Bank of America 2000 Annual Report Download - page 5

Nations Funds mutual
funds topped $100
billion in assets.
Received the United
Way of America Spirit
of America Award.
Received the Distinguished
Corporate Award from the
U.S. Department of Com-
merce Minority Business
Development Agency.
3
We made significant progress in executing our corporate strategy, which, as I wrote
last year, calls for us to integrate the delivery of our products and services on behalf of
our customers; reward customers for bringing us more of their business; and align our
financial and intellectual resources with revenue opportunities and customer solutions.
I’ve asked Ken, as the chief architect of this growth strategy and the leader responsible
for tactical execution, to report on this progress in a separate President’s Letter to
Shareholders. You will find Ken’s letter on page 8.
Strategic and tactical progress notwithstanding, our financial performance in 2000
was disappointing, as we missed our annual financial goals for growth in revenue, net
income and earnings-per-share by significant margins. The weakness in these financial
results – and the resulting weakness in our stock price – was due to several factors.
First, along with the rest of our industry, our earnings and our stock came under
pressure from higher interest rates, as we predicted last year. Prior to this month’s cuts
in short-term interest rates, the Federal Open Market Committee of the Federal Reserve
Board raised short-term interest rates six times dating back to June of 1999 for a total of
175 basis points, increasing the cost of capital and narrowing margins.
Second, in the fall, strong earnings gains in core businesses began to be offset by
weakening credit quality in the corporate sector. It is becoming increasingly clear that
the credit quality situation is more than an anomaly; rather, we appear to be on the front
end of an overall weakening in the credit cycle that will more than likely continue to
impact earnings well into 2001.
That said, we believe that Bank of America is better-positioned than most other
banks to withstand an economic slowdown and accompanying decline in credit quality.
In fact, with more than $50 billion in capital and reserves and pre-tax operating income
of more than $3 billion per quarter, we are well-prepared to weather the inevitable ups
and downs in the credit cycle. We have taken a number of specific actions to attempt to
mitigate this increase in credit risk, including rigorous reviews of our portfolio, lowering
limits, tightening underwriting and hedging where possible. We also believe that we will
benefit in relation to our competitors in the months to come from our size, geographic
reach and the diversity in our loan portfolio.
Third, while we are seeing strong initial results of strategy execution in many areas
of the bank, overall progress has not been as rapid as we projected. We took several
aggressive steps last year to speed the transformation of the company, including our
decision in July to reduce middle-management positions dramatically, which is stream-
lining the organization, moving decision-making closer to the customer and freeing up
funds for investment in growth opportunities. Other initiatives include a company-wide
effort to bring performance measurements and incentive plans into alignment with new
strategic and tactical goals, and customer service improvements that have resulted in
consistently better rates of customer satisfaction.
Although I am as disappointed as any other shareholder in the performance of our
stock, I must reiterate what I wrote last year in this regard. Our company is undergoing a
transformation from top to bottom that is predicated on a long-term, customer-focused
strategy for internal growth. The evidence, as discussed briefly below and in more detail