A short number of years ago, no one in his right mind would have associated the term “fortress balance sheet” with Bank of America. During the financial crisis, Bank of America was forced to accept a massive $45 billion bailout from the U.S. Treasury. As the financial system imploded during 2008 many people wondered if the government would be forced to nationalize Bank of America along with other “too big to fail banks.”
Although it may be premature to proclaim a complete recovery of the U.S. banking industry, times have certainly changed. The biggest banks in the country have all paid back their bailout loans and investment legend Warren Buffett has taken a large stake in Bank of America.
Although many critics argue that the banking industry lacks financial transparency and could face future financial crises, the financial health of Bank of America has measurably improved since the dark days of 2008. Nonetheless, considering the speed at which the banking industry unexpectedly fell apart during the financial crisis, who would have the chutzpah to proclaim that Bank of America has a fortress balance sheet? The answer lies in Bank of America’s latest Annual Report to Shareholders in which CEO Brian Moynihan states “We built a fortress balance sheet that gives us the platform to accelerate business growth.” After enduring savage criticisms of his efforts to turn Bank of America around, perhaps Mr. Moynihan can be allowed some literary license in describing the results of his efforts over the past three years.
For the benefit of those who understandably don’t chose to spend their time browsing through a 280 page report, here are some other interesting comments and facts from Bank of America’s Annual Report.
- Bank of America reduced long term debt by almost $100 billion over the past year and currently has excess liquidity of $372 billion.
- In an attempt to focus on core businesses, over $60 billion of assets in non-core activities have been divested with little impact on core earnings and major improvement to liquidity and capital ratios.
- During 2012, Bank of America reduced the number of loans delinquent by more than 60 days by 33% to 773,000 loans. Further improvement is expected during 2013 and over 1.5 million customers were given assistance to avoid foreclosure through loan modifications and short sales.
- Earnings for 2012 totaled $4.2 billion compared to $1.4 billion in the prior year. Tangible book value per share rose to $13.36 at December 31, 2012, up from $12.95 in the prior year.
- Bank of America ended 2012 with a Tier 1 common capital ratio under Basel 1 of 11.06%, an increase of 3% from three years ago. Buying back common shares is viewed as the best way to return excess capital to shareholders.
- Mobile banking is rapidly expanding. More than 12 million Bank of America customers use mobile banking which rose by 30% last year. The trend is continuing as more than 10,000 customers a day adopt mobile banking.
- During 2012 small business loans expanded by 28% and commercial loans grew by almost 12%. Retail mortgage lending expanded by 40% during the fourth quarter of 2012.
- Although long time shareholders are still sitting with huge losses, Bank of America’s common stock ended 2012 at $11.61, up more than 100% from $5.56 at the end of 2011.
Bank of America’s CEO, Brian T. Moynihan, received no bonus for 2010, 2011 and 2012 and actually earned the least of the top five executives at Bank of America. For 2012, Mr. Moynihan received total compensation of $8.3 million, up from $8.1 million for 2011 and $1.9 million for 2010. The highest paid executive at Bank of America for 2012 was Thomas K. Montag, Co-Chief Operating Officer, who received total compensation of $14.4 million.