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Bank of America's Earnings: Nothing to See Here, Folks

"Boring" isn't how most would like to be described -- unless you're Bank of America (NYSE: BAC  ) , that is.

The nation's second largest bank by assets reported earnings this morning for the three months ending Sept. 30. And while there were a fair number of both highs and lows scattered throughout the figures, it was altogether a boring quarter -- which is just fine by Bank of America.

Digging into Bank of America's earnings
Quarterly earnings came in at $2.5 billion, or $0.20 per diluted share of common stock. While that was less than the $4 billion that Bank of America earned last quarter, it blew away its prior-year results. In the third quarter of 2012, net income was a meager $340 million, thanks largely to a $1.6 billion legal charge stemming from its Merrill Lynch acquisition and a $1.9 billion noncash accounting write-off.

"This quarter, we saw good loan growth, improved credit quality and record deposit balances. Our customers and clients continue to do more business with us," said CEO Brian Moynihan. "The economy and business climate will improve even more quickly as conditions normalize, and we are well positioned to benefit from that."

There were a number of highlights
In the first case, BofA's credit quality improved. You can see this in the net charge-off ratio, which measures the value of bad loans that were expensed during the quarter relative to average total loans. This figure fell to 75 basis points, or 0.75%. And while this is admittedly still too high, as 50 basis points is the traditional benchmark, it's nevertheless headed in the right direction, down from more than 90 basis points last quarter.

Additionally, Bank of America continued to improve its capital base, growing its Basel III Tier 1 common capital ratio to 9.94%, which is second among the big banks to only Citigroup (NYSE: C  ) . And last but not least, expenses at the Charlotte-based bank fell by more than $1.1 billion on a year-over-year basis. With an efficiency ratio hovering around 75%, this is a critical area for investors to watch.

There were also lowlights
These aside, it's important to appreciate that Bank of America, like its peers, is up against significant financial headwinds. All of the banks that have reported thus far struggled with top-line revenue growth, and Bank of America was no exception.

Mortgage revenue plummeted at both JPMorgan Chase (NYSE: JPM  ) and Wells Fargo (NYSE: WFC  ) . On a sequential basis, JPMorgan's dropped by $1 billion while Wells Fargo's was off by $1.2 billion. And Bank of America followed suit, announcing that its top line fell by 50% compared to the second quarter.

In addition, though this didn't hurt Wells Fargo to the same extent as JPMorgan Chase, trading profits were decimated by a drop in the market volume of fixed-income securities. JPMorgan's were down by $1.1 billion while Bank of America saw trading revenue fall by $672 million relative to the previous quarter.

The one saving grace for all of the banks was a drop in loan loss provisions -- which, by the way, is the reason Wells Fargo could legitimately claim to have increased earnings for the 15th consecutive quarter. Suffice it to say, Bank of America was no exception to this, as provisions fell to only $296 million in the third quarter -- a far cry from the $1.8 billion it set aside last year.

What's the takeaway for investors?
The takeaway here is that Bank of America is headed in the right direction. Sure, revenue took a hit, but this is bound to improve once things settle down in the interest rate and fixed-income markets. The key is that the bank continues to slash expenses -- aggressively. Indeed, if there is only one thing shareholders should watch, it would be that.

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