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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 19992000 - Commission File Number 1-6523
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Bank of America Corporation
(Exact name of registrant as specified in its charter)
Delaware 56-0906609
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(State of incorporation) (IRS Employer Identification No.)
Bank of America Corporate Center
Charlotte, North Carolina 28255
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(Address of principal executive (Zip Code)
offices)
704/386-5000(888) 279-3457
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(Registrant's telephone number,
including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
London Stock Exchange
Pacific Stock Exchange
Tokyo Stock Exchange
7 3/4% Debentures, due 2002 American Stock Exchange
9 7/8% Subordinated Notes, due 2001 New York Stock Exchange
8 1/2% Subordinated Notes, due 2007 New York Stock Exchange
10 7/8% Subordinated Notes, due 2003 New York Stock Exchange
.25% Senior Basket-Indexed Notes, due 2006 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or in any amendment to
this Form 10-K. [ ][_]
The aggregate market value of the registrant's common stock ("Common Stock")
held by non-affiliates is approximately $73,223,927,000$83,761,700 (based on the March 6,
2000,7,
2001, closing price of Common Stock of $44.50$52.75 per share). As of March 6, 2000,7, 2001,
there were 1,664,844,3581,606,704,482 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-K Reference Location
Portions of the 20002001 Proxy Statement PART III
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Bank of America Corporation
Form 10-K
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INDEX
Page
INDEX -----------------------------------------
Part I
Part I
Item 1. Business 2
General 2
Primary Market Areas 2
Acquisition and Disposition Activity 2
Government Supervision and Regulation 2
Competition 5
Employees 6
Business Segment Operations 13-1613-21
Net Interest Income 17-1922-24
Securities 26, 58-59,
67-6931, 67, 74-76
Loans and Leases 20, 26-27,
30-41,
59-60,
71-7225, 31-32, 35-46, 67-69, 78-80
Deposits 27, 7232, 81
Short-Term Borrowings and Trading Account
Liabilities 28, 70,
73-7533, 76-77, 82-84
Market Risk Management 42-4647-54
Selected Quarterly Operating Results 4755
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security
Holders 7
Item 4A. Executive Officers of the Registrant 7
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Part II
Item 5. Market for Registrant's Common Stock and Related
Security Holder Matters 8
Item 6. Selected Financial Data 98
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition 98
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk 5260
Item 8. Consolidated Financial Statements and
Supplementary Data 5260
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 100108
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Part III
Item 10. Directors and Executive Officers of the Registrant 100108
Item 11. Executive Compensation 100108
Item 12. Security Ownership of Certain Beneficial Owners
and Management 100108
Item 13. Certain Relationships and Related Transactions 100108
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Part IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 101109
PART I
Item 1. BUSINESS
General
Bank of America Corporation (the "Corporation") is a Delaware corporation, a
bank holding company and effective March 11, 2000, a financial holding company under the Gramm-Leach-BlileyGramm-Leach-
Bliley Act. The Corporation and its subsidiaries are subject to supervision by
various federal and state banking and other regulatory authorities. For additionaladdi-
tional information about the Corporation and its operations, see Table Two and
the narrative comments under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition - Business Segment Operations.Opera-
tions." For additional information regarding regulatory matters, see "Government"Govern-
ment Supervision and Regulation" below.
The principal executive offices of the Corporation are located in the Bank
of America Corporate Center, Charlotte, North Carolina 28255.
Primary Market Areas
Through its banking subsidiaries (the "Banks") and various nonbanking subsidiaries,sub-
sidiaries, the Corporation provides a diversified range of banking and nonbankingnon-
banking financial services and products, primarily throughout the Mid-Atlantic
(Maryland, Virginia and the District of Columbia), the Midwest (Illinois,
Iowa, Kansas and Missouri), the Southeast (Florida, Georgia, North Carolina,
South Carolina and Tennessee), the Southwest (Arizona, Arkansas, New Mexico,
Oklahoma and Texas), the Northwest (Oregon and Washington) and the West (California,(Cali-
fornia, Idaho and Nevada) regions of the United States and in selected internationalinter-
national markets. The Corporation serves an aggregate of approximately 30
million households and two million businesses in these regions, and managementManagement believes that these are desirable regions in
which to be located. Based on the most recent available data, personal income
levels in the states in these regions as a whole rose 5.95.2 percent year-to-year
through mid-year 1999, a
slight moderation from the sixthird quarter of 2000, compared to growth of 4.2 percent year-to-year rate for those states one
year earlier.in the
rest of the United States. In addition, the population in these states as a
whole rose an estimated 1.41.2 percent between 19981999 and 1999. The number2000, compared to growth
of housing permits
authorized moderated1.0 percent in the second halfrest of 1999 from record high activity
mid-year. By November 1999, housing permits authorized were on track to end the year 2.6 percent above year-end 1998.United States. Through December 1999,2000, the
average rate of unemployment in these states was four4.0 percent, ranging from
Iowa's 2.2Virginia's 2.1 percent to the District of Columbia's cyclical low6.3 percent, compared to
a rate of 6.1 percent.unemployment of 4.2 percent in the rest of the United States. These
states created almost 1.81.6 million new jobs in 1999, 2.32000, 2.2 percent above year-end
1998,1999, compared to 1.2growth of 1.8 percent job growth in the other states.rest of the United States. The
number of housing permits authorized remained at historically high levels dur-
ing 2000 but was down 6.4 percent from record high activity in 1999.
The Corporation has the leading bank deposit market share position in California,Cali-
fornia, Florida, Georgia, Maryland, Nevada, North Carolina, Texas and Washington. In
addition, the Corporation ranks second in terms of bank deposit market share
in Arizona, Arkansas, Kansas, Missouri, Nevada, New Mexico, Missouri, Oklahoma, South Carolina and
the District of Columbia; third in OregonOklahoma and Virginia; fourth in Idaho;Idaho and
Oregon; fifth in Tennessee; seventhninth in Iowa; and ninthtenth in Illinois.
Acquisition and Disposition Activity
As part of its operations, the Corporation regularly evaluates the potential
acquisition of, and holds discussions with, various financial institutions and
other businesses of a type eligible for bank holding company
or financial holding company ownership or
control. In addition, the Corporation regularly analyzes the values of, and
submits bids for, the acquisition of customer-based funds and other liabilitiesliabili-
ties and assets of such financial institutions and other businesses. The CorporationCor-
poration also regularly considers the potential disposition of certain of its
assets, branches, subsidiaries or lines of businesses. As a general rule, the
Corporation publicly announces any material acquisitions or dispositions when
a definitive agreement has been reached.
For additional information regarding the Corporation's acquisition activity,
see Note Two of the consolidated financial statements on page 64.72.
Government Supervision and Regulation
General
As a registered bank holding company and effective March 11, 2000, a
financial holding company, the CorporationCor-
poration is subject to the supervision of, and to regular inspection by, the
Board of Governors of the Federal 2
Reserve System (the
2
"Federal Reserve Board"). The Banks are organized predominantly as national banking associations,associa-
tions, which are subject to regulation, supervision and examination by the
Office of the Comptroller of the Currency (the "Comptroller" or "OCC"). The Banks are also subject to regulation
by, the
Federal Deposit Insurance Corporation (the "FDIC"), the Federal Reserve Board
and other federal and state regulatory agencies. In addition to banking laws,
regulations and regulatory agencies, the Corporation and its subsidiaries and
affiliates are subject to various other laws and regulations and supervision
and examination by other regulatory agencies, all of which directly or indirectlyindi-
rectly affect the operations and management of the Corporation and its ability
to make distributions. The following discussion summarizes certain aspects of those
laws and regulations that affect the Corporation.
The Gramm-Leach-Bliley Act amended a number of the federal banking laws
affecting the Corporation and the Banks. In particular, the Gramm-Leach-Bliley
Act permits a bank holding companydistributions to elect to become a "financial holding
company" effective March 11, 2000, provided that certain conditions are met.
The Corporation filed such an election on February 1, 2000 and became a
financial holding company effective March 11, 2000.stockholders.
A financial holding company, and the companies under its control, are permittedper-
mitted to engage in activities considered "financial in nature" as defined by
the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations (including,(includ-
ing, without limitation, insurance and securities activities), and therefore
may engage in a broader range of activities than permitted tofor bank holding
companies and their subsidiaries. A financial holding company may engage
directly or indirectly engage in activities considered financial in nature, either de
novo or by acquisition, provided the financial holding company gives the FederalFed-
eral Reserve Board after-the-fact notice of the new activities. The Gramm-Leach-BlileyGramm-
Leach-Bliley Act also permits national banks, such as the Banks, to engage in
activities considered financial in nature through a financial subsidiary, subjectsub-
ject to certain conditions and limitations and with the prior
approval of the Comptroller.Comp-
troller.
Interstate Banking
Bank holding companies (including bank holding companies that also are also
financial holding companies) also are also required to obtain the prior approval of
the Federal Reserve Board before acquiring more than five percent of any class
of voting stock of any bank which is not already majority-owned by the bank
holding company. Pursuant to the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking and Branching Act"), a bank
holding company may acquire banks in states other than its home state without
regard to the permissibility of such acquisitions under state law, but subject
to any state requirement that the bank has been organized and operating for a
minimum period of time, not to exceed five years, and the requirement that the
bank holding company, prior to or followingafter the proposed acquisition, controls no more than 10
percent of the total amount of deposits of insured depository institutions in
the United States and no more than 30 percent of such deposits
in that state (oror such lesser or greater amount
set by state law).law of such deposits in that state.
Subject to certain restrictions, the Interstate Banking and Branching Act
also authorizes banks to merge across state lines, thereby creatingwith the surviving bank
retaining interstate branches. Furthermore, pursuant to theThe Interstate Banking and Branching Act also
permits a bank mayto open new branches in a state in which it does not already
have banking operations if such state enacts a law permitting such de novo branching.branch-
ing. The Corporation has consolidated its retail subsidiary banks into a singlesin-
gle interstate bank (Bank of America, N.A.) headquartered in Charlotte, North
Carolina, with full service branch offices in Arizona, Arkansas, California,
Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Maryland, Missouri, Nevada,
New Mexico, North Carolina, Oklahoma, Oregon, South Carolina, Tennessee, Texas,
Virginia, Washington21 states and the District of
Columbia. In addition, the Corporation operates a limited purpose nationally
chartered credit card bank (Bank of America, N.A. (USA)) headquartered in
Phoenix, Arizona, aand three nationally chartered banker's bank (Bankbankers' banks: Bank of AmericaAmer-
ica Oregon, N.A.), headquartered in Portland, Oregon,
as well as a California-chartered nonmember bank (BankOregon; Bank of America Community
Development Bank)Califor-
nia, N.A., headquartered in Walnut Creek, California. As previously
described, the Corporation regularly evaluates mergerCalifornia; and acquisition
opportunities, and it anticipates that it will continue to evaluate such
opportunities.Bank of America
Georgia, N.A., headquartered in Atlanta, Georgia.
Changes in Regulations
Proposals to change the laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before
the various bank regulatory agencies. The likelihood and timing of any such proposalspropos-
als or legislation and the impact they might have on the Corporation and its
subsidiaries cannot be determined at this time.
3
Capital and Operational Requirements
The Federal Reserve Board, the Comptroller and the FDIC have issued substantiallysubstan-
tially similar risk-based and leverage capital guidelines applicable to United
States banking organizations. In addition, these regulatory agencies may from
time to time require that a banking organization maintain capital above the
minimum levels, whether because of its financial condition or actual or anticipatedantic-
ipated growth. The Federal Reserve Board risk-based guidelines define a three-tierthree-
tier capital framework. Tier 1 capital consists of common and qualifying preferredpre-
ferred shareholders' equity, less certain intangibles and other adjustments.
Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital,
subordinated and other qualifying debt, and the
3
allowance for credit losses up to 1.25 percent of risk-weighted assets. Tier 3
capital includes subordinated debt that is unsecured, fully paid, has an originalorig-
inal maturity of at least two years, is not redeemable before maturity without
prior approval by the Federal Reserve Board and includes a lock-in clause precludingpre-
cluding payment of either interest or principal if the payment would cause the
issuing bank's risk-based capital ratio to fall or remain below the required
minimum. The sum of Tier 1 and Tier 2 capital less investments in unconsolidatedunconsoli-
dated subsidiaries represents qualifying total capital, at least 50 percent of
which must consist of Tier 1 capital. Risk-based capital ratios are calculated
by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balanceoff-
balance sheet exposures are assigned to one of four categories of risk-weights,risk-
weights, based primarily on relative credit risk. The minimum Tier 1 capital
ratio is four percent and the minimum total capital ratio is eight percent.
The Corporation's Tier 1 and total risk-based capital ratios under these
guidelines at December 31, 19992000 were 7.357.5 percent and 10.8811.04 percent, respectively.respec-
tively. At December 31, 1999,2000, the Corporation had no subordinated debt that
qualified as Tier 3 capital.
The leverage ratio is determined by dividing Tier 1 capital by adjusted
average total assets. Although the stated minimum ratio is three percent, most
banking organizations are required to maintain ratios of at least 100 to 200
basis points above three percent. The Corporation's leverage ratio at December
31, 19992000 was 6.266.12 percent. The Corporation meets its leverage ratio requirement.require-
ment.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, identifies five capital categories for insured
depository institutions (well capitalized, adequately capitalized, undercapitalized,undercapi-
talized, significantly undercapitalized and critically undercapitalized) and
requires the respective federal regulatory agencies to implement systems for
"prompt corrective action" for insured depository institutions that do not
meet minimum capital requirements within such categories. FDICIA imposes progressivelypro-
gressively more restrictive constraints on operations, management and capital
distributions, depending on the category in which an institution is classified.classi-
fied. Failure to meet the capital guidelines could also subject a banking
institution to capital raising requirements. An "undercapitalized" bank must
develop a capital restoration plan and its parent holding company must guaranteeguaran-
tee that bank's compliance with the plan. The liability of the parent holding
company under any such guarantee is limited to the lesser of five percent of
the bank's assets at the time it became "undercapitalized" or the amount
needed to comply with the plan. Furthermore, in the event of the bankruptcy of
the parent holding company, such guarantee would take priority over the parent'spar-
ent's general unsecured creditors. In addition, FDICIA requires the various
regulatory agencies to prescribe certain non-capital standards for safety and
soundness relating generally to operations and management, asset quality and
executive compensation and permits regulatory action against a financial
institution that does not meet such standards.
The various regulatory agencies have adopted substantially similar regulationsregula-
tions that define the five capital categories identified by FDICIA, using the
total risk-based capital, Tier 1 risk-based capital and leverage capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 risk-based capital ratio of at least six percent, a total risk-basedrisk-
based capital ratio of at least 10 percent and a leverage ratio of at least
five percent and not be subject to a capital directive order. Under these
guidelines, each of the Banks is considered well capitalized.
Banking agencies haveRegulators also adopted final regulations which mandate that
regulatorsmust take into consideration (i)(a) concentrations of credit
risk; (ii)(b) interest rate risk (when the interest rate sensitivity of an institution'sinsti-
tution's assets does not match the sensitivity of its liabilities or its off-balance-sheetoff-
balance-sheet position); and (iii)(c) risks from non-traditional activities, as
well as an institution's ability to manage those risks, when determining the
adequacy of an institution's capital. ThatThis evaluation will be made as a part
of the institution's regular safety and soundness examination. In addition,
the banking agencies have amended their regulatory capital guidelines to
incorporate a measure for market risk. In accordance with the amended
guidelines, the Corporation, and any Bank with significant trading activity, (as
defined in the amendment) must incorporateincorpo-
rate a measure for market risk in their 4
regulatory capital calculations effective for reporting periods after January
1, 1998. The revised guidelines did not have a material impact on the
Corporation or the Banks' regulatory capital ratios or their well capitalized
status.calculations.
4
Distributions
The Corporation's funds for cash distributions to its stockholders are
derived from a variety of sources, including cash and temporary investments.
The primary source of such funds, and funds used to pay principal and interest
on its indebtedness, however, is dividends received from the Banks. Each of
the Banks is subject to various regulatory policies and requirements relating
to the payment of dividends, including requirements to maintain capital above
regulatory minimums. The appropriate federal regulatory authority is authorizedautho-
rized to determine under certain circumstances relating to the financial conditioncon-
dition of thea bank or bank holding company that the payment of dividends would
be an unsafe or unsound practice and to prohibit payment thereof.
In addition, to the foregoing, the ability of the Corporation and the Banks to pay dividends
may be affected by the various minimum capital requirements and the capital
and non-capital standards established under FDICIA, as described above. The
right of the Corporation, its stockholders and its creditors to participate in
any distribution of the assets or earnings of its subsidiaries is further subjectsub-
ject to the prior claims of creditors of the respective subsidiaries.
Source of Strength
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and
to commit resources to support each such subsidiary. This support may be
required at times when a bank holding company may not be able to provide such
support. Similarly, under the cross-guarantee provisions of the Federal
Deposit Insurance Act, in the event of a loss suffered or anticipated by the
FDIC - either as a result of default of a banking subsidiary of the Corporation or related to
FDIC assistance provided to a subsidiary in danger of default - the other
Banks may be assessed for the FDIC's loss, subject to certain exceptions.
Competition
The activities in which the Corporation and its four major business segments
(Consumer Banking,and Commercial Banking, Asset Management, Global Corporate and
Investment Banking, and Principal Investing and Asset Management)Equity Investments) engage are highly competitive.
Generally, the lines of activity and markets served involve competition with
other banks, thrifts, credit unions and other nonbank financial institutions,
such as investment banking firms, investment advisory firms, brokerage firms,
investment companies and insurance companies, as well
ascompanies. The Corporation also competes
against banks and thrifts owned by nonregulated diversified corporations and
other entities which offer financial services, located both domestically and
internationally and through alternative delivery channels such as the
World
Wide Web.Internet. The methods of competition center around various factors, such as
customer services, interest rates on loans and deposits, lending limits and
customer convenience, such as location of offices.
The commercial banking business in the various local markets served by the
Corporation's business segments is highly competitive. The four major business
segments compete with other commercial banks, thrifts, finance companies and other businessesbusi-
nesses which provide similar services. The business segments actively compete
in commercial lending activities with local, regional and international banks
and nonbank financial organizations, some of which are larger than certain of
the Corporation's nonbanking subsidiaries and the Banks. In its consumer lendinglend-
ing operations, the competitors of the business segments include other banks,
thrifts, credit unions, regulated small loanfinance companies and other nonbank organizations
offering financial services. In the investment banking, investment advisory
and brokerage business, the Corporation's nonbanking subsidiaries compete with
other banking and investment banking firms, investment advisory firms, brokeragebroker-
age firms, investment companies and other organizations offering similar services.serv-
ices. The Corporation's mortgage banking units compete with commercial banks, thrifts,
government agencies, mortgage brokers and other nonbank organizations offering
mortgage banking services. In the trust business, the Banks compete with other
banks, investment counselors and insurance companies in national markets for
institutional funds and corporate pension and profit sharing accounts. The
Banks also compete with other banks, trust companies, insurance agents,
thrifts, financial counselors and other fiduciaries for personal trust business.busi-
ness. The Corporation and its four major business segments also actively competecom-
pete for funds. A primary source of funds for the Banks is deposits, and competitioncom-
petition for deposits
5
includes other deposit-taking organizations, such as commercial
banks, thrifts, and credit unions, as well as money market mutual funds.
5
The Corporation's ability to expand into additional states remains subject
to various federal and state laws. See "Government Supervision and RegulationRegula-
tion - General" for a more detailed discussion of interstate banking and
branching legislation and certain state legislation.
Employees
As of December 31, 1999,2000, there were 155,906142,724 full-time equivalent employees
within the Corporation and its subsidiaries. Of the foregoing employees,
82,90878,500 were employed within Consumer and Commercial Banking, 4,5975,764 were
employed within Commercial
Banking, 9,068Asset Management, 8,816 were employed within Global Corporate
and Investment Banking and 5,962280 were employed within Principal Investing and Asset Management.Equity Investments. The
remainder were employed elsewhere within the Corporation.Corporation and its subsidiaries.
Approximately 5,000 non-officer employees in the State of Washington are
covered bysubject to a collective bargaining agreement. These employees work for the
Washington Division of Bank of America, N.A. None of the other domestic
employees within the Corporation are covered byis subject to a collective bargaining agreement.agree-
ment. Management considers its employee relations to be good.
Item 2. PROPERTIES
As of December 31, 1999,2000, the principal offices of the Corporation, and its
Consumer and Commercial Banking, businessAsset Management and Equity Investments busi-
ness segments, were located in the 60-story Bank of America Corporate Center
in Charlotte, North Carolina, which is owned by a subsidiary of the Corporation.Corpora-
tion. The Corporation occupies approximately 513,000514,000 square feet and leases
approximately 601,000 square feet to third parties at market rates, which representsrep-
resents substantially all of the space in this facility. As of December 31,
1999,2000, the principal offices of Global Corporate and Investment Banking and Principal Investing and Asset Management were
located at 555 California Street in San Francisco, California. A subsidiary of
the Corporation has a 50 percent ownership interest in this building through a
joint venture partnership, and the Corporation leases approximately 479,000418,000
square feet in this building from the partnership.
The Corporation also leases or owns a significant amount of space worldwide,
in addition to these facilities in Charlotte and San Francisco. As of December
31, 1999,2000, the Corporation and its subsidiaries owned or leased approximately
13,20011,259 locations in 4746 states, the District of Columbia and 37 foreign countries.coun-
tries.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Corporation and its subsidiaries are
routinely defendants in or parties to a number of pending and threatened legal
actions and proceedings, including actions brought on behalf of various classesclas-
ses of claimants. In certain of these actions and proceedings, substantial
money damages are asserted against the Corporation and its subsidiaries and
certain of these actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and other laws.
The Corporation and certain present and former officers and directors have
been named as defendants in a number of actions filed in several federal
courts that have been consolidated for pretrial purposes before a Missouri
federal court. The amended complaint in the consolidated actions alleges,
among other things, that the defendants failed to disclose material facts
about losses of the former BankAmerica Corporation ("BankAmerica") relating to
D.E. Shaw Securities Group, L.P. ("D.E. Shaw") and related entities until mid-Octobermid-
October 1998, in violation of various provisions of federal and state laws. The amended complaintcom-
plaint also alleges that the proxy statement-prospectus of August 4, 1998
falsely stated that the merger (the "Merger"("Merger") betweenof BankAmerica and the Corporation's
predecessor, NationsBank Corporation ("NationsBank"), would be one of equals
and alleges a scheme to have NationsBank gain control over the newly merged
entity. The Missouri federal court has certified classes consisting generally
of persons who were stockholders of NationsBank or BankAmerica on September
30, 1998, or were entitled to vote on the Merger, or who purchased or acquired
securities of the Corporation or its predecessors between August 4, 1998 and
October 13, 1998. The amended complaint substantially survived a motion to
dismiss, and discovery is underway. Claims against certain director-defendants
were dismissed with leave to replead. The court has preliminarily ordered the
parties to be ready for trial by September 2001. A former NationsBank stock-
holder who opted out of the federal class action has recently commenced an
action asserting claims substantially similar to the claims relating to D.E.
Shaw set forth in the consolidated action. The Corporation has moved to con-
solidate the individual action with the federal class action. Similar uncertified class
actions (including one limited to California residents raising the claim that
the proxy statement-prospectus of August 4,
6
1998 falsely stated that the
Merger would be one of equals) were filed in California state court, alleging
violations of the California Corporations Code and other state
6
laws. The action on behalf of California residents was certified as a class. A
lower court order dismissing that action was recently reversed on appeal, and
discovery in that action has commenced. The remaining California actions have
been consolidated, but have not been certified as class actions. The Missouri
federal court has since been dismissed and an appeal is pending. Ofenjoined prosecution of those consolidated class actions as
a class action. The plaintiffs who were enjoined have appealed that injunction
to the remaining actions, one has been stayed, and a motionUnited States Court of Appeals for class certification is
pending in the others.Eighth Circuit. The Corporation
believes the actions lack merit and will defend them vigorously. The amount of
any ultimate exposure cannot be determined with certainty at this time.
Management believes that the actions and proceedings and the losses, if any,
resulting from the final outcome thereof, will not be material in the aggregateaggre-
gate to the Corporation's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the quarter
ended December 31, 1999.2000.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to the Instructions to Form 10-K and Item 401(b) of Regulation S-K,
the name, age and position of each current executive officer and the principal
accounting officer of the Corporation are listed below along with such officer'soffi-
cer's business experience during the past five years. Officers are appointed
annually by the Board of Directors at the meeting of directors immediately
following the annual meeting of stockholders.
Edward J. Brown III, age 52, President, Global Corporate and Investment
Banking. Mr. Brown was named to his present position in December 2000. From
September 1998 to December 2000, he served as President, Global Capital Rais-
ing and Global Capital Markets. Prior to that time, from June 1997 to Septem-
ber 1998, he served as President, Global Finance, and from 1988 to June 1997,
he served as President, Corporate Banking. He first became an officer in 1974.
He also serves as a director of Bank of America, N.A.
James H. Hance, Jr., age 55,56, Vice Chairman and Chief Financial Officer. Mr.
Hance was named Chief Financial Officer in August 1988, and was named Vice
Chairman in October 1993. He first became an officer in 1987. He also serves
as a director of the Corporation and as Vice Chairman and a director of Bank
of America, N.A.
Kenneth D. Lewis, age 52,53, President and Chief Operating Officer. Mr. Lewis
was named President in January 1999 and Chief Operating Officer in October
1999. Prior to that time, he served as President, Consumer and Commercial
Banking, from October 1998 to January 1999, and as President from October 1993
to October 1998. He first became an officer in 1971. Mr. Lewis also serves as
a director of the Corporation and as President and a director of Bank of America,Amer-
ica, N.A.
Hugh L. McColl, Jr., age 64,65, Chairman of the Board and Chief Executive Officer.Offi-
cer. Mr. McColl has served as Chairman of the Board for at least five years
except from January 7, 1997 until September 30, 1998. He first became an officeroffi-
cer in 1962. He also serves as a director of the Corporation and as Chairman,
Chief Executive Officer and a director of Bank of America, N.A.
Michael J. Murray, age 55, President, Global Corporate and Investment
Banking. Mr. Murray first became an officer and was named to his present
position in October 1998. Prior to that time, he served as President, Global
Wholesale Bank of BankAmerica from 1997 to 1998 and as Vice Chairman of
BankAmerica from 1995 to 1997. He also serves as Chairman and a director of Bank of America, N.A.
Marc D. Oken, age 53,54, Executive Vice President and Principal Financial Executive.Exec-
utive. Mr. Oken was named to his present position in October 1998. From June
1989 to October 1998, he served as Chief Accounting Officer. He first became
an officer in 1989.
F. William Vandiver, Jr., age 57,58, Corporate Risk Management Executive. Mr.
Vandiver was named to his present position in October 1998. From June 1997 to
October 1998, he served as Chairman, Corporate Risk Policy. Prior to that
time, from January 1996 to June 1997, he served as President, Global Finance, and
from January 1994 to January 1996 he served as President, Specialized Finance
Group.Finance.
He first became an officer in 1968. He also serves as Vice Chairman and a
director of Bank of America, N.A.
7
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The principal market on which the Common Stock is traded is the New York
Stock Exchange. The Common Stock is also listed on the London Stock Exchange
and the Pacific Stock Exchange, and certain shares are listed on the Tokyo
Stock Exchange. The following table sets forth the high and low sales prices
of the Common Stock on the New York Stock Exchange Composite Transactions List for the periods indicated:
Quarter High Low
--------- ----------- -----------
1998 first $75 1/8 $56 1/4
second 85 72 1/16
third 88 7/16 47 7/8
fourth 66 5/8 44------------------------------------------------------------------
1999 first 74$74 1/2 59$59 1/2
second 76 1/8 61 1/2
third 76 3/8 53 1/4
fourth 67 1/2 47 5/8
2000 first 55 3/16 42 5/16
second 61 42 63/64
third 57 5/8 43 5/8
fourth 54 3/4 36 5/16
As of March 6, 2000,2, 2001, there were 276,300256,883 record holders of Common Stock. During 1998Dur-
ing 1999 and 1999,2000, the Corporation paid dividends on the Common Stock on a
quarterly basis. The following table sets forth dividends declared per share
of Common Stock for the periods indicated:
Quarter Dividend
--------- ---------
1998 first $.38
second .38
third .38
fourth .45----------------------------------------------------
1999 first .45$.45
second .45
third .45
fourth .50
2000 first .50
second .50
third .50
fourth .56
For additional information regarding the Corporation's ability to pay dividends,divi-
dends, see "Government Supervision and Regulation - Distributions" and Note
TwelveFourteen of the consolidated financial statements on page 82.
As part of its share repurchase program, during the fourth quarter of
1999, the Corporation sold put options to purchase an aggregate of one million
shares of Common Stock. These put options were sold to two independent third
parties for an aggregate purchase price of $6.0 million. The put option
exercise prices range from $64.20 to $65.30 per share and expire in April 2000.
The put option contracts allow the Corporation to determine the method of
settlement (cash or stock). Each of these transations was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
In accordance with an Agreement and Plan of Reorganization (the
"Agreement") between the Corporation (as the successor of Oxford Resources
Corp.) and the selling stockholders of Electronic Vehicle Remarketing, Inc.
("EVRI"), the Corporation was required to issue shares of Common Stock to the
selling stockholders as additional contingent purchase price consideration in
the event that EVRI achieved the five performance milestones set forth in the
Agreement. Achievement of each milestone entitled the selling stockholders to
receive a certain number of shares of Common Stock calculated in accordance
with the terms of the Agreement. Each of the five milestones was achieved in
1999, and an aggregate of 41,911 shares of Common Stock was issued on four
dates in 1999. Each of these transactions was exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended.
8
91.
Item 6. SELECTED FINANCIAL DATA
See Table One in Item 7 for Selected Financial Data.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
On September 30, 1998, Bank of America Corporation (the Corporation), formerlyfor-
merly NationsBank Corporation (NationsBank), completed its merger (the Merger)
with the former BankAmerica Corporation (BankAmerica). In addition, on January
9, 1998, the Corporation completed its merger with Barnett Banks, Inc. (Barnett)(Bar-
nett). The BankAmerica and Barnett mergers were each accounted for as a poolingpool-
ing of interests and, accordingly, all financial information has been restated
for all periods presented.
This report on Form 10-K contains certain forward-looking statements that
are subject to risks and uncertainties and include information about possible
or assumed future results of operations. Many possible events or factors could
affect the future financial results and performance of the Corporation. This
could cause results or performance to differ materially from those expressed
in our forward-looking statements. Words such as "expects", "anticipates",
"believes", "estimates", variations of such words and other similar expressionsexpres-
sions are intended to identify such forward-looking statements. These statementsstate-
ments are not guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict. Therefore,
actual outcomes and results may differ materially from what is expressed or
forecasted in, or implied by, such forward-looking statements. Readers of the
Corporation's Form 10-K should not rely solely on the forward-lookingforward-
8
looking statements and should consider all uncertainties and risks discussed
throughout this report. These statements are representative only on the date
hereof, and the Corporation undertakes no obligation to update any forward-lookingforward-
looking statements made.
The possible events or factors include the following: the Corporation's loan
growth is dependent on economic conditions, as well as various discretionary
factors, such as decisions to securitize, sell, or purchase certain loans or
loan portfolios; syndications or participations of loans; retention of residentialresi-
dential mortgage loans; and the management of borrower, industry, product and
geographic concentrations and the mix of the loan portfolio. The ratelevel of
nonperforming assets, charge-offs and provision expense can be affected by
local, regional and international economic and market conditions, concentrationsconcentra-
tions of borrowers, industries, products and geographic locations, the mix of
the loan portfolio and management's judgments regarding the collectibility of
loans. Liquidity requirements may change as a result of fluctuations in assets
and liabilities and off-balance sheet exposures, which will impact the capital
and debt financing needs of the Corporation and the mix of funding sources.
Decisions to purchase, hold or sell securities are also dependent on liquidity
requirements and market volatility, as well as on- and off-balance sheet positions.posi-
tions. Factors that may impact interest rate risk include local, regional and
international economic conditions, levels, mix, maturities, yields or rates of
assets and liabilities, utilization and effectiveness of interest rate contractscon-
tracts and the wholesale and retail funding sources of the Corporation. Factors that may cause actual noninterest expense to differ from
estimates include the ability of third parties with whom the Corporation has
business relationships to fully accommodate any uncertainties relating to the
Corporation's Year 2000 efforts, as well as uncertainties relating to the
ability of third parties with whom the Corporation has business relationships
to continue to address Year 2000 issues. The
Corporation is also exposed to the potential of losses arising from adverse
changes in market rates and prices which can adversely impact the value of
financial products, including securities, loans, deposits, debt and derivative
financial instruments, such as futures, forwards, swaps, options and other
financial instruments with similar characteristics.
In addition, the banking industry in general is subject to various monetary
and fiscal policies and regulations, which include those determined by the
Federal Reserve Board, the OCC,Office of the FDIC,Comptroller of Currency, the Federal
Deposit Insurance Corporation, state regulators and the Office of Thrift
Supervision, whose policies and regulations could affect the Corporation's
results. Other factors that may cause actual results to differ from the forward-lookingfor-
ward-looking statements include the following: projected business increases
following process changes and productivity and investment initiatives are
lower than expected or do not pay for severance or other related costs as
quickly as anticipated; competition with other local, regional and internationalinterna-
tional banks, thrifts, credit unions and other nonbank financial institutions,
such as investment banking firms, investment advisory firms, brokerage firms,
investment companies and insurance companies, as well as other entities which
offer financial services, located both within and outside the United States
and through alternative delivery channels such as the World Wide Web;Internet; interest rate,
market and monetary fluctuations; inflation; market volatility; general economiceco-
nomic conditions and economic conditions in the geographic regions and industriesindus-
tries in which the Corporation operates; introduction and acceptance of new
banking-related products, services and enhancements; fee pricing strategies,
mergers and acquisitions and their integration into the CorporationCorporation; and management'sman-
agement's ability to manage these and other risks.
9
19992000 Compared to 19981999
Overview
The Corporation is a Delaware corporation, a bank holding company and effective March 11, 2000, a
financial holding company, and is headquartered in Charlotte, North Carolina.
The Corporation operates in 21 states and the District of Columbia and has
offices located in 37 countries. The Corporation provides a diversified range
of banking and certain nonbanking financial services both domestically and
internationally through four major business segments: Consumer Banking,and Commercial
Banking, Asset Management, Global Corporate and Investment Banking, and Principal Investing and Asset Management.Equity
Investments. At December 31, 1999,2000, the Corporation had $633$642 billion in assets. On September 30, 1998,
the Corporation completed its merger with BankAmerica. In addition, on January
9, 1998, the Corporation merged with Barnett.assets
and approximately 143,000 full-time equivalent employees.
The Corporation accounted for
each transaction as a poolingremainder of interestsmanagement's discussion and accordingly, all financial
information has been restated for all periods presented.
On October 1, 1997, the Corporation completed the acquisitionsanalysis of
Montgomery Securities, Inc. (NationsBanc Montgomery Securities) and Robertson,
Stephens & Company Group, L.L.C. (Robertson Stephens). The Corporation
accounted for both acquisitions as purchases. The Corporation sold the
investment banking operations of Robertson Stephens on August 31, 1998 and sold
the investment management operations on February 26, 1999.
Significant changes in the Corporation's
results of operations and financial position are describedshould be read in conjunction
with the following sections.consolidated financial statements and related notes presented on
pages 60 through 107.
Refer to Table One and Table TwentyTwenty-Three for annual and quarterly selected
financial data, respectively.
9
Key performance highlights for 1999 were:
o Operating net2000 compared to 1999:
. Net income (net income excluding merger-related charges) totaled $8.24$7.5 billion, or diluted operating earnings of $4.68$4.52 per common share (diluted) in 1999for
2000 compared to $6.49 billion, or $3.64 per common share in
1998 (diluted). Excluding merger-related charges, the return on average
common shareholders' equity increased 316 basis points to 17.70 percent in
1999 from 14.54 percent in 1998. The efficiency ratio, excluding
merger-related charges, improved 585 basis points to 55.30 percent in 1999
from 61.15 percent in 1998. Including net merger-related charges, net income
was $7.88$7.9 billion, or $4.48 per common share (diluted) in 1999 compared to
$5.17for 1999.
Excluding merger and restructuring charges for both periods, net income
totaled $7.9 billion, or $2.90$4.72 per common share (diluted) in 1998, respectively.
o Operating cashfor 2000 compared
to $8.2 billion, or $4.68 per common share (diluted) for 1999.
. Cash basis ratios on an operating basis measure operating performance excluding merger-related charges, goodwillgood-
will and other intangible assets and their related amortization expense.
Cash basis diluted earnings per common share increased to $5.19 in 1999 compared to $4.15 in 1998.was $5.24, an increase of $0.05
per share. Return on average tangible common shareholders' equity increased to 28.46was 26.06
percent, compared to
25.24 percent in 1998.a decrease of 240 basis points. The cash basis efficiency ratio was
52.5751.78 percent, in
1999, an improvement of 56379 basis points, from 58.20 percent in 1998,primarily due to a decline in noninterest expense of fourthree
percent and an increase in noninterest incomeincome.
. The return on average common shareholders' equity was 15.96 percent, a
decrease of 15.497 basis points. Excluding merger and restructuring charges, the
return on average common shareholders' equity decreased 100 basis points to
16.70 percent.
o Net. Total revenue includes net interest income on a taxable-equivalent basis remained essentially
unchanged at $18.5and
noninterest income. Total revenue was $33.3 billion, from 1998.an increase of $732
million.
. Net interest income increased $312 million to $18.8 billion. Managed loan
growth, particularly in consumer loan products, and higher core funding levels due to higher levels of customer-
based deposits and equity and core deposits was primarilyan increased trading- related contribution
were partially offset by spread compression, the impact of
securitizations divestitures and asset sales, the cost of share repurchases and dete-
rioration in both years, as well as the
impact of changing ratesauto lease residual values. Average managed loans and spread compression during 1999.leases
were $418.6 billion, a $36.2 billion increase, primarily due to a 14 per-
cent increase in consumer loans and leases. Average customer-based depos-
its grew to $299.6 billion, a $7.9 billion increase. The net interest
yield decreasedwas 3.22 percent, a 25 basis point decline. The decrease was pri-
marily due to 3.47 percent in 1999 compared to 3.69 percent in
1998, mainly due tospread compression, higher levels of lower-yielding investment securities, a
shift in loan mix to lower-yielding residential mortgages, changes in
interest rates and spread compressionlower yielding trad-
ing-related assets and the cost of share repurchases.
. Noninterest income was $14.5 billion, a $420 million increase. The
increase in income from fee-based businesses was partially offset by a
$729 million decrease in other income to $775 million. Other income in
2000 included $300 million in charges related to the deterioration of
auto lease residual values, partially offset by a $187 million gain on
the sale of the Corporation's share repurchase program during 1999.
ofactoring unit. Other income in 1999
included an $89 million gain on the sale of certain businesses, $80 mil-
lion from securitization gains and a $63 million gain on the sale of sub-
stantially all remaining out-of-franchise credit card loans. Consumer and
Commercial Banking experienced a $223 million, or 11 percent, increase in
card income to $2.2 billion as success in the growth strategy led to
higher purchase volume and a higher number of active debit and credit
card accounts. Income from investment and brokerage services increased
$92 million to $1.5 billion in the Asset Management segment as a result
of new asset management business and market growth combined with produc-
tivity increases in consumer brokerage. Global Corporate and Investment
Banking had significant increases in trading account profits and invest-
ment banking income. Trading account profits increased $335 million, or
22 percent, to $1.8 billion driven by higher revenues from interest rate
contracts and equities and equity derivatives, partially offset by
decreases in fixed income activities and foreign exchange contracts.
Investment banking income increased $101 million to $1.5 billion, primar-
ily attributable to growth in equity underwriting. Equity Investments had
equity investment gains of $993 million, reflecting an increase of $247
million, and included gains in both the principal investing and strategic
technology and alliances areas.
. The provision for credit losses was $1.8$2.5 billion, in 1999 compared to $2.9
billion in 1998. The decrease in the provision for credit losses was
primarily due to a significant reduction in the inherent risk and size of
the Corporation's emerging markets portfolio and a change in the composition
of the loan portfolio from commercial real estate and foreign to more
consumer residential mortgage loans as well as a $467$715 million decline in net
charge-offs.increase.
Net charge-offs totaled $2.0were $2.4 billion, in 1999 compared to $2.5
billion in 1998, while net charge-offs as a percentageor 0.61 percent of average loans and
leases outstanding were 0.55 percent in 1999 compared to 0.71 percent in
1998. Commercial - domestic net charge-offs were significantly impacted in
1998 by a partial charge-off of a credit to a trading and investment firm,
D.E. Shaw Securities Group, L.P. and related entities (DE Shaw). In
addition, the decreaseleases. The increase in net charge-offs in 1999of $400 million, or six basis
points, was driven primarily by a reductionhigher losses in bankcard and consumer finance
10
losses which was partially offset by an increase inthe commercial - domestic
charge-offs.loan portfolio. Nonperforming assets were $5.5 billion, or 1.39 percent of
loans, leases and foreclosed properties at December 31, 2000, a $2.3 bil-
lion, or 53 basis point increase. The increase reflects a rise in
nonperforming loans in the commercial - domestic losses was attributable to
certain troubled industries, including healthcare and sub-prime finance.
o Gains on sales of securities were $240 million in 1999 compared to $1.0
billion in 1998. Securities gains were higher in 1998 as a result of
favorable market conditions for certain debt instruments and higher activity
in connection withloan portfolio, resulting
from credit deterioration which occurred during the Corporation's overall risk management operations.
o Noninterest income increased 15.4 percent to $14.1 billion in 1999. This
growth was attributable to higher levels of income from most categories,
including service charges on deposit accounts, mortgage servicing income,
investment banking income, trading account profits and fees, and credit card
income. Trading account profits and fees increased $1.3 billion to $1.5
billion in 1999 compared to $171 million in 1998 primarily due to higher
levels of revenue from equities, interest rate contracts and fixed income.
Prior year profits and fees were negatively impacted by a write-down of
Russian securities and losses in corporate bonds and commercial mortgages
due to widening spreads. Partially offsetting these increases was a decline
in other income, which reflected greater revenue from the sale of certain
businesses and higher securitization gains in 1998.
o Merger-related charges totaled $525 million and $1.8 billion in 1999 and
1998, respectively. The total $525 million charge for 1999 was attributable
to the Merger compared to $1.3 billion in 1998. See Note Twosecond half of the consolidated financial statements on page 64year,
and in the real estate secured consumer finance loan portfolio, resulting
from continued seasoning of earlier growth in this portfolio. The allowance
for additional information.
ocredit losses remained essentially unchanged at $6.8 billion at both
December 31, 2000 and December 31, 1999.
10
. Other noninterest expense decreased $755 millionremained essentially unchanged at $18.1 billion,
as increases due to $18.0 billion in 1999
compared to $18.7 billion in 1998. This decrease is primarily attributable
to merger-related savings, which lowered personnel, professional fees, other
general operating expenseinflation and general administrativebusiness growth were offset by productiv-
ity and other expense in
1999.investment initiatives.
Employee-Related Matters
Bank of America Pension Plan
The remainder of management's discussionCorporation and analysisthe BankAmerica 401(k) retirement plans were combined
effective June 30, 2000. With the introduction of the Corporation's
resultsrevised Bank of operationsAmerica
retirement plan, qualified employees from the former BankAmerica Corporation
who were currently active had a one-time opportunity to transfer certain
assets in their 401(k) plan account to their Bank of America Pension Plan
(pension plan) account effective August 4, 2000. The total amount of 401(k)
plan assets transferred to the pension plan was $1.3 billion. The pension plan
(which is a cash balance type of pension plan) has a balance guarantee fea-
ture, applied at the time a benefit payment is made from the plan, that pro-
tects the transferred portion of participants' accounts from future market
downturns. The Corporation is responsible for funding any shortfall on the
guarantee feature.
Productivity and financial condition shouldInvestment Initiatives
As part of its productivity and investment initiatives announced on July 28,
2000, the Corporation recorded a pre-tax restructuring charge of $550 million
($346 million after-tax) in 2000 which is included in merger and restructuring
charges in the Consolidated Statement of Income. As part of these initiatives
and in order to reallocate resources, the Corporation announced that it would
eliminate 9,000 to 10,000 positions, or six to seven percent of its workforce,
over a twelve-month period. Of the $550 million restructuring charge, approxi-
mately $475 million will be readused to cover severance and related costs and $75
million will be used for other costs related to process change and channel
consolidation. Over half of the severance and related costs are related to
management positions which were eliminated in conjunctiona review of span of control and
management structure. The restructuring charge includes severance and related
payments for 8,300 positions, which are company-wide and across all levels.
The difference between the 8,300 positions and the 10,000 positions initially
announced is expected to come from normal attrition. Through December 31,
2000, there were approximately 6,800 employees who had entered severance sta-
tus as part of these initiatives. The remaining 1,500 positions associated
with the consolidated financial statementsJuly 2000 growth initiative announcement have been identified, and
the employees in these positions will be notified by June 30, 2001. Cash pay-
ments applied to the restructuring reserve in 2000 were approximately $209
million primarily related notes presented on pages
52 through 99.to severance costs, and noncash reductions were $48
million, primarily related to restricted stock vesting accelerations. The
remaining restructuring reserve balance was $293 million at December 31, 2000.
Approximately $132 million of the remaining restructuring reserve is related
to future payments for employees who have entered severance status.
Processes are being reviewed across the Corporation to ensure that it is
organized around its customers and their needs. Significant process changes
and productivity improvements, primarily in the infrastructure of the opera-
tions, are expected in consumer real estate, payments processing, imaging,
commercial loan processing and branch support.
The savings that are identified are targeted for reinvestment in areas that
the Corporation believes provide the best growth opportunities. Among these
areas are e-commerce, asset management and private banking, card and payment
businesses and the investment banking platform.
11
Table One
Five-Year Summary of Selected Financial Data
- --------------------------------------------------------------------------------
(Dollars in millions,
except per share
information) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Operating Basis (1)
- -------------------Basis(/1/)
Income statement
Interest income $ 43,258 $ 37,323 $ 38,588 $ 37,333 $ 33,636
Interest expense 24,816 19,086 20,290 18,901 16,682
Net interest income 18,442 18,237 18,298 18,432 16,954
Net interest income
(taxable-equivalent
basis) 18,764 18,452 18,461 18,589 17,082
Provision for credit
losses 2,535 1,820 2,920 1,904 1,645
Gains on sales of
securities 25 240 1,017 271 147
Noninterest income 14,489 14,069 12,189 11,756 9,604
Other noninterest
expense 18,083 17,986 18,741 17,625 15,351
Income before income
taxes 12,338 12,740 9,843 10,930 9,709
Income tax expense 4,475 4,500 3,353 4,124 3,651
Net income 7,863 8,240 6,490 Net income available to common shareholders 8,234 6,4656,806 6,058
- -------------------------------------------------------------------------------------
Performance ratios
Return on average assets 1.17% 1.34% 1.11% 1.25% 1.25%
Return on average common
shareholders' equity 16.70 17.70 14.54 15.88 17.04
Efficiency ratio 54.38 55.30 61.15 58.08 57.52
Shareholder value added $ 3,081 $ 3,544 $ 2,056 $ 2,603 $ 2,477
- -------------------------------------------------------------------------------------
Per common share data
Earnings $ 4.77 $ 4.77 $ 3.73 $ 3.86 $ 3.58
Diluted earnings 4.72 4.68 3.64 3.76 3.51
- -------------------------------------------------------------------------------------
Cash basis financial
data (2)data(/2/)
Earnings $ 8,727 $ 9,128 $ 7,392 $ 7,661 $ 6,602
Earnings per common
share 5.30 5.28 4.25 4.36 3.91
Diluted earnings per
common share 5.24 5.19 4.15 4.24 3.84
Return on average
tangible assets 1.33% 1.52% 1.30% 1.45% 1.39%
Return on average
tangible common
shareholders' equity 26.06 28.46 25.24 27.77 24.60
Efficiency ratio 51.78 52.57 58.20 55.27 55.49
- -------------------------------------------------------------------------------------
As Reported
- -----------
Income statement
Merger-relatedMerger and restructuring
charges net$ 550 $ 525 $ 1,795 $ 374 $ 398
Income before income
taxes 11,788 12,215 8,048 10,556 9,311
Income tax expense 4,271 4,333 2,883 4,014 3,498
Net income 7,517 7,882 5,165 6,542 5,813
Net income available to
common shareholders 7,511 7,876 5,140 6,431 5,611
Average common shares
issued and outstanding
(in thousands) 1,646,398 1,726,006 1,732,057 1,733,194 1,638,382
- -------------------------------------------------------------------------------------
Performance ratios
Return on average assets 1.12% 1.28% .88%0.88% 1.20% 1.20%
Return on average common
shareholders' equity 15.96 16.93 11.56 15.26 16.32
Total equity to total
assets (at year end) 7.42 7.02 7.44 7.81 7.91
Total average equity to
total average assets 7.02 7.55 7.67 8.02 7.61
Dividend payout ratio 45.02 40.54 50.18 32.09 30.05
- -------------------------------------------------------------------------------------
Per common share data
Earnings $ 4.56 $ 4.56 $ 2.97 $ 3.71 $ 3.42
Diluted earnings 4.52 4.48 2.90 3.61 3.36
Cash dividends paid 2.06 1.85 1.59 1.37 1.20
Book value 29.47 26.44 26.60 25.49 22.10
- -------------------------------------------------------------------------------------
Cash basis financial
data (2)data(/2/)
Earnings $ 8,381 $ 8,770 $ 6,067 $ 7,397 $ 6,357
Earnings per common
share 5.09 5.08 3.49 4.20 3.76
Diluted earnings per
common share 5.03 4.98 3.41 4.09 3.69
Return on average
tangible assets 1.27% 1.46% 1.07% 1.40% 1.34%
Return on average
tangible common
shareholders' equity 25.03 27.34 20.70 26.80 23.65
Ending tangible equity
to tangible assets 5.48 4.92 5.18 5.19 6.31
- -------------------------------------------------------------------------------------
Balance sheet (at year
end)
Total loans and leases $ 392,193 $ 370,662 $ 357,328 $ 342,140 $ 317,709
Total assets 642,191 632,574 617,679 570,983 477,702
Total deposits 364,244 347,273 357,260 346,297 309,100
Long-term debt 67,547 55,486 45,888 42,887 40,041
Trust preferred
securities 4,955 4,955 4,954 4,578 2,942
Common shareholders'
equity 47,556 44,355 45,866 43,907 35,429
Total shareholders'
equity 47,628 44,432 45,938 44,584 37,793
- -------------------------------------------------------------------------------------
Risk-based capital
ratios (at year
end) (3)(/3/)
Tier 1 capital 7.50% 7.35% 7.06% 6.50% 7.76%
Total capital 11.04 10.88 10.94 10.89 12.66
Leverage ratio 6.12 6.26 6.22 5.57 7.09
- -------------------------------------------------------------------------------------
Market price per share
of common stock
Closing $ 50 3/1645.88 $ 60 1/850.19 $ 60.13 $ 60.81 $ 48.88
High 76 3/8 88 7/1661.00 76.38 88.44 71.69 52.63
Low 47 5/8 44
=========================================================================================
(Dollars in millions, except per share information) 1997 1996 199536.31 47.63 44.00 48.00 32.19
- ------------------------------------------------------------------------------------------------------
Operating Basis (1)
- -------------------
Income statement
Interest income $ 37,333 $ 33,636 $ 32,158
Interest expense 18,901 16,682 16,369
Net interest income 18,432 16,954 15,789
Net interest income (taxable-equivalent basis) 18,589 17,082 15,824
Provision for credit losses 1,904 1,645 945
Gains on sales of securities 271 147 68
Noninterest income 11,756 9,604 8,132
Other noninterest expense 17,625 15,351 14,667
Income before income taxes 10,930 9,709 8,377
Income tax expense 4,124 3,651 3,230
Net income 6,806 6,058 5,147
Net income available to common shareholders 6,695 5,856 4,896
Performance ratios
Return on average assets 1.25% 1.25% 1.13%
Return on average common shareholders' equity 15.88 17.04 15.52
Efficiency ratio 58.08 57.52 61.22
Per common share data
Earnings $ 3.86 $ 3.58 $ 3.03
Diluted earnings 3.76 3.51 2.98
Cash basis financial data (2)
Earnings per common share 4.36 3.91 3.38
Diluted earnings per common share 4.24 3.84 3.32
Return on average tangible assets 1.45% 1.39% 1.27%
Return on average tangible common shareholders' equity 27.77 24.60 23.56
Efficiency ratio 55.27 55.49 58.89
As Reported
- -----------
Income statement
Merger-related charges, net $ 374 $ 398 $ --
Income before income taxes 10,556 9,311 8,377
Income tax expense 4,014 3,498 3,230
Net income 6,542 5,813 5,147
Net income available to common shareholders 6,431 5,611 4,896
Average common shares issued and outstanding (in thousands) 1,733,194 1,638,382 1,613,404
Performance ratios
Return on average assets 1.20% 1.20% 1.13%
Return on average common shareholders' equity 15.26 16.32 15.52
Total equity to total assets (at year end) 7.81 7.91 7.86
Total average equity to total average assets 8.02 7.61 7.51
Dividend payout ratio 32.09 30.05 29.13
Per common share data
Earnings $ 3.71 $ 3.42 $ 3.03
Diluted earnings 3.61 3.36 2.98
Cash dividends paid 1.37 1.20 1.04
Book value 25.49 22.10 20.89
Cash basis financial data (2)
Earnings per common share 4.20 3.76 3.38
Diluted earnings per common share 4.09 3.69 3.32
Return on average tangible assets 1.40% 1.34% 1.27%
Return on average tangible common shareholders' equity 26.80 23.65 23.56
Ending tangible equity to tangible assets 5.19 6.31 6.19
Balance sheet (at year end)
Total loans and leases $ 342,140 $ 317,709 $ 302,804
Total assets 570,983 477,702 461,775
Total deposits 346,297 309,100 296,316
Long-term debt 42,887 40,041 34,349
Common shareholders' equity 43,907 35,429 33,532
Total shareholders' equity 44,584 37,793 36,295
Risk-based capital ratios (at year end) (3)
Tier 1 capital 6.50% 7.76% 7.24%
Total capital 10.89 12.66 11.58
Leverage ratio 5.57 7.09 6.27
Market price per share of common stock
Closing $ 60 13/16 $ 48 7/8 $ 34 13/16
High 71 11/16 52 5/8 37 3/8
Low 48 32 3/16 22 5/16
=====================================================================================================-------------------------------------------------------------------------------------
(1) Operating basis excludes merger-relatedmerger and restructuring charges.
(2) Cash basis calculations exclude goodwill and other intangible assets and
theirthe related amortization expense.
(3) Ratios prior to 1998 have not been restated to reflect the impact of the
BankAmerica and Barnett mergers.
12
Business Segment Operations
The Corporation provides a diversified range of banking and certain
nonbanking
financial services and products through its various subsidiaries. Management reportsIn 2000, the
Corporation realigned its business segments to report the results of the Corporation'sCor-
poration's operations through four business segments: Consumer Banking,and Commercial
Banking, Asset Management, Global Corporate and Investment Banking and Principal Investing and Asset Management.Equity
Investments.
The business segments summarized in Table Two are primarily managed with a
focus on various performance objectivesmeasures including total revenue, net income,
shareholder value added (SVA), return on average equity and operating efficiency. These
performance objectivesmeasures are also presented on a cash basis which excludes the
impact of goodwill and other intangible assets and their related amortization
expense. Total revenue includes net interest income on a taxable-equivalent
basis and noninterest income. The net interest incomeyield of the business segments
reflects the results of a funds transfer pricing process which derives net
interest income by matching assets and liabilities with similar interest rate
sensitivity and maturity characteristics. Equity capital is allocated to each business
segment based on an assessment of its inherent risk. SVA is a new performance
measure that is better aligned with the Corporation's growth strategy orienta-
tion and strengthens the Corporation's focus on generating shareholder value.
SVA is defined as cash basis operating earnings less a charge for the use of
capital. The capital charge is calculated by multiplying 12 percent (manage-
ment's estimate of the shareholder's minimum required rate of return on capi-
tal invested) by average total common shareholders' equity (at the Corporation
level) and by average allocated equity (at the business segment level).
See Note SeventeenNineteen of the consolidated financial statements on page 95 for additional
business segment information and reconciliations to consolidated amounts.
Additional information on noninterest income can be found in the "Noninterest
Income" section beginning on page 25. Certain prior period amounts have been
reclassified between segments and their components (presented after Table Two)
to conform to the current period presentation.
13
Table Two
Business Segment Summary
- -------------------------------------------------------------------------------
For the year ended
December 31
Consumer and Global Corporate
Commercial Asset and Investment Equity
Banking(/2/) Management(/2/) Banking(/2/) Investments(/2/)
------------------ ---------------- ------------------ ------------------
(Dollars in millions) 2000 1999 2000 1999 2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------
Net interest income(/1/) $ 13,656 $ 13,681 $ 641 $ 580 $ 4,278 $ 3,904 $ (143) $ (89)
Noninterest income 6,965 7,398 1,643 1,561 4,687 4,338 1,007 775
- ------------------------------------------------------------------------------------------------------
Total revenue 20,621 21,079 2,284 2,141 8,965 8,242 864 686
Net income 4,643 4,756 601 510 2,052 2,292 460 330
Cash basis earnings 5,311 5,450 625 535 2,213 2,450 471 341
Shareholder value added 2,417 2,593 413 330 556 848 243 176
Net interest yield 4.82% 5.24% 2.78% 2.98% 2.07% 2.13% n/m n/m
Average equity to
average assets 7.77 8.26 7.41 8.39 5.64 6.14 34.70% 36.44%
Return on average equity 19.2 20.0 34.0 29.9 14.9 17.2 24.3 24.1
Return on tangible
equity 27.4 29.1 39.3 35.3 17.7 20.4 25.9 26.3
Efficiency ratio 55.8 57.0 55.0 57.6 57.1 55.9 12.7 18.6
Cash basis efficiency
ratio 52.6 53.7 53.9 56.4 55.3 54.0 11.4 17.0
Average:
Total loans and leases $258,848 $235,966 $22,130 $18,725 $111,323 $108,246 $ 436 $ 309
Total deposits 255,153 251,580 11,366 11,405 69,980 65,057 14 9
Total assets 310,457 288,298 23,814 20,306 244,893 217,498 5,460 3,768
Year end:
Total loans and leases $256,666 $243,580 $23,717 $20,601 $111,295 $106,203 $ 497 $ 402
Total deposits 262,202 254,596 12,360 11,173 70,108 64,708 35 3
Total assets 314,207 295,785 26,302 22,040 225,080 222,458 6,703 4,914
- ------------------------------------------------------------------------------------------------------
n/m = not meaningful
(1) Net interest income is presented on a taxable-equivalent basis.
(2) There were no material intersegment revenues among the four business seg-
ments.
Consumer and Commercial Banking
The Consumer and Commercial Banking segment provides comprehensive retail bankinga wide array of products and serv-
ices to individuals, small businesses and middle market companies through mul-
tiple delivery channels.
The Corporation's market share in the consumer and commercial businesses is
significant across some of the fastest growing regions of the United States.
The Corporation continues its strategy of focusing entirely on the customer in
terms of sales and service. The results in 2000 also reflect the Corporation's
continued focus on Card Services as a growth area as end of period managed
consumer card outstandings increased 16 percent, debit and credit card pur-
chase volume increased 17 percent and merchant processing volume increased 18
percent. The Corporation also experienced success in the middle market banking
business by providing more investment banking services to individualsits commercial cus-
tomer base.
Consumer and small businesses through multiple
delivery channels including approximately 4,500 banking centersCommercial Banking
-----------------------------------------------------------
Year Ended
December 31
----------------
(Dollars in millions) 2000 1999
-----------------------------------------------
Net interest income $13,656 $13,681
Noninterest income 6,965 7,398
-----------------------------------------------
Total revenue 20,621 21,079
Cash basis earnings 5,311 5,450
Shareholder value added 2,417 2,593
Cash basis efficiency ratio 52.6% 53.7%
-----------------------------------------------
. Total revenue included charges related to the deterioration of auto lease
residual values of $455 million and 14,000
automated teller machines (ATMs)$71 million in 2000 and 1999, respec-
tively. Net interest income and noninterest income included auto lease
residual charges of $155 million and $300 million, respectively, in 2000
and $48 million and $23 million, respectively, in 1999.
14
. These banking centersNet interest income was essentially flat as loan growth of five percent
was offset by spread compression and ATMshigher auto lease residual charges.
. Strong card income growth of 11 percent and higher service charges for
the year were offset by higher auto lease residual charges, lower mort-
gage servicing income and lower gains on loan sales and securitizations.
The decline in mortgage servicing income was the result of an adjustment
to mortgage servicing rights in the prior year to reflect lower expected
mortgage prepayments.
. Excluding auto lease residual charges in 2000 and 1999, cash basis earnings
for the year ended December 31, 2000 rose two percent due to a decline in
expenses.
. Noninterest expense was down four percent due to productivity and growth
initiatives even as the Corporation increased investments in Card Serv-
ices, e-commerce and marketing.
. The provision for credit losses decreased four percent due to improved
credit quality in the credit card portfolio, partially offset by credit
deterioration within commercial banking.
The major components of Consumer and Commercial Banking are located
principally throughout the Corporation's franchiseBanking Regions,
Consumer Products and serve approximately 30
millionCommercial Banking.
Banking Regions
Banking Regions serves consumer households in 21 states and the District of
Columbia. This segmentColumbia and overseas through its extensive network of approximately 4,500
banking centers, 13,000 ATMs, telephone and Internet channels on
www.bankofamerica.com. Banking Regions provides a wide array of products and
services, including deposit products such as checking, money market savings
accounts, time deposits and IRAs, and credit products such as home equity,
mortgage, personal auto loans and auto leasing. Banking Regions also includes
small business banking providing treasury management, credit services, commu-
nity investment, debit card, e-commerce and brokerage services to over two
million small business relationships across the franchise.
Banking Regions
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $8,456 $8,437
Noninterest income 3,584 3,415
---------------------------------------------
Total revenue 12,040 11,852
Cash basis earnings 3,095 2,898
Shareholder value added 1,739 1,488
Cash basis efficiency ratio 57.8% 61.5%
---------------------------------------------
. Total revenue for the year ended December 31, 2000 increased two percent
primarily due to a rise in noninterest income while net interest income
remained essentially unchanged.
. Loan growth, primarily in home equity lending, and deposit growth had a
positive effect on net interest income but was offset by spread compres-
sion and 1999 loan sales.
. Noninterest income increased five percent primarily due to a 44 percent
increase in card income driven by a higher number of active debit cards
and a higher number of debit card transactions per account and an
increase in consumer service charges of five percent throughout all
Banking Regions.
. Cash basis earnings increased seven percent for the year ended December 31,
2000, primarily attributable to a decrease in noninterest expense. The
decrease in noninterest expense was driven by merger-related savings and
lower one-time merger transition costs.
15
Consumer Products
Consumer Products provides specialized services such as the origination and
servicing of residential mortgage loans, issuance and servicing of credit
and debit cards, direct banking via telephone and internet,Internet, student lending and certain
insurance services. The consumer finance componentConsumer Products also provides mortgage, home
equity and automobileauto loans, to consumers, retail finance
programs to dealersdealerships and lease financing to purchasers of new and used cars.
Consumer Banking's net income remained essentially unchanged at $3.9
billion in 1999 compared to 1998. Taxable-equivalent net interest income
decreased $283 million to $11.5 billion in 1999 from $11.8 billion in 1998,
reflecting the impact of securitizations, loan sales, divestitures and lower
loan spreads, particularly in consumer finance, partially offset by managed
loan growth and increased core deposit levels. As the Corporation continues to
securitize loans, its role becomes that of a servicer and the servicing income,
as well as the gains on securitizations, are reflected in noninterest income.
Average managed loans and leases increased $25.6 billion to $203.0 billion in
1999 compared to $177.4 billion in 1998. Average total deposits increased
slightly to $229.7 billion from $228.9 billion in 1998, and reflected a
favorable shift toward more core deposits. The net interest yield increased
five basis points during 1999 to 4.93 percent from 4.88 percent in 1998.
