Bank of America (BAC) outshined its peers in old-fashioned banking last quarter, but it couldn't escape its own shadow.

The Charlotte, N.C., company on Wednesday reported robust third-quarter results though mortgage revenue took a hit. Unlike major rivals JPMorgan Chase (JPM) and Wells Fargo (WFC), B of A generated revenue growth in the third quarter thanks to jumps in commercial loans, wealth management and deposits.

Normally praise would rain down after such results. Instead analysts wanted to know when the next shoe would drop. They were taking a cue from JPMorgan Chase, which last week set aside more than $9 billion to cover a wide array of legal woes.

Bruce Thompson, B of A's chief financial officer, went on the defensive as he tried to explain the large number of past settlements the bank has made and what litigation still remains.

"If you go back to 2010 and look at the magnitude of both litigation and [mortgage buybacks], it's been over $40 billion," Thompson said on a conference call. "We've had more of that than anyone, and I think it’s reflective of the fact that we’ve reached more settlements than others."

B of A ended the quarter with $14.1 billion in reserves to buy back soured loans It does not disclose litigation reserves. But analysts remained concerned because litigation expenses doubled to $1.1 billion since the second quarter, when executives had claimed litigation expenses were leveling off.

"It seems like they're doing a nice job with cleaning things up, but you never know if legacy issues will get ugly again because so much is dependent on regulators and the courts," said Erik Oja, an analyst at S&P Capital IQ.

Analysts also grilled executives about the massive drop in mortgage revenue and whether the outlook will be dire going forward because refinancing activity has ground to a halt. B of A relies heavily on refinancings, which made up 78% of mortgage originations in the quarter.

B of A’s pipeline of loans waiting to be funded dropped a whopping 60% at the end of the third quarter, compared with a year earlier. Mortgage originations fell 11% from the second quarter, to $22.6 billion.

"Clearly mortgage originations and production were down industrywide,” Thompson said. Given that mortgage volumes have fallen, "we will need less people than we have today."

Thompson would not specify how many mortgage jobs or loan offices would be cut this quarter. B of A slashed 9,300 jobs in the third quarter, or 3.6% of its work force. It closed about 100 branches in the third quarter and expects cost reductions of $400 million to $500 million per quarter next year, largely by closing more branches.

Despite pulling back from mortgage lending after the crisis, B of A may be more exposed to the mortgage slowdown than its peers, Oja says.

B of A’s mortgage banking revenue fell 71% from a year earlier, which was worse than the 65% drop at JPMorgan and the 43% fall at Wells Fargo.

B of A Chief Executive Brian Moynihan was cautious in his assessment. "We experienced relative stability this quarter," he said. "But of course we got the impact of the industrywide headwinds on a slower refi business and mortgage and slowdown in the capital markets."

But there was plenty of good news buried in B of A’s results.

B of A continues to whittle away at its legacy assets mostly by selling off soured loans inherited from Countrywide Financial in 2008. The number of delinquent mortgages that were 60 days or more past due in the third quarter fell 20% from the second quarter and 57% from a year ago to just 400,000 loans. The bank is aggressively cutting costs to service legacy loans and expects to cut expenses to below $1 billion by the end of 2014.

B of A's performance stood out in the same quarter when Citigroup (NYSE:C), JPMorgan Chase and Wells each saw consumer banking revenue shrink 7% or more, in part because they were not able to cut expenses enough. Its revenue rose 5.4% to $21.5 billion. Expenses fell 6.6% to $16.4 billion compared with a year ago. B of A reported net income of $2.5 billion, or 20 cents a share, compared with just $340 million a year earlier, when per-share results were break-even.

Commercial lending and wealth management supplied its growth. They more than offset a big hit to fixed-income sales and trading revenue, which fell 20% in the third quarter to $2 billion.

"We feel very good about our progress this quarter," Thompson said. "If you start with wealth management we had the best third quarter ever, and we feel very good about that. We also saw nice growth in commercial real estate and C&I lending with large global clients."

B of A’s commercial lending jumped 19% year over year, to $395 billion. It included a 9% jump in U.S. commercial loans to $224 billion, and a 20% increase in commercial real estate lending to $45 billion. Income from global wealth and investment management rose 26% to $719 million. Meanwhile, deposits rose 5% to $240 billion.

"It’s impressive to grow revenue in this environment," Oja says. "This is one of those quarters where expenses have to be cut and can’t be cut fast enough."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.