Bank of America Reports Third-Quarter 2011 Net Income of $6.2Billion, or $0.56 Per Diluted Share

Bank of America Corporation today reported net income of $6.2 billion, or $0.56 per diluted share, for the third quarter of 2011, compared with a net loss of $7.3 billion, or $0.77 per diluted share, in the year-ago period. Revenue, net of interest expense, on a fully taxable-equivalent (FTE) basis1 rose 6 percent to $28.7 billion.

There were a number of significant items that affected results in both periods. The most recent quarter included, among other things, $4.5 billion (pretax) in positive fair value adjustments on structured liabilities, a pretax gain of $3.6 billion from the sale of shares of China Construction Bank (CCB), $1.7 billion pretax gain in trading Debit Valuation Adjustments (DVA), and a pretax loss of $2.2 billion related to private equity and strategic investments, excluding CCB. The fair value adjustment on structured liabilities reflects the widening of the company´s credit spreads and does not impact regulatory capital ratios. The year-ago quarter included a $10.4 billion goodwill impairment charge. Details on the significant items are included in the revenue and expense section of this press release.

"This quarter´s results reflect several actions we took that highlight our ongoing transformation toward becoming a leaner, more focused company," said Chief Executive Officer Brian Moynihan. "The diversity and depth in our customer and client offerings provided some resiliency in a very challenging environment."

"Our focus this quarter was on strengthening the balance sheet by selling non-core assets and building capital to position the company for future growth," said Chief Financial Officer Bruce Thompson. "In that regard, we accomplished a great deal. We reduced the size of our balance sheet by $42 billion from the second quarter of 2011, nearly doubled our Tier 1 common equity ratio since early 2009, and continued to have strong liquidity levels even after significantly reducing both short- and long-term debt."

Making progress on operating principles

During the third quarter of 2011, the company made significant progress in line with its operating principles, including the following developments:

Focus on customer-driven businesses

• Bank of America extended approximately $141 billion in credit in the third quarter of 2011, according to preliminary data. This included $85 billion in commercial non-real estate loans, $33 billion in residential first mortgages, $10 billion in commercial real estate loans, $5 billion in U.S. consumer and small business card, $847 million in home equity products and $7 billion in other consumer credit.

• The $33 billion in residential first mortgages funded in the third quarter helped over 151,000 homeowners either purchase a home or refinance an existing mortgage. This included approximately 12,000 first-time homebuyer mortgages originated by retail channels, and more than 54,000 mortgages to low- and moderate-income borrowers. Approximately 47 percent of funded first mortgages were for home purchases and 53 percent were refinances.
• Total average deposit balances of $1.05 trillion were up $77 billion, or 8 percent from the year-ago period, and $15 billion, or 1 percent higher than the second quarter of 2011.
• The number of net new consumer and small business checking accounts was positive for the third consecutive quarter as the company continued to focus on the retention of profitable customer relationships.
• Bank of America launched Customer Solutions earlier this year as a pilot in certain markets for new customers. The company has been successfully converting select customers in those markets with favorable results as many customers are willing to increase their balances to achieve account benefits.
• Bank of America continued to expand its service for small business owners by hiring nearly 500 locally based small business bankers through the third quarter of 2011 to provide convenient access to financial advice and solutions. The company plans to hire more than 1,000 small business bankers by early 2012.
• Referral volumes remained strong during the third quarter with referrals from Global Wealth and Investment Management to Global Banking and Markets up 28 percent from the year-ago quarter, and referrals from Global Wealth and Investment Management to Global Commercial Banking up 6 percent from the same period.
• Global Wealth and Investment Management added 475 Financial Advisors in the quarter.

Building a fortress balance sheet

• Regulatory capital ratios increased significantly during the third quarter compared to the second quarter of 2011, with the Tier 1 common equity ratio at 8.65 percent, the tangible common equity ratio2 at 6.25 percent and the common equity ratio at 9.50 percent at September 30, 2011.
• The company took advantage of its strong liquidity position to reduce short-term debt by $17 billion and long-term debt by $28 billion during the third quarter. The parent company´s time-to-required funding increased to 27 months from 22 months in the second quarter of 2011.
• The company continued to strengthen the balance sheet by reducing risk-weighted assets by $33 billion from the second quarter of 2011 and $117 billion from the third quarter of 2010.

