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BofA's Q2 Earnings Soar 68% As Mortgages Revive, Costs Fall

Bank of America (BAC) beat second-quarter earnings and revenue forecasts and cut what has been persistently high expenses, sending shares to a two-year high Wednesday.

The banking giant earned 32 cents a share, up 68% vs. a year earlier and 7 cents above analyst estimates. Revenue rose 3% to $22.9 billion, slightly beating.

Bank of America shares rose nearly 3% to 14.31, the best since March 2011.

That was in stark contrast to Q1 results, which missed on the top and bottom lines and caused shares to fall sharply.

"At the beginning of the year we said we would focus on three things: revenue stability, strengthening the balance sheet and managing costs," said CFO Bruce Thompson. "This quarter, we delivered on all three.

Net interest margin ticked up to 2.44% from 2.43% in Q1 and 2.21% in Q2 2012.

Noninterest expenses fell $1 billion from a year ago to $16 billion as the bank's litigation, legacy assets and servicing and personnel expenses declined.

Expenses related to servicing delinquent mortgage loans from its ill-fated acquisition of subprime lender Countrywide fell faster than expected.

Litigation costs fell to $471 million from $2.2 billion in Q1 and $963 million a year earlier.

BofA cut loan loss provisions by $1.2 billion as net charge-offs hit lows not seen since 2006.

"This has been a consistent theme across the (banking) space thus far in 2Q13 earnings season," wrote analyst Paul Miller of FBR Capital in a note.

JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C) and Goldman Sachs (GS) also have topped estimates over the past week. Morgan Stanley (MS) reports Thursday.

Though BofA had curbed making mortgage loans in the wake of huge Countrywide losses, it's stepping up activity. It funded $26.7 billion in home loans, up 41% from last year and 7% from Q1 even as interest rates rose The number of 60-day or more delinquent loans it served fell 26% from the end of Q1 and 54% from last year's same period.

Management stressed that it continued to build capital ratios despite higher rates' negative impact on its bond portfolio.

Analysts have grilled banks about their ability to meet new regulatory rules for capital. BofA is considered better positioned than its peers.

BofA said it continued to improve its Basel III capital standings, with a 9.6% Tier 1 ratio and noted that it is close to meeting supplementary hurdles proposed by U.S. regulators that would take effect in 2018.

Commercial loans and leases increased by $10 billion in Q2.

Global wealth and investment management income leapt 38% vs. last year to $758 million. Revenue rose 10% to $4.5 billion.