Bank of America Reports Fourth-Quarter 2012 Net Income of $0.7 Billion, or $0.03 Per Diluted Share

Bank of America Reports Fourth-Quarter 2012 Net Income of $0.7 Billion, or $0.03 Per Diluted Share

Previously Announced Selected Items Impact Pretax Earnings

• Representations and Warranties, Compensatory Fees Settlements with Fannie Mae, $2.7 Billion or $0.16 EPS

• Provision for Independent Foreclosure Review Acceleration Agreement, $1.1 Billion or $0.06 EPS

• Total Litigation Expense, $0.9 Billion or $0.05 EPS

• Negative Valuation Adjustments for Improved Credit Spreads, $0.7 Billion or $0.04 EPS

• Provision for Obligations Related to Mortgage Insurance Rescissions, $0.5 Billion or $0.03 EPS

• Gain on Sale of Japan Brokerage Joint Venture, $0.4 Billion or $0.02 EPS

• Positive MSR Valuation Adjustment Related to Servicing Sales, $0.3 Billion or $0.02 EPS

• Net Tax Benefit Primarily From Recognition of Foreign Tax Credits of Certain Non-U.S. Subsidiaries, $1.3 Billion or $0.12 EPS

Capital and Liquidity Remain Strong

• Basel 1 Tier 1 Common Capital Ratio of 11.06 Percent at December 31, 2012

• Estimated Basel 3 Tier 1 Common Capital Ratio of 9.25 Percent at December 31, 2012 (U.S. Basel 3 NPRs Fully Phased-in)^A

• Long-term Debt Down $96.7 Billion From December 31, 2011, Driven by Maturities and Liability Management Actions; Time-to-required Funding Remains Strong at 33 Months

Core Business Momentum Continues

• Fourth-Quarter 2012 Net Interest Income (FTE basis)^BIncreased to $10.6 Billion From $10.2 Billion in Prior Quarter

• Total Average Deposit Balances up $28 Billion, or 11 Percent (Annualized) From Prior Quarter

• First-lien Mortgage Production Increased 6 Percent From Prior Quarter

• Global Wealth and Investment Management Posts Record Quarterly Earnings

• Period-end Commercial Loans and Leases in the Global Banking Segment, Including Real Estate Loans, Grew 7 Percent From Prior Quarter to $252 Billion

• Investment Bank Maintained No. 2 Ranking in Global and U.S. Investment Banking Fees; Fees Up 20 Percent From Prior Quarter and 58 Percent From the Year-ago Quarter

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Bank of America Corporation today reported net income of $0.7 billion, or $0.03 per diluted share, for the fourth quarter of 2012, compared to $2.0 billion, or $0.15 per diluted share in the year-ago period. Revenue, net of interest expense, on a fully taxable-equivalent (FTE)^B basis was $18.9 billion.

Fourth-quarter 2012 revenue, net of interest expense, on an FTE basis, excluding $0.7 billion of debit valuation and fair value option adjustments, was $19.6 billion; excluding $3.0 billion of provisions for representations and warranties and obligations related to mortgage insurance rescissions related to settlement agreements with the Federal National Mortgage Association (Fannie Mae) revenue net of interest expense, on an FTE basis, was $22.6 billion^B.

For the full year, the company reported net income of $4.2 billion, or $0.25 per diluted share, compared to $1.4 billion, or $0.01 per diluted share in 2011.

"We enter 2013 strong and well positioned for further growth," said Chief Executive Officer Brian Moynihan. "Double-digit growth since last year in mortgage production, commercial lending, and Global Markets revenue demonstrates the power of deeper customer and client relationships as we intensify the focus on connecting all our capabilities."

As previously announced, financial results in the fourth quarter of 2012 were negatively impacted by a provision of $2.7 billion related to the settlements with Fannie Mae with respect to representations and warranties and compensatory fees; other provision items of $2.5 billion which included a $1.1 billion provision for the Independent Foreclosure Review (IFR) acceleration agreement, total litigation expense of $0.9 billion and a $0.5 billion provision for obligations related to mortgage insurance rescissions; and $0.7 billion of negative debit valuation adjustments (DVA) and fair value option (FVO) adjustments due to improvement in the company's credit spreads. These items were partially offset by a net income tax benefit of $1.3 billion primarily due to the recognition of foreign tax credits of certain non-U.S. subsidiaries; a gain of $0.4 billion on the previously announced sale of the company's 49-percent stake in Mitsubishi UFJ Merrill Lynch PB Securities; and a positive valuation adjustment on mortgage servicing rights (MSR) of $0.3 billion related to the previously announced servicing sales.

