When Bank of America Corp. delivered its second-quarter financial results July 14, it presented Wall Street with a new look.
The most visible change was in size. Revenue and profits rose sharply, mainly because B of A acquired FleetBoston Financial Corp. on April 1, the first day of the quarter. But beyond the income statement, the $1 trillion-asset Charlotte company also unveiled a new way of slicing its businesses.
To emphasize its core consumer businesses, it split its consumer and commercial banking segment in two. Together, the two business lines had generated two thirds of B of A’s profits in the past. Under the new lineup, consumer and small-business banking accounts for 50% of the profits, while commercial banking accounts for 17%.
“The two businesses had just gotten so large,” Kenneth D. Lewis, the chief executive, said in an interview after the earnings report. “We thought we could give more granularity to the businesses. Also, they are different businesses, and we wanted investors to see the progress being made. We think this gives anyone a better shot at analyzing the company.”
Other companies that have recently revamped their quarterly earnings presentations, or announced plans to do so, include Citigroup Inc., J.P. Morgan Chase & Co., First Horizon National Corp., and PNC Financial Services Group Inc.
All banking companies’ income statements and balance sheets follow a standard form, but the companies have some leeway in how they present other information to help Wall Street understand how their businesses are performing.
Many of the changes unveiled recently are clearly motivated by mergers and acquisitions, but some are designed to illustrate a company’s new strategy or to respond to changes in market conditions.
“I think it’s related to mergers,” said Nancy Bush, who runs NAB Research LLC, in Annandale, N.J. “As these companies come together, they find that it makes judging the success or just measuring the impact of the merger easier, to slice and dice it different ways.”
Emphasizing consumer businesses makes sense at B of A, she said, because the “improvement of Fleet’s retail effort is the basis for how we will judge the success of that deal.”
Reorganized earnings formats are a fact of life at big companies that do frequent acquisitions, said Jeffery Harte, an analyst who follows large banks for Sandler O’Neill & Partners. “In terms of trying to model a company, it’s a source of frustration,” he said.
But there is an upside. “In a lot of cases, you do wind up getting better disclosures, more meaningful disclosures,” Mr. Harte said.
Companies typically restate their quarterly reports in the new format going back a year or two, though Mr. Harte said he wished companies would go back even further. “If you can get four years worth of data restated, that’s more meaningful,” he said.
JPMorgan Chase plans a series of accounting and reporting changes this quarter as it absorbs Bank One Corp., which it acquired July 1. While the acquisition is the main impetus for those changes, they also stem in part what Ms. Bush calls president James Dimon’s “wish to sort of take the company apart and put it back together.”
Among other things, the $1.1 trillion-asset JPMorgan Chase will report results for six new segments that combine its five main business lines with Bank One’s four. It also plans to alter how it allocates capital and expenses among its divisions and to reconcile differences between its previous accounting policies and Bank One’s.
“We are going to report a whole new company,” Mr. Dimon told investors during his company’s second-quarter earnings conference call July 21.
The new segments are investment banking, treasury and securities services, asset and wealth management, commercial banking, retail financial services, and card services. The report also will have a line for corporate activities not included elsewhere, including its private equity portfolio.
Citi has been tweaking its earnings presentations in recent quarters, often by providing more information than it has in the past. It revised its global corporate and investment banking disclosures in the first quarter and introduced a half-dozen changes this quarter, including expanded information about its North American and international retail banking and cards businesses.
PNC, of Pittsburgh, adopted a new reporting format in the first quarter, in part to eliminate wide swings in its retail banking earnings that had been driven by uneven securities gains and losses.
The financial reporting changes the $28 billion-asset First Horizon, of Memphis, unveiled last month are part of a multi-year campaign to recast itself as a national competitor.
The company, formerly known as First Tennessee National Corp., adopted the First Horizon name in April. In recent years it has been expanding outside Tennessee through its mortgage subsidiary and its capital markets business. This year it began opening bank branches outside Tennessee, starting in northern Virginia.
In the second quarter it switched from five business segments organized mainly by brand names to four segments grouped by customers and products. The change plays up retail banking and deemphasizes the role of mortgages in the results.
Retail and commercial banking is now First Horizon’s largest segment, accounting for about half of the revenue in the second quarter, while mortgage banking accounted for about 30%. Under the previous reporting method, last year the First Horizon mortgage group accounted for 40% of revenue, while the First Tennessee banking group accounted for 30%.
The new segments “will make it easier for you to understand our results,” First Horizon’s chairman, chief executive, and president, Kenneth Glass, said in a July 21 conference call with analysts. “These new segments reflect our company’s evolution from a regional bank to a national financial services company.”
(The conference call was a first for First Horizon, which previously had offered analysts only a prerecorded earnings message, without a question and answer session.)
Analysts say the new format will allow investors to gauge the progress of the retail banking expansion.
It also could help First Horizon show off the profitability of its banking and mortgage operations and avoid being lumped in with other, more mortgage-dependent companies when they announce financial trouble, said Christopher Marinac, an analyst at FIG Partners in Atlanta.
“I think from First Horizon’s standpoint, you really could not tell what was going on in the banking unit” before, Mr. Marinac said. Now, “if you look at the return on assets” in the banking segment, “it’s really pretty high.”
Meanwhile, the results in the reconfigured mortgage segment show that even though revenue is declining from a peak during the refinancing boom, “that doesn’t necessarily mean that profitability is going down the tubes,” he said.
During the conference call, Mr. Glass described the quarter as “a defining moment” in First Horizon’s 140-year history.
“We used to be a regional bank with large mortgage and capital markets operations,” he said. “Today all three of our business segments have achieved national penetration with plans for additional expansion.”
