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Bank of America Corporation

(BAC-NYSE)
SUMMARY
SUMMARY DATA
Risk Level *
Below Avg.,
Type of Stock Large-Value
Industry Banks-Major Reg
Zacks Industry Rank * 89 out of 267
Current Recommendation
NEUTRAL

Prior Recommendation
Underperform
Date of Last Change
02/14/2012

Current Price (12/03/12)
$9.80
Target Price
$10.50
Bank of America reported break-even earnings in the
third quarter, compared with a loss, according to the
Zacks Consensus Estimate. Results were aided by
substantially lower provision for credit losses and almost
stable operating expenses. Further, improved credit
quality across most major portfolios as well as strong
mortgage banking and investment banking
performances were the other highlights. On the flip side
was the lower top line. Moreover, the company
continues to make significant progress in strengthening
its balance sheet as reflected by improved capital ratios.
Nevertheless, we expect various revenue headwinds,
continuous litigations and various issues related to the
regulatory changes, which will continue to impact the
near-term results. Overall, the company is making every
effort to keep itself afloat. Measures like realigning the
balance sheet in accordance with regulatory changes,
expense reduction initiatives and continuously improving
asset quality vouch for better prospects going forward.

52-Week High $9.94
52-Week Low $4.99
One-Year Return (%) 69.67
Beta 2.34
Average Daily Volume (sh) 135,938,800

Shares Outstanding (mil) 10,777
Market Capitalization ($mil) $105,615
Short Interest Ratio (days) 1.46
Institutional Ownership (%) 54
Insider Ownership (%) 1

Annual Cash Dividend $0.04
Dividend Yield (%) 0.41

5-Yr. Historical Growth Rates

Sales (%) 10.1
Earnings Per Share (%) -20.9
Dividend (%) -60.0

P/E using TTM EPS 15.6
P/E using 2012 Estimate 23.9
P/E using 2013 Estimate 9.9

Zacks Rank *: Short Term
1

3 months outlook 3 - Hold
* Definition / Disclosure on last page

ZACKS CONSENSUS ESTIMATES

Revenue Estimates
(In millions of $)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2010
32,290 A 29,450 A 26,982 A 22,668 A 111,390 A
2011
27,095 A 13,483 A 28,702 A 25,146 A 94,426 A
2012
22,485 A 22,202 A 20,657 A 22,265 E 87,609 E
2013
91,511 E
Earnings Per Share Estimates
(EPS is operating earnings before non-recurring items, but including employee
stock options expenses)
Q1 Q2 Q3 Q4 Year
(Mar) (Jun) (Sep) (Dec) (Dec)
2010

$0.28 A $0.27 A $0.27 A $0.04 A $0.86 A
2011

$0.17 A -$0.90 A -$0.02 A -$0.01 A -$0.76 A
2012

$0.34 A $0.19 A $0.00 A -$0.12 E $0.41 E
2013

$0.99 E
Projected EPS Growth - Next 5 Years % 6

December 04, 2012
Equity Research BAC | Page 2

OVERVIEW
Headquartered in Charlotte, North Carolina, Bank of America Corporation is a financial holding company.
Its banking and non-banking subsidiaries across the United States and in other international markets
provide a diverse range of banking and non-banking financial services and products.
Effective January 2012, Bank of America changed the basis of presenting its business operations from
six segments to five: Consumer and Business Banking (CBB), Consumer Real Estate Services (CRES),
Global Banking, Global Markets, and Global Wealth and Investment Management (GWIM). The
remaining operations are recorded in All Other.

The Consumer and Business Banking (CBB) segment comprising Deposits, Card Services and
Business Banking businesses, provides a wide range of credit, banking and investment products
and services to consumers and businesses.

The Consumer Real Estate Services (CRES) segment originates first- and second-lien
mortgage loans. The first-lien mortgage loans are generally sold into the secondary mortgage
market or to Corporate Investments in the All Other segment while retaining servicing and the
customer relationship. Second-lien mortgages are retained on the segment s balance sheet. The
segment services mortgage loans include those it owns, loans owned by other segments, and
loans owned by outside investors.

