Bank of America Reports First-Quarter 2012 Financial Results

Bank of America Corporation today reported net income of $653 million, or $0.03 per diluted share, for the first quarter of 2012. Revenue, net of interest expense, on a fully taxable-equivalent (FTE)1 basis was $22.5 billion, including negative valuation adjustments related to changes in the company´s credit spreads of $4.8 billion pretax, or $0.28 a share.

The results compare to net income of $2.0 billion, or $0.17 per diluted share, in the year-ago quarter on revenue of $27.1 billion when the company reported negative valuation adjustments of $943 million, or $0.06 per share. Excluding the valuation adjustments from both periods, revenue was down 3 percent in the first quarter of 2012 to $27.3 billion2.

"By focusing on building strong customer and client relationships, we´re doing more business and winning in the marketplace," said Chief Executive Officer Brian Moynihan. "Our strategy is paying off: With the economy steadily improving and because of the work we have done to strengthen and simplify our company, we saw improved profitability in all of our businesses this quarter compared to the fourth quarter of last year."

"The narrowing of our credit spreads reflects the significant progress we´ve made to strengthen the balance sheet," said Chief Financial Officer Bruce Thompson. "During the quarter, we increased our Tier 1 common equity ratio by 92 basis points from the prior quarter, improved our liquidity to record levels and continued to reduce risk-weighted assets. While the improvement in our credit spreads results in a negative adjustment to earnings this quarter, it should not overshadow the positive momentum that we are seeing in our businesses."

1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-26 of this press release. Total revenue, net of interest expense on a GAAP basis, was $22.3 billion and $26.9 billion for the three months ended March 31, 2012 and 2011. Total revenue, net of interest expense, FTE basis excluding DVA and FVO adjustments is a non-GAAP financial measure. For a reconciliation to GAAP financial measures, refer to page 2 of this press release.

Selected Financial Highlights

1 Fully taxable-equivalent (FTE) basis is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-26 of this press release. Net interest income on a GAAP basis was $10.8 billion, $10.7 billion and $12.2 billion for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011. Total revenue, net of interest expense on a GAAP basis, was $22.3 billion, $24.9 billion and $26.9 billion for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011.

2 Total revenue, net of interest expense, FTE basis excluding DVA and FVO adjustments is a non-GAAP financial measure. DVA losses were $1.5 billion, $474 million and $357 million for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011. Valuation losses related to FVO were $3.3 billion, $814 million and $586 million for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011.

The following selected items affected financial results in the first quarter of 2012.

1 All items pretax.

Key Business Highlights

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

Be customer-driven

• Bank of America extended approximately $102 billion in credit in the first quarter of 2012. This included $66.6 billion in commercial non-real estate loans, $15.2 billion in residential first mortgages, $8.9 billion in commercial real estate loans, $4.4 billion in U.S. consumer and small business card, $760 million in home equity products and $5.9 billion in other consumer credit.
• The $15.2 billion in residential first mortgages funded in the first quarter helped nearly 63,000 homeowners either purchase a home or refinance an existing mortgage. This included almost 5,000 first-time homebuyer mortgages originated by retail channels, and more than 17,000 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 $1.6 billion in small business loans and commitments and hired over 100 small business bankers in the first quarter of 2012 to further support small business customers, bringing the total number of small business bankers hired to more than 700.
• The company raised $159 billion in capital for clients in the first quarter of 2012 which helped clients support the economy.
• Average deposit balances were up $7 billion from the first quarter of 2011 to $1.03 trillion.
• The company continued to deepen relationships with customers and clients. The number of mobile banking customers rose 39 percent from the year-ago quarter to 9.7 million customers, and the number of new U.S. consumer credit card accounts opened in the first quarter of 2012 was up 19 percent from the year-ago quarter.
• Bank of America added more than 200 Financial Advisors in the first quarter of 2012, bringing the total number of Financial Advisors to nearly 17,500. The total number of client-facing professionals in Global Wealth and Investment Management, including those Financial Advisors in Consumer and Business Banking, rose for the eleventh consecutive quarter.
• The company continued to expand relationships with corporate banking clients, with average loans and leases up 24 percent and average deposit balances up 2 percent from the first quarter of 2011.
• Bank of America Merrill Lynch (BAML) was ranked No. 2 globally in net investment banking fees in the first quarter of 2012, including self-led deals, with a 6.2 percent market share, as reported by Dealogic. Also, BAML was No. 1 in the EMEA first-quarter 2012 syndicated loan league tables for the first time in the company´s history.
• BAML participated in 106 municipal issuances in the first quarter of 2012, according to Thomson Financial, helping state and local governments raise nearly $11 billion for improvements to various infrastructure projects such as highways, bridges and schools.

