Bank of America Reports First-Quarter 2013 Net Income of $2.6 Billion, or $0.20 per Diluted Share

Bank of America Reports First-Quarter 2013 Net Income of $2.6 Billion, or $0.20 per Diluted Share

Business Momentum Continues

• Deposit Balances up 5 Percent From Q1-12 to $1.1 Trillion

• First-lien Mortgage Production up 57 Percent From Q1-12 to $24 Billion

• Global Wealth and Investment Management Reports Record Post-merger Revenue, Net Income and Long-term Assets Under Management Flows

• Consumer Credit Loss Rates Reaching Five-year Lows

• Commercial Loan Balances up 17 Percent From Q1-12 to $367 Billion

• Maintains No. 2 Ranking in Global Investment Bank Fees; up 26 Percent From Q1-12 to $1.5 Billion

• Noninterest Expense Down Nearly $1.0 Billion From Q1-12, Driven Primarily by Project New BAC Initiatives

• Significant Progress in Legacy Assets and Servicing; Number of 60+ Days Delinquent Mortgage Loans Down 39 Percent From Q1-12 to 667,000 Loans

Capital and Liquidity Remain Strong

• Basel 1 with Market Risk Final Rule Tier 1 Common Capital Ratio of 10.58 Percent, up From Pro Forma 10.38 Percent in Prior Quarter^A

• Estimated Basel 3 Tier 1 Common Capital Ratio of 9.42 Percent, up From 9.25 Percent in Prior Quarter^B

• Long-term Debt Down $75.3 Billion From Year-ago Quarter, Driven by Maturities and Liability Management Actions; Time-to-required Funding Remains Strong at 30 Months

• 2013 Capital Plan Actions Expected to Begin in Q2-13; Approved Actions Include $5.5 Billion of Preferred Stock Redemptions and $5 Billion of Common Stock Repurchases

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Bank of America Corporation today reported net income of $2.6 billion, or $0.20 per diluted share, for the first quarter of 2013, compared to $653 million, or $0.03 per diluted share, in the first quarter of 2012. Revenue, net of interest expense, on a fully taxable-equivalent (FTE)^C basis rose 5 percent to $23.7 billion from $22.5 billion a year ago.

Relative to the same period a year ago, the results for the first quarter of 2013 were driven by increased brokerage income, higher investment banking fees, and improved credit quality across all major portfolios, partially offset by lower mortgage banking income and lower net gains on the sales of debt securities. The first quarter of 2013 included $893 million of pretax annual expense associated with retirement-eligible stock compensation costs, compared to $892 million in the first quarter of 2012. In addition, the year-ago quarter included significant negative Debit Valuation Adjustments (DVA), negative fair value option (FVO) adjustments on structured liabilities and gains on the redemption of debt and trust-preferred securities.

"Our strategy of connecting our customers to all we can do for them is working," said Chief Executive Officer Brian Moynihan. "Solid increases in loan growth to small businesses and middle-market companies, four straight quarters of steady growth in mortgage originations, record earnings in wealth management, and another quarter near the top in investment banking fees show we are balanced, focused and moving forward."

"There were many examples of progress this quarter," said Chief Financial Officer Bruce Thompson. "We reduced noninterest expense by nearly $1 billion year-over-year, and credit costs continued to decline. Our relentless focus on capital, liquidity, and expense reduction enables us to be in position to return excess capital to investors through the previously announced common stock repurchase program and preferred stock redemptions."

Selected Financial Highlights

¹ Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 22-25 of this press release. Net interest income on a GAAP basis was $10.7 billion, $10.3 billion and $10.8 billion for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively. Total revenue, net of interest expense, on a GAAP basis was $23.5 billion, $18.7 billion and $22.3 billion for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively.

² Total revenue, net of interest expense, on an FTE basis excluding DVA, FVO and gains on exchanges are non-GAAP financial measures. DVA losses, net of hedges, were $54 million, $277 million and $1.5 billion for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively. Negative FVO adjustments on structured liabilities were $90 million, $442 million and $3.3 billion for the three months ended March 31, 2013, December 31, 2012 and March 31, 2012, respectively. The gains related to subordinated debt repurchases and exchanges of trust-preferred securities were $0 for the three months ended March 31, 2013 and December 31, 2012, and $1.2 billion for the three months ended March 31, 2012.

Revenue, net of interest expense, on an FTE basis rose $1.2 billion, or 5 percent, from the first quarter of 2012, to $23.7 billion, led by higher noninterest income.

