This is a summary of the first quarter fiscal 2009 earnings call conducted by Bank of America Corporation (BAC) on April 20, 2009.
Executives:
Kevin Stitt –
Investor Relations
Kenneth D. Lewis –
Chairman, Chief Executive Officer
Joe L. Price –
Chief Financial Officer
Key Investor Issues:
- Bank of America earned $4.25 billion, or 44 cents a share in the first quarter. In the year-ago period, the company earned 23 cents a share.
- Bank of America reported record revenue of $36 billion with Merrill Lynch contributing more than $3 billion to the net income.
- The tangible common equity ratio grew to 3.13%.
- The company extended $183 billion in credit in the first quarter and added $6.4 billion to its loan loss reserves.
First Quarter Highlights:
Revenue on an FTE basis was in excess of $36 billion, while pretax pre-provision income was approximately $19 billion. Positive drivers in the quarter included a particularly favorable trading environment for interest rate products, currencies, credit products, and equity derivatives; elevated mortgage banking income related to higher volumes; benefits from the sale of certain securities and equity investments; continued momentum in new deposit generation; and true to balance sheet management.
The earnings impact of these positives was offset by a substantial increase in provision expense and the impact of lower consumer spending across many of the company’s businesses. For the first quarter of 2009, Bank of America earned $4.2 billion before preferred dividends or $0.44 per diluted share after including preferred dividends of $1.4 billion.
Major items in the quarter included the addition of Merrill Lynch on Jan. 1 accounted for $3.7 billion in net income this quarter prior to certain merger related costs.
Mortgage banking income increased $1.8 billion to $3.3 billion compared to fourth quarter as first mortgage production levels of $85 billion increased significantly reflecting the strength of origination platform; shares of China Construction Bank were sold for a pretax gain of $1.9 billion which reduced Bank of America ownership from 19% to approximately 17%.
Also included securities in BAS were sold for a gain of $1.5 billion in part to avoid prepayment risk. Structured notes at Merrill Lynch, which were mark-to-market under the fair value option, were revalued resulting in a $2.2 billion increase to the BMF. Total realized expenses from the Merrill Lynch transition were approximately $420 million in the quarter, while merger related expenses for Merrill Lynch were approximately $510 million pretax.
Total credit extended in the first quarter was $183 billion including commercial renewals, up from $181 billion in the fourth quarter.
- The larger components are $85 billion in first mortgages, $71 billion in commercial and $11 billion in commercial real estate.
- The remaining $16 billion includes other consumer retail loans and small business loans.
- Provision expense increased almost $5 billion in the quarter, and included a $6.4 billion reserve increase versus $3 billion in the fourth quarter.
- Included in the record revenue models were losses in global markets totaling $1.7 billion associated with additional market disruption losses that had impacted past quarters.
Average core retail deposit levels, that is legacy Bank of America before the addition of Countrywide and Merrill Lynch, ended the quarter up $33 billion or 6% from levels a year ago, which is a multiple of market grow.
Bank of America exited the fourth quarter with a focus on balancing deposit growth and profitability, demonstrated by the efforts to lead market pricing lower in response to significant Fed fund rate declines.
Capital levels improved from the end of December. Tier 1 capital increased to $171 billion or 10.1% of risk weighted assets, while the tangible common equity ratio increased to 3.13%.
Under deposit segment earnings were $493 million in the quarter, down from $1.5 billion in the fourth quarter due to lower net interest income and service charges.
The lower net interest income was due to the lower residual income of approximately $800 million allocated to the business. And Bank of America continues to add new customers on a net basis in VDA savings accounts as well as online banking.
While sales are in line with a year ago, Bank of America is seeing more account closures by both the bank and by the customer as customers face the pressure of the recessionary environment. Net new DBA accounts for instance were 218 thousand in the first quarter, up 68% from the fourth quarter, but down by more than half from a year ago. This growth correlates with what the company thinks is higher retail deposit market share.
In global card services earnings were a negative $1.8 billion versus $26 million in the fourth quarter due mainly to $2.5 billion increase in credit costs.
Average managed consumer credit card outstanding were down 2% from the fourth quarter. Pressure on consumers to moderate spending has driven a drop in retail purchase volume, a 9% seasonal drop from fourth quarter activity and a 10% drop from the first quarter a year ago.
Even though the economy is contracted, Bank of America continue to add new accounts, 800 thousand new domestic, retail and small business credit card accounts in the quarter with credit lines of approximately $5.5 billion.
In home loans and insurance Bank of America have added or intend to add almost 5,000 new positions in addition to transferring over 700 associates from other parts of the bank to fulfill the increased volume.
