April 18, 2011

Bank of America Corporation (BAC-NYSE) Analyst Note

SUMMARY
Current Recommendation UNDERPERFORM
Prior Recommendation Neutral Bank of America s first-quarter 2011 earnings
Date of Last Change 04/12/2011 came in substantially lower than the Zacks
Consensus Estimate. Lower top line and higher
$12.82 non-interest expense were primarily responsible for
Current Price (04/15/11)
lower-than-expected results. Reduced mortgage
Target Price $12.00
banking income and higher litigation expenses
were also among the negatives. However, lower
credit costs, gains from equity investments, and
higher asset management and investment banking
fees were among the positives. Even U.S. credit
card continued to show improvements. Federal
Reserve s objection to the company s proposed
capital deployment in the second half of 2011
remains a major headwind at this point. After
reviewing the results, we are maintaining our
Underperform recommendation on the shares.
SUMMARY DATA

52-Week High $19.48 Risk Level * Below Avg.,

52-Week Low $10.95 Type of Stock Large-Value
One-Year Return (%) -30.05 Industry Banks-Major Reg
Beta 2.20 Zacks Industry Rank * 103 out of 291
Average Daily Volume (sh) 117,922,672
ZACKS CONSENSUS ESTIMATES
Shares Outstanding (mil) 10,085
Market Capitalization ($mil) $129,290 Revenue Estimates
Short Interest Ratio (days) 0.56 (In millions of $)
Institutional Ownership (%) 66 Q1 Q2 Q3 Q4 Year
Insider Ownership (%) 1 (Mar) (Jun) (Sep) (Dec) (Dec)
2009 36,080 A 33,086 A 26,365 A 25,413 A 120,944 A
Annual Cash Dividend $0.04 2010 32,290 A 29,450 A 26,982 A 22,668 A 111,390 A
Dividend Yield (%) 0.31 2011 27,095 A 26,691 E 26,312 E 26,185 E 106,283 E

5-Yr. Historical Growth Rates

2012 113,970 E
Sales (%) 18.8
Earnings Per Share Estimates
Earnings Per Share (%) -46.9 (EPS is operating earnings before non-recurring items, but including employee
Dividend (%) -70.0 stock options expenses)
Q1 Q2 Q3 Q4 Year
P/E using TTM EPS 12.4 (Mar) (Jun) (Sep) (Dec) (Dec)
2009 $0.44 A $0.33 A -$0.26 A -$0.60 A -$0.09 A
P/E using 2011 Estimate 11.1
2010 $0.28 A $0.27 A $0.27 A $0.04 A $0.86 A
P/E using 2012 Estimate 7.3 2011 $0.17 A $0.25 E $0.35 E $0.38 E $1.15 E
2012 $1.75 E
Zacks Rank *: Short Term
1 3 months outlook 3 - Hold
Projected EPS Growth - Next 5 Years % 8
* Definition / Disclosure on last page

© 2011 Zacks Investment Research, All Rights reserved. www.Zacks.com 111 North Canal Street, Chicago IL 60606
RECENT NEWS

BofA Disappoints Again April 15, 2011

Bank of America s first quarter 2011 earnings came in at $0.17 per share, way below the Zacks
Consensus Estimate of $0.27. This also compares unfavorably with earnings of $0.28 in the prior-year
quarter.

Lower credit costs, gains from equity investments, and higher asset management and investment
banking fees were among the positives. Even U.S. credit card continued to show improvements.
However, these positives were primarily marred by a lower top line and higher non-interest expense.
Reduced mortgage banking income and higher litigation expenses were also among the negatives.

Quarter in Detail

Fully taxable-equivalent revenues net of interest expense were $27.1 billion, down 16% from $32.3 billion
in the prior-year quarter. It also missed the Zacks Consensus Estimate of $27.2 billion.

Net interest income on a fully taxable-equivalent basis was $12.4 billion, down 12% from $14.1 billion in
the year-ago quarter. Net interest yield decreased 26 basis points (bps) year over year to 2.67%.

