Bank of America on Wednesday reported a sharp rise in third-quarter earnings, but the bank’s mortgage operations faltered, underscoring that home loans remain a challenging business for the nation’s banks.
Bank of America said its quarterly profit rose to $2.5 billion, or 20 cents a share, from $340 million, effectively zero cents a share, in the period a year earlier, which was weighed down by litigation expenses and other charges.
Excluding a type of financial charge that investors often ignore, the bank reported $22.2 billion in revenue in the third quarter, a slight drop compared with $22.5 billion in the same period a year ago. Other large banks have also reported a decline in their top lines, an indication that, five years after the financial crisis, they are still struggling to expand their businesses.
Analysts expected the company to make 19 cents a share in the latest quarter. Bruce R. Thompson, chief financial officer for Bank of America, said on Wednesday that it was fair to compare that estimate with the 20 cents a share that the bank reported for the third quarter.
“We made very good progress in an environment that did have its challenges,” he said in a briefing with journalists.
One question looming over the bank is whether investors will continue to tolerate some of its waning businesses. Bank of America shares have risen by 50 percent over the last 12 months, as investors have come to believe that the worst is behind the bank. The bank’s shares rose 32 cents, or almost 2.3 percent, to $14.56 on Wednesday.
Bank of America’s wealth management operations, which contain Merrill Lynch, were a source of strength, posting $719 million of net income, a 26 percent jump from a year earlier. “This was the best third quarter that wealth management has had — ever,” Mr. Thompson said. For every financial adviser, the wealth management unit generated $1 million in revenue in the third quarter, an 11 percent increase from the year earlier.
But Bank of America’s large mortgage operations foundered. The division reported a loss of $1 billion in the third quarter, worse than the $857 million loss a year earlier.
Mortgages made before the financial crisis are a large and consistent source of losses for the bank. Still, the business of making new mortgages was also lackluster in the third quarter. Revenue from making new mortgages totaled $465 million, half what it was a year earlier.
As interest rates have risen in recent months, mortgage refinancing has become less common. On Wednesday, Bank of America said that its mortgage pipeline, or the loans it is preparing to close on, declined by 59 percent in the third quarter, from the same period a year earlier.
Analysts said that the mortgage operations might not be a strong performer until the housing recovery gained more strength and more people took out loans to purchase houses, instead of refinancing existing mortgages.
“Bank of America needs an improvement in the underlying housing market,” Shannon Stemm, a bank analyst at Edward Jones, said.
As is the case at other lenders, Bank of America’s profits have benefited as the cost of building up its reserve for bad loans has fallen. The bank set aside only $296 million for that reserve in the third quarter, compared with an average of $1.7 billion in the previous four quarters. But analysts said the bank might find it harder to get such a big lift to earnings from this source. “It is not sustainable,” Ms. Stemm said.
Investors hope that Bank of America can start to earn consistent profit in most of its businesses, which include credit cards, Wall Street trading and lending to corporations. But the flaccid economy, and the fact that consumers are not particularly enthusiastic about taking on extra debt, has made it harder for banks to achieve gains in revenue.
In this environment, banks aim to increase profits by cutting expenses. Bank of America’s expenses fell 6 percent in the third quarter, compared with a year earlier. In particular, the bank reduced the costs that stem from managing mortgages that were made before housing market soured. Mortgage litigation costs also fell from a year ago. But other types of expenses rose slightly.
Bank of America’s investment bank suffered as bond trading revenue plunged 20 percent from a year earlier, excluding the type of financial charge that investors often overlook. Stock trading was up 36 percent, however.
One notable bright spot at Bank of America was the unit that does traditional branch bank lending to consumers and smaller companies. Stronger revenue, combined with lower expenses, drove a 32 percent increase in net income at the consumer and business banking segment.
“That’s the core of Bank of America, and it did do nicely,” Ms. Stemm said.