How did the Boatmen's and Montgomery acquisitions affect 1997 results?

Boatmen's (closed January 7, 1997, about $9.4 billion in stock plus $371 million in cash) and Montgomery Securities (closed October 1, 1997, about $1.1 billion) account for most of the year-over-year increases in income, expense and balance sheet size. Management reports that excluding these deals, net interest income grew about 6%, noninterest income about 9%, and noninterest expense was essentially flat. Amortization of intangibles rose to $441 million from $128 million, which weighed on reported earnings.

Why did credit losses increase, and what is the outlook?

The provision for credit losses rose to $800 million from $605 million, covering net charge-offs of $798 million. The increase reflected a larger loan portfolio after acquisitions and deterioration in consumer credit quality across the industry, particularly in credit cards (6.02% net charge-off rate). Commercial charge-offs declined. Excluding acquisition effects, management expects charge-offs to rise modestly in 1998 as the loan mix shifts toward consumer loans, and the allowance for credit losses stood at 1.94% of loans.

Is the company's capital position weaker than a year ago?

Yes, on a regulatory basis. The Tier 1 risk-based ratio fell to 6.50% from 7.76%, the total capital ratio to 10.89% from 12.66%, and the leverage ratio to 5.57% from 7.09%. The decline reflects roughly $9.5 billion of equity issued and about $8.6 billion of goodwill from the acquisitions, offset by about $5.8 billion of share buybacks. The filing states that the Corporation and each subsidiary bank remain well capitalized, and that the Barnett merger, which is pooling-based, is not expected to change those ratios materially.

What does the Barnett Banks merger mean for investors?

The merger closed January 9, 1998. Each Barnett share converted into 1.1875 company shares, about 233 million new shares were issued, and combined assets reached roughly $310 billion, making the company the third-largest U.S. banking company. Because it is accounted for as a pooling of interests, historical results are combined without goodwill. The company expects about $900 million in pretax merger costs in Q1 1998 and agreed to divest certain Florida branches with about $2.5 billion in loans and $4.0 billion in deposits to satisfy regulators.

Are the 1997 results of the business units improving?

Yes. The General Bank earned $1.9 billion (up 21%), with return on equity of 17% and an efficiency ratio of 60.6%. Global Finance earned $826 million (up 30%), with an efficiency ratio of 52.4%. Financial Services was essentially flat at $167 million, with a net interest yield down 39 basis points to 6.71% because of competitive loan pricing. Management highlights the Global Finance investment banking growth and sustained General Bank fee income as key drivers.

BAC 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 13, 1998. Cited figures are marked; the original filing is the authoritative source.

This is NationsBank Corporation's 10-K for fiscal 1997 (the filer is NationsBank, which later became Bank of America; the filing does not name BAC /DE/, so the request's company label does not match the document).

Reported 1997 net income rose about 30% to $3.08 billion^a, and EPS grew 7% to $4.27 (diluted $4.17). Growth was driven mainly by the January 1997 Boatmen's Bancshares acquisition and the October 1997 purchase of Montgomery Securities, with noninterest income up 37% to $5.0 billion. Excluding acquisitions, management reports roughly 6% core net interest income growth and about 9% noninterest income growth.

Total assets reached $264.6 billion^b, and the efficiency ratio was 57.2%. Return on average common equity was 15.26%, and the cash-basis return on average tangible common equity was 30.6%. Credit quality weakened modestly.

Net charge-offs rose to $798 million^c (0.54% of average loans) from $598 million, driven by consumer deterioration, especially credit cards, where charge-offs were 6.02% of average balances. Nonperforming assets were $1.1 billion (0.79% of loans and foreclosed properties), and management expects charge-offs to rise modestly in 1998. Capital ratios fell sharply because of acquisition goodwill ($8.6 billion) and buybacks: the Tier 1 risk-based ratio was 6.50% (7.76% a year earlier), total capital was 10.89%, and the leverage ratio was 5.57%.

All subsidiary banks remained well capitalized. The most important forward-looking item is the January 9, 1998 merger with Barnett Banks, accounted for as a pooling of interests. It creates a combined company of about $310 billion^d in assets, the third-largest U.S. banking company.

