Bank of America misses by $0.10, beats on revs; reaches settlement with FGIC and Bank of NY Mellon
Reports Q1 (Mar) loss of $0.05 per share, $0.10 worse than the Capital IQ Consensus Estimate of $0.05; revenues fell 2.7% year/year to $22.77 bln vs the $22.1 bln consensus. Excluding the impact of net debit valuation adjustments (DVA) in both periods, revenue was down 4 percent from the year-ago quarter to $22.7 billion.
- The results for the first quarter of 2014 include $6.0 billion in litigation expense related to the previously announced settlement with the Federal Housing Finance Agency (FHFA), and additional reserves primarily for previously disclosed legacy mortgage-related matters.
- Net interest income, on an FTE basis, fell 5 percent from the year-ago quarter to $10.3 billion. The decline was driven by lower yields on debt securities due to an approximate $540 million swing in market-related premium amortization expense. Net interest margin, excluding market-related adjustments, was 2.36 percent in the first quarter of 2014, compared to 2.30 percent in the first quarter of 2013.
- Noninterest income was flat compared to the year-ago quarter, as lower mortgage banking income and lower trading account profits were largely offset by year-over-year increases in investment and brokerage income, equity investment income and gains on the sale of debt securities.
- The provision for credit losses declined 41 percent from the first quarter of 2013 to $1.0 billion, driven by improved credit quality. Net charge-offs declined 45 percent from the first quarter of 2013 to $1.4 billion, with the net charge-off ratio falling to 0.62 percent in the first quarter of 2014 from 1.14 percent in the year-ago quarter. During the first quarter of 2014, the reserve release was $379 million, compared to a reserve release of $804 million in the first quarter of 2013.
- Settlement with FGIC and BK
- Bank of America reached a settlement with FGIC,as well as separate settlements with The Bank of New York Mellon (BK), as trustee, for certain second-lien residential mortgage-backed securities (RMBS) trusts for which FGIC provided financial guarantee insurance. The agreements resolve all outstanding litigation between FGIC and the company, as well as outstanding and potential claims by FGIC and the trustee related to alleged representations and warranties breaches and other claims involving second-lien RMBS trusts for which FGIC provided financial guarantee insurance. Seven of the trust settlements have already been completed, and the two remaining trust settlements are subject to additional investor approvals in a process that is expected to be completed within the next 45 days.
- Consumer and Business Banking reported net income of $1.7 billion, up $210 million, or 15 percent, from the year-ago quarter. Noninterest income of $2.5 billion increased $88 million primarily due to a portfolio divestiture gain.
- Consumer Real Estate Services reported a net loss of $5.0 billion for the first quarter of 2014, compared to a net loss of $2.2 billion for the same period in 2013, reflecting a $3.8 billion increase in litigation expense. Revenue declined $1.1 billion from the first quarter of 2013 to $1.2 billion, driven primarily by a $548 million decline in servicing revenue, reflecting a smaller servicing portfolio and a $542 million decline in core production revenue due to lower loan originations.
- CRES first-mortgage originations declined 65 percent in the first quarter of 2014 compared to the same period in 2013, reflecting the decline in the overall market demand for refinance mortgages. Core production revenue decreased in the first quarter of 2014 to $273 million from $815 million in the year-ago quarter due to lower volume and a reduction in margins.
- Global Wealth and Investment Management reported net income of $729 million, up slightly from the first quarter of 2013, reflecting continued strong revenue performance and low credit costs. Revenue increased 3 percent from the year-ago quarter to a record $4.5 billion, driven by higher noninterest income related to improved market valuation and long-term AUM flows. Return on average allocated capital was 24.7 percent in the first quarter of 2014, down from 29.4 percent in the year-ago quarter, reflecting earnings stability coupled with increased capital allocations.
- Total revenue, net of interest expense, on an FTE basis excluding net DVA, and net income (loss) excluding net DVA are non-GAAP financial measures. Net DVA gains (losses) were $112 million, $(617) million and $(145) million for the three months ended March 31, 2014, December 31, 2013 and March 31, 2013, respectively.
- Sales and trading revenue, excluding net DVA, remained relatively flat from the first quarter of 2013 at $4.1 billion.
- Equities sales and trading revenue, excluding net DVA was solid compared to the year-ago period. The company continued to increase market share compared to the year-ago quarter.
- Return on average allocated capital, excluding net DVA, was 14.8 percent in the first quarter of 2014, compared to 16.3 percent in the first quarter of 2013, reflecting stable net income combined with an increase in allocated capital compared to the year-ago quarter.
- Global Markets reported net income of $1.3 billion in the first quarter of 2014, compared to $1.1 billion in the year-ago quarter. Excluding net DVA, net income was $1.2 billion in the first quarter of 2014, an increase of 3 percent compared to the year-ago quarter. Global Markets revenue increased $235 million, or 5 percent, from the year-ago quarter to $5.0 billion. Excluding net DVA, revenue decreased $22 million to $4.9 billion as declines in Rates and Currencies were partially offset by stronger performance in Credit and Equities.
- Fixed Income, Currency and Commodities sales and trading revenue, excluding net DVA, was $3.0 billion in the first quarter of 2014, a decrease of $51 million, or 2 percent, from the year-ago quarter, as credit markets remained strong but Rates and Currencies declined on lower market volumes and volatility. Adjusting the year-ago quarter to exclude this negative impact, FICC revenue, excluding net DVA, declined 15 percent from the first quarter of 2013.
- Equities sales and trading revenue, excluding net DVA(H), was $1.2 billion, in line with results from the year-ago quarter. The current quarter benefited from continued gains in market share and higher client financing balances.
- Tangible common equity ratio 7.00% compared to 7.20% in Q4; Common equity ratio 10.17% compared to 10.43% in Q4.
- On March 26, the company announced that it plans to increase its quarterly common stock dividend to $0.05 per share, beginning in the second quarter of 2014. Also, the Board of Directors authorized a new $4.0 billion common stock repurchase program. This authorization, which covers both common stock and warrants, replaces the prior year's common stock repurchase program that expired on March 31, 2014.
- Tangible book value per share was $13.81 at March 31, 2014, compared to $13.79 at December 31, 2013 and $13.36 at March 31, 2013. Book value per share was $20.75 at March 31, 2014, compared to $20.71 at December 31, 2013 and $20.19 at March 31, 2013.