3 Things You May Have Missed From the Bank of America Earnings Report

Bank of America (NYSE: BAC  ) reported earnings on Wednesday that beat expectations and sent the stock upwards -- and while it continues to deliver strong results following years of legal issues related to its acquisition of Countrywide, here are three things you may have missed from its third-quarter earnings.

1. Unlike peers, margins are on the rise
Interestingly in the third quarter of last year, JPMorgan Chase (NYSE: JPM  ) and Bank of America each had identical net interest yields (the difference between what they make from loans versus what they pay on deposits and other liabilities), with each bank coming in at 2.32%.

Yet as shown in the chart below, things have taken a radically different turn since then:


Source: Company earnings reports.

As you can see, although JPMorgan eclipsed Bank of America in total interest income in the third quarter, its interest margins have shrunk over the last year while Bank of America's net interest margin has risen steadily. While Wells Fargo (NYSE: WFC  ) has a much better net interest margin at 3.38%, its margins have also declined-- in the third quarter of last year, that number stood at 3.66%.

This is thanks in large part to Bank of America dramatically reducing its most costly liability: long-term debt, which fell from $292 billion in the third quarter of last year to $259 billion in the third quarter of this year. In addition, the rate it has to pay on that debt has fallen from 3.07% to 2.65%, which has resulted in its total interest payout declining by more than $600 million.

2. Marketing expenses are up
In his only quote in the earnings announcement, Bank of America CFO Bruce Thompson said simply, "We continued to make good progress on our expense initiatives," and were it not for litigation expenses of $1.1 billion in the third quarter (up from approximately $500 million in the second quarter), its expense reduction would've looked even better than what is shown in the chart below:


Source: Company earnings report.

In fact, while Bank of America's expenses have been going down, its marketing budget has gotten a big lift from the second quarter to the third, increasing by almost 20% to $511 million, which was also up $30 million from the third quarter last year.

Normally, many investors shake their heads at more marketing, but this appears to clearly be paying dividends, as Bank of America added more than 1 million credit card accounts (versus just 850,000 in the third quarter of last year) in its consumer business, and recorded record asset management fees as client balances in its wealth and investment management business hit record levels at $2.3 billion.

Contrast this with Citigroup (NYSE: C  ) , which had its marketing budget slashed by $130 million over the last year (22%) so in the most recent quarter it stood at just north of $450 million. While it isn't comparing exactly apples to apples, Citigroup's total consumer accounts have declined by 500,000 over the past year. In this instance, it appears that Bank of America's decision to market more is really paying off.

3. Share repurchases continued
In March, Bank of America announced that it had been authorized to repurchase up to $5 billion in outstanding common stock -- and in the second quarter it bought back $1.0 billion worth. In the third quarter, that trend continued as it repurchased another $900 million more, and has in total repurchased 140 million shares for $1.9 billion.

That means it still has more than $3 billion in share repurchases left to do through the next two quarters, which will likely be beneficial to current shareholders thanks to its attractive price-to-tangible book value and growing return on equity.

If you include the press release, earnings presentation, and supplemental information, Bank of America released 110 pages of information today related to its third-quarter earnings -- and these were three important things for investors to note when considering an investment in this banking giant.

Beyond earnings
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