By Saabira Chaudhuri 

Bank of America Corp. eked out a small profit for the third quarter as the company reported stronger than expected trading revenue and showed progress in controlling expenses even as results were weighed down by large legal charges.

On a per-share basis, which includes the payment of preferred dividends, the bank reported a loss of a penny, easily topping the nine cents a share loss share expected by analysts polled by Thomson Reuters.

Bank of America reported a profit of $168 million, compared with a profit of $2.5 billion a year earlier. The results include a litigation charge of $5.6 billion, about five times the year-earlier charge of $1.1 billion. Revenue fell 1.5% to $21.21 billion, missing analysts' expectation of $21.36 billion.

Shares reversed early gains in premarket trading to fall 1.8% in early trading Wednesday amid a broader stock-market decline.

The bank's bottom-line performance was driven mainly by a better tax rate, said Citigroup Inc. analyst Keith Horowitz, although he added that "core results were also better than expected."

The revenue decline came as Bank of America showed weakness in lending this quarter. Total loans and leases ticked down 4.6% from a year earlier to $891.32 billion. The bank's net interest margin--a key measure of lending profitability--narrowed to 2.29% from 2.33% in the year-ago quarter, although it widened slightly from the 2.22% logged in the second quarter.

Litigation expenses have been a key story line at the Charlotte, N.C., lender for a string of quarters. Bank of America for months set aside money for a deal with the Justice Department, which eventually culminated in August when the bank agreed to pay $16.65 billion to settle the government's accusations it sold flawed mortgage securities in the run up to the 2008 crisis.

The largest settlement ever reached between the U.S. and a single company, the pact is expected to be the last of the lender's big crisis-era problems, bank executives have said. But on a call with journalists, Chief Financial Officer Bruce Thompson hinted at more mortgage litigation to come, noting that the bank took a $500 million litigation accrual in the third quarter for legacy mortgage related matters.

Bank of America's trading gains surprised on Wednesday, coming in higher than peers have reported so far for the third quarter. Trading revenue, excluding adjustments to the value of the bank's debt, rose 9.2% from a year earlier to $3.27 billion. Fixed income, currencies and commodities trading revenue on this basis was up 11% to $2.25 billion, driven by what the bank said were strong results in currencies due to increased volatility in the period as well as gains in mortgages and commodities.

Equities revenue was up 5.9% to $1.03 billion, driven by a pickup in client financing. On a call with journalists Chief Financial Officer Bruce Thompson notes that the gains come off "a very low base" as banks' trading divisions suffered last year.

The results come after rivals Citigroup Inc. and J.P. Morgan Chase & Co. reported adjusted FICC revenue that climbed 6.7% and 1.2% respectively from the year earlier.

In the third quarter, Bank of America continued to feel the impact of a fizzling in the refinancing boom. The bank's consumer real estate division--which includes mortgage banking--reported a loss of $5.18 billion, weighed down by the large litigation charges in the quarter. The unit lost $990 million a year ago, and $2.8 billion in the second quarter.

Meanwhile, mortgage originations in the division declined from a year earlier, helping revenue drop by $484 million to $1.1 billion.

Bank of America's noninterest expense was up at $19.74 billion compared with $16.39 billion a year earlier and $18.54 billion in the prior quarter. But the bank noted that expenses dropped 7% from a year earlier after stripping out the legal charges, driven by broad-based declines across the company.

Banks have been cutting staff in an attempt to keep costs under control in a still uncertain revenue environment. Bank of America ended the third quarter with 229,538 full-time employees, down 7% from the year-ago quarter and 2% below the prior quarter.

In the quarter, Bank of America lost the previous tailwind it saw from lower provisions for bad loans. The bank's credit-loss provisions were up at $636 million, compared with $296 million a year earlier and $411 million in the second quarter.

The bank reported firmwide investment banking fees increased 4% from the year-earlier to $1.4 billion. That helped its global banking arm log a profit of $1.41 billion, up 24% from a year earlier and 4.6% from the second quarter.

Bank of America's core consumer and business banking arm--which consist of its bread-and-butter branch banking and makes loans to small businesses--reported a profit of $1.86 billion, compared with a year-earlier profit of $1.79 billion.

Brian Moynihan, chief executive and recent chairman of the second-largest U.S. bank by assets, has been working to shrink the bank and make it simpler, a departure from the empire-building days of his predecessors. Wading through a mountain of litigation that the bank accumulated from the financial crisis, much of it related to Countrywide, also has been a main focus. Now that Bank of America has struck its settlement with the Justice Department and won regulatory approval to raise its dividend, investor focus is expected to shift more toward longer-term profitability.

-- Christina Rexrode contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

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