Noninterest income in Consumer Banking declined $93 million in 1999 to
$6.5 billion from $6.6 billion in 1998, due to lower other income resulting
from gains realized on the sale of a manufactured housing unit and the sale of
real estate included in premises and equipment during 1998. The decline in
other income was partially offset by increased mortgage servicing and
production fees and credit card income. Mortgage servicing and production fees
increased $145 million to $662 million in 1999 compared to $517 million in
1998, primarily due to benefits from slower prepayments, reductions in the cost
to service loans and higher revenue from portfolio growth.
Other noninterest expense decreased $479 million to $10.5 billion in 1999
from $11.0 billion in 1998 primarily due to reductions in personnel expense,
data processing expense and other general operating expense. These decreases
mainly reflect successful merger-related savings efforts. The efficiency ratio
improved to 58.5 percent in 1999 compared to 59.9 percent in 1998. The cash
basis efficiency ratio improved 160 basis points to 55.0 percent in 1999,
compared to 56.6 percent in 1998. The return on average equity increased to
19.9 percent in 1999 from 19.2 percent in 1998. The return on tangible equity
increased to 30.4 percent in 1999 compared to 29.3 percent in 1998.
13
Commercial Banking
The Commercial Banking segment provides a wide range of commercial banking
services for businesses with annual revenues of up to $500 million. Services
provided include commercial lending, treasury and cash management services,
asset-backed lending and factoring. Also included in this segment are the
Corporation's commercial finance operations which provide equipment loans and
leases, loans for debt restructuring, mergers and working capital, real estate
and health care financing and inventory financing to manufacturers,
distributors and dealers.
Commercial Banking's net income decreased $75 million to $878 million in
1999 compared to $953 million in 1998 primarily due to increased provision
expense. Taxable-equivalent netProducts
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $3,108 $3,091
Noninterest income 2,447 3,102
---------------------------------------------
Total revenue 5,555 6,193
Cash basis earnings 1,456 1,628
Shareholder value added 434 681
Cash basis efficiency ratio 44.0% 42.8%
---------------------------------------------
. Net interest income remained essentially unchanged at $2.2 billionyear-over-year as loan
growth was offset by charges related to the deterioration of auto lease
residual values.
. Managed Consumer Card Services' core business experienced 10 percent growth
in core noninterest income primarily due to a 10 percent increase in its
average core loan portfolio. This increase was offset by higher auto lease
residual charges, lower mortgage servicing income and gains on loan sales
and securitizations in 1999.
. The four percent increase in cash basis earnings for the yearsyear ended Decem-
ber 31, 2000, excluding auto lease residual charges in 2000 and 1999, was
primarily due to a decrease in noninterest expense.
. Noninterest expense decreased seven percent and was driven by expense
reduction initiatives.
. The provision for credit losses decreased 20 percent primarily due to
improved credit quality in the credit card portfolio.
Commercial Banking
Commercial Banking provides commercial lending and treasury management serv-
ices to middle market companies with annual revenue between $10 million and
$500 million. These services are available through relationship manager teams
as well as through alternative channels such as the telephone via the commer-
cial service center and the Internet by accessing Bank of America Direct.
Commercial Banking
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $2,092 $2,153
Noninterest income 934 881
---------------------------------------------
Total revenue 3,026 3,034
Cash basis earnings 760 924
Shareholder value added 244 424
Cash basis efficiency ratio 47.8% 45.9%
---------------------------------------------
. Noninterest income increased six percent and was offset by a three percent
decrease in net interest income. Total revenue for the year ended December
31, 2000 remained essentially unchanged.
. The increase in noninterest income was attributable to higher middle
market investment banking fees and higher corporate service charges.
. Net interest income decreased primarily due to spread compression.
16
. An increase in the provision for credit losses and higher noninterest
expense resulted in an 18 percent decline in cash basis earnings for the
year ended December 31, 2000.
. The provision for credit losses more than doubled as a result of credit
deterioration in the commercial- domestic loan portfolio.
. Noninterest expense increased three percent primarily due to higher
expenses related to the increase in the middle market investment banking
business.
Asset Management
Asset Management includes the Private Bank, Banc of America Capital Manage-
ment and Banc of America Investment Services, Inc. The Private Bank offers
financial solutions to high-net-worth clients and foundations in the U.S. and
internationally by providing customized asset management and credit, financial
advisory, fiduciary, trust and banking services. Banc of America Capital Man-
agement offers management of equity, fixed income, cash, and alternative
investments; manages the assets of individuals, corporations, municipalities,
foundations and universities, and public and private institutions; and pro-
vides advisory services to the Corporation's affiliated family of mutual
funds. Banc of America Investment Services, Inc. provides both full-service
and discount brokerage services through investment professionals located
throughout the franchise and a brokerage web site that provides customers a
wide array of market analyses, investment research and self-help tools,
account information and transaction capabilities.
The Corporation's strategy to focus on and grow the asset management busi-
ness is evident in the results for 2000. The 12 percent growth in assets under
management since December 31, 1999 and 1998, primarily
reflecting loanthe seven percent growth in revenue for
the year ended December 31, 2000 reveal that customers are buying more invest-
ment products from the Corporation's Asset Management group. Assets under man-
agement rose $30 billion to $277 billion at December 31, 2000 compared to
December 31, 1999. Assets of the Nations Funds family of mutual funds reached
$107 billion at December 31, 2000, driven by increases in equity, fixed income
and depositmoney market funds.
Effective January 2, 2001, the Corporation acquired the remaining 50 percent
of Marsico Capital Management LLC (Marsico) for a total investment of $1.1
billion. The Corporation acquired the first 50 percent in 1999. Marsico is a
Denver-based investment management firm specializing in large capitalization
growth offset by lower loan spreadsstocks. Marsico manages $15 billion in assets and has experienced com-
pounded annual revenue growth of over 460 percent since its inception in 1997.
The Corporation expects Marsico to benefit the Corporation's marketing of
investment capabilities to financial intermediaries and institutional clients.
Asset Management
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $ 641 $ 580
Noninterest income 1,643 1,561
---------------------------------------------
Total revenue 2,284 2,141
Cash basis earnings 625 535
Shareholder value added 413 330
Cash basis efficiency ratio 53.9% 56.4%
---------------------------------------------
. Total revenue increased seven percent for the year ended December 31, 2000.
The increase was attributable to increases in both net interest income and
noninterest income.
. Net interest income increased 11 percent due to competitive pricing and changesstrong loan growth in
the product composition. Commercial
Banking's average managedcommercial loan and lease portfolio during 1999 increased
slightly to $55.4 billion compared to $53.5 billion during 1998.portfolio.
. Noninterest income increased $164 million to $894 million in 1999 from
$730 million in 1998. This increase included higher revenue from investment
banking activities.
Other noninterest expense for the period increased $88 million to $1.5
billion in 1999 from $1.4 billion in 1998,five percent primarily due to increased
investment and brokerage fees driven by new asset management business
and market growth combined with productivity increases in consumer bro-
kerage, partially offset by gains in 1999 on the disposition of certain
businesses.
17
. Cash basis earnings increased 17 percent for the year ended December 31,
2000.
. The increase in total revenue discussed above was partially offset by an
increase in other general operatingnoninterest expense.
The efficiency ratio improved to 47.8. Noninterest expense increased two percent reflecting one-time business
divestiture expenditures in 1999 from 48.1 percent2000 and significant investments in 1998. The cash basis efficiency ratio increased
130 basis points to 45.9 percentnew pri-
vate banking offices and in 1999 from 44.6 percent in 1998. Return on
average equity increased to 20.7 percent in 1999 from 20.1 percent in 1998. The
return on tangible equity decreased to 24.6 percent in 1999 compared to 27.1
percent in 1998.sales personnel throughout the asset manage-
ment businesses during the year.
Global Corporate and Investment Banking
The Global Corporate and Investment Banking segment provides a broad array of financial
productsservices such as investment banking, trade finance, treasury management, capitalcapi-
tal markets, leasing and financial advisory services to domestic and internationalinterna-
tional corporations, financial institutions and government entities. Clients
are supported through offices in 37 countries in four distinct geographic
regions: U.S. and Canada; Asia; Europe, Middle East and Africa; and Latin
America. Products and services provided include loan origination, merger and
acquisition advisory, debt and equity underwriting and trading, cash management,manage-
ment, derivatives, foreign exchange, leasing, leveraged finance, project
finance, real estate finance, senior bank debt, structured finance and trade
services.
The Corporation continues to focus on the investment banking business and
continues to see success in building investment banking capabilities off of
its strong corporate banking base. This success is evident in the growth in
investment banking income in 2000 and Banc of America Securities LLC's top ten
U.S. league table rankings in all key product areas.
Global Corporate and Investment Banking
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $4,278 $3,904
Noninterest income 4,687 4,338
---------------------------------------------
Total revenue 8,965 8,242
Cash basis earnings 2,213 2,450
Shareholder value added 556 848
Cash basis efficiency ratio 55.3% 54.0%
---------------------------------------------
. For the year ended December 31, 2000, total revenue increased nine percent
due to growth in both net interest income and noninterest income. This
growth was the result of the success in investment banking activities and
an increase in trading account profits driven by very favorable market con-
ditions in the first quarter of 2000.
. Net interest income increased 10 percent as a result of higher trading-
related activities and increases in the commercial-domestic loan portfo-
lio.
. Noninterest income increased eight percent due to continued growth in
equities and equity derivatives trading, equity underwriting and advi-
sory services.
. Cash basis earnings decreased 10 percent for the year ended December 31,
2000 primarily due to an increase in noninterest expense and provision for
credit losses.
. Higher revenue was offset by an 11 percent increase in noninterest
expense primarily from higher revenue-related incentive compensation,
costs related to the rationalization of operations in Colombia and Vene-
zuela and gains on sales of other assets in the prior year.
. The provision for credit losses increased $553 million due to credit
quality deterioration in the commercial-domestic loan portfolio of Global
Credit Products.
Global Corporate and Investment Banking offers clients a comprehensive range
of global capabilities through four components: Global Credit Products, Global
Capital Raising, Global Markets, and Global Treasury Services.
18
Global Credit Products
Global Credit Products provides credit and lending services and includes the
corporate industry-focused portfolio, real estate, leasing and project
finance.
Global Credit Products
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $2,486 $2,478
Noninterest income 580 632
---------------------------------------------
Total revenue 3,066 3,110
Cash basis earnings 1,112 1,511
Shareholder value added 101 530
Cash basis efficiency ratio 23.5% 21.6%
---------------------------------------------
. Net interest income remained essentially unchanged primarily from slight
loan growth offset by narrower spreads. Lower fees in real estate banking
activities drove the decline in other income causing a decrease of eight
percent in noninterest income. For the year ended December 31, 2000, total
revenue declined two percent.
. A $518 million increase in the provision for credit losses was driven by
credit deterioration in the commercial-domestic portfolio, including write-
downs of several large credits in various industries, and resulted in a 26
percent decline in cash basis earnings.
Global Capital Raising
Global Capital Raising includes the Corporation's investment banking activi-
ties. Through a separate subsidiary, Banc of America Securities LLC, formerly NationsBanc Montgomery Securities, Global
Corporate and Investment
Banking is a primary dealer of U.S. Government securities,Capital Raising underwrites and makes markets in equity securities, and underwrites and deals in high-grade
and high-yield corporate debt securities, commercial paper, mortgage-backedand mortgage-
backed and asset-backed securities, federal agencies securities and municipal securities. Banc of America Securities LLC also providespro-
vides correspondent clearing services for other securities broker/dealers,
offers traditional brokerage serviceservices to high-net-worth individuals and provides prime-brokerageprime-broker-
age services. Debt and equity securities research, loan syndications, mergers
and acquisitions advisory services, and private placements and equity derivatives
are also provided through Banc of America Securities LLC.
Additionally,Global Capital Raising
-----------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $ 466 $ 204
Noninterest income 2,371 1,856
---------------------------------------------
Total revenue 2,837 2,060
Cash basis earnings 412 212
Shareholder value added 66 (58)
Cash basis efficiency ratio 77.7% 87.2%
---------------------------------------------
. Total revenue grew 38 percent for the year ended December 31, 2000 due pri-
marily to the continued growth and success of the investment banking plat-
form.
. Net interest income more than doubled as revenues increased to $466 mil-
lion primarily from higher equities and equity derivatives trading.
. Noninterest income rose 28 percent driven by a significant increase in
both equity and equity derivative trading account profits and higher
investment banking income. The growth in investment banking income was
driven by increases in equity underwriting and advisory services while
fixed income remained flat reflecting market conditions.
. Cash basis earnings nearly doubled with a $200 million increase for the
year ended December 31, 2000, representing almost 19 percent of the total
cash basis earnings of Global Corporate and Investment Banking. These
results were led by revenue growth partially offset by the increase in non-
interest expense due to higher revenue-related incentive compensation and
the expansion of the investment banking platform.
19
Global Markets
Global Markets provides risk management solutions for a global customer base
using interest rate and credit derivatives, foreign exchange products, commod-
ity derivatives and mortgage-related products. In support of these activities,
the businesses will take positions in these products and capitalize on market-
making activities. The Global Markets business also takes an active role in
the trading of fixed income securities in all of the regions in which Global
Corporate and Investment Banking transacts business and is a market makerprimary dealer in
derivative productsthe U.S., as well as in several international locations.
Global Markets
---------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $ 731 $ 600
Noninterest income 976 1,104
---------------------------------------------
Total revenue 1,707 1,704
Cash basis earnings 454 511
Shareholder value added 274 269
Cash basis efficiency ratio 58.2% 55.6%
---------------------------------------------
. Net interest income increased 22 percent for the year ended December 31,
2000. This was offset by a 12 percent decrease in noninterest income,
resulting in total revenue remaining essentially unchanged.
. The increase in net interest income was driven by trading strategies
which include swap agreements, option
contracts, forward settlement contracts, financial futures,resulted in balance sheet positions that had a favorable impact on
interest rate contract trading.
. Noninterest income declined due to lower trading account profits and
other derivative productsincome. The decrease in certaintrading account profits was due to the
declines in real estate and emerging markets sectors. The decrease in
other income was driven by a reduction in an equity investment from the
prior year.
. Cash basis earnings declined 11 percent for the year ended December 31,
2000 due to an increase in noninterest expense of five percent. The
increase in noninterest expense was a result of higher revenue-related
incentive compensation, primarily in derivatives and due to competitive
pressures.
Global Treasury Services
Global Treasury Services provides the technology, strategies and integrated
solutions to help financial institutions, government agencies and public and
private companies of all sizes manage their operations and cash flows on a
local, regional, national and global level.
Global Treasury Services
---------------------------------------------------------
Year Ended
December 31
--------------
(Dollars in millions) 2000 1999
---------------------------------------------
Net interest income $ 595 $ 622
Noninterest income 760 746
---------------------------------------------
Total revenue 1,355 1,368
Cash basis earnings 235 216
Shareholder value added 115 107
Cash basis efficiency ratio 77.1% 75.4%
---------------------------------------------
. Noninterest income increased two percent for the year ended December 31,
2000 driven by an increase in corporate service charges. Offsetting this
increase was a four percent decline in net interest income due to interest
rate foreign exchange, commoditypositions on U.S. deposits and equity markets. In supportnarrower spreads on offshore deposits.
The result was a one percent decline in revenue.
. The increase in cash basis earnings of these activities,nine percent for the year ended
December 31, 2000 was a result of a lower provision for credit losses
driven by credit upgrades and declining emerging markets exposure.
20
Equity Investments
Equity Investments includes Principal Investing, which formerly was a compo-
nent of Global Corporate and Investment Banking takes positions in securities and derivatives to support client demands
and for its own account.
Global Corporate and Investment Banking's net income increased
significantly to $2.3 billion in 1999 compared to $292 million in 1998, an
increase of $2.0 billion. Taxable-equivalent net interest income remained
essentially unchanged at $3.8 billion for the years ended December 31, 1999 and
1998, as slightly higher contributions from trading-related activities were
offset by strategic reductions in both the foreign and commercial real estate
loan portfolios and lower loan spreads. The average managed loan and lease
portfolio increased $1.2 billion to $111.9 billion in 1999 compared to $110.7
billion in 1998.
Noninterest income for 1999 increased $1.4 billion to $4.3 billion in 1999
from $2.9 billion in 1998, reflecting an increase in trading account profits
and fees in 1999 which was driven by strong activities in most areas,
particularly equity and advisory, as well as the write-down of Russian
securities and losses in corporate bonds in 1998.
14
Other noninterest expense decreased $110 million to $4.6 billion in 1999
from $4.7 billion in 1998, due primarily to decreased personnel expense and
other general operating expense. The efficiency ratio improved to 56.4 percent
in 1999 from 70.6 percent in 1998. The cash basis efficiency ratio improved to
54.5 percent for 1999 compared to 68.1 percent for 1998. Return on average
equity increased to 17.6 percent in 1999 from 2.3 percent in 1998. The return
on tangible equity increased to 21.1 percent in 1999 from 4.1 percent in 1998.Banking. Principal Investing is com-
prised of a diversified portfolio of companies at all stages of the business
cycle, from start up to buyout. Investments are made on both a direct and
Asset Management
The Principal Investing and Asset Management segment includes Principal
Investing and the three businesses of Asset Management. Principal Investing
includes direct equity investments in businesses and investments in general
partnership funds. Asset Management includes the Private Bank, Banc of America
Capital Management and Banc of America Investment Services, Inc. The Private
Bank offers financial solutions to high-net-worth clients and foundationsindirect basis in the U.S. and internationally by providing customized asset managementoverseas. Direct investing activity focuses on
playing an active role in the strategic and credit, financial advisory, fiduciary and trust services, and banking services.
Bancdirection of America Capital Management, offering management of equity, fixed
income, cash and alternative investments, manages the assets of individuals,
corporations, municipalities, foundations and universities, and public and
private institutions,portfo-
lio company as well as provides advisory servicesproviding broad business experience and access to the
Corporation's affiliated family of mutual funds. Banc of America Investment
Services, Inc. provides both full-serviceglobal resources. Indirect investments represent passive limited
partnership stakes in funds managed by experienced third party private equity
investors who act as general partners. Equity Investments also includes the
Corporation's strategic technology and discount brokerage services
throughalliances investment professionals located throughout the franchise and a
highly-rated brokerage website that provides customers a wide array of market
analyses, investment research and self-help tools, as well as account
information and transaction capabilities.
The Asset Management Group seeks to help all customers and clients
accumulate, grow and preserve their wealth by providing intellectual solutions
for their needs. These businesses continually build on their strong
capabilities and align with other lines of businesses within the Corporation to
strengthen partnerships to better meet the needs of all customers and clients.
Principal Investing and Asset Management's net income increased $350
million to $841 million in 1999 compared to $491 million in 1998.
Taxable-equivalent net interest income in 1999 increased $42 million to $501
million compared to $459 million in 1998, reflecting strong loan growth in
commercial and residential mortgage loans partially offset by spread
compression on loans and deposits. The average managed loan and lease portfolio in 1999 increased $3.8 billionaddi-
tion to $19.0 billion compared to $15.2 billion
during 1998.
Noninterest income for 1999 increased $410 million to $2.3 billion in 1999
compared to $1.9 billion in 1998, primarily attributable to growth in principal
investing income, brokerage income and asset management fees. Principal
investing income reflected continued growth in this business and a gain on the
sale of an investment in a sub-prime mortgage lender in 1999. Brokerage income
and asset management fees had strong core growth during 1999 which was somewhat
offset by the sale of the investment management operations of Robertson
Stephens.
Other noninterest expense decreased $236 million to $1.4 billion in 1999
from $1.6 billion in 1998, due primarily to lower personnel expense,
professional fees, other general operating expense and processing expense. The
efficiency ratio improved to 48.0 percent in 1999 from 67.1 percent in 1998.
The cash basis efficiency ratio improved to 46.7 percent in 1999 from 65.9
percent in 1998. Return on average equity increased to 26.9 percent in 1999
from 20.1 percent in 1998. The return on tangible equity increased to 30.7
percent in 1999 from 22.8 percent in 1998.
15
Table Two
Business Segment Summaryparent company investments.
Equity Investments
-----------------------------------------------------------
Consumer Banking Commercial Banking
--------------------- -----------------------Year Ended
December 31
------------
(Dollars in millions) 2000 1999
1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $ 3,899 $ 3,879 $ 878 $ 953(143) $(89)
Noninterest income 1,007 775
-------------------------------------------
Total revenue 864 686
Cash basis earnings (1) 4,537 4,485 935 1,054
Net interest yield 4.93% 4.88% 3.93% 3.97%
Average equity to average assets 7.53 7.59 7.13 7.92
Return on average equity 19.9 19.2 20.7 20.1
Return on tangible equity (1) 30.4 29.3 24.6 27.1
Efficiency ratio 58.5 59.9 47.8 48.1471 341
Shareholder value added 243 176
Cash basis efficiency ratio (1) 55.0 56.6 45.9 44.6
Average:
Total loans and leases $181,278 $169,251 $55,421 $53,887
Total deposits 229,652 228,938 22,124 20,342
Total assets 259,980 265,889 59,392 59,931
Year-end:
Total loans and leases 186,950 171,252 57,508 56,330
Total deposits 228,481 233,317 26,389 23,942
Total assets 255,401 271,695 63,066 61,772
==================================================================================11.4% 17.0%
-------------------------------------------
Principal Investing
Global Corporate and and
Investment Banking Asset Management
------------------------ ---------------------
(Dollars in millions) 1999 1998 1999 1998
- ---------------------------------------------------------------------------------
Net income $ 2,254 $ 292 $ 841 $ 491
Cash basis earnings (1) 2,412 460 876 518
Net interest yield 2.10% 2.12% 2.57% 2.94%
Average equity to average assets 5.88 5.84 13.30 12.77
Return on average equity 17.6 2.3 26.9 20.1
Return on tangible equity (1) 21.1 4.1 30.7 22.8
Efficiency ratio 56.4 70.6 48.0 67.1
Cash basis efficiency ratio (1) 54.5 68.1 46.7 65.9
Average:
Total loans and leases $107,514 $109,543 $19,034 $15,174
Total deposits 64,702 64,262 11,416 11,784
Total assets 217,409 217,709 23,482 19,173
Year-end:
Total loans and leases 105,315 112,903 21,004 17,810
Total deposits 64,195 67,827 11,179 12,542
Total assets 223,930 229,441 26,004 21,579
=================================================================================
(1) Cash. For the year ended December 31, 2000, both revenue and cash basis calculations exclude goodwillearnings
were up substantially. Total revenue growth was 26 percent and other intangible assetscash basis
earnings increased 38 percent.
. Net interest income consists primarily of the funding cost associated
with the carrying value of investments.
. Equity investment gains increased $247 million to $993 million and
their related amortization expense.
16included principal investing gains of $836 million and gains in the
strategic technology and alliances area of $232 million.
21
Results of Operations
Net Interest Income
An analysis of the Corporation's net interest income on a taxable-equivalent
basis and average balance sheet for the last three years and most recent five
quarters is presented in Tables ThreeFour and Twenty-One,Twenty-Four, respectively. The
changes in net interest income from year to year are analyzed in Table Four.Five.
As reported, net interest income on a taxable-equivalent basis remained
essentially unchanged at $18.5increased
$312 million to $18.8 billion in 19992000 compared to 1998.1999. Management also
reviews "Core"core net interest income",income," which adjusts reported net interest income
for the impact of trading-related activities, securitizations, asset sales and
divestitures. For purposes of internal analysis, management combines trading-relatedtrading-
related net interest income with trading revenue,account profits, as discussed in the
"Noninterest Income" section below,on page 27, as trading strategies are typically
evaluated based on total revenue. The determination of core net interest
income also requires adjustment for the impact of securitizations (primarily
home equity and credit card), asset sales (primarily residential mortgage and
commercial real estate loans) and divestitures. Net interest income associated
with assets that have been securitized is predominantly offset in noninterest
income, as the Corporation takes on the role of servicer and records servicing
income and gains on securitizations, where appropriate.
The tableTable Three below provides a reconciliation between net interest income on a
taxable-equivalent basis presented in Table ThreeFour and core net interest income
for the year ended December 31:
Table Three
- ------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 Change
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net interest income
As reported (1)reported(/1/) $ 18,764 $ 18,452 $ 18,461 (0.05)%1.69%
Less: Trading-related net interest income (662) (608)(1,028) (653)
Add: Impact of securitizations, asset sales and
divestitures 874 313596 246
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Core net interest income $ 18,66418,332 $ 18,166 2.74%18,045 1.59%
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Average earning assets
As reported $ 531,511 $ 499,739 6.36%583,467 $531,511 9.78%
Less: Trading-related earning assets (85,772) (71,576)(119,321) (81,304)
Add: Earning assets securitized, sold and
divested 20,105 5,95020,698 7,492
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Core average earning assets $ 465,844 $ 434,113 7.31%484,844 $457,699 5.93%
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net interest yield on earning assets (1,2)assets(/1/,/2/)
As reported 3.22% 3.47% 3.69% (22)(25)bp
Add: Impact of trading-related activities 0.52 0.48 40.57 0.47 10
Impact of securitizations, asset sales and
divestitures 0.03 0.02 1(0.01) 0.00 (1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Core net interest yield on earning assets 4.02% 4.19% (17)3.78% 3.94% (16)bp
======================================================================================================- ------------------------------------------------------------------------------
(1) Net interest income is presented on a taxable-equivalent basis.
(2) bp denotes basis points; 100 bp equals 1%.
Core net interest income on a taxable-equivalent basis increased $498
million, or 2.7 percent,was $18.3 billion in
2000 compared to $18.7$18.0 billion in 1999, compared to $18.2 billion in
1998.an increase of $287 million. Managed
loan growth, particularly in consumer loan products, and higher levels of corecustomer-
based deposits and equity were partially offset by the impact of
changing rates and spread compression, during 1999.the
cost of share repurchases and deterioration in auto lease residual values.
Core average earning assets increased $31.7were $484.8 billion in 2000, an increase of
$27.1 billion, compared to $465.8$457.7 billion in 1999, compared to $434.1 billion in 1998, primarily reflecting managedman-
aged loan growth of nine percent and higher levels of investment securities.10 percent. Managed consumer loans increased 1514 percent,
led by growth in residential mortgages, home equity lines and
real-estate secured consumer finance
loans of 21 percent and 34 percent,
respectively.loans. Loan growth is dependent on economic conditions, as well as various
discretionary factors, such as decisions to securitize certain loan portfolios
and the management of borrower, industry, product and geographic concentrations.concentra-
tions.
The core net interest yield decreased 1716 basis points to 4.023.78 percent in
2000 compared to 3.94 percent in 1999, compared to 4.19 percent in 1998, mainly due to higher levels of
lower-yielding investment securities, a shift in loan mix to lower-yielding
residential mortgages, changes in interest rates and spread compression, and the
cost of the Corporation's share repurchase program during 1999.
17repurchases and deterioration in auto lease residual values.
22
Table ThreeFour
Average Balances and Interest Rates --- Taxable-Equivalent Basis
- ------------------------------------------------------------------------------------------------------
2000 1999 1998
--------------------------------- --------------------------------------------------------------------------------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Earning assets
Time deposits placed and
other short-term
investments $ 4,863 $ 336 6.91% $ 5,268 $ 295 5.59% $ 7,649 $ 514 6.72%
Federal funds sold and
securities purchased
under agreements to
resell 42,021 2,354 5.60 32,252 1,666 5.17 27,288 1,828 6.70
Trading account assets 48,938 2,751 5.62 39,206 2,102 5.36 39,774 2,634 6.62
Securities:
Available-for-sale(1)Available-for-sale(/1/) 82,863 5,049 6.09 78,552 4,809 6.12 62,571 4,286 6.85
Held-for-investmentHeld-to-maturity 1,348 100 7.43 1,575 112 7.16 4,113 282 6.88
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total securities 84,211 5,149 6.11 80,127 4,921 6.14 66,684 4,568 6.85
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Loans and leases(2)leases(/2/):
Commercial - domestic 148,168 12,077 8.15 138,339 10,112 7.31 130,177 9,988 7.67
Commercial - foreign 29,316 2,117 7.22 29,374 1,897 6.46 31,015 2,246 7.24
Commercial real
estate - domestic 25,878 2,299 8.88 25,533 2,115 8.28 28,418 2,503 8.81
Commercial real
estate - foreign 304 27 8.87 294 25 8.76 330 33 10.05
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total commercial 203,666 16,520 8.11 193,540 14,149 7.31 189,940 14,770 7.78
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 91,091 6,754 7.41 78,948 5,667 7.18 70,842 4,880 6.89
Home equity lines 19,492 1,748 8.97 16,152 1,268 7.85 16,129 1,741 10.79
Direct/Indirect
consumer 41,476 3,446 8.31 42,274 3,469 8.21 40,204 3,506 8.72
Consumer finance 24,395 2,160 8.85 18,752 1,670 8.91 14,368 1,529 10.64
Bankcard 10,279 1,241 12.07 9,778 1,134 11.59 12,960 1,638 12.64
Foreign consumer 2,223 195 8.77 3,339 316 9.45 3,397 357 10.51
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total consumer 188,956 15,544 8.23 169,243 13,524 7.99 157,900 13,651 8.65
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases 392,622 32,064 8.17 362,783 27,673 7.63 347,840 28,421 8.17
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Other earning assets 10,812 926 8.57 11,875 881 7.41 10,504 786 7.49
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total earning
assets(3)assets(/3/) 583,467 43,580 7.47 531,511 37,538 7.06 499,739 38,751 7.75
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cash and cash
equivalents 24,766 25,766 24,907
Other assets, less
allowance for credit
losses 63,340 59,561 59,841
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total assets $671,573 $616,838 $584,487
============================================================================================================================- ------------------------------------------------------------------------------------------------------
Interest-bearing
liabilities
Domestic interest-bearinginterest-
bearing deposits:
Savings $ 23,452 314 1.34 $ 23,655 300 1.27 $ 22,692 421 1.86
NOW and money market
deposit accounts 99,927 2,941 2.94 98,649 2,374 2.41 96,541 2,536 2.63
Consumer CDs and IRAs 77,409 4,208 5.44 74,010 3,534 4.78 74,655 3,915 5.24
NegotiatedNegotiable CDs, public
funds and other time
deposits 7,626 481 6.31 6,646 361 5.44 7,604 414 5.44
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total domestic
interest-bearing
deposits 208,414 7,944 3.81 202,960 6,569 3.24 201,492 7,286 3.62
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Foreign interest-bearing
deposits(4)deposits(/4/):
Banks located in
foreign countries 18,788 1,130 6.01 16,301 802 4.92 24,587 1,405 5.72
Governments and
official institutions 8,922 513 5.75 7,884 400 5.08 10,517 590 5.61
Time, savings and other 26,024 1,423 5.47 25,949 1,231 4.74 24,261 1,530 6.30
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total foreign interest-bearinginterest-
bearing deposits 53,734 3,066 5.71 50,134 2,433 4.85 59,365 3,525 5.94
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
deposits 262,148 11,010 4.20 253,094 9,002 3.56 260,857 10,811 4.14
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased,
securities sold under
agreements to
repurchase and other
short-term borrowings 131,492 7,957 6.05 116,150 5,826 5.02 90,630 5,239 5.78
Trading account
liabilities 23,843 892 3.74 15,458 658 4.26 17,472 895 5.12
Long-term debt(5)debt(/5/) 70,293 4,957 7.05 57,574 3,600 6.25 49,969 3,345 6.69
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities(6)liabilities(/6/) 487,776 24,816 5.09 442,276 19,086 4.32 418,928 20,290 4.84
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
sources:
Noninterest-bearing
deposits 91,146 88,654 84,628
Other liabilities 45,519 39,307 36,102
Shareholders' equity 47,132 46,601 44,829
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $671,573 $616,838 $584,487
============================================================================================================================- ------------------------------------------------------------------------------------------------------
Net interest spread 2.38 2.74 2.91
Impact of noninterest-bearingnoninterest-
bearing sources .84 .73 .78
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net interest
income/yield on
earning assets $18,764 3.22% $18,452 3.47% $18,461 3.69%
============================================================================================================================
1997
--------------------------------
Interest
Average Income/ Yield/
(Dollars in millions) Balance Expense Rate
- -------------------------------------------------------------------------------------------
Earning assets
Time deposits placed and other short-term investments $ 8,379 $ 541 6.46%
Federal funds sold and securities purchased under
agreements to resell 23,437 1,516 6.47
Trading account assets 38,284 2,588 6.76
Securities:
Available-for-sale(1) 42,867 2,959 6.90
Held-for-investment 5,402 389 7.19
- ------------------------------------------------------------------------------------------
Total securities 48,269 3,348 6.94
- ------------------------------------------------------------------------------------------
Loans and leases(2):
Commercial - domestic 117,465 9,386 7.99
Commercial - foreign 28,295 1,995 7.05
Commercial real estate - domestic 29,468 2,748 9.33
Commercial real estate - foreign 156 30 19.24
- ------------------------------------------------------------------------------------------
Total commercial 175,384 14,159 8.07
- ------------------------------------------------------------------------------------------
Residential mortgage 80,593 5,683 7.05
Home equity lines 14,760 1,813 12.29
Direct/Indirect consumer 39,270 3,464 8.82
Consumer finance 13,845 1,625 11.73
Bankcard 15,920 2,127 13.36
Foreign consumer 3,379 301 8.90
- ------------------------------------------------------------------------------------------
Total consumer 167,767 15,013 8.95
- ------------------------------------------------------------------------------------------
Total loans and leases 343,151 29,172 8.50
- ------------------------------------------------------------------------------------------
Other earning assets 3,442 325 9.46
- ------------------------------------------------------------------------------------------
Total earning assets(3) 464,962 37,490 8.06
- ------------------------------------------------------------------------------------------
Cash and cash equivalents 24,187
Other assets, less allowance for credit losses 54,647
- ------------------------------------------------------------------------------------------
Total assets $543,796
==========================================================================================
Interest-bearing liabilities
Domestic interest-bearing deposits:
Savings $ 24,559 490 2.00
NOW and money market deposit accounts 95,204 2,529 2.66
Consumer CDs and IRAs 77,479 4,101 5.29
Negotiated CDs, public funds and other time deposits 6,412 360 5.62
- ------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits 203,654 7,480 3.67
- ------------------------------------------------------------------------------------------
Foreign interest-bearing deposits(4):
Banks located in foreign countries 22,100 1,274 5.77
Governments and official institutions 10,801 591 5.47
Time, savings and other 22,093 1,339 6.06
- ------------------------------------------------------------------------------------------
Total foreign interest-bearing deposits 54,994 3,204 5.83
- ------------------------------------------------------------------------------------------
Total interest-bearing deposits 258,648 10,684 4.13
- ------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings 70,399 4,105 5.83
Trading account liabilities 15,285 975 6.38
Long-term debt(5) 46,337 3,137 6.77
- ------------------------------------------------------------------------------------------
Total interest-bearing liabilities(6) 390,669 18,901 4.84
- ------------------------------------------------------------------------------------------
Noninterest-bearing sources:
Noninterest-bearing deposits 78,235
Other liabilities 31,282
Shareholders' equity 43,610
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $543,796
==========================================================================================
Net interest spread 3.22
Impact of noninterest-bearing sources .78
- ------------------------------------------------------------------------------------------
Net interest income/yield on earning assets $18,589 4.00%
==========================================================================================------------------------------------------------------------------------------------------------------
(1) The average balance and yield on available-for-sale securities are based
on the average of historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(3) Interest income includes taxable-equivalent basis adjustments of $322,
$215 and $163 in 2000, 1999 and $157 in 1999, 1998, and 1997, respectively. Interest income also
includes the impact of risk management interest rate contracts, which
increased (decreased) interest income on the underlying assets $(48),
$306, and $174 in 2000, 1999 and $159 in
1999, 1998, and 1997, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate contracts,con-
tracts, which (increased) decreased (increased) interest expense on the underlying
liabilities $(36), $116 and $(45) in 2000, 1999, and $15 in 1999, 1998, and 1997, respectively.
1823
Table FourFive
Analysis of Changes in Net Interest Income --- Taxable-Equivalent Basis
- -------------------------------------------------------------------------------
From 1999 to 2000 From 1998 to 1999
---------------------------------------------------------------------------------------------
Due to Change in(1)
-------------------------in(/1/) Due to Change in(/1/)
--------------------- Net ------------------------ Net
(Dollars in millions) Volume Rate Change - -----------------------------------------------------------------------------------------------------
Increase (decrease) in interest income
Time deposits placed and other short-term investments $(143) $ (76) $ (219)
Federal funds sold and securities purchased under
agreements to resell 299 (461) (162)
Trading account assets (37) (495) (532)
Securities:
Available-for-sale 1,013 (490) 523
Held-for-investment (180) 10 (170)
- -----------------------------------------------------------------------------------------------------
Total securities 353
- -----------------------------------------------------------------------------------------------------
Loans and leases:
Commercial - domestic 609 (485) 124
Commercial - foreign (115) (234) (349)
Commercial real estate - domestic (245) (143) (388)
Commercial real estate - foreign (3) (5) (8)
- -----------------------------------------------------------------------------------------------------
Total commercial (621)
- -----------------------------------------------------------------------------------------------------
Residential mortgage 576 211 787
Home equity lines 2 (475) (473)
Direct/Indirect consumer 176 (213) (37)
Consumer finance 417 (276) 141
Bankcard (377) (127) (504)
Foreign consumer (6) (35) (41)
- -----------------------------------------------------------------------------------------------------
Total consumer (127)
- -----------------------------------------------------------------------------------------------------
Total loans and leases (748)
- -----------------------------------------------------------------------------------------------------
Other earning assets 102 (7) 95
- -----------------------------------------------------------------------------------------------------
Total interest income (1,213)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in interest expense
Domestic interest-bearing deposits:
Savings 17 (138) (121)
NOW and money market deposit accounts 54 (216) (162)
Consumer CDs and IRAs (34) (347) (381)
Negotiated CDs, public funds and other time deposits (52) (1) (53)
- -----------------------------------------------------------------------------------------------------
Total domestic interest-bearing deposits (717)
- -----------------------------------------------------------------------------------------------------
Foreign interest-bearing deposits:
Banks located in foreign countries (427) (176) (603)
Governments and official institutions (137) (53) (190)
Time, savings and other 101 (400) (299)
- -----------------------------------------------------------------------------------------------------
Total foreign interest-bearing deposits (1,092)
- -----------------------------------------------------------------------------------------------------
Total interest-bearing deposits (1,809)
- -----------------------------------------------------------------------------------------------------
Federal funds purchased, securities sold under agreements to
repurchase and other short-term borrowings 1,342 (755) 587
Trading account liabilities (96) (141) (237)
Long-term debt 486 (231) 255
- -----------------------------------------------------------------------------------------------------
Total interest expense (1,204)
- -----------------------------------------------------------------------------------------------------
Net decrease in net interest income $ (9)
=====================================================================================================
From 1997 to 1998
---------------------------------
Due to Change in(1)
-------------------
Net
(Dollars in millions) Volume Rate Change
- -----------------------------------------------------------------------------------------------
Increase (decrease) in
interest income
Time deposits placed and
other short-term
investments $ (48)(20) $ 2161 $ (27)41 $ (143) $ (76) $ (219)
Federal funds sold and
securities purchased
under agreements to
resell 256 56 312539 149 688 299 (461) (162)
Trading account assets 99 (53) 46543 106 649 (37) (495) (532)
Securities:
Available-for-sale 1,350263 (23) 1,327
Held-for-investment (89) (18) (107)240 1,013 (490) 523
Held-to-maturity (17) 5 (12) (180) 10 (170)
- -----------------------------------------------------------------------------------------------
Total securities 1,220228 353
- -----------------------------------------------------------------------------------------------
Loans and leases:
Commercial - domestic 986 (384) 602750 1,215 1,965 609 (485) 124
Commercial - foreign 196 55 251(4) 224 220 (115) (234) (349)
Commercial real estate -
domestic (96) (149)29 155 184 (245) (143) (388)
Commercial real estate -
foreign 22 (19) 31 1 2 (3) (5) (8)
- -----------------------------------------------------------------------------------------------
Total commercial 6112,371 (621)
- -----------------------------------------------------------------------------------------------
Residential mortgage (674) (129) (803)896 191 1,087 576 211 787
Home equity lines 159 (231) (72)284 196 480 2 (475) (473)
Direct/Indirect consumer 82 (40) 42(69) 46 (23) 176 (213) (37)
Consumer finance 60 (156) (96)500 (10) 490 417 (276) 141
Bankcard (379) (110) (489)59 48 107 (377) (127) (504)
Foreign consumer 2 54 56(98) (23) (121) (6) (35) (41)
- -----------------------------------------------------------------------------------------------
Total consumer (1,362)2,020 (127)
- -----------------------------------------------------------------------------------------------
Total loans and leases (751)4,391 (748)
- -----------------------------------------------------------------------------------------------
Other earning assets 541 (80) 461(62) 107 45 102 (7) 95
- -----------------------------------------------------------------------------------------------
Total interest income 1,2616,042 (1,213)
- -----------------------------------------------------------------------------------------------
Increase (decrease) in
interest expense
Domestic interest-bearing
deposits:
Savings (36) (33) (69)(3) 17 14 17 (138) (121)
NOW and money market
deposit accounts 35 (28) 731 536 567 54 (216) (162)
Consumer CDs and IRAs (148) (38) (186)167 507 674 (34) (347) (381)
Negotiated CDs, public
funds and other time
deposits 65 (11) 5457 63 120 (52) (1) (53)
- -----------------------------------------------------------------------------------------------
Total domestic interest-bearinginterest-
bearing deposits (194)1,375 (717)
- -----------------------------------------------------------------------------------------------
Foreign interest-bearing
deposits:
Banks located in foreign
countries 142 (11) 131133 195 328 (427) (176) (603)
Governments and official
institutions (16) 15 (1)57 56 113 (137) (53) (190)
Time, savings and other 135 56 1914 188 192 101 (400) (299)
- -----------------------------------------------------------------------------------------------
Total foreign interest-bearinginterest-
bearing deposits 321633 (1,092)
- -----------------------------------------------------------------------------------------------
Total interest-bearing
deposits 1272,008 (1,809)
- -----------------------------------------------------------------------------------------------
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term
borrowings 1,170 (36) 1,134832 1,299 2,131 1,342 (755) 587
Trading account
liabilities 128 (208) (80)302 (68) 234 (96) (141) (237)
Long-term debt 243 (35) 208860 497 1,357 486 (231) 255
- -----------------------------------------------------------------------------------------------
Total interest expense 1,3895,730 (1,204)
- -----------------------------------------------------------------------------------------------
Net decreaseincrease (decrease)
in net interest income $ (128)
===============================================================================================312 $ (9)
- -----------------------------------------------------------------------------------------------
(1) The changes for each category of interest income and expense are divided
between the portion of change attributable to the variance in volume or
rate for that category. The amount of change that cannot be separated is
allocated to each variance proportionately.
1924
Provision for Credit Losses
The provision for credit losses was $2.5 billion in 2000 compared to $1.8
billion in 1999 compared to $2.9
billion in 1998.1999. The decreaseincrease in the provision for credit losses was primarily
due to a significant reductiondeterioration of credit quality in the inherent risk and size of the
Corporation's emerging marketscommercial--domestic loan
portfolio and a change in the composition of the
loanoverall portfolio from commercial real estate and foreign to more consumer
residential mortgage loans as well as a $467 million decline in net
charge-offs.growth. For additional information on the
allowance for credit losses, certain credit quality ratios and credit quality
information on specific loan categories, see the "Credit Risk Management and
Credit Portfolio Review" section on page 30.35.
Gains on Sales of Securities
Gains on sales of securities were $240$25 million in 19992000 compared to $1.0
billion$240 mil-
lion in 1998.1999. Securities gains were higherlower in 19982000 as a result of favorablelower sales
activity and continued unfavorable market conditions for certain debt instruments and higher activity in
connection withsecuri-
ties during the Corporation's overall risk management operations.year.
Noninterest Income
As presented in Table Five,Six, noninterest income increased $1.9$420 million to
$14.5 billion to
$14.1 billionfor the year ended December 31, 2000 from the comparable 1999
period. The increase in 1999, primarily reflecting higher levels ofnoninterest income for the year ended December 31,
2000 reflects increases in trading account profits, and fees, mortgage servicing income and credit card income, equity
investment gains, service charges, investment and brokerage services and
investment banking income. These increases were partially offset by declines
in nondeposit-related service feesother income and othermortgage servicing income.
Table FiveSix
Noninterest Income
- -------------------------------------------------------------------------------
Change
----------------------Increase/(Decrease)
-------------------
(Dollars in millions) 2000 1999 1998 Amount Percent
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------
ServiceConsumer service charges on deposit accounts $ 3,6452,654 $ 3,3962,550 $ 249 7.3%104 4.1%
Corporate service charges 1,946 1,849 97 5.2
- ---------------------------------------------------------------------------
Total service charges 4,600 4,399 201 4.6
- ---------------------------------------------------------------------------
Consumer investment and brokerage
services 1,466 1,334 132 9.9
Corporate investment and brokerage
services 463 414 49 11.8
- ---------------------------------------------------------------------------
Total investment and brokerage
services 1,929 1,748 181 10.4
- ---------------------------------------------------------------------------
Mortgage servicing income 560 673 389 284 73.0(113) (16.8)
Investment banking income 2,244 2,009 235 11.71,512 1,411 101 7.2
Equity investment gains 1,054 833 221 26.5
Card income 2,229 2,006 223 11.1
Trading account profits and fees1,830 1,495 171 1,324 n/m
Brokerage income 724 728 (4) (.5)
Nondeposit-related service fees 554 652 (98) (15.0)
Asset management and fiduciary service fees 1,023 973 50 5.1
Credit card income 1,791 1,448 343 23.7335 22.4
Other income 1,920 2,423 (503) (20.8)775 1,504 (729) (48.5)
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $14,489 $14,069 $12,189 $1,880 15.4%
======================================================================================$ 420 3.0%
- ---------------------------------------------------------------------------
n/m = not meaningful
o ServiceThe following section discusses the noninterest income results of the Corpo-
ration's four business segments, as well as other income for the total Corpo-
ration. For additional business segment information, see "Business Segment
Operations" beginning on page 13.
Consumer and Commercial Banking
. Noninterest income for Consumer and Commercial Banking decreased $433 mil-
lion to $7.0 billion for the year ended December 31, 2000. The increase in
card income and higher service charges were offset by $300 million in
charges related to the deterioration in auto lease residual values, the
impact of divestitures and one-time gains in the prior year, lower mortgage
servicing income and lower gains on deposit accounts include ATMloan sales and checkcard, interchange
fees, overdraftsecuritizations.
. Card income includes merchant discount, credit card and debit card fees
and other deposit-related fees. Service charges on
deposit accountsinterchange income. Card income increased by $249$223 million to $3.6 billion in 1999$2.2 bil-
lion primarily due to increasesincreased purchase volume due to a higher number
of active debit and credit card accounts. Growth in commercial checkingincome for the core
portfolio is being generated through traditional marketing channels,
expanding relationships with existing cus-
25
tomers and leveraging the franchise network. Card income includes activity
from the securitized portfolio of $209 million and $237 million for the
years ended December 31, 2000 and 1999, respectively. These amounts are
primarily made up of revenues from the securitized credit card portfolio
offset by charge-offs and interest expense paid to the bondholders. Lower
levels of securitizations slightly offset by favorable charge-off trends in
2000 primarily caused the $28 million decrease.
. Service charges include deposit account service charges, non-deposit
service charges and fees, bankers' acceptances and letters of credit
fees and fees on factored accounts receivable. Service charges increased
debit card activity.
o$136 million to $3.5 billion for the year ended December 31, 2000 due to
an increase in both consumer and corporate service charges. Consumer
service charges increased $101 million primarily due to overdraft
charges and general banking service fees. Corporate service charges
increased $35 million primarily attributable to overdraft charges and
bankers' acceptances and letters of credit fee income.
. Mortgage servicing income increased $284decreased $113 million to $673$560 million for the
year ended December 31, 2000, primarily reflecting an adjustment in 1999,
primarily duethe
prior year to mortgage servicing rights to reflect lower prepayment speeds as a result of higher interest
rates and a reduction in servicing costs primarily due to service operation
consolidations.expected mort-
gage prepayments. The average managed portfolio of mortgage loans servicedserv-
iced increased $36$37.7 billion to $273 billion in 1999 compared to $237 billion in 1998. First$328.7 billion. Total production of
first mortgage loans originated through the Corporation decreased $24.3
billion to $63.2$51.8 billion,
in 1999 compared to $79.1 billion in 1998, reflecting a slowdown in refinancings as a
result of a general increase in levels of interest rates. OriginationFirst mortgage
loan origination volume in 1999 was composed of approximately $33.2$21.5 billion of
retail loans and $30.0$30.3 billion of correspondent and wholesale loans.
In conducting its mortgage production activities, the Corporation is exposedAsset Management
. Noninterest income for Asset Management increased $82 million to interest rate risk$1.6 bil-
lion for the period betweenyear ended December 31, 2000. The increase was primarily
attributable to increased investment and brokerage services, partially off-
set by gains in 1999 on the loan commitment datedisposition of certain businesses.
. Income from investment and the
loan funding date. To manage this risk, the Corporation enters into various
financial instruments including forward deliverybrokerage services includes personal and
option contracts. The
notional amount of such contractsinstitutional asset management fees and consumer brokerage income.
Income from investment and brokerage services increased $92 million to
$1.5 billion. This increase was $2.7primarily attributable to higher revenue
from consumer investment and brokerage services reflecting new asset
management business and market growth combined with productivity
increases in consumer brokerage. Assets under management were $277.0
billion and $247.5 billion at December 31, 2000 and 1999, with
associated net unrealized gainsrespectively.
An analysis of $18 million. At December 31, 1998, the
notional amount of such contracts was $9.8 billion with associated net
unrealized losses of $8 million. These contracts have an average expected
maturity of less than 90 days. To manage risk associated with changes in
prepayment ratesinvestment and the impact on mortgage servicing rights, the Corporation
uses various financial instruments including options and certain swap
contracts. At December 31, 1999, deferred
20
net losses from mortgage servicing rights hedging activity were $20 million,
comprised of unamortized realized deferred gains of $313 million and
unrealized losses of $333 million on closed and open positions, respectively.
At December 31, 1998, by comparison, deferred net gains from mortgage
servicing rights hedging activity were $456 million, comprised of unamortized
realized deferred gains of $266 million and unrealized gains of $190 million
on closed and open positions, respectively. The change in net deferred hedge
results is attributable to the overall change in interest rates which resulted
in slower mortgage prepayment speeds. Notional amounts of hedge instruments
used for mortgage servicing rights hedging activities were $43.4 billion and
$22.4 billion at December 31, 1999 and 1998, respectively. For additional
information on mortgage banking activities, see Note One of the consolidated
financial statements on page 58.
o Investment banking income increased $235 million to $2.2 billion in 1999,
mainly due to increased levels of activity in principal investing,
syndications and other investment banking income. Principal investing income
increased $254 million to $833 million in 1999, primarily reflecting
continued growth in this business and a gain on the sale of an investment in
a sub-prime mortgage lender in 1999. Syndication fees increased $113 million
to $514 million, reflecting the Corporation's strengthened position as lead
arranger on syndication deals during 1999. Other investment banking income
increased $55 million to $172 million in 1999, primarily due to a gain on
the sale of other assets in 1999. The increases in investment banking income
were partially offset by lower levels of securities underwriting fees and
advisorybrokerage services fees, primarily due to the sale of the investment banking
operations of Robertson Stephens in the third quarter of 1998. Securities
underwriting fees decreased $123 million to $461 million in 1999. Advisory
services fees decreased $64 million to $264 million in 1999. Investment
banking income by major activity follows:component fol-
lows:
---------------------------------------------
(Dollars in millions) 2000 1999
1998
- ---------------------------------------------------------------------------------------------
Investment bankingand brokerage services
Asset management fees $1,064 $1,003
Brokerage income Principal investing $ 833 $ 579
Securities underwriting 461 584
Syndications 514 401
Advisory services 264 328
Other 172 117
- ----------------------------------------------419 388
---------------------------------------------
Total $2,244 $2,009
==============================================$1,483 $1,391
---------------------------------------------
oGlobal Corporate and Investment Banking
. Noninterest income for Global Corporate and Investment Banking increased
$349 million to $4.7 billion for the year ended December 31, 2000. The
increase was primarily due to increases in trading account profits, invest-
ment banking income and corporate service charges.
. Trading account profits and fees represent the net amount earned from the Corporation'sCorpo-
ration's trading positions, includingwhich include trading account assets and
liabilities as well as derivative-dealer positions. These transactions
include positions to meet customer demand and positionsas well as for the Corporation'sCorpora-
tion's own trading account. Trading positions are taken in a diverse
range of financial instruments and markets. The profitability of these
trading positions is largely dependent on the volume and type of transactions,trans-
actions, the level of risk assumed, and the volatility of price and rate
movements. Trading account profits, and fees, as reported in the Corporation's consolidated statementConsolidated
Statement of income,Income, includes neither the net interest recognized on
interest-earning and interest-bearing trading positions, nor the related
funding.funding charge or benefit. Trading account profits, and fees, as well as trading-relatedtrading-
related net interest income ("trading-related revenue"), are presented
in the table on the following pagebelow as they are both considered in evaluating the overall
profitability of the Corporation's trading positions. Trading-related
revenue is derived from foreign exchange spot, forwardfor-
26
ward and cross-currency contracts, debtfixed income and equity securities and
derivative contracts in interest rates, equities, credit and commodities.
Trading-related revenue increased $1.4$710 million to $2.9 billion to $2.2 billion in 1999,
primarilyfor the year
ended December 31, 2000, due to higher levels of revenue from equities and equity derivatives, interest
rate contracts and commodities and other contracts, offset by decreases in
fixed income. Incomeincome and foreign exchange contracts. Revenue from equities
was favorably impacted byincreased $702 million to $1.2 billion. The increase reflects continued
growth of this business through increased client deal activity, coupled
with the volatility early in the year in the equity business in 1999. Prior yearmarkets. Income from
interest rate contracts increased $131 million to $698 mil-lion. The
increase was primarily attributable to market volatility driven by interest
rate uncertainty, coupled with stronger client activity in domestic and
fixedinternational markets. Fixed income were negatively impacted bydecreased $84 million to $360 million
primarily attributable to a write-downwidening of Russian
securities and lossescredit spreads. For-eign exchange
revenue decreased $45 million to $524 million due primarily to reduced
volatility in corporate bonds and commercial mortgages due to
widening spreads.
21
the offshore markets.
-------------------------------------------------
(Dollars in millions) 2000 1999
1998
- -------------------------------------------------------------------------------------------------------------------------------
Trading account profits and fees - as reported $1,830 $1,495 $ 171
Net interest income 662 608
==============================================================================1,028 653
-------------------------------------------------
Total trading-related revenue $2,157 $ 779
- ------------------------------------------------------------------------------$2,858 $2,148
-------------------------------------------------
Trading-related revenue by product
Foreign exchange contracts $ 570524 $ 617569
Interest rate contracts 533 172698 567
Fixed income 499 (256)360 444
Equities 503 184and equity derivatives 1,203 501
Commodities and other 52 62
- ------------------------------------------------------------------------------73 67
-------------------------------------------------
Total trading-related revenue $2,157 $ 779
==============================================================================$2,858 $2,148
-------------------------------------------------
o Nondeposit-related. Investment banking income increased $101 million to $1.5 billion for the
year ended December 31, 2000. The increase reflected the continued suc-
cess of the Corporation's expansion of the investment banking platform.
Securities underwriting fees decreased 15increased 34 percent to $554$620 million,
attributable to continued growth in 1999,
primarily due to reduced general bankingequity underwriting and a strong
year for high grade underwriting. Advisory services and official check and
draft fees.
o Asset management and fiduciary service fees increased $5013
percent to $298 million primarily attributable to a higher volume of
merger and acquisition deals over the prior year. The Corporation con-
tinued its strong position as a lead arranger of syndications with fees
of $521 million for the year. Investment banking income by major activ-
ity follows:
-------------------------------------
(Dollars in millions) 2000 1999
-------------------------------------
Investment banking income
Securities underwriting $ 620 $ 461
Syndications 521 514
Advisory services 298 264
Other 73 172
-------------------------------------
Total $1,512 $1,411
-------------------------------------
. Corporate service charges increased $69 million to $1.0 billion for the
year ended December 31, 2000, driven by an increase in 1999, primarily due to growth in core operations reflecting
increases in market valuenon-deposit and
new business,deposit account service charges, partially offset by the salea decline in bank-
ers' acceptances and letters of the investment management operations of Robertson Stephens in 1999. An
analysis of asset management and fiduciary service fees by major business
activity follows:
(Dollars in millions) 1999 1998
- ---------------------------------------------------------------------------
Asset management and fiduciary service fees
Private bank $ 750 $728
Funds and institutional investment management 246 182
Retirement services, corporate trust and other 27 63
- ----------------------------------------------------------------------------
Total $1,023 $973
============================================================================
December 31
-----------------------
1999 1998
----------- -----------
Market value of assets
Assets under management $247,458 $233,500
Assets under administration 309,581 300,167
======================================================
o Credit cardcredit fees.
Equity Investments
. Noninterest income for Equity Investments increased $343$232 million to $1.8$1.0
billion in 1999, primarily
duefor the year ended December 31, 2000. This increase was driven by
strong equity investment gains.
. Equity investment gains increased $247 million to higher interchange$993 million and
merchant volumes, as well as higher excess
servicing income, a result of higher levels of securitizations. Credit card
income includes securitizationincluded principal investing gains of $18$836 million and $32 milliongains in 1999the
strategic technology and 1998, respectively, and revenue from the securitized portfolioalliances area of $226
million and $178 million in 1999 and 1998, respectively.
o$232 million.
27
Other Income
Other income totaled $1.9 billion in 1999, a decrease of $503decreased $729 million from
1998.to $775 million for the year ended
December 31, 2000. Other income in 19982000 included $300 million of charges
related to the deterioration of auto lease residual values partially offset by
a $479$187 million gain on the sale of a
manufactured housing unit, $144 million from securitization gains, a $110
million gain on the sale of a partial ownership interest in a mortgage
company and an $84 million gain on the sale of real estate included in
premises and equipment, partially offset by write-downs associated with an
investment in DE Shaw and other equity investments in 1998.Corporation's factoring unit. Other
income in 1999 included an $89 million gain on the sale of certain businesses,
$80 million from securitization gains and a $63 million gain on the sale of
substantially all remaining out-of-franchise credit card loans and a $17
million gain on the sale of certain branches. Other income also includes
certain prepayment fees and other fees, net rental income on automobile
leases classified as operating leases, servicing and related fees from the
consumer finance business, insurance commissions and earnings and bankers'
acceptances and letters of credit fees.
22loans.
28
Other Noninterest Expense
As presented in Table Six,Seven, the Corporation's other noninterest expense
decreased $755increased $97 million to $18.0$18.1 billion in 1999. This decrease was attributable2000. Other noninterest expense
remained essentially unchanged as increases due to merger-related savings, resulting in lower levels of personnel, professional
fees, other general operating expenseinflation and general administrativebusiness
growth were offset by productivity and other
expense.investment initiatives.
Table SixSeven
Other Noninterest Expense
- ------------------------------------------------------------------------------------------
2000 1999 1998 Change
----------------------- ----------------------- -------------------------Increase/(Decrease)
-----------------------------------------------------------
(Dollars in millions) Amount Percent(1)Percent(/1/) Amount Percent(1)Percent(/2/) Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Personnel $ 9,400 28.2% $ 9,308 28.7% $ 9,412 30.7% $(104) ( 1.1)%92 1.0%
Occupancy 1,682 5.0 1,627 5.0 1,643 5.4 (16) ( 1.0)55 3.4
Equipment 1,173 3.5 1,346 4.1 1,404 4.6 (58) ( 4.1)(173) (12.9)
Marketing 621 1.9 537 1.7 581 1.9 (44) ( 7.6)84 15.6
Professional fees 452 1.4 630 1.9 843 2.8 (213) (25.3)(178) (28.3)
Amortization of
intangibles 864 2.6 888 2.7 902 2.9 (14) ( 1.6)(24) (2.7)
Data processing 667 2.0 763 2.3 765 2.5 (2) ( .3)(96) (12.6)
Telecommunications 527 1.6 549 1.7 563 1.8 (14) ( 2.5)(22) (4.0)
Other general operating 2,114 6.4 1,820 5.6 2,044 6.6 (224) (11.0)294 16.2
General administrative
and other 583 1.8 518 1.6 584 1.9 (66) (11.3)65 12.5
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $18,083 54.4% $17,986 55.3% $18,741 61.1% $(755) ( 4.0)%
============================================================================================================$ 97 .5%
- ------------------------------------------------------------------------------------------
(1) Percent of net interest income on a taxable-equivalent basis and noninterestnoninter-
est income.
o. Personnel expense decreased $104increased $92 million to $9.3$9.4 billion in 1999,2000, primarily
attributable to higher revenue-related incentive compensation from the
merger-related savings in salariesfirst half of the year. Salaries and wages partially
offset by higher incentive compensation.expense decreased $100 million
to $5.8 billion in 2000. At December 31, 1999,2000, the Corporation had approximately 156,000approxi-
mately 143,000 full-time equivalent employees compared to approximately
171,000156,000 at December 31, 1998.
o Professional fees1999.
. Equipment expense decreased $213$173 million from 1998 to $630$1.2 billion in 2000, primarily
reflecting a reduction in purchases of non-capitalized equipment and a
decline in repairs and maintenance expense.
. Marketing expense increased $84 million to $621 million in 1999,2000, primarily
due to decreasesbrand campaign expenses and additional marketing support for card,
asset management, investment banking and investments in use of outside legalbankofamerica.com.
. Professional fees declined $178 million from 1999 to $452 million in 2000,
primarily reflecting lower consulting fees.
. Data processing expense decreased $96 million to $667 million in 2000, pri-
marily due to declines in software, item processing, check clearing and
other professional
services.
ooutsourced processing expenses.
. Other general operating expense decreased $224increased $294 million to $1.8$2.1 billion in
1999,2000, primarily due to lower loan collection expense and insurance expense,
partially offset by increased credit card processing expense and postage
expense.
o General administrative and other expense decreased $66 million to $518
million in 1999, mainly as a result of decreased travel expense, personal
property taxes and other taxes and licenses.
23
Year 2000 Project
For the past several years, the Corporation has been taking corrective
measures to ensure that, on January 1, 2000, its computer systems and equipment
that use embedded computer chips would be able to distinguish between "1900"
and "2000." The Corporation also undertook corrective measures to avoid any
business disruptions on February 29, 2000 as a result of the millennium's first
leap year. Due to these efforts, the Corporation has not experienced any
material system errors or failures as a result of Year 2000 issues.
Prior to December 31, 1999, the Corporation designed and implemented an
event management communications center as a single point of coordination and
information about all Year 2000 events, whether internal or external, that
could impact normal business processes. The Corporation will continue to staff
this center as needed through the end oflitigation costs from the first quarter of 2000. In
addition,related to
pre-Merger lawsuits, costs in the Corporation will continue its business as usual practices to
monitor its computer systems and infrastructure, as well as the Year 2000
efforts of third parties with which the Corporation does business. Although the
Corporation does not anticipate that any future Year 2000 issues will result in
a material impact on the Corporation, there can be no assurance that this will
be the case.
The Corporation has incurred cumulative Year 2000 costs of approximately
$532 million through December 31, 1999. A significant portion of these costs
was not incrementalfourth quarter related to the Corporation but instead constituted a reallocationrational-
ization of existing internal systems technology resourcesoperations in Colombia and accordingly, was funded
from normal operations. Remaining costs are expected to be immaterialVenezuela, one-time business divesti-
ture expenditures in 2000 and similarly funded.
Forward-looking statements contained in the foregoing "Year 2000 Project"
section should be read in conjunction with the cautionary statements included
in the introductory paragraphs under "Management's Discussion and Analysis of
Results of Operations and Financial Condition" on page 9.other litigation costs.
