Dow-30 component Bank of America (BAC - Free Bank of America Report), one of the largest banks in the United States, just broke even in the September quarter, after $0.28 a share of unusual costs, including large valuation charges and the recent settlement of a lawsuit related to the company's purchase of Merrill Lynch in 2009.

After the settlement was announced in early October, we had lowered our September-quarter estimate from earnings of $0.18 a share to a loss of a dime a share, so the breakeven performance exceeded our expectation. In the comparable quarter of 2011, BofA earned $0.56 a share, but this included $0.27 of positive unusual items. Despite the better-than-anticipated performance, the stock hardly budged in mid-morning trading.

Revenue declined both on a year-to-year and consecutive-period basis, although steps taken to bring down the company's funding costs helped to stabilize net interest income in the period. Further actions to reduce debt and lower deposit costs should support some improvement in net interest income over the next several quarters. Meanwhile, although mortgage and investment banking revenues strengthened, most other types of fee-based revenues declined and the sizable valuation charges depressed noninterest revenue.

Noninterest expenses roughly matched the year-earlier tally, with reductions in personnel costs and savings from the company's New BAC expense-reduction initiative offset by higher mortgage-related costs and expansion costs. We look for further reductions in employee expenses and in the costs of servicing defaulted mortgages in the year ahead, but mortgage repurchase and litigation costs may remain somewhat volatile.

Credit quality trends appear to be improving, but a change in accounting for loans in bankruptcy and the mortgage settlement boosted credit costs in the September interim. Adjusted for these items, loan losses and delinquencies would have declined, and we look for the trend to continue.

In all, the revenue weakness and uncertainty regarding mortgage repurchase costs and litigation expenses have caused us to remain cautious regarding our earnings expectations for the balance of 2012 and for 2013. We now look for December-quarter and full-year 2012 share net of $0.13 and $0.35, respectively. For now, we are maintaining our 2013 earnings estimate of $0.80 a share.

Reflecting the challenging revenue climate and the prospect of continued relatively high mortgage and litigation costs, the stock still appears a bit too risky for most investors. And, although the company made progress in the September quarter complying with new stricter capital standards, we don't expect the dividend to be increased before 2014.

About The Company:Bank of America was formed by the merger of NationsBank with BankAmerica in September of 1998. As a financial holding company, it provides banking and financial services to individuals, corporations, and governments worldwide. Acquisitions over the years include FleetBoston Financial, MBNA, LaSalle Bank, Countrywide, and most recently, Merrill Lynch. In total, the bank has about 6,000 offices in 29 states & Wash. D.C.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.