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.
Credit Quality
(Dollars in millions) 2009 2008
--------------------- ---- ----
Provision for credit losses $48,570 $26,825
Net charge-offs 33,688 16,231
Net charge-off ratio(1) 3.58% 1.79%
Total managed net losses $45,087 $22,901
Total managed net loss ratio(1) 4.33% 2.27%
(1) Net charge-off/loss ratios are calculated as held net charge-offs or managed net losses divided by average outstanding held or managed loans and leases during the period.
Note: Ratios do not include loans measured under the fair value option.
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.
2009 Business Segment Results
Deposits
(Dollars in millions) 2009 2008
--------------------- ---- ----
Total revenue, net of interest
expense(1) $14,008 $17,840
Provision for credit losses 380 399
Noninterest expense 9,693 8,783
Net income 2,506 5,512
Efficiency ratio(1) 69.19% 49.23%
Return on average equity 10.55 22.55
Deposits(2) $406,833 $357,608
At 12/31/09 At 12/31/08
----------- -----------
Period-ending deposits $419,583 $375,763
(1) Fully taxable-equivalent basis
(2) Balances averaged for period
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
(Dollars in millions) 2009 2008
--------------------- ---- ----
Total managed revenue, net of interest
expense(1,2) $29,342 $31,220
Provision for credit losses(3) 30,081 20,164
Noninterest expense 7,961 9,160
Net income (loss) (5,555) 1,234
Efficiency ratio(2) 27.13% 29.34%
Return on average equity n/m 3.15
Managed loans(4) $216,654 $236,714
At 12/31/09 At 12/31/08
----------- -----------
Period-ending loans $201,230 $233,040
(1) Managed basis. Managed basis assumes that credit card 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) Represents provision for credit losses on held loans combined with realized credit losses associated with the securitized credit card loan portfolio
(4) Balances averaged for period
n/m = not meaningful
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.
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