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2005 Summary Annual Report: Form 10-K: Financial HighlightsFinancial HighlightsNet Interest IncomeNet Interest Income on a FTE basis increased $2.9 billion to $31.6 billion in 2005 compared to 2004. The primary drivers of the increase were the FleetBoston Merger, organic growth in consumer (primarily credit card and home equity) and commercial loans, higher domestic deposit levels and a larger ALM portfolio (primarily securities). Partially offsetting these increases was the adverse impact of spread compression due to the flattening of the yield curve, which contributed to lower Net Interest Income. The net interest yield on a FTE basis declined 33 basis points (bps) to 2.84 percent in 2005. This was primarily due to the adverse impact of an increase in lower-yielding, trading-related balances and spread compression, which was partially offset by growth in core deposit and consumer loans. For more information on Net Interest Income on a FTE basis, see Table I. Noninterest Income
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| (Dollars in millions) | 2005 |
2004 (Restated) | ||||
|---|---|---|---|---|---|---|
| Service charges |
$ | 7,704 | $ | 6,989 | ||
| Investment and brokerage services |
4,184 | 3,614 | ||||
| Mortgage banking income |
805 | 414 | ||||
| Investment banking income |
1,856 | 1,886 | ||||
| Equity investment gains |
2,040 | 863 | ||||
| Card income |
5,753 | 4,592 | ||||
| Trading account profits |
1,812 | 869 | ||||
| Other income |
1,200 | 1,778 | ||||
| Total noninterest income |
$ | 25,354 | $ | 21,005 | ||
Noninterest Income increased $4.3 billion to $25.4 billion for 2005 compared to 2004, due to the following which includes the impact of FleetBoston:
| • | Service Charges grew $715 million driven by organic account growth. |
| • | Investment and Brokerage Services increased $570 million due to increases in asset management fees and mutual fund fees. |
| • | Mortgage Banking Income increased $391 million due to lower MSR impairment charges which were partially offset by lower production income. |
| • | Equity Investment Gains increased $1.2 billion, primarily in Principal Investing, as liquidity in the private equity markets increased. |
| • | Card Income increased $1.2 billion due to increased interchange income and merchant discount fees driven by growth in debit and credit purchase volumes and the acquisition of NPC. |
| • | Trading Account Profits increased $943 million due to increased customer activity driven by our strategic initiative in Global Capital Markets and Investment Banking to expand business capabilities and opportunities, and the absence of a writedown of the Excess Spread Certificates (the Certificates) that occurred in the prior year. For more information on the Certificates, see Note 1 of the Consolidated Financial Statements. |
| • | Other Income decreased $578 million primarily related to losses on derivative instruments used as economic hedges in the ALM process that did not qualify for SFAS 133 hedge accounting. |
The Provision for Credit Losses increased $1.2 billion to $4.0 billion in 2005 with credit card being the primary driver of the increase. Consumer credit card net charge-offs increased $1.3 billion from 2004 to $3.7 billion with an estimated $578 million related to the increase in bankruptcy filings prior to the effective date of the new bankruptcy legislation enacted in the fourth quarter of 2005. We estimate that approximately 70 percent of these bankruptcy-related charge-offs represent acceleration from 2006 and were provided for previously. Also impacting credit card net charge-offs and the Provision for Credit Losses were organic growth and seasoning of the portfolio, the impact of the FleetBoston portfolio and new advances on accounts for which previous loan balances were sold to the securitization trusts. The provision also increased as the rate of credit quality improvement slowed in the commercial portfolio and a $50 million reserve was established for estimated losses associated with Hurricane Katrina. Partially offsetting these increases was a reduction in the reserves of $250 million due to reduced uncertainties resulting from the completion of credit-related integration activities for FleetBoston.
For more information on credit quality, see Credit Risk Management.
Gains on Sales of Debt Securities in 2005 were $1.1 billion compared to $1.7 billion in 2004. For more information on Gains on Sales of Debt Securities, see Market Risk Management.
| (Dollars in millions) | 2005 |
2004 | ||||
|---|---|---|---|---|---|---|
| Personnel |
$ | 15,054 | $ | 13,435 | ||
| Occupancy |
2,588 | 2,379 | ||||
| Equipment |
1,199 | 1,214 | ||||
| Marketing |
1,255 | 1,349 | ||||
| Professional fees |
930 | 836 | ||||
| Amortization of intangibles |
809 | 664 | ||||
| Data processing |
1,487 | 1,330 | ||||
| Telecommunications |
827 | 730 | ||||
| Other general operating |
4,120 | 4,457 | ||||
| Merger and restructuring charges |
412 | 618 | ||||
| Total noninterest expense |
$ | 28,681 | $ | 27,012 | ||
Noninterest Expense increased $1.7 billion to $28.7 billion in 2005 compared to 2004, primarily due to the impact of FleetBoston and increases in personnel-related costs. Pre-tax cost savings from the FleetBoston Merger included in the above were $909 million in 2004 and $1.9 billion in 2005, which exceeded the $1.6 billion estimate in the October 2003 FleetBoston Merger announcement.
Income Tax Expense was $8.0 billion in 2005, reflecting an effective tax rate of 32.7 percent. The effective tax rate was lower than 2004 primarily as a result of a tax benefit of $70 million related to the special one-time deduction associated with the repatriation of certain foreign earnings under the American Jobs Creation Act of 2004. In 2004, Income Tax Expense was $7.0 billion, reflecting an effective tax rate of 33.3 percent. For more information on Income Tax Expense, see Note 18 of the Consolidated Financial Statements.