Bank of America (NYSE: BAC) Posts Lower-than-Expected Earnings, Increases Reserves for Mortgage-Related Costs

Trying to brush aside their unexpected loss at the end of last year, Bank of America (BAC) posted a first-quarter profit Friday.

In the report, BAC reported a profit of $2 billion, or 17 cents a share, for the first quarter. That compares with a year-ago profit of $3.2 billion, or 28 cents a share.

Revenue tumbled 16% from a year ago, to $27 billion. Analysts were forecasting a 27-cent profit on $26.7 billion in revenue.

Wall Street was quick to show its skepticism. Bank of America’s stock was down 22 cents, at 12.91 in afternoon trading.

Investors have some reason to be concerned. As the number one mortgage lender, BAC has seen its profits affected by mortgage-related costs. And the first quarter was no exception.

The bank reported an $847 million reduction in profits as they added to cash reserves to pay claims tied to mortgage disputes, and an unspecified rise in litigation expense.

BAC also missed out on $534 million in fees thanks to laws limiting overdraft fees, and its sales and trading results were weaker than they were a year ago. Still, CEO Brian Moynihan pointed hopefully to a decline in credit costs and a rise in deposits as barometers of improving health.

“While still soft, the economy is healing; we see retail spending up versus the year-ago period and continued declines in bankruptcy filings and delinquency rates,” Moynihan said.

Earlier this year, the banking giant spent billions of dollars to pay off claims on mortgages written by Countrywide. Still the bank cannot seem to escape the growing cost of this acquisition.

To that end, the bank named Terry Laughlin, a veteran of OneWest Bank, to run a newly created Legacy Asset Servicing unit. In a press release, the bank said Laughlin will “oversee the bank’s mortgage modification and foreclosure programs, and continue to be responsible for resolving residential mortgage representation and warranties repurchase claims.”

Back in 2008, then Bank of America Chairman and CEO Ken Lewis said the bank’s acquisition of Countrywide was a “rare opportunity” for his company.

“Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation’s premier lender to consumers,” Lewis said in a statement.

The deal had its fair share of supporters and critics. However, if buying Countrywide was a good deal for Bank of America. Right now, Moynihan must be wondering what a bad deal looks like.