Continue to build a fortress balance sheet

• Regulatory capital ratios increased significantly, with the Tier 1 common equity ratio increasing to 10.78 percent in the first quarter of 2012, up 92 basis points from the fourth quarter of 2011 and 214 basis points higher than the first quarter of 2011. Tier 1 capital ratio was 13.37 percent in the first quarter of 2012, compared to 12.40 percent in the fourth quarter of 2011 and 11.32 percent in the first quarter of 2011.
• The company continued to maintain strong liquidity in the first quarter of 2012 while positioning the balance sheet for significant debt reductions. Global Excess Liquidity Sources increased to $406 billion at March 31, 2012, up from $378 billion at December 31, 2011 and $386 billion at March 31, 2011. Long-term debt declined to $355 billion at March 31, 2012 from $372 billion at December 31, 2011 and $434 billion at March 31, 2011.
• Time-to-required funding increased to 31 months at March 31, 2012 from 29 months at December 31, 2011 and 25 months at March 31, 2011. The company remains well positioned to address upcoming debt maturities, including the remaining $24 billion related to the Temporary Liquidity Guarantee Program that matures in the second quarter of 2012.

Manage risk well

• The company continued to focus on strengthening its risk culture in the first quarter of 2012, continuing to drive accountability deeply into the company in all matters of risk.
• The provision for credit losses declined 37 percent from the year-ago quarter, reflecting improved credit quality across all major consumer and commercial portfolios and the impact of underwriting changes implemented over the past several years.
• The allowance for loan and lease losses to annualized net charge-off coverage ratio was 1.97 times in the first quarter of 2012, compared with 2.10 times in the fourth quarter of 2011 and 1.63 times in the first quarter of 2011. Excluding purchased credit-impaired loans, the allowance to annualized net charge-off coverage ratio was 1.43 times, 1.57 times and 1.31 times for the same periods, respectively.
• The company continued to manage its sovereign and non-sovereign exposures in Europe. Total exposure to Greece, Italy, Ireland, Portugal and Spain, including net credit default protection, declined to $9.8 billion at March 31, 2012, compared to $10.3 billion at December 31, 2011 and $11.5 billion at March 31, 2011.

Deliver for our shareholders

• The company continued to focus on strengthening the balance sheet by increasing capital, building liquidity and maintaining strong reserve levels. The benefits of this strategy were reflected in the 2012 Comprehensive Capital Analysis and Review.
• Earnings, excluding DVA and FVO adjustments, improved in the first quarter of 2012 from the fourth quarter of 2011 as all five of the company´s businesses reported improved profitability.
• The company retired $4.2 billion of debt for cash and exchanged $730 million of trust-preferred securities for cash and common stock that resulted in total gains on debt retirement of $1.2 billion. These actions, combined with preferred stock exchanges, increased Tier 1 common equity by $1.7 billion, or approximately 13 basis points, in the first quarter of 2012.

Manage efficiency well

• Noninterest expense declined to $19.1 billion in the first quarter of 2012 from $19.5 billion in the fourth quarter of 2011 and $20.3 billion in the first quarter of 2011 as the company continued to focus on streamlining and simplifying its businesses.
• The company continued to approve and implement employee-generated ideas as part of Project New BAC. To date, approximately 570 of the more than 2,000 Phase 1 decisions have already been implemented and Phase 2 evaluations, which began in the fourth quarter of 2011, are nearing completion.
• At March 31, 2012, the company had 278,688 full-time employees, down 3,103 from the end of the prior quarter, and 10,225 lower than at March 31, 2011. Excluding FTE increases to staff the Legacy Assets and Servicing team to handle increasing government and private programs for housing, the number of full-time employees is down nearly 5,600 from December 31, 2011 and 20,000 from the year-ago quarter.

