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Bank of America (BAC - Free BofA Stock Report)shares advanced modestly in mid-morning trading after the company, one of the largest banks in the United States and a component of the Dow 30, reported June-quarter results that beat expectations, despite mixed performances by its business segments.

The company earned $0.32 a share in the period, well above the $0.19 that it logged in the year-earlier quarter, the $0.10 recorded in the March term, and our estimate of $0.22. The improved performance was supported by increased investment banking and brokerage income, reductions in litigation and personnel expenses, and a lower loan loss provision.

Consumer & business banking profits rose year to year due to lower expenses and credit costs, but fell slightly short of the March-period level. Margin pressure hurt mortgage production revenues, contributing to a slightly larger year-to-year loss in the home loans business, but litigation expenses moderated. The global banking division benefited from strong commercial loan growth and higher debt and equity underwriting fees. Better market conditions supported higher asset management fees. The sequential-period decline in global markets income reflected a runoff in the structured credit book and unfavorable market conditions.

Prospects for the balance of 2013 and the new year are also mixed. Management expects net interest revenue to build over time. Consumer loan demand still appears soft, but commercial demand remains firm. BofA's balance sheet is positioned to benefit from rising interest rates, with just the recent increase expected to add $700 million to net interest income over the coming 12 months. Further reductions in long-term debt should also lower interest expenses and support some improvement in the net interest margin.

Meanwhile, higher interest rates could put a damper on mortgage revenues. In addition, investment banking revenues may not stay quite as strong as in the June interim. But expenses should continue to moderate as BofA realizes more of the benefit of its New BAC expense-reduction program and as costs of servicing delinquent mortgage loans continue falling. Earnings should also get some help from declining credit costs, lower preferred dividends (BofA redeemed $5.5 billion of preferred in the June term), and share repurchases (at mid-2013, BofA had $4 billion of a repurchase authorization left under its current plan). We are raising our share-net estimates for 2013 and 2014 by $0.15 and $0.05, respectively, to $1.00 and $1.25.

In other news, the company disclosed that it estimates that the holding company and both the bank and credit card subsidiaries are close to complying with new proposed rules governing regulatory capital. Even so, we don't expect the dividend on the common stock to be increased until the capital guidelines are finalized and the company moves a bit farther along the recovery track. Too, the stock's continued strength discounts some of its comeback potential to mid-decade.

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 & Washington D.C.

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