Global Banking segment, which includes Global Corporate and Commercial Banking, as well as
Investment Banking, offers a diversified range of lending-related products and services, integrated
working capital management and treasury solutions to clients through the network of offices and
client relationship teams along with various product partners. Lending products and services
include commercial loans and commitment facilities, real estate lending, asset-based lending and
indirect consumer loans.

Global Markets segment offers sales and trading services, including research, to institutional
clients across fixed-income, credit, currency, commodity and equity businesses. The segment
provides market-making, financing, securities clearing, settlement and custody services globally
to the institutional investor clients in support of their investing and trading activities. It also works
with commercial and corporate clients to provide risk management products using interest rate,
equity, credit, currency and commodity derivatives, foreign exchange, fixed-income and
mortgage-related products.

The Global Wealth & Investment Management (GWIM) segment offers investment and
brokerage services, estate management, financial planning services, fiduciary management,
credit and banking expertise, as well as diversified asset management products to institutional
clients as well as to affluent and high net-worth individuals. GWIM also includes the results of
Bank of America Global Capital Management, which is the cash and liquidity asset management
business that Bank of America retained, following the sale of Columbia Management s long-term
asset management business and the economic ownership interest related to the company s
investment in BlackRock Inc.

The All Other segment consists of two broad groups, Equity Investments and Other. Equity
Investments includes Global Principal Investments, strategic and other investments. Other
includes liquidating businesses, merger and restructuring charges, ALM functions and related
activities, and the impact of certain allocation methodologies. Other also includes certain
residential mortgage and discontinued real estate products that are managed by Legacy Assets
and Servicing within Consumer Real Estate Services.
Equity Research BAC | Page 3

Full Year 2011 Revenues
(Business Segments)
All Other
15%
Global
Commercial
Banking
11%
Consumer
Real Estate
Services
1%
Card Services
18%
Deposits
13%
GWIM
18%
Global
Banking &
Markets
24%

Note: We will be updating the pie-chart once the company files its 10-K with updated segment details.
Among the major mergers, Bank of America acquired Merrill Lynch & Co Inc. in 2009, Countrywide
Financial Corporation in 2008, and all the outstanding shares of ABN AMRO North America Holding
Company in 2007.
Bank of America operates in 50 states, the District of Columbia and in more than 40 countries. It has
approximately 5,540 retail banking centers, about 16,253 automated teller machines (ATMs), nationwide
call centers as well as online and mobile banking platforms.
REASONS TO BUY

Management remains focused on managing capital levels efficiently. The company has been
relentlessly trying to realign its balance sheet in accordance with the regulatory changes post the
meltdown to remain afloat. In fact, over the last two years, Bank of America has completed the
divestiture/closure of more than 20 non-core assets to strengthen its capital position in order to meet
the new international capital standards (Basel III), focus on corporate borrowers and U.S. retail
clients as well as strengthen its investment banking. In 2011, the company generated $34 billion in
proceeds from the sale of non-core assets and businesses, generating 79 basis points (bps) of Tier
1 common equity and lowering risk weighted assets (RWAs) by $29 billion.

Bank of America cleared the stress test in March 2012. This shows that the company s efforts to
streamline its balance sheet are bearing fruit. Currently, Bank of America pays $0.01 per share as
quarterly dividend and does not have any share repurchase program. Now, we anticipate that the
company would aspire for dividend hike and share repurchase next year, when the company will
submit its capital plan for the next round of stress test.

Though Bank of America went through a challenging period due to the overall market turmoil and its
huge exposure to the risky segment of the market, it managed to return to profitability in 2010.
Improving capital market activity, lower credit costs, reduction in long-term debt and the sale of non-
core assets primarily helped the company recover. Despite the overall sluggish economic
Equity Research BAC | Page 4

environment, the company s total deposits grew nearly 2% from the prior year to $1.03 trillion in
2011. Therefore, it is poised to grow significantly in an improving economy.

