UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONSSECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ü] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ü] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20062007
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
1-6523
Exact nameName of registrantRegistrant as specifiedSpecified in its charter:Charter:
Bank of America Corporation
State or other jurisdictionOther Jurisdiction of incorporationIncorporation or organization:Organization:
Delaware
IRS Employer Identification No.:
56-0906609
Address of Principal Executive Offices:
Bank of America Corporate Center
100 N. Tryon Street
Charlotte, North Carolina 28255
Registrant’s telephone number, including area code:
(704) 386-5681
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 | ||
Tokyo Stock Exchange | ||
Depositary Shares, | ||
6.204% | New York Stock Exchange | |
Depositary Shares, Each Representing a 1/1,000th interest in a share of Floating Rate | New York Stock Exchange | |
| ||
Depositary Shares, Each Representing a 1/1,000th interest in a share of 7.25% Non-Cumulative Preferred Stock, Series J | New York Stock Exchange | |
7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L | New York Stock Exchange | |
Minimum Return Index EAGLESSM, due June 1, 2010, Linked to the | American Stock Exchange | |
Minimum Return Index EAGLES®, due June 28, 2010, Linked to the S&P 500® Index | American Stock Exchange | |
Minimum | American Stock Exchange | |
Minimum Return Basket EAGLESSM, due August 2, 2010, Linked to a Basket of Energy Stocks | American Stock Exchange | |
Minimum Return Index EAGLES®, due August 28, 2009, Linked to the Russell 2000® Index | American Stock Exchange | |
Minimum Return Index EAGLES®, due September 25, 2009, Linked to the Dow Jones Industrial AverageSM | American Stock Exchange | |
Minimum Return Index EAGLES®, due October 29, 2010, Linked to the Nasdaq-100 Index® | American Stock Exchange | |
1.50% Index CYCLESTM, due November 26, 2010, Linked to the S&P 500® Index | American Stock Exchange |
Title of each class | Name of each exchange on which registered | |
1.00% Index CYCLESTM, due December 28, 2010, Linked to the S&P MidCap 400 Index | American Stock Exchange | |
Return Linked Notes due June 28, 2010, Linked to the Nikkei 225 Index | American Stock Exchange | |
1.00% Index CYCLESTM, due January 28, 2011, Linked to a Basket of Health Care Stocks | American Stock Exchange | |
Minimum Return Index EAGLES®, due January 28, 2011, Linked to the Russell 2000® Index | American Stock Exchange | |
0.25% Cash-Settled Exchangeable Notes, due January 26, 2010, Linked to the Nasdaq-100 Index® | American Stock Exchange |
| ||
1.25% Index CYCLESTM, due February 24, 2010, Linked to the S&P 500® Index | American Stock Exchange | |
Minimum Return Index EAGLES®, due March 27, 2009, Linked to the Nasdaq-100 Index® | American Stock Exchange | |
1.75% Basket CYCLESTM, due April 30, 2009, Linked to a Basket of Three Indices | American Stock Exchange | |
1.00% Basket CYCLESTM, due May 27, 2010, Linked to a | American Stock Exchange | |
Minimum Return Index EAGLES®, due June 25, 2010, Linked to the Dow Jones Industrial AverageSM | American Stock Exchange | |
1.50% Basket CYCLESTM, due July 29, 2011, Linked to an | American Stock Exchange | |
Minimum Return Index EAGLES®, due August 28, 2009, Linked to the AMEX Biotechnology IndexSM | American Stock Exchange | |
1.25% Index CYCLESTM, due August 25, 2010, Linked to the Dow Jones Industrial AverageSM | American Stock Exchange | |
1.25% Basket CYCLESTM, due September 27, 2011, Linked to a Basket of Four Indices | American Stock Exchange | |
Minimum Return Basket EAGLESSM, due September 29, 2010, Linked to a Basket of Energy Stocks | American Stock Exchange | |
Minimum Return Index EAGLES®, due October 29, 2010, Linked to the S&P 500® Index | American Stock Exchange | |
Minimum Return Index EAGLES®, due November 23, 2010, Linked to the Nasdaq-100 Index® | American Stock Exchange | |
Minimum Return Index EAGLES®, due November 24, 2010, Linked to the CBOE China Index | American Stock Exchange | |
1.25% Basket CYCLESTM, due December 27, 2010, Linked to a | American Stock Exchange | |
1.50% Index CYCLESTM, due December 28, 2011, Linked to a Basket of Health Care Stocks | American Stock Exchange | |
6 1/2% Subordinated InterNotesSM, due 2032 | New York Stock Exchange | |
5 1/2% Subordinated InterNotesSM, due 2033 | New York Stock Exchange | |
5 7/8% Subordinated InterNotesSM, due 2033 | New York Stock Exchange | |
6% Subordinated InterNotesSM, due 2034 | New York Stock Exchange | |
| ||
Minimum Return Index EAGLES, due March 25, 2011, Linked to the Dow Jones Industrial Average | ||
1.625% Index CYCLES, due March 23, 2010, Linked to the Nikkei 225 Index | ||
1.75% Index CYCLES, due April 28, 2011, Linked to the S&P 500 Index | American Stock Exchange | |
Return Linked Notes, due August 26, 2010, Linked to a Basket of Three Indices | American Stock Exchange | |
Return Linked Notes, due June 27, 2011, Linked to an “80/20” Basket of Four Indices and an Exchange Traded Fund | American Stock Exchange | |
Minimum Return Index EAGLES, due July 29, 2010, Linked to the S&P 500 Index | American Stock Exchange | |
