How did Bank of America perform financially in 2003?

Bank of America reported record net income of $10.8 billion ($7.13 per diluted share), up 17% in net income and 21% in diluted EPS from 2002. Return on average common shareholders' equity was 22%, versus 19% in 2002. Total revenue reached $37.9 billion, and the efficiency ratio improved slightly to 52.2%.

What is the FleetBoston merger and what does it mean for shareholders?

BAC agreed on October 27, 2003 to acquire FleetBoston Financial in a stock-for-stock deal valued at about $46.0 billion, with approximately 600 million new BAC shares issued. The deal was expected to close in April 2004, subject to regulatory and shareholder approvals, and was intended to create a truly national bank. Shareholders face dilution from the new shares, and the company estimated $1.3 billion in pre-tax integration costs.

Is Bank of America's credit risk improving?

Commercial credit improved markedly. Commercial criticized exposure fell $8.7 billion to $12.7 billion, and nonperforming assets dropped to 0.81% of loans and foreclosed properties from 1.53%. Consumer credit card net charge-offs rose to $1.5 billion, however, driven by seasoning of newer accounts and higher bankruptcies.

What are the main legal risks disclosed?

The most significant matters include the mutual fund late-trading and market-timing investigations involving Canary Capital and Nations Funds, which led to a $100 million charge and possible future charges; Enron and WorldCom securities class actions; Adelphia-related litigation; an SEC intent to recommend action over books-and-records issues at Banc of America Securities; and the Miller California class action, where a jury awarded about $75 million in damages on one claim, with the company planning to appeal.

Did Bank of America return capital to shareholders?

Yes. In 2003 the company repurchased about 129 million shares for $9.8 billion, paid $4.3 billion in common dividends (quarterly dividends rose to $0.80 in the second half of 2003), and in January 2004 authorized a new buyback of up to 90 million shares at a cost not to exceed $9.0 billion over 18 months.

BAC 10-K FY2003 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 1, 2004. Cited figures are marked; the original filing is the authoritative source.

Bank of America's 2003 Form 10-K (filed March 1, 2004) reports record results: net income of $10.8 billion^a, or $7.13 per diluted share, up 17% and 21% from 2002, with return on average common equity of 22%.

The company returned roughly $10.0 billion^b to shareholders through dividends and net share repurchases. Net interest income rose to $21.5 billion on a reported basis, while noninterest income grew to $16.4 billion, driven by mortgage banking, card, and equity investment gains. Total assets were $736 billion at year-end.

Management noted that the 17% net income growth is not expected to recur in 2004. Credit quality improved meaningfully. The provision for credit losses fell to $2.8 billion^c from $3.7 billion, and nonperforming assets dropped to $3.0 billion (0.81% of loans and foreclosed properties) from $5.3 billion.

Commercial criticized exposure declined sharply. Offsetting this, consumer credit card losses rose, and the mortgage refinancing boom that drove 2003 origination volumes is expected to reverse in 2004, with management anticipating a significant decline in industry origination volumes and a negative impact on mortgage banking income. The dominant forward-looking event is the pending $46 billion^d stock-for-stock acquisition of FleetBoston Financial, expected to close in April 2004 and to issue roughly 600 million shares, with integration costs estimated at $1.3 billion pre-tax.

Investors should also note the legal overhang: the mutual fund market-timing and late-trading probe (with a $100 million charge taken in Q3 2003), Enron and WorldCom securities litigation, the Adelphia matter, a pending SEC books-and-records action against Banc of America Securities, and the Miller California class action with a roughly $75 million jury damage award. Capital remained above well-capitalized thresholds, with a Tier 1 ratio of 7.85% and a leverage ratio of 5.73%.

02—Key points

Key Highlights

Record 2003 net income of $10.8 billion, or $7.13 per diluted share, up 17% and 21% year over year; return on average common equity of 22%.
Pending FleetBoston Financial merger (~$46.0 billion stock deal, ~600 million new shares, 0.5553 BAC shares per FleetBoston share), expected to close April 2004; integration costs estimated at $1.3 billion pre-tax.
Credit quality improved: provision for credit losses fell to $2.8 billion from $3.7 billion, and nonperforming assets declined to $3.0 billion from $5.3 billion.
Strong capital return of about $10.0 billion via dividends and buybacks; 2003 share repurchases totaled $9.8 billion, and a new 90 million share program was authorized in January 2004.
Management warned that 2004 growth will not match 2003, citing expected declines in mortgage origination volumes and a ~$90 million after-tax hit from Visa interchange changes.
Significant litigation exposure: mutual fund market-timing matters ($100 million charge in Q3 2003), Enron and WorldCom securities suits, Adelphia claims, and an SEC action against BAS.
Capital position remained 'well-capitalized' with a Tier 1 risk-based ratio of 7.85% and a total risk-based ratio of 11.87%, though the Tier 1 ratio declined 37 bps year over year.

03—Questions

Frequently Asked Questions

How did Bank of America perform financially in 2003?
Bank of America reported record net income of $10.8 billion ($7.13 per diluted share), up 17% in net income and 21% in diluted EPS from 2002. Return on average common shareholders' equity was 22%, versus 19% in 2002. Total revenue reached $37.9 billion, and the efficiency ratio improved slightly to 52.2%.
What is the FleetBoston merger and what does it mean for shareholders?
BAC agreed on October 27, 2003 to acquire FleetBoston Financial in a stock-for-stock deal valued at about $46.0 billion, with approximately 600 million new BAC shares issued. The deal was expected to close in April 2004, subject to regulatory and shareholder approvals, and was intended to create a truly national bank. Shareholders face dilution from the new shares, and the company estimated $1.3 billion in pre-tax integration costs.
Is Bank of America's credit risk improving?
Commercial credit improved markedly. Commercial criticized exposure fell $8.7 billion to $12.7 billion, and nonperforming assets dropped to 0.81% of loans and foreclosed properties from 1.53%. Consumer credit card net charge-offs rose to $1.5 billion, however, driven by seasoning of newer accounts and higher bankruptcies.
What are the main legal risks disclosed?
The most significant matters include the mutual fund late-trading and market-timing investigations involving Canary Capital and Nations Funds, which led to a $100 million charge and possible future charges; Enron and WorldCom securities class actions; Adelphia-related litigation; an SEC intent to recommend action over books-and-records issues at Banc of America Securities; and the Miller California class action, where a jury awarded about $75 million in damages on one claim, with the company planning to appeal.
Did Bank of America return capital to shareholders?
Yes. In 2003 the company repurchased about 129 million shares for $9.8 billion, paid $4.3 billion in common dividends (quarterly dividends rose to $0.80 in the second half of 2003), and in January 2004 authorized a new buyback of up to 90 million shares at a cost not to exceed $9.0 billion over 18 months.

04—Continue

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