Bank of America Corp posted an unexpectedly sharp drop in first-quarter profit as higher expenses from delayed home foreclosures weighed on its mortgage business.

The largest U.S. bank lost more than $2.39 billion in its home loan business as revenue fell and expenses rose. The foreclosure mess that began in the fourth quarter of 2010, with borrowers accusing major banks of repossessing homes without having the right paperwork in place, was a key source of higher costs in the quarter.

The bank also named a new chief financial officer. Its current CFO, Charles Chuck Noski, is stepping down due to a serious family illness.

The first-quarter results give some inkling of why the Federal Reserve told the bank in March to rein in its plans to boost dividends, even as competitors were authorized to hike their payouts. The bank said it was not sure how it will resubmit its request for a higher dividend.

Bank of America is further behind. And the reason they're further behind is because of what's going on with the mortgage business, said Ben Wallace, analyst at Grimes & Co, with $1 billion under management.

The bank said in March that it did not expect its mortgage business to return to normal earnings until 2014 or later, while most of its other businesses could recover by 2013.

Bank of America shares were down 1.1 percent to $12.98 in late-morning trading. The shares fell 1.5 percent after JPMorgan Chase & Co's quarterly results on Wednesday showed the pressure facing consumer lending businesses.

Home loan difficulties seem to be widespread among major lenders. JPMorgan, the second-largest U.S. bank, suffered extraordinarily high losses on mortgage-related issues in the first quarter.

Unfortunately, these losses will continue for awhile, said JPMorgan Chief Executive Jamie Dimon.

Bank of America did manage to earn $2 billion in the latest quarter, its first profit since the second quarter of 2010. It faced big mortgage and card-related losses throughout the second half of last year.

UPHILL BATTLE FOR CEO MOYNIHAN

Its Merrill Lynch brokerage business provided a bright spot in the quarter, reporting sharply higher revenue and client assets as well as a net increase of nearly 200 financial advisers.

Bank of America, built through a series of acquisitions over decades, made an ill-fated purchase in 2008 when it bought mortgage lender Countrywide Financial Corp as the financial crisis intensified.

The purchase gave BofA more subprime mortgages, home equity loans, and other assets that have generated big losses. The bank needed two government rescues during the financial crisis; it has since repaid the money.

Chief Executive Brian Moynihan, who took the helm in early 2010, is trying to fix the bank by cutting costs and selling more products to retail customers.

We need to do more to show we can hold expenses flat, Moynihan said on a call with analysts.

He faces an uphill battle. Bank of America's results are closely tied to the health of U.S. consumers, who have been reducing their debt as they wrestle with stagnant wages and high unemployment. The Charlotte, North Carolina-based bank does business with one of every two U.S. households.

The bank's loan book fell 8.5 percent in the first quarter from the fourth quarter, to $932.43 billion, due mainly to a decline in consumer loans.

Moynihan has put new people in charge of many areas of the bank, but more changes are underway in the executive suite. On Friday the bank said Bruce Thompson, its chief risk officer, will become chief financial officer by the end of the second quarter, replacing Noski.

Noski took over as CFO in May 2010 and lives in Los Angeles. He had planned to move to Charlotte this summer, but the family illness prevented the move, the bank said.

It also said it had settled a mortgage-related lawsuit with Assured Guaranty, a bond insurer, at an estimated cost of $1.6 billion.

On a conference call with investors, Moynihan said the bank does not know what the process will be to resubmit its dividend hike request. The bank slashed its quarterly dividend to 1 cent per share at the height of the financial crisis, from a peak of 64 cents per share.

Bank of America posted first-quarter net income of $2.0 billion, or 17 cents per share, down from $3.2 billion, or 28 cents per share, in the same quarter a year ago.

Analysts on average had forecast earnings of 27 cents a share, according to Thomson Reuters I/B/E/S.

(Reporting by Joe Rauch, additional reporting by Dan Wilchins in New York and Dominic Lau in London; editing by John Wallace)

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