Return Linked Notes, due January 28, 2011, Linked to a Basket of Two Indices | American Stock Exchange | |
Minimum Return Index EAGLES, due August 26, 2010, Linked to the Dow Jones Industrial Average | American Stock Exchange | |
Return Linked Notes, due August 25, 2011, Linked to the Dow Jones EURO STOXX 50 Index | American Stock Exchange | |
Minimum Return Index EAGLES, due October 3, 2011, Linked to the S&P 500 Index | American Stock Exchange | |
Minimum Return Index EAGLES, due October 28, 2011, Linked to the AMEX Biotechnology Index | American Stock Exchange | |
Return Linked Notes, due October 27, 2011, Linked to a Basket of Three Indices | American Stock Exchange | |
Return Linked Notes, due November 22, 2010, Linked to a Basket of Two Indices | American Stock Exchange | |
Minimum Return Index EAGLES, due November 23, 2011, Linked to a Basket of Five Indices | American Stock Exchange | |
Minimum Return Index EAGLES, due December 27, 2011, Linked to the Dow Jones Industrial average | American Stock Exchange | |
0.25% Senior Notes Optionally Exchangeable Into a Basket of Three Common Stocks, due February 2012 | American Stock Exchange | |
Return Linked Notes, due December 29, 2011 Linked to a Basket of Three Indices | American Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ü
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü 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 any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filer” and “large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ü | Accelerated filer | Non-accelerated filer (do not check if a smaller reporting company) | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü
The aggregate market value of the registrant’s common stock (“Common Stock”) held by non-affiliates is approximately $213,260,291,645$215,286,616,664 (based on the June 30, 200629, 2007 closing price of Common Stock of $48.10$48.89 per share as reported on the New York Stock Exchange). As of February 26, 2007,25, 2008, there were 4,472,315,4284,442,228,781 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant | Form 10-K Reference Locations | |
Portions of the | PART III |
Part I |
Bank of America Corporation and Subsidiaries |
Item 1. Business General |
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Bank of America Corporation (“Bank of America” or the “Corporation”) is a Delaware corporation, a bank holding company and a financial holding company under the Gramm-Leach-Bliley Act. We were incorporated in 1998 as part of the merger of BankAmerica Corporation with NationsBank Corporation. Our principal executive offices are located in the Bank of America Corporate Center, Charlotte, North Carolina 28255.
Through our banking subsidiaries (the “Banks”) and various nonbanking subsidiaries throughout the United States and in selected international markets, we provide a diversified range of banking and nonbanking financial services and products through three business segments:Global Consumer and Small Business Banking, Global Corporate and Investment BankingandGlobal Wealth and Investment Management.We currently operate in 3032 states, the District of Columbia and 44more than 30 foreign countries. The Bank of America footprint covers more than 7582 percent of the U.S. population and 44 percent of the country’s wealthy households. In the United States, we serve more than 55approximately 59 million consumer and small business relationships with more than 5,7006,100 retail banking offices, more than 17,00018,500 ATMs and more than 21approximately 24 million active on-line users. We offer serviceshave banking centers in 1613 of the 2015 fastest growing states and hold the top market share in 6 of those states. Bank of America is the number one small business bank,Small Business Administration lender and has relationships with 9899 percent of the U.S. Fortune 500 Companies and 8083 percent of the Fortune Global Fortune 500 Companies.
Additional information relating to our businesses and our subsidiaries is included in the information set forth in pages 2519 through 4235 of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations andNote 2022 – Business Segment Information of the Notes to the Consolidated Financial Statements in Item 8 of this report.
Bank of America’s website iswww.bankofamerica.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available on our website athttp://investor.bankofamerica.com under the heading Complete SEC Filings as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC”). In addition, we make available onhttp://investor.bankofamerica.com under the heading Corporate Governance our:Governance: (i) our Code of Ethics and Insider Trading Policy; (ii) our Corporate Governance Guidelines; and (iii) the charters of each of Bank of America’s Board committees, and we also intend to disclose any amendments to our Code of Ethics, or waivers of our Code of Ethics on behalf of our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, on our website. All of these corporate governance materials are also available free of charge in print to stockholders who request them in writing to: Bank of America Corporation, Attention: Shareholder Relations Department, 101 South Tryon Street, NC1-002-29-01, Charlotte, North Carolina 28255.