Non-interest income came in at $14.7 billion, down 19% from $18.2 billion in the prior-year quarter. The
decline was due to lower trading account profits, a drop in mortgage banking income and a decrease in
service charge income.

Non-interest expense was $20.3 billion, up 14% from $17.8 billion in the prior-year quarter. This includes
$874 million of mortgage-related assessments and waivers. The growth in non-interest expense reflects
increases in personnel as well as litigation costs.

The efficiency ratio on a fully taxable-equivalent basis was 74.86% compared with 55.05% in the prior-
year quarter.

Book value per share as of March 31, 2011 was $21.15, compared to $20.99 as of December 31, 2010
and $21.12 as of March 31, 2010.

Credit Quality

Overall credit costs continued to decline due to improving economic conditions. Also, credit quality
showed an improvement during the quarter. Provision for credit losses decreased 26% sequentially and
61% year over year to $3.8 billion. The provision was lower than net charge-offs, resulting in a $2.2 billion
reduction in the allowance for loan and lease losses.

Nonperforming loans, leases and foreclosed properties decreased 8 bps sequentially and 29 bps year
over year to 3.40% of total loans, leases and foreclosed properties. Net charge-off ratio improved 26 bps
sequentially and 183 bps year over year to 2.61%.

Capital Ratios

At the end of the reported quarter, the company s Tier 1 capital ratio improved to 11.32% from 11.24% at
the end of prior quarter and 10.23% at the end of prior-year quarter. Tier 1 common ratio also improved
to 8.64% from 8.60% at the end of the prior quarter and 7.60% at the end of prior-year quarter.

Equity Research BAC | Page 2

 Dividend Update

Bank of America's plan to boost its dividend in the second half of 2011 was rejected by the Federal
Reserve. This came as a rude shock to the company, particularly after many big banks got the much-
awaited green signal from the Fed to hike dividends, following the release of second round stress test
results in March.

Bank of America needs to show the Fed even more financial strength, in case it needs to battle another
downturn. However, the Fed has given the company a second chance, allowing it to submit a revised
capital plan.

VALUATION

Bank of America shares currently trade at 11.1x our earnings estimate for 2011, an 18% discount to the
13.6x for the industry average. On a price-to-book basis, the shares trade at 0.6x, which is a 45%
discount to the 1.1x for the industry average. The valuation on a price-to-book basis looks reasonable,
given a trailing 12-month ROE that is 38% below the industry average.

Our six-month target price of $12.00 per share equates to about 10.4x our earnings estimate for 2011.
Combined with the $0.04 per share annual dividend, this target price implies an expected negative total
return of 6.2% over that period, which is consistent with our Underperform recommendation.

The quantitative Zacks Rank for Bank of America is currently 3 , indicating no clear directional pressure
on the shares over the near term.

Key Indicators

P/E P/E
5-Yr 5-Yr
P/E P/E Est. 5-Yr P/CF P/E High Low
F1 F2 EPS Gr% (TTM) (TTM) (TTM) (TTM)
Bank of America Corporation (BAC) 11.1 7.3 8.0 5.0 12.4 N/A 5.7

Industry Average 13.6 10.7 8.5 11.1 18.3 50.5 8.2

S&P 500 14.2 13.1 10.7 12.5 17.9 27.7 13.8

BankUnited Inc. (BKU) 17.6 19.7 10.0

JPMorgan Chase & Company (JPM) 9.3 7.9 6.8 7.9 10.0 N/A 9.5
Wells Fargo & Company (WFC) 10.5 8.4 8.3 10.9 13.3 35.5 10.7

TTM is trailing 12 months; F1 is 2011 and F2 is 2012, CF is operating cash flow

P/B
Last P/B P/B ROE D/E Div Yield EV/EBITDA
Qtr. 5-Yr High 5-Yr Low (TTM) Last Qtr. Last Qtr. (TTM)
Bank of America
Corporation (BAC) 0.6 1.8 0.1 4.8 2.1 0.3 1.2

Industry Average 1.1 1.1 1.1 7.8 1.3 1.1 6.3

S&P 500 3.7 5.2 2.9 23.0 1.9

NOTE THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET.

