Tuesday, July 19, 2011

Bank of America Reports Massive Q2 Net Loss of -$8.83 Billion (Financial Charts) *Financial Performance Collapses* BAC

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Bank of America (BAC) reported Q2 2011 financial results on Tuesday, July 19, 2011
* Charts and commentary have been updated for Bank of America Q2 June 2011 financial results *

Bank of America Reports Massive Q2 Net Loss of -$8.83 Billion: Financial Performance Collapses

Bank of America Summary Q2 2011 Bank of America Q2 financial performance collapsed to a new all-time record low, and possible USA banking record low, with a massive net loss of -$8.83 billion. This comes after a much improved net income of +$2.05 billion in Q1 2011, a huge Q4 net loss of -$1.24 billion in Q4 2010, and a colossal Q3 2010 net loss of -$7.30 billion. Financial position continues adequate even with the record losses due to the size of Bank of America (total assets are $2.261 trillion and stockholders' equity is $222.176 billion). Bank of America Chief Executive Officer Brian Moynihan continues the cleanup of the biggest debacle in banking history and has mastered the understatement: "Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues". This is an EF5 tornado, not a cloud. In the parlance of our times: OMG BAC R U OK?

Bank of America Income Statement Q2 2011 Bank of America reported net revenues of $13.24B, a net loss of -$8.83B, and loss per share of -$0.90. The financial collapse is evident from the QoQ and YoY percentage changes. From the prior quarter Q1 2011, net revenues were dropped -51%, net income plummeted -531%, and earnings per share plunged -629%. From the prior year Q2 2010, net revenues were dropped -55%, net income plummeted -183%, and earnings per share plunged -433%, respectively. The operating and net margins collapsed according to an incredible -97.27% and -66.68%, respectively. The quarterly Provision for Credit Losses of $3.26B is another multi-year low and the net charge-off ratio continues decreasing as credit quality improves but is not material or significant to the disastrous, ongoing losses in mortgage loans and goodwill impairment.

Bank of America Balance Sheet Q2 2011 Total assets decreased slightly QoQ -0.58% to $2.261 trillion. Bank of America is now "creating a fortress balance sheet" the same as JPMorgan Chase promotes. Bank of America continues slightly higher than the total assets of $2.247 trillion reported by JPMorgan Chase for the current quarter. The capital to assets ratio (total stockholders' equity divided by total assets) decreased with this latest loss to 9.83%, which is adequate, but a 5-quarter low. The Tier 1 capital and Tier 1 common ratios decreased slightly to 11.00% and 8.23%, respectively, which is adequate, but 4-quarter lows. 

Bank of America Asset Mix Q2 2011 Optimal asset deployment by Bank of America, while desirable, is more than offset by disastrous ongoing losses in mortgage banking and goodwill impairment. Higher yielding loans, net loans, continue a slight uptrend. Lower yielding cash & securities continue a slight uptrend. NonEarning assets continue a slight downtrend. A chart of the asset mix is at the bottom of this page.

Disastrous Losses Q2 2011 First, an estimated additional losses not recognized in Q2 2011 of $5 billion from "legacy mortgage issues" could be charged-off in the future. Representations and Warranties Provision, regarding the legacy mortgage issues, was an expense of $14 billion in Q2 2011 and reduced NonInterest Revenue. Goodwill impairment charges of $2.6 billion were recognized in Q2 2011 and increased NonInterest Expense, operating expenses. This impairment related to "$716 million in mortgage-related assessments and waivers costs related to foreclosure delays and other items the company does not expect to recover, litigation expense of $1.9 billion, and default-related and other loss mitigation expenses".

Bank of America Financial Performance by the Quarters (Charts)

Bank of America Earnings (Loss) per Share Chart Below is a chart of quarterly earnings per diluted share. Current Loss per Share plunged to -0.90 and has been a loss 3 of the past 4 quarters: +0.17 for Q1 2011, -0.16 for Q4 2010, and -0.77 for Q3 2010.

Bank of America Net Revenues, Operating Income (Loss), Net Income (Loss) Chart Below is a chart of quarterly net revenues, operating income, and net income. Consolidated revenues are reported net of interest expense. Current Net Revenues plunged to $13.24B from prior Q1 2011 of $26.9B and are a multi-year low. Current Operating Loss collapsed to -$12.88B from prior Q1 2011 of +$2.8B and is an all-time low and possibly a USA banking record. Current Net Loss plummeted to -$8.83B from prior Q1 2011 of +$2.05B and is an all-time low and possibly a USA banking record.

Bank of America Operating Margin and Net Margin (Chart) Below is a chart of quarterly operating margin and net margin. Both the current operating margin and net margin collapsed deep into negative territory at -97.27% and -66.68%, respectively, as a result of the massive losses reported. Such dismal operating and net margins are rarely, if ever, seen in banking.

