Noninterest income rose to US$13.5 billion from US$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 US$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 US$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 US$1.3 billion mainly due to higher credit losses on securitized credit card loans and lower fee income.
Noninterest expense increased to US$16.4 billion from US$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 US$533 million from US$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 US$9.0 billion compared with US$5.0 billion a year earlier. The company had a tax benefit of US$1.2 billion in the quarter compared with a benefit of US$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 US$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 US$35.7 billion, compared with US$33.8 billion at September 30, 2009, reflecting a slower rate of increase than in recent quarters.
The provision for credit losses was US$10.1 billion, US$1.6 billion lower than the third quarter and US$1.6 billion higher than the same period a year earlier. The US$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. The 2008 coverage ratios and amounts shown in the following table do not include Merrill Lynch, which was acquired on January 1, 2009. (All amounts in US Dollars unless otherwise noted)
(Dollars in millions) Q4 2009 Q3 2009 Q4 2008
--------------------- ------- ------- -------
Provision for credit losses $10,110 $11,705 $8,535
Net charge-offs 8,421 9,624 5,541
Net charge-off ratio(1) 3.71% 4.13% 2.36%
Total managed net losses $11,347 $12,932 $7,398
Total managed net loss ratio(1) 4.54% 5.03% 2.84%
At 12/31/09 At 9/30/09 At 12/31/08
----------- ---------- -----------
Nonperforming assets $35,747 $33,825 $18,212
Nonperforming assets ratio(2) 3.98% 3.72% 1.96%
Allowance for loan and lease
losses $37,200 $35,832 $23,071
Allowance for loan and lease
losses ratio(3) 4.16% 3.95% 2.49%
(1) Net charge-off/loss ratios are calculated as annualized held net charge-offs or managed net losses divided by average outstanding held or managed loans and leases during the period.
(2) Nonperforming assets ratios are calculated as nonperforming assets divided by outstanding loans, leases and foreclosed properties at the end of the period.
(3) Allowance for loan and lease losses ratios are calculated as allowance for loan and lease losses divided by loans and leases outstanding at the end of the period.
Note: Ratios do not include loans measured under the fair value option.
Capital Management
At 12/31/09 At 09/30/09 At 12/31/08
----------- ----------- -----------
Total shareholders' equity $231,444 $257,683 $177,052
(in millions)
Tier 1 common ratio 7.81% 7.25% 4.80%
Tier 1 capital ratio 10.40 12.46 9.15
Total capital ratio 14.66 16.69 13.00
Tangible common equity ratio(1) 5.57 4.82 2.93
Tangible book value per share $11.94 $12.00 $10.11
(1) Tangible common equity and tangible book value per share are non-GAAP measures. Other companies may define or calculate the tangible common equity ratio and tangible book value per share differently. For reconciliation to GAAP measures, please refer to page 22 of this press release.
Capital ratios were impacted from the prior quarter primarily due to the issuance of equity and repayment of TARP.
During the quarter, a cash dividend of $0.01 per common share was paid and the company reported $5.0 billion in preferred dividends. Period-end common shares issued and outstanding were 8.65 billion for the fourth and third quarters of 2009 and 5.02 billion for the fourth quarter of 2008.
During the fourth quarter, Bank of America sold 1.286 billion common equivalent securities, generating gross proceeds of $19.3 billion. The offering was priced at $15.00 per depository share and its proceeds, along with existing corporate funds, were used to repurchase all the preferred stock issued to the U.S. Department of the Treasury to repay the TARP investment.
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.
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