Bank of America 1Q dampened by low rates

Bank of America said its first-quarter results, including a $1.3 billion decline in revenue, were dampened slightly due to the impact of lower interest rates on its debt portfolios.

The Charlotte bank posted net income for the three months ended in March of $3.4 billion, or 27 cents per share. Revenue, net of interest expense, declined $1.3 billion over last year's first quarter to $21.4 billion. Adjusted earnings were 36 cents a share.

Wall Street had expected earnings of 29 cents a share on revenue of $21.6 billion, according to FactSet.

Shares were lower Wednesday afternoon by 1%, or 16 cents, to $15.66 a share.

Even though revenue declined, the swing to a profit was a welcome improvement over last year when Bank of America reported a loss of 5 cents a share on revenue of $22.76 billion.

Last year's loss was due to legal reserves of $6 billion, a move that was followed by a $16.65 billion mortgage-securities settlement with the Justice Department a few months later.

Banks, including Bank of America and JP Morgan, have been plagued by rising legal costs tied to government probes in the wake of the banking bailouts. The legal clouds appear to be lifting — but now Wall Street analysts are warning of some pain due to low net interest margins, or the spread between what banks pay on deposits and what they make on interest-earning assets such as loans.

Bank of America attributed $211 million of the revenue decline to market-related adjustments on the company's debt securities portfolio due to the impact of lower long-term interest rates, the company said. It also cited a $757 million reduction in equity investment income over year's results, which included the gain on the partial sale of an investment. The revenue results were also lower,

Excluding those items, revenue still declined 1% to $21.9 billion from $22.1 billion in the year-ago quarter.

The bank said its income results included a $500 million charge, or 3 cents a share, tied to market-related net interest income adjustments, as well as a $1.0 billion, or 6 per share, charge in annual retirement-eligible Incentive costs.

With the pain of large legal costs largely behind him, Bank of America's CEO Brian Moynihan is focused on cutting costs and growing assets. Wednesday's results suggested progress in these areas, especially cost cutting.

The company on Wednesday said non-interest expense excluding litigation and annual retirement-eligible incentive costs fell by 6% from last year to $14.3 billion. Minus litigation expenses, costs were down a whopping 30%.

"At a time of continued low interest rates, we had good expense control as we focus on responsible growth with a balanced platform to create long-term value for customers and shareholders," Moynihan said of the results.

The bank also showed solid growth in its consumer banking division including deposit balances that increased $26.5 billion, or 5%, from the year-ago quarter to $531.4 billion.

Client brokerage assets also increased $18.3 billion, or 18%, from the year-ago quarter to $118.5 billion, driven primarily by new client accounts, strong account flows and market valuations.

Bank of America's other areas of growth include:

• Wealth Management Asset management fees up 10% to $2.1 billion

• Bank of America Merrill Lynch investment banking fees reached $1.5 Billion, with its highest level of advisory fees since its merger with Merrill Lynch in 2009.

Moynihan also said he sees signs of economic improvement in the way of "consumer spending increasing and utilization of credit by our commercial customers rising."