CHARLOTTE, N.C., Jul 16, 2010 (BUSINESS WIRE) --

Bank of America Corporation today reported second-quarter 2010 net income of $3.1 billion, compared to net income of $3.2 billion a year ago. After preferred dividends, earnings were $0.27 per diluted share, compared to $0.33 in the second quarter of 2009.

Results were driven by lower credit costs, which improved for the fourth straight quarter, and the sale of non-core assets as the company focused on strengthening key business lines and divesting assets that do not directly contribute to providing financial services to customers. These positives were partially offset by lower trading account profits, reduced mortgage banking income and increased costs associated with the United Kingdom payroll tax on certain year-end incentive payments.

"Our quarterly results show that we are making progress on our strategy to align around our three core customer groups - consumers, businesses, and institutional investors - and create the financial institution that customers tell us they want, built on a broad relationship of clarity, transparency, and helping them manage through challenging times," said Chief Executive Officer and President Brian Moynihan. "We improved our capital foundation through retained earnings, and credit quality improved even faster than expected. We have the most complete financial franchise in the world, and we are focused on executing our strategy and delivering outstanding long-term value to our customers and shareholders."

Second-Quarter Business Highlights

• Bank of America continued to leverage its global franchise and increase the number of referrals. Approximately 80,000 lending and deposit products were delivered to Merrill Lynch clients in the second quarter, up from 60,000 in the first quarter of 2010 and 35,000 in all of 2009. Referrals between Global Wealth and Investment Management and the company's commercial and corporate businesses increased 24 percent from the first quarter of 2010.
• Bank of America Merrill Lynch ranked No. 1 in U.S. net investment banking revenues with a 13 percent market share, according to Dealogic second-quarter 2010 league tables, as well as No. 1 in global leveraged loans, No. 1 in global investment grade corporate debt and No. 1 in global syndicated loans.
• Average retail deposit balances rose 3 percent from a year ago to $649.6 billion, paced by strong organic growth in Merrill Lynch Global Wealth Management.
• Bank of America extended approximately $174 billion in credit in the second quarter of 2010, according to preliminary data. Credit extensions included $72 billion in first mortgages, $76 billion in commercial non-real estate, $13 billion in commercial real estate, $3 billion in domestic consumer and small business card, $2 billion in home equity products and $8 billion in other consumer credit. Commercial credit extensions include a significant number of credit renewals.
• Bank of America funded $72 billion in first mortgages, helping more than 342,000 people either purchase homes or refinance existing mortgages during the quarter. This funding included approximately 35,000 first-time homebuyer credit-qualified mortgages, and more than 129,000 mortgages to low- and moderate-income borrowers. Approximately 53 percent of funded first mortgages were for home purchases.
• Since the start of 2008, Bank of America and previously Countrywide have completed nearly 650,000 loan modifications with customers. During the quarter, more than 80,000 loan modifications were completed, including 38,000 consumers who converted from trial modifications under the government's Making Home Affordable program.
• During the quarter, Global Wealth and Investment Management launched Merrill Edge, which combines the investment expertise of Merrill Lynch and the banking strength of Bank of America. Merrill Edge is designed for self-directed and mass affluent clients to more effectively manage their investments, savings, credit, banking and retirement assets via an online platform, phone channels and branch offices. Since its introduction a few weeks ago, the company has followed up with 7,000 qualified contacts.
• Global Wealth and Investment Management reported strong asset management fees during the quarter and the second-highest quarterly brokerage income since the acquisition of Merrill Lynch.

• Bank of America sold or agreed to sell a number of non-core assets during the quarter as part of the company's strategy to focus on its core businesses and strengthen capital ratios. The transactions included the following:
  • The sale of the company's preferred and common shares of Itaú Unibanco Holding S.A., which generated a $1.2 billion pretax gain.
  • The sale of the company's equity position in MasterCard, resulting in a pretax gain of approximately $440 million.
  • The sale of Columbia Management's long-term asset management business, which generated a $60 million pretax gain and resulted in a reduction in goodwill and intangibles of approximately $800 million.
  • An agreement to sell the company's entire 24.9 percent stake in Grupo Financiero Santander, S.A.B. de C.V. back to an affiliate of its parent company in a private transaction for $2.5 billion. This generated a pretax loss of $428 million.
  • An agreement to sell a $1.9 billion portfolio of limited partnership interests in private equity funds to AXA Private Equity at a pretax loss of approximately $160 million.

