01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Bank of America's 2010 Form 10-K, filed February 25, 2011, reports a net loss of $2.2 billiona for 2010 versus net income of $6.3 billion in 2009.
The result was driven by $12.4 billionb of non-cash, non-tax-deductible goodwill impairment charges, $10.4 billion in Global Card Services and $2.0 billion in Home Loans & Insurance. Excluding those charges, net income would have been $10.2 billion, or $0.86 per diluted share. Total revenue, net of interest expense on a FTE basis, fell 8% to $111.4 billion, as noninterest income declined $13.8 billion.
The provision for credit losses fell $20.1 billion to $28.4 billionc, and the allowance for credit losses stood at $43.1 billion. Capital and liquidity strengthened. The Tier 1 common ratio rose to 8.60%, Tier 1 capital to 11.24%, total capital to 15.77%, and the Tier 1 leverage ratio to 7.21%.
Management expects to keep the Tier 1 common ratio above 8% as Basel III and related rules are phased in without issuing new common equity. Excess global liquidity sources rose to $336 billiond. The company also reported roughly $288,000 full-time equivalent employees and $2.3 trillion in total assets.
The main risks flagged are mortgage-related. The company faces representations and warranties repurchase exposure, with a possible non-GSE upper-range loss of $7 billion to $10 billion above existing accruals. It also paid $2.8 billion to resolve GSE repurchase claims involving legacy Countrywide loans.
A foreclosure sale suspension and industry-wide state and federal investigations are ongoing. Financial Reform Act impacts include an estimated $2.0 billion annual debit interchange revenue loss beginning in Q3 2011 and possible additional goodwill impairment in Global Card Services.
02—Key points
Key Highlights
- 2010 net loss of $2.2 billion ($0.37 per diluted share) versus 2009 net income of $6.3 billion, reflecting $12.4 billion in goodwill impairment charges.
- Excluding goodwill impairments, 2010 net income was $10.2 billion ($0.86 per diluted share), with return on average tangible shareholders' equity of 7.11%.
- Total revenue, net of interest expense (FTE), declined 8% to $111.4 billion; noninterest income fell $13.8 billion to $58.7 billion, largely from lower mortgage banking and equity investment income.
- Provision for credit losses fell $20.1 billion to $28.4 billion as portfolio trends improved; the allowance for credit losses was $43.1 billion at year end.
- Capital ratios improved: Tier 1 common 8.60%, Tier 1 11.24%, total capital 15.77%, Tier 1 leverage 7.21%; management expects to stay above 8% Tier 1 common without new equity.
- Mortgage exposure remains a key overhang: $2.8 billion GSE settlement, $3.0 billion related Q4 provision, and a possible $7-10 billion upper-range non-GSE repurchase loss above accruals.
- Financial Reform Act expected to cut about $2.0 billion in annual debit interchange revenue from Q3 2011, with Volcker Rule and derivatives rules still pending.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $110.22B$119.64B | −7.9% |
| Interest Expense | $23.97B$30.81B | −22.2% |
| Net Income | -$2.24B$6.28B | −135.7% |
| EPS (Basic) | $-0.37$-0.29 | −27.6% |
| EPS (Diluted) | $-0.37$-0.29 | −27.6% |
| Shares Outstanding (Basic) | 9.79B7.73B | +26.7% |
| Shares Outstanding (Diluted) | 9.79B7.73B | +26.7% |
05—Questions
Frequently Asked Questions
Why did Bank of America report a net loss in 2010?
The net loss of $2.2 billion was caused mainly by $12.4 billion of non-tax-deductible goodwill impairment charges: $10.4 billion in Global Card Services, tied to expected debit interchange revenue losses under the Financial Reform Act, and $2.0 billion in Home Loans & Insurance, tied to litigation, servicing and foreclosure uncertainties. Excluding these charges, the company earned $10.2 billion.
How large is the mortgage repurchase risk?
The company has paid $2.8 billion to resolve GSE repurchase claims on legacy Countrywide loans and recorded a $6.8 billion representations and warranties provision in 2010. Outstanding repurchase claims totaled $10.7 billion at year end. Management estimates the upper range of possible loss on non-GSE sales at $7 billion to $10 billion above existing accruals, which it says does not represent a probable loss.
Is Bank of America likely to issue new equity to meet Basel III requirements?
Management said it expects to maintain a Tier 1 common capital ratio above 8% as the regulatory changes are implemented without raising new equity capital. It also noted significant uncertainty, since only Basel II final rules and a proposed market risk rule had been issued. It plans a modest common dividend increase in the second half of 2011, subject to Federal Reserve approval.
What is the impact of the Financial Reform Act on earnings?
The company estimates debit card interchange revenue will fall by about $2.0 billion annually beginning in the third quarter of 2011, based on 2010 volumes. Overdraft and Regulation E changes are expected to reduce deposit service charges by about $1.1 billion incrementally in 2011, for a full-year impact of about $2.8 billion net of mitigation. Higher FDIC assessments and possible further goodwill impairment are also expected.
What operational or legal risks arose from foreclosure practices?
Bank of America voluntarily suspended foreclosure sales nationally in October 2010 to review its processes and resumed sales in most non-judicial states in Q4 2010. Law enforcement in all 50 states and the DOJ are investigating foreclosure practices, which could lead to fines, equitable remedies, litigation and higher servicing and legal costs in Home Loans & Insurance during 2011.
06—Continue