Investing in Bank of America

Bank of America (BAC) is a famous, if not notorious, bank and financial holding company. It serves consumers, businesses of all sizes, and governments with banking, investing, asset management, and risk management products and services. As a money center bank, it competes with banks like JP Morgan Chase (JPM) and Citigroup (C). Like the share s of these famous banks, since 2008 it’s had one of the stocks that investors love to hate.

In 2008, Bank of America purchased mortgage issuer Countrywide Financial, for about 4 billion dollars. The purchase began a public relations nightmare and exposed the bank to extended litigation risk in the ensuing years. However, B of A appears to have successfully settled the lawsuits, with an impending $8.5 billion payment. The bank still has residual litigation risk, but on a much smaller scale, according to this Seeking Alpha article.

Meanwhile, the bank has been improving the credit quality of its loans, lowering costs, and slowly making progress in improving its financial position.

It extended more than $100 billion in loans during the first quarter of 2012, marking the fifth consecutive quarter of average commercial loan growth, according to the Q1 conference call of April 19, 2012. If the American economy continues to recover, Bank of America’s commercial lending is likely to pace its recovery.

In anticipation the bank hired 100 more small business bankers in the first quarter, bringing their total to over 700. Small business loans are up over 17% versus last year’s first quarter, again according to the conference call.

Importantly, they’ve added a half million mobile banking customers, bringing the total to 9.7 mobile banking enabled customers. There are important cost savings here as well as opportunities for expanded services. Mobile banking and ATM transactions are less costly for the bank than face-to-face transactions.

The slowly improving climate has also enhanced the bank’s credit card business. CFO Bruce Thompson reported that credit card losses improved for the tenth quarter in a row, and 30 day plus delinquencies declined for the twelfth consecutive quarter. Competitor Capital One Financial (COF) specializes in credit cards, but Bank of America offers more prestigious cards as a rule, cards that may seem more desirable to relatively credit-worthy customers.

Bank of America is still losing money on real estate though. They reported a loss of 1.1 billion dollars in the consumer real estate services area for the quarter. However, the bank is chewing through its legacy mortgage exposure, and purging itself of delinquent loans and real estate owned holdings.

The bank reported that the number of 60 day plus delinquent loans dropped 6%. Mr. Thompson said, “Once again, we’re very focused on driving the number of 60 plus day delinquent loans down because as we drive those down, it will give us the ability to start reducing cost within the segment.”

On the other hand, global wealth and investment management made money in the quarter, because transaction and interest costs fell while activity and markets rose. Investment banking also did well, with the majority of this activity safely in the U.S. and Canada.

With credit quality, real estate, wealth management, and investment banking showing improved results, Band of America really does appear to be seeing the beginning of an upturn. The bank seems to be growing again. Yet the stock is still well-hated. That could be a recipe for a great bank run—the good kind, a run up in the stock.