The year-ago quarter included $1.3 billion of negative DVA and FVO adjustments, $1.8 billion of total litigation expense and a $0.6 billion goodwill impairment charge in the European consumer card business. In addition, the year-ago quarter included, among other significant items, a $2.9 billion pretax gain on the sale of a portion of the company's investment in China Construction Bank (CCB), a $1.2 billion gain on the exchange of trust preferred securities, and a $1.2 billion gain on the sale of debt securities.

Relative to the year-ago quarter, the results for the fourth quarter of 2012 were driven by improved credit quality across most major portfolios, increased sales and trading revenue (excluding the impact of DVA^E), increased investment and brokerage income, higher investment banking fees, partially offset by an increase in consumer real estate losses, reflecting the Fannie Mae settlements and the provision for the IFR acceleration agreement. In addition, noninterest expense declined from the year-ago quarter, driven primarily by cost savings achieved through Project New BAC initiatives over the course of 2012.

"We addressed significant legacy issues in 2012 and our strengths are coming through," said Chief Financial Officer Bruce Thompson. "Capital and liquidity remain strong and credit continues to improve. Our primary focus this year is to grow revenue, manage expenses and drive core earnings growth."

Selected Financial Highlights

¹ Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 25-28 of this press release. Net interest income on a GAAP basis was $10.3 billion and $10.7 billion for the three months ended December 31, 2012 and 2011, and $40.7 billion and $44.6 billion for the years ended December 31, 2012 and 2011. Total revenue, net of interest expense, on a GAAP basis was $18.7 billion and $24.9 billion for the three months ended December 31, 2012 and 2011, and $83.3 billion and $93.5 billion for the years ended December 31, 2012 and 2011.

² Total revenue, net of interest expense, on an FTE basis excluding DVA and FVO adjustments is a non-GAAP financial measure. DVA gains (losses) were $(277) million and $(474) million for the three months ended December 31, 2012 and 2011, and $(2.5) billion and $1.0 billion for the years ended December 31, 2012 and 2011. Valuation gains (losses) related to FVO were $(442) million and $(814) million for the three months ended December 31, 2012 and 2011, and $(5.1) billion and $3.3 billion for the years ended December 31, 2012 and 2011.

³ Excludes goodwill impairment charges of $581 million in the three months ended December 31, 2011, and $3.2 billion for the year ended December 31, 2011. Noninterest expense, excluding goodwill impairment charges, is a non-GAAP financial measure.

Key Business Highlights

The company made significant progress in 2012 in line with its operating principles, including the following developments:

Focus on customer-driven businesses

• Bank of America extended approximately $475 billion in credit in 2012. This included $310.5 billion in commercial non-real estate loans, $75.1 billion in residential first mortgages, $40.0 billion in commercial real estate loans, $17.9 billion in U.S. consumer and small business card, $3.6 billion in home equity products and $27.9 billion in other consumer credit.

• The $75.1 billion in residential first mortgages funded in 2012 helped more than 305,000 homeowners either purchase a home or refinance an existing mortgage. This included approximately 17,500 first-time homebuyer mortgages originated by retail channels, and more than 96,000 mortgages to low- and moderate-income borrowers. Approximately 16 percent of funded first mortgages were for home purchases and 84 percent were refinances.

• The company originated approximately $8.7 billion in small business loans and commitments in 2012, up 28 percent from 2011, reflecting a continued focus on supporting small businesses.

• Bank of America provided assistance to more than 2 million customer accounts in 14 states affected by Hurricane Sandy with comprehensive customer assistance programs including financial contributions to relief efforts, payment deferrals and fee waivers.

• Total client balances in Global Wealth and Investment Management increased 7 percent from 2011 led by market gains and solid flows in long-term assets under management (AUM), deposits and loans.

• The company continued to deepen and broaden customer relationships. The number of mobile banking customers increased 31 percent from December 31, 2011 to 12.0 million customers, and the number of new U.S. credit card accounts opened in 2012 grew 7 percent from 2011.

• Merrill Edge brokerage assets increased $9.4 billion from the end of 2011 to $75.9 billion, driven by market improvement and an increase in new accounts.

• The company continued to increase its specialized sales force of Financial Solutions Advisors, Mortgage Loan Officers and Small Business Bankers during the quarter to nearly 6,200 specialists at the end of 2012.

• The company continued to support the economy by:

  • Helping clients raise $605 billion in capital in 2012.

  • Extending approximately $475 billion in credit in 2012.