The company expects about $900 million in pretax merger costs in Q1 1998 and has agreed to divest certain Florida branches with about $2.5 billion in loans and $4.0 billion in deposits. Investors should weigh the strong 1997 earnings momentum against integration risk, the thinner capital cushion, and rising consumer credit losses.

02—Key points

Key Highlights

Net income rose about 30% to $3.08 billion in 1997; EPS was $4.27 (up 7%) and diluted EPS was $4.17 (up 6%). Acquisitions drove much of the increase.
Taxable-equivalent net interest income rose 25% to $8.0 billion, with core growth of about 6% excluding Boatmen's, loan sales and securitizations. Net interest yield improved to 3.79% from 3.62%.
Noninterest income rose 37% to $5.0 billion; excluding acquisitions it grew about 9%, led by investment banking (+76%), brokerage (+113%) and asset management fees (+50%).
Net charge-offs increased to $798 million (0.54% of average loans) from $598 million, driven by credit card losses of 6.02% and industry-wide consumer credit deterioration.
Capital ratios declined: Tier 1 risk-based 6.50% (from 7.76%), total risk-based 10.89% (from 12.66%), leverage 5.57% (from 7.09%), after goodwill from Boatmen's and about $5.8 billion of share repurchases.
Barnett Banks merger completed January 9, 1998 (pooling of interests) creates a roughly $310 billion asset franchise; about $900 million in pretax merger charges expected in Q1 1998.
Dividends per share rose to $1.37 in 1997 from $1.20, and the year-end share price closed at $60 13/16 (up from $48 7/8).

03—Questions

Frequently Asked Questions

How did the Boatmen's and Montgomery acquisitions affect 1997 results?
Boatmen's (closed January 7, 1997, about $9.4 billion in stock plus $371 million in cash) and Montgomery Securities (closed October 1, 1997, about $1.1 billion) account for most of the year-over-year increases in income, expense and balance sheet size. Management reports that excluding these deals, net interest income grew about 6%, noninterest income about 9%, and noninterest expense was essentially flat. Amortization of intangibles rose to $441 million from $128 million, which weighed on reported earnings.
Why did credit losses increase, and what is the outlook?
The provision for credit losses rose to $800 million from $605 million, covering net charge-offs of $798 million. The increase reflected a larger loan portfolio after acquisitions and deterioration in consumer credit quality across the industry, particularly in credit cards (6.02% net charge-off rate). Commercial charge-offs declined. Excluding acquisition effects, management expects charge-offs to rise modestly in 1998 as the loan mix shifts toward consumer loans, and the allowance for credit losses stood at 1.94% of loans.
Is the company's capital position weaker than a year ago?
Yes, on a regulatory basis. The Tier 1 risk-based ratio fell to 6.50% from 7.76%, the total capital ratio to 10.89% from 12.66%, and the leverage ratio to 5.57% from 7.09%. The decline reflects roughly $9.5 billion of equity issued and about $8.6 billion of goodwill from the acquisitions, offset by about $5.8 billion of share buybacks. The filing states that the Corporation and each subsidiary bank remain well capitalized, and that the Barnett merger, which is pooling-based, is not expected to change those ratios materially.
What does the Barnett Banks merger mean for investors?
The merger closed January 9, 1998. Each Barnett share converted into 1.1875 company shares, about 233 million new shares were issued, and combined assets reached roughly $310 billion, making the company the third-largest U.S. banking company. Because it is accounted for as a pooling of interests, historical results are combined without goodwill. The company expects about $900 million in pretax merger costs in Q1 1998 and agreed to divest certain Florida branches with about $2.5 billion in loans and $4.0 billion in deposits to satisfy regulators.
Are the 1997 results of the business units improving?
Yes. The General Bank earned $1.9 billion (up 21%), with return on equity of 17% and an efficiency ratio of 60.6%. Global Finance earned $826 million (up 30%), with an efficiency ratio of 52.4%. Financial Services was essentially flat at $167 million, with a net interest yield down 39 basis points to 6.71% because of competitive loan pricing. Management highlights the Global Finance investment banking growth and sustained General Bank fee income as key drivers.

04—Continue

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