Business Segment Results

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

Effective January 1, 2012, the basis of presentation was changed from six segments to five segments. Consumer and Business Banking is made up of the former Deposits and Card Services segments, as well as Business Banking, which was previously part of the Global Commercial Banking segment. The remaining businesses in the Global Commercial Banking segment were combined with the Global Corporate and Investment Banking business, which was included in the former Global Banking and Markets (GBAM) segment to form Global Banking. Global Markets, also part of the former GBAM segment, is now reported as a standalone segment. In addition, certain management accounting methodologies and related allocations were refined. Prior period results have been reclassified to conform to current period presentation.

Consumer and Business Banking

At March 31,

2012

At December 31,

2011

At March 31,

2011

1 Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-26 of this press release.

Business Highlights

• The number of new U.S. consumer credit card accounts opened in the first quarter of 2012 was up 19 percent from the year-ago quarter, and more than 1 million BankAmericard Cash Rewards cards have been issued since its introduction in the third quarter of 2011.
• The company originated approximately $1.6 billion in small business loans and commitments and hired more than 100 small business bankers in the first quarter of 2012, reflecting the company´s continued focus on supporting small businesses.
• The number of mobile banking customers continued to grow in the first quarter of 2012, with total mobile banking customers increasing 39 percent from a year ago to 9.7 million customers.
• Average deposit balances increased $9.2 billion from the year-ago quarter, driven by growth in liquid products in a low-rate environment. The rates paid on deposits declined 10 basis points in the first quarter of 2012 from the year-ago quarter due to pricing discipline and a shift in the mix of deposits.

Financial Overview

Consumer and Business Banking reported net income of $1.5 billion, down $587 million from the year-ago quarter, due to lower revenue and higher credit costs, partially offset by lower noninterest expense.

Revenue of $7.4 billion was down $1.0 billion from the year-ago quarter, driven by lower noninterest income of $523 million primarily from the implementation of debit card interchange fee rules as a result of the Durbin Amendment, and a decrease in net interest income of $521 million, primarily from lower average loans and yields. Provision for credit losses, primarily within the Card Services business, increased $216 million from the year-ago quarter to $877 million, reflecting lower reserve reductions in the current period. Noninterest expense was down $315 million from the year-ago quarter to $4.2 billion primarily due to lower FDIC, marketing and operating expenses.

Consumer Real Estate Services

At March 31,

2012

At December 31,

2011

At March 31,

2011

Business Highlights

• Bank of America funded $16.0 billion in residential home loans and home equity loans during the first quarter of 2012.

• The mortgage portfolio serviced for investors declined to $1.3 trillion at the end of the first quarter of 2012 from $1.4 trillion at the end of the fourth quarter of 2011 and $1.6 trillion at the end of the first quarter of 2011. Capitalized mortgage servicing rights (MSR) as a percent of the portfolio declined from 95 basis points at March 31, 2011, to 58 basis points at March 31, 2012. The MSR balance was $7.6 billion at March 31, 2012, compared with $7.4 billion at December 31, 2011 and $15.3 billion at March 31, 2011.
• The company continued to make progress on certain legacy issues. The number of 60+ day delinquent first mortgage loans serviced by Legacy Assets and Servicing declined to 1.09 million at the end of the first quarter of 2012 from 1.16 million at the end of the fourth quarter of 2011 and 1.30 million at the end of the first quarter of 2011.

Financial Overview

Consumer Real Estate Services reported a net loss of $1.1 billion for the first quarter of 2012, compared to a net loss of $2.4 billion for the same period in 2011. The net loss is driven by continued high costs of managing delinquent and defaulted loans in the servicing portfolio combined with costs associated with managing other legacy mortgage exposures.

Revenue increased to $2.7 billion from $2.1 billion in the first quarter of 2011. The increase in revenue was primarily driven by higher mortgage banking income, partially offset by lower insurance income due to the sale of Balboa Insurance in mid-2011. Mortgage banking income increased due to lower representations and warranties provision, higher core production income and higher servicing income driven by more favorable MSR results, net of hedges. While CRES loan fundings declined by 76 percent compared to the same period in 2011, largely due to the exit from the correspondent channel, core production revenue increased due to the higher margins on direct originations.

Representations and warranties provision was $282 million in the first quarter of 2012, compared to $1.0 billion in the first quarter of 2011, which included the impact of higher estimated repurchase rates related to the GSEs combined with increased experience with a monoline insurer. Provision for credit losses in the first quarter of 2012 decreased $591 million from the year-ago quarter to $507 million, driven by lower reserve additions related to the Countrywide purchased credit-impaired home equity portfolio and improved portfolio trends.

