Where Will Bank of America Be in 5 Years?

Hardly any other company incites such strong negative emotions from Main Street, while simultaneously delighting Wall Street, as Bank of America . The bank's delivered a 194% return since 2012, which compares to a 53% gain for the S&P 500, for those keeping score at home.

What does the future hold for Bank of America? To find out, we asked three of the Motley Fool's top banking contributors. Here's what they see when they look into the crystal ball.

Amanda Alix: Bank of America has been steadily building its credit and debit card business over the past year or two, and, if current growth is any indication, this segment should be even stronger at this time next year.

The bank's credit card division has shown incredible expansion this year alone, thanks to the cross-selling of cards to current customers. Of the 1.1 million new card accounts opened in the second quarter of 2014, two-thirds belonged to existing clients. That's a big jump from the 800,000 new cards issued in the second quarter of 2012.

The bank's card customers are spending more as well, which is bumping up account balances. Customer balances this year rose by $1.3 billion from the first to second quarter, and delinquencies were less than 3%. This is likely due to Bank of America's tight credit standards: new account holders generally have credit scores in the mid-700s.

B of A has been a front-runner on card security, first issuing the more secure chip-and-PIN credit cards for new accounts in 2012. Now the bank announced that it will be the first to offer the new technology on its debit cards, beginning this month. With security and privacy a high-profile concern for card customers, adopting this technology earlier than its peers should give an extra boost to the bank's card business over the next year

: One year from today, Bank of America's mortgage unit might be modestly profitable. It's hard to believe, but consumer real estate services -- the mortgage banking arm -- would be profitable if not for litigation. And once it stops producing billion-dollar losses, all eyes can turn to the impressive results of the core business.

Returns on equity top 20% in two of Bank of America's four profitable segments. All four generate double-digit returns.

And that doesn't even begin to speak to the bank's true profitability. Bank of America executives routinely point out that the losses during the financial crisis mean the bank isn't paying cash taxes.

Thus, in the words of its CFO, Bank of America "accretes capital on a pre-tax as opposed to an after-tax basis." As such, after a year of profits without litigation, Bank of America's capital position will be better than its income implies, which sets the stage for bigger capital returns via dividends and share repurchases. 

When litigation costs dwindle and Bank of America starts stockpiling cash, it will have ample firepower to ask the Federal Reserve for big capital returns. That should attract investor interest back to a stock that has been hated for the better half of a decade. A bigger multiple should follow -- $20 per share might not be out of reach by next year.

: In five years, Bank of America will likely be one of the -- if not the -- most profitable banks in the U.S. Already, the company has largely righted the ship from the depths of the financial crisis, with only the laggard mortgage and consumer real estate division still reporting disappointing losses. I anticipate much larger dividends, a robust share buyback program, and a plethora of market analysts cheering the bank's return to greatness.

However, profits are not the whole story when it comes to Bank of America. In fact, the real work for CEO Brian Moynihan and company is really just getting started. The long-term success or failure of Bank of America will hinge on management's ability to change the culture within the institution.

That means putting credit quality and risk management first in every decision. It means conservative growth. It means sacrificing a little profitability now to prevent massive losses later. It's this intangible culture that separates the great banks from the rest, and it was the lack of this culture that made Bank of America one of the most troubled banks in the U.S. today.

Warren Buffett gives credit to Charlie Munger for teaching him that value investing is about more than buying low. It's about buying the best companies with the best operations, the best competitive advantages, and the best long-term prospects.

In five years, short-term thinkers will laud Bank of America for its profits and for the remarkable turnaround since 2009. Unfortunately, the investing world won't really know if Bank of America has truly remade itself until we endure another recession. It's only when the tide goes out that we can see who is wearing a bathing suit and who is swimming naked.

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The article Where Will Bank of America Be in 5 Years? originally appeared on Fool.com.

Amanda Alix has no position in any stocks mentioned. Jay Jenkins has no position in any stocks mentioned. Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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