Pursuing operational excellence in efficiency and risk management

• Earlier this year, the company launched Project New BAC, a comprehensive initiative designed to simplify and streamline the company and align expenses. Implementation of Phase 1 ideas began this month with a goal of reducing expenses by approximately $5 billion per year by 2014, on a baseline of approximately $27 billion in annual expenses for the business areas reviewed in Phase 1. The company expects to incur technology and severance costs during the implementation of Phase 1. The New BAC Phase 2 review began this month and is expected to continue into early 2012 and cover the balance of businesses and operations that were not reviewed in Phase 1.
• The provision for credit losses declined 37 percent from the year-ago quarter, reflecting improved credit quality across most consumer and commercial portfolios and underwriting changes implemented over the last several years.
• The allowance for loan and lease losses to annualized net charge-off coverage ratio remained strong in the third quarter of 2011 at 1.74 times, compared to 1.53 times in the third quarter of 2010 (1.33 times compared to 1.34 times excluding purchased credit-impaired loans).

Delivering on the shareholder return model

• The company continued to focus on streamlining the balance sheet by selling non-core assets, addressing legacy issues, reducing debt and implementing its customer-focused strategy while focusing on expenses to position the company for long-term growth.
• Tangible book value per share2 rose to $13.22 in the third quarter of 2011, compared to $12.91 in the third quarter of 2010 and $12.65 in the second quarter of 2011. Book value per share was $20.80 in the third quarter of 2011 compared to $21.17 in the third quarter of 2010 and $20.29 in the second quarter of 2011.

Continuing to address legacy issues

• Since the start of 2008, Bank of America and legacy Countrywide have completed nearly 961,000 loan modifications with customers. During the third quarter of 2011, more than 52,000 loan modifications were completed, compared with 69,000 in the second quarter of 2011 and 50,000 in the third quarter of 2010.
• During the quarter, Bank of America successfully implemented the rollout of a single point of contact in the default servicing business. More than 6,500 employees have now been trained and deployed in these client relationship management roles.

1 Fully taxable-equivalent (FTE) basis is a non-GAAP measure. For reconciliation to GAAP measures, refer to pages 25-27 of this press release. Total revenue, net of interest expense on a GAAP basis was $28.5 billion for the three months ended September 30, 2011.

2 Tangible common equity ratio and tangible book value per share of common stock are non-GAAP measures. Other companies may define or calculate these measures differently. For reconciliation to GAAP measures, refer to pages 25-27 of this press release.

2011

2011

2010

Total revenue, net of interest expense, FTE basis1

At September 30,

2011

At June 30,

2011

At September 30,

2010

$

$

$

1 Fully taxable-equivalent (FTE) basis and return on average economic capital are non-GAAP measures. Other companies may define or calculate these measures differently. For reconciliation to GAAP measures, refer to pages 25-27 of this press release.

Business Highlights

• Average deposit balances increased $11.2 billion from the year-ago quarter, driven by growth in liquid products in a low rate environment.
• The cost per dollar of deposits improved by 21 basis points to 2.47 percent from the year-ago quarter, highlighting the company´s continued efficiency and competitive edge in maintaining a low-cost distribution channel.

Financial Overview

Deposits reported net income of $276 million, up $78 million from the year-ago quarter, largely due to lower noninterest expense, partially offset by lower revenue.

Revenue of $3.1 billion was down $27 million from the year-ago quarter driven by lower noninterest income, reflecting the impact of overdraft fee changes that were fully implemented during the third quarter of 2010. Net interest income of $2.0 billion was relatively flat from the year-ago quarter, while noninterest expense was down $147 million from a year ago to $2.6 billion due to a decrease in operating expenses.

Card Services1

2011

2011

2010

At September 30,

2011

2011

At September 30,

2010

1 During the third quarter of 2011, as a result of the decision to exit the international consumer card businesses, the Global Card Services business segment was renamed Card Services. The international consumer card business results have been moved to All Other and prior periods have been reclassified.

2 Fully taxable-equivalent (FTE) basis and return on average economic capital are non-GAAP measures. Other companies may define or calculate these measures differently. For reconciliation to GAAP measures, refer to pages 25-27 of this press release.

3 Includes a goodwill impairment charge of $10.4 billion in the third quarter of 2010.

Business Highlights

• The number of new U.S. credit card accounts grew by 17 percent in the third quarter of 2011 compared to the second quarter of 2011.
• Credit quality continued to improve with the 30+ delinquency rate declining for the 10th consecutive quarter.