In April 2011, Bank of America launched a company-wide efficiency initiative

Project New BAC

with a goal to improve earnings by lowering expenses, increasing revenue, strengthening risk control
and making changes to allow better execution and customer service, while returning more value to
shareholders. Implementation of Phase 1 of the program began in October 2011 with a goal of
reducing expenses by approximately $5 billion per year by 2014. The company expects to achieve
more than 20% of the targeted $5 billion in savings from Project New BAC this year. Moreover,
with the completion of Phase 2 evaluations, the company expects a total of $8 billion in annualized
cost savings by mid-2015 from the total initiative. Overall, the company is making every effort to
keep itself afloat.

Bank of America has taken advantage of it being a large enterprise to add new products to its retail
channel. Also, with strong underlying fundamentals, the company continued to post solid results in
investment banking. Moreover, the company continues to align its banking center network according
to the customers needs. In order to do this, the company is planning to close approximately 750
branches over the next couple of years. Management will consider branch sales in markets where
growth potential does not meet its criteria, while it will continue to expand in markets with revenue
growth opportunities.

As a significant capital market player, Bank of America could benefit from the material growth of the
global capital markets. Its strong consumer and commercial banking franchise, significant credit card
operations and growing asset management business are also set to benefit from the cyclical
recovery in the U.S. economy. Management s preference for organic growth over acquisitions will be
beneficial with respect to cost and execution risk, over the long term.

We are impressed with the faster-than-expected improvement in credit quality of the company. With
improving economic conditions, credit metrics are expected to improve in the upcoming quarters,
albeit at a slower pace. Also, underwriting changes made by the company across all its products will
continue to help improvement in delinquencies.
REASONS TO SELL

We remain concerned about Bank of America s elevated cost structure. Though operating expenses
started declining in the recent quarters due to the implementation of the expense reduction
initiatives, we believe that the company is in the process of addressing legacy issues and continues
to invest in its franchise. Consequently, expenses will remain high in the near term. In June 2012,
Moody s Investor Services downgraded the company s ratings by a notch on the back of an overall
weak economic environment. The ratings downgrade is expected to increase the already high
funding cost of the company.

The purchase of Countrywide Financial brought new troubles for Bank of America. The company
bought the mortgage lender for $2.5 billion in 2008, and has recorded more than $30 billion in losses
from bad loans, mortgage-backed securities claims and lawsuits. The company is still facing
numerous litigations related to Countrywide and this will likely have a material impact on its financial
stability going forward.

We are also concerned about its deposit re-pricing pressure, lower loan levels and pressure from
derivative positions, which are dragging down its net interest income (NII). Though liability
management initiatives will lead to interest expense savings of nearly $50 million in the fourth
quarter of 2012 and $300 million in 2013, the company anticipates NII growth to remain somewhat
Equity Research BAC | Page 5

muted, given the low interest rate environment, sluggish economic recovery and further reductions in
long-term debt.

Stressed run-off portfolio and lower hedge income as a result of the new financial reform law will
continue to be a drag on the net interest yield. Further, we expect low interest rate environment to
keep interest yield under pressure over the next several quarters. In 2011, net interest yield declined
30 bps from the year-ago period to 2.48%.

Bank of America has significant direct and indirect exposure to Europe. As of September 30, 2012,
total exposure to Greece, Italy, Ireland, Portugal, and Spain (GIIPS), excluding net credit default
protection, was $11.5 billion. Though the company continues to prudently manage its exposures in
Europe, there will be a significant impact on the company s financials if the crisis extends further.

