Bank of America: Better Credit Outlook Helps $3.2B Profit

Bank of AmericaBank of America reported a better than expected $3.2 billion in earnings, or 28 centers a share, in the first quarter, down from $4.24 billion, or 44 cents a share, a year ago – driven primarily by a  $3.6 billion decline in provisions for credit losses.
Earnings fell 25 percent over a year ago, but analysts polled by Thomson Reuters had forecast earnings of nine cents. Revenue fell 11 percent to $31.97 billion.
Earlier this week, JPMorgan Chase also beat earnings expectations with a leveling off in credit delinquencies and diminishing loss provisions.
Chase and Bank of America, the two top credit card issuers, also relied heavily on profits from their investment banking activities – such as bond and equities trading – to offset weak or flat performances in traditional lending-driven banking businesses.
“With each day that passes, the 2010 story appears to be one of continuing credit recovery, and our results reflect a gradually improving economy,” said Chief Executive Officer and President Brian T. Moynihan.
Bank of America’s Global Card Services reported a net income of $952 million “as credit costs declined.”
Net revenue, though, declined 9 percent to $6.8 billion due to lower net interest income from a decrease in average loans, and lower fee income from adjustments to the credit card reform laws that took effect Feb. 22.
Provision for credit losses decreased from $4.7 billion a year ago to $3.5 as lower delinquencies and lower expected losses drove reserve reductions.
Its net charge-off rate was 4.44 percent, compared with 2.85 percent a year ago and 3.71 percent in the fourth quarter of 2009. But the bank said new accounting rules this year include losses on securitized credit card and other loans which are now reported in net charge-offs..
But Bank of America, the top mortgage lender, is still struggling with home loans and insurance, as that division saw a $2.1 billion loss, down from a $494 million loss a year ago, dragged down in part by a decline refinance activity and the continuing housing market crisis.
Its provision for credit losses in home loans rose to $3.6 billion, “amid continued stress in the housing market,” that includes the bank’s foreclosure mitigation efforts in modifying mortgage loans as part of the government’s Home Affordable Modification Program, HAMP.  
Driving the increase was modified loans and higher home equity net charge-offs related to loans consolidated in the first quarter as part of new accounting rules.
“Noninterest expense rose to $3.3 billion mostly due to expenses related to increased litigation costs, default management staff, vendor expenses and loss mitigation efforts,” Bank of America said.
Here are some of Bank of America’s stated first quarter highlights: 

  • Average retail deposits increased $15.2 billion, or 2 percent, from a year earlier, led by “strong organic growth” in Merrill Lynch Global Wealth Management, with continued growth in its affluent customer base. 
  • The bank extended $150 billion in credit, according to preliminary data – including $70 billion in first mortgages; $56 billion in commercial non-real estate; $10 billion in commercial real estate; $3 billion in domestic consumer and small business card; $2 billion in home equity products and $9 billion in other consumer credit.  
  • Bank of America said it funded $69.5 billion in first mortgages, helping more than 320,000 people either purchase homes or refinance existing mortgages. This funding included $17.4 billion in mortgages made to nearly 115,000 low- and moderate-income borrowers.

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