Net interest income, on an FTE basis, totaled $10.9 billion in the first quarter of 2013, compared to $10.6 billion in the fourth quarter of 2012 and $11.1 billion in the first quarter of 2012^B. The improvement from the fourth quarter of 2012 was driven by the favorable market-related impact of lower premium amortization expense of $340 million, higher commercial loan balances, lower average long-term debt, and lower rates paid on deposits, partially offset by lower consumer loan balances and yields, and the impact of two fewer days in the quarter.

The decline in net interest income from the year-ago quarter was due to the impact of lower consumer loan balances as well as lower asset yields driven by the low rate environment, partially offset by reductions in long-term debt balances and lower rates paid on deposits.

Net interest margin was 2.43 percent in the first quarter of 2013, compared to 2.35 percent in the fourth quarter of 2012 and 2.51 percent in the first quarter of 2012.

Noninterest income increased $1.4 billion from the year-ago quarter. The most significant drivers of the increase were negative FVO adjustments on structured liabilities of $90 million, compared to negative FVO adjustments of $3.3 billion for the first quarter of 2012 and DVA losses, net of hedges, on derivatives of $54 million, compared to DVA losses, net of hedges, of $1.5 billion for the first quarter of 2012. These drivers were partially offset by $1.2 billion of gains related to subordinated debt repurchases and exchanges of trust-preferred securities in the year-ago quarter, lower mortgage banking income and lower net gains on sales of debt securities compared to the first quarter of 2012.

Noninterest expense decreased $1.0 billion compared to the year-ago quarter to $18.2 billion, driven primarily by Project New BAC initiatives to streamline processes and the company's ongoing focus to reduce costs to service delinquent mortgage loans. Excluding litigation costs, noninterest expense in Legacy Assets and Servicing was $2.6 billion in the first quarter of 2013. This compares with $3.1 billion in the prior quarter, which also excludes a $1.1 billion provision for the Independent Foreclosure Review (IFR) acceleration agreement, and $2.7 billion in the first quarter of 2012^D.

As previously announced, Bank of America expects total cost savings from Project New BAC to reach $8.0 billion per year, or $2.0 billion per quarter, by mid-2015. The company expects to achieve approximately $1.5 billion in cost savings, per quarter, by the fourth quarter of 2013, representing 75 percent of the quarterly target.

Litigation expense was $881 million in the first quarter of 2013, compared to $916 million in the fourth quarter of 2012 and $793 million in the first quarter of 2012. Included in litigation expense for the first quarter of 2013 is a class action settlement in principle between certain Countrywide entities and various institutional and individual plaintiffs (collectively, the Luther, Maine State, and Western Teamsters plaintiffs) concerning residential mortgage-backed securities (RMBS) issued by subsidiaries of Countrywide Financial Corporation.

The first of these class action lawsuits was filed in November 2007, and they collectively concern the disclosures that were made in connection with 429 Countrywide RMBS offerings issued from 2005 through 2007. The original principal balance of the RMBS involved in these cases exceeded $350 billion, and the unpaid principal balance of these securities as of February 2013 (excluding securities that are the subject of individual or threatened actions) was $95 billion.

Under the settlement in principle, the lawsuits will be dismissed in their entirety, and defendants will receive a global release in exchange for a settlement payment of $500 million. The settlement will not affect investors' rights to receive trust distributions upon final court approval of the $8.5 billion settlement with Bank of New York Mellon as trustee.

The settlement is subject to final court approval. If approved, and all class members who have not already filed or threatened individual suits participate, the settlement is expected to resolve approximately 80 percent of the unpaid principal balance of the Countrywide-issued RMBS as to which securities disclosure claims have been filed or threatened, and approximately 70 percent of the unpaid principal balance of all RMBS as to which securities disclosure claims have been filed or threatened as to all Bank of America-related entities. The amounts to be paid in the settlement are covered by a combination of pre-existing litigation reserves and additional litigation reserves recorded in the quarter ended March 31, 2013.

Income tax expense for the first quarter of 2013 was $1.0 billion on $3.6 billion of pretax income, resulting in a 28 percent effective tax rate. This compares to income tax expense of $66 million on $719 million of pretax income resulting in a 9 percent effective tax rate in the year-ago quarter.

At March 31, 2013, the company had 262,812 full-time employees, down from 267,190 at December 31, 2012 and 278,688 at March 31, 2012.

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.