The financial reform law is expected to have a lingering effect on Bank of America s profitability by
resulting in higher costs, fee reductions and restrictions. Additionally, in November 2012, the
Financial Stability Board indicated that the company would be required to hold an additional 1.5% of
Tier 1 common equity as a Globally Systemically Important Financial Institution (G-SIFI) under the
Basel Committee s methodology. In the mid term, stricter capital requirement is expected to reduce
the company s flexibility with respect to its business investments to some extent.
RECENT NEWS
BofA Reports Break-Even, Rev Down

October 17, 2012
Bank of America reported break-even earnings per share for the third quarter, substantially better than
the Zacks Consensus Estimate of a loss of $0.07.
Results for the reported quarter were aided by a substantial slowdown in provision for credit losses and
almost stable non-interest expense. The quarter witnessed improvement in credit quality across most
major portfolios. Also, strong mortgage banking and good investment banking performances were among
the high points of the quarter. On the flip side were lower net interest income and non-interest income.
As previously announced by the company, results for the quarter were negatively impacted by certain
special items

debit valuation adjustments (DVA) and fair value option (FVO) of $1.9 billion, litigation
expense of $1.6 billion and a charge related to a reduction in the U.K. corporate tax rate $0.8 billion.
These three items had a $0.28 per share negative impact on earnings. Otherwise, Bank of America
would have earned $0.28 per share during the quarter.
The company made significant progress in strengthening its balance sheet during the quarter, reflected
by improved capital ratios. Strong time-to-required funding and reduced long-term debt were also among
the positives.
Quarter in Detail
Fully taxable-equivalent revenue (net of interest expense) was $20.7 billion, down 28% from $28.7 billion
in the prior-year quarter. Revenue also missed the Zacks Consensus Estimate of $21.6 billion.
Net interest income on a fully taxable-equivalent basis was $10.2 billion, down 5% from $10.7 billion in
the year-ago quarter. Reductions in consumer loan balances were largely responsible for the downfall,
which was partially offset by a reduction in long-term debt balance and lower rates paid on deposits. Net
interest yield remained flat compared with the year-ago quarter at 2.32%.
Equity Research BAC | Page 6

Non-interest income came in at $10.5 billion, down 42% from $18.0 billion in the prior-year quarter,
primarily due to negative DVA and FVO adjustments and lower equity investment income.
Non-interest expense was $17.5 billion, almost flat compared with $17.6 billion in the year-ago quarter.
An increase in other general operating expense related to Merrill Lynch class action settlement was offset
by a decrease in personnel expense.
Book value per share as of September 30, 2012 was $20.40, compared with $20.16 as of June 30, 2012,
and $20.80 as of September 30, 2011. Tangible book value per share as of September 30, 2012 was
$13.48, compared with $13.22 at the end of the prior quarter as well as the prior-year quarter.
Credit Quality
With the gradual recovery of the economy, credit quality continued to improve during the quarter with net
charge-offs declining across almost all major portfolios from the prior-year quarter. Provision for credit
losses decreased 48% year over year to $1.8 billion.
As of September 30, 2012, nonperforming loans, leases and foreclosed properties ratio was 2.77%,
down 38 basis points (bps) from the prior-year period. Net charge-off ratio decreased 31 bps year over
year to 1.86%.
Capital Ratios
At the end of the reported quarter, the company s Tier 1 common capital ratio (Basel 1) was 11.41%
compared with 11.24% at the end of the prior quarter and 8.65% at the end of the prior-year quarter.
Tangible common equity ratio was 6.95% compared with 6.83% at the end of the prior quarter and 6.25%
at the end of the prior-year quarter. As of September 30, 2012, the Tier 1 common capital ratio under
Basel 3 was estimated at 8.97%, up from 7.95% as of June 30, 2012.
BofA Resolves Yet Another Lawsuit

