Bank of America 2002 Annual Report Download - page 28

26 BANK OF AMERICA 2002
On a net basis, we increased consumer checking accounts by
approximately 528,000 in 2002 compared to a net increase of approx-
imately 193,000 in 2001, driven by greater customer satisfaction,
focused marketing and new products such as MyAccess Checking.
™
Online banking is an important component in giving customers
the flexibility to do banking in a fast and easy way, whenever it’s
most convenient. Our success continued in 2002 as our active online
banking customers reached more than 4.7 million by the end of the
year, a 63 percent increase. Active bill pay customers more than
doubled during the year to nearly 1.8 million. Monthly, our customers
pay 9.9 million bills online totaling $2.7 billion.
First mortgage originations reached $88.1 billion, as low mort-
gage interest rates drove refinance volume, coupled with expanded
market coverage from our deployment of LoanSolutions.
®
Total
consumer real estate originations, which include first and second
mortgages and home equity lines, surpassed $100 billion in 2002.
The introduction of LoanSolutions
®
into our banking centers has
expedited the mortgage application process, enabling 7,300 personal
bankers to, in minutes, match customers with the right products to
meet their needs.
Despite a challenging market, we made significant market
share gains in convertible and common stock offerings, mergers and
acquisitions advisory services, and asset-backed securities in Global
Corporate and Investment Banking.
In December 2002, we agreed to purchase a 24.9 percent stake
in Grupo Financiero Santander Serfin (GFSS), the subsidiary of
Santander Central Hispano in Mexico, for $1.6 billion. GFSS is the
third-largest and most profitable banking organization in Mexico.
The transaction is expected to close in the first quarter of 2003.
Financial Highlights
For the Corporation in total, the increase in net interest income was
more than offset by the decline in noninterest income. The impact of
higher levels of securities and residential mortgage loans, higher
levels of core deposit funding, the margin impact of higher trading-
related assets, consumer loan growth and the absence of 2001 losses
associated with auto lease financing had a positive effect on net
interest income. The securitization of subprime real estate loans and
reduced commercial loan levels negatively impacted net interest
income relative to 2001. The net interest yield improved seven basis
points from a year ago, primarily due to a favorable shift in loan mix,
higher levels of core deposit funding, the absence of 2001 losses
associated with auto lease financing and higher levels of securities
and residential mortgage loans, partially offset by the securitization of
subprime real estate loans and higher-trading related assets.
Noninterest income declined $777 million as market conditions in
2002 negatively impacted our market-sensitive revenue. This decline
was partially offset by strong performance in consumer-based fee
income and gains recognized in our whole mortgage loan portfolio
created by the interest rate fluctuations that occurred in 2002. Other
noninterest income included gains from whole mortgage loan sales of
$500 million in 2002 compared to $20 million in 2001. Gains on sales of
securities were $630 million, an increase of $155 million from 2001.
The provision for credit losses decreased $590 million, due in
part to $395 million in 2001 associated with exiting the subprime real
estate lending business. Net charge-offs were down $547 million to
$3.7 billion, or 1.10 percent of average loans and leases, a decrease of
six basis points. Decreases in commercial – domestic and consumer
finance net charge-offs and $635 million of charge-offs in 2001
related to exiting the subprime real estate lending business were
partially offset by increases in credit card and commercial – foreign
net charge-offs.
Nonperforming assets were $5.3 billion, or 1.53 percent of loans,
leases and foreclosed properties at December 31, 2002, a $354 million
increase from December 31, 2001. Nonperforming assets in the large
corporate portfolio within Global Corporate and Investment Banking
drove the increase, partially offset by credit quality improvement in the
commercial portfolio within Consumer and Commercial Banking.
Noninterest expense declined $2.3 billion, as reductions in
personnel expense and professional fees were partially offset by
increased data processing and marketing expenses. Noninterest
expense in 2001 included $1.3 billion of business exit costs, $662 mil-
lion in goodwill amortization expense and $334 million of litigation
expenses in fourth quarter 2001. Excluding these items in 2001, nonin-
terest expense was relatively unchanged compared to the prior year.
Salaries expense declines were partially offset by increased
employee benefit costs, which largely resulted from higher healthcare
costs and the $69 million impact of a change in the expected long-term
rate of return on plan assets to 8.5 percent for the Bank of America
Pension Plan. Incentive compensation, primarily in the Global
Corporate and Investment Banking business, declined consistent
with reductions in market-sensitive revenues. In the fourth quarter of
2002, we also recorded a $128 million severance charge related to
outsourcing and strategic alliances.
Reduced consulting and other professional fees reflected the
increased use of in-house personnel for consulting and productivity-
related activities. Data processing expense increases reflected the
$45 million in costs associated with terminated contracts on discontin-
ued software licenses in the third quarter of 2002 as well as higher
volumes of online bill pay activity, check imaging and higher item pro-
cessing and check clearing expenses. Marketing expense increased in
2002 as we expanded our advertising campaign. Advertising efforts
primarily focused on card, mortgage, online banking and bill pay.
Income tax expense was $3.7 billion resulting in an effective tax
rate of 28.8 percent. During 2002, we reached a settlement with the
IRS generally covering tax years ranging from 1984 to 1999 but includ-
ing returns as far back as 1971. As a result of this settlement, the
Corporation recorded a $488 million reduction in income tax expense.