Sunday, February 12, 2012

Bank of America Reports Poor Earnings: Down QoQ, Up YoY

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Bank of America Reports Poor Earnings: Down QoQ, Up YoY

Bank of America Summary Q4 2011 Bank of America Q4 financial performance faltered to a net income of $1.99 billion but this included a $2.9 billion gain on sale of shares of China Construction Bank and another $2.4 billion in gains on sales of securities. $3.7 billion in various expenses and charges also were recorded. The operating income before these sundry, extraordinary gains and losses was $390 million, which is break-even for a $2+ trillion bank. Financial position continues strong even with the ongoing legacy expenses, charges, and losses. Bank of America Chief Executive Officer Brian Moynihan continues a noteworthy cleanup of the biggest debacle in banking history, left behind by former CEO Ken Lewis. Lewis was arguably the worst banker in history. "Our fourth-quarter results reflect the aggressive steps we have been taking to strengthen the balance sheet and position the company for long-term growth." The volatile swings in the bottom line due to both valuation and extraordinary items prevent meaningful QoQ or YoY comparisons until the prior financial mess is history.

Bank of America Income Statement Q4 2011 Bank of America reported net revenues of $24.89 billion, net income of $1.99 billion, and earnings per share of $0.15. From the prior quarter Q3 2011, net revenues were down -12.53%, net income was down -68.05%, and earnings per share were down -73.21%. From the prior year Q4 2010, net revenues were up +11.12%, net income was up +260.05%, and earnings per share were up +193.75%. The operating and net margins were down QoQ and up YoY accordingly The Provision for Credit Losses of $2.93 billion is at a multi-year low. The operating expense ratio of 65.95% is historically high.

Bank of America Balance Sheet Q4 2011 Total assets decreased -4.08% QoQ and -6.00% YoY to $2.129 trillion. Bank of America is now "creating a fortress balance sheet" the same as JPMorgan Chase promotes. Bank of America continues below the total assets of $2.266 trillion reported by JPMorgan Chase for the current quarter. The capital to assets ratio increased to 10.81%, which is strong. The Tier 1 common ratios of 9.86% is adequate. Return on assets "improved" to +0.06%. Gross Loans decreased QoQ and YoY, but Net Loans are an increasing share of the asset mix. The ALL/Loans ratio (Allowance for Loan Losses divided by Gross Loans) was 3.65%, should be adequate, and is the lowest since the QE June 2009.

Bank of America (BAC) Rating Q4 2011 At December 31, 2011, we have rated Bank of America a "C+", up from "C" at September 30, 2011. Financial position continues strengthening. Financial performance continues well below average. Our rating weights financial position more than financial performance and emphasizes safety and soundness, not future earnings potential. Ratings range from A+ down through G-.

Bank of America Financial Performance by the Quarters (Charts)

Bank of America Earnings (Loss) per Share Current Earnings per Share of $0.15 are -73.21% QoQ, +193.75% YoY, but above the historical average. The chart average Loss per Share is -$0.01, which reflects the ongoing financial struggles of Bank of America.


Bank of America Net Revenues, Operating Income (Loss), Net Income (Loss) Consolidated revenues are reported net of interest expense. Current Net Revenues of $24.89 are -12.53% QoQ, +11.12% YoY, and a 2-quarter low. Current Operating Income of $2.43 billion is a 2-quarter low. Current Net Income of $1.99 billion is -68.05% QoQ, +260.05% YoY, and 2-quarter low. The chart averages for NR, OI, and NI are $26.94 billion, $234 million, and $457 million, respectively, which reflects the tenuous profitability of Bank of America.


Bank of America Operating Margin and Net Margin The current Operating Margin of +9.77% and current Net Margin of +8.00% are down QoQ but a significant improvement YoY. The chart averages for OM and NM are -4.45% and -2.02%, respectively, reflecting the ongoing, overall dismal financial performance of Bank of America.


Bank of America Capital to Assets Tier 1 Common Ratios The current Capital Ratio of 10.81% is strong and a 9-quarter high. The current Tier 1 Common Ratio of 9.86% is adequate and a multi-year high. The chart averages for CA and T1Common are 10.35% and 7.94%, respectively.


Bank of America Return on Assets Current Return on Assets of +.06% is finally positive after 5 consecutive negative quarters. The chart average for ROA is a marginal +0.03%.


Bank of America Income Statement Components Current NonInterest Expense, operating expenses, of $19.52 billion is a 2-quarter high and above the chart average. Current NonInterest Revenues of $14.91 billion is a 2-quarter low and below the chart average. Current Net Interest Income of $10.70 billion is a 2-quarter high and below the chart average. Current Provision for Credit Losses of $2.93 billion is a multi-year low. The chart averages for NIE, NIR, NII, and PCL are $19.18 billion, $15.01 billion, $11.94 billion, $7.54 billion, respectively.


Bank of America Asset Mix Lower yielding Cash & Securities decreased to 42.79%, a 3-quarter low. Higher yielding Net Loans increased to 41.92%, a multi-year high. The other categories (NonEarning Assets, Mortgages & Loans for Sale and Mortgage Servicing Rights combine for 15.29% of total assets, a multi-year low.


Bank of America Operating Expense Ratio The current Operating Expense Ratio of 65.95% is a 2-quarter high. The chart average for OER is 56.71%.


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