The mortgage crisis was so awful for Bank of America Corporation (NYSE:BAC) that it wasn’t really until 2015 that BAC stock started looking like something a value investor might consider.

Indeed, since 2015, things have really improved at BAC to the point that it is probably a long-term buy — although the market is overvalued, so waiting for a lower stock price may be prudent.

BAC’s Healthy Operating Leverage

One of the metrics that can be a little daunting for the average investor to understand is called operating leverage. This is essentially a measure of how fixed and variable costs affect gross margins, so we can see how to find a company’s break-even point in terms of revenue. The more efficiently that leverage is used, the quicker a company can move to profit — but a poor use of leverage can substantially harm a business.

With fixed costs, if a business earns a certain profit on each transaction or sale, and maintains a certain volume, then we know the company will be doing fine. This is basically what I think of as the core profit-generating scheme of the business.

However, some costs are variable. The bank may earn less profit on each transaction but also needs less sales volume to cover the fixed costs. Only if volume increases will the business’ profits increase.

Higher fixed costs means higher operating leverage.

BAC stock has been benefitting from 12 straight quarters of positive year-over-year operating leverage. If we measure by the difference in revenue growth and expense growth, we find operating leverage.

1Q2015: +22%
2Q2015: +21%
3Q2015: +29%
4Q2015: +3%
1Q2016: +8%
2Q2016: +3%
3Q2016: +5%
4Q2016: +6%
1Q2017: +8%
2Q2017: +6%
3Q2017: +3%
4Q2017: +8%

This is an excellent sign that BAC is not merely struggling to get healthy, but is healthy.

Other Positive Signs for BAC Stock

We also want to see certain metrics on the balance sheet increase, and all of them are doing so. Total assets grew from $2.188 trillion in the fourth quarter of 2016 to $2.281 trillion in Q4 of 2017. Total loans and leases grew from $906.7 billion to $936.7 billion. Total deposits grew from $1.26 trillion to $1.31 trillion.

And, yes, that’s “trillion”.

We must keep a careful eye on charge-offs, because delinquencies and defaults can cripple an entire lending operation, as we learned with the mortgage crisis. Remember, a charge-off or default means that a bank may lose the entire principal amount of a loan. Let’s say that loan earns 5% interest per year. It would take 20 similar loans collecting interest for a year to make up for the 100% of principal lost of one loan.

So we don’t want to see net charge-off ratios rise very much over time. If they do, there better be a good reason. It’s fine if the charge-off rate increases at a rate consistent with an increase in loans over the same period.

BAC is doing fine in this category. The last five quarters have seen a charge off rate of 0.29%, 0.42%, 0.40%, 0.39%, and then 0.53%. That last blip was the result of a single non-US commercial charge off of $300 million.

With this batch of important metrics, I feel comfortable with where Bank of America stock is at, and do see good times ahead. The market is pricey, but if you want to hold BAC stock for the very long term, you can dive in here.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.