• Bank of America Merrill Lynch (BofA Merrill) continued to rank No. 2 globally in net investment banking fees in 2012, as reported by Dealogic. Results for the fourth quarter of 2012 included record debt issuance fees since the Bank of America Merrill Lynch merger.

Continue to build a fortress balance sheet

• The Tier 1 common capital ratio under Basel 1 was 11.06 percent at December 31, 2012, down 35 bps from September 30, 2012 and 120 bps higher than December 31, 2011.

• The Tier 1 common capital ratio under Basel 3 on a fully phased-in basis is estimated at 9.25 percent at December 31, 2012, up from 8.97 percent at September 30, 2012.^A

• The company reduced long-term debt by nearly $100 billion from the end of 2011 while maintaining significant excess liquidity. Global Excess Liquidity Sources totaled $372 billion at December 31, 2012, slightly less than $380 billion at September 30, 2012 and $378 billion at December 31, 2011. Long-term debt declined to $276 billion at December 31, 2012 from $287 billion at September 30, 2012 and $372 billion at December 31, 2011.

Managing risk well

• The provision for credit losses declined 25 percent from the year-ago quarter, reflecting improved credit quality across major consumer and commercial portfolios and the benefit of underwriting changes implemented over the past several years.

• The U.S. credit card loss rate declined in the fourth quarter of 2012 to the lowest level since the second quarter of 2006^C while the 30+ day delinquency rate was at a historic low.

• Consumer loan loss rates declined in the fourth quarter of 2012 to their lowest level since early 2008 and commercial loan loss rates declined to their lowest level since the fourth quarter of 2006^C.

Delivering for our shareholders

• Tangible book value per share increased to $13.36 at December 31, 2012, compared to $12.95 at December 31, 2011^D. Book value per share was $20.24 at December 31, 2012, compared to $20.09 at December 31, 2011.

• The company continued to make progress on its legacy issues, reaching settlements with Fannie Mae to resolve substantially all outstanding and potential agency mortgage repurchase claims on loans originated and sold directly to Fannie Mae from January 1, 2000 through December 31, 2008 by legacy Countrywide and Bank of America, National Association (BANA); settling substantially all of Fannie Mae's outstanding and future claims for compensatory fees arising out of alleged past foreclosure delays; and clarifying the parties' obligations with respect to mortgage insurance.

Managing efficiency well

• Fourth-quarter 2012 noninterest expense declined 6 percent from the year-ago quarter, reflecting a decrease in personnel expense as the company continued to streamline processes and achieve cost savings.

• At December 31, 2012, the company had 267,190 full-time employees, down 5,404 from the end of the prior quarter, and 14,601 fewer than December 31, 2011.

Business Segment Results

The company reports results through five business segments: Consumer and Business Banking (CBB), Consumer Real Estate Services (CRES), Global Wealth and Investment Management (GWIM), Global Banking, and Global Markets, with the remaining operations recorded in All Other.

Consumer and Business Banking (CBB)

¹ Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 25-28 of this press release.

Business Highlights

• Average deposit balances increased $26.6 billion from the year-ago quarter, driven by growth in liquid products in a low-rate environment. The average rate paid on deposits declined 5 basis points to 16 basis points in the fourth quarter of 2012 from the year-ago quarter due to pricing discipline and a shift in the mix of deposits.

• During the fourth quarter of 2012, purchase volumes per average active credit card account rose 7 percent from the year ago quarter; the number of BankAmericard Cash Rewards cards increased by nearly 24 percent in the fourth quarter of 2012 to a total of 2.1 million cards since the product was launched in the third quarter of 2011.

Financial Overview

Consumer and Business Banking net income was $1.4 billion, up $186 million, or 15 percent, from the year-ago quarter due to lower credit costs and noninterest expense, partially offset by a decrease in net interest income primarily from lower average loans and the continued low-rate environment. Noninterest income of $2.5 billion remained relatively flat.

Provision for credit losses decreased $334 million from the year-ago quarter to $963 million due to improvement in delinquencies and bankruptcies primarily within the Card Services business. Noninterest expense decreased $308 million to $4.1 billion compared to the fourth quarter of 2011 as a result of lower FDIC expense and lower operating expenses.

Consumer Real Estate Services (CRES)

¹ Full-year results include a goodwill impairment charge of $2.6 billion in the second quarter of 2011.

Business Highlights

• Bank of America funded $22.5 billion in residential home loans and home equity loans during the fourth quarter of 2012, up 41 percent from the fourth quarter of 2011, excluding correspondent originations of $6.5 billion in the year-ago quarter. The company exited the correspondent business in late 2011.