Income Taxes
The Corporation's income tax expense for 1999 and 19982000 was $4.3 billion for an effec-
tive tax rate of 36.2 percent. Excluding merger and $2.9 billion, respectively. Therestructuring charges, the
effective tax ratesrate for the year ended December 31, 2000 was 36.3 percent. The
Corporation's income tax expense for the year ended December 31, 1999 was $4.3
billion for an effective tax rate of 35.5 percent. Excluding merger and
1998 were
35.5 percent and 35.8 percent, respectively.restructuring charges, the effective tax rate for the year ended December 31,
1999 was 35.3 percent. Note FifteenSeventeen of the consolidated financial statements
on page 9199 includes a reconciliation of expected federal income tax expense
computed using the federal statutory rate of 35 percent to actual income tax
expense.
2429
Balance Sheet Review and Liquidity Risk Management
The Corporation utilizes an integrated approach in managing its balance
sheet,Balance
Sheet which includes management of interest rate sensitivity, credit risk,
liquidity risk and its capital position. Going forward, the Corporation's goal
is to keep risk-weighted assets relatively flat over the next two years as
reductions in categories with lower returns offset underlying core growth. The
discussion of average balances below compares the year ended December 31, 2000
to the same period in 1999. With the exception of average managed loans, the
average balances discussed below can be derived from Table Three.Four.
Average loans and leases, the Corporation's primary use of funds, increased
$29.8 billion to $392.6 billion in 2000. Adjusting for securitizations, sales
and divestitures, average managed loans and leases increased $36.2 billion to
$418.6 billion in 2000. The increase was primarily due to a strong $25.7 bil-
lion, or 14 percent, growth in consumer loan products.
The majority of consumer loan growth occurred in residential real estate
secured loan products including residential mortgages, consumer finance and
home equity lines. Average managed residential mortgages increased $15.0 bil-
lion to $94.7 billion, reflecting strong growth in the first half of the year
and then tapering off as the decision to sell the bulk of the Corporation's
mortgage company originations was implemented over the last six months of
2000. Average managed consumer finance loans increased $5.7 billion to $32.4
billion. Average managed home equity lines increased $3.3 billion to $19.5
billion, reflecting the impact of new marketing programs and lower prepay-
ments.
Average managed commercial loans increased $10.5 billion to $207.2 billion
in 2000. Commercial - domestic loans reflected growth of $9.0 billion to
$151.7 billion in 2000 due to strong growth in the Consumer and Commercial
Banking and Asset Management business segments and moderate growth in the
Global Corporate and Investment Banking business segment.
The average securities portfolio in 2000 increased $4.1 billion to $84.2
billion, representing 13 percent of total uses of funds in 2000 and 1999. See
the following "Securities" section for additional information on the securi-
ties portfolio.
Average other assets and cash and cash equivalents increased $2.8 billion to
$88.1 billion in 2000 due largely to increases in the average balances of
derivative-dealer assets, noninterest receivables and mortgage servicing
rights.
At December 31, 2000, cash and cash equivalents were $27.5 billion, an
increase of $524 million from December 31, 1999. During 2000, net cash pro-
vided by operating activities was $5.3 billion, net cash provided by investing
activities was $2.9 billion and net cash used in financing activities was $7.6
billion. For further information on cash flows, see the Consolidated Statement
of Cash Flows on page 65 of the consolidated financial statements.
Average levels of customer-based fundsdeposits increased $5.5$7.9 billion to $291.6$299.6
billion in 1999 compared to $286.1 billion in 1998,2000 primarily due to an
increaseincreases in consumer time deposits and non-
interest-bearing demand deposits. As a percentage of total sources, average
levels of customer-based fundsdeposits decreased toby two percent in 2000 from 47
percent in 1999 from 49 percent in
1998.1999.
Average levels of market-based funds increased $14.3$27.3 billion in 19992000 to
$181.7$209.1 billion. In addition, 1999 average levels of long-term debt increased by
$7.6$12.7
billion over 1998,in 2000 to $70.3 billion, mainly the result of borrowings to fund
earning asset growth and business development opportunities, build liquidity,
repay maturing debt and fund share repurchases.
The average securities portfolio in 1999 increased $13.4 billion over 1998
levels, representing 13 percent of total uses of funds in 1999 compared to 11
percent in 1998. SeeIn conjunction with its funding activities, the following "Securities" section for additional
information onCorporation carefully moni-
tors its liquidity position - the securities portfolio.
Average loans and leases, the Corporation's primary use of funds,
increased $14.9 billion to $362.8 billion in 1999. Average managed loans and
leases increased $32.1 billion, or 9.0 percent, to $388.9 billion in 1999,
reflecting strong loan growth in consumer products throughout the franchise due
to continued strength in consumer product introductions in certain regions.
Average other assets and cash and cash equivalents increased $579 million
to $85.3 billion in 1999, primarily due to increases in the average balances of
cash and cash equivalents, derivative-dealer assets and mortgage servicing
rights, partially offset by a decrease in customers' acceptance liability.
At December 31, 1999, cash and cash equivalents were $27.0 billion, a
decrease of $1.3 billion from December 31, 1998. During 1999, net cash provided
by operating activities was $12.1 billion, net cash used in investing
activities was $31.3 billion and net cash provided by financing activities was
$17.9 billion. For further information on cash flows, see the Consolidated
Statement of Cash Flows on page 56 of the consolidated financial statements.
Liquidity is a measure of the Corporation's ability to fulfill its cash requirements.
The Corporation assesses its liquidity requirements and is managed by the Corporation through its asset and liability
management process. The Corporation monitorsmodifies its assets
and liabilities and
modifies these positions as liquidity requirements change.accordingly. This process, coupled with the Corporation's
ability to raise capital and debt financing, is designed to cover the liquidityliquid-
ity needs of the Corporation. The Corporation also takes into consideration
the ability of its subsidiary banks to pay dividends to the parent company. SeeCorporation. For
additional information on the dividend capabilities of subsidiary banks, see
Note TwelveFourteen of the consolidated financial statements on page 82 for further details on dividend capabilities of its subsidiary
banks.91. Management
believes that the Corporation's sources of liquidity are more than adequate to
meet its cash requirements.
2530
Securities
The securities portfolio serves a primary role in the Corporation's balance
sheet management. The decision to purchase or sell securities is based upon
the current assessment of economic and financial conditions, including the
interest rate environment, liquidity requirements and on- and off-balance
sheet positions.
The securities portfolio at December 31, 19992000 consisted of available-for-saleavailable-for-
sale securities totaling $81.7 billion and held-for-investment
securities totaling $1.4$64.7 billion compared to $78.6$81.6 billion and $2.0 billion,
respectively, at December
31, 1998.1999. Held-to-maturity securities totaled $1.2 billion at December 31,
2000 compared to $1.4 billion at December 31, 1999. See Note ThreeFour of the consolidatedcon-
solidated financial statements on page 6774 for further details on securities.
The valuation allowance for available-for-sale securities and marketable equity securitiessecuri-
ties is included in shareholders' equity. At December 31, 2000, the valuation
allowance consisted of unrealized losses of $560 million, net of related
income taxes of $330 million, primarily reflecting $991 million of pre-tax net
unrealized losses on available-for-sale securities and $101 million of pre-tax
net unrealized gains on marketable equity atsecurities. At December 31, 1999 reflectsthe
valuation allowance reflected unrealized losses of $2.5 billion, net of
related income taxes of $1.1 billion, primarily reflecting market valuation
adjustments of $3.8 billion pre-tax net unrealized losses on available-for-saleavailable-for-
sale securities and $248 million pre-tax net unrealized gains on marketable
equity securities. The valuation
allowance included in shareholders' equity at December 31, 1998, reflects
unrealized gains of $303 million, net of related income taxes of $216 million,
primarily reflecting pre-tax net unrealized gains of $354 million on
available-for-sale securities and $165 million on marketable equity securities.
The change in the valuation allowance was primarily attributableattrib-
utable to an upward
shifta decline in rates along certain segments of the U.S. Treasury yield
curve during 1999.2000.
At December 31, 19992000 and 1998,1999, the market value of the Corporation's held-for-investmentheld-
to-maturity securities reflected pre-tax net unrealized losses of $152$54 million
and $144$152 million, respectively.
The estimated average duration of the available-for-sale securities portfolioportfo-
lio was 4.13 years at December 31, 2000 compared to 4.05 years at December 31,
1999 compared to 4.14 years at
December 31, 1998.1999.
Loans and Leases
Total loans and leases increased foursix percent to $392.2 billion at December
31, 2000 compared to $370.7 billion at December 31, 1999 compared to $357.3 billion at December 31, 1998.1999. As presented in
Table Three,Four, average total loans and leases increased foureight percent to $392.6
billion in 2000 compared to $362.8 billion in 19991999. This growth was primarily
driven by strong loan growth in consumer loan products, primarily in residen-
tial mortgage loan portfolios. This growth also reflects fewer loan sales and
securitizations, which totaled $17.5 billion in 2000, a decrease of $7.0 bil-
lion.
Average residential mortgage loans increased 15 percent to $91.1 billion in
2000 compared to $347.8$78.9 billion in 1998, primarily due1999, reflecting strong growth in the first
half of the year and then tapering off as the decision to core loan
growth, partially offset bysell the bulk of the
Corporation's mortgage company originations was implemented over the last six
months of 2000. The impact of securitizations and loan sales of
$24.2on residential
mortgage loans was virtually unchanged in 2000 at $13.7 billion, compared to
$13.4 billion in 19991999.
Average other consumer loans increased $7.6 billion to $97.9 billion in
2000. This increase was primarily attributable to strong growth in home equity
and consumer finance loans, with only minimal loan sales and securitizations
of $1.2 billion in 2000 compared to $22.6$9.1 billion in 1998.1999.
Average commercial loans increased to $203.7 billion in 2000 compared to
$193.5 billion in 1999, compared to
$189.9 billionprimarily in 1998, due largely to core loan growth. Averagethe commercial - domestic commercial real estate loans decreased to $25.5 billion in 1999 compared to
$28.4 billion in 1998, reflectingportfolio. Off-
setting this growth was the impact of $1.6$2.6 billion of securitizations and loan
sales in 19992000 compared to $2.6$1.9 billion in 1998.
Average residential mortgage loans increased 11 percent to $78.9 billion
in 1999 compared to $70.8 billion in 1998, primarily due to core loan growth,
partially offset by the impact of $13.4 billion of securitizations and loan
sales in 1999 and $9.6 billion in 1998.
Average bankcard loans declined $3.2 billion to $9.8 billion in 1999
compared to $13.0 billion in 1998 due to reductions in retail outstandings and
securitizations and loan sales of $2.9 billion in 1999 compared to $2.4 billion
in 1998.
Average other consumer loans, including direct and indirect consumer loans
and home equity loans, increased $6.4 billion to $80.5 billion in 1999 due
primarily to consumer finance loan growth, partially offset by the impact of
$6.3 billion of securitizations and loan sales in 1999 and $8.0 billion in
1998.1999.
A significant source of liquidity for the Corporation is the repayments and
maturities of loans. Table SevenEight presents the contractual maturity distributiondistribu-
tion and interest sensitivity of selected loan categories at December 31,
1999,2000, and indicates that approximately 3442 percent of the selected loans had
maturities of one year or less. The securitization and sale of certain loans
and the use of loans as collateral in asset-backed financing arrangements are
also sources of liquidity.
2631
Table SevenEight
Selected Loan Maturity Data(1,2)Data(/1/,/2/)
- -------------------------------------------------------------------------------
December 31, 2000
December 31, 1999
Due after
Due in 1 year
1 year through Due after
(Dollars in millions) or less 5 years 5 years Total
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial - domestic $ 47,760 $ 64,394 $ 21,803 $ 133,957$49,695 $64,873 $23,786 $138,354
Commercial real estate - domestic 2,818 6,189 6,952 15,9593,980 6,223 5,668 15,871
Construction real estate - domestic 3,990 3,715 362 8,067
Foreign 8,311 14,458 4,298 27,0675,035 4,850 398 10,283
Foreign(/3/) 21,891 5,659 1,893 29,443
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total selected loans $ 62,879 $ 88,756 $ 33,415 $ 185,050
===========================================================================================================$80,601 $81,605 $31,745 $193,951
- -------------------------------------------------------------------------------
Percent of total 34.0% 48.0% 18.0%41.5% 42.1% 16.4% 100.0%
Cumulative percent of total 34.0 82.041.5 83.6 100.0
Sensitivity of loans to changes in
interest rates for loans due after one
year:
Predetermined interest rates $11,651 $13,768 $ 13,723 $ 13,772 $ 27,49525,419
Floating or adjustable interest rates 75,033 19,643 94,67669,954 17,977 $ 87,931
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total $ 88,756 $ 33,415 $ 122,171
===========================================================================================================$81,605 $31,745 $113,350
- -------------------------------------------------------------------------------
(1) Loan maturities are based on the remaining maturities under contractual
terms.
(2) Loan maturities exclude residential mortgage, bankcard, consumer finance,
home equity lines and direct/indirect consumer loans.
(3) Loan maturities include consumer and commercial foreign loans.
Deposits
Table ThreeFour provides information on the average amounts of deposits and the
rates paid by deposit category. Through the Corporation's diverse retail bankingbank-
ing network, deposits remain a primary source of funds for the Corporation.
Average deposits decreased $3.7increased $11.5 billion in 2000 over 1999 over 1998 to $341.7$353.3 billion
primarily
due to a $9.2$5.5 billion decreaseincrease in average domestic interest-bearing deposits,
a $3.6 billion increase in average foreign interest-bearing deposits due toand a
strategic reduction in foreign wholesale deposits, which was
partially offset by a $4.0$2.5 billion increase in average noninterest-bearing deposits. See Note SevenNine
of the consolidated financial statements on page 7281 for further details on
deposits.
2732
Short-Term Borrowings and Trading Account Liabilities
The Corporation uses short-term borrowings as a funding source and in its
management of interest rate risk. Table EightNine presents the categories of short-termshort-
term borrowings.
During 1999,2000, total average short-term borrowings increased $25.5$15.4 billion to
$131.5 billion from $116.1 billion from $90.6 billion in 1998.1999. This growth was primarily due to
a $16.5 billion increase of securities sold underincreases in short-term notes payable and repurchase agreements to repurchase to
fund securities portfolio growth and a $10.2 billion increase in other
short-term borrowings primarily due to a $10.0 billion increase in bank notes
to fund loan growth not funded by depositasset
growth. Average trading account liabilities decreased $2.0increased $8.3 billion to $23.8
billion in 2000 from $15.5 billion in 1999, from $17.5 billion
in 1998, due to a decline in trading-related short sales.the nature of the hedging
strategies being employed. See Note FourFive of the consolidated financial statementsstate-
ments on page 6976 for further details on trading account liabilities.
Table EightNine
Short-Term Borrowings
- ------------------------------------------------------------------------------
2000 1999 1998
1997
-------------------- -------------------- -------------------------------------------------------
(Dollars in millions) Amount Rate Amount Rate Amount Rate
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased
At December 31 $ 4,612 5.92% $ 4,806 3.04% $ 7,316 5.25%
$10,111 5.80%
Average during year 4,506 6.44 5,835 5.03 8,201 5.42 6,551 5.54
Maximum month-end balance during
year 7,149 -- 8,311 -- 11,187 -- 10,111 --
Securities sold under agreements to
repurchase
At December 31 44,799 6.26 69,755 4.12 60,227 5.08
51,303 5.83
Average during year 79,217 5.93 73,242 4.89 56,710 5.66 45,403 5.58
Maximum month-end balance during
year 90,062 -- 83,046 -- 71,595 -- 51,820 --
Commercial paper
At December 31 6,955 6.54 7,331 5.83 6,749 5.19
5,925 5.65
Average during year 9,645 6.41 7,610 5.17 6,419 5.56 6,184 5.64
Maximum month-end balance during
year 10,762 -- 8,379 -- 7,913 -- 6,689 --
Other short-term borrowings
At December 31 35,243 5.97 40,340 5.18 24,742 4.52
12,120 6.52
Average during year 38,124 6.18 29,463 5.30 19,300 6.35 12,261 7.02
Maximum month-end balance during
year 45,271 -- 40,340 -- 25,927 --
13,974 --
==============================================================================================================- ------------------------------------------------------------------------------
28
Long-Term Debt and Trust Preferred Securities
Long-term debt increased $9.6$12.0 billion to $67.5 billion at December 31,
2000, from $55.5 billion at December 31, 1999, from $45.9 billion at December 31, 1998, mainly as a result of
borrowings to fund earning asset growth and business development opportunities,opportuni-
ties, build liquidity, repay maturing debt and fund share repurchases. During
1999,2000, the Corporation issued, domestically and internationally, $17.6$23.5 billion
in long-term senior and subordinated debt, a $5.1$5.9 billion increase from $12.5$17.6
billion during 1998. In 1999, the1999. The Corporation had no issuance ofdid not issue any trust preferred securities compared to $350 millionsecuri-
ties in 1998.2000 or 1999. See Notes EightTen and NineEleven of the consolidated financial
statements on pages 7382 and 7584 for further details on long-term debt and trust
preferred securities, respectively.
From January 1, 20002001 through March 15, 2000,12, 2001, the Corporation issued $1.4$3.9
billion of long-term senior and subordinated debt, with maturities ranging
from 20022004 to 2023.2031. During this same time period, Bank of America, N.A. issued
$6.0
billion$10 million of bank notes with maturities ranging from 2001 to 2004 and $1.0
billion of Euro medium-term notes maturing in 2002 and 2003.2002.
Debt Ratings
The financial position of the Corporation and Bank of America, N.A at DecemberDecem-
ber 31, 19992000 is reflected in the following debt ratings:
-------------------------------------------------------------------------
Bank of America Corporation Bank of America, Corporation N.A.
------------------------------------ ----------------------------------------------------------------------------------------
Commercial Senior Subordinated
Short- Long-
Paper Debt Debt Short- term Long- term
------------ -------- -------------- -------- -------------------------------------------------------------------------------
Moody's Investors
Service P-1 Aa2 Aa3 P-1 Aa1
Standard & Poor's
Corporation A-1 A+ A A-1+ AA-
Duff and Phelps, Inc D-1+ AA- A+ D-1+ AA
Fitch, IBCA, IncInc. F-1+ AA- A+ F-1+ AA
Thomson BankWatch TBW-1 AA- A+ TBW-1 -
======================================================================================-------------------------------------------------------------------------
33
Capital Resources and Capital Management
Shareholders' equity at December 31, 1999,2000, was $44.4$47.6 billion compared to
$45.9$44.4 billion at December 31, 1998, a decrease1999, an increase of $1.5$3.2 billion. The decreaseincrease
was attributable to the repurchase of 78 million shares of common stock for
approximately $4.9 billion combined with a $2.8 billion reduction in
shareholders' equity resulting primarily from the recognition of after-tax net
unrealized losses on available-for-sale securities and marketable equity
securities. Offsetting these decreases are the increases to shareholders'
equity due to net earnings (net income less dividends) of $4.7$4.1 billion
and recognition of $1.9 billion of after-tax net unrealized gains on avail-
able-for-sale and marketable equity securities, partially offset by the issuancerepur-
chase of approximately 30.568 million shares of common stock under various
employee plans for $1.4approximately
$3.3 billion.
Under the current repurchase program which was authorized byOn July 26, 2000, the Corporation's Board of Directors in(the Board) autho-
rized a new stock repurchase program of up to 100 million shares of the Corpo-
ration's common stock at an aggregate cost of up to $7.5 billion. On June 23,
1999, the Board authorized the repurchase of up to 130 million shares of the
Corporation's common stock at an aggregate cost of up to $10.0 billion.
Through December 31, 2000, the Corporation had remaining
buyback authorityrepurchased a total of approxi-
mately 146 million shares of its common stock outstandingin open market repurchases and
under these accelerated share repurchase programs at an average per-share
price of $5.1$55.74, which reduced shareholders' equity by $8.1 billion. The
remaining buyback authority for common stock under the 2000 program totaled
$6.8 billion, or 5284 million shares, of common stock at December 31, 1999.2000. There is no remain-
ing buyback authority for common stock under the 1999 program.
The regulatory capital ratios of the Corporation and Bank of America, N.A.,
along with a description of the components of risk-based capital, capital adequacyade-
quacy requirements and prompt corrective action provisions, are included in
Note TwelveFourteen of the consolidated financial statements on page 82.
2991.
34
Credit Risk Management and Credit Portfolio Review
In conducting business activities, the Corporation is exposed to the risk
that borrowers or counterparties may default on their obligations to the Corporation.Cor-
poration. Credit risk arises through the extension of loans and leases, certaincer-
tain securities, letters of credit, financial guarantees and through
counterparty exposure on trading and capital markets transactions. To manage
this risk, the Credit Risk Management group establishes policies and proceduresproce-
dures to manage both on- and off-balance sheet credit risk and communicates
and monitors the application of these policies and procedures throughout the
Corporation.
The Corporation's overall objective in managing credit risk is to minimize
the adverse impact of any single event or set of occurrences. To achieve this
objective, the Corporation strives to maintain a credit risk profile that is
diverse in terms of product type, industry concentration, geographic distributiondistribu-
tion and borrower or counterparty concentration.
The Credit Risk Management group works with lending officers, trading personnelper-
sonnel and various other line personnel in areas that conduct activities
involving credit risk and is involved in the implementation, refinement and
monitoring of credit policies and procedures.
The Corporation manages credit exposure to individual borrowers and
counterparties on an aggregate basis including loans and leases, securities,
letters of credit, bankers' acceptances, derivatives and unfunded commitments.
In addition, theThe creditworthiness of individual borrowers or counterparties is determined
by experienced personnel, and limits are established for the total credit
exposure to any one borrower or counterparty. Credit limits are subject to
varying levels of approval by senior line and credit risk management.
The Corporation also manageshas a goal of managing exposure to a single borrower,
industry, product-type, country or other concentration through syndications of
credits, credit derivatives, participations, loan sales and securitizations.
Through the Global Corporate and Investment Banking segment, the Corporation
is a major participant in the syndications market. In a syndicated facility,
each participating lender funds only its portion of the syndicated facility,
therefore limiting its exposure to the borrower.
In conducting derivativesderivative activities, the Corporation may choose to reduce
credit risk to any one counterparty through the use of legally enforceable
master netting agreements which allow the Corporation to settle positive and
negative positions with the same counterparty on a net basis. For more informationinfor-
mation on the Corporation's off-balance sheet credit risk, see Note ElevenThirteen
of the consolidated financial statements on page 79.87.
For commercial lending, the originatingapproving credit officer assigns borrowers or
counterparties an initial risk rating which is based primarily on a thoroughan analysis
of each borrower's financial capacity in conjuctionconjunction with industry and economiceco-
nomic trends. Risk ratings are subject to review and validation by the inde-
pendent credit review group. Approvals are made based upon the believed amount
of inherent credit risk specific to the transaction and the counterparty and
are reviewed for appropriateness by senior line and credit risk personnel.
Credits are monitored by line and credit risk management personnel for deteriorationdeteri-
oration in a borrower's or counterparty's financial condition which would
impact the ability of the borrower or counterparty to perform under the contract.con-
tract. Risk ratings are adjusted as necessary.necessary and the Corporation seeks to
reduce exposure in such situations where appropriate.
For consumer and small business lending, credit scoring systems are utilized
to determine the relative riskiness of new underwritings and provide standards
for extensions of credit. Consumer portfolio credit risk is monitored primarilyprimar-
ily using statistical models and regular reviews of actual payment experience in an
attempt to predict portfolio behavior.
When required,In some credit situations, the Corporation obtains collateral to support
credit extensions and commitments. Generally, such collateral is in the form
of real andand/or personal property, cash on deposit or other highly liquid instruments.
In certain circumstances, the Corporation obtains real property as security
for some loans that are made on the general creditworthiness of the borrower
and whose proceeds were not used for real estate-related purposes.
An independent Credit Review group provides executive management and the
Board of Directors with an evaluation of portfolio quality and the effective-
ness of the credit management process. The group conducts ongoing reviews of
credit activities and portfolios reexaminingthrough transactional and process reviews,
re-examining on a regular basis risk assessments for credit exposures and
overall compliance with policy.
3035
Loan and Lease Portfolio Review -
The Corporation's primary credit exposure is focused in its loans and leases
portfolio, which totaled $370.7$392.2 billion and $357.3$370.7 billion at December 31,
19992000 and 1998,1999, respectively. In an effort to minimize the adverse impact of
any single event or set of occurrences, the Corporation strives to maintain a
diverse credit portfolio. Table NineTen presents the distribution of loans and leases by category.
Additional information on the Corporation's industry, real estate industry and foreign
exposures can be found in the "Concentrations of Credit Risk" section beginningbegin-
ning on page 38.
Table Nine
Distribution of42.
Table Ten
Loans and Leases
- ------------------------------------------------------------------------------------------------------------------
December 31
---------------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 ----------------------- -----------------------
(Dollars in millions) Amount Percent Amount Percent
- --------------------------------------------------------------------------
Commercial - domestic $143,450 38.7% $137,422 38.5%
Commercial - foreign 27,978 7.5 31,495 8.8
Commercial real
estate - domestic 24,026 6.5 26,912 7.5
Commercial real
estate - foreign 325 .1 301 .1
- --------------------------------------------------------------------------
Total commercial 195,779 52.8 196,130 54.9
- --------------------------------------------------------------------------
Residential mortgage 81,860 22.1 73,608 20.6
Home equity lines 17,273 4.7 15,653 4.4
Direct/Indirect consumer 42,161 11.4 40,510 11.3
Consumer finance 22,326 6.0 15,400 4.3
Bankcard 9,019 2.4 12,425 3.5
Foreign consumer 2,244 .6 3,602 1.0
- --------------------------------------------------------------------------
Total consumer 174,883 47.2 161,198 45.1
- --------------------------------------------------------------------------
Total loans and
leases $370,662 100.0% $357,328 100.0%
==========================================================================
December 31
----------------------------------------------------------------------
1997 1996
1995
----------------------- ----------------------- ----------------------
---------------- ---------------- ---------------- ---------------- ----------------
(Dollars in millions) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial - domestic $146,040 37.2% $143,450 38.7% $137,422 38.5% $122,463 35.8% $105,737 33.3%
$ 99,922 33.1%
Commercial - foreign 31,066 7.9 27,978 7.5 31,495 8.8 30,080 8.8 26,781 8.4 23,395 7.7
Commercial real estate -
domestic 26,154 6.7 24,026 6.5 26,912 7.5 28,567 8.3 25,881 8.1 26,381 8.7
Commercial real estate -
foreign 282 .1 325 .1 301 .1 324 .1 239 .1
361 .1
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total commercial 203,542 51.9 195,779 52.8 196,130 54.9 181,434 53.0 158,638 49.9
150,059 49.6
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 84,394 21.5 81,860 22.1 73,608 20.6 71,540 20.9 80,400 25.3
77,078 25.5
Home equity lines 21,598 5.5 17,273 4.7 15,653 4.4 16,536 4.8 12,541 3.9
11,143 3.7
Direct/Indirect consumer 40,457 10.3 42,161 11.4 40,510 11.3 40,058 11.7 33,352 10.6
34,071 11.1
Consumer finance 25,800 6.6 22,326 6.0 15,400 4.3 14,566 4.3 13,081 4.1
10,375 3.4
Bankcard 14,094 3.6 9,019 2.4 12,425 3.5 14,908 4.4 16,561 5.2
17,455 5.8
Foreign consumer 2,308 .6 2,244 .6 3,602 1.0 3,098 .9 3,136 1.0
2,623 .9
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total consumer 188,651 48.1 174,883 47.2 161,198 45.1 160,706 47.0 159,071 50.1
152,745 50.4
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total loans and leases $392,193 100.0% $370,662 100.0% $357,328 100.0% $342,140 100.0% $317,709 100.0%
$302,804 100.0%
===============================================================================================- ------------------------------------------------------------------------------------------------------------------
Commercial Portfolio
Commercial - domestic loans outstanding totaled $143.5$146.0 billion and $137.4$143.5
billion at December 31, 19992000 and 1998,1999, respectively, or 37 percent and 39 percentper-
cent of total loans and leases for both years.at December 31, 2000 and 1999, respectively.
The Corporation had commercial - domestic loan net charge-offs in 19992000 of $1.3
billion, or 0.87 percent of average commercial - domestic loans, compared to
$711 million, or 0.51 percent of average commercial - - domestic loans, compared to $617 million, or 0.47 percent of average
commercial - domestic loans, in 1998.1999.
The increase in charge-offs is primarily due to the fourth quarter write-down
of one large credit in the consumer products industry, a second quarter fraud
related loss and several write-downs of credits in various industries.
Nonperforming commercial - domestic loans were $1.2$2.8 billion, or 0.811.90 percent
of commercial - domestic loans, at December 31, 1999,2000, compared to $812 million,$1.2 bil-
lion, or 0.590.81 percent, at December 31, 1998.1999. The increase in charge-offsnonperformers was
driven primarily by three large credits, two in the financial services indus-
try and nonperforming loans wasone in the consumer products industry mentioned above. Additional
increases were primarily attributable to a few large
creditsseveral companies across various
industries which were negatively impacted in the second half of the year by
the slowing U.S. economy, higher interest rates and several smaller credits primarily related to certain recently
troubled industries, including healthcare and sub-prime finance.an overall competitive
environment. Commercial - domestic loans past due 90 days or more and still
accruing interest remained
essentially unchanged attotaled $141 million and $135 million, or 0.10 percent and
0.09 percent and 0.10 percent of commercial-domesticcommercial - domestic loans at December 31, 19992000 and 1998,1999,
respectively. Table Sixteen presents aggregate loan and lease exposures,
excluding commercial real estate, by certain significant industries.
Commercial - foreign loans outstanding totaled $28.0$31.1 billion and $31.5
billion$28.0 bil-
lion at December 31, 19992000 and 1998,1999, respectively, or eight percent and nine percent of total
loans and leases respectively. The decrease reflects the
Corporation's strategy to reduceat both the size and risk of its emerging market
portfoliopoints in Asia, Latin America and Central and Eastern Europe.time. The Corporation had commercial - foreignfor-
eign loan net charge-offs in 19992000 of $86 million, or 0.29 percent of average
commercial -foreign loans, compared to $144 million, or 0.49 percent of average commercial - foreign loans, compared to
$242 million, or 0.78 percent of the averageaver-
age commercial - foreign loans in 1998.1999. Nonperforming commercial - foreign
loans were $486 million or 1.74
percentat December 31, 2000 and 1999, representing 1.56 per-
cent of commercial - foreign loans at December 31, 1999,2000, compared to $314
million, or 1.00 percent,1.74 per-
cent at December 31, 1998. The increase was primarily due
to one large credit that was classified as nonperforming in 1999. Commercial - foreign loans past due 90 days or more
and still accruing interest were $37 million at
36
December 31, 2000 compared to $58 million at December 31, 1999, or 0.12 per-
cent and 0.21 percent of commercial - foreign loans, at December 31, 1999
compared to $23 million, or 0.07 percent, at December 31, 1998.respectively. For additionaladdi-
tional information see the Regional ForeignInternational Exposure discussion beginning on page
39.
31
44.
Commercial real estate - domestic loans totaled $24.0$26.2 billion and $26.9
billion$24.0 bil-
lion at December 31, 19992000 and 1998,1999, respectively, or seven percent and eight percent of total
loans and leases respectively.at both points in time. Nonperforming commercial real
estate - domestic loans were $236 million, or 0.90 percent of commercial real
estate - domestic loans, at December 31, 2000, compared to $191 million, or
0.79 percent, at December 31, 1999. At December 31, 1999,2000, commercial real
estate - domestic loans past due 90 days or more and still accruing interest
were $6$16 million, or 0.020.06 percent of total commercial real estate - domestic
loans, compared to $12$6 million, or 0.040.02 percent, at December 31, 1998.1999. Table
FifteenSeventeen displays commercial real estate loans by geographic region and propertyprop-
erty type, including the portion of such loans which are nonperforming, and
other real estate credit exposures.
Consumer Portfolio
At December 31, 19992000 and 1998,1999, domestic consumer loans outstanding totaled
$172.6$186.3 billion and $157.6$172.6 billion, respectively, or 4748 percent and 4447 percent
of total loans and leases, respectively. As of December 31, 2000, approxi-
mately 68 percent of these loans were secured by first or second mortgages on
residential real estate. Additional information on components of and changes
in the Corporation's consumer loan portfolio can be found in the average earn-
ing asset discussion within the "Net Interest Income" section on page 22 and
"Balance Sheet Review and Liquidity Risk Management" section on page 30.
In 1999, the Federal Financial Institutions Examination Council (FFIEC)
issued the Uniform Classification and Account Management Policy (the Policy)
which provides guidance for and promotes consistency among banks on the
charge-off treatment of delinquent and bankruptcy-related consumer loans. The
Corporation implemented the Policy in the fourth quarter of 2000, which
resulted in accelerated charge-offs of $104 million across several product
types in the consumer loan portfolio.
Residential mortgage loans increased to $84.4 billion at December 31, 2000
compared to $81.9 billion at December 31, 1999
compared1999. Net charge-offs in 2000 on
residential mortgage loans remained negligible at $27 million, or 0.03 percent
of average residential mortgage loans.
Home equity loans increased to $73.6$21.6 billion at December 31, 1998, reflecting originations in
excess of prepayments and sales.
Bankcard receivables decreased2000 compared
to $9.0$17.3 billion at December 31, 1999
compared1999. Net charge-offs in 2000 on home equity
loans remained negligible at $20 million, or 0.10 percent of average home
equity loans. Nonperforming home equity loans decreased to $12.4 billion$32 million at
December 31, 1998, reflecting a portfolio sale of
out-of-market receivables and $2.0 billion in securitizations in2000 from $46 million at December 31, 1999.
Consumer finance loans outstanding totaled $22.3$25.8 billion and $15.4$22.3 billion
at December 31, 19992000 and 1998,1999, respectively, or sixseven percent and foursix percent
of total loans and leases, respectively. The increase is primarily attributable to
the growth in the consumer finance -Approximately 80 percent of these
loans are secured by residential real estate, sector.virtually all first lien. The
Corporation had consumer finance net charge-offs in 19992000 of $229$266 million, or
1.221.09 percent of average consumer finance loans, compared to $383$229 million, or
2.671.22 percent in 1998.1999. Consumer finance nonperforming loans increased to
$1.1 billion at December 31, 2000 from $598 million at December 31, 1999. The
decreaseincrease in charge-offs is primarilynonperforming loans was the result of continued seasoning of ear-
lier growth in this portfolio. Higher charge-offs are primarily related to the
saleadoption of a
sub-prime businessthe new FFIEC policy described above.
Consumer bankcard receivables increased to $14.1 billion at December 31,
2000 compared to $9.0 billion at December 31, 1999. Net charge-offs on bank-
card receivables decreased $157 million to $338 million for 2000 when compared
to 1999. The decrease resulted from the sales of certain higher loss out of
market portfolios in 1998.the second half of 1999 and continued declines in delin-
quency levels and bankruptcy filing rates. Bankcard loans past due 90 days and
still accruing interest were $191 million, or 1.36 percent of bankcard receiv-
ables at December 31, 2000, compared to $138 million, or 1.53 percent at
December 31, 1999.
Other domestic consumer loans, which include direct and indirect consumer and foreign
consumer loans, and home equity lines of credit increaseddecreased to $59.4$42.8 billion at December 31, 19992000 compared to
$56.2$44.4 billion at December 31, 1998.
Total domestic1999. Direct and indirect consumer loan net
charge-offs during 1999 decreased $465in 2000 were $324 million, to $1.1 billion, or .680.78 percent of average domesticdirect and
indirect consumer loans, and leases.
The decrease was due mainlycompared to lower bankcard and consumer finance net
charge-offs.
Total consumer nonperforming loans were $1.2 billion,$370 million or 0.690.88 percent of totalthe aver-
age balance outstanding in 1999. Foreign consumer loan net charge-offs in 2000
were $3 million, or 0.13 percent of average foreign loans, at December 31, 1999 compared to $1.1 billion, or 0.65
percent, at December 31, 1998. The increase was due to higher nonperforming
loans in consumer finance driven by portfolio growth and seasoning. This
increase was partially offset by lower residential mortgage nonperforming
loans. Total consumer loans past due 90 days or more and still accruing
interest were $322$17
million, or 0.180.52 percent of total consumer loans, at
December 31, 1999 compared to $441 million, or 0.27 percent, at December 31,
1998.the average balance outstanding in 1999.
37
Nonperforming Assets
As presented in Table Ten,Eleven, nonperforming assets were $3.2 billion,increased to $5.5 bil-
lion, or 0.861.39 percent of net loans, leases and foreclosed properties at December
31, 1999,2000, compared to $2.8$3.2 billion, or 0.770.86 percent, at December 31, 1998.1999.
Nonperforming loans increased to $5.2 billion at December 31, 2000 compared to
$3.0 billion at December 31, 1999 comparedprimarily due to $2.5nonperformers in the com-
mercial -- domestic loan portfolio. Nonperforming commercial -- domestic loans
increased $1.6 billion to $2.8 billion in 2000 as credit deterioration
occurred during the second half of the year, particularly in the fourth quar-
ter of 2000, in loans to companies which were adversely impacted by a slowing
economy, higher interest rates and an overall competitive environment. Higher
levels of nonperforming loans in the consumer finance portfolio, as described
above, also contributed to the increase. Foreclosed properties increased to
$249 million at December 31, 1998 primarily due2000 compared to increased consumer finance and commercial
nonperforming loans, which were offset by continued reductions in residential
mortgage nonperforming loans. The allowance coverage of nonperforming loans was
224 percent$163 million at December 31,
1999 compared to 287 percent at December 31, 1998.
At December 31, 1999, there were no material commitments to lend additional
funds with respect to nonperforming loans.1999.
In order to respond when deterioration of a credit occurs, internal loan
workout units are devoted to provideproviding specialized expertise and full-time
management and/or collection of certain nonperforming assets as well as certaincer-
tain performing loans. Management believes concertedfocused collection strategies and a
proactive approach to managing overall problem assets have expeditedexpedites the disposition,disposi-
tion, collection and renegotiation of nonperforming and other lower-quality
assets. As part of this process, management routinely evaluates all reasonable
alternatives, including the sale of assets individually or in groups, and
selects what it believes to be the optimal strategy.
At December 31, 1999 and 1998, residential mortgage loans comprised 17
percent and 26 percent, respectively, of total nonperforming assets. Due to the
nature of the collateral securing residential mortgage loans and a history of
low losses, the Corporation considers these loans to be low risk nonperforming
assets.
32
Foreclosed properties decreased to $163 million at December 31, 1999
compared to $282 million at December 31, 1998.
Note Five of the consolidated financial statements on page 71 provides the
reported investment in specific loans considered to be impaired at December 31,
1999 and 1998. The Corporation's investment in specific loans that were
considered to be impaired at December 31, 1999 were $2.1 billion compared to
$1.7 billion at December 31, 1998. Commercial - domestic impaired loans
increased to $1.1 billion at December 31, 1999 from $0.8 billion at December
31, 1998 due to the increases in commercial - domestic nonperforming assets
described previously. Commercial - foreign impaired loans increased to $0.5
billion at December 31, 1999 from $0.3 billion at December 31, 1998 primarily
due to one large credit that was classified as impaired in 1999. Commercial
real estate - domestic impaired loans decreased to $0.4 billion at December 31,
1999 from $0.6 billion at December 31, 1998.
Table TenEleven
Nonperforming AssetsAssets(/1/)
- ---------------------------------------------------------
December 31
--------------------------------------------------------------------------------------------------
(Dollars in
millions) 2000 1999 1998 1997 1996
1995
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Nonperforming
loans
Commercial -
domestic $ 1,163$2,777 $1,163 $ 812 $ 563 $ 713
$ 914
Commercial -
foreign 486 486 314 155 110 121
Commercial real
estate -
domestic 236 191 299 342 491 1,027
Commercial real
estate -
foreign 3 3 4 2 2
22
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
commercial 3,502 1,843 1,429 1,062 1,316
2,084
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Residential
mortgage 551 529 722 744 676
464
Home equity
lines 32 46 50 52 36
42
Direct/Indirect
consumer 19 19 21 43 53
57
Consumer finance 1,095 598 246 210 116
118
Foreign consumer 9 7 14 -- 1
2
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Total consumer 1,706 1,199 1,053 1,049 882
683
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
nonperforming
loans 5,208 3,042 2,482 2,111 2,198
2,767
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Foreclosed
properties 249 163 282 309 511
675
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
nonperforming
assets $ 3,205 $ 2,764 $ 2,420 $ 2,709 $ 3,442
======================================================================================================$5,457 $3,205 $2,764 $2,420 $2,709
- ---------------------------------------------------------
Nonperforming
assets as a
percentage of:
Total assets .85% .51% .45% .42% .57% .75%
Loans, leases
and foreclosed
properties 1.39 .86 .77 .71 .85
1.14
======================================================================================================- ---------------------------------------------------------
The loss of income associated with nonperforming loans and the cost of carryingcar-
rying foreclosed properties for the five years ended December 31, 19992000 were:
- ----------------------------------------------------------
(Dollars in
millions) 2000 1999 1998 1997 1996
1995
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Income that
would have been
recorded in
accordance with
original terms $ 666 $ 419 $ 367 $ 349 $ 388
$ 457
Less income
actually
recorded (237) (123) (130) (130) (130)
(135)
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Loss of income $ 429 $ 296 $ 237 $ 219 $ 258
$ 322
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Cost of carrying
foreclosed
properties $ 12 $ 13 $ 16 $ 26 $ 35
$ 51
=====================================================================================================- ----------------------------------------------------------
- ----------------------------------------------------------
33(1) Balance does not include $124 million of loans held for sale, included in
other assets at December 31, 2000, which would have been classified as
nonperforming had they been included in loans. The Corporation had approx-
imately $390 million of troubled debt restructured loans at December 31,
2000, which were accruing interest and are not included in nonperforming
assets.
38
Note Six of the consolidated financial statements on page 78 provides the
reported investment in specific loans considered to be impaired at December
31, 2000 and 1999. The Corporation's investment in specific loans that were
considered to be impaired at December 31, 2000 was $3.8 billion compared to
$2.1 billion at December 31, 1999. Commercial - domestic impaired loans
increased to $2.9 billion at December 31, 2000 from $1.1 billion at December
31, 1999 due to the increases in commercial - domestic nonperforming assets
described previously. Commercial real estate - domestic impaired loans
remained constant at $0.4 billion at both December 31, 2000 and December 31,
1999. Commercial - foreign also remained constant at $0.5 billion at December
31, 2000 and December 31, 1999.
Loans Past Due 90 Days or More and Still Accruing Interest
Table ElevenTwelve presents total loans past due 90 days or more and still accruingaccru-
ing interest. At December 31, 1999,2000, loans past due 90 days or more and still
accruing interest were $495 million, or 0.13 percent of loans and leases, com-
pared to $521 million, or 0.14 percent, of loans and leases,
compared to $611 million, or 0.17 percent, at December 31, 1998.1999.
Table ElevenTwelve
Loans Past Due 90 Days or More and Still Accruing Interest
- -------------------------------------------------------------------------------
December 31, 19992000 December 31, 1998
--------------------- --------------------1999
------------------- -------------------
(Dollars in millions) Amount Percent(1)Percent(/1/) Amount Percent(1)Percent(/1/)
- --------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial - domestic $141 .10% $135 .09% $135 .10%
Commercial - foreign 37 .12 58 .21 23 .07
Commercial real estate - domestic 16 .06 6 .02
12 .04
- --------------------------------------------------------------------------------------------------------------------------------------------------------
Total commercial 194 .10 199 .10
170 .09
- --------------------------------------------------------------------------------------------------------------------------------------------------------
Residential mortgage 17 .02 26 .03 31 .04
Direct/Indirect consumer 89 .22 136 .32
174 .43
Consumer finance 4 .02 22 .10
16 .10
Bankcard 191 1.36 138 1.53
214 1.72
Foreign consumer -- -- 6 .17
- --------------------------------------------------------------------------------------------------------------------------------------------------------
Total consumer 301 .16 322 .18
441 .27
- --------------------------------------------------------------------------------------------------------------------------------------------------------
Total $495 .13% $521 .14%
$611 .17%
==============================================================================- --------------------------------------------------------------------------
(1) Represents amounts past due 90 days or more and still accruing interest as
a percentage of loans and leases for each loan category.
Net Charge-offs - Net charge-offs by loan category are presented in Table
Twelve.
Table Twelve
Net Charge-offs in Dollars and as a Percentage of Average Loans and Leases
Outstanding(1)
(Dollars in millions) 1999 1998 1997
- ------------------------------------------------------------------------------------------
Commercial - domestic $ 711 .51% $ 617 .47% $ 102 .09%
Commercial - foreign 144 .49 242 .78 29 .10
Commercial real
estate - domestic (6) n/m -- -- -- --
Commercial real
estate - foreign 1 .39 -- -- -- --
- ------------------------------------------------------------------------------------------
Total commercial 850 .44 859 .45 131 .07
- ------------------------------------------------------------------------------------------
Residential mortgage 28 .04 29 .04 45 .06
Home equity lines 12 .07 17 .11 27 .18
Direct/Indirect consumer 370 .88 405 1.01 436 1.11
Consumer finance 229 1.22 383 2.67 271 1.96
Bankcard 495 5.08 764 6.03 919 5.90
Other consumer - domestic (1) n/m -- -- 12 --
Foreign consumer 17 .52 10 .31 11 .32
- ------------------------------------------------------------------------------------------
Total consumer 1,150 .68 1,608 1.02 1,721 1.03
- ------------------------------------------------------------------------------------------
Total net charge-offs $2,000 .55% $2,467 .71% $1,852 .54%
==========================================================================================
Managed bankcard net
charge-offs and ratios(2) $1,077 5.57% $1,284 6.27% $1,254 6.19%
==========================================================================================
(Dollars in millions) 1996 1995
- -------------------------------------------------------------------------
Commercial - domestic $ 182 .18% $ 32 .03%
Commercial - foreign (11) n/m (53) n/m
Commercial real
estate - domestic 81 .31 52 .19
Commercial real
estate - foreign (5) n/m (5) n/m
- -------------------------------------------------------------------------
Total commercial 247 .16 26 .02
- -------------------------------------------------------------------------
Residential mortgage 57 .07 57 .08
Home equity lines 40 .34 40 .39
Direct/Indirect consumer 349 1.01 263 .79
Consumer finance 237 1.98 172 1.98
Bankcard 730 4.47 572 3.88
Other consumer - domestic 5 -- -- --
Foreign consumer 2 .10 1 .04
- -------------------------------------------------------------------------
Total consumer 1,420 .89 1,105 .77
- -------------------------------------------------------------------------
Total net charge-offs $1,667 .53% $1,131 .39%
=========================================================================
Managed bankcard net
charge-offs and ratios(2) $ 888 4.67% $ 651 4.10%
=========================================================================
n/m =not meaningful
(1) Percentage amounts are calculated as net charge-offs divided by average
outstanding loans and leases for each loan category.
(2) Includes both on-balance sheet and securitized loans.
34
Allowance for Credit Losses
The Corporation performs periodic and systematic detailed reviews of its
loan and lease portfolios to identify risks inherent inrisks and to assess the overall
collectibility of those portfolios. CertainThe allowance on certain homogeneous loan
portfolios, are evaluated collectivelywhich generally consist of consumer loans, is based on individualaggregated
portfolio segment evaluations generally by loan type, whiletype. Loss forecast models are
utilized for these segments which consider a variety of factors including, but
not limited to, anticipated defaults or foreclosures based on portfolio
trends, delinquencies and credit scores, and expected loss factors by loan
type. The remaining portfolios are reviewed on an individual loan basis. Loans
subject to individual reviews are analyzed and segregated by risk according to
the Corporation's internal risk rating scale. These detailed reviews,
combinedrisk classifications, in
conjunction with an analysis of historical loss experience, current economic
conditions and performance trends within specific portfolio segments, and any
other factors,pertinent information (including individual valuations on nonperforming
loans in accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan") result in the identification and quantificationestimation
of specific allowances for credit losses and
loss factors which are used in determining the amount of the allowance and
related provision for credit losses. The actual amount of incurred credit
losses that may be confirmed may vary from the estimate of incurred losses due
to changing economic conditions or changes in industry or geographic
concentrations. The Corporation has procedures in
place to monitor differences between estimated and actual incurred credit
losses, whichlosses. These procedures include detailed periodic assessments by senior managementman-
agement of both individual loans and credit portfolios and the models used to
estimate incurred credit losses in those portfolios.
Portions of the allowance for credit losses, as presented on Table Thirteen,Fifteen,
are assigned to cover the estimated probable incurred credit losses in each
loan and lease category based on the results of the Corporation's detail
review process as described above. Further assignments are made based on general and
specific economic conditions, as well as performance trends within specific
portfolio segments and individual concentrations of credit, including
geographic and industry concentrations. The assigned portion of the allowance
for credit losses continues to be weighted
toward the commercial loan portfolio, reflectingwhich reflects a higher level of
nonperforming loans and the potential for higher
39
individual losses. The remaining or unassigned portion of the allowance for
credit losses, determined separately from the procedures outlined above,
addresses certain industry and geographic concentrations, including global
economic conditions, thereby minimizingconditions. This procedure helps to minimize the risk related to the
margin of imprecision inherent in the estimation of the assigned allowanceallowances
for credit losses. Due to the subjectivity involved in the determination of
the unassigned portion of the allowance for credit losses, the relationship of
the unassigned component to the total allowance for credit losses may fluctuatefluctu-
ate from period to period. Management evaluates the adequacy of the allowance
for credit losses based on the combined total of the assigned and unassigned
components and believes that the allowance for credit losses reflects management'smanage-
ment's best estimate of incurred credit losses as of the balance sheet date.
Period to period changes in the assigned allowanceThe provision for credit losses are
driven by portfolio levelincreased $715 million in 2000 to $2.5 bil-
lion primarily related to increased credit deterioration and product mix changes, specific allowance for
credit loss assignments on impaired loans, as well as any changesnonperforming
assets in assigned
levels driven by the review process. In the first quarter of 1999, a review of
the Corporation's portfolio and combined loss history resulted in adjustments
to selected loss factors, which in some instances were higher or lower than the
1998 rates. This resulted in a redistribution of the allowance between select
product categories. The allowance assigned to commercial - domestic loans,
commercial real estate - domestic loans and direct/indirect consumer loans at
December 31, 1999loan portfolio. The provision for credit
losses in 2000 was impacted by this revision$135 million in excess of loss factors as well as by
portfolio level changes. The consumer finance loan portfolio experiencednet charge-offs of $2.4 billion
due primarily to a redistribution of portfolio risk in 1999 as a result ofdecision to increase the sale of a sub-prime
business in 1998 and reductions of manufactured housing exposures in 1999.
Changes in the assigned allowance for credit losses, in
1999 for all other
product categories were commensurate with portfolio level changes.
The levelresponse to the increased velocity of the unassigned allowance for credit losses remained stable
from 1998 to 1999, although there was a shiftdeterioration in the mixfourth quar-
ter of the components as
certain industry concentration risks, such as healthcare, sub-prime finance and
textiles and apparel, increased and offshore risk expectations have generally
improved.
35
Table Thirteen
Allocation of the Allowance for Credit Losses
December 31
-------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ -------------------
(Dollars in millions) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- -------------------------- -------- --------- -------- --------- -------- --------- -------- --------- -------- ----------
Commercial - domestic $1,875 27.4% $1,540 21.6% $1,580 23.4% $1,436 22.7% $1,306 21.1%
Commercial - foreign 930 13.6 1,327 18.6 1,013 14.9 427 6.8 432 6.9
Commercial real
estate - domestic 927 13.6 925 13.0 847 12.5 764 12.1 992 15.9
Commercial real
estate - foreign 11 .2 -- -- -- -- -- -- -- --
- -------------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total commercial 3,743 54.8 3,792 53.2 3,440 50.8 2,627 41.6 2,730 43.9
- -------------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Residential mortgage 160 2.3 137 1.9 181 2.7 214 3.4 202 3.2
Home equity lines 60 .9 46 .6 84 1.2 87 1.4 74 1.2
Direct/Indirect consumer 416 6.1 527 7.5 608 9.0 618 9.8 604 9.7
Consumer finance 651 9.5 658 9.2 785 11.6 645 10.2 460 7.4
Bankcard 348 5.1 501 7.0 790 11.7 671 10.6 709 11.4
Foreign consumer 11 .2 26 .4 23 .3 21 .3 17 .3
- -------------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total consumer 1,646 24.1 1,895 26.6 2,471 36.5 2,256 35.7 2,066 33.2
- -------------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Unassigned 1,439 21.1 1,435 20.2 867 12.7 1,433 22.7 1,426 22.9
- -------------------------- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $6,828 100.0% $7,122 100.0% $6,778 100.0% $6,316 100.0% $6,222 100.0%
========================== ====== ===== ====== ===== ====== ===== ====== ===== ====== =====
36
2000.
The nature of the process by which the Corporation determines the appropriateappropri-
ate allowance for credit losses requires the exercise of considerable judgment.judg-
ment. After review of all relevant matters affecting loan collectibility,
management believes that the allowance for credit losses is appropriate given
its analysis of estimated incurred credit losses at December 31, 1999.2000. Table
FourteenThirteen provides the changes in the allowance for credit losses for the five
years ended December 31, 1999.2000.
40
Table FourteenThirteen
Allowance For Credit Losses
- -------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
- ---------------------------------------------------------------- -------------- -------------------------------------------------------------------------------------------
Balance, January 1 $ 6,828 $ 7,122 $ 6,778 $ 6,316 $ 6,222
- ---------------------------------------------------------------- -------- ---------------------------------------------------------------------------------------
Loans and leases charged off
Commercial - domestic 1,412 820 714 328 376
Commercial - foreign 117 161 262 54 29
Commercial real estate -
domestic 31 19 21 59 131
Commercial real estate -
foreign 1 1 -- -- --
- ---------------------------------------------------------------- -------- ---------------------------------------------------------------------------------------
Total commercial 1,561 1,001 997 441 536
- ---------------------------------------------------------------- -------- ---------------------------------------------------------------------------------------
Residential mortgage 36 35 33 50 61
Home equity lines 29 24 27 36 47
Direct/Indirect consumer 502 545 562 582 486
Consumer finance 420 387 561 426 393
Bankcard 392 571 857 1,043 838
Other consumer domestic 51 (1) -- 12 5
Foreign consumer 4 20 13 13 3
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Total consumer 1,434 1,581 2,053 2,162 1,833
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Total loans and leases
charged off 2,995 2,582 3,050 2,603 2,369
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Recoveries of loans and
leases previously charged
off
Commercial - domestic 125 109 97 226 194
Commercial - foreign 31 17 20 25 40
Commercial real estate -
domestic 18 25 21 59 50
Commercial real estate -
foreign 3 -- -- -- 5
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Total commercial 177 151 138 310 289
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Residential mortgage 9 7 4 5 4
Home equity lines 9 12 10 9 7
Direct/Indirect consumer 178 175 157 146 137
Consumer finance 154 158 178 155 156
Bankcard 54 76 93 124 108
Other consumer - domestic 13 -- -- -- --
Foreign consumer 1 3 3 2 1
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Total consumer 418 431 445 441 413
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Total recoveries of loans
and leases previously
charged off 595 582 583 751 702
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Net charge-offs 2,400 2,000 2,467 1,852 1,667
- ---------------------------------------------------------------- --------- --------
Provision-------------------------------------------------------------------------------
Provisions for credit losses 2,535 1,820 2,920 1,904 1,645
Other, net (125) (114) (109) 410 116
- ---------------------------------------------------------------- --------- ---------------------------------------------------------------------------------------
Balance, December 31 $ 6,838 $ 6,828 $ 7,122 ================================================================ ========= ========$ 6,778 $ 6,316
- -------------------------------------------------------------------------------
Loans and leases outstanding
at December 31 $392,193 $370,662 $357,328 $342,140 $317,709
Allowance for credit losses
as a percentage of loans
and leases outstanding at
December 31 1.74% 1.84% 1.99% 1.98% 1.99%
Average loans and leases
outstanding during the year $392,622 $362,783 $347,840 $343,151 $312,331
Net charge-offs as a
percentage of average
outstanding loans and
leases outstanding during the year .61% .55% .71% .54% .53%
Ratio of the allowance for
credit losses at December
31 to net charge-offs 2.85 3.41 2.89 3.66 3.79
Allowance for credit losses
as a percentage of
nonperforming loans at end
of year 131.30 224.48 287.01 ================================================================ ========= ========321.03 287.35
- -------------------------------------------------------------------------------
41
Table Fourteen
Net Charge-offs in Dollars and as a Percentage of Average Loans and Leases
Outstanding(/1/)
- ---------------------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 1997 1996
1995
- ---------------------------------------------------------------- ------------- ------------- ----------------------------------------------------------------------------------------------------------
Balance, January 1 $ 6,316 $ 6,222 $ 6,377
- ---------------------------------------------------------------- --------- --------- ---------
Loans and leases charged off
Commercial - domestic 328 376 329$1,287 .87% $ 711 .51% $ 617 .47% $ 102 .09% $ 182 .18%
Commercial - foreign 5486 .29 144 .49 242 .78 29 11.10 (11) n/m
Commercial real estate -
domestic 59 131 10513 .05 (6) n/m -- -- -- -- 81 .31
Commercial real estate -
foreign (2) -- 1 .39 -- -- 2-- -- (5) n/m
- ---------------------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------------------------
Total commercial 441 536 4471,384 .68 850 .44 859 .45 131 .07 247 .16
- ---------------------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------------------------
Residential mortgage 50 61 6027 .03 28 .04 29 .04 45 .06 57 .07
Home equity lines 36 47 4720 .10 12 .07 17 .11 27 .18 40 .34
Direct/Indirect consumer 582 486 374324 .78 370 .88 405 1.01 436 1.11 349 1.01
Consumer finance 426 393 241266 1.09 229 1.22 383 2.67 271 1.96 237 1.98
Bankcard 1,043 838 648338 3.29 495 5.08 764 6.03 919 5.90 730 4.47
Other consumer -
domestic 38 -- (1) n/m -- -- 12 -- 5 --
Foreign consumer 13 3 .13 17 .52 10 .31 11 .32 2 .10
- ---------------------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------------------------
Total consumer 2,162 1,833 1,3721,016 .54 1,150 .68 1,608 1.02 1,721 1.03 1,420 .89
- ---------------------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------------------------
Total loansnet charge-offs $2,400 .61% $2,000 .55% $2,467 .71% $1,852 .54% $1,667 .53%
- ---------------------------------------------------------------------------------------------
Managed bankcard net
charge-offs and
leases charged off 2,603 2,369 1,819ratios(/2/) $ 944 4.66% $1,077 5.57% $1,284 6.27% $1,254 6.19% $ 888 4.67%
- ---------------------------------------------------------------- --------- --------- ---------
Recoveries of loans and leases previously charged off---------------------------------------------------------------------------------------------
n/m = not meaningful
(1) Percentage amounts are calculated as net charge-offs divided by average
outstanding or managed loans for each loan category.
(2) Includes both on-balance sheet and securitized loans.
Table Fifteen
Allocation of the Allowance for Credit Losses
- ----------------------------------------------------------------------------------------------------
December 31
--------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------------------------------------------------------------------------------
(Dollars in millions) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ----------------------------------------------------------------------------------------------------
Commercial - domestic 226 194 297$1,993 29.1% $1,875 27.4% $1,540 21.6% $1,580 23.4% $1,436 22.7%
Commercial - foreign 25 40 64796 11.6 930 13.6 1,327 18.6 1,013 14.9 427 6.8
Commercial real
estate - domestic 59 50 53989 14.5 927 13.6 925 13.0 847 12.5 764 12.1
Commercial real
estate - foreign 7 .1 11 .2 -- 5 7-- -- -- -- --
- ---------------------------------------------------------------- --------- --------- -------------------------------------------------------------------------------------------------------------
Total commercial 310 289 4213,785 55.3 3,743 54.8 3,792 53.2 3,440 50.8 2,627 41.6
- ---------------------------------------------------------------- --------- --------- -------------------------------------------------------------------------------------------------------------
Residential mortgage 5 4 3151 2.2 160 2.3 137 1.9 181 2.7 214 3.4
Home equity lines 9 7 777 1.1 60 .9 46 .6 84 1.2 87 1.4
Direct/Indirect consumer 146 137 111384 5.6 416 6.1 527 7.5 608 9.0 618 9.8
Consumer finance 155 156 69658 9.7 651 9.5 658 9.2 785 11.6 645 10.2
Bankcard 124 108 76549 8.0 348 5.1 501 7.0 790 11.7 671 10.6
Foreign consumer 2 1 111 .2 11 .2 26 .4 23 .3 21 .3
- ---------------------------------------------------------------- --------- --------- -------------------------------------------------------------------------------------------------------------
Total consumer 441 413 2671,830 26.8 1,646 24.1 1,895 26.6 2,471 36.5 2,256 35.7
- ---------------------------------------------------------------- --------- --------- -------------------------------------------------------------------------------------------------------------
Unassigned 1,223 17.9 1,439 21.1 1,435 20.2 867 12.7 1,433 22.7
- ----------------------------------------------------------------------------------------------------
Total recoveries of loans and leases previously charged off 751 702 688$6,838 100.0% $6,828 100.0% $7,122 100.0% $6,778 100.0% $6,316 100.0%
- ---------------------------------------------------------------- --------- --------- ---------
Net charge-offs 1,852 1,667 1,131
- ---------------------------------------------------------------- --------- --------- ---------
Provision for credit losses 1,904 1,645 945
Other, net 410 116 31
- ---------------------------------------------------------------- --------- --------- ---------
Balance, December 31 $ 6,778 $ 6,316 $ 6,222
================================================================ ========= ========= =========
Loans and leases outstanding at December 31 $ 342,140 $ 317,709 $ 302,804
Allowance for credit losses as a percentage of loans and leases
outstanding at December 31 1.98% 1.99% 2.05%
Average loans and leases outstanding during the year $ 343,151 $ 312,331 $ 286,770
Net charge-offs as a percentage of average loans and leases
outstanding during the year .54% .53% .39%
Ratio of the allowance for credit losses at December 31 to net
charge-offs 3.66 3.79 5.50
Allowance for credit losses as a percentage of nonperforming
loans 321.03 287.35 224.86
================================================================ ========= ========= =========----------------------------------------------------------------------------------------------------
37
Concentrations of Credit Risk
In an effort to minimize the adverse impact of any single event or set of
occurrences, the Corporation strives to maintain a diverse credit portfolio as
outlined in Tables Fifteen, Sixteen, Seventeen, Eighteen and Seventeen.Nineteen.
The Corporation maintains a diverse commercial loan portfolio, representing
52 percent of total loan and leases at December 31, 2000. The largest concen-
tration is in commercial real estate, which represents seven percent of total
loans and leases. The exposures presented in Table FifteenSeventeen represent credit
extensions for real estate-related purposes to borrowers or counterparties who
are primarily in the real estate development or investment business and for
which the ultimate repayment of the credit is dependent on the sale, lease,
rental or refinancing of the real estate. The exposuresexposure included in the table
dodoes not include credit
42
extensions which were made on the general creditworthiness of the borrower,
for which real estate was obtained as security and for which the ultimate
repayment of the credit is not dependent on the sale, lease, rental or refinancingrefi-
nancing of the real estate. Accordingly, the exposuresexposure presented dodoes not
include commercial loans secured by owner-occupied real estate, except where
the borrower is a real estate developer.
In addition to the amounts presented
in the table,Total loans and leases outstanding at December 31, 1999,2000, include approxi-
mately $5 billion related to the utilities industry, which represents 1.3 per-
cent of total loans and leases. Recent problems being experienced by the Cali-
fornia utility companies are being closely monitored by the Corporation. These
problems are related to government and regulatory issues, as well as financial
issues. The Corporation had approximately $15.2
billionbelieves all interested parties including utilities,
suppliers and government officials are working diligently in an attempt to
resolve the situation.
