Despite Its $500 Million Loss, Investors Should Be Optimistic About Bank of America

The bottom line results of Bank of America left something to be desired, but its earning presentation revealed a number of critical realities that provide reassurance for its investors.

Patrick Morris
Patrick Morris
Apr 26, 2014 at 12:45PM

Bank of America (NYSE:BAC) scares away many investors as its legal troubles continue. But recent insight reveals the reality brighter days are indeed ahead.

In the first quarter, Bank of America saw more than $6 billion of legal costs surrounding the financial crisis and its mortgage fiasco strip away its profits. And while this is certainly troubling, remarkable growth in the vital metrics surrounding its consumer banking operations should be reason for optimism for investors.

Strong growth in customers
To begin, over the last two years, despite cutting its branch count by more than 10%, Bank of America has actually seen its average consumer and business banking deposits rise by 15% to $535 billion.

This is an encouraging sign, as both 2012 and 2013 were marked by substantial legal headaches. Even despite the legal drama that has surrounded it and the scorn that has been poured on the company, the reality is individuals and businesses everywhere are voting with their wallets that they trust Bank of America.

Source: Bank of America Investor Relations.

Beyond the dollars to the relationships
Moving beyond the deposits figures, Bank of America also revealed that its active mobile customers have gone up by more than 50% since 2012 to 15 million. What is more eye-opening is just two years ago, Bank of America didn't even have the capability to allow customers to make deposits on their phones. But in the first quarter 10% of its deposits were made using mobile devices.

The benefit of this is twofold, as it not only means its customers now have a more convenient way to interact with Bank of America -- CEO Brian Moynihan said "people effectively carry a branch in their pocket" -- but it also allows for the bank to have more cost effective interactions with its customers. In a recent presentation Bank of America noted the cost of a deposit in a banking center was nearly 14 times more expensive than one made on a phone. The expanding adoption of its mobile technology benefits both Bank of America's customers and its shareholders.

In addition, Bank of America issued more than 1 million new credit cards in the first quarter of 2014, an increase of almost 15% over the first quarter of 2013, and more than 30% in 2012. It continually sees close to 40% of these credit card issuances to individuals who didn't have existing relationships with the bank. Said differently, in credit cards alone Bank of America began 400,000 new relationships in the first quarter.

Like the mobile banking progress, this is encouraging because it means that not only is Bank of America doing a remarkable job at deepening relationships with its customers, but it's also drawing in new ones as well. While it doesn't disclose exactly what the benefits of a credit card relationship are, the bank has noted its retention of customers increase from 83% to 95% when two relationships are established, and "profitability increases as relationships deepen." This too benefits both customers and shareholders.

The Foolish bottom line
The legal woes which have plagued Bank of America over the years are undoubtedly real and have directed billions away from shareholders. However, the evidence cited above is even further proof that while the past has been difficult for Bank of America, the future is looking brighter and brighter.