Second-Quarter 2010 Financial Summary

Revenue and Expense of interest expense, on a fully taxable-equivalent (FTE) basis declined 11 percent from the year-ago period. The year-ago period included gains from the sale of the company's shares in China Construction Bank (CCB) and the contribution of a merchant services business to a joint venture.

Net interest income on an FTE basis increased $1.3 billion from a year earlier, reflecting the impact of the adoption of new consolidation guidance, effective January 1, 2010, which added net assets of approximately $100 billion to the balance sheet. The change, while having no material impact on net income, primarily increased net interest income offset by changes in card income and the provision for credit losses.

The net interest yield widened 13 basis points from the year-ago quarter due in part to the higher-yielding loans, which were brought back on the balance sheet, related to the adoption of the new consolidation guidance.

Noninterest income declined 23 percent from the year-ago quarter due primarily to lower equity investment income, lower mortgage banking income, reduced trading account profits and lower net gains on sales of debt securities as a result of losses associated with the sale of certain non-agency residential mortgage-backed securities. Equity investment income was lower as the prior year period included a $5.3 billion pretax gain on the sale of CCB shares, while other income last year included a $3.8 billion pretax gain on the contribution of the merchant services business to a joint venture. The decrease in equity investment income related to the CCB transaction was offset in part by the gains on the sale of non-core assets. The decline in mortgage banking income reflected an increase in representations and warranties expense, lower production volume and margins, and less favorable mortgage servicing rights results, net of hedges. Partially offsetting these decreases was a $1.2 billion credit-related pretax gain primarily associated with the Merrill Lynch structured notes, compared to a $3.6 billion pretax loss on these structured notes in the year-ago period.

Noninterest expense rose slightly from the year-ago quarter on higher personnel costs due in part to the U.K. payroll tax on certain year-end incentive payments enacted this quarter, and increased professional fees. Pretax merger and restructuring charges declined $321 million from a year earlier.

Credit Quality continued to improve during the quarter, with net charge-offs continuing to decline in most consumer portfolios. Credit costs, while still high, fell for the fourth consecutive quarter, reflecting continued improvement in relatively weak global economic conditions.

Credit quality across most commercial portfolios continued to improve with reservable criticized levels decreasing for the third consecutive quarter and nonperforming loans, leases and foreclosed properties decreasing for the second consecutive quarter. Net charge-offs in the core commercial portfolio declined across a broad range of borrowers and industries.

Net charge-offs were $1.2 billion lower than the first quarter, reflecting improvement in the consumer and commercial portfolios. Specific drivers of the decrease included the higher first-quarter charge-offs on certain modified collateral-dependent consumer real estate loans and continued improvement in delinquencies and collections in the domestic credit card portfolio in the second quarter. These improvements were partially offset by losses related to certain foreign credit card renegotiated loans as the company conformed to domestic charge-off policies. Nonperforming loans, leases and foreclosed properties were $35.7 billion, compared with $35.9 billion at March 31, 2010 and $31.0 billion a year ago.

The provision for credit losses was $8.1 billion, $1.7 billion lower than the first quarter and $5.3 billion lower than the same period a year earlier. The provision was $1.45 billion lower than net charge-offs, resulting in a reduction in the reserve for credit losses for the quarter. This compares with a $992 million reduction to the reserve for credit losses in the first quarter and a $4.7 billion addition a year earlier. The reserve reduction in the current quarter was primarily due to improved delinquencies, collections and bankruptcies in domestic credit card and consumer lending businesses, and improved credit profiles in the commercial portfolios. These were partially offset by reserve additions in the consumer real estate portfolios amid continued stress in the housing market, which included reserve additions for purchased credit-impaired consumer portfolios obtained through acquisitions.

