10-QPeriod: Q1 FY2008

BANK OF AMERICA CORP /DE/ Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 8, 2008For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

Bank of America's first quarter 2008 results show a significant decline in net income, down 77% year-over-year to $1.2 billion, or $0.23 per diluted share. This downturn was primarily driven by a substantial increase in the provision for credit losses, which quadrupled to $6.0 billion, reflecting the worsening economic environment and continued weakness in the housing and mortgage markets. Trading account profits also swung from a gain of $872 million in Q1 2007 to a loss of $1.8 billion in Q1 2008, largely due to CDO-related exposures and broader market disruptions impacting the Capital Markets and Advisory Services (CMAS) business. Despite the earnings decline, total revenue, net of interest expense, saw a modest decrease of 6% to $17.0 billion. The company completed significant acquisitions in 2007, including LaSalle Bank and U.S. Trust, which contributed to asset growth and revenue, particularly in the Global Consumer and Small Business Banking and Global Wealth and Investment Management segments. However, these acquisitions also added to noninterest expenses and provision for credit losses. The company also issued substantial amounts of preferred stock in early 2008 to bolster its capital position.

Key Highlights

  • 1Net income decreased by 77% year-over-year to $1.2 billion, or $0.23 per diluted share, compared to $5.3 billion, or $1.16 per diluted share, in Q1 2007.
  • 2Provision for credit losses increased significantly by $4.8 billion to $6.0 billion, reflecting deteriorating credit conditions, particularly in home equity and residential mortgage portfolios.
  • 3Trading account profits shifted from a gain of $872 million in Q1 2007 to a loss of $1.8 billion in Q1 2008, primarily due to CDO exposures and market disruptions.
  • 4Total revenue, net of interest expense, decreased by 6% to $17.0 billion, impacted by lower investment banking income and trading revenues.
  • 5The company issued $12.9 billion in preferred stock in early 2008 to strengthen its capital position.
  • 6Total assets grew to $1.7 trillion, up 1% from the prior quarter, driven by increases in derivative assets and debt securities.
  • 7Noninterest expense increased slightly by $98 million to $9.2 billion, despite a decrease in personnel expenses, due to higher merger/restructuring charges and operational costs.

Frequently Asked Questions

The primary drivers of the significant decrease in net income were a substantial increase in the provision for credit losses, reflecting worsening economic conditions and housing market weakness, and a large loss in trading account profits, primarily due to exposures in Collateralized Debt Obligations (CDOs) and broader market disruptions in the Capital Markets and Advisory Services (CMAS) business.

The acquisitions of LaSalle Bank and U.S. Trust Corporation, completed in 2007, contributed to asset growth and increased revenue, particularly in the Global Consumer and Small Business Banking and Global Wealth and Investment Management segments. However, these acquisitions also led to higher noninterest expenses and increased provision for credit losses.

Bank of America anticipates continued deterioration in credit quality, especially in sectors sensitive to housing and consumer spending, due to the ongoing housing downturn, declines in real estate values, and a slowing economy. The company expects this to result in higher provisions for credit losses in future periods and has taken steps to refine underwriting criteria and enhance collection strategies to mitigate potential losses.

Bank of America has taken steps to strengthen its capital position, including issuing $12.9 billion of preferred stock in early 2008. The company also reported that its regulatory capital ratios, including Tier 1 and Total Capital, remain strong and classified as 'well-capitalized' by regulators.