Equity Research BAC | Page 3

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.

Among the major mergers, Bank of America acquired Merrill Lynch & Co Inc. on January 1, 2009,
Countrywide Financial Corporation on July 1, 2008, and all the outstanding shares of ABN AMRO North
America Holding Company on October 1, 2007.

Effective January 1, 2009, as a result of the Merrill Lynch acquisition, Bank of America expanded its
basis of presentation from three business segments to six. The remaining operations are recorded in a
segment called All Other .

The Deposits segment includes the results of consumer deposit activities that consist of a
comprehensive range of products provided to consumers and small businesses. Additionally, this
segment includes student lending and the net effect of the company s Asset and Liability Management
(ALM) activities. The products of this segment include traditional savings accounts, money market
savings accounts, Certificate of Deposits (CDs), and both non-interest and interest-bearing checking
accounts.

The Global Card Services segment offers a broad range of products including U.S. consumer and
business cards, consumer lending, international cards and debit cards to consumers as well as small
businesses.

The Home Loans & Insurance segment provides an extensive line of consumer real estate products
and services to customers nationwide. Products include fixed and adjustable rate first-lien mortgage
loans for home purchase and refinancing needs, reverse mortgages, home equity lines of credit and
home equity loans.

The Global Commercial Banking segment provides a wide range of lending-related products and
services, integrated working capital management, treasury solutions and investment banking services to
global clients. This segment is also responsible for credit risk management utilizing various risk mitigation
tools.

The Global Banking & Markets segment provides financial products, advisory services, financing,
securities clearing and settlement and custody services globally to institutional investors in support of
their investing and trading activities. This segment also works with commercial and corporate issuer
clients to provide debt and equity underwriting and distribution capabilities, and 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, and diversified asset management products to institutional clients as well as to affluent and
high net-worth individuals. This segment also reflects the impact of migrating customers and their
related deposit and loan balances between GWIM and Deposits on one hand and GWIM and Home
Loans & Insurance on the other.

The All Other segment consists of equity investment activities including Global Principal Investments,
Corporate Investments and Strategic Investments, the residential mortgage portfolio associated with ALM
activities, the residual impact of the cost allocation process, merger and restructuring charges, and the

Equity Research BAC | Page 4

 results of certain businesses that are expected to be or have been sold, or are in the process of being
liquidated. Effective January 1, 2009, this segment includes the results of First Republic Bank.

Full Year 2010 Revenues

(Business Segments)
All Other Deposits
GWIM
5% 12%
15%

Global Card
Services
23%
Global Banking
& Markets Global
25% Commercial Home Loans &
Banking Insurance
10% 10%

Bank of America operates in all 50 states, the District of Columbia and more than 40 countries. It has
about 5,900 banking centers, approximately 18,000 automated teller machines (ATMs), nationwide call
centers, and online and mobile banking platforms.

REASONS TO SELL

Bank of America's plan to boost its dividend in the second half of 2011 was rejected by the Federal
Reserve. This came as a rude shock to the company, particularly after many big banks got the
much-awaited green signal from the Fed to hike dividends, following the release of second round
stress test results in March. Banks of America has been asked by the Fed to show even more
financial strength, in case it needs to combat another financial crisis. Though the Fed has given the
company another chance to submit a revised capital plan for its consideration, the rejection of the
dividend plan will surely affect investor s confidence in the stock. Until BofA achieves a stable
financial state, regulators will continue with their cautious approach.

Though Bank of America has addressed its mortgage repurchase exposures through settlement with
the GSEs, its limited claim experience related to non-GSEs may force it to incur additional losses
going forward.

