Bank of America Announces Countrywide Settlement along with Q1 Financial Results

by devteam April 18th, 2013 | Share

Bank of America (BOA)rnreported net income in the first quarter of 2013 of $2.6 billion or $0.20 perrndiluted share, up from net income of $653 million or $0.3 million per share inrnthe first quarter of 2012.  The banksrnfiling with the Securities and Exchange Commission also included anrnannouncement of the possible settlement of much of the outstanding litigationrnpending against its Countrywide Mortgage subsidiary.  </p

The bank hadrnlitigation expenses of $881 million in the first quarter which included a classrnaction settlement in principal between some Countrywide entities and variousrninstitutional and individual plaintiffs concerning residential mortgage-backedrnsecurities (RMBS) issued by Countrywide Financial Corporation prior to it beingrnacquired by BOA.</p

Thernbank said of first of the class action lawsuits (known collectively as those ofrnthe Luther, Maine State, and Western Teamsters plaintiffs) was filed inrnNovember 2007, and they collectively concern the disclosures that werernmade in connection with 429 Countrywide RMBS offeringsrnissued from 2005 through 2007. The original principal balance ofrnthe RMBS involved in these cases exceeded $350 billion, and the unpaidrnprincipal balance of these securities as of February 2013 (excluding securitiesrnthat are the subject of individual or threatened actions) was $95 billion. </p

Thernsettlement announced today, which is subject to final court approval, calls forrnthe lawsuits to be dismissed in their entirety and defendants to receive arnglobal release in exchange for a settlement payment of $500 million.  The settlement is distinct from another pendingrn$8.5 billion settlement between Bank of America Corp. and 22 institutionalrninvestors in Countrywide mortgage-backed securities.  Investors’ rights under that suit will not bernaffected by the $500 million settlement.  </p

ThernBank said that the new settlement, if approved and if all class members whornhave not filed or threatened to file individual suits participate, will resolvernapproximately 70 to 80 percent of the $95 billion unpaid balance of thernCountrywide RMBS that were under threat of litigation.</p

BOArnsaid its improved first quarter results were driven by increased brokeragernincome, higher investment banking fees, and improved credit quality across allrnmajor portfolios, partially offset by lower mortgage banking income and lowerrnnet gains on the sales of debt securities. </p

Revenue,rnnet of interest expense, on an FTE basis rose $1.2 billion, or 5 percent, fromrnthe first quarter of 2012, to $23.7 billion, led by higher noninterest income. </p

Netrninterest income, on an FTE basis, totaled $10.9 billion in the first quarter ofrn2013, compared to $10.6 billion in the fourth quarter of 2012 and $11.1 billionrnin the first quarter of 2012.  Therndecline in net interest income from the year-ago quarter was due to the impactrnof lower consumer loan balances as well as lower asset yields driven by the lowrnrate environment, partially offset by reductions in long-term debt balances andrnlower rates paid on deposits. </p

ThernBank funded $25 billion in residential mortgages and home equity loans in thernfirst quarter, an 11 percent increase from the fourth quarter of 2012 and 56rnpercent higher than Q1 2012.  The 106,000rnmortgages funded included more than 2,700 loans to first time buyers and morernthan 37,000 to low- and moderate-income borrowers.  Ninety-one percent of loans were for thernpurpose of refinancing.</p

Sixtyrnday+ delinquent first mortgage loans serviced by Legacy Assets and Servicingrndeclined during the first quarter of 2013 to 667,000 loans from 773,000 loansrnat the end of the fourth quarter of 2012, and 1.09 million loans at the end ofrnthe first quarter of 2012. Additionally, 30+ days performing delinquent loans,rnexcluding fully-insured loans, declined across all consumer portfolios, andrnreservable criticized balances also continued to decline, down 39 percent fromrnthe year-ago period. Net charge-offs were $2.5 billion in the first quarter ofrn2013, down from $3.1 billion in the fourth quarter of 2012 and $4.1 billion inrnthe first quarter of 2012. </p

Thernprovision for credit losses was $1.7 billion, a decline of $491 million fromrnthe fourth quarter of 2012 and a decline of $705 million from the first quarterrnof 2012. The provision for credit losses in the first quarter of 2013 was $804rnmillion lower than net charge-offs, resulting in a reduction in the allowancernfor credit losses. This included a $207 million benefit in the PCI portfoliornprimarily due to an improved home price outlook. </p

ConsumerrnReal Estate Services reported a net loss of $1.3 billion for the first quarterrnof 2013, compared to a net loss of $1.1 billion for the same period in 2012.rnRevenue declined $352 million to $2.3 billion. Noninterest income was $1.6rnbillion, a decrease of $327 million from the year-ago quarter.  This was due to lower mortgage banking incomernlargely because of lower servicing income. Core production revenue was $815rnmillion in the first quarter of 2013, down from $928 million in the year-agornquarter as higher originations were offset by lower margins. </p

“Ourrnstrategy of connecting our customers to all we can do for them isrnworking,” said Chief Executive Officer Brian Moynihan. “Solidrnincreases in loan growth to small businesses and middle-market companies, fourrnstraight quarters of steady growth in mortgage originations, record earnings inrnwealth management, and another quarter near the top in investment banking.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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