Last year was a strange one in banking, as investors were somewhat lukewarm on quality banks such as U.S. Bancorp (NYSE:USB) and Comerica (NYSE:CMA), but more than happy to bid up still-troubled operations such as Bank of America (NYSE:BAC). While it can be fairly argued that there aren't as many rocks left to turn over (so, fewer negative surprises) and BAC management has been grinding through its troubles and repairing its operations, I just don't see the cause to get all that excited about the bank's prospects.

SEE: The Industry Handbook: The Banking Industry

Fourth-Quarter Results - Key Numbers Pretty Much in Line, but a Few Rough Spots
On balance, Bank of America had a decent enough fourth quarter, but it is of course worth mentioning that there are so many charges, items and adjustments that there's a large subjective element to analyzing these results.

Adjusted operating revenue fell 1% from last year and 2% from the third quarter, making it one of the weaker bank performances so far in this reporting cycle. Net interest income fell 4% and rose 3.92%, respectively, and that sequential growth was much better the performance seen at USB, Wells Fargo (NYSE:WFC) or JPMorgan (NYSE:JPM). Net interest margin actually improved slightly on a reported sequential basis, though BAC's NIM is one of the weakest out there. Average earning assets were up 2.35% sequentially.

Fee income was softer than expected, however, falling 7% sequentially. The company's capital markets operations saw very mixed results - commercial and consumer banking fees were up almost 20%, but sales and trading were down almost one-quarter (and definitely weaker than at JPMorgan). Mortgage banking income also fell pretty significantly (down 14%), as many of these larger regional banks are seeing lower/weaker mortgage business.

Expenses were in line, rising about 3% sequentially (on an adjusted basis), but BAC's efficiency ratio is still startlingly high - nearly 79% on an adjusted basis, versus results in the 50%'s for Wells Fargo, U.S. Bancorp, BB&T (NYSE:BBT) and so on.

SEE: The Banking System

Still Some Growth, but Credit Costs Are Still High
With 2% sequential loan growth, Bank of America did about as well as any other large bank this quarter. Moreover, while yields on those loans fell about 13 basis points from the third quarter, they're still not bad at 4.2%. Deposits rose 4%, and BAC saw stronger growth (5%) in non-interest bearing deposits. Bank of America's cost of deposits fell another five basis points to 0.16%.

Credit quality continues to be a major issue for this bank. Non-performing loans fell 12% from last year and 5% from the prior quarter, which actually isn't all that impressive compared to other banks. Likewise, while the company continues to see progress on its non-performing assets and net charge-off ratios, the absolute levels are still among the highest among the big banks (though Wells Fargo's are quite high as well).

Bank of America reported that mortgage repurchase claims were up 16%, but there were fewer new claims across the board. The bank also recently announced a settlement with Fannie Mae covering 2000 to 2008 that will involve a $3.6-billion cash payment from BAC to Fannie Mae.

Can Bank of America Rebuild Fast Enough?
The biggest reason I'm not very positive on Bank of America is that I believe the company has done significant long-term damage to its operations. While Wells Fargo has long been the market leader in mortgage originations, Bank of America has seen its share collapse in recent years. At the same time, more operationally secure banks such as M&T Bank (NYSE:MTB), PNC (NYSE:PNC) and Fifth Third Bank (Nasdaq:FITB) are taking dead aim at BAC's deposit share all across the country. That suggests to me that BAC is going to either have to take on bigger risks or accept lower spreads if it wants to maintain its business - unless it can somehow produce those non-cash "warm fuzzies" that keep customers happy and less inclined to bolt to other banks.

I'm also not confident that Bank of America is completely over its credit problems. While I think the recent settlements have taken more risk out of the picture, and BAC appears to have a strong capital position, it just seems like there's always some new problem that the bank has to address, and that addressing it costs billions of dollars.

SEE: Analyzing A Bank's Financial Statement

The Bottom Line
I presently believe that Bank of America shares are worth about $12 on the basis of a long-range return on equity assumption of 8% and a slightly elevated discount rate relative to its regional peers. For those with a more optimistic outlook, a 10% long-term ROE assumption would vault the fair value target to about $17.

While I spent the early part of 2012 thinking that there was potential value in BAC shares for aggressive investors, I underestimated just how aggressive the "risk-on" appetite in the market would be, and it looks like a lot of that value potential was realized in the past year. While BAC's value is clearly sensitive to ROE assumptions (about $2.50 per share per point of ROE), this stock only makes sense to me for aggressive investors who believe in a much stronger future for the company.

At the time of writing, Stephen D. Simpson owned shares of JPMorgan and BB&T for more than five years.

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