Table Sixteen
Significant Industry Loans and Leases(/1/)
- --------------------------------------------------------------------------------
2000 1999
-------------------------------------------
Percent of Total Percent of Total
(Dollars in millions) Outstanding Loans and Leases Outstanding Loans and Leases
- --------------------------------------------------------------------------------
Transportation $11,704 3.0% $11,133 3.0%
Media 9,322 2.4 8,783 2.4
Equipment and general
manufacturing 8,982 2.3 8,183 2.2
Business services 8,883 2.3 8,153 2.2
Agribusiness 7,672 2.0 8,110 2.2
Healthcare 7,201 1.8 8,539 2.3
Retail 7,049 1.8 7,040 1.9
Telecommunications 6,801 1.7 5,298 1.4
Autos 6,741 1.7 6,331 1.7
Oil and gas 5,299 1.4 6,839 1.8
- --------------------------------------------------------------------------------
(1) Includes only non-real estate commercial loans which were not real estate dependent but for which
the Corporation had obtained real estate as secondary repayment security.and leases.
43
Table FifteenSeventeen
Commercial Real Estate Loans, Foreclosed Properties
and Other Real Estate Credit ExposuresExposure
- -------------------------------------------------------------------------------
December 31, 19992000
Loans
Other
------------------------------------------------------
Foreclosed Credit
(Dollars in millions) Outstanding Nonperforming Properties(1) Exposures(2)Properties(/1/) Exposure(/2/)
- ---------------------------- ------------- --------------- -------------- ----------------------------------------------------------------------------------------------
By Geographic
Region(3)Region(/3/)
California $ 5,3825,756 $ 1549 $ 64 $ 699806
Southwest 3,720 20 1 4013,846 14 -- 610
Northwest 2,5572,862 2 -- 138
Florida 2,632 23 -- 509
Midwest 2,589 24 26 200
Mid-Atlantic 1,682 12 -- 474
Carolinas 1,453 5 1 239
Florida 2,395 28 3 458
Midwest 2,334 41 38 105
Mid-Atlantic 1,563 37 1 188
Carolinas 1,175 7 2 36-- 75
Midsouth 1,1571,387 4 2 98-- 110
Northeast 632 191,312 67 -- 128727
Other states 630 15 10 591,267 36 37 132
Non-US 325282 3 -- 127
Geographically
diversified 2,4811,368 -- -- 264250
- ---------------------------- ------- ---- --- ---------------------------------------------------------------------------------------
Total $24,351 $194 $64 $2,687
============================ ======= ==== === ======$26,436 $239 $67 $4,038
- ---------------------------------------------------------------------------------
By Property Type
Apartments $ 4,715 $ 32 $ 1 $ 724
Office buildings 4,677 35$ 5,237 $ 10 $ 2 162$ 625
Apartments 4,856 46 -- 761
Shopping centers/retail 3,094 29 30 3163,471 19 17 913
Residential 2,836 15 3 2923,266 23 -- 343
Industrial/warehouse 2,091 15 2 53
Hotels/motels 1,247 1 -- 1252,596 7 11 62
Land and land
development 1,176 121,353 2 8 148157
Hotels/motels 1,195 7 9 288
Multiple use 790704 1 -- 132
Miscellaneous commercial 598 2 -- 16
Unsecured 399 -- -- 18
Non-US 282 3 -- 14
Miscellaneous commercial 709 6 6 23
Unsecured 635 5 -- 4
Non-US 325 3 -- 127
Other 2,056 38 12 8142,479 119 20 716
- ---------------------------- ------- ---- --- ---------------------------------------------------------------------------------------
Total $24,351 $194 $64 $2,687
============================ ======= ==== === ======$26,436 $239 $67 $4,038
- ---------------------------------------------------------------------------------
(1) Foreclosed properties include commercial real estate loans only.
(2) Other credit exposures include letters of credit and loans held for sale.
(3) Distribution based on geographic location of collateral.
38
Table Sixteen below presents aggregate loan and lease exposures by certain
significant industries at December 31, 1999.
Table Sixteen
Significant Industry Loans and Leases(1)
December 31, 1999
(Dollars in millions) Outstanding
- ------------------------------------- ------------
Transportation $11,133
Media 8,783
Healthcare 8,539
Equipment and general manufacturing 8,183
Business services 8,153
Agribusiness 8,110
Retail 7,040
Oil and gas 6,839
Autos 6,331
Telecommunications 5,298
- ------------------------------------- -------
(1) Includes only non-real estate commercial loans and leases.
Regional ForeignInternational Exposure
Through its credit and market risk management activities, the Corporation
has been devoting particular attention to those countries that have been negativelynega-
tively impacted by global economic pressure, including particular attention
to thosepressure. These include certain Asian countries that have experienced currency and other economic
problems,coun-
tries as well as countries within Latin America and Eastern Europe whichthat have
also recently experienced currency and other economic problems.
In connection with its efforts to maintain a diversified portfolio, the CorporationCor-
poration limits its exposure to any one geographic region or country and monitorsmoni-
tors this exposure on a continuous basis. Table SeventeenEighteen sets forth selected
regional foreign exposure at December 31, 1999.2000. The countries selected repre-
sent those that the Corporation considers having higher credit and foreign
exchange risk. At December 31, 1999,2000, the Corporation's total exposure to these
select countries was $27.8$30.3 billion, decreasesan increase of $8.9$2.5 billion from December
31, 19981999, primarily due to increased levels of Japanese government securities.
The growth was partially offset by the sale of the Pakistan business and $19.0 billion from
December 31, 1997.
39
Table Seventeen presents theloan
paydowns in Mexico. The Corporation's total selected regional foreign exposure
athas declined $6.4 billion and $16.5 billion since December 31, 1999. The following table1998 and 1997
respectively. Table Eighteen is based on the Federal
Financial Institutions Examination Council'sFFIEC's instructions for periodic
reporting of foreign exposures. The table has been expanded to include "Gross
Local Country Claims" as defined in the table below and may not be consistent
with disclosures by other financial institutions.exposure.
44
Table SeventeenEighteen
Selected Regional Foreign Exposure
- -------------------------------------------------------------------------------
Increase IncreaseDerivatives Total Increase/
(Net Binding (Decrease)
Loans and Positive Securities/ Total Cross- Gross Other Total (Decrease) (Decrease)
Cross- Local Cross- Exposure from
from
Border(Dollars in Loan Other Mark-To- Other border Country Border December 31, December 31,
December 31,
(Dollars in millions) Loans Claims(1) Claims(2)Commitments Financing(/1/) Market) Investments Exposure(/2/) Exposure(/3/) 2000 1999
1998 1997
- --------------------------- -------- ----------- ----------- -------------- -------------- --------------------------------------------------------------------------------------------------------------------------------------
Region/Country
Asia
China $ 84108 $ 1043 $ 16810 $ 35679 $ (93)200 $ (409)120 $ 320 $ (36)
Hong Kong 42 4,004 273 4,319 (869) (1,312)199 40 19 90 348 4,216 4,564 245
India 592 1,214 178 1,984 (534) (515)878 45 53 56 1,032 1,177 2,209 225
Indonesia 352 110 60 522 (201) (988)252 24 22 30 328 67 395 (127)
Japan 176 1,128 2,497 3,801 (1,260) (3,169)696 90 599 5,022 6,407 687 7,094 3,293
Korea (South) 374 672 1,092 2,138 259 (1,666)361 861 74 61 1,357 863 2,220 82
Malaysia 41 9 1 1 52 470 522 (68)
Pakistan 10 8 -- 529 61 590 (138) (664)
Pakistan 12 298 13 323 (29) (227)-- 18 -- 18 (305)
Philippines 227 117 159 503 (80) (260)182 28 2 35 247 144 391 (112)
Singapore 48 1,006 238 1,292 (714) (1,120)334 9 49 65 457 1,017 1,474 182
Taiwan 234 591 136 961 (1,329) (1,477)319 58 18 1 396 733 1,129 168
Thailand 88 438 82 608 (342) (1,349)43 11 46 33 133 274 407 (201)
Other 4 121 25 150 (3) (47)1 17 -- -- 18 114 132 (18)
- --------------------------- ------ ------- ------ ------- ---------- ----------------------------------------------------------------------------------------------------------------------------------
Total 2,233 10,332 4,982 17,547 (5,333) (13,203)$3,424 $1,203 $ 893 $5,473 $10,993 $ 9,882 $20,875 $3,328
- --------------------------- ------ ------- ------ ------- --------- ----------------------------------------------------------------------------------------------------------------------------------
Central and
Eastern Europe
RussianRussia
Federation 12$ -- 6$ -- -- $ 2 $ 2 -- $ 2 $ (16)
Turkey 271 37 3 21 332 -- 332 114
Other 95 16 18 (42) (429)
Other 256 38 159 453 (251) (245)47 176 68 244 9
- --------------------------- ------ ------- ------ ------- --------- ----------------------------------------------------------------------------------------------------------------------------------
Total 268 38 165 471 (293) (674)$ 366 $ 53 $ 21 $ 70 $ 510 $ 68 $ 578 $ 107
- --------------------------- ------ ------- ------ ------- --------- ----------------------------------------------------------------------------------------------------------------------------------
Latin America
Argentina 554 370 214 1,138 (129) (505)$ 500 $ 114 $ 14 $ 50 $ 678 $ 396 $ 1,074 $ (64)
Brazil 1,088 619 801 2,508 (910) (1,122)788 416 239 329 1,772 492 2,264 (244)
Chile 659 219 121 999 (652) (681)569 6 9 12 596 384 980 (19)
Colombia 330 53 109 492 (306) (293)207 42 7 9 265 21 286 (206)
Mexico 1,756 215 1,904 3,875 (1,063) (2,237)1,547 355 62 1,267 3,231 205 3,436 (439)
Venezuela 133 40 240 413 (144) (210)165 21 -- 245 431 48 479 66
Other 191199 74 2 87 362 -- 156 347 (83) (96)362 15
- --------------------------- ------ ------- ------ ------- --------- ----------------------------------------------------------------------------------------------------------------------------------
Total 4,711 1,516 3,545 9,772 (3,287) (5,144)$3,975 $1,028 $ 333 $1,999 $ 7,335 $ 1,546 $ 8,881 $ (891)
- --------------------------- ------ ------- ------ ------- --------- ----------------------------------------------------------------------------------------------------------------------------------
Total $7,212 $11,886 $8,692 $27,790 $(8,913) $ (19,021)
=========================== ====== ======= ====== ======= ========= =========$7,765 $2,284 $1,247 $7,542 $18,838 $11,496 30,334 $2,544
- -------------------------------------------------------------------------------------------------------------------------
(1) Includes the following claims by the Corporation's foreign offices on local
country residents regardless of the currency: loans, accrued interest
receivable, acceptances, time deposits placed, trading account assets,
other interest-earning investments, other short-term monetary assets,
unused commitments, standby letters of credit, commercial letters of
credit, and formal guarantees,guarantees.
(2) Cross-border exposure includes amounts payable to the Corporation by resi-
dents of countries other than the one in which the credit is booked,
regardless of the currency in which the claim is denominated, consistent
with FFIEC reporting rules.
(3) Gross local country exposure includes amounts payable to the Corporation
by residents of countries in which the credit is booked, regardless of the
currency in which the claim is denominated. Management does not net local
funding or liabilities against local exposures as allowed by the FFIEC.
45
The Corporation has cross border exposure in excess of one percent of total
assets in the three countries detailed on Table Nineteen. The exposure in the
United Kingdom and available-for-sale (at fair value) and
held-for-investment (at cost) securities.
(2) All instrumentsGermany reflects the Corporation's efforts to diversify its
portfolio in (1)industrialized countries where its clients operate. The growth in
Japan is primarily due to increased levels of Japanese government securities
resulting from market risk management activities that are cross-border claims excluding loans but
including derivative-dealer assets (at fair value)closely monitored
and available-for-sale
(at fair value) and held-for-investment (at cost) securities that are collateralized by U.S. Treasury securities as follows: Mexico - $1,120,
Venezuela - $168, Philippines - $22, and Latin America Other - $73.
Held-for-investment securities (at cost) amountedregularly subject to $772 with a fair
value of $607.
40
stress testing scenarios. For additional informa-
tion on these market risk management activities, see the "Market Risk Manage-
ment" section on page 47.
Table Nineteen
Exposure Exceeding One Percent of Total Assets(1,2)Assets(/1/,/2/)
- -----------------------------------------------------------------------------
Exposure
(Dollars in Public Private Total as a Percentage (Dollars inof
millions) December 31 Sector Banks Sector Exposure of Total Assets
- ----------------------- ------------- -------- -------- --------- ---------- ---------------------------------------------------------------------------------------------
United Kingdom 2000 $ 355 $1,962 $6,167 $8,484 1.32%
1999 250 917 4,535 5,702 0.90
- -----------------------------------------------------------------------------
Germany 2000 2,188 2,249 2,062 6,499 1.01
1999 791 1,948 932 3,671 0.58
- -----------------------------------------------------------------------------
Japan 2000 4,925 599 883 6,407 1.00
1999 $2,208 $ 573 $1,020 $3,801 .60%
1998 2,452 1,519 1,090 5,061 .82
1997 2,485 1,555 2,930 6,970 1.22
==== ====== ====== ====== ====== ====1,653 502 518 2,673 0.42
- -----------------------------------------------------------------------------
(1) Exposure includes local country and cross-border claims by the Corporation's foreign
offices as follows: loans, accrued interest receivable, acceptances, time
deposits placed, trading account assets, available-for-sale (at fair value)val-
ue) and held-for-investmentheld-to-maturity (at cost) securities, other interest-earning
investments and other monetary assets. Amounts also include derivative-dealerderivative-
dealer assets, unused commitments, standby letters of credit, commercial
letters of credit and formal guarantees.
(2) Sector definitions are based on Federal Financial Institutions Examination
Councilthe FFIEC instructions for preparing the
Country Exposure Report.
International Developments
During 1998, and continuing into 1999, a number of countries in Asia,
Latin America and Central and Eastern Europe experienced economic difficulties
due to a combination of structural problems and negative market reaction that
resulted from increased awareness of these problems. While each country's
situation is unique, many share common factors such as: (1) government actions
which restrain normal functioning of free markets in physical goods, capital
and/or currencies; (2) perceived weaknesses of the banking systems; and (3)
perceived overvaluation of local currencies and/or pegged exchange rate
systems. These factors resulted in capital movement out of these countries or
in reduced capital inflows, and, as a result, many of these countries
experienced liquidity problems in addition to the structural problems.
More recently, many of the Asian economies are showing signs of recovery
from prior troubles and are slowly implementing structural reforms. However,
there can be no assurance that this will continue and setbacks could be
expected from time to time. Since early 1999, several Latin American economies
have replaced their pegged exchange rate systems with free-floating currencies.
While sustained recovery is not assured, much of Latin America is showing signs
of recovery.
Where appropriate, the Corporation has adjusted its activities (including
its borrower selection) in light of the risks and opportunities discussed
above. The Corporation continued to reduce its exposures in Asia, Latin America
and Central and Eastern Europe throughout 1999. The Corporation will continue
to monitor and adjust its foreign activities on a country-by-country basis
depending on management's judgment of the likely developments in each country
and will take action as deemed appropriate.
4146
Market Risk Management
InOverview
The Corporation is exposed to market risk as a consequence of the normal
course of conducting its business activities. Examples of these business
activities the
Corporation is exposed toinclude market risks including pricemaking, underwriting, proprietary trading, and
liquidity risk.asset/liability management in interest rate, foreign exchange, equity, commod-
ity and credit markets, along with any associated derivative products. Market
risk is the potential of loss arising from adverse changes in market rates,
prices and prices, such as interest rates (interest rate risk), foreign currency
exchange rates (foreign exchange risk), commodity prices (commodity risk) and
prices of equity securities (equity risk).liquidity. Financial products that expose the Corporation to market
risk include securities, loans, deposits, debt and derivative financial
instruments such as futures, forwards, swaps, options and other financial
instruments with similar characteristics. Liquidity risk arises from the possibilitypos-
sibility that the Corporation may not be able to satisfy current or future
financial commitments or that the Corporation may be more reliant on alternativealterna-
tive funding sources such as long-term debt.
Market risk is managed byTrading Portfolio
The Corporation's Board of Directors (the Board) delegates responsibility of
the Corporation's Finance Committee, which
formulates policy based on desirable levels of market risk. In setting
desirable levelsday-to-day management of market risk to the Finance Committee. The Finance
Committee considershas structured a system of independent checks, balances and report-
ing in order to ensure that the impact on
both earnings and capitalBoard's disposition toward market risk is not
compromised.
The objective of Risk Management is to provide senior management with inde-
pendent, timely assessments of the current outlook inbottom line impacts of all market rates, potential
changes in market rates, worldrisks
facing the Corporation and regional economies, liquidity, business
strategies and other factors.
Trading Portfolio
The Corporation manages its exposure to market risk resulting frommonitor those impacts against trading activities through a risk management function which is independentlimits.
Risk Management monitors the changing aggregate position of the various business units. The Trading Risk Committee (TRC) establishesCorporation
and monitors various limits on trading activities. These limits include product
volume, gross and net positions, and value-at-risk (VAR) and stressprojects the profit and loss simulation limits. Product volume limits establishlevels that would result from both normal and
extreme market moves. In addition, Risk Management is responsible for ensuring
that reasonable policies and procedures that are in line with the Board's risk
preferences are in place and enforced. These policies and procedures encompass
the limit process, risk reporting, new product review and model review.
- ---------------------------------------------
Daily Market Risk-Related Number
Revenue (Dollars in millions) of Days
- ---------------------------------------------
- -10 to -15 1
- -5 to -10 4
0 to -5 14
0-5 39
5-10 52
10-15 57
15-20 46
20-25 18
25-30 13
30-35 6
> 35 1
47
Market risk-related revenue includes trading revenue and trading-related net
interest income, which encompasses both proprietary trading and customer-
related activities. In 2000, the Corporation continued its efforts to build on
its client franchise and reduce the proportion of proprietary trading revenue
to total revenue. The success of these efforts can be seen in the histogram.
In 2000, the Corporation recorded positive daily market risk-related revenue
for 232 of 251 trading days. Furthermore, of the 19 days that showed negative
revenue, only one day was greater than $10 million.
Value at Risk
Value at Risk (VAR) is the key measure of market risk for the Corporation.
VAR represents the maximum aggregate
amounts of specific types of derivatives, foreign exchange contracts and
securitiesamount that the Corporation may holdhas placed at risk of
loss, with a 99 percent degree of confidence, in the course of its trading account at any point in
time. Position limits restrictrisk taking
activities. Its purpose is to describe the gross and net amount of contracts that cancapital required to
absorb potential losses from adverse market movements.
As the graph below shows, in 2000, actual market risk-related revenue
exceeded VAR measures one day out of 251 total trading days. Given the 99 per-
cent confidence interval captured by VAR, this would be heldexpected to occur
approximately once every 100 trading days, or two to three times each year.
Graphic omitted: Line graph representation of Daily Market Risk-Related
Revenue and VAR for the twelve months ended December 31, 2000. During 2000, the
daily market risk-related revenue ranged from negative revenue of $13 million to
positive revenue of $37 million. Over the same period, VAR ranged from $25
million to $53 million.
48
The following table summarizes the VAR in the Corporation's trading account in any specific maturityportfo-
lios as of and product grouping.
VAR measuresfor the potential loss in future earnings due to market rate movements
within the trading portfolio using proprietary models that are based on
statistical probability. VAR limits establish the maximum amount of potential
loss, based upon sophisticated modeling techniques, that the Corporation is
willing to assume at any point in time to a certain degree of confidence.
Additionally, the Corporation uses profityears ended December 31, 2000 and loss simulations to measure the
potential for loss in various segments of the trading portfolio resulting from
specific and extremely adverse scenarios. These scenarios are projected without
regard to the statistical probability of their occurrences. Loss simulation
limits establish the maximum amount of projected loss computed by the
simulation that the Corporation is willing to assume.
The Corporation reduces the market risk to which it is exposed in the
trading account by executing offsetting transactions with other counterparties.
However, the Corporation retains open or uncovered trading account positions in
an effort to generate revenue by correctly anticipating future market
conditions and customer demands or by taking advantage of price differentials
among the various markets in which it operates.
The day-to-day management of interest rate and foreign exchange risks
takes place at a decentralized level within the Corporation's various trading
centers. Limits established by the TRC are assigned to each trading center. In
addition, documented trading policies and procedures define acceptable
boundaries within which traders can execute transactions in their assigned
markets.
The Corporation uses a VAR methodology to measure the interest rate,
foreign exchange, commodity and equity risks inherent in its trading
activities. Under this methodology, management models historical data to
statistically calculate, with 99 percent confidence, the potential loss in
earnings the Corporation might experience if an adverse one-day shift in market
prices was to occur.
The Corporation performs the VAR calculation for each major trading
portfolio segment on a daily basis. It then calculates the combined VAR across
these portfolio segments using two different sets of assumptions. The first
calculation assumes that each portfolio segment experiences adverse price
movements at the same time (i.e., the price movements are perfectly
correlated). The second calculation assumes that these adverse price movements
within the major portfolio segments do not occur at the same time (i.e., they
are uncorrelated).
42
1999:
Table Twenty
Trading Activities Market Risk
- -------------------------------------------------------------------------------
2000 1999
1998
-------------------------------- -------------------------------------------------------------------
(US Dollar equivalents Average High Low Average High Low
(US Dollar equivalents in millions) VAR VAR(1) VAR(1) VAR VAR(1) VAR(1)VAR(/1/) VAR(/2/) VAR(/2/) VAR(/1/) VAR(/2/) VAR(/2/)
- -------------------------------------- --------- ----------- ---------- ----------- ----------- ----------------------------------------------------------------------------------------
Based on perfect positive correlation
Interest rate $ 85.6 $ 126.8 $ 66.8 $ 120.2 $ 163.8 $ 92.7$25.9 $42.2 $16.3 $25.7 $41.2 $18.6
Foreign currency 12.9 23.5 7.9 28.5 46.0 8.3
Commodities 2.1 6.4 0.8 3.6 6.9 1.4
Equity 14.0 28.0 3.0 2.0 5.2 0.5
Based on zero correlation
Interest rate 25.7 41.2 18.6 37.6 49.9 29.3
Foreign currencyexchange 10.6 18.5 5.4 10.8 21.7 6.1
24.0 40.0 6.4
Commodities 2.1 5.2 .5 1.6 5.8 0.6 2.7 5.3 1.1
Equity.6
Equities 26.7 41.5 5.5 13.1 26.8 2.6
1.7 5.2 0.5
====================================== ======= ======== ======= ======== ======== =======Credit products(/3/) 10.1 17.4 3.2 n/a n/a n/a
Real
estate/mortgage(/3/) 7.5 11.3 2.5 n/a n/a n/a
Total trading portfolio 41.5 53.0 25.1 31.7 42.6 23.5
- ------------------------------------------------------------------------------
(1) The average VAR for the total portfolio is less than the sum of the VARs
of the individual portfolios due to risk offsets arising from the diversifi-
cation of the portfolio.
(2) The high and low for the entire trading account may not equal the sum of
the individual components as the highs or lows of the componentsportfolio may have
occurred on different trading days.
(3) Prior to 2000, the credit products and real estate/mortgage portfolios
were reported as part of the interest rate portfolio.
Total trading portfolio VAR increased during 2000 relative to 1999, largely
driven by increased activity in the equities business. The VAR for the other
product categories during 2000 was approximately the same as in 1999.
The following table above sets forthsummarizes the calculatedquarterly VAR amountsin the Corporation's trad-
ing portfolios for 1999 and 1998.2000:
Quarterly Trading Activities Market Risk
- -------------------------------------------------------------------------------
2000
-----------------------------------------------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
- -----------------------------------------------------------------------------------------------------------------------------
(US Dollar
equivalents in Average High Low Average High Low Average High Low Average High Low
millions) VAR(/1/) VAR(/2/) VAR(/2/) VAR(/1/) VAR(/2/) VAR(/2/) VAR(/1/) VAR(/2/) VAR(/2/) VAR(/1/) VAR(/2/) VAR(/2/)
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate $25.2 $42.2 $16.3 $29.1 $35.5 $24.7 $26.4 $33.6 $21.7 $22.8 $25.5 $19.9
Foreign exchange 10.6 15.5 5.7 9.1 13.5 5.5 10.2 18.5 5.4 12.2 17.8 7.4
Commodities 2.8 4.8 1.5 2.4 5.2 .5 1.9 3.3 .7 1.2 2.4 .5
Equities(/3/) 10.4 21.6 5.5 35.2 41.5 25.5 36.7 39.8 28.7 24.6 35.1 19.1
Credit products 6.3 8.5 3.2 8.8 12.0 6.1 12.4 16.4 8.8 13.2 17.4 8.9
Real
estate/mortgage 9.6 11.1 8.3 9.8 11.3 8.6 4.5 9.4 2.5 6.1 9.1 4.5
Total trading
portfolio(/3/) 32.0 45.5 25.1 48.5 53.0 39.2 47.9 52.0 41.9 37.4 46.7 34.0
- -----------------------------------------------------------------------------------------------------------------------------
(1) The amounts are calculated on a pre-tax basis. Interest rate and foreign
exchange risks were generally lower in 1999average VAR for the total portfolio is less than in 1998the sum of the VARs
of the individual portfolios due to risk offsets arising from the decreased
emphasis on proprietary risk-taking and the establishmentdiversifi-
cation of the Europortfolio.
(2) The high and low for the entire trading account may not equal the sum of
the individual components as a
currency. Equity riskthe highs or lows of the portfolio may have
occurred on different trading days.
(3) The decrease in VAR in the fourth quarter was generally higher in 1999 than in 1998 due to growtha change in the equity business.meth-
odology used to calculate VAR for the equities portfolio. The net effect of
the change was an approximate $20 million reduction in reported VAR for
equities. VAR was not restated for previous quarters.
VAR modeling on trading is subject to numerous limitations. In addition, the
Corporation recognizes that there are numerous assumptions and estimates associatedasso-
ciated with modeling and actual results could differ from these assumptions
and estimates. The Corporation mitigates these uncertainties through close
monitoring and by examining and updating assumptions on an ongoing basis. The
continual trading risk management process considers the impact of unanticipatedunantici-
pated risk exposure and updates assumptions to reduce loss exposure.
49
Stress Testing
In order to determine the sensitivity of the Corporation's capital to the
impact of historically large market moves with low probability, stress scena-
rios are run against the trading portfolios. This stress testing should verify
that, even under extreme market moves, the Corporation will preserve its capi-
tal. The scenarios for each product are large standard deviation moves in the
relevant markets that are based on significant historical events. These
results are calculated daily and reported as part of the regular reporting
process.
In addition, specific stress scenarios are run regularly which represent
extreme, but plausible, events that would be of concern given the Corpora-
tion's current portfolio. The results of these specific scenarios are pre-
sented to the Trading Risk Committee as part of its regular meetings. Examples
of these specific stress scenarios include calculating the effects on the
overall portfolio of an extreme Federal Reserve Board tightening or easing of
interest rates, a severe credit deterioration in the U.S., and a recession in
Japan and the corresponding ripple effects throughout Asia.
Asset and Liability Management Activities
Non-Trading Portfolio
The Corporation's Asset and Liability Management (ALM) process, managed
through the Asset and Liability Committee of the Finance Committee, is used to
manage interest rate risk through the structuring of balance sheet and off-balanceoff-
balance sheet portfolios and identifying and linking such off-balance sheet
positions to specific assets and liabilities. Interest rate risk represents
the only material market risk exposure to the Corporation's non-trading on-balance
sheet financialfinan-
cial instruments. To effectively measure and manage interest rate risk, the
Corporation uses sophisticated computer simulations which determine the impact
on net interest income of numerous interest rate scenarios, balance sheet
trends and strategies. These simulations cover the following financial instruments:instru-
ments: short-term financial instruments, securities, loans, deposits,
borrowings and off-balance sheet financial instruments. These simulations
incorporate assumptions about balance sheet dynamics, such as loan and deposit
growth and pricing, changes in funding mix and asset and liability repricing
and maturity characteristics. Simulations are run under various interest rate
scenarios to determine the impact on net income and capital. From these scenarios,scena-
rios, interest rate risk is quantified and appropriate strategies are developeddevel-
oped and implemented. The overall interest rate risk position and strategies
are reviewed on an ongoing basis by senior management. Additionally, duration
and market value sensitivity measures are selectively utilized where they providepro-
vide added value to the overall interest rate risk management process.
At December 31, 1999,2000, the interest rate risk position of the Corporation was
relatively neutral as the impact of a gradual parallel 100 basis-point rise or
fall in interest rates over the next 12 months was estimated to be less than
one percent of net interest income.
Table EighteenTwenty-One summarizes the expected maturities, unrealized gains and
losses and weighted average effective yields and rates associated with the
Corporation's significant non-trading on-balance sheet financial instruments.
Cash and cash equivalents, time deposits placed and other short-term investments,invest-
ments, federal funds sold and purchased, resale and repurchase agreements,
commercial paper, other short-term borrowings and foreign deposits, which are
similar in nature to other short-term borrowings, are excluded from Table
EighteenTwenty-One as their respective carrying values approximate fair values. These
financial instruments generally expose the Corporation to insignificant market
risk as they have either no stated maturities or an average maturity of less
than 30 days and interest rates that approximate market rates. However, these
financial instruments could expose the Corporation to interest rate risk by
requiring more or less reliance on alternative funding sources, such as long-termlong-
term debt. Loans held for sale are also excluded as their carrying values
approximate their fair values, generally exposing the Corporation to insignificantinsignif-
icant market risk. For further information on the fair value of financial
instruments, see Note SixteenEighteen of the consolidated financial statements on
page 93.
43100.
50
Table EighteenTwenty-One
Non-Trading On-Balance Sheet Financial Instruments
- -------------------------------------------------------------------------------
December 31, 19992000
Expected Maturity
--------------------------------------------------------------------------------------------------------------
Unrealized After
(Dollars in millions) Total Gains/(Losses) 2001 2002 2003 2004 2005 2005
- ---------------------------------------------------------------------------------------------------
Unrealized After
(Dollars in millions) Total Gains/(Losses) 2000 2001 2002 2003 2004 2004
- ---------------------------------- ------ ------------- ---- ---- ---- ---- ---- -------
Assets(1)Assets(/1/)
Available-for-sale
securities(2)securities(/2/,/8/)
Fixed rate
Book value $ 74,873 $(3,777)57,075 $ 568(936) $ 5,8841,938 $ 4,522 $13,849 $10,475 $39,5753,778 $12,015 $ 3,983 $ 3,068 $32,293
Weighted average
effective yield 5.86%5.93%
Variable rate
Book value $ 10,612 (61) 4 349 3,823 1,690 458 4,2887,576 (55) 13 15 48 975 332 6,193
Weighted average
effective yield 7.18%
Held-for-investment securities(2)6.63%
Held-to-maturity securi-
ties(/2/)
Fixed rate
Book value $ 1,344 (152) 124 34 21 311,132 (54) 60 45 53 29 1,10516 929
Weighted average
effective yield 7.81%7.52%
Variable rate
Book value $ 7855 -- 33 1323 5 1512 7 54 4
Weighted average
effective yield 6.34%
Loans(2, 3)7.57%
Loans(/2/,/3/)
Fixed rate
Book value $120,445 635 32,359 20,484 15,064 10,451 7,608 34,479$120,910 2,110 34,705 19,869 15,045 9,572 7,377 34,342
Weighted average
effective yield 7.90%7.97%
Variable rate
Book value $228,345 2,044 99,595 35,680 25,452 19,532 14,421 33,665$248,796 2,497 102,314 42,475 28,153 20,556 16,397 38,901
Weighted average
effective yield 7.87%
Liabilities(1)8.56%
Liabilities(/1/)
Total deposits(4, 5)deposits(/4/,/5/)
Fixed rate
Book value $215,841 20 70,463 14,144 13,954 11,604 11,615 94,061$221,856 (289) 76,563 14,122 12,695 11,818 12,084 94,574
Weighted average
effective rate 2.52%2.45%
Variable rate
Book value $ 87,734 2 17,210 14,369 11,734 9,846 8,297 26,27891,803 (14) 22,604 13,314 11,155 9,381 8,700 26,649
Weighted average
effective rate 3.10%3.67%
Long-term debt(6, 7)debt(/6/,/7/)
Fixed rate
Book value $ 27,082 579 2,103 2,988 2,837 2,936 4,385 11,83331,863 (928) 6,534 3,560 3,114 3,768 2,856 12,031
Weighted average
effective rate 7.07%7.19%
Variable rate
Book value $ 28,303 (31) 9,507 5,309 4,746 2,521 4,509 1,71135,653 (151) 15,147 6,970 4,010 6,144 2,487 895
Weighted average
effective rate 6.18%6.78%
Trust preferred
securities(6)securities(/6/)
Fixed rate
Book value $ 3,812 352 --163 900 -- 350 -- -- 2,562
Weighted average
effective rate 8.03%
Variable rate
Book value $ 1,143 -- -- 400 -- 400 -- -- 743
Weighted average
effective rate 6.93%
=================================== ========6.51%
- ---------------------------------------------------------------------------------------------------
(1) Fixed and variable rate classifications are based on contractual rates and
are not modified for the impact of asset and liability management contracts.con-
tracts.
(2) Expected maturities reflect the impact of prepayment assumptions.
(3) Excludes leases.
(4) When measuring and managing market risk associated with domestic deposits,
such as savings and demand deposits, the Corporation considers its long-termlong-
term relationships with depositors. The unrealized gain (loss) on deposits
in this table does not consider these long-term relationships, therefore
only certificates of deposits reflect a change in value.
(5) Excludes foreign time deposits.
(6) Expected maturities of long-term debt and trust preferred securities
reflect the Corporation's ability to redeem such debt prior to contractual
maturities.
(7) Excludes obligations under capital leases.
44(8) Unrealized losses on available-for-sale securities are included in the
book value.
51
Interest Rate and Foreign Exchange Contracts
Risk management interest rate contracts and foreign exchange contracts are
utilized in the Corporation's ALM process. Interest rate contracts, which are generally non-leveragednon-
leveraged generic interest rate and basis swaps, options, futures and forwardsfor-
wards, allow the Corporation to effectively manage its interest rate risk
position. Generic interest rate swaps involve the exchange of fixed-rate and
variable-rate interest payments based on the contractual underlying notional
amount. Basis swaps involve the exchange of interest payments based on the
contractual underlying notional amounts, where both the pay rate and the
receive rate are floating rates based on different indices. Option products
primarily consist of caps and floors. Interest rate caps and floors are agreementsagree-
ments where, for a fee, the purchaser obtains the right to receive interest
payments when a variable interest rate moves above or below a specified cap or
floor rate, respectively. Futures contracts used for ALM activities are primarilypri-
marily index futures providing for cash payments based upon the movements of
an underlying rate index. In addition, the Corporation uses foreign currency
contracts to manage the foreign exchange risk associated with foreign-denominatedforeign-denomi-
nated assets and liabilities, as well as the Corporation's equity investments
in foreign subsidiaries. Foreign exchange contracts, which include spot,
futures and forward contracts, represent agreements to exchange the currency
of one country for the currency of another country at an agreed-upon price, on
an agreed-upon date.
Table NineteenTwenty-Two shows the notional amount of the Corporation's open interestinter-
est rate and foreign exchange contracts. The notional amount of the Corporation'sCorpora-
tion's receive fixed and pay fixed interest rate swaps at December 31, 19992000
was $63.0$62.5 billion and $25.7$13.6 billion, respectively. The receive fixed interest
rate swaps are primarily converting variable-rate commercial loans to fixed
rate. The net receive fixed position at December 31, 19992000 was $37.3$48.8 billion
notional compared to $34.7$37.3 billion notional at December 31, 1998.1999. The CorporationCorpora-
tion had $8.0$14.7 billion notional and $7.7$8.0 billion notional of basis swaps at
December 31, 19992000 and 1998,1999, respectively, linked primarily to loans and long-termlong-
term debt. The Corporation had $35.1$22.5 billion notional and $26.8$35.1 billion
notional of option products at December 31, 2000 and 1999, respectively. The
Corporation had $24.8 billion notional and 1998,$931 million notional of futures
and forward rate contracts at December 31, 2000 and 1999, respectively. In
addition, open foreign exchange contracts at December 31, 19992000 had a notional
amount of $6.2$19.0 billion compared to $3.3$6.2 billion notional at December 31, 1998.1999.
Table NineteenTwenty-Two also summarizes the estimatedexpected maturity and the average esti-
mated duration, weighted average receive and pay rates and the net unrealized
gains and losses at December 31, 19992000 and 19981999 of the Corporation's open ALM
interest rate swaps, as well as the average estimated durationexpected maturity and the net unrealized gains
and losses at December 31, 19992000 and 19981999 of the Corporation's open ALM basis
swaps, options, futures and forward rate and foreign exchange contracts.
Unrealized gains and losses are based on the last repricing and will change in
the future primarily based on movements in one-, three- and six-month LIBOR
rates. The ALM swap portfolio had a net unrealized gain of $364 million at
December 31, 2000 and a net unrealized loss of $1.6 billion at December 31,
1999 and1999. The ALM option products had a net unrealized gainloss of $942$157 million at
December 31, 1998. The change is primarily attributable
to an increase in interest rates. The ALM option products had2000 and a net unrealized gain of $5 million at December 31,
1999 compared to a net unrealized loss of
$46 million at December 31, 1998.1999. At December 31, 19992000 and 1998,1999, open foreign exchange contracts had a net
unrealized loss of $30 million$387 and a net
unrealized gain of $72$30 million, respectively.
The amount of unamortized net realized deferred gains associated with closed
ALM swaps was $174$25 million and $294$174 million at December 31, 19992000 and 1998,1999,
respectively. The amount of unamortized net realized deferred gains associated
with closed ALM options was $82$95 million and $26$82 million at December 31, 19992000
and 1998,1999, respectively. The amount of unamortized net realized deferred losses
associated with closed ALM futures and forward rate contracts was $21$15 million and
$1$21 million at December 31, 19992000 and 1998,1999, respectively. There were no unamortizedunamor-
tized net realized deferred gains or losses associated with closed foreign
exchange contracts at December 31, 19992000 and 1998.1999.
Management believes the fair value of the ALM interest rate and foreign
exchange portfolios should be viewed in the context of the overall balance
sheet, and the value of any single component of the balance sheet or off-balanceoff-bal-
ance sheet positions should not be viewed in isolation.
For a discussion of the Corporation's management of risk associated with
mortgage production and servicing activities, see the "Noninterest Income"
section on page 20. See Note Eleven of the consolidated financial statements on
page 79 for information on the Corporation's ALM contracts.
4552
Table NineteenTwenty-Two
Asset and Liability Management Interest Rate and Foreign Exchange Contracts
- --------------------------------------------------------------------------------
December 31, 19992000
Expected Maturity
-----------------------------------------------------------
(Dollars in millions,
average FairAverage
estimated duration in Fair After Estimated
years) Value - -------------------------------------- --------------
Open interest rate contracts
Total receive fixed swaps $(1,747)
Notional amount
Weighted average receive rate
Total pay fixed swaps 115
Notional amount
Weighted average pay rate
Basis swaps (6)
----------
Notional amount
Total swaps (1,638)
- -------------------------------------- ---------
Option products 5
Notional amount
Futures and forward rate contracts 3
Notional amount
- --------------------------------------
Total open interest rate contracts (1,630)
- -------------------------------------- ---------
Closed interest rate contracts(1) 235
- -------------------------------------- ---------
Net interest rate contract
position (1,395)
- -------------------------------------- ---------
Open foreign exchange contracts (30)
Notional amount
- -------------------------------------- ---------
Total ALM contracts $(1,425)
====================================== =========
December 31, 1999
Expected Maturity
----------------------------------------------------------------------------------------
(Dollars in millions, average After
estimated duration in years) Total 2000 2001 2002 2003 2004 20042005 2005 Duration
- -------------------------------------- ------------ ------------ ------------ ----------- ------------ ----------- ----------------------------------------------------------------------------------------------------------------
Open interest rate
contracts
Total receive fixed
swaps $ 900 3.65
Notional value $62,485 $ 4,001 $7,011 $9,787 $12,835 $15,853 $12,998
Weighted average
receive rate 6.39% 6.28% 6.71% 5.53% 6.45% 6.76% 6.41%
Total pay fixed swaps (529) 5.66
Notional value $13,640 $ 1,878 $1,064 $ 114 $ 20 $ 2,584 $ 7,980
Weighted average pay
rate 6.72% 5.86% 6.39% 7.14% 5.85% 7.05% 6.82%
Basis swaps (7)
Notional value $14,739 $ 576 $1,669 $ 442 $ 7,700 $ 4,317 $ 35
-----
Total swaps 364
- ----------------------------------------------------------------------------------------------------
Option products (157)
Notional amount $22,477 $ 63,0022,087 $ 13,539868 $1,575 $ 11,4937,882 $ 1,6374,101 $ 12,8945,964
Futures and forward
rate contracts (52)
Notional amount $24,818 $19,068 $5,750 $ -- $ -- $ -- $ --
- ----------------------------------------------------------------------------------------------------
Total open interest
rate contracts 155
- ----------------------------------------------------------------------------------------------------
Closed interest rate
contracts(/1/) 105
- ----------------------------------------------------------------------------------------------------
Net interest rate
contract position 260
- ----------------------------------------------------------------------------------------------------
Open foreign exchange
contracts (387)
Notional amount $18,958 $ 1,059 $2,179 $3,472 $ 4,472 $ 5,821 $ 1,955
- ----------------------------------------------------------------------------------------------------
Total ALM contracts $(127)
- ----------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
December 31, 1999
Expected Maturity
------------------------------------------------------------
(Dollars in millions,
average Average
estimated duration in Fair After Estimated
years) Value Total 2000 2001 2002 2003 2004 2004 Duration
- ---------------------------------------------------------------------------------------------------------
Open interest rate con-
tracts
Total receive fixed
swaps $(1,747) 2.75
Notional amount $63,002 $13,539 $11,493 $1,637 $12,894 $ 7,104 $ 16,335$16,335
Weighted average
receive rate 6.15% 5.98% 6.43% 6.88% 5.60% 6.57% 6.28%
Total pay fixed swaps 115 2.11
Notional amount $ 25,701$25,701 $ 6,893 $ 8,232 $ 3,175$3,175 $ 2,475 $ 719 $ 4,207
Weighted average pay
rate 6.68% 6.84% 6.57% 6.23% 7.10% 7.46% 6.61%
Basis swaps (6)
Notional amount $ 7,971 $ 743 $ 601 $ 1,669$1,669 $ 4,958 $ -- $ --
-------
Total swaps (1,638)
- -----------------------------------------------------------------------------------------------------------------------------------------------
Option products 5
Notional amount $ 35,134$35,134 $ 505 $ 2,088 $ 868 $ 1,950 $15,661 $ 14,062$14,062
Futures and forward
rate contracts 3
Notional amount $ 931 $ 931 $ -- $ -- $ -- $ -- $ --
- -------------------------------------- -------- -------- -------- ------- -------- ------- -----------------------------------------------------------------------------------------------------------------
Total open interest
rate contracts (1,630)
- -----------------------------------------------------------------------------------------------------------------------------------------------
Closed interest rate
contracts(1)contracts(/1/) 235
- -----------------------------------------------------------------------------------------------------------------------------------------------
Net interest rate
contract position (1,395)
- -----------------------------------------------------------------------------------------------------------------------------------------------
Open foreign exchange
contracts (30)
Notional amount $ 6,231 $ 273 $ 1,499 $ 2,552$2,552 $ 112 $ 623 $ 1,172
- -------------------------------------- -------- -------- -------- ------- -------- ------- -----------------------------------------------------------------------------------------------------------------
Total ALM contracts ======================================
December 31, 1999
Average
(Dollars in millions, average Estimated
estimated duration in years) Duration$(1,425)
- -------------------------------------- ----------
Open interest rate contracts
Total receive fixed swaps 2.75
Notional amount
Weighted average receive rate
Total pay fixed swaps 2.11
Notional amount
Weighted average pay rate
Basis swaps 3.19
Notional amount
Total swaps
- --------------------------------------
Option products
Notional amount
Futures and forward rate contracts
Notional amount
- --------------------------------------
Total open interest rate contracts
- --------------------------------------
Closed interest rate contracts(1)
- --------------------------------------
Net interest rate contract
position
- --------------------------------------
Open foreign exchange contracts
Notional amount
- --------------------------------------
Total ALM contracts
======================================
December 31, 1998
(Dollars in millions, average Fair
estimated duration in years) Value
- --------------------------------------- ----------
Open interest rate contracts
Total receive fixed swaps $ 1,958
Notional value
Weighted average receive rate
Total pay fixed swaps (1,006)
Notional value
Weighted average pay rate
Basis swaps (10)
--------
Notional value
Total swaps 942
- --------------------------------------- --------
Option products (46)
Notional amount
Futures and forward rate contracts 2
Notional amount
- --------------------------------------- --------
Total open interest rate contracts 898
- --------------------------------------- --------
Closed interest rate contracts(1) 319
- --------------------------------------- --------
Net interest rate contract position 1,217
- --------------------------------------- --------
Open foreign exchange contracts 72
Notional amount
- --------------------------------------- --------
Total ALM contracts $ 1,289
======================================= ========
December 31, 1998
Expected Maturity
----------------------------------------------------------------------------------------
(Dollars in millions, average After
estimated duration in years) Total 1999 2000 2001 2002 2003 2003
- --------------------------------------- ------------ ----------- ----------- ------------ ------------ ------------ ------------
Open interest rate contracts
Total receive fixed swaps
Notional value $ 60,450 $ 4,492 $ 8,220 $ 12,213 $ 2,599 $ 15,826 $ 17,100
Weighted average receive rate 6.16% 6.16% 6.28% 6.31% 6.93% 5.59% 6.43%
Total pay fixed swaps
Notional value $ 25,770 $ 6,062 $ 6,900 $ 4,356 $ 1,177 $ 2,481 $ 4,794
Weighted average pay rate 6.73% 6.46% 6.89% 6.47% 7.31% 7.14% 6.76%
Basis swaps
Notional value $ 7,736 $ 1,685 $ 743 $ 625 $ 1,669 $ 3,014 $ --
Total swaps
- --------------------------------------- -------- ------- ------- -------- -------- -------- --------
Option products
Notional amount $ 26,836 $ 3,225 $ 543 $ 1,088 $ 938 $ 1,950 $ 19,092
Futures and forward rate contracts
Notional amount $ 6,348 $ 6,348 $ -- $ -- $ -- $ -- $ --
- --------------------------------------- -------- ------- ------- -------- -------- -------- --------
Total open interest rate contracts
- ---------------------------------------
Closed interest rate contracts(1)
- ---------------------------------------
Net interest rate contract position
- ---------------------------------------
Open foreign exchange contracts
Notional amount $ 3,314 $ 300 $ 273 $ 1,084 $ 527 $ 112 $ 1,018
- --------------------------------------- -------- ------- ------- -------- -------- -------- --------
Total ALM contracts
=======================================
December 31, 1998
Average
(Dollars in millions, average Estimated
estimated duration in years) Duration
- --------------------------------------- ----------
Open interest rate contracts
Total receive fixed swaps 4.55
Notional value
Weighted average receive rate
Total pay fixed swaps 3.18
Notional value
Weighted average pay rate
Basis swaps 2.88
Notional value
Total swaps
- ---------------------------------------
Option products
Notional amount
Futures and forward rate contracts
Notional amount
- ---------------------------------------
Total open interest rate contracts
- ---------------------------------------
Closed interest rate contracts(1)
- ---------------------------------------
Net interest rate contract position
- ---------------------------------------
Open foreign exchange contracts
Notional amount
- ---------------------------------------
Total ALM contracts
=======================================---------------------------------------------------------------------------------------------------------
(1) Represents the unamortized net realized deferred gains associated with
closed contracts. As a result, no notional amount is reflected for expected
maturity.
4653
The Corporation adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), on
January 1, 2001. SFAS 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. The Corporation has not signifi-
cantly altered its overall interest rate risk management objective and strat-
egy as a result of adopting SFAS 133. For further information on SFAS 133, see
Note One of the consolidated financial statements on page 66.
In conducting its mortgage production activities, the Corporation is exposed
to interest rate risk for the periods between the loan commitment date and the
loan funding date. To manage this risk, the Corporation enters into various
financial instruments including forward delivery contracts, Euro dollar
futures and option contracts. The notional amount of such contracts was $9.7
billion at December 31, 2000 with associated net unrealized losses of $53 mil-
lion. At December 31, 1999, the notional amount of such contracts was $2.7
billion with associated net unrealized gains of $18 million. These contracts
have an average expected maturity of less than 90 days. To manage risk associ-
ated with changes in prepayment rates and the impact on mortgage servicing
rights, the Corporation uses various financial instruments including options
and certain swap contracts. At December 31, 2000, deferred net gains from
mortgage servicing rights hedging activity were $646 million, comprised of
unamortized realized deferred gains of $222 million and unrealized gains of
$424 million on closed and open positions, respectively. At December 31, 1999,
deferred net losses from mortgage servicing rights hedging activity were $20
million, comprised of unamortized realized deferred gains of $313 million and
unrealized losses of $333 million on closed and open positions, respectively.
Notional amounts of hedge instruments used for mortgage servicing rights hedg-
ing activities were $42.1 billion and $43.4 billion at December 31, 2000 and
1999, respectively. In 2001, the Corporation will continue to evaluate other
potential strategies including the sale, securitization or restructuring of
these activities to further economically hedge the value of the Corporation's
mortgage servicing rights portfolio. For additional information on mortgage
banking activities, see Note One of the consolidated financial statements on
page 66.
54
Table TwentyTwenty-Three
Selected Quarterly Operating ResultsFinancial Data
- --------------------------------------------------------------------------------
19992000 Quarters
-------------------------------------------------------------------------------------------------
--------------------------------------------------------------------
(Dollars in millions, except per share
information) Fourth Third Second First
- ----------------------------------------------------- ------------- ------------- ------------- ----------------------------------------------------------------------------------------------------------------
Operating Basis (1)Basis(/1/)
Income statement
Interest income $ 11,170 $ 11,265 $ 10,737 $ 10,086
Interest expense 6,476 6,672 6,106 5,562
Net interest income 4,694 4,593 4,631 4,524
Net interest income (taxable-equivalent
basis) 4,788 4,672 4,709 4,595
Provision for credit losses 1,210 435 470 420
Gains on sales of securities 2 11 6 6
Noninterest income 3,298 3,645 3,500 4,046
Other noninterest expense 4,637 4,410 4,413 4,623
Income before income taxes 2,147 3,404 3,254 3,533
Income tax expense 762 1,229 1,191 1,293
Net income 1,385 2,175 2,063 2,240
- ----------------------------------------------------------------------------------------------------------------------
Performance ratios
Return on average assets .81% 1.26% 1.23% 1.38%
Return on average common shareholders'
equity 11.57 18.15 17.63 19.59
Efficiency ratio 57.35 53.01 53.77 53.49
Shareholder value added $ 164 $ 953 $ 878 $ 1,086
- ---------------------------------------------------------------------------------------------------
Per common share data
Earnings $ 0.85 $ 1.33 $ 1.25 $ 1.34
Diluted earnings 0.85 1.31 1.23 1.33
- ---------------------------------------------------------------------------------------------------
Cash basis financial data(/2/)
Earnings per common share $ 0.98 $ 1.46 $ 1.38 $ 1.47
Diluted earnings per common share 0.98 1.44 1.36 1.46
Return on average tangible assets 0.96% 1.42% 1.39% 1.55%
Return on average tangible common shareholders' equity 18.54 27.81 27.51 30.83
- ---------------------------------------------------------------------------------------------------
As Reported
Income statement
Merger and restructuring charges $ -- $ 550 $ -- $ --
Income before income taxes 2,147 2,854 3,254 3,533
Income tax expense 762 1,025 1,191 1,293
Net income 1,385 1,829 2,063 2,240
Net income available to common
shareholders 1,383 1,828 2,061 2,239
Average common shares issued and
outstanding (in thousands) 1,623,721 1,639,392 1,653,495 1,669,311
- ---------------------------------------------------------------------------------------------------
Performance ratios
Return on average assets .81% 1.06% 1.23% 1.38%
Return on average common shareholders'
equity 11.57 15.25 17.63 19.59
Total equity to total assets (period-
end) 7.42 6.98 6.75 6.90
Total average equity to total average
assets 7.03 6.97 7.00 7.07
Dividend payout ratio 65.58 44.83 39.94 37.16
- ---------------------------------------------------------------------------------------------------
Per common share data
Earnings $ 0.85 $ 1.11 $ 1.25 $ 1.34
Diluted earnings 0.85 1.10 1.23 1.33
Cash dividends paid .56 .50 .50 .50
Book value 29.47 28.69 27.82 27.28
- ---------------------------------------------------------------------------------------------------
Cash basis financial data(/2/)
Earnings $ 1,599 $ 2,044 $ 2,281 $ 2,457
Earnings per common share 0.98 1.25 1.38 1.47
Diluted earnings per common share 0.98 1.23 1.36 1.46
Return on average tangible assets 0.96% 1.21% 1.39% 1.55%
Return on average tangible common shareholders' equity 18.54 23.78 27.51 30.83
Ending tangible equity to tangible
assets 5.48 5.09 4.85 4.90
- ---------------------------------------------------------------------------------------------------
Average balance sheet
Average total loans and leases $ 399,549 $ 402,763 $ 391,404 $ 376,584
Average total assets 677,458 685,017 672,588 651,019
Average total deposits 357,554 356,734 353,426 345,374
Average total shareholders' equity 47,639 47,735 47,112 46,030
Yield on average earning assets 7.60% 7.57% 7.45% 7.24%
Rate on average interest-bearing
liabilities 5.27 5.32 5.02 4.72
Net interest spread 2.33 2.25 2.43 2.52
Net interest yield 3.23 3.12 3.24 3.27
- ---------------------------------------------------------------------------------------------------
Risk-based capital ratios (period end)
Tier 1 capital 7.50% 7.32% 7.40% 7.42%
Total capital 11.04 10.80 11.03 11.00
Leverage ratio 6.12 6.06 6.11 6.17
- ---------------------------------------------------------------------------------------------------
Market price per share of common stock
Closing $ 45.88 $ 52.38 $ 43.00 $ 52.44
High 54.75 57.63 61.00 55.19
Low 36.31 43.63 42.98 42.31
- ---------------------------------------------------------------------------------------------------
1999 Quarters
-------------------------------------------
--------------------------------------------------------------------
(Dollars in millions, except per share
information) Fourth Third Second First
- ---------------------------------------------------------------------------------------------------
Operating Basis(/1/)
Income statement
Interest income $ 9,622 $ 9,294 $ 9,206 $ 9,201
Interest expense 5,147 4,744 4,594 4,601
Net interest income 4,475 4,550 4,612 4,600
Net interest income (taxable-equivalent
basis) 4,541 4,603 4,663 4,645
Provision for credit losses 350 450 510 510
Gains on sales of securities 14 44 52 130
Noninterest income 3,596 3,728 3,522 3,223
Other noninterest expense 4,550 4,526 4,457 4,453
Income before income taxes 3,185 3,346 3,219 2,990
Income tax expense 1,070 1,195 1,159 1,076
Net income 2,115 2,151 2,060 1,914
- ---------------------------------------------------------------------------------------------------
Performance ratios
Return on average assets 1.33% 1.40% 1.34% 1.27%
Return on average common shareholders'
equity 17.95 18.40 17.64 16.78
Efficiency ratio 55.91 54.34 54.44 56.59
Shareholder value added $ 921 $ 971 $ 884 $ 769
- ---------------------------------------------------------------------------------------------------
Per common share data
Earnings $ 1.24 $ 1.25 $ 1.18 $ 1.10
Diluted earnings 1.23 1.23 1.15 1.08
- ---------------------------------------------------------------------------------------------------
Cash basis financial data (2)data(/2/)
Earnings per common share $ 1.37 $ 1.38 $ 1.31 $ 1.23
Diluted earnings per common share 1.35 1.35 1.28 1.20
Return on average tangible assets 1.50% 1.58% 1.53% 1.46%
Return on average tangible common shareholders' equity 28.38 29.48 28.49 27.44
- ---------------------------------------------------------------------------------------------------
As Reported
- -----------
Income statement
Merger-relatedMerger and restructuring charges net $ 325 $ -- $ 200 $ --
Income before income taxes 2,860 3,346 3,019 2,990
Income tax expense 958 1,195 1,104 1,076
Net income 1,902 2,151 1,915 1,914
Net income available to common
shareholders 1,901 2,149 1,914 1,912
Average common shares issued and
outstanding (in thousands) 1,701,092 1,722,307 1,743,503 1,737,562
- ---------------------------------------------------------------------------------------------------
Performance ratios
Return on average assets 1.20% 1.40% 1.25% 1.27%
Return on average common shareholders'
equity 16.14 18.40 16.40 16.78
Total equity to total assets (period-
end) 7.02 7.39 7.43 7.62
Total average equity to total average
assets 7.42 7.59 7.62 7.59
Dividend payout ratio 44.77 36.02 41.07 40.90
- ---------------------------------------------------------------------------------------------------
Per common share data
Earnings $ 1.12 $ 1.25 $ 1.10 $ 1.10
Diluted earnings 1.10 1.23 1.07 1.08
Cash dividends paid .50 .45 .45 .45
Book value 26.44 26.79 26.44 26.86
- ---------------------------------------------------------------------------------------------------
Cash basis financial data (2)data(/2/)
Earnings $ 2,121 $ 2,373 $ 2,140 $ 2,136
Earnings per common share 1.25 1.38 1.23 1.23
Diluted earnings per common share 1.23 1.35 1.20 1.20
Return on average tangible assets 1.36% 1.58% 1.43% 1.46%
Return on average tangible common shareholders' equity 25.79 29.48 26.68 27.44
Ending tangible equity to tangible
assets 4.92 5.22 5.17 5.38
- ---------------------------------------------------------------------------------------------------
Average balance sheet
Average total loans and leases $ 364,210 $ 361,400 $ 364,753 $ 360,746
Average total assets $ 630,743 $ 611,448 $ 615,364 $ 609,624
Average total deposits 341,913 336,998 342,249 345,931
Average total shareholders' equity 46,792 46,439 46,891 46,279
Yield on average earning assets 7.09% 7.03% 7.00% 7.13%
Rate on average interest-bearing
liabilities 4.54 4.30 4.16 4.26
Net interest spread 2.55 2.73 2.84 2.87
Net interest yield 3.32 3.46 3.53 3.58
- ---------------------------------------------------------------------------------------------------
Risk-based capital ratios (at period(period end)(3)
Tier 1 capital 7.35 7.71 7.38 7.407.35% 7.71% 7.38% 7.40%
Total capital 10.88 11.39 11.09 11.17
Leverage ratio 6.26 6.59 6.34 6.47
- ---------------------------------------------------------------------------------------------------
Market price per share of common stock
Closing $ 50 3/16 $55 11/1650.19 $ 73 5/1655.69 $ 70 5/873.31 $ 70.63
High 67 1/2 76 3/8 76 1/8 74 1/267.50 76.38 76.13 74.50
Low 47 5/8 53 1/4 61 1/2 59 1/2
===================================================== ========= ========= ========= =========
1998 Quarters
------------------------------------------------------
(Dollars in millions, except per share information) Fourth Third Second First47.63 53.25 61.50 59.50
- ----------------------------------------------------- ------------- ------------- ------------- ------------
Operating Basis (1)
- -------------------
Income statement
Interest income $ 9,638 $ 9,608 $ 9,637 $ 9,705
Interest expense 5,029 5,164 5,011 5,086
Net interest income 4,609 4,444 4,626 4,619
Net interest income (taxable-equivalent basis) 4,650 4,484 4,668 4,659
Provision for credit losses 510 1,405 495 510
Gains on sales of securities 404 280 120 213
Noninterest income 2,655 2,405 3,636 3,493
Other noninterest expense 4,687 4,583 4,767 4,704
Income before income taxes 2,471 1,141 3,120 3,111
Income tax expense 868 248 1,099 1,138
Net income 1,603 893 2,021 1,973
Performance ratios
Return on average assets 1.05% .61% 1.41% 1.38%
Return on average common shareholders' equity 14.12 7.73 18.24 18.52
Per common share data
Earnings $ .92 $ .51 $ 1.16 $ 1.14
Diluted earnings .91 .50 1.13 1.11
Cash basis financial data (2)
Earnings per common share 1.05 .64 1.29 1.27
Diluted earnings per common share 1.04 .63 1.25 1.24
Return on average tangible assets 1.22% .79% 1.61% 1.59%
Return on average tangible common
shareholders' equity 23.97 14.51 31.23 32.57
As Reported
- -----------
Income statement
Merger-related charges, net $ 600 $ 725 $ (430) $ 900
Income before income taxes 1,871 416 3,550 2,211
Income tax expense 709 42 1,252 880
Net income 1,162 374 2,298 1,331
Performance ratios
Return on average assets .76% .26% 1.61% .93%
Return on average common shareholders' equity 10.23 3.23 20.76 12.46
Per common share data
Earnings $ .67 $ .21 $ 1.32 $ .77
Diluted earnings .66 .21 1.28 .75
Cash dividends paid .45 .38 .38 .38
Cash basis financial data (2)
Earnings per common share 0.80 .34 1.45 .90
Diluted earnings per common share .79 .34 1.41 .87
Return on average tangible assets .93% .42% 1.81% 1.12%
Return on average tangible common
shareholders' equity 18.18 7.76 35.10 23.02
Average balance sheet
Average total assets $ 606,541 $ 578,353 $ 573,975 $ 578,841
Average total deposits 351,766 347,783 342,369 339,867
Average total shareholders' equity 45,051 45,756 44,857 43,628
Yield on average earning assets 7.44% 7.73% 7.89% 7.98%
Rate on average interest-bearing liabilities 4.60 4.94 4.90 4.93
Net interest spread 2.84 2.79 2.99 3.05
Net interest yield 3.58 3.60 3.80 3.83
Risk-based capital ratios (at period end)(3)
Tier 1 capital 7.06 7.29 7.32 6.80
Total capital 10.94 11.25 11.77 11.19
Leverage ratio 6.22 6.64 6.21 5.64
Market price per share of common stock
Closing $ 60 1/8 $ 53 1/2 $76 11/16 $72 15/16
High 66 5/8 88 7/16 85 75 1/8
Low 44 47 7/8 72 1/16 56 1/4
===================================================== ========= ========= ========= =========---------------------------------------------------------------------------------------------------
(1) Operating basis excludes merger-relatedmerger and restructuring charges.
(2) Cash basis calculations exclude goodwill and other intangible assets and
theirthe related amortization expense.
(3) Ratios for the first and second quarters of 1998 have not been restated to
reflect the impact of the BankAmerica merger.
