At the 2013 economic conference in Davos, Switzerland, Bank of America (NYSE:BAC) CEO Brian Moynihan analogized the bank's predicament to a mountain climbing competition in which the bank was weighed down by a 250-pound backpack.
He was referring to the tsunami of costs that washed over the bank in the wake of the financial crisis. At one point, Bank of America estimated that the crisis had cost it nearly $200 billion in legal costs and loan charge-offs.
But those costs are now in the rearview mirror. Over the past two quarters, Bank of America's efficiency ratio has come in below 60%, better than even the notoriously efficient Wells Fargo (NYSE:WFC).
In fact, you'd be hard pressed to find any non-regulatory remnants from the crisis anywhere in Bank of America's financial documents. The only place you are likely to come across them is in its "All Other" unit, a non-operating unit that houses, among other things, $77 billion worth of residential mortgages and home equity loans dating back to the pre-crisis period.
Paradoxically, it's a trend in this business segment that's so auspicious for Bank of America.
Over the past year, the bank's average total loans and leases have increased by only $17 billion, growing from $901 billion in the third quarter of last year up to $918 billion in the third quarter of this year.
One reason the total figure grew so little, at 1.9%, is because the Charlotte, North Carolina-based bank had to absorb a $28 billion decline in loans in the bank's All Other segment that either matured or were written off. Excluding that, the growth rate in Bank of America average total loans would have more than doubled.
The good news is that, relatively soon, the loans in Bank of America's All Other unit will dwindle so far that the portfolio's run-off will no longer have a material impact on the growth rate of the bank's total loans.
As you can see in the chart above, the nation's second biggest bank by assets has $77 billion in loans in its All Other unit today. But at the current pace of the portfolio's run-off, it could be gone within three years.
In sum, assuming that the economy doesn't descend into a recession, Bank of America appears positioned to grow its loan portfolio at an increasing pace for the foreseeable future.