Bank of America Capital to Assets, Tier 1 Capital Ratio, and Tier 1 Common Ratios (Chart)

Bank of America Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. Bank of America had already been struggling with a very low Return on Assets in the +0.20% range for 4 quarters before the Q3 September 2010 ROA turned a negative -0.05% due to the prior record net loss. Then ROA continued downward to -0.10% and -0.15%. Then ROA literally dropped off the bottom of the chart! Current Return on Assets is an incredible -0.67%.

Bank of America Income Statement Components (Chart) Below is a chart of the major income statement components: NonInterest Income, Net Interest Income, Provision for Credit Losses, and NonInterest Expense. Current NonInterest Income plunged to $1.99B because the mortgage banking losses were a net loss of -$13.20B within this category. Current Net Interest Income of $11.25B dipped from prior Q1 2011 of $12.18B and is a multi-year low. Current Provision for Credit Losses of $3.26B is at another multi-year low as credit quality improves. Current NonInterest Expense, operating expenses, of $22.86B rose sharply above the historical average and is well above the prior Q1 2011 $20.28B. Additional goodwill impairment of $2.6B in Q2 2011 pushed NonInterest Expense higher than previous quarters.

Bank of America Asset Mix (Chart) Below is a chart of quarterly asset mix, the major asset categories as a percentage of total assets: Cash & Securities, Mortgages & Loans for Sale, Net Loans (Gross Loans less Allowance for Loan Losses), Mortgage Servicing Rights, and NonEarning Assets (Premises & Equipment, Goodwill, and Other Assets). Bank of America reported $2.261 trillion in total assets at June 30, 2011, so percentage points add up fast. Bank of America continues slightly higher than the total assets of $2.247 trillion reported by JPMorgan Chase for the current quarter. Additional commentary regarding asset mix is at the top of this page. The current overall asset mix is little changed from previous quarters. Higher yielding loans, Net Loans, continue trending upwards and have reached 39.97%. Lower yielding Cash & Securities are also trending upwards and are 42.88%. NonEarning Assets have dropped to 15.70%. While this is a positive shift in asset deployment, the ongoing disastrous charges and losses are offsetting any benefit.

Bank of America Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio (NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income). The current Operating Expense Ratio of 120.05% is off the charts and devastating. Total Revenues plunged thought the collapse of NonInterest Income (discussed above) and NonInterest Expense spiked upwards with the $2.8B goodwill impairment charge. An increasing share of each dollar of revenues is being spent on operating expenses. This ratio was already historically high and above normal banking guidelines.

Bank of America Reports Second Quarter 2011 Financial Results

* Second-Quarter Loss of $0.90 per Share, in Line With Previous Estimates
* Capital and Liquidity Levels Continue to Strengthen
* Excluding Certain Mortgage-Related Items and Other Selected Items, Net Income Was $0.33 per Share
* Consumer Real Estate Services Reports $14.5 Billion Loss; Other Businesses Earn $5.7 Billion
* Credit Costs Continue to Decrease With Net Charge-Offs Declining Across Most Portfolios
* Average Deposit Balances Grew for the Third Consecutive Quarter
* Global Banking and Markets Reports Record Investment Banking Fees of $1.6 Billion; Highest Since Merrill Lynch Acquisition, Excluding Self-Led Deals
* Global Wealth and Investment Management Achieves Record Asset Management Fees and Strong Growth in Advisors
* Capital Ratios Above Prior Guidance; Liquidity Levels Remain Strong

CHARLOTTE, Jul 19, 2011 (BUSINESS WIRE) - Bank of America Corporation today reported a net loss of $8.8 billion, or $0.90 per diluted share, for the second quarter of 2011, compared with net income of $3.1 billion, or $0.27 per diluted share, in the year-ago period. Excluding certain mortgage-related items and other selected items, net income was $3.7 billion, or $0.33 per diluted share, in the second quarter of 2011.

Compared to the second quarter of 2010, results were driven by charges related to the recently announced agreement to resolve nearly all of the legacy Countrywide-issued first-lien non-GSE residential mortgage-backed securitization (RMBS) repurchase exposures, as well as the impact of other mortgage-related costs. These charges were partially offset by lower credit costs, gains from the sale of non-core assets and debt securities, improved sales and trading revenues and higher asset management fees and investment banking fees.

"Obviously, the solid performance in our underlying businesses continues to be clouded by the costs we are absorbing from our legacy mortgage issues," said Bank of America Chief Executive Officer Brian Moynihan. "But it is clear that - from deposits to wealth management to investment banking - our customers and clients are choosing to do more with us every day. We intend to continue our efforts to put the mortgage uncertainty behind us, build capital through the strength of the franchise, and deliver the returns for shareholders that we owe them."

About Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 58 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,800 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

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