Noninterest expense decreased 18 percent to $3.9 billion, primarily due to lower mortgage-related assessments and waivers costs and litigation expense as well as lower direct production expenses due to the exit from correspondent lending at the end of 2011. These declines were partially offset by higher default related servicing expenses.

Global Banking

1 Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-26 of this press release.

Business Highlights

• Bank of America Merrill Lynch (BAML) was ranked No. 2 globally in net investment banking fees, including self-led deals, in the first quarter of 2012, according to Dealogic. During the first quarter of 2012, BAML was among the top three banks globally in high-yield corporate debt, leveraged loans, convertible debt, investment-grade corporate debt, asset-backed securities and syndicated loans.
• Average loans and leases increased $20.3 billion, or 8 percent, and average deposits rose $11.7 billion, or 5 percent, from the year-ago quarter.
• Credit quality continued to improve as nonperforming assets declined by $2.7 billion, or 39 percent, and total reservable criticized loans declined by $12.4 billion, or 41 percent, compared to the year-ago quarter.

Financial Overview

Global Banking reported net income of $1.6 billion, in line with the year-ago quarter, as lower noninterest expense and lower credit costs from improved asset quality offset the decline in revenue. Revenue was $4.5 billion, down 5 percent from the year-ago quarter, primarily due to lower investment banking fees and accretion on certain acquired portfolios. Noninterest expense was $2.2 billion, down 6 percent from the year-ago quarter, primarily from lower personnel expense.

The provision for credit losses was a benefit of $238 million in the first quarter of 2012, compared with a benefit of $123 million in the prior-year quarter, primarily due to continued improvement in asset quality in the commercial real estate portfolio.

Firm-wide investment banking fees, including self-led deals, declined to $1.3 billion from $1.6 billion in the year-ago quarter, mainly due to lower advisory and equity underwriting fees.

Corporate Bank and Commercial Bank revenues of $1.5 billion and $2.1 billion continued to remain strong. Average loans and leases increased $20.3 billion, or 8 percent from the year-ago quarter due to growth in both domestic and international corporate loans and international trade finance. Average deposits increased $11.7 billion, or 5 percent, from the first quarter of 2011 as balances continued to grow from excess market liquidity and limited alternative investment options. Treasury Services revenue remained strong in the first quarter of 2012 at $1.6 billion, up 3 percent from the fourth quarter of 2011 and 8 percent higher than the prior-year quarter.

Global Markets

1 DVA losses for Global Markets were $1.4 billion, $474 million and $357 million for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011.

2 Return on average economic capital is a non-GAAP financial measure. For reconciliation to GAAP financial measures, refer to pages 23-26 of this press release.

n/m = not meaningful

Business Highlights

• Sales and trading revenue, excluding DVA, was $5.2 billion in the first quarter of 2012, compared to $2.0 billion in the fourth quarter of 2011 and $5.0 billion in the first quarter of 2011.

• FICC revenue, excluding DVA, was $4.1 billion in the first quarter of 2012, up from $1.3 billion in the fourth quarter of 2011 and $3.7 billion in the first quarter of 2011, reflecting increases in almost all product categories.

Financial Overview

Global Markets revenue more than doubled from the fourth quarter of 2011 to $4.2 billion, but was down 20 percent from the prior-year quarter due to significantly higher DVA losses in the first quarter of 2012. Excluding DVA, revenue was $5.6 billion in the first quarter of 2012, compared with $2.3 billion in the fourth quarter of 2011 and $5.6 billion in the first quarter of 2011.

Net income was $798 million in the first quarter of 2012, including $1.4 billion in DVA losses. This compares with net income of $1.4 billion in the year-ago quarter, which included DVA losses of $357 million. Noninterest expense of $3.1 billion was relatively flat compared to the year-ago quarter.

Fixed Income, Currency and Commodities sales and trading revenue, excluding DVA losses, was $4.1 billion, an increase of $432 million compared to the prior year. The increase reflected improving global markets sentiment as the European debt crisis stabilized coupled with favorable news regarding the U.S. economic environment. Equities sales and trading revenue, excluding DVA losses, was $1.1 billion, a decline of $233 million from the year-ago quarter. Although market share increased in the U.S. and EMEA, the revenue decrease was driven by overall lower market volumes and commissions.

Global Wealth and Investment Management