4755
Table Twenty-OneTwenty-Four
Quarterly Average Balances and Interest Rates --- Taxable-Equivalent Basis
- -------------------------------------------------------------------------------
Fourth Quarter 19992000 Third Quarter 19992000
--------------------------------- --------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(Dollars in millions) Balance Expense Rate Balance Expense Rate
- ---------------------------------------------------------- ----------- ---------- ---------- ----------- --------- ----------------------------------------------------------------------------------------
Earning assets
Time deposits placed and
other short-term
investments $ 4,5125,663 $ 73 6.33%99 6.96% $ 5,0184,700 $ 69 5.50%83 6.97%
Federal funds sold and
securities purchased
under agreements to
resell 39,700 458 4.60 33,074 440 5.3037,936 551 5.79 40,763 633 6.20
Trading account assets 38,453 544 5.63 37,453 483 5.1453,251 758 5.68 53,793 749 5.55
Securities:
Available-for-sale(1) 85,009 1,301 6.10 78,779 1,208Available-for-sale(/1/) 78,242 1,193 6.09 82,333 1,254 6.08
Held-to-maturity 1,259 19 6.12 Held-for-investment 1,433 25 7.25 1,482 26 7.021,395 30 8.59
- --------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total securities 86,442 1,32679,501 1,212 6.09 83,728 1,284 6.12
80,261 1,234 6.13
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Loans and leases(2)leases(/2/):
Commercial - domestic 140,674 2,707 7.64 136,149 2,488 7.25147,336 3,057 8.26 151,903 3,173 8.31
Commercial - foreign 27,430 453 6.56 28,348 494 6.9330,408 563 7.36 29,845 555 7.39
Commercial real estate -
domestic 24,345 506 8.23 25,056 517 8.1927,220 622 9.09 26,113 597 9.09
Commercial real estate -
foreign 306264 6 8.96 295 7 8.808.44 235 5 8.30
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total commercial 192,755 3,672 7.56 189,848 3,506 7.33205,228 4,248 8.23 208,096 4,330 8.28
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Residential mortgage 79,783 1,450 7.26 80,015 1,431 7.1492,679 1,733 7.47 94,380 1,759 7.45
Home equity lines 16,882 345 8.12 16,316 321 7.7921,117 483 9.11 20,185 466 9.18
Direct/Indirect consumer 42,442 88840,390 843 8.30 42,740 875 8.1341,905 848 8.06
Consumer finance 21,340 440 8.18 19,923 433 8.6225,592 570 8.91 25,049 559 8.93
Bankcard 8,578 245 11.32 8,923 256 11.3812,295 384 12.43 10,958 344 12.49
Foreign consumer 2,430 54 8.77 3,635 86 9.362,248 48 8.49 2,190 48 8.79
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total consumer 171,455 3,422 7.94 171,552 3,402 7.89194,321 4,061 8.34 194,667 4,024 8.25
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total loans and leases 364,210 7,094 7.74 361,400 6,908 7.59399,549 8,309 8.28 402,763 8,354 8.26
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Other earning assets 10,247 193 7.51 11,358 213 7.4014,828 335 9.00 11,501 241 8.39
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total earning assets(3) 543,564 9,688 7.09 528,564 9,347 7.03assets(/3/) 590,728 11,264 7.60 597,248 11,344 7.57
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Cash and cash equivalents 25,467 25,90523,458 24,191
Other assets, less
allowance for credit
losses 61,712 56,97963,272 63,578
- ---------------------------------------------------------- -------- --------------------------------------------------------------------------------------
Total assets $630,743 $611,448
========================================================== ======== ========$677,458 $685,017
- ------------------------------------------------------------------------------
Interest-bearing
liabilities
Domestic interest-bearing
deposits:
Savings $ 25,08222,454 80 1.271.42 $ 26,037 82 1.2523,195 78 1.33
NOW and money market
deposit accounts 97,481 639 2.60 96,402 579 2.38101,376 788 3.09 99,710 740 2.96
Consumer CDs and IRAs 74,653 932 4.95 73,429 898 4.85
Negotiated78,298 1,108 5.63 77,864 1,083 5.53
Negotiable CDs, public
funds and other time
deposits 6,825 98 5.73 6,609 94 5.667,570 127 6.68 8,598 140 6.46
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total domestic interest-bearinginterest-
bearing deposits 204,041 1,749 3.40 202,477 1,653 3.24209,698 2,103 3.99 209,367 2,041 3.88
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Foreign interest-bearing
deposits(4)deposits(/4/):
Banks located in foreign
countries 14,305 178 4.93 13,668 160 4.6526,223 424 6.43 18,845 286 6.03
Governments and official
institutions 7,121 99 5.53 7,185 90 4.995,884 61 4.14 11,182 177 6.30
Time, savings and other 24,993 298 4.72 25,500 295 4.5724,064 339 5.62 25,972 364 5.58
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total foreign interest-bearinginterest-
bearing deposits 46,419 575 4.91 46,353 545 4.6656,171 824 5.84 55,999 827 5.87
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total interest-bearing
deposits 250,460 2,324 3.68 248,830 2,198 3.50265,869 2,927 4.38 265,366 2,868 4.30
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Federal funds purchased,
securities sold under
agreements to repurchase
and other short-term
borrowings 120,858 1,638 5.38 114,934 1,437 4.96122,680 1,942 6.30 136,007 2,223 6.51
Trading account
liabilities 19,223 190 3.92 15,677 189 4.7827,548 285 4.13 24,233 237 3.88
Long-term debt(5) 59,972 995 6.63 59,283 920 6.21debt(/5/) 73,041 1,322 7.24 74,022 1,344 7.26
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Total interest-bearing
liabilities(6) 450,513 5,147 4.54 438,724 4,744 4.30liabilities(/6/) 489,138 6,476 5.27 499,628 6,672 5.32
- ---------------------------------------------------------- -------- ------ ----- -------- ------ -----------------------------------------------------------------------------------
Noninterest-bearing
sourcessources:
Noninterest-bearing
deposits 91,453 88,16891,685 91,368
Other liabilities 41,985 38,11748,996 46,286
Shareholders' equity 46,792 46,43947,639 47,735
- ---------------------------------------------------------- -------- --------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $630,743 $611,448
========================================================== ======== ========$677,458 $685,017
- ------------------------------------------------------------------------------
Net interest spread 2.55 2.732.33 2.25
Impact of noninterest-bearingnoninterest-
bearing sources .77 .73.90 .87
- ---------------------------------------------------------- ----- -----------------------------------------------------------------------------------
Net interest income/yield
on earning assets $4,541 3.32% $4,603 3.46%
========================================================== ====== ===== ====== =====$ 4,788 3.23% $ 4,672 3.12%
- ------------------------------------------------------------------------------
(1) The average balance and yield on available-for-sale securities are based
on the average of historical amortized cost balances.
(2) Nonperforming loans are included in the respective average loan balances.
Income on such nonperforming loans is recognized on a cash basis.
(3) Interest income includes taxable-equivalent basis adjustments of $66, $53,
$51$94, $79,
$78 and $45$71 in the fourth, third, second and first quarters of 19992000 and
$41$66 in the fourth quarter of 1998,1999, respectively. Interest income also
includes the impact of risk management interest rate contracts, which
increased (decreased) interest income on the underlying assets $57, $103, $83$(31),
$(13), $(11) and $63$7 in the fourth, third, second and first quarters of
19992000 and $70$57 in the fourth quarter of 1998,1999, respectively.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
(5) Long-term debt includes trust preferred securities.
(6) Interest expense includes the impact of risk management interest rate contracts,con-
tracts, which (increased) decreasedincreased interest expense on the underlying liabilities $(2), $6, $52$7,
$16, $5 and $60$8 in the fourth, third, second and first quarters of 19992000 and
$27$2 in the fourth quarter of 1998,1999, respectively.
4856
- ------------------------------------------------------------------------------
Second Quarter 19992000 First Quarter 19992000 Fourth Quarter 19981999
- ------------------------------------- ------------------------------------- ------------------------------------------------------------------------------------------------------------------
Interest Interest Interest
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
- ----------- ---------- ---------- ----------- ---------- ---------- ----------- --------- ----------------------------------------------------------------------------------------
$ 5,1594,578 $ 65 5.03%79 7.02% $ 6,4084,504 $ 88 5.58%75 6.65% $ 6,7024,512 $ 73 6.33%
43,983 595 5.43 45,459 575 5.07 39,700 458 4.60
48,874 702 5.77 39,733 542 5.47 38,453 544 5.63
84,054 1,270 6.05 86,878 1,332 6.15 85,009 1,301 6.10
1,406 27 7.68 1,333 24 7.19 1,433 25 7.25
- ------------------------------------------------------------------------------
85,460 1,297 6.08 88,211 1,356 6.16 86,442 1,326 6.12
- ------------------------------------------------------------------------------
148,034 3,023 8.21 145,362 2,824 7.81 140,674 2,707 7.64
29,068 515 7.12 27,927 486 6.99 27,430 453 6.56
25,497 563 8.88 24,664 517 8.43 24,345 506 8.23
376 8 9.15 344 8 9.29 306 6 8.96
- ------------------------------------------------------------------------------
202,975 4,109 8.14 198,297 3,835 7.78 192,755 3,672 7.56
- ------------------------------------------------------------------------------
91,825 1,696 7.40 85,427 1,566 7.34 79,783 1,450 7.26
19,067 422 8.91 17,573 377 8.62 16,882 345 8.12
41,757 867 8.36 41,858 887 8.52 42,442 888 8.30
24,123 545 9.03 22,798 486 8.53 21,340 440 8.18
9,429 279 11.87 8,404 234 11.22 8,578 245 11.32
2,228 48 8.81 2,227 50 9.00 2,430 54 8.77
- ------------------------------------------------------------------------------
188,429 3,857 8.21 178,287 3,600 8.10 171,455 3,422 7.94
- ------------------------------------------------------------------------------
391,404 7,966 8.17 376,584 7,435 7.93 364,210 7,094 7.74
- ------------------------------------------------------------------------------
8,191 176 8.53 8,679 174 8.11 10,247 193 7.51
- ------------------------------------------------------------------------------
582,490 10,815 7.45 563,170 10,157 7.24 543,564 9,688 7.09
- ------------------------------------------------------------------------------
25,605 25,830 25,467
64,493 62,019 61,712
- ------------------------------------------------------------------------------
$672,588 $651,019 $630,743
- ------------------------------------------------------------------------------
$ 23,936 78 1.32 $ 24,237 78 1.29 $ 25,082 80 1.27
100,186 734 2.94 98,424 679 2.78 97,481 639 2.60
77,384 1,034 5.38 76,074 983 5.20 74,653 932 4.95
7,361 111 6.56%
29,521 387 5.25 26,561 381 5.80 29,564 486 6.53
39,837 5286.09 6,966 103 5.93 6,825 98 5.73
- ------------------------------------------------------------------------------
208,867 1,957 3.77 205,701 1,843 3.60 204,041 1,749 3.40
- ------------------------------------------------------------------------------
15,823 232 5.92 14,180 188 5.33 14,305 178 4.93
9,885 151 6.12 8,745 124 5.72 7,121 99 5.53
27,697 380 5.51 26,382 340 5.17 24,993 298 4.72
- ------------------------------------------------------------------------------
53,405 763 5.74 49,307 652 5.31 41,129 547 5.36 39,391 613 6.19
76,373 1,139 5.97 73,925 1,161 6.31 69,354 1,162 6.68
1,482 28 7.61 1,905 33 6.84 2,948 44 6.0946,419 575 4.91
- -------- ------ ----- -------- ------ ----- -------- ------ -----
77,855 1,167 6.00 75,830 1,194 6.33 72,302 1,206 6.66------------------------------------------------------------------------------
262,272 2,720 4.17 255,008 2,495 3.93 250,460 2,324 3.68
- -------- ------ ----- -------- ------ ----- -------- ------ -----
138,257 2,473 7.17 138,272 2,444 7.16 136,629 2,542 7.39
30,209 456 6.05 31,568 494 6.35 32,893 569 6.86
25,938 533 8.25 26,827 559 8.45 28,427 601 8.38
289 6 8.48 286 6 8.79 319 8 9.39------------------------------------------------------------------------------
135,817 1,990 5.89 131,517 1,802 5.51 120,858 1,638 5.38
20,532 189 3.70 23,013 181 3.16 19,223 190 3.92
69,779 1,207 6.92 64,256 1,084 6.75 59,972 995 6.63
- -------- ------ ----- -------- ------ ----- -------- ------ -----
194,693 3,468 7.14 196,953 3,503 7.21 198,268 3,720 7.45------------------------------------------------------------------------------
488,400 6,106 5.02 473,794 5,562 4.72 450,513 5,147 4.54
- -------- ------ ----- -------- ------ ----- -------- ------ -----
80,151 1,430 7.14 75,789 1,356 7.18 73,033 1,336 7.30
15,857 304 7.68 15,537 298 7.79 15,781 326 8.17
42,240 859 8.15 41,652 847 8.24 40,557 876 8.57
17,794 424 9.56 15,880 373 9.53 14,368 338 9.33
10,365 306 11.83 11,287 327 11.76 12,078 366 12.01
3,653 87 9.55 3,648 89 9.90 3,551 94 10.47------------------------------------------------------------------------------
91,154 90,366 91,453
45,922 40,829 41,985
47,112 46,030 46,792
- -------- ------ ----- -------- ------ ----- -------- ------ -----
170,060 3,410 8.03 163,793 3,290 8.11 159,368 3,336 8.32------------------------------------------------------------------------------
$672,588 $651,019 $630,743
- -------- ------ ----- -------- ------ ----- -------- ------ -----
364,753 6,878 7.56 360,746 6,793 7.62 357,636 7,056 7.84------------------------------------------------------------------------------
2.43 2.52 2.55
.81 .75 .77
- -------- ------ ----- -------- ------ ----- -------- ------ -----
12,924 232 7.23 13,008 243 7.53 11,471 207 7.19------------------------------------------------------------------------------
$4,709 3.24% $4,595 3.27% $4,541 3.32%
- -------- ------ ----- -------- ------ ----- -------- ------ -----
530,049 9,257 7.00 523,682 9,246 7.13 517,066 9,679 7.44
- -------- ------ ----- -------- ------ ----- -------- ------ -----
25,868 25,826 25,834
59,447 60,116 63,641
- -------- -------- --------
$615,364 $609,624 $606,541
======== ======== ========
$ 21,799 67 1.24 $ 21,637 71 1.33 $ 21,702 91 1.67
100,897 581 2.31 99,864 575 2.33 97,589 622 2.53
73,601 847 4.61 74,362 857 4.68 74,923 956 5.06
6,238 80 5.14 6,914 89 5.20 7,388 96 5.16
- -------- ------ ----- -------- ------ ----- -------- ------ -----
202,535 1,575 3.12 202,777 1,592 3.18 201,602 1,765 3.47
- -------- ------ ----- -------- ------ ----- -------- ------ -----
16,947 196 4.62 20,379 268 5.34 24,938 325 5.17
8,089 98 4.81 9,172 113 5.02 10,278 143 5.54
26,354 299 4.56 26,980 339 5.10 26,868 365 5.39
- -------- ------ ----- -------- ------ ----- -------- ------ -----
51,390 593 4.62 56,531 720 5.17 62,084 833 5.32
- -------- ------ ----- -------- ------ ----- -------- ------ -----
253,925 2,168 3.42 259,308 2,312 3.62 263,686 2,598 3.91
- -------- ------ ----- -------- ------ ----- -------- ------ -----
116,339 1,396 4.82 112,384 1,355 4.88 104,416 1,422 5.40
14,178 150 4.25 12,679 129 4.13 14,194 165 4.62
58,302 880 6.03 52,642 805 6.12 51,779 844 6.52
- -------- ------ ----- -------- ------ ----- -------- ------ -----
442,744 4,594 4.16 437,013 4,601 4.26 434,075 5,029 4.60
- -------- ------ ----- -------- ------ ----- -------- ------ -----
88,324 86,623 88,080
37,405 39,709 39,335
46,891 46,279 45,051
- -------- -------- --------
$615,364 $609,624 $606,541
======== ======== ========
2.84 2.87 2.84
.69 .71 .74
- -------- ----- ----- -----
$4,663 3.53% $4,645 3.58% $4,650 3.58%
======== ====== ===== ====== ===== ====== =====------------------------------------------------------------------------------
4957
19981999 Compared to 19971998
The following discussion and analysis provides a comparison of the Corporation'sCorpora-
tion's results of operations for the years ended December 31, 19981999 and 1997.1998.
This discussion should be read in conjunction with the consolidated financial
statements and related notes on pages 5260 through 99.107.
Overview
The Corporation's operating net income decreased fiveincreased 27 percent to $8.24 billion
in 1999 compared to $6.49 billion in 19981998. Diluted operating earnings per com-
mon share for 1999 increased to $4.68 from $6.81$3.64 in 1998. Excluding merger-
related charges, the return on average common shareholders' equity increased
316 basis points to 17.70 percent in 1999 from 14.54 percent in 1998. The
efficiency ratio, excluding merger-related charges, improved 585 basis points
to 55.30 percent in 1999 from 61.15 percent in 1998. Including merger-related
charges, net income increased 53 percent to $7.88 billion in 1997. Operating1999 compared to
$5.17 billion in 1998. Diluted earnings per common share for 1998 decreasedwas $4.48 in 1999
compared to $3.73 from $3.86$2.90 in 1997. Diluted1998.
Cash basis diluted operating earnings per common share decreasedincreased to $3.64 for 1998$5.19 in
1999 compared to $3.76 for 1997. Including
merger-related charges$4.15 in 1998. Return on average tangible common sharehold-
ers' equity increased to 28.46 percent compared to 25.24 percent in 1998. The
cash basis efficiency ratio was 52.57 percent in 1999, an improvement of $1.80 billion ($1.33 billion, net of tax), net income
decreased 21563
basis points from 58.20 percent to $5.17 billion in 1998, compareddue to $6.54 billiona four percent decline in 1997. Earnings per common sharenon-
interest expense and diluted earnings per common share were
$2.97 and $2.90, respectively,a 15.4 percent increase in 1998 compared to $3.71 and $3.61,
respectively, in 1997.noninterest income.
Business Segment Operations
Consumer and Commercial Banking's net income increased 16 percent to $3.9 billion in 1998
compared to $3.4 billion in 1997. Taxable-equivalenttaxable-equivalent net interest income
decreased threeone percent to $11.8$13.7 billion in 19981999 compared to $12.2$13.9 billion in
1997.1998. Noninterest income increased sixremained essentially unchanged at $7.4 billion. Reve-
nue decreased one percent to $21.1 billion in 1998 to $6.6 billion1999 compared to $6.2$21.2 billion
in 1997.1998. Cash basis earnings remained essentially unchanged at $5.5 billion.
The net interest yield increased 1013 basis points from 19971998 to 4.885.24 percent. Return on average equity increased to 19.2 percent in
1998 from 16.3 percent in 1997.
Return on tangible equity increased to 29.329.1 percent in 19981999 from 26.228.6 percent
in 1997. Revenue growth and expense control
led to a 190 basis point improvement in the efficiency ratio in 1998 to 59.9
percent from 61.8 percent in 1997.1998. The cash basis efficiency ratio improveddecreased to 56.653.74 percent in 19981999
from 58.455.26 percent in 1997.
Commercial Banking's1998. SVA remained essentially unchanged at $2.6 bil-
lion.
Asset Management's taxable-equivalent net interest income decreased twoincreased 16 per-
cent to $580 million in 1999 compared to $502 million in 1998. Noninterest
income increased 10 percent to $953$1.6 billion in 1999 compared to $1.4 billion
in 1998. Revenue increased 12 percent to $2.1 billion in 1999 compared to $1.9
billion in 1998. Cash basis earnings increased 77 percent to $535 million in
19981999 compared to $977$302 million in 1997. Taxable-equivalent1998. The net interest yield decreased 24
basis points from 1998 to 2.98 percent. Return on tangible equity increased to
35.3 percent in 1999 from 22.2 percent in 1998. The cash basis efficiency
ratio decreased to 56.43 percent in 1999 from 75.97 percent in 1998. SVA
almost tripled to $330 million in 1999 compared to $118 million in 1998.
Global Corporate and Investment Banking's taxable-equivalent net interest
income remained essentially flatunchanged at $2.2$3.9 billion. Noninterest income
increased 1951 percent to $4.3 billion in 1998 to $730 million1999 compared to $613$2.9 billion in 1998.
Revenue increased 22 percent to $8.2 billion in 1999 compared to $6.7 billion
in 1998. Cash basis earnings increased more than four times to $2.5 billion in
1999 compared to $522 million in 1997.1998. The net interest yield decreased 36three
basis points from 19971998 to 3.972.13 percent. Return on averagetangible equity increased to
20.4 percent in 1999 from 4.6 percent in 1998. The cash basis efficiency ratio
decreased to 20.153.97 percent in 19981999 from 21.667.24 percent in 1997.1998. SVA was $848
million in 1999 compared to $(1.0) billion in 1998.
Equity Investment's taxable-equivalent net interest income decreased 53 per-
cent to $(89) million in 1999 compared to $(58) million in 1998. Noninterest
income increased 56 percent to $775 million in 1999 compared to $498 million
in 1998. Revenue increased 56 percent to $686 million in 1999 compared to $440
million in 1998. Cash basis earnings increased 46 percent to $341 million in
1999 compared to $233 million in 1998. Return on tangible equity decreased to
27.126.3 percent in 19981999 from 29.925.5 percent in 1997. The efficiency ratio increased to 48.1 percent in 1998 from 43.5
percent in 1997.1998. The cash basis efficiency
ratio increaseddecreased to 44.617.01 percent in 19981999 from 40.018.31 percent in 1997.
Global Corporate and Investment Banking's net income decreased 831998. SVA
increased 27 percent to $292$176 million in 19981999 compared to $1.7 billion in 1997. Taxable-equivalent
net interest income increased seven percent in 1998 to $3.8 billion compared to
$3.6 billion in 1997. Noninterest income decreased seven percent in 1998 to
$2.9 billion compared to $3.1 billion in 1997. The net interest yield decreased
one basis point from 1997 to 2.12 percent. Return on average equity decreased
to 2.3 percent in 1998 from 15.9 percent in 1997. Return on tangible equity
decreased to 4.1 percent in 1998 from 18.8 percent in 1997. The efficiency
ratio increased to 70.6 percent in 1998 from 53.8 percent in 1997. The cash
basis efficiency ratio increased to 68.1 percent in 1998 from 52.1 percent in
1997.
Principal Investing and Asset Management's net income decreased 10 percent
to $491$139 million in 1998 compared to $544 million in 1997. Taxable-equivalent
net interest income increased 12 percent in 1998 to $459 million compared to
$409 million in 1997. Noninterest income remained essentially flat at $1.9
billion. The net interest yield decreased 36 basis points from 1997 to 2.94
percent. Return on average equity decreased to 20.1 percent in 1998 from 27.0
percent in 1997. Return on tangible equity decreased to 22.8 percent in 1998
from 31.2 percent in 1997. The efficiency ratio increased to 67.1 percent in
1998 compared to 62.0 percent in 1997. The cash basis efficiency ratio
increased to 65.9 percent in 1998 from 61.0 percent in 1997.
50
1998.
Net Interest Income
Net interest income on a taxable-equivalent basis remained essentially
unchanged at $18.5 billion in 19981999 and 1998. Core net interest income on a
taxable-equivalent basis increased three percent to $18.7
58
billion in 1999 compared to $18.6$18.2 billion in 1997, primarily
due to a reduction1998. Managed loan growth, par-
ticularly in the net difference betweenconsumer loan products, and deposit rateshigher levels of customer-based
deposits and equity were partially offset by the impact of securitizations, divestitureschanging rates and
assets sales. The decrease was
partially offset by loan growth and increased core funding.spread compression during 1999.
The net interest yield decreased 3122 basis points to 3.47 percent in 1999
compared to 3.69 percent in 19981998. The core net interest yield decreased 17
basis points to 4.02 percent in 1999 compared to 4.00 percent4.19 in 1997, primarily reflecting1998, mainly due to
higher levels of lower-yielding investment securities, which have a lower yield than loans,shift in loan mix to
lower-yielding residential mortgages, changes in interest rates and a reduction inspread
compression and the net difference between loan and deposit rates.cost of the Corporation's share repurchase program during
1999.
Provision for Credit Losses
The provision for credit losses was $1.8 billion in 1999 compared to $2.9
billion in 1998 compared to $1.9
billion1998. The decrease in the prior year, reflecting the impact of certain nonrecurring
charges in 1998, including a provision related to weaknesses in global economic
conditions in the third quarter of 1998 and higher net commercial charge-offs.
The provision for credit losses covered net charge-offs, which increased $615
million to $2.5 billion in 1998,was primarily
due to highera significant reduction in the inherent risk and size of the Corpora-
tion's emerging markets portfolio, a change in the composition of the loan
portfolio from commercial real estate and foreign to more consumer residential
mortgage loans, and a $467 million decline in net charge-offs. The decrease in
net charge-offs partially offset bywas due mainly to lower bankcard and consumer finance net
charge-offs in the consumer loan
portfolio.
The allowance for credit losses was $7.1 billion, or 1.99 percent of loans
and leases, at December 31, 1998 compared to $6.8 billion, or 1.98 percent, at
December 31, 1997. The allowance for credit losses was 287.01 percent of
nonperforming loans at December 31, 1998 compared to 321.03 percent at December
31, 1997.charge-offs.
Gains on Sales of Securities
Gains on sales of securities were $1.0 billion$240 million in 19981999 compared to $271
million$1.0 bil-
lion in 1997.1998. Securities gains were higher in 1998 as a result of increased
activity in connection with the Corporation's overall risk management activity
and favorable
market conditions for certain debt instruments caused by
turbulenceand higher activity in equity markets.connec-
tion with the Corporation's overall risk management operations.
Noninterest Income
Noninterest income increased four15 percent to $14.1 billion in 1999 compared to
$12.2 billion in 1998, primarily reflecting higher levels of trading account
profits and fees, mortgage servicing income from investment banking,
brokerage, and credit card activities,income, partially
offset by declines in mortgage bankingnondeposit-related service fees and tradingother income.
Other Noninterest Expense
Other noninterest expense increased sixdecreased four percent to $18.0 billion in 1999
compared to $18.7 billion in 1998
compared1998. This decrease was attributable to $17.6 billionmerger-
related savings, resulting in 1997, primarily due to increases inlower levels of personnel, data processingprofessional fees,
other general operating expense and general administrative and other expenses associated with
the NationsBanc Montgomery Securities, Robertson Stephens and NationsBanc Auto
Leasing, Inc. acquisitions in 1997.expense.
Income Taxes
The Corporation's income tax expense for 1999 and 1998 was $4.3 billion and 1997 was
$2.9 billion, and $4.0 billion, respectively, for anrespectively. The effective tax rate ofrates for 1999 and 1998 were
35.5 percent and 35.8 percent, and
38.0 percent, repectively. The reduction in the effective tax rate was due
primarily to the reorganization of certain subsidiaries of the Corporation in
1998.
51respectively.
59
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition - MarketCondition-Market Risk Management" on page 4247 for Quantitative and
Qualitative Disclosures about Market Risk.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Management
The management of Bank of America Corporation is responsible for the preparation,prepa-
ration, integrity and objectivity of the consolidated financial statements of
the Corporation. The consolidated financial statements and notes have been
prepared by the Corporation in accordance with accounting principles generally
accepted in the United States of America and, in the judgment of management,
present fairly the Corporation's financial position and results of operations.
The financial information contained elsewhere in this report is consistent
with that in the consolidated financial statements. The financial statements
and other financial information in this report include amounts that are based
on management's best estimates and judgments giving due consideration to materiality.mate-
riality.
The Corporation maintains a system of internal accounting controls to providepro-
vide reasonable assurance that assets are safe-guarded and that transactions
are executed in accordance with management's authorization and recorded properlyprop-
erly to permit the preparation of consolidated financial statements in accordanceaccor-
dance with accounting principles generally accepted in the United States.States of
America. Management recognizes that even a highly effective internal control
system has inherent risks, including the possibility of human error and the
circumvention or overriding of controls, and that the effectiveness of an
internal control system can change with circumstances. However, management
believes that the internal control system provides reasonable assurance that
errors or irregularities that could be material to the consolidated financial
statements are prevented or would be detected on a timely basis and corrected
through the normal course of business. As of December 31, 1999,2000, management
believes that the internal controls are in place and operating effectively.
The Internal Audit Division of the Corporation reviews, evaluates, monitors
and makes recommendations on both administrative and accounting control, which
acts as an integral, but independent, part of the system of internal controls.
The independent accountants were engaged to perform an independent audit of
the consolidated financial statements. In determining the nature and extent of
their auditing procedures, they have evaluated the Corporation's accounting
policies and procedures and the effectiveness of the related internal control
system. An independent audit provides an objective review of management's
responsibility to report operating results and financial condition. Their
report appears on page 53.61.
The Board of Directors discharges its responsibility for the Corporation's
consolidated financial statements through its Audit Committee. The Audit CommitteeCom-
mittee meets periodically with the independent accountants, internal auditors
and management. Both the independent accountants and internal auditors have
direct access to the Audit Committee to discuss the scope and results of their
work, the adequacy of internal accounting controls and the quality of financialfinan-
cial reporting.
/s/ HUGH L. MCCOLL, JR.
- ------------------------- Hugh L. McColl, Jr.
Chairman of the Board and
Chief Executive Officer
/s/ JAMES H. HANCE, JR.
- ------------------------- James H. Hance, Jr.
Hugh L. McColl, Jr. James H. Hance, Jr.
Chairman of the Board and Vice Chairman and
Chief Executive Officer Chief Financial Officer
52
60
Report of Independent Accountants
To the Board of Directors and Shareholders of Bank of America CorporationCorporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Bank of America Corporation and its subsidiaries at December 31, 19992000 and
1998,1999, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999,2000, in conformity with
accounting principles generally accepted in the United States.States of America.
These financial statements are the responsibility of the Corporation's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the
opinion expressed above.our opinion.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
Charlotte, North Carolina
January 13, 2000
5312, 2001
61
- --------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
- -----------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------------------
(Dollars in millions, except per share
information) 2000 1999 1998
1997
- ------------------------------------------------------------------------ ------------ ------------ -----------------------------------------------------------------------------------------
Interest income
Interest and fees on loans and leases $ 31,872 $ 27,569 $ 28,331 $ 29,085
Interest and dividends on securities 5,045 4,826 4,502 3,283
Federal funds sold and securities purchased
under agreements to resell 2,354 1,666 1,828 1,516
Trading account assets 2,725 2,087 2,626 2,582
Other interest income 1,262 1,175 1,301
867
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Total interest income 43,258 37,323 38,588
37,333
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Interest expense
Deposits 11,010 9,002 10,811
10,684
Short-term borrowings 7,957 5,826 5,239 4,105
Trading account liabilities 892 658 895
975
Long-term debt 4,957 3,600 3,345
3,137
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Total interest expense 24,816 19,086 20,290
18,901
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Net interest income 18,442 18,237 18,298 18,432
Provision for credit losses 2,535 1,820 2,920
1,904
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Net interest income after provision for credit
losses 15,907 16,417 15,378 16,528
Gains on sales of securities 25 240 1,017
271
Noninterest income
ServiceConsumer service charges on deposit accounts 3,645 3,396 3,3732,654 2,550 2,632
Corporate service charges 1,946 1,849 1,694
- -----------------------------------------------------------------------------
Total service charges 4,600 4,399 4,326
- -----------------------------------------------------------------------------
Consumer investment and brokerage services 1,466 1,334 1,238
Corporate investment and brokerage services 463 414 464
- -----------------------------------------------------------------------------
Total investment and brokerage services 1,929 1,748 1,702
- -----------------------------------------------------------------------------
Mortgage servicing income 560 673 389 543
Investment banking income 2,244 2,009 1,4761,512 1,411 1,430
Equity investment gains 1,054 833 579
Card income 2,229 2,006 1,569
Trading account profits and fees1,830 1,495 171
976
Brokerage income 724 728 355
Nondeposit-related service fees 554 652 680
Asset management and fiduciary service fees 1,023 973 990
Credit card income 1,791 1,448 1,231
Other income 1,920 2,423 2,132775 1,504 2,023
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Total noninterest income 14,489 14,069 12,189
11,756
- ------------------------------------------------------------------------ ---------- ---------- ----------
Merger-related-----------------------------------------------------------------------------
Merger and restructuring charges net550 525 1,795 374
Other noninterest expense
Personnel 9,400 9,308 9,412
8,703
Occupancy 1,682 1,627 1,643
1,576
Equipment 1,173 1,346 1,404
1,408
Marketing 621 537 581
655
Professional fees 452 630 843 763
Amortization of intangibles 864 888 902
855
Data processing 667 763 765
626
Telecommunications 527 549 563 491
Other general operating 2,114 1,820 2,044 2,059
General administrative and other 583 518 584
489
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Total other noninterest expense 18,083 17,986 18,741
17,625
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Income before income taxes 11,788 12,215 8,048 10,556
Income tax expense 4,271 4,333 2,883
4,014
- ------------------------------------------------------------------------ ---------- ---------- ---------------------------------------------------------------------------------------
Net income $ 7,517 $ 7,882 $ 5,165
$ 6,542
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
Net income available to common shareholders $ 7,511 $ 7,876 $ 5,140
$ 6,431
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
Per share information(1)information
Earnings per common share $ 4.56 $ 4.56 $ 2.97
$ 3.71
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
Diluted earnings per common share $ 4.52 $ 4.48 $ 2.90
$ 3.61
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
Dividends per common share $ 2.06 $ 1.85 $ 1.59
$ 1.37
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
Average common shares issued and outstanding
(in thousands)(1) 1,646,398 1,726,006 1,732,057
1,733,194
======================================================================== ========== ========== ==========- -----------------------------------------------------------------------------
(1) Share and per share data reflect a two-for-one stock split on February 27,
1997.
See accompanying notes to consolidated financial statements.
5462
- --------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
- ---------------------------------------------------------------------------
December 31
-------------------------------------------
(Dollars in millions) 2000 1999
1998
- ---------------------------------------------------------------------------- ------------ ---------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 26,98927,513 $ 28,27726,989
Time deposits placed and other short-term investments 5,448 4,838 6,750
Federal funds sold and securities purchased under
agreements to resell (includes $24,622 pledged as
collateral(/1/)) 28,055 37,928 27,146
Trading account assets (includes $21,216 pledged as
collateral(/1/)) 43,041 38,460
39,602Derivative-dealer assets 15,534 16,055
Securities:
Available-for-sale (includes $40,674 pledged as
collateral(/1/)) 64,651 81,647
78,590
Held-for-investment,Held-to-maturity, at cost (market value - $1,270$1,133 and
$1,853)$1,270) 1,187 1,422
1,997
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total securities 65,838 83,069
80,587
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Loans and leases 392,193 370,662 357,328
Allowance for credit losses (6,838) (6,828)
(7,122)
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Loans and leases, net of allowance for credit losses 385,355 363,834
350,206
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Premises and equipment, net 6,433 6,713 7,289
Customers' acceptance liability 1,972 1,869 2,671
Derivative-dealer assets 16,055 16,400
Interest receivable 4,432 3,777 3,734
Mortgage servicing rights 3,762 4,093
2,376
Goodwill 11,643 12,262 12,695
Core deposits and other intangibles 1,499 1,730 2,013
Other assets 41,666 30,957
37,933
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total assets $642,191 $632,574
$617,679
============================================================================ ======== ========- ---------------------------------------------------------------------------
Liabilities
Deposits in domestic offices:
Noninterest-bearing $ 98,722 $ 93,476
$ 92,623
Interest-bearing 211,978 207,048 203,644
Deposits in foreign offices:
Noninterest-bearing 1,923 1,993
1,713
Interest-bearing 51,621 44,756
59,280
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total deposits 364,244 347,273
357,260
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Federal funds purchased and securities sold under
agreements to repurchase 49,411 74,561 67,543
Trading account liabilities 20,947 20,958 14,170
Derivative-dealer liabilities 22,402 16,200 16,835
Commercial paper 6,955 7,331 6,749
Other short-term borrowings 35,243 40,340 24,742
Acceptances outstanding 1,972 1,869 2,671
Accrued expenses and other liabilities 20,887 19,169 30,929
Long-term debt 67,547 55,486 45,888
Trust preferred securities 4,955 4,9544,955
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total liabilities 594,563 588,142
571,741
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Commitments and contingencies (Notes ElevenThirteen and
Thirteen)Fifteen)
Shareholders' equityEquity
Preferred stock, $0.01 par value; authorized-100,000,000authorized -
100,000,000 shares;
issued and outstanding - 1,692,172 and 1,797,702
and 1,952,039 shares 72 77 83
Common stock, $0.01 par value; authorized-5,000,000,000authorized -
5,000,000,000 shares;
issued and outstanding - 1,613,632,036 and
1,677,273,267 and 1,724,484,305 shares 8,613 11,671 14,837
Retained earnings 39,815 35,681 30,998
Accumulated other comprehensive income (loss)loss (746) (2,658)
152
Other (126) (339)
(132)
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total shareholders' equity 47,628 44,432
45,938
- ---------------------------------------------------------------------------- -------- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $642,191 $632,574
$617,679
============================================================================ ======== ========- ---------------------------------------------------------------------------
(1) As of December 31, 2000.
See accompanying notes to consolidated financial statements.
5563
- --------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended December 31
------------------------------------
(Dollars in millions) 1999 1998 1997
- ---------------------------------------------------------------------------------- ------------ ----------- -----------
Operating activities
Net income $ 7,882 $ 5,165 $ 6,542
Reconciliation of net income to net cash provided by operating activities:
Provision for credit losses 1,820 2,920 1,904
Gains on sales of securities (240) (1,017) (271)
Merger-related charges, net 525 1,795 374
Depreciation and premises improvements amortization 1,029 1,096 1,108
Amortization of intangibles 888 902 855
Deferred income tax expense 2,098 216 971
Net decrease (increase) in trading instruments 7,640 (1,378) (4,679)
Net increase in interest receivable (51) (157) (542)
Net increase in interest payable 332 94 179
Net decrease (increase) in other assets 2,611 (11,271) (3,797)
Net (decrease) increase in other accrued expenses and other liabilities (12,965) 13,702 1,780
Other operating activities, net 496 1,450 (175)
- ---------------------------------------------------------------------------------- --------- --------- ---------
Net cash provided by operating activities 12,065 13,517 4,249
- ---------------------------------------------------------------------------------- --------- --------- ---------
Investing activities
Net decrease (increase) in time deposits placed and other short-term investments 1,625 1,612 (857)
Net increase in federal funds sold and securities purchased
under agreements to resell (10,782) (7,028) (3,531)
Proceeds from sales and maturities of available-for-sale securities 48,590 81,254 44,268
Purchases of available-for-sale securities (48,917) (93,136) (56,825)
Proceeds from maturities of held-for-investment securities 575 1,162 1,898
Purchases of held-for-investment securities -- (249) (570)
Proceeds from sales and securitizations of loans and leases 44,574 59,297 30,936
Purchases and net originations of loans and leases (63,401) (91,681) (42,218)
Purchases and originations of mortgage servicing rights (2,258) (853) (419)
Net purchases of premises and equipment (465) (437) (888)
Proceeds from sales of foreclosed properties 350 525 610
Sales and acquisitions of business activities, net of cash (1,212) (335) 1,289
- ---------------------------------------------------------------------------------- --------- --------- ---------
Net cash used in investing activities (31,321) (49,869) (26,307)
- ---------------------------------------------------------------------------------- --------- --------- ---------
Financing activities
Net (decrease) increase in deposits (8,299) 16,476 4,774
Net increase in federal funds purchased and securities
sold under agreements to repurchase 7,018 6,137 26,680
Net increase (decrease) in commercial paper and other short-term borrowings 16,214 13,672 (1,440)
Proceeds from issuance of long-term debt 17,630 12,166 7,823
Retirement of long-term debt (7,763) (8,809) (6,740)
Proceeds from issuance of trust preferred securities -- 340 1,613
Proceeds from issuance of common stock 1,158 1,367 1,892
Common stock repurchased (4,858) (1,751) (8,540)
Cash dividends paid (3,199) (2,604) (2,175)
Other financing activities, net 12 (863) (2,036)
- ---------------------------------------------------------------------------------- --------- --------- ---------
Net cash provided by financing activities 17,913 36,131 21,851
- ---------------------------------------------------------------------------------- --------- --------- ---------
Effect of exchange rate changes on cash and cash equivalents 55 32 102
- ---------------------------------------------------------------------------------- --------- --------- ---------
Net decrease in cash and cash equivalents (1,288) (189) (105)
Cash and cash equivalents at January 1 28,277 28,466 28,571
- ---------------------------------------------------------------------------------- --------- --------- ---------
Cash and cash equivalents at December 31 $ 26,989 $ 28,277 $ 28,466
================================================================================== ========= ========= =========
Supplemental cash flow disclosures
Cash paid for interest $ 18,754 $ 20,198 $ 18,585
Cash paid for income taxes 1,595 2,695 1,760
- ---------------------------------------------------------------------------------- --------- --------- ---------
Loans transferred to foreclosed properties amounted to $305, $353 and $431 in
1999, 1998 and 1997, respectively.
Loans securitized and retained in the trading and available-for-sale
securities portfolios amounted to $6,682, $6,083 and $7,842 in 1999, 1998 and
1997, respectively.
The fair value of noncash assets acquired and liabilities assumed in
acquisitions during 1999 was approximately $1,557 and $74, net of cash
acquired. The fair value of noncash assets acquired in acquisitions during 1998
was approximately $109, net of cash acquired. The fair value of noncash assets
acquired and liabilities assumed in acquisitions during 1997 were approximately
$52,226 and $43,024, respectively, net of cash acquired.
See accompanying notes to consolidated financial statements.
56
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
- -----------------------------------------------------------------------------------------------------------------------
Total
Common Stock Accumulated Other Share-
(Dollars in millions, Preferred ------------------------------------------ Retained Comprehensive holders' Comprehensive
shares in thousands) Stock Shares Amount Earnings Income (Loss)(/1/,/2/) Other Equity Income
- ------------------------------- ------------- ------------- ---------- -------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
19961997 $ 2,413 1,602,764708 1,722,538 $15,140 $28,438 $ 11,419 $24,071407 $(109) $44,584
Net income 6,542
Other comprehensive income,
net of tax
Comprehensive income
Cash dividends:
Common (2,064)
Preferred (111)
Common stock issued under
dividend reinvestment and
employee plans 47,431 1,888
Stock issued in acquisitions 82 219,024 10,320
Common stock repurchased (150,016) (8,540)
Conversion of preferred stock (86) 3,859 86
Redemption of preferred stock (1,701)
Other (524) (33)
- ------------------------------- -------- --------- -------- --------
Balance, December 31, 1997 708 1,722,538 15,140 28,438
=============================== ======== ========= ======== ========
Net income 5,165 5,165 $5,165
Other comprehensive
loss, net of tax (255) (255) (255)
-----------
Comprehensive income $4,910
-----------
Cash dividends:
Common (2,579) (2,579)
Preferred (25) (25)
Common stock issued
under dividend
reinvestment and
employee plans 30,489 1,417 (50) 1,367
Stock issued in
acquisitions 385 15 15
Common stock repurchased (29,349) (1,751) (1,751)
Conversion of preferred
stock (11) 444 11
Redemption of preferred
stock (614) (614)
Other (23) 5 (1) 27 31
- ------------------------------- -------- --------- -------- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1998 $ 83 1,724,484 14,837 30,998
=============================== ======== ========= ======== ========$14,837 $30,998 $ 152 $(132) $45,938
- ---------------------------------------------------------------------------------------------------------------------
Net income 7,882 7,882 $7,882
Other comprehensive
loss, net of tax (2,810) (2,810) (2,810)
-----------
Comprehensive income $5,072
-----------
Cash dividends:
Common (3,193) (3,193)
Preferred (6) (6)
Common stock issued
under employee plans 30,501 1,423 (265) 1,158
Common stock repurchased (78,000) (4,858) (4,858)
Conversion of preferred
stock (6) 284 6
Other 4 263 58 321
- ------------------------------- -------- --------- -------- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1999 $ 77 1,677,273 $ 11,671$11,671 $35,681 =============================== ======== ========= ======== ========
Accumulated Total
Other Share-
(Dollars in millions, Comprehensive holders' Comprehensive
shares in thousands) Income (Loss)(1,2) Other Equity Income$(2,658) $(339) $44,432
- ------------------------------- -------------------- ---------- ------------- --------------
Balance, December 31, 1996 $ 20 $ (130) $37,793---------------------------------------------------------------------------------------------------------------------
Net income 6,542 $ 6,5427,517 7,517 $7,517
Other comprehensive
income, net of tax 387 387 387
---------1,912 1,912 1,912
-----------
Comprehensive income $ 6,929
=========$9,429
-----------
Cash dividends:
Common (2,064)(3,382) (3,382)
Preferred (111)
Common stock issued under
dividend reinvestment and
employee plans 4 1,892
Stock issued in acquisitions 10,402
Common stock repurchased (8,540)
Conversion of preferred stock
Redemption of preferred stock (1,701)
Other 17 (16)
- ------------------------------- -------- ------ --------
Balance, December 31, 1997 407 (109) 44,584
=============================== ======== ====== ========
Net income 5,165 $ 5,165
Other comprehensive loss, net
of tax (255) (255) (255)
---------
Comprehensive income $ 4,910
=========
Cash dividends:
Common (2,579)
Preferred (25)
Common stock issued under
dividend reinvestment and
employee plans (50) 1,367
Stock issued in acquisitions 15
Common stock repurchased (1,751)
Conversion of preferred stock
Redemption of preferred stock (614)
Other 27 31
- ------------------------------- -------- ------ --------
Balance, December 31, 1998 152 (132) 45,938
=============================== ======== ====== ========
Net income 7,882 $ 7,882
Other comprehensive loss, net
of tax (2,810) (2,810) (2,810)
---------
Comprehensive income $ 5,072
=========
Cash dividends:
Common (3,193)
Preferred(6) (6)
Common stock issued
under employee plans (265) 1,1583,781 68 226 294
Common stock repurchased (4,858)(67,577) (3,256) (3,256)
Conversion of preferred
stock (5) 177 5
Other 58 321(22) 125 5 (13) 117
- ------------------------------- -------- ------ -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
19992000 $ (2,658)72 1,613,632 $ (339) $44,432
=============================== ======== ====== =========8,613 $39,815 $ (746) $(126) $47,628
- ---------------------------------------------------------------------------------------------------------------------
(1) Changes in Accumulated Other Comprehensive Income (Loss) include after-tax
net unrealized gains (losses) on available-for-sale securities and marketable equity
securities of $1,910, $(2,773), $(242) and $419$(242) and after-tax net unrealized
lossesgains (losses) on foreign currency translation adjustments of $2, $(37), $(13),
and $(32)$(13) in 2000, 1999 1998 and 1997,1998, respectively.
(2) Accumulated Other Comprehensive Income (Loss) consists of the after-tax
valuation allowance for available-for-sale securities and marketable equity securitiessecuri-
ties of $(2,470)$(560), $303$(2,470) and $545$303 and foreign currency translation adjustmentsadjust-
ments of $(188)$(186), $(151)$(188) and $(138)$(151) at December 31, 2000, 1999 1998, and 1997,1998,
respectively.
See accompanying notes to consolidated financial statements.
5764
- -------------------------------------------------------------------------------
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
- -------------------------------------------------------------------------------
Year Ended December 31
--------------------------
(Dollars in millions) 2000 1999 1998
- ------------------------------------------------------------------------------
Operating activities
Net income $ 7,517 $ 7,882 $ 5,165
Reconciliation of net income to net cash provided
by operating activities:
Provision for credit losses 2,535 1,820 2,920
Gains on sales of securities (25) (240) (1,017)
Merger and restructuring charges 550 525 1,795
Depreciation and premises improvements
amortization 920 1,029 1,096
Amortization of intangibles 864 888 902
Deferred income tax expense 648 2,459 216
Net (increase) decrease in trading instruments 2,119 7,640 (1,378)
Net increase in interest receivable (658) (51) (157)
Net (increase) decrease in other assets (10,055) 2,611 (11,271)
Net increase in interest payable 575 332 94
Net increase (decrease) in accrued expenses and
other liabilities 1,234 (13,326) 13,702
Other operating activities, net (959) 496 1,450
- ------------------------------------------------------------------------------
Net cash provided by operating activities 5,265 12,065 13,517
- ------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in time deposits placed
and other short-term investments (685) 1,625 1,612
Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell 9,857 (10,782) (7,028)
Proceeds from sales of available-for-sale
securities 34,671 38,587 78,313
Proceeds from maturities of available-for-sale
securities 6,396 10,003 2,941
Purchases of available-for-sale securities (19,132) (48,917) (93,136)
Proceeds from maturities of held-to-maturity
securities 380 575 1,162
Purchases of held-to-maturity securities -- -- (249)
Proceeds from sales and securitizations of loans
and leases 41,594 44,574 59,297
Purchases and net originations of loans and
leases (70,444) (63,401) (91,681)
Purchases and originations of mortgage servicing
rights (208) (2,258) (853)
Net purchases of premises and equipment (642) (465) (437)
Proceeds from sales of foreclosed properties 260 350 525
Acquisitions and divestitures of business
activities 843 (1,212) (335)
- ------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 2,890 (31,321) (49,869)
- ------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in deposits 17,155 (8,299) 16,476
Net increase (decrease) in federal funds
purchased and securities sold under agreements
to repurchase (25,150) 7,018 6,137
Net increase (decrease) in commercial paper and
other short-term borrowings (5,376) 16,214 13,672
Proceeds from issuance of long-term debt 23,451 17,630 12,166
Retirement of long-term debt (11,078) (7,763) (8,809)
Proceeds from issuance of trust preferred
securities -- -- 340
Proceeds from issuance of common stock 294 1,158 1,367
Common stock repurchased (3,256) (4,858) (1,751)
Cash dividends paid (3,388) (3,199) (2,604)
Other financing activities, net (218) 12 (863)
- ------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (7,566) 17,913 36,131
- ------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash
equivalents (65) 55 32
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 524 (1,288) (189)
Cash and cash equivalents at January 1 26,989 28,277 28,466
- ------------------------------------------------------------------------------
Cash and cash equivalents at December 31 27,513 $26,989 $28,277
- ------------------------------------------------------------------------------
Supplemental cash flow disclosures
Cash paid for interest $ 24,241 $18,754 $20,198
Cash paid for income taxes 2,130 1,595 2,695
- ------------------------------------------------------------------------------
Loans transferred to foreclosed properties amounted to $380, $305 and $353 in
2000, 1999 and 1998, respectively.
Loans securitized and retained in the trading and available-for-sale securi-
ties portfolio amounted to $2,483, $6,682 and $6,083 in 2000, 1999 and 1998,
respectively.
There were no acquisitions for the year ended December 31, 2000. The fair
value of noncash assets acquired and liabilities assumed in acquisitions dur-
ing 1999 was approximately $1,557 and $74, respectively, net of cash acquired.
The fair value of noncash assets acquired in 1998 was approximately $109, net
of cash acquired.
See accompanying notes to consolidated financial statements.
65
Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements
On September 30, 1998, BankAmerica Corporation (BankAmerica) merged (the
Merger) with and into Bank of America Corporation (Corporation), formerly
NationsBank Corporation (NationsBank). On January 9, 1998, the Corporation
completed its merger (the Barnett merger) with Barnett Banks, Inc. (Barnett).
These transactions were accounted for as pooling of interests. The consolidatedconsoli-
dated financial statements have been restated to present the combined results
of the Corporation as if the Merger and the Barnett merger had been in effect
for all periods presented.
The Corporation is a Delaware corporation, a bank holding company and,
effective March 11, 2000, a financial holding company. Through its banking
subsidiaries and nonbanking subsidiaries, the Corporation provides a diverse
range of financial services and products throughout the U.S. and in selected
international markets.
Note One - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the CorporationCorpora-
tion and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Results of operations of companiescom-
panies purchased are included from the dates of acquisition. Certain prior
period amounts have been reclassified to conform to current year classifications.classifica-
tions. Assets held in an agency or fiduciary capacity are not included in the
consolidated financial statements.
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires managementmanage-
ment to make estimates and assumptions that affect reported amounts and disclosures.dis-
closures. Actual results could differ from those estimates. Significant estimatesesti-
mates made by management are discussed in these footnotes as applicable.
On February 27, 1997, the Corporation completed a two-for-one split of its
common stock. Accordingly, the consolidated financial statements for all years
presented reflect the impact of the stock split.
Cash and Cash Equivalents
Cash on hand, cash items in the process of collection and amounts due from
correspondent banks and the Federal Reserve Bank (FRB) are included in cash and cash
equivalents.
Securities Purchased Under Agreements To Resell And
Securities Sold Under Agreements To Repurchase
Securities purchased under agreements to resell and securities sold under
agreements to repurchase are treated as collateralized financing transactions
and are recorded at the amounts at which the securities were acquired or sold
plus accrued interest. The Corporation's policy is to obtain the use of securitiessecu-
rities purchased under agreements to resell. The market value of the underlyingunder-
lying securities, which collateralize the related receivable on agreements to
resell, is monitored, including accrued interest, and additional collateral is
requested when deemed appropriate.
Collateral
The Corporation has accepted collateral that it is permitted by contract or
custom to sell or repledge. At December 31, 2000, the fair value of this col-
lateral was approximately $25.1 billion of which $22.7 billion was sold or
repledged. The primary source of this collateral is reverse repurchase agree-
ments. The Corporation pledges securities as collateral in transactions that
are primarily repurchase agreements, public and trust deposits, treasury tax
and loan and other short-term borrowings. This collateral can be sold or
repledged by the counterparties to the transactions.
Trading Instruments
Instruments utilized in trading activities include securities stated at fair
value. Fair value is generally based on quoted market prices. If quoted market
prices are not available, fair values are estimated based on dealer quotes,
pricing models or quoted prices for instruments with similar characteristics.
Realized and unrealized gains and losses are recognized as trading account
profits and fees.
66
Derivative-Dealer Positions
Derivative-dealer assets and liabilities represent trading positions includ-
ing unrealized gains and losses, respectively, on interest rate, foreign
exchange, commodity, equity, credit derivative and other derivative contract
positions included in the Corporation's trading portfolio. Derivative-dealer
positions are reflected at fair value with changes in fair value reflected in
trading account profits and fees. Fair values are estimated based on dealer
quotes, pricing models or quoted prices for instruments with similar charac-
teristics.
Securities
Debt securities are classified based on management's intention on the date
of purchase. Debt securities which management has the intent and ability to
hold to maturity are classified as held-for-investmentheld-to-maturity and reported at amortized
cost. Securities that are bought and held principally for the purpose of
resale in the near term are
58
classified as trading instruments and are stated
at fair value. All other debt securities are classified as available-for-sale
and carried at fair value with net unrealized gains and losses included in
shareholders' equity on an after-tax basis.
Interest and dividends on securities, including amortization of premiums and
accretion of discounts, are included in interest income. Realized gains and
losses from the sales of securities are determined using the specific identificationidenti-
fication method.
Marketable equity securities, which are included in other assets, are carriedcar-
ried at fair value with net unrealized gains and losses included in shareholders'sharehold-
ers' equity, net of tax. Income on marketable equity securities is included in
noninterest income.
Loans and Leases
Loans are reported at their outstanding principal balances net of any
unearned income, charge-offs, unamortized deferred fees and costs on originatedorigi-
nated loans and premiums or discounts on purchased loans. Loan origination
fees and certain direct origination costs are deferred and recognized as
adjustments to income over the lives of the related loans. Unearned income,
discounts and premiums are amortized to income using methods that approximate
the interest method.
The Corporation provides equipment financing to its customers through a
variety of lease arrangements. Direct financing leases are carried at the
aggregate of lease payments receivable plus estimated residual value of the
leased property, less unearned income. Leveraged leases, which are a form of
financing lease, are carried net of nonrecourse debt. Unearned income on
leveraged and direct financing leases is amortized over the lease terms by
methods that approximate the interest method.
Allowance for Credit Losses
The allowance for credit losses is available to absorb management's estimate
of probable incurred credit losses in the loan and lease portfolios. Additions
to the allowance for credit losses are made by charges to the provision for
credit losses. Credit exposures deemed to be uncollectible are charged against
the allowance for credit losses. Recoveries of previously charged off amounts
are credited to the allowance for credit losses.
The Corporation performs periodic and systematic detailed reviews of its
loan and lease portfolios to identify risks inherent inrisks and to assess the overall
collectibility of those portfolios. The nature of the process by which
the Corporation determines the appropriate allowance for credit losses requires
the exercise of considerable judgment. As discussed below,on certain homogeneous loan
portfolios, are evaluated collectively,which generally consist of consumer loans, is based on individualaggregated
portfolio segment evaluations generally by loan type,
whiletype. Loss forecast models are
utilized for these segments which consider a variety of factors including, but
not limited to, anticipated defaults or foreclosures based on portfolio
trends, delinquencies and credit scores, and expected loss factors by loan
type. The remaining portfolios are reviewed on an individual loan basis. Loans
subject to individual reviews are analyzed and segregated by risk according to
the Corporation's internal risk rating scale. These detailed reviews, combinedrisk classifications, in
conjunction with an analysis of historical loss experience, current economic
conditions and performance trends within specific portfolio segments, and any
other factors,pertinent information (including individual valuations on nonperforming
loans in accordance with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (SFAS 114)) result in the
identification and quantificationestimation of specific allowances for credit losses and loss factors which are used in determining the amount of the
allowance and related provision for credit losses.
The actual amount of
incurred credit losses confirmed may vary from the estimate of incurred losses
due to changing economic conditions or changes in industry or geographic
concentrations. The Corporation has procedures in place to monitor differences
between estimated and actual incurred credit losses, which include detailed
periodic assessments by senior management of both individual loans and credit
portfolios and the models used to estimate incurred credit losses in those
portfolios.
Due to their homogeneous nature, consumer loans and certain smaller
business loans and leases, which includes residential mortgages, home equity
lines, direct/indirect consumer, consumer finance, bankcard, and foreign
consumer loans, are generally evaluated as a group, based on individual loan
type. This evaluation is based primarily on historical and current delinquency
and loss trends and provides a basis for establishing an appropriate level of
allowance for credit losses.
Commercial and commercial real estate loans and leases are generally
evaluated individually due to a general lack of uniformity among individual
loans within each loan type and business segment.67
If necessary, an allowance for credit losses is established for individual
impaired loans. A loan is considered impaired when, based on current informationinforma-
tion and events, it is probable that the Corporation will be unable to collect
all amounts due, including principal and interest, according to the contractualcontrac-
tual terms of the agreement. Once a loan has been identified as impaired, managementman-
agement measures impairment in accordance with Statement of Financial Accounting
59
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS
114).SFAS 114. Impaired loans are
measured based on the present value of payments expected to be received,
observable market prices, or for loans that are solely dependent on the collateralcol-
lateral for repayment, the estimated fair value of the collateral. If the
recorded investment in impaired loans exceeds the measure of estimated fair
value, a valuation allowance is established as a component of the allowance
for credit losses,losses.
Portions of the allowance for credit losses are assigned to cover the estimatedesti-
mated probable incurred credit losses in each loan and lease category based on
the results of the Corporation's detail review process as described above. Further
assignments are made based on generalThe
assigned portion continues to be weighted toward the commercial loan portfo-
lio, which reflects a higher level of nonperforming loans and specific economic conditions, as well
as performance trends within specific portfolio segments andthe potential
for higher individual concentrations of credit, including geographic and industry concentrations.losses. The remaining or unassigned portion of the
allowance for credit losses, determined separately from the procedures outlinedout-
lined above, addresses certain industry and geographic concentrations, includinginclud-
ing global economic conditions, thereby
minimizingconditions. This procedure helps to minimize the risk
related to the margin of imprecision inherent in the estimation of the
assigned allowance for credit losses. Due to the subjectivity involved in the
determination of the unassigned portion of the allowance for credit losses,
the relationship of the unassigned component to the total allowance for credit
losses may fluctuate from period to period. Management evaluates the adequacy
of the allowance for credit losses based on the combined total of the assigned
and unassigned components.
Nonperforming Loans
Commercial loans and leases that are past due 90 days or more as to principalprinci-
pal or interest, or where reasonable doubt exists as to timely collection,
including loans that are individually identified as being impaired, are generallygener-
ally classified as nonperforming loans unless well secured and in the process
of collection. Loans whose contractual terms have been restructured in a mannerman-
ner which grants a concession to a borrower experiencing financial difficultiesdifficul-
ties are classified as nonperforming until the loan is performing for an adequateade-
quate period of time under the restructured agreement. Interest accrued but
not collected is reversed when a commercial loan is classified as
nonperforming. Interest collections on commercial nonperforming loans and
leases for which the ultimate collectibility of principal is uncertain are
applied as principal reductions. Otherwise, such collections are credited to
income when received.
Credit card loans that are charged off at 180 days past due and not classified as
nonperforming. Unsecured loans and deficiencies in personal property secured
loans are charged off at 120 days past due and not classified as
nonperforming. Real estate secured consumer loans are classified as
nonperforming at 90 days past due. The amount deemed to be uncollectible on real
estate secured loans is charged off upon determination. Other consumer
loansat 180 days past due. Loans in bankruptcy
are charged off at 120 days past due and not classified as nonperforming.
Interest accrued but not collected is generally written off along withwhen deemed uncollectible, which may be earlier than the
principal.timeframes noted above.
Loans Held for Sale
Loans held for sale include residential mortgage, commercial real estate and
other loans and are carried at the lower of aggregate cost or market value.
Loans originated with the intent to sell are included in other assets.
Foreclosed Properties
Assets are classified as foreclosed properties and included in other assets
upon actual foreclosure or when physical possession of the collateral is taken
regardless of whether foreclosure proceedings have taken place.
Foreclosed properties are carried at the lower of the recorded amount of the
loan or lease for which the property previously served as collateral, or the
fair value of the property less estimated costs to sell. Prior to foreclosure,
any write-downs, if necessary, are charged to the allowance for credit losses.
68
Subsequent to foreclosure, gains or losses on the sale of and losses on the
periodic revaluation of foreclosed properties are credited or charged to
expense. Net costs of maintaining and operating foreclosed properties are
expensed as incurred.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized principally using
the straight-line method over the estimated useful lives of the assets.
60
Derivative-Dealer Positions
Derivative-dealer assets and liabilities represent trading positions
including unrealized gains and losses, respectively, on interest rate, foreign
exchange, commodity, equity, credit derivative and other derivative contract
positions included in the Corporation's trading portfolio. Derivative-dealer
positions are reflected at fair value with changes in fair value reflected in
trading account profits and fees. Fair values are estimated based on dealer
quotes, pricing models or quoted prices for instruments with similar
characteristics.
Mortgage Servicing Rights
The total cost of mortgage loans originated for sale or purchased is allocatedallo-
cated between the cost of the loans and the mortgage servicing rights (MSR)
based on the relative fair values of the loans and the MSR. MSR acquired separatelysepa-
rately are capitalized at cost. The Corporation capitalized $836 million, $1.6
billion and $1.5 billion and $749 million of MSR during 2000, 1999 1998 and 1997,1998, respectively. The
cost of the MSR is amortized in proportion to and over the estimated period
of netthat servicing revenues.revenues are recognized. Amortization was $540 million, $566
million and $476 million during 2000, 1999 and $303
million during 1999, 1998, and 1997, respectively.
The fair value of capitalized MSR was approximately $4.1$3.7 billion and $2.4$4.1 billion at
December 31, 19992000 and 1998,1999, respectively. Total loans serviced approximated
$294.6$335.9 billion, $249.7$314.3 billion and $224.0$249.7 billion at December 31, 2000, 1999
1998 and 1997,1998, respectively, including loans serviced on behalf of the Corporation'sCorpora-
tion's banking subsidiaries. The Corporation's valuation methodology uses sev-
eral key assumptions including, but not limited to, published prepayment
speeds, discount rates based on the Constant Maturity Treasury, servicing
costs, inflation rates and ancillary fees to estimate the fair value of capi-
talized MSR. The predominant characteristics used as the basis for stratifying
MSR are loan type and interest rate. The MSR strata are evaluated for impairmentimpair-
ment by estimating their fair value based on anticipated future net cash
flows, taking into consideration prepayment predictions. If the carrying value
of the MSR, including the results of risk management activities, exceeds the
estimated fair value, a valuation allowance is established for any decline
which is viewed to be temporary. Changes to the valuation allowance are
charged against or credited to mortgage servicing income and fees. There was
no valuation allowance at December 31, 2000. The valuation allowance was $6
million and $180 million at December 31, 1999 and
1998, respectively.1999. To manage risk associated with changes in prepaymentpre-
payment rates, the Corporation uses various financial instruments including
purchased options and swaps. The notional amounts of such contracts at DecemberDecem-
ber 31, 2000 and 1999 and 1998
were $43.4$42.1 billion and $22.4$43.4 billion, respectively, and
the related unrealized gain was $424 million and unrealized loss was $333 million and unrealized gain was $190 million,mil-
lion, respectively.
Goodwill and Other Intangibles
Net assets of companies acquired in purchase transactions are recorded at
fair value at the date of acquisition. Identified intangibles are amortized on
an accelerated or straight-line basis over the period benefited. Goodwill is
amortized on a straight-line basis over a period not to exceed 25 years. The
recoverability of goodwill and other intangibles is evaluated if events or
circumstances indicate a possible impairment. Such evaluation is based on variousvar-
ious analyses, including undiscounted cash flow projections.
Securitizations
The Corporation securitizes, sells and services interests in home equity,
installment,consumer
finance, commercial and bankcard loans. When the Corporation sellssecuritizes
assets,
in securitizations, it may retain interest onlyinterest-only strips, one or more subordinated tranches
and, in some cases, a cash reserve account, all of which are considered
retained interests in the securitized assets. Gains upon sale of the assets
depend, in part, on the Corporation's allocation of the previous carrying
amount of the assets to the retained interests. Previous carrying amounts are
allocated in proportion to the relative fair values of the assets sold and
interests retained.
