This summary is based on the second quarter fiscal 2008 earnings call conducted by Bank of America Corp. (BAC) on July 21, 2008.
Management:
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President & CEO: Kenneth Lewis
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CFO: Joe Price
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Investor Relations: Kevin Stitt
Key Investors Issues
- Earnings dropped 39% to $3.4 billion or 75 cents a share, from $5.76 billion or $1.28 a share in the prior year.
- Revenues rose 3% to $20.3 billion from $20.02 billion in 2007.
- The firm decalred a dividend of 64 cents a share.
Half Year Highlights:
- Net income fell 58% from $11 billion or $2.47 a share in the prior year to $4.6 billion or 96 cents a share.
- Total revenue declined marginally to $37.3 billion from $37.8 billion in 2007.
- Loans improved to $877 million from $727 million in the prior year.
Second Quarter Highlights
The firm earned $3.4 billion or 75 cents per diluted share, down 39% from $5.76 billion or $1.28 a share in the prior year before the impact of merger and restructuring charges of 3 cents a share.
- Total revenue for reached record levels at $20.3 billion, up 3% from $20.02 billion in the prior year as consumer and commercial client flows remained relatively strong even with the continued turmoil in the housing markets.
- Net interest income rose 6% from the first quarter while non-interest income rose 38%, driven by the increase in non-interest income.
- Provision expense of $5.8 billion dropped slightly while net charge-offs rose to $3.6 billion.
- The increase in reserves of $2.2 billion brings the allowance for loan and lease losses above $17 billion or 2% of the loan and lease portfolio.
In global consumer and small business banking, earnings of $812 million were down from the prior quarter but adjusting for the Visa gain in the first quarter earnings were up 11%.
- Good growth in net interest income and service charges offset lower core income in the I/O strip valuation and [lowable] reach banking income.
- Provision was up slightly from the first quarter from higher losses partially offset by lower but still substantial reserve additions.
- The firm once again increased the allowance in the consumer businesses due mainly to ongoing weaknesses in the housing market and the economy along with seasoning of several growth portfolios.
- Product sales were strong in several areas with net new checking accounts up seasonally to 674,000 and in residential mortgage first mortgage originations across the company were up 2.4% to $22.4 billion.
Average retail deposits including money market accounts rose $7.4 billion or 1.4% as growth in checking, savings, and money market levels were partially offset by a drop in CD balances.
- Retail purchase volumes, the US consumer credit card and debit card were up 6% from a year ago and global rep investment management earned $573 million.
- Revenue increased 19% reflecting lower support to certain cash funds, up $36 million compared to $220 million in the prior period.
- In addition provision decreased $124 million due to less reserve increases then in the first quarter partially offset by higher net charge-offs.
- Asset management fees in GWIM rose slightly from the first quarter as seasonal tax preparation fees were offset somewhat by market-based activity and brokerage income increased 6%.
- Premier banking and investments experienced good growth in deposit levels, 6% from the first quarter helped largely by migration of existing customers into Premier.
Assets under management and GWIM closed at $589 billion down from first quarter due to outflows in the cash complex as one of impact of lower equity markets.
- Global corporate investment banking earned $1.7 billion versus $107 million in the prior period reflecting improved trading results, lower write-downs and lower provision expense and net charge-offs.
- Capital markets and advisory services earned $449 million versus a loss in the first quarter had a profit of $627 million a year ago
- The investment bank was very active with investment banking fees of $765 million reflecting increased market share and good results in debt underwriting.
- Business lending experienced average loan growth of $10 billion or 3% which treasury services experienced deposit growth of 6% as client demand for these services rose as a result of the recent market disruption.
Tier 1 capital ratio of 8.25%, was up from 7.51% earlier and although Countrywide will drive the Tier 1 capital ratio under 8% in the third quarter, the firm can continue to move back to an 8% range over two to three quarters.
- The firm continues to maintain an abundance of liquidity at the holding company where the time to require funding has increased to 22 months; significantly higher than competitors.
- Management is recommending to The Board that the firm maintains the current dividend of 64 cents.
- On the CMBS side, the firm ended the quarter with $9.2 billion in exposure of which $8.5 billion is funded with more than 80% or $7.6 billion comprised of larger ticket floating rate debt most of which was acquisition-related.
The firm recorded $184 million of losses associated with equity investments made in acquisition-related financing transactions in the past.
- CDO and sub-prime related exposure recorded losses of $645 million which comprised of $450 million of super senior CDO write-downs and a charge of $200 million to reflect the counter party risk associated with the insured super senior positions.
- At the end of June the net sub-prime super senior related exposure dropped to $3.5 billion from $5.9 billion at the end of March reflecting the write-downs along with reductions of another $2 billion due to liquidations, cancellations and pay-downs.
