BAC 2009 Q2 Earnings

Prior to the opening bell on the July 17 trading session, Bank of America (BAC) announced better-than-expected earnings results for the 2Q, despite the bank facing an increase in failed loans and restructuring charges. Nevertheless, the bank managed to come in ahead of analysts’ projected earnings.

For the recent quarter, BAC reported net earnings of $3.22B, or $0.33 per share, compared to last year’s 2Q earnings of $3.41B, or $0.72 per share, a decrease in profits year-over-year of nearly 6%. Net earnings after preferred dividends came in at $2.42B, well short of the prior year’s tally of $3.22B.

Results represented a $5.3B pre-tax gain from the sale of one-third of the bank’s stake in China Construction Bank Corp. After taxes, the bank earned $1.8B from the sale.

Overall revenues for the bank surged more than 60% year-over-year to $33.09B.

Quarterly sales and revenues generated from trading totaled $3.9B, down from $6.3B produced in the 1Q. However, excluding credit valuation adjustments, BofA would have posted trading revenues of $6.7B.

Ken Lewis, CEO at the bank stated, “Having positive net income in an extremely challenging environment speaks to the diversity and strength of our business model as well as the extraordinary effort put forth by all of our associates. Our goals during this difficult time have been to enhance the strength of our balance sheet and capital position and to continue to improve our earning power while dealing with the credit issues facing our industry due to the recession”.

On average, analysts within the industry were looking for the nation’s largest consumer back to record quarterly earnings of $0.29 per share on total revenues of $33.26B.

Looking further inside the numbers, BofA posted a 22% increase in nonperforming assets, or troubled loans, to $30.98B, while bumping up their reserves of those bad loans by $4.63B. Bank of America currently has a total reserve of $35.78B set aside for nonperforming assets.

Non-interest income advanced from $9.8B to $21.1B, bolstered by a $3.8B gain from the finalized sales of the company’s merchant processing business. In addition, the company’s average retail deposits jumped 26% over last year’s tally, including more than $104B in balances from Merrill Lynch and Countrywide.

"These are the assumptions we use to run the company," Lewis proclaimed. "Based on this scenario, profitability in the second half of the year will be much tougher than the first half, given the absence of several one-time items that were positive to earnings."

On the downside of the report, credit card operations at the bank witnessed a loss of $1.62B in the quarter, marking the second straight quarterly loss. Meanwhile, the rate of managed credit losses surged to 11.73%, up from 8.62% in March.

BofA’s mortgage and insurance unit posted a loss of $725M, despite an increase in home equity and mortgage loan production to $114.3B, up more than 28% from the 1Q total of $89.26B.

Lewis added, "Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010."

Following the company’s announcement, shares of Bank of America slipped $0.19, or 1.4%, to end the July 17 session at $12.89 per share. During the past year, shares of BAC have traded as high as $39.50 and as low as $2.53 per share.