This document provides a CAMEL analysis update for Bank of America as of the first quarter of 2012. It summarizes that BAC has dramatically increased its capital levels, liquidity, and balance sheet strength in response to new regulations. Despite regulatory challenges, BAC has continued improving its asset quality by reducing non-performing loans and charge-offs. The author argues that BAC's earnings power is underrated and held back by excess capital and liquidity required by regulations, and that BAC is significantly undervalued relative to its cash flows and balance sheet strength. The author concludes that BAC merits an overall CAMEL rating of 1 based on its capital adequacy, asset quality, management, earnings, and liquidity

1. BlackwallPartnersResearch Note: Bank of America – CAMEL Analysis Update April 25, 2012
US Banks over the past three years have endured numerous attempts to be systematically undermined. This has
been primarily in the form of over regulation at the hands of an overreaching Congress and Administration
during 2009-2010. US banks have had to deal with a slew of new, egregiously impeding regulations and their
potential economic damage. These have included the Credit Card Act, Dodd-Frank including the anti-trust
debacle “Durbin Amendment,” the illogical Volcker Rule, the endless unrealistic and largely ceremonial "stress
tests", Basel III's unfair capital surcharges as well as countless frivolous lawsuits from left-leaning politicians
and unscrupulous “money grubbers” in the legal profession. The constitutionality of major parts of Dodd-Frank
as well as some of the other regulatory overreaches is questionable to say the least.
As a result, a Funny Thing Happened on the Way to the Forum. U.S. banks have dramatically raised their
capital levels, exponentially increased their liquidity; lessened risk and raised their balance sheets to ironclad
status. In more recent days, the financial sector has continued to endure a litany of distractions including
irrational French socialists espousing 100% tax rates for the 1%, and the continuation of the same Rain in
Spain. Despite the potpourri of European distractions, the financial sector delivered a record quarter and
shattered the Street’s expectations… Nevertheless, the pundits consistently find a reason to shun the
sector…Let’s take a close look at the country’s largest depository and #1 small business lender… this is not
some tiny obscure company… it may, in fact, be the world’s most hated stock.
The following is a review of Bank of America (BAC) as of the First Quarter 2012…
Capital Adequacy
• Tier One Common Equity (T1C) soared (the most conservative form of capital) to 10.8% under Basel I
(the old minimum was 5% for Tier 1 RBC or a less conservative capital calculation than TIC)
• Under the much more strenuous European Basel III (designed to give an advantage to non-U.S. banks),
BAC still posted its guide for YE2012 to 7.5% or 50% above the Basel III minimum due in 2019
(50% more and seven years early we might add)
• Our model has Tier I RBC at 15% by 2013 if Bernanke doesn’t let BAC start to pay out more dividends
or buy-in stock
• By 2013, T1C will be 13% or 260% ABOVE Basel III
• T1C is $125 billion or 145% of the stock’s market value. Crazy!
• $406 billion is in cash-on-hand on BAC’s balance sheet or 320% of T1C and 460% of market
value. Lunatic Fringe!
Asset Quality
• Dollar net Charge-offs (NCO’s) fell 7% just from the 4Q or 24% annualized from 3.6% in 2010 to
1.3% of loans, thus statistically DOWN 36%
• Further reserve releases are certain… The IRS will want their taxes (and given the current federal
budget, they need it)
• Loan Loss Reserve (LLR) at 3.3% or roughly 300% of annualized NCO’s… This is very strong
• Loan Loss Reserve (LLR) to Non-Performing Loans (NPLs) is at 175% (difficult to lose 175% of
declining non-performing loans)
• Despite mortgage put-backs from Countrywide and a ceremonial settlement with the states, NPLs
continued to fall 65bp from December… thus fell 27% or 109% annualized

2. 2
Management
• Nobody likes the current team… but we do. Current management did not create the problems of the
past, but they are doing a great job of righting this large ship.
• The turn-around at BAC is dramatically underrated… the above numbers speak for themselves. The
BAC train has left the station and few have noticed.
Earnings
• ROA and ROE are still way too low. However, this is NOT due to poor management. This is due to
excess cash (liquidity) and capital in order for BAC to satisfy the misguided “stress tests” mandated by
Dodd-Frank, an ill gotten piece of liberal legislation meant to punish banks, not regulate capitalism more
effectively. The effect. Low returns on capital and no economic recovery!
• With normalized equity and cash deployment, BAC would be earning a 15% ROE and a 1.5% ROA;
Dodd-Frank and Basel III are holding back BAC and thus holding-back economic growth in the U.S.
PERIOD!
• Free cash flow (annualized) was $20 billion in 1Q12. Assuming a 6% T1C, the cash ROE is 20%.
Thus, BAC’s earnings power is already present despite what you hear on television from
momentum traders pretending to be banking analysts.
Liquidity
• $406 billion in cash! BAC could float Spain; Italy and Greece combined. Granted, they have no desire
nor need to do so. Europe is an utter mess, but U.S. banks are unexposed as was proven by the recent
Fed “stress test” and actual experience heretofore after three years of EU misery.
Valuation – 460% cash in excess of market value; 36% of book value; 4x free cash flow. BAC may be
the cheapest stock on planet earth. Our proprietary valuation model gets us to 300% upside in 3-4 years and
500% in seven.
Shock and Awe Conclusion – Our proprietary CAMEL rating is 1 2 2 1 1 for an overall rating of 1…
This may astonish those that watch a lot of financial TV. The TV pundits are too busy making excuses for
why Apple missed on iPads and making excuses for lowered guidance. This is because fast money wants fast
stocks. Not value.
Earnings power is a 1. The reality is that this is a budding 1 1 1 1 1 company. Dodd-Frank is holding-up cash
and equity deployment into our economy. This company is dramatically undervalued… BAC currently trades
for 4x free cash or a 25% unlevered cash yield; and this at a time when its balance sheet has never been more
under tapped and stronger in its storied history.
The alternative is to buy a dramatically over-valued REIT, bond or bond proxies earning 2% to 2.5% thus
1/10th
the yield of BAC… portfolio managers are over paying for REITs and bonds in an effort to avert
volatility. When this reverses itself… it will be painful for those shunning volatility. Low volatility in a low
rate environment is a risky proposition despite its pleasing optics presently; this is a misappropriation of risk-to-
reward on a scale not seen since 1982 (Buffett) and 1917 (Schiller).
Regards,
Michael P. Durante
Managing Partner
Blackwall Partners LLC