ToQuoted market prices, if available, are used to obtain fair values, quoted market prices are used, if available.
Generally,values. General-
ly, quoted market prices for retained interests are not available,available; therefore,
the Corporation estimates fair values based upon the present value of the
associated expected future cash flows. This may require management to estimate
credit losses, prepayment speeds, forward yield curves, discount rates and
other factors that impact the value of retained interests.
After the securitization, any of these retained interests that can be contractuallycon-
tractually settled in such a way that the Corporation could not recover substantiallysub-
stantially all of its recorded investment are adjusted to fair value with the
adjustment reflected as an unrealized gain or loss in shareholders' equity. If a
decline in the fair value is determined to be unrecoverable, it is expensed.
61charged to
expense.
See Note Eight for additional disclosures related to securitizations.
69
Income Taxes
There are two components of income tax expense: current and deferred. CurrentCur-
rent income tax expense approximates taxes to be paid or refunded for the
applicable period. Balance sheet amounts of deferred taxes are recognized on
the temporary differences between the bases of assets and liabilities as measuredmea-
sured by tax laws and their bases as reported in the financial statements.
Deferred tax expense or benefit is then recognized for the change in deferred
tax liabilities or assets between periods.
Recognition of deferred tax assets is based on management's belief that it
is more likely than not that the tax benefit associated with certain temporary
differences, tax operating loss carryforwards and tax credits will be realized.real-
ized. A valuation allowance is recorded for those deferred tax items for which
it is more likely than not that realization will not occur.
Retirement Benefits
The Corporation has established qualified retirement plans covering full-time,full-
time, salaried employees and certain part-time employees. Pension expense
under these plans is charged to current operations and consists of several
components of net pension cost based on various actuarial assumptions regardingregard-
ing future experience under the plans.
In addition, the Corporation and its subsidiaries have established unfunded
supplemental benefit plans providing any benefits that could not be paid from
a qualified retirement plan because of Internal Revenue Code restrictions and
supplemental executive retirement plans for selected officers of the CorporationCorpora-
tion and its subsidiaries. These plans are nonqualified and, therefore, in
general, a participant's or beneficiary's claim to benefits is as a general
creditor.
The Corporation and its subsidiaries have established several unfunded
postretirement medical benefit plans.
Risk Management Instruments
Risk management instruments are utilized to modify the interest rate characteristicscharac-
teristics of related assets or liabilities or hedge against fluctuations in
interest rates, currency exchange rates or other such exposures as part of the
Corporation's asset and liability management process. Instruments must be designateddes-
ignated as hedges and must be effective throughout the hedge period. To qualifyqual-
ify as hedges, risk management instruments must be linked to specific assets
or liabilities or pools of similar assets or liabilities. For risk management
instruments that fail to qualify as hedges, the instruments are recorded at
market value with changes in market value reflected in trading account profits
and fees.
Swaps, principally interest rate, used in the asset and liability management
process are accounted for on the accrual basis with revenues or expenses recognizedrec-
ognized as adjustments to income or expense on the underlying linked assets or
liabilities.
Gains and losses associated with interest rate futures and forward contracts
used as effective hedges of existing risk positions or anticipated transactionstransac-
tions are deferred as an adjustment to the carrying value of the related asset
or liability and recognized in income over the remaining term of the related
asset or liability.
Risk management instruments used to hedge or modify the interest rate characteristicschar-
acteristics of debt securities classified as available-for-sale are carried at
fair value with unrealized gains or losses deferred as a component of shareholders'share-
holders' equity, net of tax.
To manage interest rate risk, the Corporation also uses interest rate option
products, primarily purchased caps and floors. Interest rate caps and floors
are agreements where, for a fee, the purchaser obtains the right to receive
interest payments when a variable interest rate moves above or below a specifiedspeci-
fied cap or floor rate, respectively. Such instruments are primarily linked to
long-term debt, short-term borrowings and pools of similar residential mortgages.mort-
gages. The Corporation also purchases options to protect the value of certain
assets, principally MSR, against changes in prepayment rates. Option premiums
are amortized over the option life on a straight-line basis. Such contracts
are designated as hedges, and gains or losses are recorded as adjustments to
the carrying value of the MSR, which are then subjected to impairment valuations.valua-
tions.
70
The Corporation also utilizes forward delivery contracts and options to
reduce the interest rate risk inherent in mortgage loans held for sale and the
commitments made to borrowers for mortgage loans which have not
62
been funded.
These financial instruments are considered in the Corporation's lower of cost
or market valuation of its mortgage loans held for sale.
The Corporation has made investments in a number of operations in foreign
countries. Certain assets and liabilities of these operations are often denominateddenom-
inated in foreign currencies, which exposes the Corporation to foreign currencycur-
rency risks. To qualify for hedge accounting, a foreign exchange contract must
reduce risk at the level of the specific transaction. Realized and unrealized
gains and losses on instruments that hedge firm commitments are deferred and
included in the measurement of the subsequent transaction; however, losses are
deferred only to the extent of expected gains on the future commitment. RealizedReal-
ized and unrealized gains and losses on instruments that hedge net foreign
capital exposure are recorded in shareholders' equity as foreign currency
translation adjustments and included in accumulated other comprehensive income
(loss).
Risk management instruments generally are not terminated. When terminations
do occur, gains or losses are recorded as adjustments to the carrying value of
the underlying assets or liabilities and recognized as income or expense over
either the remaining expected lives of such underlying assets or liabilities
or the remaining life of the instrument. In circumstances where the underlying
assets or liabilities are sold, any remaining carrying value adjustments and
the cumulative change in value of any open positions are recognized immediatelyimmedi-
ately as a component of the gain or loss on disposition of such underlying
assets or liabilities. If a forecasted transaction to which a risk management
instrument is linked fails to occur, any deferred gain or loss on the instrumentinstru-
ment is recognized immediately in income.
Earnings Per Common Share
Earnings per common share for all periods presented is computed by dividing
net income, reduced by dividends on preferred stock, by the weighted average
number of common shares issued and outstanding. Diluted earnings per common
share is computed by dividing net income available to common shareholders,
adjusted for the effect of assumed conversions, by the weighted average number
of common shares issued and outstanding and dilutive potential common shares,
which include convertible preferred stock and stock options. Dilutive potentialpoten-
tial common shares are calculated using the treasury stock method.
Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are
recorded based on the functional currency of each entity. For the majority of
the foreign operations, the functional currency is the local currency, in
which case the assets, liabilities and operations are translated, for consolidationconsoli-
dation purposes, at current exchange rates from the local currency to the
reporting currency, the U.S. dollar. The resulting gains or losses are
reported as a component of accumulated other comprehensive income (loss)
within shareholders' equity on a net-of-tax basis. When the foreign entity is
not a free-standing operation or is in a hyperinflationary economy, the functionalfunc-
tional currency used to measure the financial statements of a foreign entity
is the U.S. dollar. In these instances, the resulting gains and losses are
included in income.
Recently Issued Accounting Pronouncements
In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for DerivativeDeriva-
tive Instruments and Hedging Activities" (SFAS 133). This standard as amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of Effective Date of Financial Accounting
Standards Board Statement No. 133," and Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an amendment of FASB Statement No. 133" was effective for
the Corporation as of January 1, 2001. SFAS 133 requires all derivative
instruments to be recognized as either assets or liabilities and measured at
their fair values. In addition, SFAS 133 providesallows special hedge accounting for
fair value, cash flow and foreign currency hedges,some types of transactions provided that certain criteria are met. PursuantAt the date
of initial application, the Corporation recorded certain transition adjust-
ments as required by SFAS 133. The estimated impact of such transition adjust-
ments to net income is a loss of $52 million (net of related income tax bene-
fit of $31 million) and a net transition gain of $9 million (net of related
income taxes of $5 million) in other comprehensive income on January 1, 2001.
Further, the initial adoption of SFAS 133 is estimated to result in the Corpo-
ration recognizing $577 million of derivative assets and $514 million of
derivative liabilities on the balance sheet. These transition amounts are sub-
ject to the final outcome of several pending Financial Accounting Standards
Board (FASB) conclusions surrounding the implementation of SFAS 133. The Cor-
poration expects that the adoption of SFAS 133 will increase the volatility of
reported earnings and other comprehensive income. In general, the amount of
volatility is based on amounts, positions and market conditions that exist
during any period.
71
In 2000, the FASB issued Statement of Financial Accounting Standards No.
137,140, "Accounting for Derivative InstrumentsTransfers and Hedging Activities -- Deferral of
Effective DateServicing of Financial Accounting Standards BoardAssets and Extin-
guishments of Liabilities - a replacement of FASB Statement No. 133",125" (SFAS
140). SFAS 140 is effective for transfers occurring after March 31, 2001 and
for disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. The December 31, 2000 consoli-
dated financial statements include the Corporation isdisclosures required to adopt the standard on or before January 1, 2001.
Upon adoption, all hedging relationships must be designated and documented
pursuant to the provisions of the statement.by SFAS 140. The
Corporation is in the process
ofcurrently evaluating the impact of SFAS 140; however, at this
statement on its risk management strategies
and processes, information systems and financial statements.
In 1999,time, the Federal Financial Institutions Examination Council issued The
Uniform Classification and Account Management Policy (the Policy) which updated
and expanded the classification of delinquent retail credits. The Policy
provides guidance for banks on the treatment of delinquent open-end and
close-end loans. The Corporation is required to implement the Policy by
December 31, 2000. The Corporation does not expect the adoption of this PolicySFAS 140 to have a material impact on
its results of operations or financial condition.
63
In 1999, the Federal Financial Institutions Examinations Council (FFIEC)
issued The Uniform Classification and Account Management Policy (the Policy)
which provides guidance and promotes consistency among banks on the treatment
of consumer delinquent and bankruptcy-related loans. The Corporation imple-
mented the Policy during the fourth quarter of 2000. Charge-offs of $104 mil-
lion were recorded in the consumer loan portfolio in the fourth quarter of
2000 in order to comply with the Policy.
Note Two - Merger-Related ActivityAcquisition and Merger Activities
At December 31, 1999,2000, the Corporation operated its banking activities primarilypri-
marily under two charters: Bank of America, National Association (Bank of
America, N.A.) and Bank of America, N.A.
(USA). On September 1, 2000, Bank of America Community Development Bank,
National Association changed its name to Bank of America California, National
Association. On March 31, 1999, NationsBank of Delaware, N.A. merged with and
into Bank of America, N.A. (USA), a national association headquartered in
Phoenix, Arizona (formerly known as Bank of America National Association),
which operates the Corporation's credit card business. On April 1, 1999, the
mortgage business of BankAmerica transferred to NationsBanc Mortgage Corporation.Corpora-
tion. On December 1, 1999, NationsBanc Mortgage Corporation merged with and
into BA Mortgage, LLC, a Delaware limited liability company and a Bank of
America, N.A. subsidiary. On April 8, 1999, the Corporation merged Bank of
America Texas, N.A. into NationsBank, N.A. On July 5, 1999, NationsBank, N.A.
changed its name to Bank of America, N.A. On July 23, 1999, Bank of America,
N.A. merged into Bank of America National Trust and Savings Association (Bank
of America NT&SA), and the surviving entity of that merger changed its name to
Bank of America, N.A. On December 1, 1999, Bank of America FSB, a federal savingssav-
ings bank formerly headquartered in Portland, Oregon, was converted into a
national bank and merged into Bank of America, N.A.
On September 30, 1998, the Corporation completed the Merger. As a result of
the Merger, each outstanding share of BankAmerica common stock was converted
into 1.1316 shares of the Corporation's common stock, resulting in the net
issuance of approximately 779 million shares of the Corporation's common stock
to the former BankAmerica shareholders. Each share of NationsBank common stock
continued as one share in the combined company's common stock. In addition,
approximately 88 million options to purchase the Corporation's common stock
were issued to convert stock options granted to certain BankAmerica employees.
This transaction was accounted for as a pooling of interests. Under this
method of accounting, the recorded assets, liabilities, shareholders' equity,
income and expense of NationsBank and BankAmerica have been combined and
reflected at their historical amounts. NationsBank's total assets, total
deposits and total shareholders' equity on the date of the Merger were approximatelyapprox-
imately $331.9 billion, $166.8 billion and $27.7 billion, respectively.
BankAmerica's total assets, total deposits and total shareholders' equity on
the date of the Merger amounted to approximately $263.4 billion, $179.0 billionbil-
lion and $19.6 billion, respectively.
In connection with the Merger, the Corporation recorded apre-tax merger
charges of $525 million ($358 million after-tax) in 1999 and $1,325 million
pre-tax merger-related charge
($960 million after-tax) in 1998. Of the $525 million in 1999, $200 million
($145 million after-tax) and $325 million ($213 million after-tax) were
recorded in the second and fourth quarters, respectively. Of the $1,325 mil-
lion in 1998, of which $725 million ($519 million after-tax) and $600 million ($441
million after-tax) were recorded in the third and fourth quarters, respective-
ly. The total pre-tax charge for 1999 consisted of 1998, respectively.approximately $219 million
primarily of severance, change in control and other employee-related costs,
$187 million of conversion and related costs including occupancy, equipment
and customer communication expenses, $128 million of exit and related costs
and a $9 million reduction of other merger costs. The total pre-tax charge for
1998 consisted of approximately $740 million primarily of severance, change in
control and other employee-related costs, $150 million of conversion and
related costs including occupancy and equipment expenses (primarily lease exit
costs and the elimination of duplicate facilities and other capitalized
assets) and customer communication expenses, $300 million of exit and related
costs and $135 million of other merger costs (including legal, investment
banking and filing fees).
In 1999, the Corporation also recorded a pre-tax merger-related charge of
$525 million ($358 million after-tax) in connection with the Merger of which
$200 million ($145 million after-tax) and $325 million ($213 million after-tax)
were recorded in the second and fourth quarters of 1999, respectively. The
total pre-tax charge for 1999 consisted of approximately $219 million primarily
of severance, change in control and other employee-related costs, $187 million
of conversion and related costs including occupancy, equipment and customer
communication expenses, $128 million of exit and related costs and a $9 million
reduction of other merger costs.72
Total severance, change in control and other employee-related costs includedinclude
amounts related to job eliminations of former associates offrom BankAmerica and
NationsBank impacted by the Merger. Through December 31, 1999,2000, approximately
12,60013,800 employees had entered the severance process. Employee-related costs of
the Merger were principally in overlapping functions, operations and businessesbusi-
nesses of the Corporation. Approximately one-third ofThe BankAmerica merger reserve balance was $300
million and $842 million at December 31, 1999 and 1998, respectively. During
1999, the employee-related merger costs was attributableamount charged to expense and added to the Corporation's staffreserve was $525 million.
There was no such amount charged during 2000. Cash payments applied to the
reserve in 2000 and operations areas while1999 were approximately $216 million and $841 million,
respectively. Non-cash reductions applied to the business segments accounted for thereserve in 2000 and 1999 were
$52 million and $226 million, respectively. The remaining employee-related merger costs.
64
The following tables summarize the activity in the BankAmerica
merger-related reserve during 1999 and 1998:
BankAmerica Merger-Related Reserve
- -------------------------------------------------
Noncash
Balance, Amount Cash Payments Reductions Balance,
January 1, Included in Applied to Applied to December 31,
(Dollars in millions) 1999 Expense Reserve Reserve 1999
- ----------------------------------- ------------- ----------------- ------------------- ---------------- ---------------
Severance, change in control
and other employee-related costs $487 $ 219 $(588) $ -- $118
Conversion and related costs 143 187 (62) (133) 135
Exit and related costs 194 128 (183) (93) 46
Other merger costs 18 (9) (8) -- 1
- ----------------------------------- ---- -------- ------- ----- ----
Total $842 $ 525 $(841) $(226) $300
=================================== ==== ======= ====== ===== ====
Noncash
Balance, Amount Cash Payments Reductions Balance,
January 1, Included in Applied to Applied to December 31,
(Dollars in millions) 1998 Expense Reserve Reserve 1998
- ----------------------------------- ---------- ----------- ------------- ---------- ------------
Severance, change in control
and other employee-related costs $ -- $ 740 $(155) $ (98) $487
Conversion and related costs -- 150 (3) (4) 143
Exit and related costs -- 300 (62) (44) 194
Other merger costs -- 135 (117) -- 18
- ----------------------------------- ---- ---------- -------- ------- ----
Total $ -- $1,325 $(337) $(146) $842
=================================== ==== ========== ======== ======= ====
bal-
ance was $32 million at December 31, 2000.
On January 9, 1998, the Corporation completed the Barnett merger. Barnett's
total assets, total deposits and total shareholders' equity on the date of the
merger were approximately $46.0 billion, $35.4 billion and $3.4 billion,
respectively. As a result of the Barnett merger, each outstanding share of
Barnett common stock was converted into 1.1875 shares of the Corporation's
common stock, resulting in the net issuance of approximately 233 million commoncom-
mon shares to the former Barnett shareholders. In addition, approximately 11
million options to purchase the Corporation's common stock were issued to convertcon-
vert stock options granted to certain Barnett employees. This transaction was
also accounted for as a pooling of interests.
In connection with the Barnett merger, the Corporation incurred a pre-tax
merger-related charge during the first quarter of 1998 of approximately $900
million ($642 million after-tax), which consisted of approximately $375 millionmil-
lion primarily in severance and change in control payments, $300 million of
conversion and related costs including occupancy and equipment expenses (primarily(pri-
marily lease exit costs and the elimination of duplicate facilities and other
capitalized assets), $125 million of exit costs related to contract terminationstermina-
tions and $100 million of other merger costs (including legal, investment
banking and filing fees). In the second quarter of 1998, the Corporation recognizedrec-
ognized a $430 million ($277 million after-tax) gain resulting from the regulatoryregu-
latory required divestitures of certain Barnett branches. At December 31, 1999,
substantiallySubstantially all of
the Barnett merger-related reserves have been utilized.
Through December 31, 1999, approximately 2,400 employees had entered the
severance process as a result of the Barnett merger.
As previously disclosed, NationsBank, BankAmerica and Barnett merged in
separate transactions accounted for as pooling of interests. The following
table summarizes the impact of the BankAmerica and Barnett mergers on the
Corporation's net interest income, noninterest income and net income for 1997,
the period prior to the respective mergers:
65
(Dollars in millions) 1997
- ----------------------- --------------------------------------
Net Interest Noninterest Net
Income Income Income
-------------- ------------- ---------
NationsBank $ 7,898 $ 5,002 $3,077
BankAmerica 8,669 6,012 3,210
Barnett 1,840 971 255
- ----------------------- ------- ------- ------
Total $18,407 $11,985 $6,542
======================= ======= ======= ======
The amounts presented above represent results of operations of the
previously separate companies and do not reflect reclassifications of certain
revenue and expense items which were made to conform to the reporting policies
of the Corporation.
On October 1, 1997,Effective January 2, 2001, the Corporation completedacquired the acquisitionremaining 50 percent
of Montgomery Securities, Inc., anMarsico Capital Management LLC (Marsico) for a total investment banking and institutional brokerage
firm. The purchase price consisted of $840 million in cash and approximately
5.3 million unregistered shares of the Corporation's common stock for an
aggregate amount of approximately $1.1
billion. The Corporation accounted for
this acquisition asacquired the first 50 percent in 1999. Marsico is a
purchase.
On October 1, 1997,Denver-based investment management firm specializing in large capitalization
growth stocks.
Note Three - Productivity and Investment Initiatives
As part of its productivity and investment initiatives announced on July 28,
2000, the Corporation also acquired Robertson, Stephens &
Company Group, LLC (Robertson Stephens), an investment bankingrecorded a pre-tax restructuring charge of $550 million
($346 million after-tax) in 2000 which is included in merger and investment
management firm. The acquisition was accounted for as a purchase. The
Corporation soldrestructuring
charges in the investment banking operationsConsolidated Statement of Robertson Stephens on
August 31, 1998Income. As part of these initiatives
and sold the investment management operations on February 26,
1999.
On January 7, 1997,in order to reallocate resources, the Corporation completedannounced that it would
eliminate 9,000 to 10,000 positions, or six to seven percent of its workforce,
over a twelve-month period. Of the acquisition of Boatmen's
Bancshares, Inc. (Boatmen's), headquartered in St. Louis, Missouri, resulting
in the issuance of approximately 195$550 million sharesrestructuring charge, approxi-
mately $475 million will be used to cover severance and related costs and $75
million will be used for other costs related to process change and channel
consolidation. Over half of the Corporation's commonseverance and related costs are related to
management positions which were eliminated in a review of span of control and
management structure. The restructuring charge includes severance and related
payments for 8,300 positions, which are company-wide and across all levels.
The difference between the 8,300 positions and the 10,000 positions initially
announced is expected to come from normal attrition. Through December 31,
2000, there were approximately 6,800 employees who had entered severance sta-
tus as part of these initiatives. The remaining 1,500 positions associated
with the July 2000 growth initiative announcement have been identified, and
the employees in these positions will be notified by June 30, 2001. Cash pay-
ments applied to the restructuring reserve in 2000 were approximately $209
million primarily related to severance costs, and noncash reductions were $48
million, primarily related to restricted stock valuedvesting accelerations. The
remaining restructuring reserve balance was $293 million at $9.4 billion on the dateDecember 31, 2000.
Approximately $132 million of the acquisition and aggregate cashremaining restructuring reserve is related
to future payments of $371 million to Boatmen's shareholders. On the date of the
acquisition, Boatmen's total assets and total deposits were approximately $41.2
billion and $32.0 billion, respectively. The Corporation accounted for this
acquisition as a purchase.
In 1996, the Corporation completed the initial public offering of 16.1
million shares of Class A Common Stock of BA Merchant Services, Inc. (BAMS), a
subsidiary of the Corporation. On December 22, 1998, the Corporation and BAMS
signed a definitive merger agreement on which the Corporation agreed to
purchase the remaining BAMS outstanding shares of Class A Common Stock it did
not own. On April 28, 1999, BAMS became a wholly-owned subsidiary of Bank of
America, N.A. and each outstanding share of BAMS common stock other than the
shares owned by the Corporation was converted into the right to receive a cash
payment equal to $20.50 per share without interest, or $339.2 million.
66employees who have entered severance status.
73
Note ThreeFour - Securities
The amortized cost, gross unrealized gains and losses, and fair value of
available-for-sale securities and held-for-investmentheld-to-maturity securities at December 31, 2000, 1999
and 1998 and 1997 were:
- -------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ------------------------------------------------- ------------ ------------- ------------- --------------------------------------------------------------------------------------
Available-for-sale securities
2000
U.S. Treasury securities and agency
debentures $17,318 $ 12 $ 520 $16,810
Mortgage-backed securities 37,745 54 372 37,427
Foreign sovereign securities 4,252 7 108 4,151
Other taxable securities 4,786 6 104 4,688
- ----------------------------------------------------------------------------
Total taxable 64,101 79 1,104 63,076
Tax-exempt securities 1,541 43 9 1,575
- ----------------------------------------------------------------------------
Total $65,642 $122 $1,113 $64,651
- ----------------------------------------------------------------------------
1999
U.S. Treasury securities and agency
debentures $ 30,085$30,085 $ -- $ 1,800 $ 28,285$1,800 $28,285
Mortgage-backed securities 43,673 21 1,709 41,985
Foreign sovereign securities 4,607 16 256 4,367
Other taxable securities 4,985 -- 29 4,956
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total taxable 83,350 37 3,794 79,593
Tax-exempt securities 2,135 21 102 2,054
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total $ 85,485$85,485 $ 58 $ 3,896 $ 81,647
================================================= ========== =========== =========== ========$3,896 $81,647
- ----------------------------------------------------------------------------
1998
U.S. Treasury securities and agency
debentures $ 17,355$17,355 $ 52 $ 157 $ 17,250$17,250
Mortgage-backed securities 51,259 567 36 51,790
Foreign sovereign securities 5,693 25 138 5,580
Other taxable securities 2,293 76 32 2,337
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total taxable 76,600 720 363 76,957
Tax-exempt securities 1,636 68 71 1,633
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total $ 78,236 $ 788$78,236 $788 $ 434 $ 78,590
================================================= ========== =========== =========== ========
1997
U.S. Treasury securities and agency debentures $ 10,614 $ 268 $ 6 $ 10,876
Mortgage-backed securities 36,256 363 30 36,589
Foreign sovereign securities 10,797 43 96 10,744
Other taxable securities 2,271 13 3 2,281$78,590
- ------------------------------------------------- ---------- ----------- ----------- --------
Total taxable 59,938 687 135 60,490
Tax-exempt securities 1,661 58 -- 1,719
- ------------------------------------------------- ---------- ----------- ----------- --------
Total $ 61,599 $ 745 $ 135 $ 62,209
================================================= ========== =========== =========== ========----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(Dollars in millions) Cost Gains Losses Value
- ------------------------------------------------ ---------- ----------- ----------- --------
Held-for-investment----------------------------------------------------------------------------
Held-to-maturity securities
2000
U.S. Treasury securities and agency
debentures $ 39 $ -- $ -- $ 39
Mortgage-backed securities 66 -- -- 66
Foreign sovereign securities 800 5 69 736
Other taxable securities 27 -- -- 27
- ----------------------------------------------------------------------------
Total taxable 932 5 69 868
Tax-exempt securities 255 11 1 265
- ----------------------------------------------------------------------------
Total $ 1,187 $ 16 $ 70 $ 1,133
- ----------------------------------------------------------------------------
1999
U.S. Treasury securities and agency
debentures $ 87 $ -- $ -- $ 87
Mortgage-backed securities 106 -- -- 106
Foreign sovereign securities 902 -- 157 745
Other taxable securities 26 -- 2 24
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total taxable 1,121 -- 159 962
Tax-exempt securities 301 11 4 308
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total $ 1,422 $ 11 $ 163 $ 1,270
================================================= ========== =========== =========== ========- ----------------------------------------------------------------------------
1998
U.S. Treasury securities and agency
debentures $ 478 $ 1 $ -- $ 479
Mortgage-backed securities 203 -- -- 203
Foreign sovereign securities 914 1 168 747
Other taxable securities 29 2 -- 31
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total taxable 1,624 4 168 1,460
Tax-exempt securities 373 20 -- 393
- ------------------------------------------------- ---------- ----------- ----------- ------------------------------------------------------------------------------------
Total $ 1,997 $ 24 $ 168 $ 1,853
================================================= ========== =========== =========== ========
1997
U.S. Treasury securities and agency debentures $ 516 $ 1 $ 1 $ 516
Mortgage-backed securities 2,408 43 3 2,448
Foreign sovereign securities 1,448 61 39 1,470
Other taxable securities 56 9 4 61
- ------------------------------------------------- ---------- ----------- ----------- --------
Total taxable 4,428 114 47 4,495
Tax-exempt securities 394 17 1 410
- ------------------------------------------------- ---------- ----------- ----------- --------
Total $ 4,822 $ 131 $ 48 $ 4,905
================================================= ========== =========== =========== ========----------------------------------------------------------------------------
6774
The expected maturity distribution and yields (computed on a taxable-equivalenttaxable-equiva-
lent basis) of the Corporation's securities portfolio at December 31, 19992000 are
summarized below. Actual maturities may differ from contractual maturities or
maturities shown below since borrowers may have the right to prepay obligationsobliga-
tions with or without prepayment penalties.
- -------------------------------------------------------------------------------
Due after 1 Due after 5
Due in 1
year through Due after 5
Due after 1 5 through 10 Due after
or less years years ------------------- --------------------- ---------------------10 years Total
------------ ------------- ------------- ------------- -------------
(Dollars in millions) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------- -------- ---------- ---------- ---------- ---------- ----------------------------------------------------------------------------------------------------------------
Fair value of available-for-sale
securities
U.S. Treasury securities and agency
debentures $114 5.56% $19,625 5.06% $ 8,286 5.01%
Mortgage-backed securities 332 6.80 15,086 6.49 21,809 6.17
Foreign sovereign securities 13 4.97 1,876 7.34 310 4.27
Other taxable securities 92 6.74 3,011 9.51 1,499 6.30
- ------------------------------------- ---- ---- ------- ---- ------- ----
Total taxable 551 6.49 39,598 6.05 31,904 5.86
Tax-exempt securities 33 6.83 216 6.93 668 7.29
- ------------------------------------- ---- ---- ------- ---- ------- ----
Total $584 6.51% $39,814 6.06% $32,572 5.88%
===================================== ==== ==== ======= ==== ======= ====
Amortized cost of available-for-sale
securities $572 $41,050 $31,890
===================================== ==== ======= =======
Amortized cost of held-for-
investmentavailable-for-
sale securities
U.S. Treasury securities
and agency debentures $ 86 5.60%335 5.20% $ 8,500 4.68% $ 7,570 4.49% $ 405 5.62% $16,810 4.63%
Mortgage-backed securities 256 7.03 11,080 6.40 19,927 6.24 6,164 6.31 37,427 6.30
Foreign sovereign securities 1,242 6.16 1,400 6.28 508 4.23 1,001 7.38 4,151 6.26
Other taxable securities 58 6.74 2,949 8.49 1,188 6.91 493 6.35 4,688 7.85
- ------------------------------------------------------------------------------------------------------
Total taxable 1,891 6.13 23,929 6.04 29,193 5.78 8,063 6.41 63,076 5.97
Tax-exempt securities 60 6.77 285 7.50 655 7.41 575 7.80 1,575 7.55
- ------------------------------------------------------------------------------------------------------
Total $1,951 6.15% $24,214 6.06% $29,848 5.81% $ 8,638 6.50% $64,651 6.01%
- ------------------------------------------------------------------------------------------------------
Amortized cost of available-
for-sale securities $1,955 $24,395 $26,759 $12,533 $65,642
- ------------------------------------------------------------------------------------------------------
Amortized cost of held-to-
maturity securities
U.S. Treasury securities and
agency debentures $ 38 7.30% $ -- --% $ 1 6.61%7.69% $ -- --% $ 39 7.31%
Mortgage-backed securities 31 6.20 15 6.38 60 6.233 7.14 54 6.80 -- -- 9 6.80 66 6.81
Foreign sovereign securities 10 8.93 23 7.65 3 7.49 29 6.66 5 5.956.73 764 7.31 800 7.34
Other taxable securities -- -- -- -- -- -- 27 6.64 27 6.64
- ------------------------------------- ---- ---- ------- ---- ------- ----------------------------------------------------------------------------------------------------------
Total taxable 120 5.80 44 6.56 66 6.2151 7.61 77 7.05 4 6.97 800 7.28 932 7.28
Tax-exempt securities 37 9.28 111 9.42 78 8.4132 8.85 94 9.44 69 8.15 60 6.91 255 8.42
- ------------------------------------- ---- ---- ------- ---- ------- ----------------------------------------------------------------------------------------------------------
Total $157 6.62% $ 155 8.61%83 8.09% $ 144 8.24%
===================================== ==== ==== ======= ==== ======= ====171 8.36% $ 73 8.09% $ 860 7.26% $ 1,187 7.52%
- ------------------------------------------------------------------------------------------------------
Fair value of held-for-investment
securities $147 $ 151 $ 93
===================================== ==== ======= =======
Due after
10 years Total
--------------------- ---------------------
(Dollars in millions) Amount Yield Amount Yield
- ------------------------------------- ---------- ---------- ---------- ----------
Fair value of available-for-sale
securities
U.S. Treasury securities and agency
debentures $ 260 6.32% $28,285 5.07%
Mortgage-backed securities 4,758 6.24 41,985 6.29
Foreign sovereign securities 2,168 5.39 4,367 6.14
Other taxable securities 354 7.90 4,956 8.37
- ------------------------------------- ------- ---- ------- ----
Total taxable 7,540 6.08 79,593 5.98
Tax-exempt securities 1,137 8.01 2,054 7.68
- ------------------------------------- ------- ---- ------- ----
Total $ 8,677 6.33% $81,647 6.02%
===================================== ======= ==== ======= ====
Amortized cost of available-for-sale
securities $11,973 $85,485
===================================== ======= =======
Amortized cost of held-for-
investment securities
U.S. Treasury securities
and agency debentures $ -- --% $ 87 5.61%
Mortgage-backed securities -- -- 106 6.24
Foreign sovereign securities 865 7.88 902 7.83
Other taxable securities 26 6.62 26 6.62
- ------------------------------------- ------- ---- ------- ----
Total taxable 891 7.84 1,121 7.48
Tax-exempt securities 75 7.38 301 8.63
- ------------------------------------- ------- ---- ------- ----
Total $ 966 7.35% $ 1,422 7.73%
===================================== ======= ==== ======= ====
Fair value of held-for-investmentheld-to-
maturity securities $ 87983 $ 1,270
===================================== ======= =======176 $ 76 $ 798 $ 1,133
- ------------------------------------------------------------------------------------------------------
The components of gains and losses on sales of securities for the years
ended December 31, 2000, 1999 and 1998 and 1997 were:
-------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- ---------------------------------------- ------ --------- -------------------------------------------------------------
Gross gains on sales of securities $123 $289 $1,039 $289
Gross losses on sales of securities 98 49 22
18
- ---------------------------------------- ---- ------ ----------------------------------------------------------
Net gains on sales of securities $ 25 $240 $1,017
$271
======================================== ==== ====== ====------------------------------------------------------
During 19992000 and 1997,1999, the Corporation did not sell any held-for-investmentheld-to-maturity
securities. In 1998, the Corporation sold $19.5 million of held-for-investmentheld-to-maturity
securities, resulting in net gains of approximately $2.0 million included
above. The sale resulted from a realignment of the securities portfolio in
connection with the Barnett merger.
Excluding securities issued by the U.S. government and its agencies and corporations,cor-
porations, there were no investments in securities from one issuer that
exceeded 10 percent of consolidated shareholders' equity at December 31, 19992000
or 1998.1999.
The income tax expense attributable to realized net gains on securities
sales was $9 million, $84 million and $363 million in 2000, 1999 and $101 million in 1999, 1998, and 1997,
respectively.
Securities are pledged or assigned to secure borrowed funds, government and
trust deposits and for other purposes. The carrying value of pledged securitiessecuri-
ties was $65.8$40.7 billion and $65.6$65.8 billion at December 31, 2000 and 1999,
respectively.
At December 31, 2000, the valuation allowance for available-for-sale and
1998,
respectively.marketable equity securities included in shareholders' equity reflects
unrealized losses of $560 million, net of related income taxes of $330
75
million, primarily reflecting $991 million of pre-tax net unrealized losses on
available-for-sale securities and $101 million of pre-tax net unrealized gains
on marketable equity securities. At December 31, 1999, the valuation allowance for available-for-sale
securities and marketable equity securities
included in shareholders' equity reflects unrealized losses of $2.5 billion,
net of related income taxes of
68
$1.1 billion, primarily reflecting $3.8 billion
of pre-tax net unrealized losses on available-for-sale securities and $248
million of pre-tax net unrealized gains on marketable equity securities.
At December 31, 1998, the
valuation allowance included in shareholders' equity reflects unrealized gains
of $303 million, net of related income taxes of $216 million, primarily
reflecting pre-tax unrealized gains of $354 million on available-for-sale
securities and $165 million on marketable equity securities. The change in the
valuation allowance was primarily attributable to an upward shift in certain
segments of the U.S. Treasury yield curve during 1999.
Note FourFive - Trading Activities
Trading-Related IncomeRevenue
Trading account profits and fees represent the net amount earned from the Corporation'sCorpora-
tion's trading positions, includingwhich include trading account assets and liabilities
as well as derivative-dealer positions. These transactions include positions
to meet customer demand and positionsas well as for the Corporation's own trading account.
Trading positions are taken in a diverse range of financial instruments and
markets. The profitability of these trading positions is largely dependent on
the volume and type of transactions, the level of risk assumed, and the volatilityvola-
tility of price and rate movements. Trading account profits, and fees, as reported in
the Corporation's consolidated statementConsolidated Statement of income,Income, includes neither the net interest recognizedrecog-
nized on interest-earning and interest-bearing trading positions, nor the
related funding.funding charge or benefit. Trading account profits and fees, as well as trading-related
net interest income ("trading-related revenue") are presented in the table
below as they are both considered in evaluating the overall profitability of
the Corporation's trading positions. Trading-related revenue is derived from
foreign exchange spot, forward and cross-currency contracts, debtfixed income and
equity securities and derivative contracts in interest rates, equities, credit
and commodities.
---------------------------------------------------------
(Dollars in millions) 2000 1999 1998
- --------------------------------------------------------
--------- ---------
Trading account profits and fees - as reported $1,830 $1,495 $ 171
Net interest income 6621,028 653 608
- -------------------------------------------------------- ------ ------
Total trading-related revenue $2,157$2,858 $2,148 $ 779
- -------------------------------------------------------- ------ ------
Trading-related revenue by product
Foreign exchange contracts $ 570524 $ 569 $ 617
Interest rate contracts 533698 567 172
Fixed income 499360 444 (256)
Equities 503and equity derivatives 1,203 501 184
Commodities and other 5273 67 62
- -------------------------------------------------------- ------ ------
Total trading-related revenue $2,157$2,858 $2,148 $ 779
======================================================== ====== ======--------------------------------------------------------
6976
Trading Account Assets and Liabilities
The fair value of the components of trading account assets and liabilities
at December 31, 2000 and 1999 and 1998 and the average fair value for the years ended
December 31, 1999 and 1998 were:
- -------------------------------------------------------------------------------
Fair Value
Average Fair Value
-------------------- ----------------------------------
(Dollars in millions) 2000 1999
1998 1999 1998
- -------------------------------------------------------------------- --------- ---------- --------- ---------------------------------------------------------------------------------------
Trading account assets
U.S. Treasury securities $ 6,7932,651 $ 7,854 $ 6,492 $ 9,8026,793
Securities of other U.S. Government agencies and corporations 5,640 3,554 524 1,589 841
Certificates of deposit, bankers' acceptances and commercial
paper 2,729 3,039 2,723 2,637 2,746
Corporate debt 2,819 2,993 1,666 2,246 2,428
Foreign sovereign debt 11,646 9,532 11,774 11,070 13,241
Mortgage-backed securities 3,962 6,748 7,489 8,039 4,802
Equity securities 6,363 2,856
4,476 4,599 1,970
Other securities7,231 2,945
3,096 2,534 3,944
- -------------------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------
Total $43,041 $38,460
$39,602 $39,206 $39,774
==================================================================== ======= ======= ======= =======- ------------------------------------------------------------------------------
Trading account liabilities
U.S. Treasury securities $10,747 $ 8,414
$ 8,534 $ 5,761 $ 8,538
Corporate debt 2,416 -- 82 -- 833
Foreign sovereign debt 1,928 3,490 3,166 2,679 3,192
Equity securities 5,681 7,840
1,481 5,710 459
Other securities175 1,214
907 1,308 4,450
- -------------------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------
Total $20,947 $20,958
$14,170 $15,458 $17,472
==================================================================== ======= ======= ======= =======- ------------------------------------------------------------------------------
The net change in the valuation allowance for unrealized gains or losses
related to trading account assets held at December 31, 1999 and 1998 was
included in the income statement as trading account profits and fees and
amounted to gains of $2.6 billion and $1.7 billion for 1999 and 1998,
respectively.
See Note ElevenThirteen on page 7987 for additional information on derivative-dealer
positions, including credit risk.
7077
Note FiveSix - Loans and Leases
Loans and leases at December 31, 2000 and 1999 and 1998 were:
- -------------------------------------------------------------------------------
2000 1999
1998
--------------------- --------------------------------------
(Dollars in millions) Amount Percent Amount Percent
- ----------------------------------- ----------- --------- ----------- ------------------------------------------------------------------------------
Commercial - domestic $146,040 37.2% $143,450 38.7% $137,422 38.5%
Commercial - foreign 31,066 7.9 27,978 7.5 31,495 8.8
Commercial real estate - domestic 26,154 6.7 24,026 6.5 26,912 7.5
Commercial real estate - foreign 282 .1 325 .1
301 .1
- ----------------------------------- -------- ----- -------- -------------------------------------------------------------------------
Total commercial 203,542 51.9 195,779 52.8
196,130 54.9
- ----------------------------------- -------- ----- -------- -------------------------------------------------------------------------
Residential mortgage 84,394 21.5 81,860 22.1 73,608 20.6
Home equity lines 21,598 5.5 17,273 4.7 15,653 4.4
Direct/Indirect consumer 40,457 10.3 42,161 11.4
40,510 11.3
Consumer finance 25,800 6.6 22,326 6.0
15,400 4.3
Bankcard 14,094 3.6 9,019 2.4
12,425 3.5
Foreign consumer 2,308 .6 2,244 .6
3,602 1.0
- ----------------------------------- -------- ----- -------- -------------------------------------------------------------------------
Total consumer 188,651 48.1 174,883 47.2
161,198 45.1
- ----------------------------------- -------- ----- -------- -------------------------------------------------------------------------
Total loans and leases $392,193 100.0% $370,662 100.0%
$357,328 100.0%
=================================== ======== ===== ======== =====- --------------------------------------------------------------------
The following table presents the recorded investment in specific loans that
were considered individually impaired in accordance with SFAS 114 at December
31, 19992000 and 1998:1999:
-----------------------------------------------
(Dollars in millions) 2000 1999
1998
- ------------------------------------- --------- ---------------------------------------------------
Commercial - domestic $2,891 $1,133 $ 796
Commercial - foreign 521 503 314
Commercial real estate - domestic 412 449
554Commercial real estate - ------------------------------------- ------ ------foreign 2 --
-------------------------------------------
Total impaired loans $3,826 $2,085
$1,664
===================================== ====== ======-------------------------------------------
The average recorded investment in certain impaired loans for the years
ended December 31, 2000, 1999 1998 and 19971998 was approximately $3.0 billion, $2.0
billion $1.6
billion and $1.4$1.6 billion, respectively. At December 31, 19992000 and 1998,1999, the
recorded investment on impaired loans requiring an allowance for credit losses
was $1.1$2.1 billion and $876 million,$1.1 billion, and the related allowance for credit losses
was $370$640 million and $326$370 million, respectively. For the years ended December
31, 2000, 1999 1998 and 1997,1998, interest income recognized on impaired loans totaled
$174 million, $84 million $50 million and $80$50 million, respectively, all of which was recognizedrec-
ognized on a cash basis.
At December 31, 2000, 1999 1998 and 1997,1998, nonperforming loans, including certain
loans which were considered impaired, totaled $5.2 billion, $3.0 billion and
$2.5 billion, and $2.1 billion, respectively. In addition, $124 million of loans included in
other assets in the Consolidated Balance Sheet as of December 31, 2000 would
have been classified as nonperforming had they been included in loans. The net
amount of interest recorded during each year on loans that were classified as
nonperforming or restructured at December 31, 2000, 1999 and 1998 and 1997 was $237
million in 2000, $123 million in 1999 and $130 million in both 1998 and 1997.1998. If these loans
had been accruing interest at their originally contracted rates, related
income would have been $666 million, $419 million and $367 million in 2000,
1999 and $349 million in 1999, 1998, and 1997, respectively.
Foreclosed properties amounted to $249 million, $163 million and $282 million and $309
millionmil-
lion at December 31, 2000, 1999 1998 and 1997,1998, respectively. The cost of carrying
foreclosed properties amounted to $12 million, $13 million and $16 million in
2000, 1999 and $26 million in
1999, 1998, and 1997, respectively.
7178
Note SixSeven - Allowance for Credit Losses
The table below summarizes the changes in the allowance for credit losses on
loans and leases for 2000, 1999 1998 and 1997:1998:
---------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- ------------------------------------------------------------- ------- ------- ----------------------------------------------------------------------
Balance, January 1 $ 7,122 $ 6,778 $ 6,316
- ------------------------------------------------------------- ------- ------- -------$6,828 $7,122 $6,778
---------------------------------------------------------------
Loans and leases charged off (2,995) (2,582) (3,050) (2,603)
Recoveries of loans and leases previously
charged off 595 582 583
751
- ------------------------------------------------------------- ------- ------- ----------------------------------------------------------------------
Net charge-offs (2,400) (2,000) (2,467)
(1,852)
- ------------------------------------------------------------- ------- ------- ----------------------------------------------------------------------
Provision for credit losses 2,535 1,820 2,920
1,904
Other, net (125) (114) (109)
410
- ------------------------------------------------------------- ------- ------- ----------------------------------------------------------------------
Balance, December 31 $ 6,828 $ 7,122 $ 6,778
============================================================= ======= ======= =======$6,838 $6,828 $7,122
---------------------------------------------------------------
Note SevenEight - Securitizations
At December 31, 2000, key economic assumptions used in measuring the fair
value of retained interests in securitizations and the sensitivity of the cur-
rent fair value of residual cash flows to changes in those assumptions are as
follows:
- -------------------------------------------------------------------------------
December 31, 2000
-----------------------------------
Commercial-- Consumer
(Dollars in millions) Domestic Bankcard Finance(/1/)
- -------------------------------------------------------------------------------
Carrying amount of retained interests (at
fair value) $113.4 $183.8 $ 717.6
Weighted-average remaining life (in years) 1.74 2.27 3.29
Revolving structures - annual payment rate 25.0 % 14.8 %
Amortizing structures - annual constant
prepayment rate:
Fixed rate loans 8.7 - 25.0%
Adjustable rate loans 32.0%
Impact on fair value of 100 bps favorable
change 0.1 5.6 9.9
Impact on fair value of 200 bps favorable
change 0.2 11.8 21.4
Impact on fair value of 100 bps adverse
change (0.1) (4.7) (8.1)
Impact on fair value of 200 bps adverse
change (0.2) (9.3) (14.5)
Expected credit losses(/2/) 0.5 % 6.1 % 1.1 - 10.6%
Impact on fair value of 10% favorable
change 0.4 13.8 23.6
Impact on fair value of 25% favorable
change 0.9 34.5 59.4
Impact on fair value of 10% adverse
change (0.4) (13.8) (23.1)
Impact on fair value of 25% adverse
change (0.9) (34.5) (56.9)
Residual cash flows discount rate (annual
rate) 7.5 % 7.5 % 13.9 - 16.0%
Impact on fair value of 100 bps favorable
change 0.4 0.4 13.9
Impact on fair value of 200 bps favorable
change 0.7 0.7 28.7
Impact on fair value of 100 bps adverse
change (0.4) (0.4) (13.0)
Impact on fair value of 200 bps adverse
change (0.7) (0.7) (25.3)
- -------------------------------------------------------------------------------
(1) Consumer finance includes closed end home equity loan and manufactured
housing loan securitizations.
(2) Annual rates of expected credit losses are presented for commercial - do-
mestic and bankcard securitizations. Cumulative lifetime rates of expected
credit losses (incurred plus projected) are presented for the consumer
finance loans.
The above sensitivities are hypothetical and should be used with caution. As
the amounts indicate, changes in fair value based on variations in assumptions
generally cannot be extrapolated because the relationship of the change in
assumption to the change in fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption. In
reality, changes in one factor may result in changes in another, which might
magnify or counteract the sensitivities.
79
At December 31, 2000, the Corporation had retained interests of $2.7 billion
in securities backed by prime mortgage assets. These retained interests are
valued monthly using key economic assumptions of 15 percent constant prepay-
ment rate and an 85 basis point discount margin. The sensitivities to changes
in the assumptions used in measuring the fair value are not significant. In
addition, at December 31, 2000, the Corporation had retained $5.1 billion in
securities backed by the Federal National Mortgage Association and Federal
Home Loan Mortgage Corporation resulting from the securitization of mortgage
loans. These retained interests are valued using quoted market values.
Static pool net credit losses include actual incurred plus projected credit
losses divided by the original balance of each securitization pool. At Decem-
ber 31, 2000, static pool net credit losses for consumer finance loans
securitized were 1.18, 1.96, 4.53, 4.54, 6.54, 6.30, and 4.12 percent in 1993,
1994, 1995, 1996, 1997, 1998, and 1999, respectively. Static pool credit
losses shown for each year are weighted averages for all securitizations
transacted during that year. No consumer finance securitizations were trans-
acted in 2000.
For revolving securitizations, the table below summarizes certain cash flows
received from and paid to securitization trusts in 2000:
- ---------------------------------------------------------------------------
Year ended
December 31, 2000
---------------------
Commercial--
(Dollars in millions) Domestic Bankcard
- ---------------------------------------------------------------------------
Proceeds from collections reinvested in revolving
securitizations $19,732 $21,247
Servicing fees received 2 --
Other cash flows received on retained interests(/1/) 53 767
- ---------------------------------------------------------------------------
(1) Other cash flows represents amounts received on retained interests by the
transferor other than servicing fees (e.g., cash flows from interest-only
strips).
Portfolio balances, historical loss and delinquency amounts for the managed
loan and lease portfolio for the year ended December 31, 2000 were as follows:
- --------------------------------------------------------------------------------------------
December 31, 2000 Year ended December 31, 2000
-------------------------------- ---------------------------------
Principal Amount
Total Principal of Loans Average
Amount of Past Due 90 Loans and Loans and Net Loss
Loans and Days or More or Leases Leases Net Ratio(/1/)
(Dollars in millions) Leases Nonperforming Outstanding Losses
- --------------------------------------------------------------------------------------------
Commercial - domestic $148,238 $2,918 $151,689 $1,287 .85
Commercial - foreign 31,066 523 29,316 86 .29
Commercial real estate -
domestic 26,154 252 25,878 13 .05
Commercial real estate -
foreign 282 2 304 (2) n/m
- --------------------------------------------------------------------------------------------
Total commercial 205,740 3,695 207,187 1,384 .67
- --------------------------------------------------------------------------------------------
Residential mortgage 87,479 574 94,659 27 .03
Home equity lines 21,598 33 19,492 20 .10
Direct/Indirect consumer 41,116 104 42,379 376 .89
Consumer finance 32,967 1,612 32,436 407 1.26
Bankcard 22,830 358 20,222 944 4.66
Foreign consumer 2,308 9 2,223 3 .13
- --------------------------------------------------------------------------------------------
Total consumer 208,298 2,690 211,411 1,777 .84
- --------------------------------------------------------------------------------------------
Total managed loans and
leases 414,038 $6,385 418,598 $3,161 .76
- --------------------------------------------------------------------------------------------
Securitized loans 21,845 25,976
- --------------------------------------------------------------------------------------------
Total held loans and
leases $392,193 $392,622
- --------------------------------------------------------------------------------------------
n/m = not meaningful
(1) The net loss ratio is calculated by dividing managed loans and leases net
losses by average managed loans and leases outstanding for each loans and
leases category.
80
Note Nine - Deposits
At December 31, 1999,2000, the Corporation had domestic certificates of deposit
of $100 thousand or greater totaling $32.7$33.3 billion compared to $27.3$32.7 billion
at December 31, 1998.1999. The Corporation had $19.6$17.7 billion of domestic certificatescertifi-
cates of deposit maturing within three months, $5.5$6.9 billion maturing within
three to six months, $4.0$4.7 billion maturing within six to twelve months and
$3.6$4.0 billion maturing after twelve months at December 31, 1999.2000. The CorporationCorpora-
tion had other domestic time deposits of $100 thousand or greater totaling
$843$866 million and $887$843 million at December 31, 19992000 and 1998,1999, respectively. At
December 31, 1999,2000, the Corporation had $197$128 million of other domestic time
deposits maturing within three months, $103$95 million maturing within three to
six months, $116$141 million maturing within six to twelve months and $427$502 million
maturing after twelve months. Foreign office certificates of deposit and other
time deposits of $100 thousand or greater totaled $43.3$39.4 billion and $40.8 billion$43.3 bil-
lion at December 31, 19992000 and 1998,1999, respectively.
At December 31, 1999,2000, the scheduled maturities for time deposits were as
follows:
---------------------------------------------------------
(Dollars in
millions)
- ------------------------------------------
Due in 2000 $111,342
Due in 2001 9,361$121,835
Due in 2002 3,6369,181
Due in 2003 9332,075
Due in 2004 9341,038
Due in 2005 2,152
Thereafter 2,020
- ----------------------- --------417
-------------------
Total $128,226
======================= ========$136,698
-------------------
7281
Note EightTen - Short-Term Borrowings and Long-Term Debt
The contractual maturities of long-term debt at December 31, 19992000 and 19981999
were:
- ------------------------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------------------------------- -----------
Various
Various Fixed-RateFixed- Floating-Rate
1998Rate Debt Debt Amount Amount
(Dollars in millions) Obligations(1) Obligations(1)Obligations(/1/) Obligations(/1/) Outstanding Outstanding
- ---------------------------------------------------------- ---------------- ---------------- ------------- ------------------------------------------------------------------------------------------------
Parent company
Senior debt:
Due in 19992000 $ -- $ -- $ -- $ 2,628
Due in 2000 488 1,725 2,213 2,213
Due in 2001 671 3,430673 3,428 4,101 4,0014,101
Due in 2002 130 2,932133 3,155 3,288 3,062 2,285
Due in 2003 499 2,0732,292 2,791 2,572 2,578
Due in 2004 -- 3,853 3,853 3,822
3,822 1,290Due in 2005 150 2,922 3,072 1,465
Thereafter 320 4,344 4,664 2,775246 4,613 4,859 3,199
- ---------------------------------------------------------- ------- ------- ------- -------
2,108 18,326------------------------------------------------------------------------------------
1,701 20,263 21,964 20,434
17,770
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Subordinated debt:
Due in 19992000 -- -- -- 680
Due in 2000 411 -- 411 411
Due in 2001 1,312 30 1,342 1,342
Due in 2002 2,199 26 2,225 2,225
Due in 2003 1,711 323 2,034 2,034
Due in 2004 650 -- 650 800
-- 800 1,000Due in 2005 1,085 60 1,145 1,144
Thereafter 5,146 3,470 8,616 8,2494,421 5,265 9,686 7,472
- ---------------------------------------------------------- ------- ------- ------- -------
11,579 3,849------------------------------------------------------------------------------------
11,378 5,704 17,082 15,428
15,941
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Total parent company
long-term debt 13,687 22,17513,079 25,967 39,046 35,862
33,711
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Bank and other
subsidiaries
Senior debt:
Due in 19992000 -- -- -- 4,011
Due in 2000 47 7,627 7,674 4,558
Due in 2001 48 3,919476 13,134 13,610 3,967 1,297
Due in 2002 96 2,20016 6,001 6,017 2,296 393
Due in 2003 498 253520 1,763 2,283 751 702
Due in 2004 833 3,14010 4,018 4,028 3,973 11
Thereafter 106 94 200 166
- ---------------------------------------------------------- ------- ------- ------- -------
1,628 17,233 18,861 11,138
- ---------------------------------------------------------- ------- ------- ------- -------
Subordinated debt:
Due in 1999 -- -- -- --2005 10 1,650 1,660 10
Thereafter 95 167 262 190
- ------------------------------------------------------------------------------------
1,127 26,733 27,860 18,861
- ------------------------------------------------------------------------------------
Subordinated debt:
Due in 2000 -- -- -- --
Due in 2001 200 -- 200 227200
Due in 2002 -- -- -- --
Due in 2003 100 -- 100 104100
Due in 2004 300 -- 300 300
Due in 2005 -- -- -- --
Thereafter -- 8 8 8
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
600 8 608 639608
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Total bank and other
subsidiaries long-term
debt 2,228 17,2411,727 26,741 28,468 19,469
11,777
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Total parent company,
bank and other
subsidiaries long-term
debt $15,915 $39,416$14,806 $52,708 67,514 55,331
45,488
- ---------------------------------------------------------- ------- ------- ------- -------------------------------------------------------------------------------------------
Notes payable to finance
the purchase of leased
vehicles 2 54
279- ------------------------------------------------------------------------------------
Obligations under capital
leases 31 101
121
- ---------------------------------------------------------- ------- -------------------------------------------------------------------------------------------
Total long-term debt $67,547 $55,486
$45,888
========================================================== ======= =======- ------------------------------------------------------------------------------------
(1) Fixed-rate and floating-rate classifications of long-term debt include
the effect of interest rate swap contracts.
7382
The majority of the floating rates are based on three- and six-month London
InterBank Offered Rates (LIBOR). At December 31, 1999,2000, the interest rates on
floating-rate long-term debt, as classified in the table on the previous page,
ranged from 4.84 percent to 8.64 percent compared to 5.38 percent to 8.12 percent compared to 4.75
percent to 7.07 percentper-
cent at December 31, 1998.1999. These obligations were denominated primarily in
U.S. dollars. The interest rates on fixed-rate long-term debt ranged from 5.16
percent to 12.50 percent and 4.50 percent to 12.50 percent at December 31,
2000 and 1999, and 1998.
In 1999, all commercial paper back-up linesrespectively.
Bank of credit expired or were
terminated at the option of the Corporation. At December 31, 1998, the
Corporation had commercial paper back-up lines of credit totaling $2.7 billion,
of which there were no amounts outstanding.
TheAmerica Corporation had the authority to issue approximately $19.3$13.8
billion and $9.4$19.3 billion of corporate debt and other securities under its
existing shelf registration statements at December 31, 2000 and 1999, respec-
tively. Subsequent to December 31, 2000, Bank of America Corporation filed a
$3 billion shelf registration statement to be used exclusively for "retail
targeted" offerings of InterNotesSM in the United States.
Bank of America, N.A. maintains a domestic program to offer up to a maximum
of $50.0 billion, at any one time, of bank notes with fixed or floating rates
and 1998, respectively.
Thematurities ranging from seven days or more from date of issue. Short-term
bank notes outstanding under this program totaled $14.5 billion at December
31, 2000 compared to $15.2 billion at December 31, 1999. These short-term bank
notes, along with Treasury tax and loan notes and term federal funds pur-
chased, are reflected in other short-term borrowings in the Consolidated Bal-
ance Sheet. Long-term debt under current and former programs totaled $17.6
billion at December 31, 2000 compared to $10.1 billion at December 31, 1999.
Bank of America Corporation and Bank of America, N.A. maintain a joint Euro
medium-term note program to offer up to $15.0$20.0 billion of senior, or in the
case of theBank of America Corporation, subordinated notes exclusively to non-Unitednon-
United States residents. The notes bear interest at fixed-fixed or floating-ratesfloating rates
and may be denominated in U.S. dollars or foreign currencies. TheBank of America
Corporation uses foreign currency contracts to convert certain foreign-denominatedforeign-denomi-
nated debt into U.S. dollars. TheBank of America Corporation's notes outstanding
under this program totaled $4.5
billion and $3.7$5.2 billion at December 31, 19992000 compared to $4.5
billion at December 31, 1999. Bank of America, N.A.'s notes outstanding under
this program totaled $1.4 billion at December 31, 2000. Bank of America, N.A.
had no notes outstanding under this program at December 31, 1999. Of the $20.0
billion authorized at December 31, 2000, Bank of America Corporation and 1998,Bank
of America, N.A. had remaining authority to issue approximately $4.8 billion
and $8.6 billion, respectively. At December 31, 2000 and 1999, $2.7 billion
and 1998, $3.3 billion, and $3.5 billion, respectively, of
notes were outstanding under the former BankAmerica
Euro medium-term note program, which was terminated in connection with the Merger.program. No additional debt securities will be offered
under that program.
At December 31, 2000, Bank of America N.A. maintainsCorporation had the authority to issue
$300 billion in yen-denominated notes (approximately U.S. $3 billion) under a
programshelf registration statement in Japan to offer upbe used exclusively for primary
offerings to $35.0 billion of
bank notes from time to time with fixed- or floating-rates and maturities
ranging from seven days or more from date of issue.non-United States residents. In addition, Bank of America N.A.'s
long-term debtCorpo-
ration allocated $2 billion of the joint Euro medium-term note program men-
tioned above to be used exclusively for secondary offerings to non-United
States residents for a shelf registration statement filed in Japan. The Corpo-
ration had no notes outstanding under the current and formerthese programs totaled $10.1 billion and
$7.9 billion at December 31, 1999 and 1998, respectively. At December 31, 1999,
short-term bank notes outstanding totaled $15.2 billion. At December 31, 1998,
short-term bank notes outstanding under current and former programs totaled
$14.7 billion. These short-term bank notes, along with Treasury tax and loan
notes and term federal funds purchased are reflected in other short-term
borrowings in the consolidated balance sheet.2000.
Through a limited purpose subsidiary, the Corporation had $4.0$1.5 billion and
$2.5$4.0 billion of mortgage-backed bonds outstanding at December 31, 19992000 and
1998,1999, respectively. These bonds were collateralized by $6.8$4.5 billion and $4.0$6.8
billion of mortgage loans and cash at December 31, 2000 and 1999, and 1998, respectively.respective-
ly.
As part of its interest rate risk management activities, the Corporation
enters into interest rate contracts for certain long-term debt issuances. At
December 31, 19992000 and 1998,1999, through the use of interest rate swaps, $13.3
billion$16.7 bil-
lion and $8.8$13.3 billion of fixed-rate debt, with rates ranging primarily from
5.30 percent to 8.57 percent, had been effectively converted to floating rates
primarily at spreads to LIBOR.
Through the use of interest rate options, the Corporation has the right to
purchase interest rate caps to hedge its risk on floating-rate debt against a
rise in interest rates. At December 31, 1999,2000, the interest rate options had a
notional amount of approximately $1.6$1.2 billion compared to $3.4$1.6 billion at
December 31, 1998. In addition, the Corporation entered into other interest
rate contracts, primarily futures, with notional amounts of approximately $802
million at December 31, 1998, to reduce its interest rate risk by shortening
the repricing profile on floating-rate debt that reprices within one year.
There were no such other interest rate contracts at
December 31, 1999.
Including the effects of interest rate contracts for certain long-term debt
issuances, the weighted average effective interest rates for total long-term
debt, total fixed-rate debt and total floating-rate debt (based on the rates
in effect at December 31, 1999)2000) were 6.607.00 percent, 7.547.51 percent and 6.23 percent,6.84 per-
cent, respectively, at December 31, 19992000 and (based on the rates in effect at
December 31, 1998)1999) were 6.116.60 percent, 7.737.54 percent, and 5.246.23 percent, respectively,respec-
tively, at December 31, 1998.1999. These obligations were denominated primarily in
U.S. dollars.
7483
As described below, certain debt obligations outstanding at December 31,
19992000 may be redeemed prior to maturity at the option of the Corporation:Bank of America Corpo-
ration:
-------------------------------------------------------------------
Amount Outstanding
Year Redeemable Year of Maturities (Dollars in millions)
- ------------------------ -------------------- -----------------------------------------------------------------------------------------
Currently Redeemable 2001 - 2027 $ 765
2000$1,766
2001 - 2011 1,593
2001 - 2002 2003 - 2028 1,5301,001
2002 - 2003 2005 - 2023 1,499
2004 - 2008 20052007 - 2028 675
======================== ==================== ======90
-------------------------------------------------------------------
Note NineEleven - Trust Preferred Securities
Trust preferred securities are Corporation obligated mandatorily redeemable
preferred securities of subsidiary trusts holding solely junior subordinated
deferrable interest notes of the Corporation.
Since October 1996, the Corporation has formed thirteen wholly-owned grantor
trusts to issue trust preferred securities to the public. The grantor trusts
have invested the proceeds of such trust preferred securities in junior subordinatedsubor-
dinated notes of the Corporation. Certain of the trust preferred securities
were issued at a discount. Such trust preferred securities may be redeemed
prior to maturity at the option of the Corporation. The sole assets of each of
the grantor trusts are the Junior Subordinated Deferrable Interest Notes of
the Corporation (the Notes) held by such grantor trusts. Each issue of the
Notes has an interest rate equal to the corresponding trust preferred securitiessecuri-
ties distribution rate. The Corporation has the right to defer payment of
interest on the Notes at any time or from time to time for a period not
exceeding five years provided that no extension period may extend beyond the
stated maturity of the relevant Notes. During any such extension period, distributionsdis-
tributions on the trust preferred securities will also be deferred and the
Corporation's ability to pay dividends on its common and preferred stock will
be restricted.
The trust preferred securities are subject to mandatory redemption upon
repayment of the related Notes at their stated maturity dates or their earlier
redemption at a redemption price equal to their liquidation amount plus
accrued distributions to the date fixed for redemption and the premium, if
any, paid by the Corporation upon concurrent repayment of the related Notes.
Payment of periodic cash distributions and payment upon liquidation or
redemption with respect to trust preferred securities are guaranteed by the
Corporation to the extent of funds held by the grantor trusts (the Preferred
Securities Guarantee). The Preferred Securities Guarantee, when taken together
with the Corporation's other obligations, including its obligations under the
Notes, will constitute a full and unconditional guarantee, on a subordinated
basis, by the Corporation of payments due on the trust preferred securities.