Capital and Liquidity Management
Capital ratios were positively impacted from the first quarter of 2010 primarily due to the sale of certain non-core assets and increased retained earnings. The company's liquidity position strengthened during the quarter as customers continued to reduce debt. Cash and cash equivalents rose $6.2 billion from the first quarter and $10.7 billion compared to the same period last year. The company's total global excess liquidity sources rose $20 billion from the first quarter of 2010 to approximately $290 billion. At June 30, 2010, the company's time-to-required funding was 22 months.

During the quarter, a cash dividend of $0.01 per common share was paid, and the company reported $340 million in preferred dividends. Period-end common shares issued and outstanding were 10.03 billion for the first and second quarters of 2010 and 8.65 billion for the second quarter of 2009. The increase in outstanding shares year over year was driven primarily by the company's capital-raising initiative in the fourth quarter of 2009 and the related conversion of common equivalent shares into common stock in the first quarter of 2010.

2010 Business Segment Results

Deposits net income rose 25 percent from the year-ago period due to increases in revenue and lower noninterest expense. Net revenue increased as disciplined pricing, a customer shift to more liquid products, and a higher residual net interest income allocation related to asset and liability management (ALM) activities, which drove higher net interest income. This was partially offset by lower service charges driven by overdraft policy changes announced in 2009.

Noninterest expense decreased 4 percent from a year ago due to the absence of the special FDIC assessment, partially offset by higher retail distribution costs that shifted to Deposits from the other consumer businesses.

Average deposits remained relatively flat from a year ago as organic growth and the transfer of certain deposits from other client-managed businesses were offset by the expected decline in higher-yielding Countrywide deposits.

Global Card Services net income increased $2.4 billion compared to a year ago due to declining credit costs reflecting continued improvement in the U.S. economy.

Revenue decreased $401 million from a year ago, driven by lower average loans and reduced interest and fee income primarily resulting from the implementation of the CARD Act, partially offset by the $440 million pretax gain on the sale of the MasterCard position.

Provision for credit losses decreased $3.9 billion from a year ago as lower delinquencies, decreasing bankruptcies and lower expected losses from the improving economic outlook drove lower charge-offs and reserve reductions during the quarter.

Noninterest expense decreased compared to a year ago as a higher percentage of the retail distribution costs shifted to Deposits from Global Card Services.

The net loss in Home Loans and Insurance increased $808 million compared to the year-ago period. Revenue decreased 37 percent largely due to lower mortgage banking income. The year-over-year decline in mortgage banking income was driven by the $802 million increase in representations and warranties expense, combined with lower production volume and margins resulting from a decrease in refinance activity. Also contributing to the decline were less favorable mortgage servicing results partially offset by increased servicing income.

The provision for credit losses decreased $336 million from the year-ago period due to lower reserve additions driven by improving portfolio trends. Provision expense continued to remain elevated amid continued stress in the housing market.

Noninterest expense was essentially flat from a year ago as lower production expenses and a lower insurance loss provision were offset by increased costs related to default management staff and loss mitigation efforts.

Global Commercial Banking net income increased $854 million from a year ago due to lower credit costs partially offset by lower revenues.

Revenue decreasedfrom the same period in the prior year. Net interest income benefited from improved loan spreads on new, renewed and amended facilities offset by loan balance declines. Strong deposit growth contributed to net revenue as clients remained very liquid. Revenue was negatively impacted by increased costs related to an agreement to purchase certain loans, partially offset by a higher residual net interest income allocation related to asset and liability management activities.

The provision for credit losses decreased $1.5 billion driven by reserve reductions and lower net charge-offs in the commercial domestic and retail dealer-related portfolios, reflecting improved borrower credit profiles and higher resale values. Also contributing to the decline in provision was the higher level of reserve additions in commercial real estate in the year-ago period.

