and service charges were offset by higher managed credit costs. The increase in credit costs reflected portfolio seasoning and the trend toward more normalized levels post bankruptcy reform, partially offset by reserve reductions from consumer credit card securitization activities.
— Deposits revenue increased 9 percent to $4.24 billion and net income increased 19 percent to $1.29 billion. Consumer organic deposit growth of 2 percent was driven by solid account growth in checking and CD products.
— Card Services managed revenue of $6.13 billion was up 2 percent while net income of $1.15 billion declined 18 percent because of increased credit costs.
— Consumer Real Estate, which includes the home equity and mortgage businesses, had $840 million in revenue up 21 percent partly from increased home equity balances. Net income increased 33 percent to $227 million.
^ 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.
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Global Corporate and Investment Banking
(Dollars in millions) Q1 2007 Q1 2006
Total Revenue(1) $5,321 $5,268
Provision for credit losses 115 25
Noninterest expense 2,900 2,832
Net Income 1,447 1,524
Efficiency ratio 54.49 % 53.75 %
Return on average equity 14.36 14.72
Loans and leases(2) $247,898 $224,907
Trading-related assets(2) 360,530 315,733
Deposits(2) 208,488 186,626
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
Revenue increased 1 percent as investment banking income raised noninterest income 5 percent. Net income declined 5 percent on higher provision expense and increased compensation costs, which more than offset the increase in revenue.
The revenue increase was driven by Capital Markets and Advisory Services, as investments in personnel and trading infrastructure continued to produce strong results. Investment banking revenue rose 35 percent from the first quarter of 2006, as increased market activity and deal flow continued to produce higher advisory and debt and equity underwriting fees.
Provision expense rose $90 million because of higher net charge offs resulting mainly from lower commercial recoveries.
— Business Lending revenue was flat at $1.35 billion while net income was down 14 percent due to increased provision expense and continued spread compression. Improved results from lower cost of credit mitigation and gains in both Leasing and Commercial Real Estate Banking helped balance the impact compared with the first quarter 2006.
— Capital Markets and Advisory Services revenue increased 3 percent to $2.36 billion driven by strong investment banking fees partially offset by prior year record sales and trading revenue. Net income rose 3 percent.
— Treasury Services revenue was unchanged at $1.62 billion, while net income decreased 4 percent reflecting the impact of a client shift from non-interest bearing to interest bearing deposits and investment spending. The deposit shift offset strong average deposit growth of $2.36 billion compared with a year earlier.
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Global Wealth and Investment Management
(Dollars in millions) Q1 2007 Q1 2006
Total Revenue(1) $1,888 $1,829
Provision for credit losses 23 –
Noninterest expense 1,017 967
Net Income 531 542
Efficiency ratio 53.90 % 52.88 %
Return on average equity 21.59 20.67
Loans and leases(2) $65,841 $58,146
Deposits(2) 114,958 101,028
(in billions) At 3/31/07 At 3/31/06
Assets under management $547.4 $493.9
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
Revenue increased 3 percent as higher customer activity and improved client asset flows resulted in an 8 percent increase in noninterest income. Net income declined 2 percent from a year ago as credit costs rose related to one client.
Asset management fees increased 12 percent from the first quarter of 2006 on higher assets under management from net asset inflows of $40 billion in addition to increased market values of more than $13 billion.
— The Private Bank had revenue of $485 million, down 4 percent, and net income of $98 million, 24 percent lower than a year earlier reflecting the impact of a single charge-off in the first quarter of 2007 as well as a non-recurring gain in the first quarter of 2006.
— Columbia Management revenue rose nearly 17 percent to $425 million
supported by strong client inflows and increased market values. Net income increased 22 percent to $96 million.
— Premier Banking and Investments revenue rose 9 percent to $907 million on record results in investment and brokerage services, up 20 percent from a year ago. Net income increased 12 percent to $312 million.
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All Other(1)
(Dollars in millions) Q1 2007 Q1 2006
Total Revenue(2) $(209) $2
Reported credit impact (1,314) (656)
Noninterest expense 452 513
Net Income 581 196
Loans and leases(3) $92,198 $53,533
(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. (See data pages provided with this Press Release for a reconciliation.) (2) Fully taxable-equivalent basis
(3) Balances averaged for period
For the first quarter of 2007, All Other net income rose to $581 million from $196 million a year earlier. Equity Investment gains were $896 million, up from $571 million. Included in All Other was a net gain of $46 million and a $131 million release of credit reserves related to the divestiture of certain Latin America business operations. During the first quarter of 2006 the company recognized mark-to-market losses of approximately $175 million on certain derivatives that did not qualify for SFAS 133 hedge accounting. This did not significantly impact first quarter 2007 results.
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 56 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 nearly 22 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 98 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.
For more information on BofA’s first quarter performance visit CardData ([www.carddata.com][1]).
[1]: http://www.carddata.com