Unless otherwise noted, business segment revenue, on an FTE basis, is net of interest expense.

Consumer and Business Banking (CBB)

¹ Effective January 1, 2013, the Corporation revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the Corporation updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-25 of this press release.

² Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The Corporation believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-25 of this press release.

Business Highlights

• Average deposit balances of $502.5 billion increased $38.5 billion, or 8 percent, from the same period a year ago. The increase was driven by growth in liquid products in a low-rate environment and a $7 billion average impact of migration of deposits from Global Wealth and Investment Management. The average rate paid on deposits declined 7 basis points in the first quarter of 2013 to 13 basis points from 20 basis points in the year-ago quarter due to pricing discipline and a shift in the mix of deposits.

• The number of mobile banking customers increased 30 percent from the year-ago quarter to 12.6 million, and 9.3 million checks were deposited this quarter via Mobile Check Deposits, reflecting a continued focus on enhancing the customer experience.

• U.S. consumer credit card retail spending per average active account increased 7 percent from the first quarter of 2012.

• Merrill Edge brokerage assets increased 13 percent from the same period a year ago due to positive account flows and market growth.

• The company had $2.2 billion in small business loan originations and commitments in the first quarter of 2013, up 29 percent from the year-ago quarter.

• The company's specialized sales force of financial solutions advisors, mortgage loan officers and small business bankers increased 28 percent in the first quarter of 2013 to nearly 6,400 specialists.

Financial Overview

Consumer and Business Banking reported net income of $1.4 billion, down $63 million, or 4 percent, from the year-ago quarter, due to lower net interest income, partially offset by lower noninterest expense.

Net interest income of $4.8 billion was down $250 million from the year-ago quarter, driven by the continued low-rate environment and lower average loans, partially offset by higher asset and liability management (ALM) activities.

Noninterest expense was down $155 million from the year-ago quarter to $4.1 billion primarily due to lower operating expenses, partially offset by higher litigation expense.

Provision for credit losses increased $29 million from the year-ago quarter to $906 million as improvements in portfolio trends have stabilized.

Consumer Real Estate Services (CRES)

Business Highlights

• Bank of America funded $25 billion in residential home loans and home equity loans during the first quarter of 2013, up 11 percent from the fourth quarter of 2012, and 56 percent higher than the first quarter of 2012.

• The residential fundings helped more than 106,000 homeowners either refinance an existing mortgage or purchase a home through our retail channels, including more than 2,700 first-time homebuyer mortgages and more than 37,000 mortgages to low- and moderate-income borrowers.

• The number of 60+ days delinquent first mortgage loans serviced by Legacy Assets and Servicing declined during the first quarter of 2013 to 667,000 loans from 773,000 loans at the end of the fourth quarter of 2012, and 1.09 million loans at the end of the first quarter of 2012.

Financial Overview

Consumer Real Estate Services reported a net loss of $1.3 billion for the first quarter of 2013, compared to a net loss of $1.1 billion for the same period in 2012. Revenue declined $352 million to $2.3 billion. Noninterest income was $1.6 billion, a decrease of $327 million from the year-ago quarter, driven by lower mortgage banking income due primarily to lower servicing income. Core production revenue was $815 million in the first quarter of 2013, down from $928 million in the year-ago quarter as higher originations were offset by lower margins.

Approximately 91 percent of funded first mortgages were refinances, and 9 percent were for home purchases.

Representations and warranties provision was $250 million in the first quarter of 2013, compared to $282 million in the first quarter of 2012.

The provision for credit losses decreased $172 million from the same period a year ago to $335 million, driven by continued improvements in portfolio trends.

Noninterest expense increased to $4.1 billion from $3.9 billion in the first quarter of 2012, primarily due to an increase of $355 million in litigation expense and higher default-related expenses, which were partially offset by lower mortgage-related assessments, waivers and similar costs related to foreclosure delays, and lower costs due to the divestiture of certain ancillary servicing business units.

Global Wealth and Investment Management (GWIM)

¹ Effective January 1, 2013, the Corporation revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the Corporation updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-25 of this press release.

² Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The Corporation believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-25 of this press release.

³ Total client balances are defined as assets under management, assets in custody, client brokerage assets, client deposits and loans (including margin receivables).

Business Highlights

• Record quarterly results in revenue, pretax margin, net income, asset management fees, long-term assets under management (AUM) flows and client balances.

• Record asset management fees of $1.6 billion, up 9 percent from the year-ago quarter.

