Bank of America Announces Third-Quarter Net Loss of US$1.0 Billion (2)

Noninterest income rose to US$14.6 billion from US$8.0 billion a year earlier. Higher trading account profits, investment and brokerage services fees and investment banking income reflected the addition of Merrill Lynch. These increases, as well as gains on the sale of debt securities, were partially offset by US$1.8 billion in losses related to mark-to-market adjustments on the Merrill Lynch structured notes, as the company's credit spreads narrowed during the quarter, and US$714 million in credit valuation adjustments on derivative liabilities. Card income declined US$1.6 billion mainly from higher credit losses on securitized credit card loans and lower fee income.

Noninterest expense increased to US$16.3 billion from US$11.7 billion a year earlier. Personnel costs and other general operating expenses rose, driven in part by the Merrill Lynch acquisition. The increase was partially offset by a change in compensation that delivers a greater portion of incentive pay over time. The increase also includes the US$402 million pretax charge to pay the U.S. government to terminate its asset guarantee term sheet. Pretax merger and restructuring charges rose to US$594 million from US$247 million a year earlier.

The efficiency ratio on a fully taxable-equivalent basis was 61.84 percent compared with 58.60 percent a year earlier.

Pretax, pre-provision income on a fully-taxable equivalent basis was US$10.1 billion compared with US$8.2 billion a year earlier.

Credit Quality

Deterioration in credit quality slowed compared with the prior quarter, however, credit costs remained high as most economies around the world remained weak. Consumers continued to be under stress as unemployment and underemployment rose and individuals spent longer periods without work. However, the increases in losses slowed in almost all consumer portfolios from the prior quarter.

Declining home and commercial property values and reduced spending by consumers and businesses negatively impacted the commercial portfolios resulting in broad-based increases in criticized and nonperforming loans. The rate of the increases, however, was below the levels experienced in recent quarters. Commercial losses rose from the prior quarter driven primarily by higher charge-offs in the non-homebuilder portion of the commercial real estate portfolio. Higher losses in the commercial domestic portfolio occurred across a broad range of borrowers and industries.

The provision for credit losses was US$11.7 billion, US$1.7 billion lower than the second quarter and US$5.3 billion higher than the same period last year. The addition of US$2.1 billion to the reserve for credit losses was lower than the second quarter as delinquencies improved in the unsecured consumer portfolios. This was partially offset by higher reserve additions on the impaired consumer portfolios obtained through acquisitions. Net charge- offs were US$923 million higher than the prior quarter, though the pace of the increase slowed. Nonperforming assets were US$33.8 billion compared with US$31.0 billion at June 30, 2009, reflecting a slower rate of increase than in recent quarters. The 2008 coverage ratios and amounts shown in the following table do not include Merrill Lynch.

    
    (All figures in financial tables are in US$)

    Credit Quality
    (Dollars in millions)          Q3 2009         Q2 2009          Q3 2008
    --------------------           -------          -------          -------
    Provision for credit losses    $11,705         $13,375           $6,450
    Net charge-offs                  9,624           8,701            4,356
    Net charge-off ratios(1)          4.13%           3.64%            1.84%
    Total managed net losses       $12,932         $11,684           $6,110
    Total managed net
     loss ratio(1)                    5.03%           4.42%            2.32%

                                At 9/30/09      At 6/30/09       At 9/30/08
                                ----------      ----------       ----------
    Nonperforming assets           $33,825         $30,982          $13,576
    Nonperforming
     assets ratio(2)                  3.72%           3.31%            1.45%
    Allowance for loan and
     lease losses                  $35,832         $33,785          $20,346
    Allowance for loan
     and lease losses ratio(3)       3.95%           3.61%            2.17%
    (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 9/30/09     At 06/30/09     At 9/30/08
                                   ----------     -----------     ----------
    Total shareholders' equity      
     (in millions)                  $257,683        $255,152        $161,039
    Tier 1 common ratio                 7.25%           6.90%           4.23%
    Tier 1 capital ratio               12.46           11.93            7.55
    Total capital ratio                16.69           15.99           11.54
    Tangible common equity ratio(1)     4.82            4.67            2.75
    Tangible book value per share     $12.00          $11.66          $10.50
     (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 a reconciliation to GAAP measures, please refer to page 19 of
          this press release.

Capital ratios increased from the prior quarter as the company reduced risk-weighted assets through balance sheet management. Tangible common equity benefited from the positive impact of market movement on available-for-sale securities.

During the quarter, a cash dividend of US$0.01 per common share was paid, and the company recorded US$1.2 billion in preferred dividends. Period-end common shares issued and outstanding were 8.65 billion for the third and second quarters of 2009 and 4.56 billion for the third quarter of 2008.

    
    Third-Quarter 2009 Business Segment Results
    Deposits
    (Dollars in millions)                 Q3 2009              Q3 2008
    --------------------                  -------              -------
    Total revenue, net of
     interest expense(1)                   $3,666               $4,725
    Provision for credit losses               102                   98
    Noninterest expense                     2,336                2,098
    Net income                                798                1,575
    Efficiency ratio(1)                     63.72%               44.41%
    Return on average equity                13.26                26.01
    Deposits(2)                          $418,511             $377,778

                                        At 9/30/09           At 9/30/08
                                        ----------           ----------
    Period-ending deposits               $416,949             $381,811

     (1)  Fully taxable-equivalent basis
     (2)  Balances averaged for period

Deposits net income fell 49 percent from a year ago as revenue declined and noninterest expense rose. Revenue declined as a result of lower residual net interest income allocation related to asset and liability management activities and spread compression due to declining interest rates. Noninterest expense increased as a result of higher FDIC insurance costs.

Average customer deposits rose 11 percent, or US$40.7 billion, from a year ago due to the transfer of certain client deposits from Global Wealth and Investment Management and strong organic growth. The increase was partially offset by the expected decline in higher-yielding Countrywide deposits.

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