The Corporation is required by the FRBFederal Reserve Board to maintain certain
levels of capital for bank regulatory purposes. The FRBFederal Reserve Board has
determined that certain cumulative preferred securities having the characteristicscharacter-
istics of trust preferred securities qualify as minority interest, which is
included in Tier 1 capital for bank and financial holding companies. Such Tier
1 capital treatment provides the Corporation with a more cost-effective means
of obtaining capital for bank regulatory purposes than if the Corporation were
to issue preferred stock.
7584
The following table is a summary of the outstanding trust preferred securitiessecuri-
ties and the Notes at December 31, 19992000 and 1998:1999:
- -------------------------------------------------------------------------------------------------------------------------------
Aggregate
Principal
Amount of
Trust Preferred Per
Securities Aggregate -------------------Annum
----------------- Principal Stated Interest Interest
Issuance December 31, 19992000 Amount of Maturity of Rate of Payment
(Dollars in millions) Date and 19981999 the Notes the Notes the Notes Dates Redemption Period
- ------------------------- --------------- ------------------- ------------------------------------------------------------------------------------------------------------------------------------------
NationsBank
Capital Trust I December 1996 $ 600 $ 619 Capital Trust II December 1996 365 376
Capital Trust III February 1997 500 516
Capital Trust IV April 1997 500 516
BankAmerica
Institutional Capital A November 1996 450 464
Institutional Capital B November 1996 300 309
Capital I December 1996 300 309
Capital II December 1996 450 464
Capital III January 1997 400 412
Capital IV February 1998 350 361
Barnett
Capital I November 1996 300 309
Capital II December 1996 200 206
Capital III January 1997 250 258
Total $ 4,965(13) $5,119
========================= =========== ======
Per
Annum
Stated Interest Interest
Maturity of Rate of Payment Redemption
(Dollars in millions) the Notes the Notes Dates Period
- ------------------------- ------------------ --------------- ------------- -----------------------
NationsBank
Capital Trust I December 2026 7.84% 3/31,6/30, On or after
9/30,12/31 12/31/01(1)01(/1/)
Capital Trust II December 1996 365 376 December 2026 7.83 6/15,12/15 On or after
12/15/06(2,4)06(/2/,/4/)
Capital Trust III February 1997 500 516 January 2027 3-mo. LIBOR 1/15,4/15, On or after
+55 bps 7/15,10/15 1/15/07(2)07(/2/)
Capital Trust IV April 1997 500 516 April 2027 8.25 4/15,10/15 On or after
4/15/07(2,6)07(/2/,/6/)
BankAmerica
Institutional Capital ANovember 1996 450 464 December 2026 8.07 6/30,12/31 On or after
Capital A 12/31/06(3,7)06(/3/,/7/)
Institutional Capital BNovember 1996 300 309 December 2026 7.70 6/30,12/31 On or after
Capital B 12/31/06(3,8)06(/3/,/8/)
Capital I December 2026(9)1996 300 309 December 2026(/9/) 7.75 3/31,6/30, On or after
9/30,12/31 12/20/01(5)01(/5/)
Capital II December 1996 450 464 December 2026 8.00 6/15,12/15 On or after
12/15/06(3,10)06(/3/,/10/)
Capital III January 1997 400 412 January 2027 3-mo. LIBOR 1/15,4/15, On or after
+57 bps 7/15,10/15 1/15/02(3)02(/3/)
Capital IV February 1998 350 361 March 2028 7.00 3/31,6/30, On or after
9/30,12/31 2/24/03(3)03(/3/)
Barnett
Capital I November 1996 300 309 December 2026 8.06 6/1,12/1 On or after
12/1/06(2,11)06(/2/,/11/)
Capital II December 1996 200 206 December 2026 7.95 6/1,12/1 On or after
12/1/06(2,12)06(/2/,/12/)
Capital III January 1997 250 258 February 2027 3-mo. LIBOR 2/1,5/1, On or after
+62.5 bps 8/1,11/1 2/1/07(2)
--------- ---------- ----------------07(/2/)
- -------------------------------------------------------------------------------------------------------------------------------
Total =========================$4,965(/13/) $5,119
- -------------------------------------------------------------------------------------------------------------------------------
(1) The Corporation may redeem the Notes prior to the indicated redemption
period upon the occurrence of certain events relating to tax treatment
of the related trust or the Notes, at a redemption price at least equal
to the principal amount of the Notes.
(2) The Corporation may redeem the Notes prior to the indicated redemption
period upon the occurrence of certain events relating to tax treatment
of the related trust or the Notes or relating to capital treatment of
the trust preferred securities or relating to a change in the treatment
of the related trust under the Investment Company Act of 1940, as amended,amend-
ed, at a redemption price at least equal to the principal amount of the
Notes.
(3) The Corporation may redeem the Notes prior to the indicated redemption
period upon the occurrence of certain events relating to tax treatment
of the related trust or the Notes or relating to capital treatment of
the trust preferred securities at a redemption price at least equal to
the principal amount of the Notes.
(4) The Notes may be redeemed on or after December 15, 2006 and prior to
December 15, 2007 at 103.915% of the principal amount, and thereafter at
prices declining to 100% on December 15, 2016 and thereafter.
(5) The Corporation may redeem the Notes (i) during the indicated redemption
period or (ii) upon the occurrence of certain events relating to tax
treatment of the trust or the Notes or relating to capital treatment of
the trust preferred securities, prior to the indicated redemption period,peri-
od, in each case, at a redemption price of 100% of the principal amount.
(6) The Notes may be redeemed on or after April 15, 2007 and prior to April
14, 2008 at 103.85% of the principal amount, and thereafter at prices
declining to 100% on April 15, 2017 and thereafter.
(7) The Notes may be redeemed on or after December 31, 2006 and prior to
December 31, 2007 at 104.0350% of the principal amount, and thereafter
at prices declining to 100% on December 31, 2016 and thereafter.
(8) The Notes may be redeemed on or after December 31, 2006 and prior to
December 31, 2007 at 103.7785% of the principal amount, and thereafter
at prices declining to 100% on December 31, 2016 and thereafter.
(9) At the option of the Corporation, the stated maturity may be shortened
to a date not earlier than December 20, 2001 or extended to a date not
later than December 31, 2045, in each case if certain conditions are
met.
(10) The Notes may be redeemed on or after December 15, 2006 and prior to
December 15, 2007 at 103.9690% of the principal amount, and thereafter
at prices declining to 100% on December 15, 2016 and thereafter.
(11) The Notes may be redeemed on or after December 1, 2006 and prior to
December 1, 2007 at 104.030% of the principal amount, and thereafter at
prices declining to 100% on December 1, 2016 and thereafter.
(12) The Notes may be redeemed on or after December 1, 2006 and prior to
December 1, 2007 at 103.975% of the principal amount, and thereafter at
prices declining to 100% on December 1, 2016 and thereafter.
(13) Excludes $10 and $11 of deferred issuance costs and unamortized discount at both
December 31, 19992000 and 1998, respectively.
761999.
85
Note TenTwelve - Shareholders' Equity and Earnings Per Common Share
On June 23, 1999July 26, 2000, the Corporation's Board of Directors (the Board) autho-
rized a new stock repurchase program of up to 100 million shares of the Corpo-
ration's common stock at an aggregate cost of up to $7.5 billion. On June 23,
1999, the Board authorized the repurchase of up to 130 million shares of the
Corporation's common stock at an aggregate cost of up to $10.0 billion.
In 1999,Through December 31, 2000, the Corporation had repurchased 78a total of approxi-
mately 146 million shares of its common stock in open market repurchases and
under accelerated share repurchase programs at an average per-share price of
$62.28,$55.74 which reduced shareholders' equity by $4.9$8.1 billion. The remaining
buyback authority for common stock under the current2000 program totaled $5.1 billion$6.8 bil-
lion, or 5284 million shares, at December 31, 1999. In 1998 and 1997,2000. There is no remaining
buyback authority for the Corporation also
repurchased 29 million shares and 150 million shares, respectively, of common stock under various stock repurchase programs.
In Octoberthe 1999 the Board of Directors of the Corporation raised the
common dividend for the fourth quarter of 1999 by 11 percent to $0.50 per share
from $0.45 per share.program.
Other shareholders' equity consisted of restricted stock award plan deferred
compensation of $340$114 million and $74$340 million, as well as a loan to the ESOP
trust of $47$32 million and $58$47 million at December 31, 2000 and 1999, respec-
tively. In September 1999, the Corporation began selling put options on its
common stock to independent third parties. The put option program was designed
to partially offset the cost of share repurchases. The put options give the
holders the right to sell shares of the Corporation's common stock to the Cor-
poration on certain dates at specified prices. The put option contracts allow
the Corporation to determine the method of settlement, and 1998,
respectively. At December 31, 1999,the premiums
received are reflected as a component of other shareholders' equity reflected $48equity. At Decem-
ber 31, 2000, there were three million put options outstanding with $20 mil-
lion of premiums received on written put options.
On June 29, 1998, BankAmerica redeemed alloptions and $52 million of its remaining outstanding
nonconvertible preferred shares.premium
reversals on written put options due to the exercise of the contracts. The Corporation's Preferred Stock atput
option exercise prices range from $45.22 to $50.37 per share and expire from
January 2001 to April 2001. At December 31, 1997, included BankAmerica's1999, there were seven million put
options outstanding preferred stockwith an associated premium of $614$48 million.
These preferred shares were nonvoting except in certain limited circumstances.
The shares were redeemable at the option of BankAmerica during the redemption
period and at the redemption price per share plus accrued and unpaid dividends
to the redemption date. During 1997, BankAmerica redeemed a portion of its
preferred shares for an aggregate of $1.6 billion.
In April 1988, BankAmerica declared a dividend of one preferred share
purchase right (a Right) for each outstanding share of BankAmerica's common
stock pursuant to the Rights Agreement dated April 11, 1988 between BankAmerica
and Manufacturers Hanover Trust Company of California, as rights agent (the
Rights Agreement). Each Right entitled the holder, upon the occurrence of
certain events, to buy from BankAmerica, until the earlier of April 22, 1998 or
the redemption of the Rights, one two-hundredth of a share of Cumulative
Participating Preferred Stock, Series E, at an exercise price of $25.00 per
Right (subject to adjustment). On April 22, 1998, the Rights Agreement expired
in accordance with its terms.
As of December 31, 1999,2000, the Corporation had 1.81.7 million shares issued and
outstanding of employee stock ownership plan (ESOP) Convertible Preferred
Stock, Series C (ESOP Preferred Stock). The ESOP Preferred Stock has a stated
and liquidation value of $42.50 per share, provides for an annual cumulative
dividend of $3.30 per share and each share is convertible into 1.68 shares of
the Corporation's common stock. ESOP Preferred Stock in the amounts of $5 mil-
lion, $6 million $11 million and $86$11 million was converted into the Corporation's common
stock in 2000, 1999 1998 and 1997,1998, respectively.
In November 1989, Barnett incorporated ESOP provisions into its existing
401(k) employee benefit plan (Barnett ESOP). The Barnett ESOP acquired $141
million of common stock using the proceeds of a loan from the Corporation. The
terms of the loan include equal monthly payments of principal and interest
through September 2015. Interest is at 9.75 percent and prepayments of principalprinci-
pal are allowed. The loan is generally being repaid from contributions to the
plan by the Corporation and dividends on unallocated shares held by the BarnettBar-
nett ESOP. Shares held by the Barnett ESOP are allocated to plan participants
as the loan is repaid. At December 31, 1999, 2.4 million2000, there were no shares of unallocatedunallo-
cated common stock remainedremaining in the Barnett ESOP. During 2000, 1999 1998 and 1997,1998,
the Barnett ESOP released and allocated common stock amounting to $32 million,
$15 million and $6 million, and $8 million, respectively.
As consideration in the merger of NationsBank, N.A. (South) and
NationsBank, N.A. during 1997, NationsBank, N.A. exchanged approximately $73
million for preferred stock issued by NationsBank, N.A. (South) in the 1996
acquisition of Citizens Federal Bank, a federal savings bank. Such preferred
stock consisted of approximately 0.5 million shares of NationsBank, N.A.
(South) 8.50% Series H Noncumulative Preferred Stock and approximately 2.4
million shares of NationsBank, N.A. (South) 8.75% Series 1993A Noncumulative
Preferred Stock.
Earnings per common share is computed by dividing net income available to
common shareholders by the weighted average common shares issued and outstanding.outstand-
ing. For diluted earnings per common share, net income available to common
shareholders can be affected by the conversion of the registrant's convertible
preferred 77
stock. Where the effect of this conversion would have been dilutive,
net income available to common shareholders is adjusted by the associated preferredpre-
ferred dividends. This adjusted net income is divided by the weighted average
number of common shares issued and outstanding for each period plus amounts
representing the dilutive effect of stock options outstanding and the dilution
resulting from the conversion of the registrant's convertible preferred stock,
if applicable. The effect of convertible preferred stock is excluded from the
computation of diluted earnings per common share in periods in which the
effect would be antidilutive.
86
The calculation of earnings per common share and diluted earnings per common
share for 2000, 1999 1998 and 19971998 is presented below:
- -------------------------------------------------------------------------------
(Shares in thousands; dollarsthousands, Dollars in
millions, except per share information) 2000 1999 1998
1997
- -------------------------------------------------------------------------- ---------------- ------------- -----------------------------------------------------------------------------------------
Earnings per common share
Net income $ 7,517 $ 7,882 $ 5,165 $ 6,542
Preferred stock dividends (6) (6) (25)
(111)
- -------------------------------------------------------------------------- ------------ ---------- --------------------------------------------------------------------------------------
Net income available to common
shareholders $ 7,511 $ 7,876 $ 5,140
$ 6,431
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Average common shares issued and
outstanding 1,646,398 1,726,006 1,732,057
1,733,194
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Earnings per common share $ 4.56 $ 4.56 $ 2.97
$ 3.71
========================================================================== =========== ========== ==========- ----------------------------------------------------------------------------
Diluted earnings per common share
Net income available to common
shareholders $ 7,511 $ 7,876 $ 5,140
$ 6,431
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Preferred stock dividends 6 6 25 111
Preferred stock dividends on
nonconvertible stock -- -- (19)
(104)
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Effect of assumed conversions 6 6 76
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Net income available to common
shareholders and assumed conversions $ 7,517 $ 7,882 $ 5,146
$ 6,438
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Average common shares issued and
outstanding 1,646,398 1,726,006 1,732,057
1,733,194
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Incremental shares from assumed conversions:conver-
sions:
Convertible preferred stock 2,926 3,006 3,290
3,736
Stock options 15,605 31,046 40,413
45,242
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Dilutive potential common shares 18,531 34,052 43,703
48,978
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Total dilutive average common shares
issued and outstanding 1,664,929 1,760,058 1,775,760
1,782,172
- -------------------------------------------------------------------------- ----------- ---------- --------------------------------------------------------------------------------------
Diluted earnings per common share $ 4.52 $ 4.48 $ 2.90
$ 3.61
========================================================================== =========== ========== ==========- ----------------------------------------------------------------------------
78
Note ElevenThirteen - Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of
off-balance sheet commitments. These commitments expose the Corporation to
varying degrees of credit and market risk and are subject to the same credit
and risk limitation reviews as those recorded on the balance sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit, standby letters of
credit (SBLC) and commercial letters of credit to meet the financing needs of
its customers. The commitments shown below have been reduced by amounts collateralizedcol-
lateralized by cash and amounts participated to other financial institutions.
The following table summarizes outstanding commitments to extend credit at
December 31, 19992000 and 1998:1999:
- -------------------------------------------------------------------------------
(Dollars in millions) 2000 1999
1998
- ---------------------------------------------------- ---------- -------------------------------------------------------------------------------
Credit card commitments $ 67,39471,572 $ 67,01867,394
Other loan commitments 243,124 246,827 234,453
Standby letters of credit and financial guarantees 33,420 32,993 33,311
Commercial letters of credit 3,327 3,690
3,035
==================================================== ======== ========- ---------------------------------------------------------------------
Commitments to extend credit are legally binding, generally have specified
rates and maturities and are for specified purposes. The Corporation manages
the credit risk on these commitments by subjecting these commitments to normal
credit approval and monitoring processes and protecting against deterioration
in the borrowers' ability to pay through adverse-change clauses which require
borrowers to maintain various credit and liquidity measures. At December 31,
19992000 and 1998,1999, there were no unfunded commitments to any industry or country
greater than 10 percent of total unfunded commitments to lend. Credit card
lines are unsecured commitments, which are reviewed at least annually by management.man-
agement. Upon evaluation of the customers' creditworthiness, the Corporation
has the right to terminate or change the terms of the credit card lines. Of
the December 31, 19992000 other loan commitments, $94.1$101.7 billion is scheduled to
expire in less than one year, $105.2$99.2 billion in one to five years and $47.5$42.2
billion after five years.
87
SBLC and financial guarantees are issued to support the debt obligations of
customers. If an SBLC or financial guarantee is drawn upon, the Corporation
looks to its customer for payment. SBLCs and financial guarantees are subject
to the same approval and collateral policies as other extensions of credit. At
December 31, 1999,2000, substantially all of the SBLCs and financial guarantees are
scheduled to expire in less than one year.
Commercial letters of credit, issued primarily to facilitate customer trade
finance activities, are collateralized by the underlying goods being shipped
by the customer and are generally short-term.
For each of these types of instruments, the Corporation's maximum exposure
to credit loss is represented by the contractual amount of these instruments.
Many of the commitments are collateralized or are expected to expire without
being drawn upon; therefore, the total commitment amounts do not necessarily
represent risk of loss or future cash requirements.
Derivatives
Derivatives utilized by the Corporation include swaps, financial futures and
forward settlement contracts and option contracts. A swap agreement is a contractcon-
tract between two parties to exchange cash flows based on specified underlying
notional amounts, assets and/or indices. Financial futures and forward settlementsettle-
ment contracts are agreements to buy or sell a quantity of a financial instrument,instru-
ment, index, currency or commodity at a predetermined future date and rate or
price. An option contract is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of a financial
instrument, index, currency or commodity at a predetermined rate or price at a
time or during a period in the future. These option agreements can be transactedtrans-
acted on organized exchanges or directly between parties.
Credit Risk Associated with Derivative Activities
Credit risk associated with derivatives is measured as the net replacement
cost should the counterparties with contracts in a gain position to the CorporationCorpo-
ration completely fail to perform under the terms of those contracts and any
collateral underlying the contracts proves to be of no value. In managing
derivatives credit risk, both
79
the current exposure, which is the replacement
cost of contracts on the measurement date, as well as an estimate of the
potential change in value of contracts over their remaining lives are considered.consid-
ered. In managing credit risk associated with its derivative activities, the
Corporation deals primarily with U.S. and foreign commercial banks, broker-dealersbroker-
dealers and corporates.
During 1999, 1998 and 1997, there were no significant credit losses
associated with derivative contracts. At December 31, 1999 and 1998, there were
no nonperforming derivative positions that were material to the Corporation. To minimize credit risk, the Corporation enters into
legally enforceable master netting agreements, which reduce risk by permitting
the close out and netting of transactions with the same counterparty upon the
occurrence of certain events.
A portion of the derivative-dealer activity involves exchange-traded instruments.instru-
ments. Because exchange-traded instruments conform to standard terms and are
subject to policies set by the exchange involved, including counterparty
approval, margin requirements and security deposit requirements, the credit
risk is minimal.
88
The following table presents the notional or contract amounts at December
31, 19992000 and 19981999 and the credit risk amounts (the net replacement cost of
contracts in a gain position) of the Corporation's derivative-dealer positions
which are primarily executed in the over-the-counter market for trading purposes.pur-
poses. The notional or contract amounts indicate the total volume of transactionstransac-
tions and significantly exceed the amount of the Corporation's credit or marketmar-
ket risk associated with these instruments. The credit risk amounts presented
in the following table do not consider the value of any collateral, but generally take
into consideration the effects of legally enforceable master netting agreements.agree-
ments.
Derivative-Dealer Positions
- -----------------------------------------------------------------
December 31, 19992000 December 31, 1998
------------------------ -----------------------1999
- -----------------------------------------------------------------
Contract/ Credit Contract/ Credit
(Dollars in millions) Notional Risk Notional Risk
- --------------------------------------- ------------- ---------- ------------- --------------------------------------------------------------------------
Interest rate contracts
Swaps $3,256,992 $ 3,236 $2,597,886 $ 5,691 $1,584,317 $ 6,3774,936
Futures and forwards 1,227,537 57 644,795 58 809,231 29050
Written options 560,070664,108 -- 496,570560,070 --
Purchased options 601,828 145 638,517 1,747 640,703 2,4921,515
Foreign exchange contracts
Swaps 61,035 1,424 55,278 1,058 40,069 1,443918
Spot, futures and forwards 682,665 3,215 537,719 3,298 623,977 5,1362,861
Written options 28,45035,161 -- 56,28728,450 --
Purchased options 32,639 380 26,820 424 53,426 703
Commodity and other368
Equity contracts
Swaps 13,078 1,232 5,685 37017,482 637 11,128 904
Futures and forwards 22,496 41 5,292 --61,004 353 21,421 3
Written options 28,86830,976 -- 22,38224,232 --
Purchased options 32,216 4,890 22,134 98936,304 3,670 28,251 4,012
Other contracts
Swaps 9,126 1,902 1,950 165
Futures and forwards 2,098 81 1,075 33
Written options 12,603 -- 4,636 --
Purchased options 10,515 228 3,965 229
Credit derivatives 40,638 206 19,028 70 16,943 6261
- --------------------------------------- ---------- ------- ---------- -------
Total before cross-product netting 18,509 17,862
Cross-product netting 2,454 1,462
- --------------------------------------- ------- ------------------------------------------------------------------------
Net replacement cost $15,534 $16,055
$16,400
======================================= ======= =======- -----------------------------------------------------------------
The table above includes both long and short derivative-dealer positions.
The average fair value of derivative-dealer assets for the years ended DecemberDecem-
ber 31, 2000 and 1999 and 1998 was $16.0$17.9 billion and $14.3$16.0 billion, respectively. The
average fair value of derivative-dealer liabilities for the years ended DecemberDecem-
ber 31, 2000 and 1999 and 1998 was $16.5$19.8 billion and $13.3$16.5 billion, respectively. The
fair value of derivative-dealer assets at December 31, 2000 and 1999 and 1998 was $16.1$15.5
billion and $16.4$16.1 billion, respectively. The fair value of derivative-dealer
liabilities at December 31, 2000 and 1999 and 1998 was $16.2$22.4 billion and $16.8$16.2 billion,
respectively. See Note FourFive on page 6976 for a discussion of trading-related
revenue.
80
During 2000, 1999 and 1998, there were no significant credit losses associ-
ated with derivative contracts. At December 31, 2000 and 1999, there were no
nonperforming derivative positions that were material to the Corporation.
In addition to credit risk management activities, the Corporation uses
credit derivatives to generate revenue by taking on exposure to underlying
credits. The Corporation also provides credit derivatives to sophisticated
customers who wish to hedge existing credit exposures or take on additional
credit exposure to generate revenue. The Corporation's credit derivative positionsposi-
tions at December 31, 19992000 and 19981999 consisted of credit default swaps and
total return swaps.
89
Asset and Liability Management (ALM) Activities
Risk management interest rate contracts and foreign exchange contracts are
utilized in the Corporation's ALM process. Interest rate contracts, which are
generally non-leveraged generic interest rate and basis swaps, options and
futures, allow the Corporation to effectively manage its interest rate risk
position. Generic interest rate swaps involve the exchange of fixed-rate and
variable-rate interest payments based on the contractual underlying notional
amount. Basis swaps involve the exchange of interest payments based on the
contractual underlying notional amounts, where both the pay rate and the
receive rate are floating rates based on different indices. Option products
primarily consist of caps and floors. Interest rate caps and floors are agreementsagree-
ments where, for a fee, the purchaser obtains the right to receive interest
payments when a variable interest rate moves above or below a specified cap or
floor rate, respectively. Futures contracts used for ALM activities are primarilypri-
marily index futures providing for cash payments based upon the movements of
an underlying rate index.
The Corporation uses foreign currency contracts to manage the foreign
exchange risk associated with certain foreign-denominated assets and liabilities,liabili-
ties, as well as the Corporation's equity investments in foreign subsidiaries.
Foreign exchange contracts, which include spot, futures and forward contracts,
represent agreements to exchange the currency of one country for the currency
of another country at an agreed-upon price, on an agreed-upon settlement date.
Foreign exchange option contracts are similar to interest rate option contractscon-
tracts except that they are based on currencies rather than interest rates.
Exposure to loss on these contracts will increase or decrease over their
respective lives as currency exchange and interest rates fluctuate.
The Corporation's credit risk exposure for exchange-traded instruments is
minimal as these instruments conform to standard terms and are subject to policiespol-
icies set by the exchange involved, including counterparty approval, margin
requirements and security deposit requirements.
The following table outlines the notional amount and fair value of the Corporation'sCor-
poration's open and closed ALM contracts at December 31, 19992000 and 1998:1999:
- -------------------------------------------------------------------------------
December 31,
1999 December 31, 1998
------------------------- ------------------------2000 1999
--------------------------
Notional Fair Notional Fair
(Dollars in millions) Amount Value Amount Value
- -------------------------------------------- ---------- -------------- ---------- --------------------------------------------------------------------------------------------
Open interest rate contracts
Receive fixed swaps $ 62,485 $ 900 $63,002 $(1,747) $60,450 $ 1,958
Pay fixed swaps 13,640 (529) 25,701 115
25,770 (1,006)
- -------------------------------------------- ------- ------- ------- --------------------------------------------------------------------------------------
Net open receive fixed 48,845 371 37,301 (1,632)
34,680 952
Basis swaps 14,739 (7) 7,971 (6)
7,736 (10)
- -------------------------------------------- ------- ---------- ------- --------------------------------------------------------------------------------------
Total net swap position 63,584 364 45,272 (1,638)
42,416 942
Option products 22,477 (157) 35,134 5 26,836 (46)
Futures and forwards 24,818 (52) 931 3
6,348 2
- -------------------------------------------- ------- --------- ------- --------------------------------------------------------------------------------------
Total open interest rate contracts(1)contracts(/1/) 155 (1,630)
898
============================================ ========= =======- -------------------------------------------------------------------------------
Closed interest rate contracts
Swap positions 25 174 294
Option products 95 82 26
Futures and forwards (15) (21)
(1)
- -------------------------------------------- --------- -----------------------------------------------------------------------------------------
Total closed interest rate
contracts(2)contracts(/2/) 105 235
319
- -------------------------------------------- --------- ----------------------------------------------------------------------------------------
Net interest rate contract position 260 (1,395)
1,217
- -------------------------------------------- --------- ----------------------------------------------------------------------------------------
Open foreign exchange contracts(1)contracts(/1/) 18,958 (387) 6,231 (30)
3,314 72
- -------------------------------------------- ------- --------- ------- ----------------------------------------------------------------------------------------
Total ALM contracts $ (127) $(1,425)
$ 1,289
============================================ ========= =========- -------------------------------------------------------------------------------
(1) Fair value represents the net unrealized gains (losses) on open contracts.
(2) Represents the unamortized net realized deferred gains associated with
closed contracts.
8190
When Issued Securities
When issued securities are commitments to purchase or sell securities during
the time period between the announcement of a securities offering and the
issuance of those securities. At December 31, 1999,2000, the Corporation had commitmentscom-
mitments to purchase and sell when issued securities of $12.0$26.4 billion and
$16.8$20.6 billion, respectively.
Litigation
In the ordinary course of business, the Corporation and its subsidiaries are
routinely defendants in or parties to a number of pending and threatened legal
actions and proceedings, including actions brought on behalf of various classesclas-
ses of claimants. In certain of these actions and proceedings, substantial
money damages are asserted against the Corporation and its subsidiaries and
certain of these actions and proceedings are based on alleged violations of
consumer protection, securities, environmental, banking and other laws.
The Corporation and certain present and former officers and directors have
been named as defendants in a number of actions filed in several federal
courts that have been consolidated for pretrial purposes before a Missouri
federal court. The amended complaint in the consolidated actions alleges,
among other things, that the defendants failed to disclose material facts
about BankAmerica's losses relating to D.E. Shaw Securities Group, L.P. ("D.E.
Shaw") and related entities until mid-October 1998, in violation of various
provisions of federal and state laws. The amended complaint also alleges that
the proxy statement-prospectus of August 4, 1998, falsely stated that the
Merger would be one of equals and alleges a scheme to have NationsBank gain
control over the newly merged entity. The Missouri federal court has certified
classes consisting generally of persons who were stockholders of NationsBank
or BankAmerica on September 30, 1998, or were entitled to vote on the Merger,
or who purchased or acquired securities of the Corporation or its predecessors
between August 4, 1998 and October 13, 1998. The amended complaint substantiallysubstan-
tially survived a motion to dismiss, and discovery is underway. Claims against
certain director-defendants were dismissed with leave to replead. The court
has preliminarily ordered the parties to be ready for trial by September 2001.
A former NationsBank stockholder who opted out of the federal class action has
recently commenced an action asserting claims substantially similar to the
claims relating to D.E. Shaw set forth in the consolidated action. The Corpo-
ration has moved to consolidate the individual action with the federal class
action. Similar uncertified class actions (including one limited to California residents
raising the claim that the proxy statement-prospectus of August 4, 1998,
falsely stated that the Merger would be one of equals) were filed in CaliforniaCalifor-
nia state court, alleging violations of the California Corporations Code and
other state laws. The action on behalf of California residents was certified
as a class. A lower court order dismissing that action was recently reversed
on appeal, and discovery in that action has commenced. The remaining Califor-
nia actions have been consolidated, but have not been certified as class
actions. The Missouri federal court has since been dismissed and an appeal is pending. Ofenjoined prosecution of those consoli-
dated class actions as a class action. The plaintiffs who were enjoined have
appealed that injunction to the remaining actions, one has been stayed, and a motionUnited States Court of Appeals for class certification is
pending in the others.Eighth
Circuit. The Corporation believes the actions lack merit and will defend them
vigorously. The amount of any ultimate exposure cannot be determined with certaintycer-
tainty at this time.
Management believes that the actions and proceedings and the losses, if any,
resulting from the final outcome thereof, will not be material in the aggregateaggre-
gate to the Corporation's financial position or results of operations.
Note TwelveFourteen - Regulatory Requirements and Restrictions
The Federal Reserve Board requires the Corporation's banking subsidiaries are required to
maintain average
reserve balances with the FRB based on a percentage of certain deposits. Average
reserve balances required by the Federal Reserve Board were $4.1 billion and
$4.2 billion for 2000 and 1999, respectively. Average reserve balances, net of
vault cash held on hand, held with the FRBFederal Reserve Bank to meet thesethe above
requirements amounted to $22$2.6 million and $288$22.3 million for 19992000 and 1998,1999,
respectively.
The primary source of funds for cash distributions by the Corporation to its
shareholders is dividends received from its banking subsidiaries. The subsidiarysubsidi-
ary national banks can initiate aggregate dividend payments in 2000,2001, without
prior regulatory approval, of $2.2$1.7 billion plus an additional amount equal to
their net profits for 2000,2001, as defined by statute, up to the date of any such
dividend declaration. The amount of dividends that each subsidiary bank may
declare in a calendar year without approval by the Office of the Comptroller
of the Currency (OCC) is the subsidiary bank's net profits for that year combinedcom-
bined with its net retained profits, as defined, for the preceding two years.
Regulations also restrict banking subsidiaries in lending funds to
affiliates. At December 31, 1999 and 1998, the total amount which could be
loaned to the Corporation by its banking subsidiaries was approximately $5.6
billion. At December 31, 1999 and 1998, no loans to the Corporation from its
banking subsidiaries were outstanding.91
The FRB,Federal Reserve Board, the OCC, the Federal Deposit Insurance CorporationCorpora-
tion and the Office of Thrift Supervision (collectively, the Agencies) have
issued regulatory capital guidelines for U.S. banking organizations. Failure
to meet the capital requirements can initiate certain mandatory and discretionarydiscre-
tionary actions by regulators that could have a material effect on the Corporation'sCorpo-
ration's financial statements. At December 31, 19992000 and 1998,1999, the Corporation
and
82
each of its banking subsidiaries were well capitalized under this regulatoryregula-
tory framework. There have been no conditions or events since December 31,
19992000 that management believes have changed either the Corporation's or its
banking subsidiaries' capital classifications.
The regulatory capital guidelines measure capital in relation to the credit
and market risks of both on- and off-balance sheet items using various risk
weights. Under the regulatory capital guidelines, Total Capital consists of
three tiers of capital. Tier 1 Capital includes common shareholders' equity
and qualifying preferred stock, less goodwill and other adjustments. Tier 2
Capital consists of preferred stock not qualifying as Tier 1 Capital, mandatorymanda-
tory convertible debt, limited amounts of subordinated debt, other qualifying
term debt and the allowance for credit losses up to 1.25 percent of risk-weightedrisk-
weighted assets. Tier 3 capital includes subordinated debt that is unsecured,
fully paid, has an original maturity of at least two years, is not redeemable
before maturity without prior approval by the FRBFederal Reserve Board and
includes a lock-in clause precluding payment of either interest or principal
if the payment would cause the issuing bank's risk-based capital ratio to fall
or remain below the required minimum. At December 31, 2000 and 1999, and 1998, the CorporationCor-
poration had no subordinated debt that qualified as Tier 3 capital.
In accordance with the FRB's amendment to its capital adequacy guidelines
effective for periods beginning after December 31, 1997, the Corporation is now
required to include its broker/dealer subsidiary, Banc of America Securities
LLC, when calculating regulatory capital ratios. Previously, the Corporation
had been required to exclude the equity, assets and off-balance sheet exposures
of its broker/dealer subsidiary.
To meet minimum, adequately capitalized regulatory requirements, an institutioninstitu-
tion must maintain a Tier 1 Capital ratio of four percent and a Total Capital
ratio of eight percent. A well-capitalized institution must maintain a Tier 1
Capital ratio of six percent and a Total Capital ratio of ten percent. The
risk-based capital rules have been further supplemented by a leverage ratio,
defined as Tier 1 capital divided by average total assets, after certain
adjustments. The leverage ratio guidelines establish a minimum of 100 to 200
basis points above three percent. Banking organizations must maintain a leveragelever-
age capital ratio of at least five percent to be classified as well capitalized.capital-
ized.
The valuation allowance for available-for-sale securities and marketable
equity securities included in shareholders' equity at December 31, 19992000 and
19981999 is excluded infrom the calculations of Tier 1 capital and Tier 1 leverage
ratios.
Effective October 1, 1998, the risk-based capital guidelines were
changed to allow the inclusion of 45% of the pre-tax unrealized gains on equity
securities in the calculation of Tier 2 capital. This change in the risk-based
capital guidelines had an immaterial impact on the Corporation's Tier 2 and
Total Capital ratios.
On September 12, 1996, the Agencies amended their regulatory capital guidelinesguide-
lines to incorporate a measure for market risk. In accordance with the amended
guidelines, the Corporation and any of its banking subsidiaries with significantsignifi-
cant trading activity, as defined in the amendment, must incorporate a measure
for market risk in their regulatory capital calculations effective for reportingreport-
ing periods after January 1, 1998. The revised guidelines have not had a materialmate-
rial impact on the Corporation or its subsidiaries' regulatory capital ratios
or their well-capitalized status.
The following table presents the actual capital ratios and amounts and minimummini-
mum required capital amounts for the Corporation and Bank of America, N.A. at
December 31, 19992000 and 1998:1999:
- --------------------------------------------------------------------------------
2000 1999
1998
---------------------------------- ----------------------------------------------------------------------------
Actual Actual
----------------------------------- Minimum ----------------------------------- Minimum
(Dollars in millions) Ratio Amount Required(1)Required(/1/) Ratio Amount Required(1)Required(/1/)
- ----------------------------- ---------- ---------- ------------ ---------- ---------- --------------------------------------------------------------------------------------------
Tier 1 Capital
Bank of America
Corporation 7.50% $40,667 $21,687 7.35% $38,651 $21,025 7.06% $36,849 $20,866
Bank of America, N.A.(2) 7.72 39,178 20,308 7.78 38,616 19,844 7.72 19,317 10,007
Total Capital
Bank of America
Corporation 11.04 59,826 43,374 10.88 57,192 42,050 10.94 57,055 41,733
Bank of America, N.A.(2) 10.81 54,871 40,616 10.91 54,132 39,688 10.27 25,691 20,014
Leverage
Bank of America
Corporation 6.12 40,667 26,587 6.26 38,651 24,687 6.22 36,849 23,697
Bank of America, N.A.(2) 6.59 39,178 23,771 6.74 38,616 22,922
6.55 19,317 11,805
============================= ===== ======= ======= ===== ======= =======- --------------------------------------------------------------------------------
(1) Dollar amount required to meet the Agencies' guidelines for adequately
capitalized institutions.
(2) Bank of America, N.A.'s ratios and amounts for 1998 have not been restated
to reflect the impact of mergers as discussed in Note 2 of the
consolidated financial statements.
8392
Note ThirteenFifteen - Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors noncontributory trusteed pension plans that cover
substantially all officers and employees. The plans provide defined benefits
based on an employee's compensation, age and years of service. The benefits
become vested upon completion of five years of service. It is the policy of
the Corporation to fund not less than the minimum funding amount required by
ERISA. Individually, BankAmerica, Barnett Banks and NationsBank each sponsored
defined benefit pension plans prior to each of the respective mergers of these
banks.entities. The BankAmerica plan was a cash balance design plan, providing participantspar-
ticipants with compensation credits, based on age and period of service,
applied at each pay period and a defined earnings rate on all participant
account balances in the plan. The NationsBank plan was amended to a cash balancebal-
ance plan effective July 1, 1998 and provides a similar crediting basis for
all participants. The NationsBank plan allows participants to select from variousvar-
ious earnings measures, which are based on the returns of certain funds managedman-
aged by subsidiaries of the Corporation or common stock of the Corporation.
The participant selected earnings measures determine the earnings rate on the
individual participant account balances in the plan. In addition, a one time
opportunity to transfer certain assets from the company'sCorporation's savings plan to
the cash balance plan was extended to NationsBank plan participants. Assets
with an approximate fair value of $1.4 billion were transferred by plan participants.par-
ticipants in 1998. The Barnett plan was amended to merge into the NationsBank
plan and, effective January 1, 1999, to provide the cash balance plan design
feature to those participants. The opportunity to transfer certain savings
plan assets to the cash balance plan was extended to Barnett participants in
1999. Assets with an approximate fair value of $133 million, were transferred
by plan participants. The BankAmerica and NationsBank plans were merged effectiveeffec-
tive December 31, 1998.
However,1998; however, the participants in each plan will retainretained the
cash balance plan design followed by their predecessor plans until the plan
iswas amended in 2000. The Corporation and the BankAmerica 401(k) retirement
plans were combined effective June 30, 2000. With the introduction of the
revised Bank of America retirement plan, qualified employees of the former
BankAmerica Corporation who were currently active had a one-time opportunity
to transfer certain savingsassets in their 401(k) plan account to their Bank of Amer-
ica Pension Plan (the "Pension Plan") account effective August 4, 2000. The
total amount of 401(k) plan assets transferred to the Pension Plan was $1.3
billion. The Pension Plan (which is a cash balance type of pension plan) has a
balance guarantee feature, applied at the time a benefit payment is made from
the plan, will be extended to BankAmerica participants in 2000.that protects the transferred portion of participants' accounts from
future market downturns. The Corporation is responsible for funding any
shortfall on the guarantee feature.
In addition to retirement pension benefits, substantially allfull-time, salaried employees
and certain part-time employees may become eligible to continue participation
as retirees in health care and/or life insurance plans sponsored by the Corporation.Corpo-
ration. Based on the other provisions of the individual plans, certain retireesretir-
ees may also have the cost of these benefits partially paid by the Corporation.
84Corpora-
tion.
93
The following tables summarize the balances and changes in fair value of
plan assets and benefit obligations as of and for the years ended December 31,
19992000 and 1998:1999:
- -------------------------------------------------------------------------------
Postretirement
Pension Plan Health and Life Plans
------------------------- ---------------------------------------------------------------
(Dollars in millions) 2000 1999 19982000 1999
1998
- -------------------------------------------------------- ------------ ------------ ------------ ----------------------------------------------------------------------------------------
Change in fair value of plan assets
(Primarily listed stocks, fixed
income and real estate)
Fair value at January 1 $8,063 $7,660 $5,725$ 202 $ 187 $ 164
Actual return on plan assets (135) 809 8906 16 24
Company contributions -- -- 6563 65
Plan participant contributions -- -- 35 33 28
Acquisition/transfer 1,334 141 1,429 -- --
Benefits paid (610) (547) (384)(98) (99)
(94)
- -------------------------------------------------------- ------ ------ ----- ---------------------------------------------------------------------------------
Fair value at December 31 $8,652 $8,063 $7,660$ 208 $ 202
$ 187
======================================================== ====== ====== ===== =====- ----------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at January 1 $6,377 $4,692 $ 882 $ 930
Service cost 115 144 12 10
Interest cost 433 371 58 61
Plan participant contributions -- -- 33 28
Plan amendments 106 95 (2) 16
Actuarial loss (gain) (380) (66) (48) (67)
Acquisition/transfer 148 1,539 -- --
Effect of curtailments -- (14) -- (2)
Benefits paid (547) (384) (99) (94)
- -------------------------------------------------------- ------ ------ ------- -------
Benefit obligation at December 31 $6,252 $6,377 $ 836 $ 882
======================================================== ====== ====== ======= =======Service cost 153 115 11 12
Interest cost 519 433 58 58
Plan participant contributions -- -- 35 33
Plan amendments 325 106 6 (2)
Actuarial loss (gain) 16 (380) (17) (48)
Acquisition/transfer 1,392 148 -- --
Effect of curtailments (36) -- 9 --
Benefits paid (610) (547) (98) (99)
- ----------------------------------------------------------------------------
Benefit obligation at December 31 $8,011 $6,252 $ 840 $ 836
- ----------------------------------------------------------------------------
Funded status
Overfunded (unfunded) status at
December 31 $ 641 $1,811 $1,283 $(634) $(695)(632) $ (634)
Unrecognized net actuarial gainloss
(gain) 358 (600) (132)(39) (87) (96)
Unrecognized transition obligation
(asset) (2) (6) (9)387 439 473
Unrecognized prior service cost 521 195 10819 12
13
- -------------------------------------------------------- ------- ------- ------- -----------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $1,518 $1,400 $1,250 $(270) $(305)
======================================================== ======= ======= ======= =======($265) $ (270)
- ----------------------------------------------------------------------------
In 2000, a curtailment resulted from employee terminations in connection
with the Corporation's productivity and investment initiatives. See Note Three
on page 73 for additional information on these initiatives.
Prepaid and accrued benefit costs are reflected in other assets and other
liabilities, respectively, in the consolidated balance sheet.Consolidated Balance Sheet.
The following are the weighted average discount rate, expected return on
plan assets and rate of increase in future compensation assumptions used in
determining the actuarial present value of the benefit obligation.
- -------------------------------------------------------------------------------
Pension Postretirement
Pension
Plan Health and Life Plans
----------------------- ---------------------------------------------------------
2000 1999 19982000 1999
1998
---------- ---------- ---------- ----------- -------------------------------------------------------------------------------
Weighted average assumptions at December
31
Discount rate 7.25% 7.50% 7.00%7.25% 7.50% 7.00%
Expected return on plan assets 10.00 10.00 10.00 10.00
Rate of compensation increase 4.00 4.00 N/A N/A
============================================ ===== ===== ===== =====- -------------------------------------------------------------------------------
8594
Net periodic pension benefit cost (income)income for the years ended December 31, 2000,
1999 1998 and 1997,1998, included the following components:
- -------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- --------------------------------------------------------- ----------- ----------- ------------------------------------------------------------------------------------
Components of net periodic pension benefit cost (income)income
Service cost $ 153 $ 115 $ 144
$ 122
Interest cost 519 433 371 320
Expected return on plan assets (813) (713) (552) (434)
Amortization of transition asset (4) (3)(4) (3)
Amortization of prior service cost 38 20 (2) (10)
Recognized net actuarial loss -- 16-- 16
Recognized gain due to settlements and curtailments (11) -- (2)
--
- --------------------------------------------------------- ------- -------- --------------------------------------------------------------------------------
Net periodic pension benefit cost (income)income $(118) $(149) $ (28)
$ 11
========================================================= ======= ======= =======- -------------------------------------------------------------------------
The Corporation usesFor the marketPension Plan, the asset valuation method to recognize pension
plan-related market gains and losses. This method recognizes 60 percent of
the market gains or losses in the first year, with the remaining 40 percent
spread equally over the next four years.
In addition to the trusteed pension plan, the Corporation sponsors a number
of unfunded executive pension plans. The total benefit obligation for these plans as of
December 31, 2000 and 1999 and 1998 was $535$534 million and $386$535 million, respectively.
The net periodic pension expense for these plans in 2000, 1999 and 1998
and 1997 totaled $69 million, $58 million $49 million and $46$49 million, respectively.
For the years ended December 31, 2000, 1999 1998 and 1997,1998, net periodic
postretirement benefit expensecost included the following components:
- -----------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- ------------------------------------------------------- -------- ----------- ---------------------------------------------------------------------------------------
Components of net periodic postretirement benefit cost
Service cost $ 11 $ 12 $ 10
$ 9
Interest cost 58 58 61 62
Expected return on plan assets (20) (19) (14) (12)
Amortization of transition asset 3437 34 34
Amortization of prior service cost (3) -- (1) (2)
Recognized net actuarial gain (45) (54) (10)
(4)
Recognized gainloss (gain) due to settlements and curtailments 20 -- (2)
--
- ------------------------------------------------------- ----- ------- -----------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 58 $ 31 $ 78
$ 87
======================================================= ===== ====== ======- -----------------------------------------------------------------------------
Net periodic postretirement health and life expense was determined using the
"projected unit credit" actuarial method. Gains and losses for all benefits
except postretirement health care are recognized in accordance with the minimummini-
mum amortization provisions of the applicable accounting standards. For the
postretirement health care plans, 50 percent of the unrecognized gain or loss
at the beginning of the fiscal year (or at subsequent remeasurement) is recognizedrecog-
nized on a level basis during the year. Prior to the Merger (and conformance
of accounting methods), BankAmerica used the minimum amortization method for
all plans. Application of the "50 percent" method to cumulative unrecognized
gains in the BankAmerica health care plans at the beginning of the 1999 fiscal
year is the primary reason for the reduction in net periodic postretirement
benefit cost from 1998.
Assumed health care cost trend rates affect the postretirement benefit obligationobli-
gation and benefit cost reported for the health care plan. The assumed health
care cost trend rates for the next year used to measure the expected cost of benefits covered forby
the postretirement health and lifecare plans was 6.25
percent and 6.00six percent for pre-65 benefits2001, reducing in
1999 and 1998, respectively,
and 4.75 percent and 4.50steps to five percent for post-65 benefits in 19992003 and 1998,
respectively.later years. A one percentage point
increase in assumed health care cost trend rates would have increased the
service and interest costs and the benefit obligation by $9 million and $49
million, respectively, in 2000 and $7 million and $62 million, respectively,
in 1999 and $6 million
and $57 million, respectively, in 1998.1999. A one-percentageone percentage point decrease in assumed health care cost trendstrend
rates would have lowered the service and interest costs and the benefit obligationobli-
gation by $7 million and $40 million, respectively, in 2000 and $6 million and
$56 million, respectively, in 1999 and $5 million and $49 million, respectively, in 1998.
861999.
95
Defined Contribution Plans
The Corporation maintains severala qualified defined contribution savings and profit
sharing plansretirement plan
and certain nonqualified defined contribution retirement plans. TwoThere are two
components of the savingsqualified defined contribution retirement plan: an employee
stock ownership plan (ESOP) and profit sharing plans featurea profit-sharing plan. The ESOP component of
the qualified defined contribution retirement plan features leveraged ESOP
provisions. See Note TenTwelve on page 7786 for additional information on the two ESOP
provisions.
ESOP PlansThe Barnett Employee Savings and Thrift Plan merged with and into the Corpo-
ration's Plan effective December 31, 1998. During 1999, the Corporation
offered former Barnett plan participants a one-time opportunity to transfer
certain assets from the savings plan to the Pension Plan (then known as the
cash balance plan). In 1998, the Corporation offered the same opportunity to
former NationsBank plan participants.
Effective June 30, 2000, the BankAmerica 401(k) Investment Plan was merged
with and into the Bank of America 401(k) Plan, formerly known as The
NationsBank 401(k) Plan. During 2000, the Corporation offered former
BankAmerica plan participants a one-time opportunity to transfer certain
assets from the savings plan to the Pension Plan.
The Corporation contributed approximately $20$56 million, $63$191 million, and
$68$238 million for 2000, 1999, 1998, and 1997,1998, respectively, in cash and stock which
was utilized primarily to purchase the Corporation's common stock under the
terms of these plans. At December 31, 19992000 and 1998,1999, an aggregate of
23,776,82046,010,493 shares and 22,997,09654,899,074 shares, respectively, of the Corporation's
common stock and 1,789,2301,684,053 shares and 1,937,7301,789,230 shares, respectively, of ESOP
preferred stock were held by the Corporation's various savings and profit
sharing plans.
As previously discussed, during 1999, the Corporation offered former
Barnett plan participants a one-time opportunity to transfer certain assets
from the savings plan to the cash balance plan. In 1998, the Corporation
offered the same opportunity to former NationsBank plan participants. This
one-time transfer opportunity will be provided to BankAmerica plan participants
in 2000.
Under the terms of the ESOP Preferred Stock provision, payments to the plan
for dividends on the ESOP Preferred Stock were $6 million, $3 million, and $6
million, for 2000, 1999, and $71998, respectively. Payments to the plan for
dividends on the ESOP Common Stock were $16 million, for 1999, 1998,$21 million, and
1997, respectively.$6 million during the same periods. Interest incurred to service the debt of
the ESOP Preferred Stock and ESOP Common Stock amounted to $0.3$3 million, $5
million and $1 million for 2000, 1999 and $2 million for 1999, 1998, and 1997, respectively. This loan was
paid off in June 1999.
The Corporation's ESOP and the Barnett ESOP were combined effective at the
close of business at December 31, 1998.
BankAmerica Plans
Aggregate contributions for all former BankAmerica-related defined
contribution plans were $171 million, $175 million, and $169 million, in 1999,
1998, and 1997, respectively. Certain employer and employee contributions to
the plans are used to purchase the Corporation's common stock at prices that
approximate market values. Contributions, including dividends, to the plans
were used to purchase 816,457 shares for $50 million in 1999, 697,741 shares
for $44 million in 1998, and 598,958 shares for $34 million in 1997. Sales by
the plans of the Corporation's common stock were 1,163,489 for $76 million in
1999, 571,058 for $46 million in 1998, and 528,829 shares for $32 million in
1997. The plans held 31,122,254 shares, 33,186,515 shares, and 34,252,005
shares, of the Corporation's common stock at December 31, 1999, 1998, and 1997,
respectively.
The Corporation maintains certain nonqualified defined contribution
retirement plans for certain employees of the former BankAmerica Corporation.
In addition, certain non-U.S. employees within the Corporation are covered
under defined contribution pension plans that are separately administered in
accordance with local laws.
The Corporation and the BankAmerica retirement plans will be combined
effective July 1, 2000.
87
Note FourteenSixteen - Stock Option Award Plans
At December 31, 1999,2000, the Corporation had certain stock-based compensation
plans (the Plans) which are described below. The Corporation applies the provisionspro-
visions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for its stock option and award plans. In
accordance with Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock Based Compensation," the Corporation has also
elected to provide disclosures as if the Corporation had adopted the fair-valuefair-
value based method of measuring outstanding employee stock options in 2000,
1999 1998 and 19971998 as indicated below:
- ----------------------------------------------------------------------------
As Reported Pro Forma
----------------------------------- ----------------------------------------------------------------------------
(Dollars in millions, except per
share data) 2000 1999 1998 19972000 1999 1998
1997
- ---------------------------------------------- ----------- ----------- ----------- ----------- ----------- ---------------------------------------------------------------------------------------
Net income $ 7,882 $ 5,165 $ 6,542 $ 7,563 $ 4,838 $ 6,254$7,517 $7,882 $5,165 $7,215 $7,563 $4,838
Net income available to common
shareholders 7,511 7,876 5,140 6,4317,209 7,557 4,819 6,143
Earnings per common share 4.56 4.56 2.97 3.714.38 4.38 2.78 3.54
Diluted earnings per common share 4.52 4.48 2.90 3.614.34 4.30 2.71
3.46
============================================== ======== ======== ======== ======== ======== ========- ----------------------------------------------------------------------------
96
In determining the pro forma disclosures above, the fair value of options
granted was estimated on the date of grant using the Black-Scholes option-pricingoption-
pricing model. The Black-Scholes model was developed to estimate the fair
value of traded options, which have different characteristics than employee
stock options, and changes to the subjective assumptions used in the model can
result in materially different fair value estimates. The weighted average
grant-date fair values of the options granted during 2000, 1999 1998 and 19971998 were
based on the following assumptions:
- -------------------------------------------------------------------------------
Risk-Free Dividend Expected
Interest Rates Yield -------------------------------- --------------------------------Lives (Years) Volatility
----------------------------------------------------------------------
2000 1999 1998 19972000 1999 1998 1997
---------- ---------- ---------- ---------- ---------- ----------2000 1999 1998 2000 1999 1998
- ------------------------------------------------------------------------------------------------
Key Employee Stock Plan 6.74% 5.19% 5.64% 6.29%4.62% 2.91% 3.50% 3.50%7 7 7 25.59% 24.91% 22.94%
Take Ownership! 6.57 4.73 N/A N/A4.62 3.06 N/A 4 4 N/A NationsBank 1996 Associates Stock Option
Award Plan30.27 27.67 N/A N/A 6.31 N/A N/A 3.50
Barnett 1997 Employee Stock Option Plan N/A N/A 5.60 N/A N/A 3.50
Barnett Long-Term Incentive Plan N/A N/A 6.33 N/A N/A 3.50
BankAmerica Management
Stock Plan N/A N/A 5.48 6.23N/A N/A 2.62 2.96
BankAmerica PEP Plan N/A N/A 6.234 N/A N/A 2.9628.40
BankAmerica Take
Ownership! N/A 5.58 6.23 N/A 1.83 2.96
========================================= ===== ======== ======== ===== ======== ========
Expected
Lives (Years) Volatility
-------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ----------- ----------- -----------
Key Employee Stock Plan 7 7 7 24.91% 22.94% 27.80%
Take Ownership! 45.58 N/A N/A 27.67 N/A N/A
NationsBank 1996 Associates Stock Option
Award Plan N/A N/A 3 N/A N/A 21.40
Barnett 1997 Employee Stock Option Plan1.83 N/A N/A 1 N/A N/A 24.70
Barnett Long-Term Incentive Plan N/A N/A 6 N/A N/A 34.30
BankAmerica Management Stock Plan N/A 4 4 N/A 28.40 24.50
BankAmerica PEP Plan N/A N/A 7 N/A N/A 24.50
BankAmerica Take Ownership! N/A 1 3 N/A 28.80
24.50
========================================= == == == ====== ========= =========- ------------------------------------------------------------------------------------------------
Compensation expense under the fair-value based method is recognized over
the vesting period of the related stock options. Accordingly, the pro forma
results of applying SFAS 123 in 2000, 1999 1998 and 19971998 may not be indicative of
future amounts.
Key Employee Stock Plan
The Key Employee Stock Plan (KEYSOP), as amended and restated, provides for
different types of awards including stock options, restricted stock and performanceper-
formance shares (or restricted stock units). Under the KEYSOP, ten-year
options to purchase approximately 42.267.0 million shares of common stock have
been granted through December 31, 19992000 to certain employees at the closing
market price on the respective grant dates. Options granted under the KEYSOP
generally vest in three or four equal annual installments. At December 31,
1999,2000, approximately 32.853.1 million options were outstanding under this plan.
Additionally, 10.2 millionapproximately 652,000 shares of restricted stock were granted
during 1999.
These shares of restricted stock generally vest in two or three equal annual
installments beginning one year from the grant date. Additionally, 1.2 million
shares of restricted stock units were granted during 1999. These units
generally vest three or five years from the grant date and are paid in the year
following retirement in cash or common stock or a combination of cash and
common stock.
On January 3, 2000, ten-year options to purchase approximately 20.1
million shares of common stock at $48.4375 per share were granted to certain
employees. On February 1, 2000, ten-year options to purchase approximately 4.1
million shares of common stock at $48.4375 per share were granted to certain
employees. For both grants, options vest in three equal annual installments
beginning one year from the grant date. Additionally, on January 3, 2000, and
February 1, 2000, approximately 241,000 and 331,000 shares, respectively, of
restricted
88
stock were granted to certain employees.2000. These shares of restricted stock generally vest in three equal
annual installments beginning one year from the grant date.
Take Ownership!
On September 23, 1998, the Board of Directors of the Corporation approved Take Ownership! The Bank of AmericaAmer-
ica Global Associate Stock Option Program (Take Ownership!) which covers all
employees below a specified executive grade level. Under the plan, eligible
employees receive an award of a predetermined number of stock options entitlingenti-
tling them to purchase shares of the Corporation's common stock at the fair
market value on the grant date. Options granted on the first business day of
1999 2000 and 20012000 vest 25% on the first anniversary of the date of grant, 25% on
the second anniversary of the date of grant and 50% on the third anniversary
of the date of grant. These options have a term of five years after the grant
date. On January 4, 1999, options to purchase
approximately 53.1 million shares of common stock at $60.50 per share were
granted under the plan. At December 31, 1999, approximately 41.9 million
options were outstanding under this plan. On January 3, 2000, options to purchase approximately 24.5 million
shares of common stock at $48.4375 per share were granted under the plan. At
December 31, 2000, approximately 53.4 million options were outstanding under
this plan.
Other Plans
Under the NationsBank 1996 Associates Stock Option Award Plan (ASOP), as
amended, the Corporation granted in 1996 and 1997 to certain full- and part-timepart-
time associates options to purchase an aggregate of approximately 47 million
shares of the Corporation's common stock. All options granted under the ASOP
are vested and expire June 29, 2001. At December 31, 1999,2000, approximately 10.59.2
million options were outstanding under this plan. No further awards may be
granted under this plan.
Under the Barnett 1997 Employee Stock Option Plan, ten-year options to
purchase an aggregate of approximately 5.7 million shares of the Corporation's
common stock in 1997 were granted to certain full- and part-time associates.
All options granted under this plan are vested. No further awards may be
granted under this plan.
Under the Barnett Long-Term Incentive Plan, ten-year options to purchase
an aggregate of approximately 2.2 million shares of the Corporation's common
stock in 1997 were granted to certain key employees. All options granted under
this plan are vested. No further awards may be
granted under this plan.
Under the BankAmerica 1992 Management Stock Plan, ten-year options to purchasepur-
chase approximately 14.3 million shares of the Corporation's common stock were
granted to certain key employees in 1997 and 1998. Options awarded generally
vest in three equal annual installments beginning one year from the grant
date. At December 31, 1999,2000, approximately 28.626.4 million options were outstandingoutstand-
ing under this plan. Additionally, 2.9 million shares of restricted stock were
granted to certain key employees in 1997 and 1998. These shares generally vest
in four equal annual installments beginning the second year from the date of
grant. No further awards may be granted under this plan.
97
Under the BankAmerica Performance Equity Program, ten-year options to purchasepur-
chase approximately 12.3 million shares of the Corporation's common stock were
granted to certain key employees in 1997 and 1998 in the form of market price
options and premium price options. All options issued under this plan to personsper-
sons who were employees as of the mergerMerger date vested. At December 31, 1999,2000,
approximately 11.8 million options were outstanding under this plan. No furtherfur-
ther awards may be granted under this plan.
On October 1, 1996, BankAmerica adopted the BankAmerica Global Stock Option
Program (BankAmerica Take Ownership!) which covered substantially all associates.associ-
ates. Options awarded under this plan vest in three equal installments beginningbegin-
ning one year from the grant date and have a term of five years after the
grant date. Approximately 37.5 million shares were granted in 1997 and 1998.
At December 31, 1999,2000, approximately 25.220.7 million options were outstanding
under this plan. No further awards may be granted under this plan.
Additional stock options assumed in connection with various acquisitions
remain outstanding and are included in the tables below. No further awards may
be granted under these plans.
89
The following tables present the status of all plans at December 31, 2000,
1999 1998 and 1997,1998, and changes during the years then ended:
- -------------------------------------------------------------------------------
2000 1999 1998
1997
---------------------------- ---------------------------- -----------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(Option) (Option) (Option)
Employee stock options Shares Price Shares Price Shares Price
- ------------------------------- ---------------- ----------- ---------------- ----------- ---------------- --------------------------------------------------------------------------------------------------------
Outstanding at January 1 156,205,635 $56.03 126,465,501 $ 51.01$51.01 136,409,218 $ 44.08 106,432,319 $ 30.79
Shares due to acquisitions -- -- -- -- 6,688,329 21.99$44.08
Granted 49,318,536 48.44 68,341,012 61.30 25,744,102 72.10
76,963,367 58.42
Exercised (5,144,778) 30.68 (21,872,532) 38.45 (28,295,737) 33.62
(44,990,054) 33.34
Forfeited (21,807,372) 57.73 (16,728,346) 62.59 (7,392,082) 63.04
(8,684,743) 45.23
- ------------------------------- ----------- -------- ----------- -------- ----------- ------------------------------------------------------------------------------------------------------
Outstanding at December
31 178,572,021 54.45 156,205,635 $ 56.03 126,465,501 $ 51.01
136,409,218 $ 44.18
=============================== =========== ======== =========== ======== =========== ========- ----------------------------------------------------------------------------------------------
Options exercisable at
December 31 98,092,637 53.56 85,753,568 $ 49.97 99,530,313 $ 46.02
63,927,295 $ 30.90
=============================== =========== ======== =========== ======== =========== ========- ----------------------------------------------------------------------------------------------
Weighted-average fair
value of options
granted during the year $ 13.88 $ 15.52 $ 9.35
=============================== ======== ======== ========
$11.00 $13.88 $15.52
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
2000 1999 1998
1997
--------------------------- --------------------------- ----------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Restricted stock awards Grant Grant Grant
(include KEYSOP) Shares Price Shares Price Shares Price
- ------------------------------- --------------- ----------- --------------- ----------- --------------- --------------------------------------------------------------------------------------------------------
Outstanding unvested
grants at January 1 13,027,337 $62.39 3,781,154 $ 61.85$61.85 5,180,012 $ 38.94 6,459,158 $ 24.68$38.94
Granted 652,724 48.50 11,413,497 61.99 3,852,739 65.79
2,120,681 57.76
Vested (6,111,163) 59.51 (1,732,513) 57.19 (4,896,614) 41.07
(3,112,871) 22.76
Canceled (396,352) 66.18 (434,801) 67.96 (354,983) 56.94
(286,956) 32.43
- ------------------------------- ---------- -------- ---------- -------- ---------- ------------------------------------------------------------------------------------------------------
Outstanding unvested
grants at December 31 7,172,546 $63.37 13,027,337 $ 62.39$62.39 3,781,154 $ 61.85 5,180,012 $ 38.94
=============================== ========== ======== ========== ======== ========== ========$61.85
- ----------------------------------------------------------------------------------------------
98
The following table summarizes information about stock options outstanding
at December 31, 1999:2000:
- -------------------------------------------------------------------------------
Outstanding Options Options Exercisable
------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------
Number Weighted Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at December 31 Contractual Life Exercise Price at December 31 Exercise Price
- ----------------- ---------------- ------------------ ------------------ ---------------- ----------------------------------------------------------------------------------------------------------------------
$0.00 - $30.00 18,114,375 4.115,581,300 3.0 years $ 21.89 18,114,375 $ 21.89$22.33 15,581,300 $22.33
$30.01 - $46.50 22,305,419 3.520,084,333 2.4 years 39.20 22,305,419 39.2039.16 19,884,882 39.11
$46.51 - $65.50 88,269,836 5.0117,833,300 4.9 years 60.24 31,362,618 59.7156.10 44,056,686 59.89
$65.51 - $99.00 27,516,005 6.625,073,088 5.6 years 78.61 13,971,156 81.7078.94 18,569,769 80.20
- ----------------- ---------- --- -------- ---------- -------------------------------------------------------------------------------------------------------------
Total 156,205,635 4.9178,572,021 4.6 years $ 56.03 85,753,568 $ 49.97
================= =========== === ======== ========== ========$54.45 98,092,637 $53.56
- -----------------------------------------------------------------------------------------------------
90
Note FifteenSeventeen - Income Taxes
The components of income tax expense for the years ended December 31, 2000,
1999 1998 and 19971998 were as follows:
- -------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- ------------------------------ --------- --------- ---------------------------------------------------------------
Current expense:
Federal $1,739$3,093 $1,470 $2,163
$2,267
State 169202 63 155
239
Foreign 327328 341 349
537
- ------------------------------ ------ ------ ---------------------------------------------------------
Total current expense 2,2353,623 1,874 2,667
3,043
- ------------------------------ ------ ------ ---------------------------------------------------------
Deferred (benefit) expense:
Federal 1,929552 2,297 274
840
State 16896 164 (68)
132
Foreign 1-- (2) 10
(1)
- ------------------------------ ------ ------ -----------------------------------------------------------
Total deferred expense 2,098648 2,459 216
971
- ------------------------------ ------ ------ ----------------------------------------------------------
Total income tax expense $4,271 $4,333 $2,883
$4,014
============================== ====== ====== =======- ---------------------------------------------------
The preceding table does not reflect the tax effects of unrealized gains and
losses on available-for-sale securities and marketable equity securities that are
included in shareholders' equity and certain tax benefits associated with the
Corporation's employee stock plans. As a result of these tax effects, shareholders'share-
holders' equity decreased by $674 million in 2000 and increased by $1,538 million,mil-
lion and $418 million and $161 million in 1999 1998 and 1997,1998, respectively. The Corporation's currentcur-
rent income tax expense approximates the amounts payable for those years.