• The number of 60+ day delinquent first mortgage loans serviced by Legacy Assets and Servicing declined by 163,000, or 17 percent, during the fourth quarter of 2012 to 773,000 from 936,000 at the end of the third quarter of 2012 and 1.16 million at the end of the fourth quarter of 2011.

Financial Overview

Consumer Real Estate Services reported a net loss of $3.7 billion for the fourth quarter of 2012, compared to a net loss of $1.4 billion for the same period in 2011 primarily due to mortgage banking losses driven by the Fannie Mae settlements and higher expenses, partially offset by lower provision for credit losses.

Revenue decreased $2.8 billion from the fourth quarter of 2011 to $468 million in the fourth quarter of 2012, due largely to higher representations and warranties provision and lower servicing income, driven by less favorable MSR results, net of hedges. This was partially offset by higher core production income. The MSR results, net of hedges, included the previously described MSR valuation adjustment related to MSR sales.

Excluding the impact of correspondent channel originations, CRES direct originations increased 42 percent and core production revenue increased $472 million in the fourth quarter of 2012 from the year-ago quarter primarily due to higher margins on increased volume of direct originations.

Representations and warranties provision was $3.0 billion in the fourth quarter of 2012, compared to $264 million in the fourth quarter of 2011, an increase of $2.7 billion. The fourth-quarter provision included $2.5 billion for representations and warranties and provision of $0.5 billion for obligations related to mortgage insurance rescissions related to the Fannie Mae settlements.

The provision for credit losses in the fourth quarter of 2012 decreased $516 million from the year-ago quarter to $485 million, driven by improved portfolio trends in the non-purchased credit-impaired home equity portfolio and reserve reductions in the purchased credit-impaired (PCI) home equity portfolio due to the improved home price outlook.

Noninterest expense increased $1.1 billion from the fourth quarter of 2011 to $5.6 billion, primarily due to $1.1 billion of expense related to the IFR acceleration agreement. In connection with this agreement, the company agreed to a cessation of the IFR process and to make a $1.1 billion payment to a fund established for the benefit of borrowers pursuant to a plan agreed to by the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System. The company will also provide $1.8 billion in borrower assistance, including loan modifications and other foreclosure prevention actions. In addition, there was an increase in default-related servicing expenses from the year-ago quarter and an increase in mortgage-related assessments, waivers and other similar costs associated with foreclosure delays, including a provision of $260 million for compensatory fees in connection with the Fannie Mae settlements. These increases were partially offset by $800 million in lower litigation expense from the fourth quarter of 2011.

The MSR asset was $5.7 billion at December 31, 2012, up $629 million from September 30, 2012, due in part to the previously described MSR valuation adjustment related to MSR sales.

Global Wealth and Investment Management (GWIM)

¹ Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 25-28 of this press release.

² Total client balances are defined as assets under management, assets in custody, client brokerage assets, client deposits and loans.

Business Highlights

• Record net income of $578 million for the quarter and $2.2 billion for the year, up 29 percent from full-year 2011.

• Record asset management fees of $1.6 billion for the quarter and $6.1 billion for the year.

• Client activity was strong in 2012. For the full year, period-end deposit balances increased $25.6 billion, up 11 percent from the year-ago quarter to a record $266.2 billion; period-end loan balances grew $7.3 billion, or 7 percent, to a record $105.9 billion; and long-term AUM flows were $26.4 billion for the year. Fourth-quarter 2012 long-term AUM flows of $9.1 billion were the 14th consecutive quarter of positive flows.

Financial Overview

Global Wealth and Investment Management net income rose $306 million from the fourth quarter of 2011 to $578 million due to higher revenue and lower noninterest expense. Revenue increased 6 percent to $4.2 billion, driven by higher asset management fees due to higher market levels and long-term AUM flows, as well as higher brokerage transactional revenue. The pretax margin was 21 percent for both the fourth quarter of 2012 and full-year 2012, up from 11 percent in the year-ago quarter and 16 percent for the full-year 2011.

Noninterest expense decreased 6 percent from the year-ago quarter to $3.2 billion, due to lower FDIC expense and lower litigation and other related expenses, partially offset by higher revenue-related compensation. The provision for credit losses was $112 million which was relatively flat compared to $118 million in the year-ago quarter.

Client balances rose 7 percent to $2.17 trillion driven by higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans. Assets under management rose $62.5 billion from the fourth quarter of 2011 to $698.1 billion, driven by higher market levels and long-term AUM flows.

Global Banking