10-QPeriod: Q3 FY2008

BANK OF AMERICA CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 6, 2008For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

Bank of America Corporation (BAC) reported net income of $1.18 billion for the third quarter of 2008, a significant decrease from $3.70 billion in the same period of 2007. Diluted earnings per common share also fell to $0.15 from $0.82 year-over-year. This decline was largely attributed to a substantial increase in the provision for credit losses, which surged to $6.45 billion from $2.03 billion in Q3 2007, reflecting the deteriorating economic environment and impacts of the housing market downturn. Noninterest expense also rose due to acquisitions and integration costs. Despite an increase in total revenue driven by acquisitions and loan growth, the sharp rise in credit provisions and higher operating expenses significantly pressured profitability. The report also details the acquisition of Countrywide Financial Corporation on July 1, 2008, which added considerable assets and liabilities to Bank of America's balance sheet. However, the integration and associated costs, along with the challenging macroeconomic conditions, weighed heavily on the quarter's financial performance. The company's capital ratios remained robust, and it actively managed its liquidity position amidst market volatility. The disclosed business segment results show significant impacts across all segments, with Global Consumer and Small Business Banking heavily affected by credit provisions, while Global Corporate and Investment Banking faced headwinds from market disruptions.

Financial Highlights

23 data points
Beta

Revenue

$19.62B

Net Income

$1.18B

6.0% Net Margin

EPS (Diluted)

$0.15

Cash & Equivalents

$39.34B

Free Cash Flow

$20.08B

Financial Statements
Beta
Revenue$19.62B
Interest Expense$10.55B
Net Income$1.18B
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)4.54B
Shares Outstanding (Diluted)4.55B

Key Highlights

  • 1Net income declined to $1.18 billion ($0.15 EPS) in Q3 2008 from $3.70 billion ($0.82 EPS) in Q3 2007.
  • 2Provision for credit losses dramatically increased to $6.45 billion from $2.03 billion year-over-year, impacting profitability.
  • 3Total revenue increased due to acquisitions (Countrywide, LaSalle) and organic growth, but was overshadowed by rising expenses and credit costs.
  • 4The company completed the acquisition of Countrywide Financial Corporation on July 1, 2008, adding significant assets and liabilities.
  • 5Noninterest expense increased significantly due to integration costs related to recent acquisitions.
  • 6Despite market volatility, Bank of America maintained strong capital and liquidity positions, aided by government programs.
  • 7Credit quality indicators deteriorated across consumer and commercial portfolios, particularly in residential real estate and unsecured lending, reflecting economic weakness.

Frequently Asked Questions

The primary driver of the substantial decrease in net income was the dramatic increase in the provision for credit losses. This provision surged to $6.45 billion in the third quarter of 2008, up from $2.03 billion in the same period of 2007, reflecting the severe impact of the weakening housing market and the broader economic slowdown on loan portfolios.

The acquisition of Countrywide, completed on July 1, 2008, significantly increased Bank of America's assets and liabilities, including loans, deposits, and mortgage servicing rights. While it contributed to higher total revenue and net interest income, the integration costs, coupled with the need to account for Countrywide's loan portfolio under SOP 03-3 which involved initial fair value write-downs, and the overall challenging economic environment, contributed to the overall pressure on earnings.

Credit quality indicators deteriorated across both consumer and commercial portfolios. The company anticipates continued weakness in the housing markets and the broader economy, which will likely lead to further increases in delinquencies, charge-offs, and consequently, higher provisions for credit losses in future periods. Bank of America has implemented various initiatives to tighten underwriting standards and enhance collections to mitigate these risks.

Bank of America maintained strong capital and liquidity positions throughout the quarter. The company issued common stock and preferred stock, including a significant issuance to the U.S. Treasury under the TARP Capital Purchase Program, to bolster its capital. It also benefited from government liquidity programs and managed its funding sources effectively amidst market volatility and reduced access to unsecured funding markets.