• Long-term AUM flows were a record $20.4 billion, marking the 15th consecutive quarter of positive flows.

• Period-end deposit balances of $240 billion were flat from the year-ago quarter as organic growth was offset by $19 billion of net migration of deposits to Consumer and Business Banking during the first quarter of 2013. Period-end loan balances grew $9.1 billion, or 9 percent, to a record $107.0 billion.

Financial Overview

Global Wealth and Investment Management net income rose 31 percent from the first quarter of 2012 to $720 million.

Revenue increased 7 percent from the year-ago quarter to $4.4 billion, driven by higher asset management fees related to higher market levels and long-term AUM flows, higher transactional revenue and higher net interest income. The pretax margin was a record 26 percent for the first quarter of 2013, up from 21 percent in the year-ago quarter.

The provision for credit losses decreased $24 million from the year-ago quarter to $22 million driven by improvement in the home equity portfolio. Noninterest expense of $3.3 billion remained relatively unchanged as higher volume-driven expenses and litigation expense were offset by lower other personnel costs.

Client balances rose 6 percent from the year-ago quarter to $2.25 trillion, reflecting higher market levels and net inflows, driven by client activity in long-term AUM, deposits and loans. Assets under management grew $67.7 billion from the first quarter of 2012 to $745.3 billion, driven by long-term AUM flows and market impact.

Global Banking

¹ Effective January 1, 2013, the Corporation revised, on a prospective basis, its methodology for allocating capital to the business segments. In connection with this change in methodology, the Corporation updated the applicable terminology to allocated capital from economic capital as reported in prior periods. For reconciliation of allocated capital, refer to pages 22-25 of this press release.

² Return on average allocated capital and return on average economic capital are non-GAAP financial measures. The Corporation believes the use of these non-GAAP financial measures provides additional clarity in assessing the results of the segments. Other companies may define or calculate these measures differently. For reconciliation to GAAP financial measures, refer to pages 22-25 of this press release.

Business Highlights

• Bank of America Merrill Lynch (BAML) maintained its No. 2 ranking in global net investment banking fees in the first quarter of 2013, based on reported competitor results as of April 17, 2013.

• According to Dealogic, BAML was ranked among the top three financial institutions in leveraged loans, investment-grade corporate debt, asset-backed securities, convertible debt, mortgage-backed securities and syndicated loans during the first quarter.

• Average loan and lease balances increased $14.1 billion, or 5 percent, from the year-ago quarter to $280.3 billion with growth in the U.S. and non-U.S. commercial and industrial, leasing and commercial real estate portfolios. Higher period-end balances of $287.3 billion reflect solid loan growth.

• Average international loans grew 11 percent from the year-ago quarter, driven by gains in the Emerging Markets and Asia Pacific regions. Average international deposits grew 24 percent from the year-ago quarter particularly in Europe and Asia, reflecting the strength of the international franchise.

• Average deposits rose $10.6 billion, or 5 percent, from the year-ago quarter to $221.5 billion, due to client liquidity. Compared to the prior quarter, average deposits were down $20.7 billion due to the expiration of the Transaction Account Guarantee (TAG) Program, as well as acceleration of certain corporate payments such as dividends.

Financial Overview

Global Banking reported net incomeof $1.3 billion in the first quarter of 2013, down $235 million from the year-ago quarter, as an increase in provision expense was partially offset by a decline in noninterest expense. Revenue of $4.2 billion was relatively flat from the year-ago quarter, as higher investment banking fees and net interest income were offset by gains on the liquidation of legacy portfolios in the first quarter of 2012.

Firmwide investment banking fees of $1.5 billion, excluding self-led deals, increased 26 percent from the year-ago quarter, mainly due to a strong performance in debt underwriting and advisory fees. Global Banking investment banking fees, excluding self-led deals, increased 21 percent to $762 million from $631 million in the year-ago quarter.

Global Corporate Banking revenue of $1.5 billion and Global Commercial Banking revenue of $1.9 billion remained relatively unchanged compared to the year-ago quarter. Business Lending revenue of $2.0 billion and Treasury Services revenue of $1.4 billion remained in line with the year-ago quarter.

The provision for credit losses increased $440 million from the year-ago quarter to $195 million with stabilization in asset quality as well as growth in commercial loans. Noninterest expense was $1.9 billion, down 5 percent from the year-ago quarter, primarily from lower personnel-related expenses.

Global Markets