Deferred income tax expense represents the change in the deferred tax asset or
liability and is discussed further below.
A reconciliation of the expected federal income tax expense using the federalfed-
eral statutory tax rate of 35 percent to the actual income tax expense for the
years ended December 31, 2000, 1999 and 1998 and 1997 follows:
- -------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- --------------------------------------------- --------- --------- -----------------------------------------------------------------------------------
Expected federal income tax expense $4,126 $4,275 $2,817 $3,695
Increase (decrease) in taxes resulting from:
Tax-exempt income (88)(111) (103) (79) (83)
State tax expense, net of federal benefit 278227 206 33 287
Goodwill amortization 211203 207 259 228
Reorganization of certain subsidiaries -- -- (323)
Nondeductible merger and restructuring charges -- Nondeductible merger-related charges 26-- 183 32
Foreign tax differential (83)(48) (58) 28
(2)
Other (286)(126) (194) (35)
(143)
- --------------------------------------------- ------ ------ ------------------------------------------------------------------------------
Total income tax expense $4,271 $4,333 $2,883
$4,014
============================================= ====== ====== =======- -----------------------------------------------------------------------
9199
Significant components of the Corporation's deferred tax (liabilities)
assets at December 31, 19992000 and 19981999 were as follows:
- -------------------------------------------------------------------------
(Dollars in millions) 2000 1999
1998
- ---------------------------------------------------------- ------------ -------------------------------------------------------------------------------------
Deferred tax liabilities:
Equipment lease financing $ (4,873) $ (3,838)$(6,155) $(5,081)
Intangibles (826) (779)(758) (691)
Investments (516) (447)
State taxes (400) (196)(456) (360)
Employee retirement benefits (379) (328)
Investments (368) (340)(402) (347)
Depreciation (230) (239)
Securities valuation (278) --
Depreciation (258) (296)(12) (271)
Deferred gains and losses (49) (65)(76) (73)
Loan fees and expenses (55) (17)
Available-for-sale securities(30) --
(227)
Other (353) (272)(585) (641)
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Gross deferred tax liabilities (7,839) (6,358)(9,220) (8,150)
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Deferred tax assets:
Allowance for credit losses 2,167 2,2572,533 2,519
Employee benefits 501 426
Accrued expenses 433 260
Available-for-sale securities 330 1,121 --
Employee benefits 621 395
Accrued expenses 398 606
Net operating loss carryforwards 151 181136 158
Foreclosed properties 62 63
Securities valuation31 48
Loan fees and expenses -- 32112
Other 120 137292 107
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Gross deferred tax assets 4,640 3,9604,256 4,651
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Valuation allowance (131) (161)(122) (138)
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Gross deferred tax assets, net of valuation allowance 4,509 3,7994,134 4,513
- ---------------------------------------------------------- -------- ---------------------------------------------------------------------------------
Net deferred tax liabilities $ (3,330) $ (2,559)
========================================================== ======== ========$(5,086) $(3,637)
- -------------------------------------------------------------------------
The Corporation's deferred tax assets at December 31, 19992000 and 19981999 included
a valuation allowance of $131$122 million and $161$138 million, respectively, primarilyprimar-
ily representing net operating loss carryforwards for which it is more likely
than not that realization will not occur. The net change in the valuation
allowance for deferred tax assets resulted from a portion of net operating
loss carryforwards of foreign subsidiaries being used to offset taxable income
where realization was not expected to occur.
At December 31, 19992000 and 1998,1999, federal income taxes had not been provided on
$676$1,075 million and $380$814 million, respectively, of undistributed earnings of
foreign subsidiaries, earned prior to 1987 and after 1997, that have been
reinvested for an indefinite period of time. If the earnings were distributed,
an additional $148$171 million and $80$128 million of tax expense, net of credits for
foreign taxes paid on such earnings and for the related foreign withholding
taxes, would result in 2000 and 1999, and 1998, respectively.
92
Note SixteenEighteen - Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" (SFAS 107), requires the disclosure of the
estimated fair value of financial instruments. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a currentcur-
rent transaction between willing parties, other than in a forced or liquidationliquida-
tion sale. Quoted market prices, if available, are utilized as estimates of
the fair values of financial instruments. Since no quoted market prices exist
for a significant part of the Corporation's financial instruments, the fair
values of such instruments have been derived based on management's assumptions,assump-
tions, the estimated amount and timing of future cash flows and estimated discountdis-
count rates. The estimation methods for individual classifications of financialfinan-
cial instruments are described more fully below. Different assumptions could
significantly affect these estimates. Accordingly, the net realizable values
could be materially different from the estimates presented below. In addition,
the estimates are only indicative of the value of individual financial instrumentsinstru-
ments and should not be considered an indication of the fair value of the combinedcom-
bined Corporation.
100
The provisions of SFAS 107 do not require the disclosure of nonfinancial
instruments, including intangible assets such as goodwill, franchise, credit
card and trust relationships and MSR. In addition, the disclosure of fair
value amounts does not include lease financing.
Short-Term Financial Instruments
The carrying value of short-term financial instruments, including cash and
cash equivalents, federal funds sold and purchased, resale and repurchase
agreements, commercial paper and other short-term borrowings, approximates the
fair value of these instruments. These financial instruments generally expose
the Corporation to limited credit risk and have no stated maturities, or have
an average maturity of less than 30 days and carry interest rates which
approximate market.
Financial Instruments Traded in the Secondary Market
Held-for-investmentHeld-to-maturity securities, available-for-sale securities, trading account
instruments, long-term debt and trust preferred securities traded actively in
the secondary market have been valued using quoted market prices. The fair
value of securities and trading account instruments is reported in Notes ThreeFour
and FourFive on pages 6774 and 69.76.
Loans
Fair values were estimated for groups of similar loans based upon type of
loan, credit quality and maturity. The fair value of loans was determined by
discounting estimated cash flows using interest rates approximating the Corporation'sCorpo-
ration's December 31 origination rates for similar loans. Where quoted market
prices were available, primarily for certain residential mortgage loans, such
market prices were utilized as estimates for fair values. Contractual cash
flows for residential mortgage loans were adjusted for estimated prepayments
using published industry data. Where credit deterioration has occurred, estimatedesti-
mated cash flows for fixed- and variable-rate loans have been reduced to
incorporate estimated losses.
The fair values of domestic commercial loans that do not reprice or mature
within relatively short time framestimeframes were estimated using discounted cash flow
models. The discount rates were based on current market interest rates for
similar types of loans, remaining maturities and credit ratings. For domestic
commercial loans that reprice within relatively short time frames,timeframes, the carrying
values were assumed to approximate their fair values. Substantially all of the
foreign loans reprice within relatively short time frames.timeframes. Accordingly, for the
majority of foreign loans, the carrying values were assumed to approximate
their fair values. For purposes of these fair value estimates, the fair values
of nonaccrual loans were computed by deducting an estimated market discount
from their carrying values to reflect the uncertainty of future cash flows.
The fair values of commitments to extend credit were not significant at either
December 31, 19992000 or 1998.
93
Mortgage Servicing Rights
Note One on page 58 discloses the fair value of capitalized MSR as well as
the fair value of ALM contracts associated with capitalized MSR.1999.
Deposits
The fair value for deposits with stated maturities was calculated by discountingdis-
counting contractual cash flows using current market rates for instruments
with similar maturities. The carrying value of foreign time deposits approxi-
mates fair value. For deposits with no stated maturities, the carrying amount
was considered to approximate fair value and does not take into account the
significant value of the cost advantage and stability of the Corporation's
long-term relationships with depositors.
Derivative Financial Instruments
The fair value of the Corporation's derivative-dealer assets and liabilities
and ALM contracts is presented in Note ElevenThirteen on page 79.87.
101
The book and fair valuevalues of certain financial instruments at December 31,
19992000 and 19981999 were as follows:
- -------------------------------------------------------------------------------
2000 1999
1998
----------------------- ---------------------------------------
Book Fair Book Fair
(Dollars in millions) Value Value Value Value
- ----------------------------- ----------- ----------- ----------- --------------------------------------------------------------------------
Financial assets
Loans $369,706 $374,313 $348,790 $351,469 $337,303 $342,936
Financial liabilities
Deposits 364,244 364,547 347,273 347,251 357,260 357,915
Trust preferred securities 4,955 4,792 4,955 4,603
4,954 5,244
Long-term debt(1)debt(/1/) 67,516 68,595 55,385 54,837
45,767 47,135
============================= ======== ======== ======== ========- ---------------------------------------------------------------
(1) Excludes obligations under capital leases.
For all other financial instruments, book value approximates fair value.
94
Note SeventeenNineteen - Business Segment Information
Management reportsIn 2000, the Corporation realigned its business segments to report the
results of operations of the CorporationCorporation's operations through four business segments: Con-
sumer and Commercial Banking, Asset Management, Global Corporate and Invest-
ment Banking and Equity Investments. Consumer and Commercial Banking which provides
comprehensive retail
bankinga diversified range of products and services to individuals and small businessesbusi-
nesses through multiple delivery channels; Commercial Banking, whichchannels and commercial lending and treasury
management services to middle market companies with annual revenue between $10
million and $500 million. Asset Management offers customized asset management
and credit, financial advisory, fiduciary, trust and banking services, as well
as both full-service and discount brokerage services. It provides management
of equity, fixed income, cash and alternative investments to individuals, cor-
porations and a wide rangearray of commercial banking services for businesses with annual revenues of up to $500
million;institutional clients. Global Corporate and
Investment Banking which provides a broad arraydiversified range of financial products such as
investment banking, trade finance, treasury management, capital markets, leasingleas-
ing and financial advisory services to domestic and international corporations,corpora-
tions, financial institutions and government entities; andentities. Equity Investments
includes Principal Investing, which formerly was a component of Global Corpo-
rate and Asset Management includesInvestment Banking. Principal Investing makes both direct and indi-
rect equity investments in businesses and investments in general partnership funds;
customized asset management, advisory and trust services for high-net-worth
clients through its Private Bank; equity, fixed income, cash, and alternative
investments management to individuals, corporations and a wide arrayvariety of institutional clients as well as advisory services fortransactions. Equity Investments
also includes the Corporation's affiliated family of mutual funds;strategic technology and full service and discount brokerage
services.alliances investment
portfolio in addition to other parent company investments.
102
The following table includes total revenue and net income for the years
ended December 31, 2000, 1999 1998 and 19971998, and total assets at December 31, 19992000
and 19981999 for each business segment:segment. Certain prior period amounts have been
reclassified between segments to conform to the current period presentation.
Business Segments
- -------------------------------------------------------------------------------
For the year ended
December 31
Consumer and
Total Corporation Consumer Banking(2) Commercial Banking(2)
-------------------------------- -------------------------------- -----------------------------Banking(/2/)
------------------------------------------
(Dollars in millions) 2000 1999 1998 19972000 1999 1998
1997 1999 1998 1997
- ------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- --------- --------- ---------
Net interest income(1) $ 18,452 $ 18,461 $18,589 $ 11,523 $ 11,806 $12,180 $ 2,191 $ 2,152 $2,193
Noninterest income 14,069 12,189 11,756 6,511 6,604 6,210 894 730 613
- ------------------------------ -------- -------- ------- -------- -------- ------- ------- ------- ------
Total revenue 32,521 30,650 30,345 18,034 18,410 18,390 3,085 2,882 2,806
Provision for credit losses 1,820 2,920 1,904 1,327 1,259 1,569 164 64 (16)
Gains on sales of securities 240 1,017 271 42 10 38 -- 4 --
Amortization of intangibles 888 902 855 638 606 612 57 101 101
Depreciation expense 1,028 1,096 1,107 664 678 679 66 74 76
Merger-related charges, net 525 1,795 374 -- -- -- -- -- --
Other noninterest expense 16,070 16,743 15,663 9,247 9,744 10,068 1,351 1,211 1,045
- ------------------------------ -------- -------- ------- -------- -------- ------- ------- ------- ------
Income before income taxes 12,430 8,211 10,713 6,200 6,133 5,500 1,447 1,436 1,600
Income tax expense 4,548 3,046 4,171 2,301 2,254 2,148 569 483 623
- ------------------------------ -------- -------- ------- -------- -------- ------- ------- ------- ------
Net income $ 7,882 $ 5,165 $ 6,542 $ 3,899 $ 3,879 $ 3,352 $ 878 $ 953 $ 977
============================== ======== ======== ======= ======== ======== ======= ======= ======= ======
Period-end total assets $632,574 $617,679 $255,401 $271,695 $63,066 $61,772
============================== ======== ======== ======== ======== ======= =======
Global Corporate and Principal Investing and
Investment Banking(2) Asset Management(2)
------------------------------------ -------------------------------
(Dollars in millions) 1999 1998 1997 1999 1998 1997
- --------------------------------------- ----------- -------------- --------- ---------- ---------- --------------------------------------------------------------------------------------------
Net interest income(1)income(/1/) $ 3,83018,764 $ 3,799 $3,55418,452 $18,461 $ 50113,656 $ 459 $ 40913,681 $13,883
Noninterest income 4,341 2,887 3,103 2,321 1,911 1,93014,489 14,069 12,189 6,965 7,398 7,351
- --------------------------------------- -------- ------- ------ ------- ------- ------------------------------------------------------------------------------------------
Total revenue 8,171 6,686 6,657 2,822 2,370 2,33933,253 32,521 30,650 20,621 21,079 21,234
Provision for credit
losses 205 1,571 344 124 26 72,535 1,820 2,920 1,416 1,482 1,321
Gains on sales of
securities 25 240 1,017 8 42 14
Amortization of
intangibles 864 888 902 668 694 646
Depreciation expense 920 1,028 1,096 658 731 772
Merger and restructuring
charges 550 525 1,795 -- -- --
Other noninterest
expense 16,299 16,070 16,743 10,189 10,597 10,962
- -----------------------------------------------------------------------------------
Income before income
taxes 12,110 12,430 8,211 7,698 7,617 7,547
Income tax expense 4,593 4,548 3,046 3,055 2,861 2,730
- -----------------------------------------------------------------------------------
Net income $ 7,517 $ 7,882 $ 5,165 $ 4,643 $ 4,756 $ 4,817
- -----------------------------------------------------------------------------------
Period-end total assets $642,191 $632,574 $314,207 $295,785
- -----------------------------------------------------------------------------------
For the year ended
December 31
Global Corporate and
Asset Management(/2/) Investment Banking(/2/)
------------------------------------------
(Dollars in millions) 2000 1999 1998 2000 1999 1998
- -----------------------------------------------------------------------------------
Net interest income(/1/) $ 641 $ 580 $ 502 $ 4,278 $ 3,904 $ 3,865
Noninterest income 1,643 1,561 1,415 4,687 4,338 2,874
- -----------------------------------------------------------------------------------
Total revenue 2,284 2,141 1,917 8,965 8,242 6,739
Provision for credit
losses 48 99 23 767 214 1,573
Gains (losses) on sales
of securities 9 (5) 10 -- -- 4-- (15) 9 (5)
Amortization of
intangibles 24 25 49 161 158 168 118 35 27 24205
Depreciation expense 231 280 300 67 64 52 Merger-related charges, net -- -- -- -- -- --65 72 204 228 247
Other noninterest
expense 4,220 4,271 3,165 1,252 1,499 1,3751,180 1,143 1,384 4,758 4,221 4,285
- --------------------------------------- -------- --------- ------ ------- ------- ------------------------------------------------------------------------------------------
Income before income
taxes 3,366 391 2,740 1,344 754 885980 809 389 3,060 3,430 424
Income tax expense (benefit) 1,112 99 1,024 503 263 341379 299 136 1,008 1,138 107
- --------------------------------------- -------- --------- ------ ------- ------- ------------------------------------------------------------------------------------------
Net income $ 2,254601 $ 292 $1,716510 $ 841253 $ 4912,052 $ 544
======================================= ======== ========= ====== ======= ======= =======2,292 $ 317
- -----------------------------------------------------------------------------------
Period-end total assets $223,930 $229,441 $26,004 $21,579
======================================= ======== ========= ======= =======$ 26,302 $ 22,040 $225,080 $222,458
- -----------------------------------------------------------------------------------
For the year ended
December 31
Equity Investments(/2/) Corporate Other
-------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998 19972000 1999 1998
- --------------------------------------- ---------- ---------- --------------------------------------------------------------------------------------------
Net interest income(1)income(/1/) $ 407(143) $ 245(89) $ 253(58) $ 332 $ 376 $ 269
Noninterest income 2 57 (100)1,007 775 498 187 (3) 51
- --------------------------------------- ------- ------- -----------------------------------------------------------------------------------------
Total revenue 409 302 153864 686 440 519 373 320
Provision for credit
losses --4 25 3 300 -- --
Gains (losses) on sales of
securities -- -- -- 32 189 1,008 219
Amortization of
intangibles 11 11 2 -- -- --
Depreciation expense 6 4 5 -- -- --
Merger-relatedMerger and restructuring
charges net-- -- -- 550 525 1,795 374
Other noninterest
expense -- 18 1092 113 76 80 (4) 36
- --------------------------------------- ------- ------- -----------------------------------------------------------------------------------------
Income before income
taxes 73751 533 354 (379) 41 (503) (12)
Income tax expense (benefit) 63 (53) 35291 203 123 (140) 47 (50)
- --------------------------------------- ------- ------- -----------------------------------------------------------------------------------------
Net income $ 10460 $ (450)330 $ (47)
======================================= ======= ======= ======231 $ (239) $ (6) $ (453)
- -----------------------------------------------------------------------------------
Period-end total assets $64,173 $33,192
======================================= ======= =======$ 6,703 $ 4,914 $ 69,899 $ 87,377
- -----------------------------------------------------------------------------------
(1) Net interest income is presented on a taxable-equivalent basis.
(2) There were no material intersegment revenues among the four business segments.
95seg-
ments.
103
Following is a reconciliation of the business segments' revenue and net
income for the years ended December 31, 2000, 1999 1998 and 19971998 and total assets
at December 31, 19992000 and 19981999 to the consolidated totals:
- -------------------------------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- -------------------------------------------------- ------------ ------------ ---------------------------------------------------------------------------------------
Segments' revenue $ 32,11232,734 $ 30,348 $30,19232,148 $30,330
Adjustments:
Earnings associated with unassigned capital 407 245 253332 376 269
Gain on sale of a business 187 -- --
Gains on sales of subsidiary companies -- 57 -- 51
Other 2 -- (100)(3) --
- -------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------
Consolidated revenue $ 33,253 $ 32,521 $ 30,650 $30,345
================================================== ========= ========= =======$30,650
- -----------------------------------------------------------------------------
Segments' net income $ 7,8727,756 $ 5,6157,888 $ 6,5895,618
Adjustments, net of taxes:
Earnings associated with unassigned capital 251 157 158208 234 182
Gain on sale of a business 117 -- --
Gains on sales of subsidiary companies -- 37-- 34
Provision for credit losses (188) -- --
Gains on sales of securities 117 649 140
Merger-related20 118 680
Merger and restructuring charges net(346) (358) (1,325)
(264)
Other (50) -- 32 (81)(24)
- -------------------------------------------------- --------- --------- ------------------------------------------------------------------------------------
Consolidated net income $ 7,517 $ 7,882 $ 5,165
$ 6,542
================================================== ========= ========= =======- -----------------------------------------------------------------------------
Segments' total assets $ 568,401 $ 584,487$572,292 $545,197
Adjustments:
InvestmentAvailable-for-sale securities 58,310 63,31147,155 64,969
Elimination of excess earning asset allocations (20,612) (52,817)(44,510) (13,904)
Other, net 26,475 22,69867,254 36,312
- -------------------------------------------------- --------- --------------------------------------------------------------------------------------
Consolidated total assets $ 632,574 $ 617,679
================================================== ========= =========$642,191 $632,574
- -----------------------------------------------------------------------------
The adjustments presented in the table above represent consolidated income,
expense and asset balances not specifically allocated to individual business
segments. In addition, reconciling items also include the effect of earnings
allocations not assigned to specific business segments, as well as the related
earning asset balances.
96104
Note EighteenTwenty - Bank of America Corporation (Parent Company Only)
The following tables present the Parent Company Only financial information:
Condensed Statement of Income
- --------------------------------------------------------------------------------
Year Ended December
31
-------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- ------------------------------------------------------------------------- --------- --------- --------------------------------------------------------------------------------
Income
Dividends from subsidiaries:
Bank subsidiaries $ 7,700$6,902 $7,700 $4,795 $5,730
Other subsidiaries 18 171 202 728
Interest from subsidiaries 2,756 2,197 1,911
1,690
Other income 1,053 987 709
647
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
10,729 11,055 7,617
8,795
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
Expense
Interest on borrowed funds 3,359 2,626 2,805
2,529
Noninterest expense 1,238 1,155 835
632
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
4,597 3,781 3,640
3,161
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
Income before income tax benefit and equity in
undistributed earnings of subsidiaries 6,132 7,274 3,977 5,634
Income tax benefit 456 494 461
331
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
Income before equity in undistributed earnings of
subsidiaries 6,588 7,768 4,438 5,965
Equity in undistributed earnings of subsidiaries:
Bank subsidiaries 583 10 553
471
Other subsidiaries 346 104 174
106
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
929 114 727
577
- ------------------------------------------------------------------------- ------- ------ -----------------------------------------------------------------------------
Net income $ 7,882$7,517 $7,882 $5,165
$6,542
========================================================================= ======= ====== ======- -----------------------------------------------------------------------
Net income available to common shareholders $ 7,876$7,511 $7,876 $5,140
$6,431
========================================================================= ======= ====== ======- -----------------------------------------------------------------------
Condensed Balance Sheet
- --------------------------------------------------------------------------------
December 31
------------------------------------
(Dollars in millions) 2000 1999
1998
- --------------------------------------------- ---------- ---------------------------------------------------------------------
Assets
Cash held at bank subsidiaries $15,932 $ 3,06920,233 $15,932
Temporary investments 677 1,458 1,525
Receivables from subsidiaries:
Bank subsidiaries 13,336 12,292 10,456
Other subsidiaries 7,331 9,832 20,321
Investments in subsidiaries:
Bank subsidiaries 52,711 49,476 48,984
Other subsidiaries 2,248 1,624 5,108
Other assets 4,157 3,693
4,190
- --------------------------------------------- ------- -------------------------------------------------------------------
Total assets $100,693 $94,307
$93,653
============================================= ======= =======- ------------------------------------------------------------
Liabilities and shareholders' equity
Commercial paper and other notes payable $ 7,1466,747 $ 5,2897,146
Accrued expenses and other liabilities 2,767 2,381 2,711
Payables to subsidiaries 4,505 4,486 6,004
Long-term debt 39,046 35,862 33,711
Shareholders' equity 47,628 44,432
45,938
- --------------------------------------------- ------- -------------------------------------------------------------------
Total liabilities and shareholders' equity $100,693 $94,307
$93,653
============================================= ======= =======- ------------------------------------------------------------
97105
Condensed Statement of Cash Flows
- --------------------------------------------------------------------------------
Year Ended December 31
-------------------------------------------------------
(Dollars in millions) 2000 1999 1998
1997
- --------------------------------------------------------------------------- ----------- ----------- -------------------------------------------------------------------------------------------
Operating activities
Net income $ 7,517 $ 7,882 $ 5,165 $ 6,542$5,165
Reconciliation of net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiaries (929) (114) (727) (577)
Other operating activities 798 (191) (412)
214
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 7,386 7,577 4,026
6,179
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in temporary investments 87 (274) 632
4,037
Net decrease (increase) in receivablespayments from (to) subsidiaries 8,707 (6,145) (2,814)
Additional capital investment in subsidiaries 485 3,752 60237 9,192 (2,393)
Acquisitions of subsidiaries, net of cash -- -- (822) (194)
Other investing activities -- -- (747)
191
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 324 8,918 (3,330)
1,280
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Financing activities
Net increase (decrease) in commercial paper and other
notes payable (399) 1,600 1,726 (400)
Proceeds from issuance of long-term debt 6,335 5,912 7,283 4,887
Retirement of long-term debt (2,993) (3,760) (4,533) (4,055)
Proceeds from issuance of common stock 294 1,158 1,367 1,892
Common stock repurchased (3,256) (4,858) (1,751) (8,540)
Redemption of preferred stock -- -- (614) (1,701)
Cash dividends paid (3,388) (3,199) (1,990) (2,175)
Other financing activities (2) (485) (1,633)
182
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Net cash used in financing activities (3,409) (3,632) (145)
(9,910)
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash held at bank subsidiaries 4,301 12,863 551 (2,451)
Cash held at bank subsidiaries at January 1 15,932 3,069 2,518
4,969
- --------------------------------------------------------------------------- -------- -------- ----------------------------------------------------------------------------------------
Cash held at bank subsidiaries at December 31 $ 15,932 $ 3,069 $ 2,518
=========================================================================== ======== ======== ========$20,233 $15,932 $3,069
- --------------------------------------------------------------------------------
On January 1, 1999, NationsCredit Corporation, a nonbank subsidiary, merged
into Bank of America Corporation. In addition, during 1999, Bank of America,
FSB, a nonbank subsidiary, merged into Bank of America, N.A. and EquiCredit
Corporation of America, also a nonbank subsidiary, became an indirect subsidiarysubsidi-
ary of Bank of America, N.A. Amounts presented above for 1998 and 1997 have not been
restated to reflect these transactions.
98106
Note NineteenTwenty-One - Performance by Geographic Area
Since the Corporation's operations are highly integrated, certain asset,
liability, income and expense amounts must be allocated to arrive at total
assets and total revenue by geographic area. The Corporation identifies its
geographic performance based upon the business unit in which the assets are
recorded and where the income is earned and the expenses are incurred. In certaincer-
tain circumstances, units may transact business with customers who are out of
their immediate geographic area. For example, a U.S. domiciled unit may have
made a loan to a borrower who resides in Latin America. In this instance, the
loan and related income would be included in domestic activities. Translation
gains,losses, for those units in hyperinflationary economies, net of hedging,
totaled $1 million in 2000, compared to translation gains of $4 million in
1999 compared toand translation losses of $12 million and $27
million in 1998 and 1997, respectively.1998. These amounts, which are
reported in other noninterest income, are included in the table below:
- --------------------------------------------------------------------------
Total Revenue(2)Revenue(/2/)
Total Assets(/1/) for the year
Total Assets(1) ended
(Dollars in millions) Year at December 31 December 31
- --------------------------------- ------ ----------------- ---------------------------------------------------------------------------------------
Domestic (3)Domestic(/3/) 2000 $588,409 $30,696
1999 $583,390 $30,156583,390 30,156
1998 $551,800 $29,226
1997 $511,085 $28,368551,800 29,226
- --------------------------------- ---- -------- ---------------------------------------------------------------------------------
Asia 2000 21,287 889
1999 20,923 1,023
1998 22,108 765
1997 26,187 924
Europe, Middle East and Africa 2000 25,648 1,001
1999 20,152 641
1998 32,590 256
1997 27,220 533
Latin America and the Caribbean 2000 6,847 345
1999 8,109 486
1998 11,181 240
1997 6,491 363
- --------------------------------- ---- -------- ---------------------------------------------------------------------------------
Total Foreign 2000 53,782 2,235
1999 49,184 2,150
1998 65,879 1,261
1997 59,898 1,820
- --------------------------------- ---- -------- ---------------------------------------------------------------------------------
Total Consolidated 2000 $642,191 $32,931
1999 $632,574 $32,306632,574 32,306
1998 $617,679 $30,487
1997 $570,983 $30,188617,679 30,487
- --------------------------------- ---- -------- ---------------------------------------------------------------------------------
(1) Total assets includes long-lived assets, primarily all of which wereare
located in the U.S.
(2) Total revenues includes net interest income plus noninterest income. There
were no material intercompany revenues between geographic regions for any
of the yearsperiods presented.
(3) Includes the Corporation's Canadian operations, which had total assets of
$1,202, $1,622$3,938, $3,378 and $2,719$4,087 and total revenues of $29, $63$118, $100 and $64$84 at and
for the years ended December 31, 2000, 1999 and 1998, and 1997, respectively.
99107
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information set forth under the caption "Election of Directors" on pages 2
through 5 of the registrant's definitive 20002001 Proxy Statement relating to its
annual meeting of the registrant furnished to
stockholders in connection with its Annual Meeting to be held on April 25, 20002001 (the "2000"2001 Proxy
Statement") with respect to the name of each nominee, or
director, that person's age, positionsposi-
tions and offices with the registrant, business experience, directorships in
other public companies, service on the registrant's Board and certain family
relationships, and information set forth under the caption "Section 16(a) BeneficialBen-
eficial Ownership Reporting Compliance" on page 87 of the 20002001 Proxy Statement
with respect to Section 16 matters, is hereby incorporated by reference. In
addition, information set forth under the caption "Special Compensation
Arrangements --- Employment Agreements with Messrs. Lewis Hance and Murray"Hance" and "- Con-
sulting Agreement with Mr. McColl" on page 1312 of the 20002001 Proxy Statement is
hereby incorporated by reference. Additional information required by Item 10
with respect to executive officers is set forth in Part I, Item 4A hereof.
Item 11. EXECUTIVE COMPENSATION
Information with respect to current remuneration of executive officers, certaincer-
tain proposed remuneration to them, their options and certain indebtedness and
other transactions set forth in the 20002001 Proxy Statement (i) under the caption
"Board of Directors' Compensation" on page 98 thereof, (ii) under the caption
"Executive Compensation" on pages 109 and 1110 thereof, (iii) under the caption
"Retirement Plans" on page 1211 thereof, (iv) under the caption "Deferred CompensationCom-
pensation Plan" on pages 1211 and 1312 thereof, (v) under the caption "Special
Compensation Arrangements" on page 1312 thereof, (vi) under the caption "Compensation"Compen-
sation Committee Interlocks and Insider Participation" on page 1716 thereof, and
(vii) under the caption "Certain Transactions" on page 1716 thereof, is, to the
extent such information is required by Item 402 of Regulation S-K, hereby
incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership information required by Item 403 of Regulation S-K
relating to persons who beneficially own five percent or more of the outstandingoutstand-
ing shares of Common Stock, ESOP Preferred Stock or 7% Cumulative Redeemable
Preferred Stock, Series B, as well as security ownership information relating
to directors, nominees and named executive officers individually and directors
and executive officers as a group, is hereby incorporated by reference to the
ownership information set forth under the caption "Security Ownership of CertainCer-
tain Beneficial Owners and Management" on pages 65 through 87 of the 20002001 Proxy
Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to relationships and related transactions between
the registrant and any director, nominee for director, executive officer,
security holder owning five percent or more of the registrant's voting securitiessecuri-
ties or any member of the immediate family of any of the above, as set forth
in the 20002001 Proxy Statement under the caption "Compensation Committee InterlocksInter-
locks and Insider Participation" on page 1716 and under the caption "Certain
Transactions" on page 1716 thereof, is, to the extent such information is
required by Item 404 of Regulation S-K, hereby incorporated by reference.
100108
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. The following documents are filed as part of this report:
Page
---------
(1) Financial Statements:
Report of Independent Accountants 5361
Consolidated Statement of Income for the years ended December 31,
2000, 1999 and 1998 and 1997 5462
Consolidated Balance Sheet at December 31, 2000 and 1999 and 1998 55
Consolidated Statement of Cash Flows for the years ended December 31, 1999, 1998 and
1997 5663
Consolidated Statement of Changes in Shareholders' Equity for the
years ended December 31, 2000, 1999 and 1998 64
Consolidated Statement of Cash Flows for the years ended December 31,
2000, 1999 and 1997 571998 65
Notes Toto Consolidated Financial Statements 5866
(2) Schedules:
None
b. The following reportreports on Form 8-K waswere filed by the registrant during
the quarter ended December 31, 1999:2000:
Current Report on Form 8-K dated October 18, 19996, 2000 and filed October 22,
1999,20,
2000, Items 5 and 7.
Current Report on Form 8-K dated December 6, 2000 and filed December 6,
2000, Items 5, 7 and 9.
Current Report on Form 8-K/A dated December 6, 2000 and filed December 7,
2000, Items 5, 7 and 9.
c. The exhibits filed as part of this report and exhibits incorporated
herein by reference to other documents are listed in the Index to
Exhibits to this Annual Report on Form 10-K (pages E-1 through E-6,
including executive compensation plans and arrangements which are identifiediden-
tified separately by asterisk).
With the exception of the information herein expressly incorporated by reference,ref-
erence, the 20002001 Proxy Statement is not to be deemed filed as part of this
Annual Report on Form 10-K.
101109
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BANK OF AMERICA CORPORATIONBank of America Corporation
Date: March 20, 200019, 2001
*/s/ Hugh L. McColl, Jr.
By: */s/ HUGH L. MCCOLL, JR.
------------------------------------------_________________________________________
Hugh L. McColl, Jr.
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the registrantregis-
trant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------ -------------------------------- ------------------------ ----- ----
*/s/HUGHHugh L. McCOLL, JR.McColl, Jr. Chairman of the Board, Chief March 20, 2000
----------------------------------19, 2001
___________________________________________ Executive Officer and Director
Hugh L. McColl, Jr. (Principal Executive Officer)
*/s/JAMESJames H. HANCE, JR.Hance, Jr. Vice Chairman, Chief Financial March 20, 2000
----------------------------------19, 2001
___________________________________________ Officer and Director (Principal
James H. Hance, Jr. (Principal Financial Officer)
*/s/MARCMarc D. OKENOken Executive Vice President and March 20, 2000
----------------------------------19, 2001
___________________________________________ Principal Financial Executive
Marc D. Oken (Principal Accounting Officer)
*/s/CHARLES W. COKER Director March 20, 2000
----------------------------------
Charles W. Coker */s/TIMM F. CRULL Director March 20, 2000
----------------------------------
Timm F. Crull
*/s/ALAN T. DICKSON19, 2001
___________________________________________
Charles W. Coker
Director March 20, 2000
----------------------------------, 2001
___________________________________________
Alan T. Dickson
*/s/KATHLEEN F. FELDSTEIN Frank Dowd, IV Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Frank Dowd, IV
*/s/Kathleen F. Feldstein Director March 19, 2001
___________________________________________
Kathleen F. Feldstein
*/s/PAUL FULTONPaul Fulton Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Paul Fulton
*/s/DONALDDonald E. GUINNGuinn Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Donald E. Guinn
*/s/RAY HOLMANC. Ray Holman Director March 20, 2000
----------------------------------19, 2001
___________________________________________
C. Ray Holman
*/s/W. W. JOHNSONJohnson Director March 20, 2000
----------------------------------19, 2001
___________________________________________
W. W. Johnson
102110
Signature Title Date
- ----------------------------------------- ------------------------------------ ------------------------ ----- ----
*/s/ KENNETHKenneth D. LEWISLewis President, Chief Operating Officer March 20, 2000
----------------------------------19, 2001
___________________________________________ Officer and Director
Kenneth D. Lewis
*/s/ WALTERWalter E. MASSEYMassey Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Walter E. Massey
*/s/ RICHARD M. ROSENBERGO. Temple Sloan, Jr. Director March 20, 2000
----------------------------------
Richard M. Rosenberg
Director March , 2000
----------------------------------19, 2001
___________________________________________
O. Temple Sloan, Jr.
*/s/ MEREDITHMeredith R. SPANGLERSpangler Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Meredith R. Spangler
*/s/ RONALD TOWNSENDRonald Townsend Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Ronald Townsend
*/s/ SOLOMON D. TRUJILLOJackie M. Ward Director March 20, 2000
----------------------------------
Solomon D. Trujillo
*/s/ JACKIE M. WARD Director March 20, 2000
----------------------------------19, 2001
___________________________________________
Jackie M. Ward
*/s/ VIRGIL R. WILLIAMS Director March 20, 2000
----------------------------------
Virgil R. Williams */s/ SHIRLEY YOUNG Director March 20, 2000
----------------------------------
Shirley Young19, 2001
___________________________________________
Virgil R. Williams
*By:/s/ CHARLESCharles M. BERGER
----------------------------------Berger
___________________________________________
Charles M. Berger, Attorney-in-Fact
103111
INDEX TO EXHIBITS
Exhibit No. Description
- ------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
3(a) Amended and Restated Certificate of Incorporation of registrant, as in
effect on the date hereof, incorporated by reference to Exhibit 99.1 of
registrant's Current Report on Form 8-K filed May 7, 1999.
(b) Amended and Restated Bylaws of registrant, as in effect on the date
hereof, incorporated by reference to Exhibit 99.2 of registrant's
Current Report on Form 8-K filed May 7, 1999.
4(a) Specimen certificate of registrant's Common Stock, incorporated by
reference to Exhibit 4.13 of registrant's Registration No. 333-83503.
(b) Specimen certificate of registrant's ESOP Convertible Preferred Stock,
Series C, incorporated by reference to Exhibit 4(c) of registrant's
Annual Report on Form 10-K dated March 25, 1992.
(c) Specimen certificate of registrant's 7% Cumulative Redeemable Preferred
Stock, Series B, incorporated by reference to Exhibit 4(c) of
registrant's 1998 Annual Report on Form 10-K dated March 22, 1999 (the "1998 Form 10-K").
(d) Indenture dated as of August 1, 1982 between registrant and Morgan
Guaranty Trust Company of New York, pursuant to which registrant issued
its 7 3/4% Debentures, due 2002, incorporated by reference to Exhibit
4.2 of registrant's Registration No. 2-78530; and First Supplemental
Indenture thereto dated as of September 18, 1998, incorporated by
reference to Exhibit 4(e) of the 1998 Form 10-K.
(e) Indenture dated as of September 1, 1989 between registrant and The Bank
of New York, pursuant to which registrant issued its 9 3/8% Subordinated
Notes, due 2009; its 10.20% Subordinated Notes, due 2015; its 9 1/8%
Subordinated Notes, due 2001; and its 8 1/8% Subordinated Notes, due
2002, incorporated by reference to Exhibit 4.1 of registrant's
Registration No. 33-30717; and First Supplemental Indenture thereto
dated as of August 28, 1998, incorporated by reference to Exhibit 4(f)
of the 1998 Form 10-K.
(f) Indenture dated as of January 1, 1992 between registrant and BankAmerica
Trust Company of New York, incorporated by reference to Exhibit 4.1 of
registrant's Registration No. 33-54784; and First Supplemental Indenture
thereto dated as of July 1, 1993 between registrant and BankAmerica
National Trust Company (formerly BankAmerica Trust Company of New York),
pursuant to which registrant issued its Senior Medium-Term Notes, Series
A, B and C; and its 5 3/8% Senior Notes, due 2000,C, incorporated by reference to Exhibit 4.1 of registrant's
Current Report on Form 8-K dated July 6, 1993; and Second Supplemental
Indenture thereto dated as of September 18, 1998, incorporated by
reference to Exhibit 4(g) of the 1998 Form 10-K.
(g) Indenture dated as of November 1, 1992 between registrant and The Bank
of New York, pursuant to which registrant issued its 6 7/8% Subordinated
Notes, due 2005, incorporated by reference to Exhibit 4.1 of
registrant's Amendment to Application or Report on Form 8 dated March 1,
1993.
(h) First Supplemental Indenture dated as of July 1, 1993 to the Indenture
dated as of November 1, 1992 between registrant and The Bank of New
York, pursuant to which registrant issued its Subordinated Medium-Term
Notes, Series A and B; its 6 1/2% Subordinated Notes, due 2003; and its
7 3/4% Subordinated Notes, due 2004, incorporated by reference to
Exhibit 4.4 of registrant's Current Report on Form 8-K dated July 6,
1993; and Second Supplemental Indenture thereto dated as of August 28,
1998, incorporated by reference to Exhibit 4(i) of the 1998 Form 10-K.
(i) Indenture dated as of January 1, 1995 between registrant and U.S. Bank
Trust National Association (successor to BankAmerica National Trust
Company,Company), pursuant to which registrant issued its 7% Senior Notes, due
2003; its 7% Senior Notes, due 2001; its 5 3/4% Senior Notes, due 2001;
its 6 3/8% Senior Notes, due 2005; its 6 1/8% Senior Notes, due 2004;
its 5 7/8% Senior Notes, due 2009; its 6 5/8% Senior Notes, due 2004;
its 7 7/8% Senior Notes, due 2005; its 7 1/8% Senior Notes, due 2006;
and its Senior Medium-Term Notes, Series D, E, F, G and H, incorporated
by reference to Exhibit 4.1 of registrant's Registration No. 33-57533;
and First Supplemental Indenture thereto dated as of September 18, 1998,
incorporated by reference to Exhibit 4.3 of registrant's Current Report
on Form 8-K filed November 18, 1998.
E-1
Exhibit No. Description
- ------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(j) Indenture dated as of January 1, 1995 between registrant and The Bank of
New York, pursuant to which registrant issued its 7 5/8% Subordinated
Notes, due 2005; its 7 3/4% Subordinated Notes, due 2015; its 7 1/4%
Subordinated Notes, due 2025; its 6 1/2% Subordinated Notes, due 2006;
its 7 1/2% Subordinated Notes, due 2006; its 7.80% Subordinated Notes,
due 2016; its 6 3/8% Subordinated Notes, due 2008; its 6.80%
Subordinated Notes, due 2028; its 6.60% Subordinated Notes, due 2010;
its 7.80% Subordinated Notes due 2010; its 7.40% Subordinated Notes, due
2011; and its Subordinated Medium-Term Notes, Series D, E, F, G and H,
incorporated by reference to Exhibit 4.8 of registrant's Registration
No. 33-57533; and First Supplemental Indenture thereto dated as of
August 28, 1998, incorporated by reference to Exhibit 4.8 of
registrant's Current Report on Form 8-K filed November 18, 1998.
(k) Fiscal and Paying Agency Agreement dated as of July 5, 1995, between
registrant and The Chase Manhattan Bank, N.A. (London Branch), pursuant
to which registrant issued its Floating Rate Senior Notes, due 2000,
incorporated by reference to Exhibit 4(l) of registrant's 1995 Annual
Report on Form 10-K dated March 29, 1996 (the "1995 Form 10-K").
(l) Amended and Restated Agency Agreement dated as of July 30, 1999August 1, 2000 between
registrant, Bank of America, N.A., The Chase Manhattan Bank, (London
Branch)London
Branch, and The Chase Manhattan Bank Luxembourg S.A.
(m) Issuing and Paying Agency Agreement dated as of July 30, 1999August 1, 2000 between
Bank of America, N.A., as Issuer, and Bankers Trust Company, as Issuing
and Paying Agent.
(n) Indenture dated as of November 27, 1996 between registrant and The Bank
of New York, incorporated by reference to Exhibit 4.10 of registrant's
Registration No. 333-15375.
(o) First Supplemental Indenture dated as of December 4, 1996 to the
Indenture dated as of November 27, 1996 between registrant and The Bank
of New York pursuant to which registrant issued its 7.84% Junior
Subordinated Deferrable Interest Notes due 2026, incorporated by
reference to Exhibit 4.3 of registrant's Current Report on Form 8-K
dated November 27, 1996.
(p) Second Supplemental Indenture dated as of December 17, 1996 to the
Indenture dated as of November 27, 1996 between registrant and The Bank
of New York pursuant to which registrant issued its 7.83% Junior
Subordinated Deferrable Interest Notes due 2026, incorporated by
reference to Exhibit 4.3 of registrant's Current Report on Form 8-K
dated December 10, 1996.
(q) Third Supplemental Indenture dated as of February 3, 1997 to the
Indenture dated as of November 27, 1996 between registrant and The Bank
of New York pursuant to which registrant issued its Floating Rate Junior
Subordinated Deferrable Interest Notes due 2027, incorporated by
reference to Exhibit 4.3 of registrant's Current Report on Form 8-K
dated January 22, 1997.
(r) Fourth Supplemental Indenture dated as of April 22, 1997 to the
Indenture dated as of November 27, 1996 between registrant and The Bank
of New York pursuant to which registrant issued its 8 1/4% Junior
Subordinated Deferrable Interest Notes, due 2027, incorporated by
reference to Exhibit 4.3 of registrant's Current Report on Form 8-K
dated April 15, 1997.
(s) Fifth Supplemental Indenture dated as of August 28, 1998 to the
Indenture dated as of November 27, 1996 between registrant and The Bank
of New York, incorporated by reference to Exhibit 4(t) of the 1998 Form
10-K.
(t) Indenture dated as of November 27, 1996, between Barnett Banks, Inc. and
The First National Bank of Chicago, as Trustee, and First Supplemental
Indenture dated as of January 9, 1998, among registrant, NB Holdings
Corporation, Barnett Banks, Inc. and The First National Bank of Chicago,
as Trustee, pursuant to which registrant (as successor to Barnett Banks,
Inc.) issued its 8.06% Junior Subordinated Debentures, due 2026,
incorporated by reference to Exhibit 4(u) of registrant's 1997 Annual
Report on Form 10-K dated
March 13, 1998 (the "1997 Form 10-K").
E-2
Exhibit No. Description
- ------------- -------------------------------------------------------------------------------
(u) Indenture dated as of September 1, 1990 between the former BankAmerica
Corporation and Chase Manhattan Bank and Trust Company, N. A. (formerly
Manufacturers Hanover Trust Company of California), pursuant
E-2
Exhibit No. Description
- ------------------------------------------------------------------------------------------
to which registrant (as successor to the former BankAmerica Corporation)
issued its Subordinated Medium Term Notes, Series E; its 9.375%
Subordinated Notes due 2001; its 10.00% Subordinated Notes due 2003; its
9.625% Subordinated Notes due 2001; its 9.50% Subordinated Notes due
2001; and its 9.20% Subordinated Notes due 2003; and First Supplemental
Indenture thereto dated as of September 15, 1998, incorporated by
reference to Exhibit 4(v) of the 1998 Form 10-K.
(v) Indenture dated as of November 1, 1991 between the former BankAmerica
Corporation and Chase Manhattan Bank and Trust Company, N. A. (formerly
Manufacturers Hanover Trust Company of California), pursuant to which
registrant (as successor to the former BankAmerica Corporation) issued
its 8.125% Subordinated Notes due 2002; its 7.75% Subordinated Notes due
2002; its 8.375% Subordinated Notes due 2002; its 7.50% Subordinated
Notes due 2002; its 7.20% Subordinated Notes due 2002; its 7.875%
Subordinated Notes due 2002; its 6.85% Subordinated Notes due 2003; its
6.875% Subordinated Notes due 2003; its Floating Subordinated Notes due
2003; its 7.20% Subordinated Notes due 2006; its 7.625% Subordinated
Notes due 2004; its 8.125% Subordinated Notes due 2004; its 8.95%
Subordinated Notes due 2004; its 6.75% Subordinated Notes due 2005; its
6.20% Subordinated Notes due 2006; its 7.125% Subordinated Notes due
2006; its 6.625% Subordinated Notes due 2007; its 6.625% Subordinated
Notes due 2007; its 7.125% Subordinated Notes due 2009; its 7.125%
Subordinated Notes due 2011; and its 6.25% Subordinated Notes due 2008;
First Supplemental Indenture thereto dated as of September 8, 1992; and
Second Supplemental Indenture thereto dated as of September 15, 1998,
incorporated by reference to Exhibit 4(w) of the 1998 Form 10-K.
(w) Indenture dated as of November 1, 1991 between the former BankAmerica
Corporation and U.S. Bank Trust, N. A. (successor to Bankers Trust
Company of California, National Association, and First Trust of
California, National Association), pursuant to which registrant (as
successor to the former BankAmerica Corporation) issued its 6.65% Note
due 2001; its 6.625% Note due 2001; and its Senior Medium-Term Notes,
Series H and I; First Supplemental Indenture thereto dated as of August
1, 1994; and Second Supplemental Indenture thereto dated as of September
30, 1998, incorporated by reference to Exhibit 4(x) of the 1998 Form 10-K.10-
K.
(x) Second Amended and Restated Agency Agreement dated as of November 15,
1996 between the former BankAmerica Corporation and First Trust of New
York, National Association, pursuant to which registrant (as successor
to the former BankAmerica Corporation) issued its Senior and
Subordinated Euro Medium-Term Notes; and Amendment thereto dated as of
September 30, 1998, incorporated by reference to Exhibit 4(y) of the
1998 Form 10-K.
(y) Junior Subordinated Indenture dated as of November 27, 1996 between the
former BankAmerica Corporation and Bankers Trust Company, pursuant to
which registrant (as successor to the former BankAmerica Corporation)
issued its 8.07% Series A Preferred Securities due 2026; and its 7.70%
Series B Preferred Securities due 2026; and First Supplemental Indenture
thereto dated as of September 15, 1998, incorporated by reference to
Exhibit 4(z) of the 1998 Form 10-K.
(z) Junior Subordinated Indenture dated as of December 20, 1996 between the
former BankAmerica Corporation and Bankers Trust Company, pursuant to
which registrant (as successor to the former BankAmerica Corporation)
issued its 8.07% Series A7.75% Trust Originated Preferred Securities, Series 1 due
2026; its 8.00% Cumulative Semi-Annual Income Preferred Securities,
Series 2 due 2026; its Floating Rate Capital Securities, Series 3 due
2027; and its 7.70% Series B7.00% Trust Originated Preferred Securities, Series 4 due
2026;2028; and First Supplemental Indenture thereto dated as of September 15,
1998, incorporated by reference to Exhibit 4(z)4(aa) of the 1998 Form 10-K.
(z) Junior Subordinated(aa) Restated Indenture (Senior Debt Securities) dated as of December 20, 1996January 1, 2001
by and between the
former BankAmerica Corporationregistrant and Bankers Trust Company, pursuant to
which registrant (as successor to the former BankAmerica Corporation) issued
its 7.75% Trust Originated Preferred Securities, Series 1 due 2026; its 8.00%
Cumulative Semi-Annual Income Preferred Securities, Series 2 due 2026; its
Floating Rate Capital Securities, Series 3 due 2027; and its 7.00% Trust
Originated Preferred Securities, Series 4 due 2028; and First Supplemental
Indenture thereto dated asThe Bank of September 15, 1998,New York, incorporated by
reference to Exhibit 4(aa)4.1 of the 1998 Form 10-K.registrant's Registration No. 333-47222.
(bb) Restated Indenture (Subordinated Debt Securities) dated as of January 1,
2001 by and between registrant and The Bank of New York, incorporated by
reference to Exhibit 4.2 of registrant's Registration No. 333-47222.
E-3
Exhibit No. Description
- ------------- ---------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
The registrant has other long-term debt agreements, but these are not material
in amount. Copies of these agreements will be furnished to the Commission on
request.
10(a) NationsBank Corporation and Designated Subsidiaries Directors' *
Retirement * Plan, incorporated by reference to Exhibit 10(f) of
registrant's Annual Report on Form 10-K dated March 27, 1991; Amendment
thereto dated as of September 28, 1994, incorporated by reference to
Exhibit 10(i) of registrant's Annual Report on Form 10-K dated March 30,
1995; and Amendment thereto dated as of April 24, 1996, incorporated by
reference to Exhibit 10(g) of registrant's 1996 Annual Report on Form
10-K dated March 28, 1997 (the "1996 Form 10-K").
(b) NationsBank Corporation and Designated Subsidiaries Supplemental *
Executive Retirement Plan, incorporated by reference to Exhibit 10(j) of
registrant's Annual Report on Form 10-K dated March 30, 1995; Amendment
thereto dated as of June 28, 1989, incorporated by reference to Exhibit
10(g) of registrant's Annual Report on Form 10-K dated March 28, 1990;
Amendment thereto dated as of June 27, 1990, incorporated by reference
to Exhibit 10(g) of registrant's Annual Report on Form 10-K dated March
27, 1991; Amendment thereto dated as of July 21, 1991, incorporated by
reference to Exhibit 10(bb) of registrant's Annual Report on Form 10-K
dated March 25, 1992; Amendments thereto dated as of December 3, 1992
and December 15, 1992, both of which are incorporated by reference to
Exhibit 10(l) of registrant's Annual Report on Form 10-K dated March 24,
1993; Amendment thereto dated as of September 28, 1994, incorporated by
reference to Exhibit 10(j) of registrant's Annual Report on Form 10-K
dated March 30, 1995; Amendments thereto dated March 27, 1996 and June
25, 1997, incorporated by reference to Exhibit 10(c) of the 1997 Form
10-K; Amendments thereto dated April 10, 1998, June 24, 1998 and October
1, 1998, incorporated by reference to Exhibit 10(b) of the 1998 Form 10-K;10-
K; and Amendment thereto dated December 14, 1999.1999, incorporated by
reference to Exhibit 10(b) of registrant's 1999 Annual Report on Form
10-K (the "1999 Form 10-K").
(c) NationsBank Corporation and Designated Subsidiaries Deferred *
Compensation Plan for Key Employees, incorporated by reference to
Exhibit 10(k) of registrant's Annual Report on Form 10-K dated March 30,
1995; Amendment thereto dated as of June 28, 1989, incorporated by
reference to Exhibit 10(h) of registrant's Annual Report on Form 10-K
dated March 28, 1990; Amendment thereto dated as of June 27, 1990,
incorporated by reference to Exhibit 10(h) of registrant's Annual Report
on Form 10-K dated March 27, 1991; Amendment thereto dated as of July
21, 1991, incorporated by reference to Exhibit 10(bb) of registrant's
Annual Report on Form 10-K dated March 25, 1992; Amendment thereto dated
as of December 3, 1992, incorporated by reference to Exhibit 10(m) of
registrant's Annual Report on Form 10-K dated March 24, 1993; and
Amendments thereto dated April 10, 1998 and October 1, 1998,
(filed asincorporated by reference to Exhibit 10(b) hereto).of the 1998 Form 10-K.
(d) NationsBank Corporation and Designated Subsidiaries Supplemental *
Retirement Plan, incorporated by reference to Exhibit 10(o) of
registrant's Annual Report on Form 10-K dated March 30, 1994; Amendment
thereto dated as of June 28, 1989, incorporated by reference to Exhibit
10(k) of registrant's Annual Report on Form 10-K dated March 28, 1990;
Amendment thereto dated as of June 27, 1990, incorporated by reference
to Exhibit 10(k) of registrant's Annual Report on Form 10-K dated March
27, 1991; Amendment thereto dated as of July 21, 1991, incorporated by
reference to Exhibit 10(bb) of registrant's Annual Report on Form 10-K
dated March 25, 1992; Amendments thereto dated as of December 3, 1992
and December 4, 1992, both of which are incorporated by reference to
Exhibit 10(p) of registrant's Annual Report on Form 10-K dated March 24,
1993; Amendment thereto dated as of July 5, 1995, incorporated by
reference to Exhibit 10(l) of the 1995 Form 10-K; and Amendments thereto
dated April 10, 1998 and October 1, 1998, (filed asincorporated by reference to
Exhibit 10(b) hereto).of the 1998 Form 10-K.
E-4
Exhibit No. Description
- ------------------------------------------------------------------------------------------
(e) Split Dollar Agreement dated as of February 1, 1990 between registrant *
and * Hugh L. McColl III, as Trustee for the benefit of Hugh L. McColl,
Jr. and Jane S. McColl, incorporated by reference to Exhibit 10(s) of
registrant's 1990 Annual Report on Form 10-K dated March 27, 1991.
E-4
Exhibit No. Description
- ------------- --------------------------------------------------------------------------------
10-K.
(f) NationsBank Corporation Benefit Security Trust dated as of June 27, *
1990, * incorporated by reference to Exhibit 10(t) of registrant's Annual
Report on Form 10-K dated March 27, 1991; First Supplement thereto dated
as of November 30, 1992, incorporated by reference to Exhibit 10(v) of
registrant's Annual Report on Form 10-K dated March 24, 1993; and
Trustee Removal/ Appointment Agreement dated as of December 19, 1995,
incorporated by reference to Exhibit 10(o) of the 1995 Form 10-K.
(g) The NationsBank 401(k) Restoration Plan, as amended and restated *
effective * April 1, 1998 and as further amended and restated effective
July 1, 1998, incorporated by reference to Exhibit 10(g) of the 1998
Form 10-K.
(h) Bank of America Executive Incentive Compensation Plan, as amended and *
restated effective April 1, 1998, incorporated by reference to Exhibit
10(h) of the 1998 Form 10-K.
(i) Bank of America Director Deferral Plan, as amended and restated *
effective * January 27, 1999, incorporated by reference to Exhibit 10(i)
of the 1998 Form 10-K.
(j) NationsBank Corporation Directors' Stock Plan, incorporated by reference *
to * Exhibit 99.1 of registrant's Registration No. 333-02875.
(k) Amendment to Restricted Stock Award Plan Agreements with Hugh L. McColl, *
Jr. dated December 20, 1996, incorporated by reference to Exhibit 10(x)
of the 1996 10-K.
(l) Bank of America Corporation Key Employee Stock Plan, as amended and *
restated effective September 24, 1998, incorporated by reference to
Exhibit 10(a) of registrant's Quarterly Report on Form 10-Q dated
November 16, 1998 (the "Third Quarter 1998 Form 10-Q").
(m) BankAmerica Corporation and Bank of America National Trust and Savings *
Association Deferred Compensation Plan for Directors, as amended and
restated, incorporated by reference to Exhibit 10(b) of the Third
Quarter 1998 Form 10-Q.
(n) BankAmerica Deferred Compensation Plan as amended and restated, *
incorporated by reference to Exhibit 10(c) of the Third Quarter 1998 Form
10-Q.
(o) BankAmerica Corporation Senior Management Incentive Plan, as amended, *
incorporated by reference to Exhibit 10(d) of the Third Quarter 1998 Form
10-Q.
(p) BankAmerica Supplemental Retirement Plan, as amended and restated, *
incorporated by reference to Exhibit 10(e) of the Third Quarter 1998 Form
10-Q.
(q) BankAmerica Corporation Performance Equity Program, incorporated by *
reference to Exhibit 99.1 of Post-Effective Amendment No. 3 to registrant's
Registration No. 333-60553.
(r) BankAmerica Corporation 1992 Management Stock Plan, incorporated by *
reference to Exhibit 99.2 of Post-Effective Amendment No. 3 to registrant's
Registration No. 333-60553.
(s) BankAmerica Corporation 1987 Management Stock Plan, incorporated by *
reference to Exhibit 99.3 of Post-Effective Amendment No. 3 to registrant's
Registration No. 333-60553.
(t) Continental Bank Corporation 1991 Equity Performance Incentive Plan, *
incorporated by reference to Exhibit 99.5 of Post-Effective Amendment No. 3
to registrant's Registration No. 333-60553.
(u) Continental Bank Corporation 1982 Performance Restricted Stock and Stock *
Option Plan, incorporated by reference to Exhibit 99.1 of Post-Effective
Amendment No. 4 to registrant's Registration No. 333-60553.
(v) Split Dollar Life Insurance Agreement dated as of October 15, 1998 *
between *
registrant and NationsBank, N. A., as Trustee under that certain
Irrevocable Trust Agreement dated October 2, 1998, by and between
Hugh L. McColl, Jr., as Grantor, and NationsBank, N. A., as Trustee,
under that certain Irrevocable
Trust Agreement dated October 2,incorporated by reference to Exhibit 10(cc) of the 1998 by and between Hugh L. McColl, Jr.,
as Grantor, and NationsBank, N. A., as Trustee, incorporated by reference to
Exhibit 10(cc) of the 1998 Form 10-K.
E-5
Exhibit No. Description
- ------------- --------------------------------------------------------------------------------
(w)Form 10-K.
(o) Split Dollar Life Insurance Agreement dated as of October 16, 1998 *
between * registrant and NationsBank, N. A., as Trustee under that certain
Irrevocable Trust Agreement No. 2 dated October 1, 1998, by and between
James H. Hance, Jr., as Grantor, and NationsBank, N. A., as Trustee,
incorporated by reference to Exhibit 10(dd) of the 1998 Form 10-K.
(x)(p) Split Dollar Life Insurance Agreement dated as of September 28, 1998 *
between * registrant and J. Steele Alphin, as Trustee under that certain
Irrevocable Trust Agreement dated June 23, 1998, by and between Kenneth
D. Lewis, as Grantor, and J. Steele Alphin, as Trustee, incorporated by
reference to Exhibit 10(ee) of the 1998 Form 10-K.
(y)(q) Employment Agreement dated as of April 10, 1998 between registrant and *
James H. Hance, Jr., incorporated by reference to Exhibit 10.4 of
registrant's Registration No. 333-60553.
(z)333-60553; and Amendment thereto dated
January 24, 2001.
(r) Employment Agreement dated as of April 10, 1998 between registrant and *
Kenneth D. Lewis, incorporated by reference to Exhibit 10.5 of
registrant's Registration No. 333-60553.
(aa) Employment Agreement333-60553; and Amendment thereto dated
as of April 10, 1998 between registrant and *
Michael J. Murray, incorporated by reference toJanuary 24, 2001.
E-5
Exhibit 10.2 of registrant's
Registration No. 333-60553.
(bb) Agreement and Plan of Reorganization by and between registrant and the
former BankAmerica Corporation, dated as of April 10, 1998, incorporated by
reference to Exhibit 2.1 of registrant's Registration No. 333-60553.
(cc) Plan of Reincorporation Merger by and between registrant and NationsBank
(DE) Corporation, dated as of August 3, 1998, incorporated by reference to
Exhibit 2.2 of registrant's Registration No. 333-60553.
(dd)Description
- ------------------------------------------------------------------------------------------
(s) Split Dollar Life Insurance Agreement dated as of August, 1999 between *
registrant and Bank of America, N.A., as Trustee under The Vandiver
Family Trust Dated August 12, 1999.
(ee) Split Dollar Life Insurance1999, incorporated by reference to Exhibit
10(dd) of the 1999 Form 10-K.
(t) Global Corporate and Investment Banking Equity Incentive Plan, as *
established effective January 1, 2000.
(u) Consulting Agreement dated as of December 31, 1999January 24, 2001 between * registrant and BankHugh *
L. McColl, Jr.
(v) Summary of America, N.A., as Trustee under the Michael2000 Corporate Management Incentive Plan. *
(w) Relocation Agreement dated October 5, 1998 between registrant and Edward *
J. Murray
and Christine A. Murray 1999 Irrevocable Trust dated December 11, 1999.Brown III.
11 Earnings per share computation. Included in Note 1012 of the consolidated
financial statements.
12 (a)12(a) Ratio of Earnings to Fixed Charges.
(b) Ratio of Earnings to Fixed Charges and Preferred Dividends.
21 List of Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP.
24 (a)24(a) Power of Attorney.
(b) Corporate Resolution.
27 Financial Data Schedule.
- ---------
* Denotes executive compensation plan or arrangement.
E-6