01—Abstract
Summary
Summary of the 10-K filed March 27, 2002. Cited figures are marked; the original filing is the authoritative source.
Bank of America's 2001 Form 10-K shows a company that absorbed a difficult year but remained highly profitable and strengthened its balance sheet.
Net income fell to $6.8 billiona ($4.18 diluted EPS) from $7.5 billion, but operating earnings excluding the $1.7 billion pre-tax charge for exiting auto leasing and subprime real estate lending rose to $8.0 billion ($4.95 diluted EPS). Total revenue grew to $34.6 billion, net interest income rose $2.0 billion to $20.3 billion, and the net interest yield widened to 3.68%, while noninterest income was roughly flat at $14.3 billion. Credit quality was the main pressure point.
The provision for credit losses reached $4.3 billionb including exit charges, and excluding them rose to $3.9 billion from $2.5 billion. Net charge-offs were 1.16% of average loans, and management guided that 2002 charge-offs would meet or exceed the annualized fourth-quarter 2001 run rate, driven largely by consumer bankcard losses and continued commercial stress. Nonperforming assets declined to $4.9 billion, but the allowance for credit losses rose to 2.09% of loans, and management expects nonperforming assets to keep rising at least through the first half of 2002.
Balance sheet and capital metrics improved. Liquidity strengthened, with the loan-to-core-deposit ratio falling to 99% from 128%, and the Tier 1 risk-based capital ratio rose to 8.30% from 7.50%. The company repurchased about 82 million shares for $4.7 billionc and raised its quarterly dividend 7% to $0.60.
Legal risk is significant but is being addressed: the company agreed in principle to pay $490 milliond to settle shareholder class actions tied to the BankAmerica/D.E. Shaw matter, to be paid from existing reserves and insurance.
02—Key points
Key Highlights
- Net income of $6.8 billion ($4.18 diluted EPS), down from $7.5 billion ($4.52) in 2000; operating earnings excluding exit charges were $8.0 billion ($4.95 diluted EPS)
- Total revenue rose to $34.6 billion, with net interest income up $2.0 billion to $20.3 billion and net interest yield up 48 bps to 3.68%
- $1.7 billion pre-tax charge for exiting auto leasing and subprime real estate lending; provision for credit losses was $4.3 billion including exit charges and $3.9 billion excluding them
- Net charge-offs of $4.2 billion (1.16% of average loans) including exit-related charge-offs; management expects 2002 charge-offs at or above the annualized Q4 2001 run rate of $3.9 billion, led by consumer bankcard losses
- Liquidity improved markedly: loan-to-core-deposit ratio fell to 99% from 128%, and Tier 1 risk-based capital ratio rose to 8.30% from 7.50%
- Repurchased about 82 million shares for $4.7 billion in 2001; quarterly common dividend raised 7% to $0.60
- Agreed in principle to settle shareholder class actions for $490 million, to be paid from existing litigation reserves and insurance with no impact on reported results
03—Questions
Frequently Asked Questions
Why did reported net income decline in 2001 even though net interest income grew?
Reported net income fell to $6.8 billion from $7.5 billion mainly because of the $1.7 billion pre-tax charge for exiting auto leasing and subprime real estate lending, along with higher credit provisions and litigation and severance expenses. Excluding the exit charges, operating earnings rose to $8.0 billion, supported by a $2.0 billion increase in net interest income.
How serious are the credit quality trends heading into 2002?
Management expects charge-offs in 2002 to meet or exceed the annualized fourth-quarter 2001 level of $3.9 billion, excluding Enron. Consumer bankcard losses are expected to drive much of the increase, while commercial charge-offs are expected to stay high. Nonperforming assets are expected to rise at least through the first half of 2002, although the 2001 year-end total of $4.9 billion was down from $5.5 billion.
What are the main legal risks disclosed?
The most significant matter involves the BankAmerica/NationsBank merger and the D.E. Shaw losses, where shareholder classes alleged misleading disclosures. The company agreed in principle to pay $333 million to NationsBank classes and $157 million to BankAmerica classes, subject to court approval. The company also consented to an SEC cease-and-desist order without admitting or denying findings. Management states the settlements will be funded from existing reserves and insurance.
Is the company's capital position adequate to support its shareholder returns?
Yes, by regulatory measures. The Tier 1 risk-based ratio was 8.30% and the total capital ratio was 12.67%, both above well-capitalized thresholds of 6% and 10%, and the leverage ratio was 6.56%. Management plans to repurchase at least as many shares as it issues under employee plans, and the board authorized a new buyback of up to 130 million shares. Book value per share rose to $31.07 from $29.47.
04—Continue