We are also concerned about Bank of America s elevated cost structure. Non-interest expense rose
significantly during the last two quarters of 2010. As the company is in the process of addressing
legacy issues and continues to invest in its franchise, expenses are expected to remain high through
2011.

We are also concerned about deposit re-pricing pressure, lower loan levels and pressure from
derivative positions, which are dragging down net interest income growth. Though we expect modest
growth in net interest income in the upcoming quarters due to an improved rate environment and the
addition of Countrywide and Merrill Lynch, we are concerned about shift in loan mix and the sale of
securities.

Equity Research BAC | Page 5

 Leveraged finance, subprime mortgage and collateralized debt obligation (CDO) exposure may
adversely impact results in the coming quarters. Market chaos including the rigorous volatility and
illiquidity has significantly affected the debt and equity markets. As a result, Bank of America s CDOs
and related subprime exposure as well as its other Capital Markets and Advisory Services exposure
were affected adversely.

Stressed run-off portfolio and lower hedge income as a result of new financial reform law will
continue to be a drag on net interest yield at least through the first half of 2011. During fourth quarter
of 2010, net interest yield decreased 3 basis points (bps) sequentially to 2.66%.

RISKS

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 during the first
quarter of 2010 and maintained better-than-expected results during the next couple of quarters.
Strong capital market activity, lower credit costs and the sale of non-core assets primarily helped
Bank of America recuperate. Although fourth quarter results were disappointing owing to mortgage
repurchase expense, primarily related to the settlement with the Government Sponsored Entities
(GSEs) and goodwill impairment charge connected to the Home Loans & Insurance business, we
expect Bank of America to get back on track very soon, as mortgage repurchase exposures have
narrowed, signifying controllable losses. Besides, the company is focused on acquiring the industry's
best deposit franchise along with a collection of strong businesses. Therefore, it is poised to grow
significantly in an improving economy.

Bank of America has taken advantage of its large scale to add new products to its retail channel.
Also, with strong underlying fundamentals, the company continued to post strong results in
investment banking. In 2010, Bank of America ranked #2 in global investment banking revenues,
with a 6.8% market share. In the U.S., investment banking ranked #1 with respect to revenues. Also,
the company ranked #1 both globally and domestically in leveraged loans and asset-backed
securities at the end of 2010. We expect this trend to continue, offering significant opportunity to
leverage its retail franchise and strong debt underwriting capabilities.

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, execution risk and cultural fit over the long term.

The Merrill Lynch deal is expected to make financial sense in the long run. With the acquisition of
Merrill Lynch, Bank of America has gained a global investment-banking platform, profitable retail
brokerage addition and significant equity-underwriting capacity, all of which it lacked earlier. The
Countrywide acquisition is also meeting its goals. The company is expected to realize decent cost
synergies from both these transactions in the near future.

Continuous decline in credit costs is another major positive for Bank of America at this point. Also,
we are impressed with improvement in credit quality at a faster than expected rate. With improving
economic conditions, credit metrics are expected to improve in the upcoming quarter. Also,
underwriting changes made by the firm across all its products will continue to help improve
delinquencies.

Equity Research BAC | Page 6

 Management remains focused on managing asset levels efficiently. In 2010, the company shed
some of its non-core assets to accumulate funds and fortify its balance sheet. Also, Bank of America
does not expect to issue stock to comply with the upcoming tougher banking regulations (Basel III).

Earnings Surprise and Estimate Revision History

Equity Research BAC | Page 7

StockResearchWiki.com The Online Stock Research Community
Discover what other investors are saying about Bank of America Corporation (BAC) at StockResearchWiki.com:

http://www.stockresearchwiki.com/tiki-index.php?page=BAC/Ticker

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 1024 companies covered: Outperform - 14.1%, Neutral - 78.1%, Underperform 6.4%.
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
th
stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 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 Kalyan Nandy
Copy Editor N/A
Content Ed. Self

Equity Research BAC | Page 8