Legal expenses took a substantial bite out of Bank of America’s first-quarter earnings, resulting in a net loss of $276 million to start the year.
The loss follows a profitable fourth quarter of 2013, which saw the bank taking in $3.4 billion. For the first quarter of 2013, BofA reported net income of $1.5 billion.
The results for the first quarter include $6 billion in litigation expenses related to a major settlement with the Federal Housing Finance Agency (FHFA) over legacy securities claims. Also figuring in were additional reserves for previously disclosed legacy mortgage-related issues.
“The cost of resolving more of our mortgage issues hurt our earnings this quarter,” said Brian Moynihan, CEO of the North Carolina-based megabank. “But the earnings power of our business and customer strategy generated solid results and we continued to return excess capital to our shareholders.”
As was the case with other banks in the first quarter, BofA also mortgage banking revenues decline. The company’s Consumer Real Estate Services (CRES) division reported a net loss of $5.0 billion in Q1, largely on the back of a $3.8 billion increase in litigation costs. Revenue declined to $1.2 billion, with the decrease driven almost entirely by a $548 million decline in servicing revenue—reflecting a smaller portfolio—and a $542 million drop in core production due to lower loan originations.
CRES first-mortgage originations fell 65 percent compared to the first quarter of 2013, “reflecting a decline in the overall market demand for refinance mortgages,” the bank reported. Core production revenue was down to $273 million from $815 million a year prior thanks to the slowdown in volume and a reduction in margins.
On the other hand, the bank a bit of a silver lining in the form of lower credit loss provisions, which were down $310 million from last year, thanks to continued improvement in portfolio trends.