Bank of America profit rises 41 percent on Fleet purchase

Wednesday, July 14, 2004 | 10:34 a.m.

SUN STAFF AND WIRE REPORTS

Bank of America Corp., the third-biggest U.S. bank, said second-quarter profit rose 41 percent, boosted by the purchase of FleetBoston Financial Corp. and an increase in consumer lending.

Net income at the bank, which bought FleetBoston for $48 billion in April, climbed to $3.85 billion, or $1.86 a share, from $2.74 billion, or $1.80, a year earlier, the Charlotte, N.C.-based company said today in a statement.

Chief Executive Kenneth Lewis, 58, said the bank is "ahead of schedule" in combining Fleet's operations, helping it increase credit cards and checking accounts and loans to consumers. Profit was bolstered by almost $800 million in gains from sales of debt securities, more than double the amount of a year earlier.

"Overall, the consumer held up really well," said Hilary Hayes, who helps manage about $4 billion, Victory SBSF Capital Management in New York and sold its Bank of America shares earlier this year.

Profit from consumer and small business banking, Bank of America's biggest unit, rose 36 percent to $1.91 billion, or 50 percent of the company's total profit in the second quarter. Revenue in the business was $7.15 billion. The bank said it added a net 575,000 new checking accounts, including 43,000 from Fleet's offices. The bank has said it expects to open 2.2 million of the accounts and 150 consumer offices this year.

George Smith, president of Bank of America's Nevada operations, said the results nationally mirror the strength Southern Nevada has been showing for several quarters.

"The rest of the U.S. economy is catching up with Las Vegas," he said.

The Las Vegas-area operations are also on pace with company plans to open 19 branches in three years. On June 28 the company opened its sixth new local branch in 12 months.

"The hardest part of the equation here is finding the land," Smith said. "It's a real pain, but it's a good sign (for the economy)."

Smith also indicated that recent concerns that banks in both Nevada and across the nation are heavily tied to real estate loans are over stated.

"I have not seen anything in Southern Nevada that would indicate any kind of a problem," he said. He added, however, that because of the cyclical nature of the real estate market Bank of America does not hold those investments for long periods of time.

Instead, the bank sells off investor-type real estate into conduits, such as mortgage-backed securities, to limit excessive exposure. Smith emphasized that it is a standing philosophy and is no indication of concerns over the current real estate market locally or nationally.

Bank of America's results from a year earlier don't include FleetBoston, the company said. Profit would have increased 18 percent had the companies been combined in last year's second quarter, according to a company filing with the Securities and Exchange Commission.

BB&T Corp. and SunTrust Banks Inc., two of Bank of America's competitors in the U.S. Southeast, both reported higher second-quarter profit this week because of increases in consumer lending and fees. New York-based Citigroup, the nation's biggest bank by assets, and Wachovia Corp., also based in Charlotte, report earnings tomorrow.

Bank of America was expected to earn $1.74 a share, according to the average estimate of 20 analysts surveyed by Thomson Financial.

Shares of Bank of America fell 54 cents to $84.58 in early trading this morning. The stock had gained 5.8 percent this year, compared with a decline of about 2 percent in the 24-member Philadelphia KBW Bank Index.

Earnings included pretax merger costs of $125 million, cutting profit 4 cents a share, the company said. The company also set aside $300 million for litigation related to settling an Enron Corp. lawsuit and other unspecified matters. The bank said it had $206 million in cost savings from the merger in the quarter.

Revenue increased 35 percent to $13.2 billion. Lending income rose 40 percent to $7.75 billion as consumer loans increased and deposits increased. Fee income climbed 28 percent to $5.44 billion because of the Fleet purchase and higher investment banking and credit card income.