Bank of America Announces Third-Quarter Net Loss of $1.0 Billion

Approximately $2.6 Billion in Writedowns From Improvement in Company Credit Spreads; Terminating Government Guarantee Term Sheet Costs $402 Million

CHARLOTTE, N.C., Oct. 16 -- Bank of America Corporation (NYSE: BAC) today reported a third-quarter 2009 net loss of $1.0 billion. After deducting preferred dividends of $1.2 billion, including $893 million related to dividends paid to the U.S. government, the diluted loss per share was $0.26.

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Those results compared with net income of $1.2 billion, or diluted earnings per share of $0.15, during the year-ago period.

Through the first nine months of the year, the company had net income of $6.5 billion, or $0.39 per share after preferred dividends, compared with $5.8 billion, or $1.09 per share a year earlier.

Results were negatively impacted by continued weakness in the U.S. and global economies and stress on the consumer, which continues to result in high credit costs. Earnings in the quarter were affected by $2.6 billion in pretax mark-to-market and credit valuation adjustments on certain liabilities, including the Merrill Lynch structured notes, and a $402 million pretax charge to pay the U.S. government to terminate its asset guarantee term sheet. Despite the loss in the period, the company strengthened its reserves, capital position and liquidity through efficient balance sheet and capital management.

"The company's core performance was impacted by a number of non-core items," said Chief Executive Officer and President Kenneth D. Lewis. "The market's improved view of Bank of America's credit cost the company due to non-cash marks on liabilities.

"Excluding those items, our revenue continued to hold up well," Lewis said. "Obviously, credit costs remain high, and that is our major financial challenge going forward. However, we are heartened by early positive signs, such as the leveling of delinquencies among our credit card customers."

Third-Quarter 2009 Business Highlights

* Average retail deposits in the quarter increased $93.0 billion, or 16 percent, from a year earlier, including the net impact of $72.1 billion in balances from Merrill Lynch and Countrywide. Excluding Countrywide and Merrill Lynch, retail deposits grew $20.9 billion, or 4 percent, from the year-ago quarter.

* Global Wealth and Investment Management was ranked No. 1 among U.S. wealth managers with more than 25 percent of the nation's top 100 financial advisors, according to two surveys conducted by Barron's. The number of households with assets greater than $250,000 increased 4 percent compared with the second quarter including the impact of the market.

* Bank of America received Federal Deposit Insurance Corp. (FDIC) approval to exit the debt guarantee program under the FDIC's Temporary Liquidity Guarantee Program (TLGP). Additionally, the company will opt out of the six-month extension of the Transaction Account Guarantee Program (TAGP) that guaranteed full insurance coverage from the FDIC on non-interest-bearing transactional accounts greater than $250,000.

* Bank of America completed the conversion of Countrywide's deposit systems. The integration of Merrill Lynch remained on track with cost savings expected to surpass original estimates for the first year.

* For the nine months ended September 30, Bank of America Merrill Lynch ranked No. 1 in high-yield corporate debt, leveraged loans and mortgage-backed assets based on volume, both globally and in the U.S., No. 3 and No. 2 in global and U.S. investment banking fees, respectively, and No. 2 in global and U.S. asset-backed securities and syndicated loans based on volume, according to Dealogic third-quarter league tables.

* During the quarter, Bank of America signed an agreement to sell the long-term asset management business of Columbia Management to Ameriprise Financial for approximately $1 billion, subject to certain adjustments. The transaction is expected to close in spring 2010.

* Bank of America funded $95.7 billion in first mortgages, helping nearly 450,000 people either purchase a home or refinance their existing mortgage. This funding included $23.3 billion in mortgages made to 154,000 low- and moderate-income borrowers. Approximately 39 percent of first mortgages were for purchases.

* To help homeowners avoid foreclosure, Bank of America has provided rate relief or agreed to modifications with approximately 215,000 customers during the first nine months of 2009. In addition, approximately 98,000 Bank of America customers are already in a trial period modification under the government's Making Home Affordable program at September 30.

* Bank of America extended $183.7 billion in credit during the quarter, including commercial renewals of $50.9 billion, according to preliminary data. New credit included $95.7 billion in first mortgages, $65.5 billion in commercial non-real estate, approximately $8.3 billion in commercial real estate, $4.5 billion in domestic and small business card, $2.7 billion in home equity products and nearly $7.0 billion in other consumer credit.

* During the third quarter, Small Business Banking extended more than $471 million in new credit consisting of credit cards, loans and lines of credit to more than 29,000 customers.

* Bank of America continued to respond to consumer needs during the quarter. The company announced an easy-to-understand BankAmericard® Basic™ Visa® credit card that features one basic rate for all types of transactions. The company also announced changes to checking account options and services that will help customers limit overdraft fees.

Third-Quarter 2009 Financial Summary

Revenue and Expense

Revenue net of interest expense on a fully taxable-equivalent basis rose 32 percent to $26.4 billion from $19.9 billion a year ago.

Net interest income on a fully taxable-equivalent basis was $11.8 billion compared with $11.9 billion in the third quarter of 2008. The decline was a result of securities sales and lower loan levels. The decrease was partially offset by a favorable rate environment, the addition of Merrill Lynch and higher deposit levels. The net interest yield narrowed 32 basis points to 2.61 percent mainly due to the previously mentioned factors and also was impacted by lower-yielding assets related to the Merrill Lynch acquisition.

Noninterest income rose to $14.6 billion from $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 $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 $714 million in credit valuation adjustments on derivative liabilities. Card income declined $1.6 billion mainly from higher credit losses on securitized credit card loans and lower fee income.

Noninterest expense increased to $16.3 billion from $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 $402 million pretax charge to pay the U.S. government to terminate its asset guarantee term sheet. Pretax merger and restructuring charges rose to $594 million from $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 $10.1 billion compared with $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 $11.7 billion, $1.7 billion lower than the second quarter and $5.3 billion higher than the same period last year. The addition of $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 $923 million higher than the prior quarter, though the pace of the increase slowed. Nonperforming assets were $33.8 billion compared with $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.

Source: Bank of America