Bank of America (BOA) reported net income in the first quarter of 2013 of $2.6 billion or $0.20 per diluted share, up from net income of $653 million or $0.3 million per share in the first quarter of 2012.  The banks filing with the Securities and Exchange Commission also included an announcement of the possible settlement of much of the outstanding litigation pending against its Countrywide Mortgage subsidiary.  

The bank had litigation expenses of $881 million in the first quarter which included a class action settlement in principal between some Countrywide entities and various institutional and individual plaintiffs concerning residential mortgage-backed securities (RMBS) issued by Countrywide Financial Corporation prior to it being acquired by BOA.

The bank said of first of the class action lawsuits (known collectively as those of the Luther, Maine State, and Western Teamsters plaintiffs) 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.

The settlement announced today, which is subject to final court approval, calls for the lawsuits to be dismissed in their entirety and defendants to receive a global release in exchange for a settlement payment of $500 million.  The settlement is distinct from another pending $8.5 billion settlement between Bank of America Corp. and 22 institutional investors in Countrywide mortgage-backed securities.  Investors' rights under that suit will not be affected by the $500 million settlement.  

The Bank said that the new settlement, if approved and if all class members who have not filed or threatened to file individual suits participate, will resolve approximately 70 to 80 percent of the $95 billion unpaid balance of the Countrywide RMBS that were under threat of litigation.

BOA said its improved first quarter results 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.

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.  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.

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

Sixty day+ 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. Additionally, 30+ days performing delinquent loans, excluding fully-insured loans, declined across all consumer portfolios, and reservable criticized balances also continued to decline, down 39 percent from the year-ago period. Net charge-offs were $2.5 billion in the first quarter of 2013, down from $3.1 billion in the fourth quarter of 2012 and $4.1 billion in the first quarter of 2012.

The provision for credit losses was $1.7 billion, a decline of $491 million from the fourth quarter of 2012 and a decline of $705 million from the first quarter of 2012. The provision for credit losses in the first quarter of 2013 was $804 million lower than net charge-offs, resulting in a reduction in the allowance for credit losses. This included a $207 million benefit in the PCI portfolio primarily due to an improved home price outlook. 

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.  This was due to lower mortgage banking income largely because of 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.

"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."