10-QPeriod: Q3 FY2011

BANK OF AMERICA CORP /DE/ Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 3, 2011For Securities:BACBAC-PBBAC-PKBAC-PLBAC-PMBAC-PNBAC-PSBML-PJBAC-PEBAC-PPBAC-PQBACRPBML-PGBML-PHBML-PLBAC-POMER-PK

Summary

Bank of America Corporation (BAC) reported a net income of $6.2 billion for the third quarter of 2011, a significant turnaround from the $7.3 billion net loss in the same period of 2010. This improvement was largely driven by a substantial reduction in the provision for credit losses and a decrease in noninterest expense, which included large goodwill impairment charges in the prior year. Total revenue for the quarter increased by 6.3% year-over-year to $28.7 billion, benefiting from positive fair value adjustments on structured liabilities and a gain from the sale of a portion of its investment in China Construction Bank. However, the company faced challenges including continued macroeconomic uncertainty, the European financial crisis, and a downgrade in its credit rating by Moody's. BAC is also navigating significant legal and regulatory matters, particularly those related to mortgage representations and warranties, which continue to contribute to provisions and litigation expenses.

Financial Highlights

34 data points
Beta

Revenue

$28.45B

Net Income

$6.23B

21.9% Net Margin

EPS (Diluted)

$0.56

Total Assets

$2.22T

Cash & Equivalents

$82.86B

Free Cash Flow

-$11.36B

Financial Statements
Beta
Revenue$28.45B
Interest Expense$5.36B
Net Income$6.23B
EPS (Basic)$0.58
EPS (Diluted)$0.56
Shares Outstanding (Basic)10.12B
Shares Outstanding (Diluted)10.46B

Key Highlights

  • 1Net income for the third quarter of 2011 was $6.2 billion, compared to a net loss of $7.3 billion in the third quarter of 2010.
  • 2Total revenue, net of interest expense (FTE basis), increased by 6.3% to $28.7 billion, driven by higher noninterest income, particularly from fair value adjustments on structured liabilities and gains on equity investments.
  • 3Provision for credit losses decreased significantly by 37% to $3.4 billion, reflecting improved credit quality across most portfolios.
  • 4Noninterest expense decreased by 35% to $17.6 billion, largely due to the absence of a significant goodwill impairment charge recorded in the prior year.
  • 5The company is in the process of restructuring 'Project New BAC' aimed at streamlining operations and reducing expenses by $5 billion annually by 2014.
  • 6Moody's downgraded BAC's long-term senior unsecured debt rating to Baa1 from A2 in September 2011, citing concerns about systemic support and regulatory reforms.
  • 7Significant legal and regulatory matters persist, notably the BNY Mellon Settlement related to representations and warranties, which is awaiting final court approval and faces objections from various parties.

Frequently Asked Questions

The substantial improvement in net income was primarily driven by a significant decrease in the provision for credit losses and lower noninterest expenses. A major factor in the expense reduction was the absence of a large goodwill impairment charge that impacted the prior year's third quarter results. Additionally, gains on the sale of investments and positive fair value adjustments contributed to the improved net income.

The BNY Mellon Settlement, aimed at resolving claims related to legacy Countrywide mortgage-backed securitizations, is still subject to final court approval. While an agreement in principle was reached, several parties, including state Attorneys General and the FDIC, have filed motions to intervene or object to the settlement. The court's decision on these motions and the potential for appeals could significantly delay or prevent final approval.

Moody's downgraded Bank of America's long-term senior unsecured debt rating to Baa1 from A2 in September 2011, citing a reduction in the uplift attributed to potential government support. This downgrade, along with potential actions from other rating agencies, could impact the company's borrowing costs, access to funding markets, and relationships with counterparties in derivative and other trading agreements, potentially requiring additional collateral or leading to contract terminations.

Project New BAC is an enterprise-wide initiative to streamline workflows, align expenses with strategy, and increase revenues. Phase 1, focusing on consumer businesses, was completed with plans for significant personnel reductions (approximately 30,000 positions) and an aim to reduce annual expenses by $5 billion by 2014. Phase 2, covering other business segments, began in October 2011.