Bank of America Corporation (BAC)

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Bank of America Corporation (BAC)

Q1 2009 Earnings Call

April 20, 2009 9:30 am ET

Executives

Kevin Stitt – Investor Relations

Kenneth D. Lewis – Chairman, Chief Executive Officer

Joe L. Price – Chief Financial Officer

Analysts

Christopher Mutascio - Stifel Nicolaus & Company, Inc.

Betsy Graseck - Morgan Stanley

Michael Malarkey - Calyon Securities (USA) Inc.

Nancy Bush - NAB Research

Moshe Orenbush - Credit Suisse

Steven Wharton - J.P. Morgan

Meredith Whitney - Meredith Whitney Advisory LLC

Jason Goldberg - Barclays Capital

Presentation

Operator

Welcome to today’s teleconference. (Operator Instructions) Please note today’s call may be recorded.

It’s now my pleasure to turn the program over to Kevin Stitt. Please begin sir.

Kevin Stitt

Good morning. Before Ken Lewis and Joe Price begin their comments, let me remind you that this presentation does contain some forward-looking statements regarding both our financial condition and financial results in that these statements involve certain risks that may cause actual results in the future to be different from our current expectations. These factors include, among other things, changes in economic conditions; changes in interest rates; competitive pressures within the financial services industry; and legislative or regulatory requirements that may affect our businesses. For additional factors, please see our press release and SEC documents.

With that let me turn it over to Ken Lewis.

Kenneth D. Lewis

Good morning and thank you for joining our earnings review. Our goal that we communicated to you in January given our view of the economy was to produce earnings for 2009 that are accretive to capital markets. We believe first quarter results are a clear example of our ability to produce such earnings to offset the significant impact of a contracting economy and abnormally high credit costs.

Further revenue on an FTE basis was in excess of $36 billion, while pretax pre-provision income was approximately $19 billion. Both were easily record levels. 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 our businesses. It is interesting that the two businesses, that is Merrill Lynch and Countrywide that garnered the most press provided a significant contribution to revenue and earnings growth. 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 January 1 accounted for approximately $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 our 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 [inaudible] 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 our record revenue models were losses in global markets totaling $1.7 billion associated with additional market disruption losses that had impacted past quarters which Joe will review.

We decreased the [inaudible] balance sheet in global markets on a pro forma basis by 21% or $149 billion. 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 we believe is a multiple of market grow.

We exited the fourth quarter with a focus on balancing deposit growth and profitability, demonstrated by our efforts to lead market pricing lower in response to significant Fed fund rate declines. As we saw competitive and market pressures increase early in the first quarter, we responded with new savings products, marketing and associate engagement activities during the month of February. By the end of the quarter and continuing into the second quarter, we believe we have regained momentum in our ability to grow market share.

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%.

Before I turn it over to Joe, let me make a couple comments about our thinking given the current environment. First note make no doubt about it, credit is bad and we believe credit is going to get worse before it will eventually stabilize and improve. Whether that turn is later this year or in the first half of 2010, I’m not going to hazard a guess, but I do know that our associates are doing everything they can, not only to manage through the turmoil but to offset higher credit losses with continued revenue generation across all product lines. Results this quarter will attest both to the value and breadth of the franchise, the brand, the product mix and the perseverance of our associates who’ve been weathering this environment for the past seven quarters.

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