Average loan balances decreased $28.2 billion compared to the same period a year ago due to continued low demand due in part to client deleveraging and economic uncertainty. Average deposit balances continued to grow, increasing by $19.4 billion as clients remain very liquid.

Global Banking and Markets net income decreased $3.0 billion compared to a year earlier, as the year-ago period included a gain on the contribution of the merchant services business to a joint venture, and the most recent period was impacted by a widespread market slowdown in the sales and trading businesses.

Revenue decreased $4.4 billion due to the lack of the $3.8 billion gain on the contribution of the merchant services business in 2009, as well as general market deterioration resulting from market concerns around the global economy and the lack of liquidity as sovereign debt fears and regulatory uncertainty fueled investor concerns. Noninterest expense increased $870 million driven by the U.K. payroll tax on certain year-end incentive payments and the recognition of expense on proportionately larger prior year incentive deferrals. Provision for credit losses declined from a year ago primarily driven by an improved risk portfolio. This resulted in reserve reductions and lower charge-offs in the corporate portfolio, reflecting stabilizing borrower cash flows and improved borrower liquidity.

Fixed Income, Currency and Commodities revenue fell to $2.6 billion, compared to $3.1 billion a year ago, due to spread widening and a decline in liquidity, reflecting increased investor risk aversion and greater economic uncertainty.

Equities revenue declined to $1.0 billion, compared to $1.3 billion a year ago, driven primarily by lower sales and trading revenues of $852 million due to adverse market conditions and reductions in equity derivatives revenue.

Corporate and Investment Bankingrevenue of $2.4 billion included Corporate Banking revenue of $1.6 billion. Excluding the merchant services gain in the prior year, Corporate and Investment Banking revenue was up $210 million year over year, largely as a result of an increase in net interest income and growth in fee revenue.

Global Wealth and Investment Management net income declined $40 million from a year earlier driven in part by the tax-related effects of the sale of the former Columbia Management long-term asset management business, partially offset by higher investment and brokerage activity and lower credit costs.

Revenue increased $369 million from a year earlier to $4.3 billion, which represents Global Wealth and Investment Management's highest quarterly revenue other than the fourth quarter of 2009, which included a $1.1 billion gain related to the company's equity investment in BlackRock, Inc. The increase was driven by higher investment and brokerage income, higher net interest income compared to the second quarter of 2009, and the pretax gain on the sale of Columbia Management's long-term asset management business. The provision for credit losses decreased $117 million from a year ago to $121 million due to improvement in the consumer real estate portfolio.

Merrill Lynch Global Wealth Management net revenue increased $234 million from a year earlier due to higher investment and brokerage income driven by the impact of higher average equity market levels, increased AUM flows, and higher transactional brokerage activity, as well as higher net interest income.

U.S. Trust, Bank of America Private Wealth Management, and Retirement and Philanthropic Services net revenue increased $29 million and $15 million, respectively, from a year ago due to improved net interest margin at U.S. Trust and higher valuations in the equity markets in Retirement and Philanthropic Services.

Global Wealth and Investment Management also includes the results of BofA Global Capital Management, which is the cash and liquidity asset management business that Bank of America retained following the sale of Columbia Management's long-term asset management business and the economic ownership interest related to the company's investment in BlackRock, Inc.

All Other
All Other reported net income of $1.1 billion, up $346 million from a year ago due to higher net revenue driven by a $1.2 billion pretax gain on the sale of shares of Itaú and credit-related gains primarily associated with the Merrill Lynch structured notes of $1.2 billion, partially offset by increases in the provision for credit losses and noninterest expense.

The increase in provision for credit losses was driven by the impact of the new consolidation guidance, partially offset by lower reserve additions related to the residential mortgage and the discontinued real estate purchased credit-impaired portfolios. Results were also impacted by lower gains on sales of debt securities as a result of net losses on sales of certain non-agency residential mortgage-backed securities. Noninterest expense increased due to higher personnel, general operating and other expenses.