September 28, 2012
Bank of America announced the settlement of a class-action lawsuit that was filed by its shareholders
related to the acquisition of Merrill Lynch & Co. The company agreed to pay a total of $2.43 billion and
organize various corporate governance changes.
Bank of America bought Merrill for about $29 billion in January 2009 during the height of the financial
crisis. However, the shareholders alleged that the company and the senior executives deceptively
misrepresented the facts by providing materially misleading statements about the benefits from the deal.
This led the majority of shareholders to approve the acquisition in December 2008.
Without either accepting or denying any charges, Bank of America stated that it had decided to settle the
lawsuit to remove the ambiguity and expenses related to the litigation. Further, the proposed settlement
is still subject to review by the U.S. District Court for the Southern District of New York.
Under the terms of the settlement, Bank of America is required to ratify or modify its corporate
governance practices by January 1, 2015 that will include clear policies related to any bonus or extra
compensation that could impact the acquisition price. Apart from this, other conditions include detailed
disclosures related to non-compliance of ownership guidelines, matters related to voting in director
elections and conducting say-on-pay vote on an annual basis.
Equity Research BAC | Page 7

Dividend Update

On October 24, the Board of Directors of Bank of America declared a quarterly dividend of $0.01 per
share on its common stock. The dividend will be paid on December 28 to shareholders of record as of
December 7.
VALUATION
Bank of America currently trades at 23.9x the Zacks Consensus Estimate for 2012, which is significantly
above the 11.6x for the industry average. The valuation on a price-to-book basis looks attractive, as the
shares trade at 0.5x, which is a 50% discount to the industry average of 1.0x. The company has a trailing
12-month ROE of 3.9%, compared with the industry average of 9.5%.
Our six-month target price of $10.50 per share equates to about 25.6x the Zacks Consensus Estimate for
2012. Combined with an annual dividend of $0.04 per share, the price target implies an expected total
return of 7.4% over that period, which is consistent with our long-term Neutral recommendation on the
shares.
Also, Bank of America currently retains a Zacks #3 Rank, indicating no clear directional pressure on the
shares over the near term.
Key Indicators

P/E
F1
P/E
F2
Est. 5-Yr

EPS Gr%
P/CF
(TTM)
P/E
(TTM)
P/E
5-Yr
High
(TTM)
P/E
5-Yr
Low
(TTM)
Bank of America Corporation (BAC) 23.9 9.9 6.0 20.4 15.6 112.8 6.0

Industry Average 11.6 10.2 9.2 10.0 11.3 47.6 7.9
S&P 500 14.0 13.0 10.7 12.1 14.4 27.7 12.0

JPMorgan Chase & Company (JPM) 8.2 7.8 6.8 6.5 8.7 111.4 6.4
Wells Fargo & Company (WFC) 9.9 9.1 10.1 9.6 10.4 35.5 8.9

TTM is trailing 12 months; F1 is 2012 and F2 is 2013, CF is operating cash flow

P/B
Last
Qtr.
P/B
5-Yr High
P/B
5-Yr Low
ROE
(TTM)
D/E
Last Qtr.
Div Yield
Last Qtr.
EV/EBITDA
(TTM)
Bank of America
Corporation (BAC) 0.5 1.4 0.1 3.9 1.3 0.4 -7.0

Industry Average
1.0 1.0 1.0 9.5 0.8 2.2 -0.7
S&P 500
3.8 9.8 2.9 23.1

2.2

Equity Research BAC | Page 8

Earnings Surprise and Estimate Revision History

Equity Research BAC | Page 9


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DISCLOSURES & DEFINITIONS
The analysts contributing to this report do not hold any shares of BAC. The EPS and revenue forecasts are the Zacks Consensus
estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal
views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly,
related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this
report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to
accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet
the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an
offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a
position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the
securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to
twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve
months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The
current distribution of Zacks Ratings is as follows on the 1014 companies covered: Outperform - 14.2%, Neutral - 78.4%, Underperform

6.9%.
Data is as of midnight on the business day immediately prior to this publication.
Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in
earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model
assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks
Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a
company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of
investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In
determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5
th
group has the highest
values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the
second, third, and fourth groups of stocks, respectively.
Coverage Team 11A
QCA Kalyan Nandy
Lead Analyst Kalyan Nandy
Analyst Swayta D. Shah
Copy Editor Sreela Bose
Content Ed. Kalyan Nandy