Highlights From Bank of America's (BAC) Q1 Earnings Conference Call

April 21, 2008 2:28 PM EDT

Highlights From Bank of America's (NYSE: BAC) Q1 Earnings Conference Call. This morning, BAC reported Q1 EPS of $0.23, below the consensus of $0.41. Revenues came in at $17.30 billion, versus the consensus of $16.46 billion. Provision expense increased by $4.78 billion from a year-ago, to $6.01 billion due to rising credit costs - particularly in the home equity, small business and homebuilder portfolios - including a $3.30 billion increase to the reserve.

HIGHLIGHTS:

CEO Lewis: Although consumer and commercial business flows were relatively strong in the first quarter, revaluations of structured credit positions and higher credit costs more than offset these positives.

CEO Lewis: ... weakening along with the slowing economy have resulted in credit deterioration in our consumer portfolios particularly home-equity and small business along with homebuilders on the commercial side.

CEO Lewis: Product sales were strong in several areas with net new checking accounts of 557,000 exceeding the total from a year ago by 14%. In residential mortgage the rate environment in early January caused somewhat of a mini refi boom that resulted in $23 billion of direct consumer fundings, which was the strongest activity we have experience in five years.

CEO Lewis: Average retail deposits increased approximately $11.5 billion or 2.3% from the fourth quarter which we believe exceeds market growth

CEO Lewis: Consumer credit quality deteriorated substantially from fourth quarter particularly in home equity.

CEO Lewis: We believe current CDO values are appropriate but are always subject to improvement changes based on market conditions. Our tier one capital ratio close the quarter at 7.51%, up from 6.87% year-end. Our goal continues to be getting back to our target 8% and we intend to do that through earnings generation and note share repurchase.

CEO Lewis: ... we have not changed our philosophy about the dividend. But if the economy worsens dramatically from our outlook over the next few quarters resulting in a prolonged recessionary environment, we would we do what we think prudent to manage capital.

CFO Price: Now addressing the write-downs let me start with leverage lending where we ended the quarter with exposure of just under 13.5 billion, 3.9 billion unfunded and 9.6 funded which included new commitments of $1 billion as we continue to do new business on current market terms.

CFO Price: On the CMBS side, we ended the quarter with just under 12 billion in exposure which includes about one billion unfunded. Approximately three-fourths, or 9 billion, is comprised of larger ticket floating-rate debt, most of which was acquisition related. This floating-rate debt was written down by 212 million in the first-quarter, net of 35 million in hedging gains.

CFO Price: The third area that hit us pretty hard this quarter related to the structured credit trading book which we are winding down. During the quarter we neutralized a good deal of the market risk but widening credit spreads and the increase in counter-party exposure caused us to record counter-party credit valuations of a negative 272 million.

CFO Price: Finally, in thesupplemental package you can see our CDO and subprime related exposure along with the changes during the quarter where we reported losses of 1.5 billion. These losses were comprised of 1.6 billion super senior CDO write-downs offset by 400 million in hedging and other gains, a charge of 160 million to reflect counter-party risk and 130 million in losses associated with our CDO, warehouse and subprime exposure.

CFO Price: Now let me switch to credit quality. On a held basis, net charge-offs in the quarter increased 34 basis points from the fourth quarter levels to 1.25% of the portfolio or 2.7 billion. On a managed basis, overall consolidated net losses in the quarter increased 35 basis points to 1.69% of the managed loan portfolio, or 4.1 billion. Net losses in the consumer portfolios were 2.19%, versus 1.77 in the fourth quarter. And credit card represents almost two-thirds of our total consumer losses. Managed consumer credit card losses as a percent of the portfolio increased to 5.19% from 4.75 in the fourth quarter, which was a little better on a percentage basis than we expected, but admittedly was driven by balance growth as opposed to lower losses. 30-day plus delinquencies in consumer credit card increased 16 basis points to 5.61%. We have continued to see increased delinquencies in our card portfolio in those states most affected by housing problems.

CFO Price: Home equity net charge-offs increased to 496 million, or 1.71%, up from 63 basis points in the prior quarter. 30-day performing delinquencies are up 7 basis points to 1.33%. Non-performing loans in home equity rose to 1.51% of the portfolio, from 1.17% in the prior quarter. 82% of net charge-offs related to loans where the borrower was delinquent and had little or no equity in the home. Loans with a greater than 90% CLTV on a refreshed basis currently represent 26% of loans, versus 21% in the fourth quarter.

From Q&A:

Q from Matthew O'Connor at UBS : : Okay and then just switching topics here, when I look at some of the loan growth in the consumer categories especially home equity. It continues to be very strong and I know that this is probably a good time to be increasing market share with standards tighter and spreads wider. But how do you balance the risk, reward of aggressively growing as consumer category when the macro environment is still so uncertain?
A: Well, Matt. I don't know if it's -- it's not an over attempt to aggressively grow it may be-- there may be some issues with others not having liquidity or rolling the quota back in a general sense. But we've actually as we've said strengthened the standards substantially and turndowns have increased substantially. So it must be a factor of others not being is competitive in the marketplace and us really taking advantage of the fact that we do have liquidity and that spreads are so good and credit quality is so good.

Q from Mike Mayo at Deutsche Bank: So of your commercial portfolio how much would you deem consumer dependent in one way or another?
A: ... how much of an individual industry is consumer dependent is probably a little more in the eye of the beholder. On that and that's the best way to look at it but clearly if you start with homebuilders and then you look at home-building supply type companies and then you go into retail.

Q from Meredith Whitney from Oppenheimer : What of the policies in Washington are the most reasonable or you believe are the most helpful of some type of best case scenario for you guys and then for the timing of how it would impact your portfolio, your workout.
A: Yes. There are several and I'll probably forget one or two, Meredith. But one of the things that I like the most, one thing was the raising of the limit on what Freddie Mac and Fannie Mae could do, that's going to help the higher priced markets in. And then secondly, I really like this tax credit to buy foreclosed homes because that's very specifically getting at the inventory that would actually help stabilize prices quite a bit. And then generally we are in favor of most of the things that are being proposed other than things like having judges being able to change the terms. I don't like that but basically, I think most of the things that are being proposed are pretty well thought out.

Q from Meredith Whitney from Oppenheimer : Okay. The my final just wrap-up is, when you see CEOs, mainly CEOs from brokerage firms, saying that we're beyond the worst of things, can you comment in terms of the regulators' involvements with the housing situation and making any similar type of comment?
A: ... it would be too early to strike up the band and sing happy days are here again but from the investment banking standpoint, that is the write-offs, I do think we are in the last innings or the last quarter, whatever sports analogy you want to use, and then the credit issue is so housing dependent and related and economic and economy related, I think we're not in the last inning or the last few innings, but we've got at least the rest of this year to go. [LJ]

Related Categories

Corporate News
Earnings

Stocks Mentioned

Related Entities

• Deutsche Bank
• UBS
• Banc of America
• Meredith Whitney

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