Financial Overview

Card Services reported net income of $1.3 billion, compared to a loss of $9.8 billion in the year-ago quarter. The improvement in net income reflected the impact of a $10.4 billion goodwill impairment charge in the third quarter of 2010 and lower credit costs in the current period, partially offset by lower revenue. Excluding the impairment charge, net income was up $708 million from the third quarter of 2010.

Revenue declined 16 percent to $4.5 billion from the year-ago quarter, driven by a decrease in net interest income from lower average loans and yields as well as lower noninterest income. Average loans declined $17.5 billion from the year-ago period due to higher payments, charge-offs, continued non-core portfolio runoff and divestitures.

Provision for credit losses decreased $2.0 billion from a year ago to $1.0 billion, reflecting improving delinquencies and collections and fewer bankruptcies as a result of improving economic conditions and lower average loans. Excluding the goodwill impairment charge in the third quarter of 2010, noninterest expense was flat from a year ago.

Global Wealth and Investment Management

2011

2011

2010

At September 30,

2011

At June 30,

2011

At September 30,

2010

1 Fully taxable-equivalent (FTE) basis and return on average economic capital are non-GAAP measures. Other companies may define or calculate these measures differently. For reconciliation to GAAP measures, refer to pages 25-27 of this press release.

2 Total client balances are defined as assets under management, assets in custody, client brokerage assets, client deposits and loans.

Business Highlights

• Asset management fees were a record $1.56 billion in the third quarter of 2011, up 17 percent from the year-ago quarter, driven by higher market levels and higher client flows into long-term assets under management.
• Average deposit balances grew 9 percent from the third quarter of 2010 to $255.7 billion, and average loan balances grew 4 percent to $102.8 billion.

Financial Overview

Global Wealth and Investment Management net income rose 29 percent from the year-ago quarter. Revenue was $4.2 billion, up 9 percent, driven by higher asset management fees, net interest income, and transactional activity.

The provision for credit losses increased $35 million from a year ago, driven by higher costs associated with the residential mortgage portfolio.

Noninterest expense increased 5 percent from a year ago to $3.5 billion, due primarily to higher volume-driven expenses and personnel costs associated with the continued build-out of the business.

Consumer Real Estate Services

2011

2011

2010

At September 30,

2011

At June 30,

2011

At September 30,

2010

1 Fully taxable-equivalent (FTE) basis is a non-GAAP measure. For reconciliation to GAAP measures, refer to pages 25-27 of this press release.

2 Includes a goodwill impairment charge of $2.6 billion in the second quarter of 2011.

Business Highlights

• Funded $33.8 billion in residential home loans and home equity loans during the third quarter.
• Announced plans to exit the Home Loans correspondent mortgage lending channel and focus entirely on retail distribution for mortgage products and services.

Financial Overview

Consumer Real Estate Services reported a net loss of $1.1 billion, compared to a net loss of $392 million for the same period in 2010. Revenue declined 22 percent to $2.8 billion. Noninterest expense increased 32 percent to $3.9 billion, and the provision for credit losses fell 29 percent to $918 million.

The year-over-year decline in revenue was primarily driven by a decrease in core production income, lower insurance income due to the sale of Balboa Insurance during the second quarter of 2011, and a decline in net interest income primarily due to the change in composition of assets and liabilities. The decrease in core production income was due to a decline in new loan originations caused primarily by lower overall market demand and a drop in market share in the correspondent lending channels. These declines were partially offset by improved MSR results, net of hedges, and a decline in the representations and warranties provision, which is included in mortgage banking income.

Representations and warranties provision was $278 million in the third quarter of 2011, compared to $872 million in the third quarter of 2010 and $14 billion in the second quarter of 2011.

Provision for credit losses decreased $384 million from a year ago to $918 million, driven primarily by improving portfolio trends, including the Countrywide purchased credit-impaired home equity portfolio.

The increase in noninterest expense from the year-ago quarter was primarily due to higher default-related and other loss mitigation expenses, mortgage-related assessments and waivers costs, which include costs related to foreclosure delays and other out-of-pocket costs that the company does not expect to recover, as well as higher litigation expense. These increases were partially offset by lower insurance expenses and a decline in production expenses due to lower origination volumes.

Global Commercial Banking

2011

2011

2010