Competition |
The activities in which Bank of America and our subsidiaries engage areoperate in a highly competitive. Generally, the lines of activity and markets served involve competition withcompetitive environment. Our competitors include banks, thrifts, credit unions, and nonbank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies, insurance companies, mortgage banking companies, credit card issuers, mutual fund companies and insurancee-commerce and other Internet-based companies. We also compete against bankswith some of these competitors globally and thrifts owned by nonregulated diversified corporations and other entities which offer financial services and through alternative delivery channels such as the Internet. The methodswith others on a regional or product basis. Competition is based on a number of competition center around various factors such asincluding customer service, quality and range of products and services offered, price, reputation, interest rates on loans and deposits, quality and range of products, lending limits and customer convenience, such as locations of offices.convenience.
The commercialMore specifically, our consumer banking business in the various local markets served by our subsidiaries is highly competitive. We competecompetes with banks, thrifts, credit unions, finance companies and other businesses which provide similarnonbank organizations offering financial services. We actively compete inOur commercial lending activitiesbusiness competes with local, regional and international banks and nonbank financial organizations, some of which are larger than certain of our nonbanking subsidiaries and the Banks. In our consumer lending operations, our competitors include banks, thrifts, credit unions, finance companies and other nonbank organizations offering financial services. In the investment banking, investment advisory and brokerage business,businesses, our nonbanking subsidiaries compete with U.S. and international banking and investment banking firms, investment advisory firms, brokerage firms, investment
companies, other organizations offering similar services and other investment alternatives available to investors, some of which are larger than our nonbanking subsidiaries. Our mortgage banking units compete with banks, thrifts, government agencies, mortgage brokers and other nonbank organizations offering mortgage banking services. Our card business competes in the U.S. and internationally with banks, as well as monoline and retail card product companies. In the trust business, the Banks compete with other banks, investment counselors andthrifts, insurance companies in national markets for institutional funds and insurance agents, thrifts, financial counselors and other fiduciaries for personal trust business. Webusiness and with other banks, investment counselors and insurance companies for institutional funds.
Bank of America also competes actively compete for funds. A primary source of funds for the Banks is deposits, and competition for deposits includes other deposit-taking organizations, such as banks, thrifts and credit unions, as well as money market mutual funds. Bank of America also competesIn addition, we compete for funding in the domestic and international short-term and long-term debt securities capital markets.
Our ability to expand into additional states remains subject to various federal and state laws. See “Government Supervision and Regulation—Regulation – General” below for a more detailed discussion of interstate banking and branching legislation and certain state legislation.
Employees |
As of December 31, 2006,2007, there were 203,425approximately 210,000 full-time equivalent employees within Bank of America and our subsidiaries. Of these employees, 100,909116,000 were employed withinGlobal Consumer and Small Business Banking,, 26,622 21,000 were employed withinGlobal Corporate and Investment Banking and 13,72814,000 were employed withinGlobal Wealth and Investment Management. The remainder were employed elsewhere within our company including various staff and support functions.
Bank of America 2007 | 1 |
None of our domestic employees isare subject to a collective bargaining agreement. Management considers our employee relations to be good.
Acquisition and Disposition Activity |
As part of our operations, we regularly evaluate the potential acquisition of, and hold discussions with, various financial institutions and other businesses of a type eligible for financial holding company ownership or control. In addition, we regularly analyze the values of, and submit bids for, the acquisition of customer-based funds and other liabilities and assets of such financial institutions and other businesses. We also regularly consider the potential disposition of certain of itsour assets, branches, subsidiaries or lines of businesses. As a general rule, we publicly announce any material acquisitions or dispositions when a definitive agreement has been reached.
On JanuaryOctober 1, 2006,2007, the Corporation completed the acquisition of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation. On July 1, 2007, the Corporation completed the acquisition of America completed our merger with MBNAU.S. Trust Corporation. Additional information on the MBNA mergerour acquisitions and mergers is included underNote 2 – Merger and Restructuring Activity of the Notes to the Consolidated Financial Statements in Item 8 which is incorporated herein by reference.
Government Supervision and Regulation |
The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies and banks and specific information about Bank of America and our subsidiaries. Federal regulation of banks, bank holding companies and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund rather than for the protection of stockholders and creditors.
General
As a registered bank holding company and financial holding company, Bank of America is subject to the supervision of, and regular inspection by, the Board of Governors of the Federal Reserve System (the “Federal Reserve Board” or “FRB”). The Banks are organized as national banking associations, which are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the “Comptroller” or “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”), the Federal Reserve Board, other federal and state regulatory agencies, and with respect to Bank of America’s operations in the United Kingdom, the Financial Services Authority (the “FSA”). In addition to banking laws, regulations and regulatory agencies, Bank of America and our subsidiaries and affiliates are subject to various other laws and regulations and supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of Bank of America and our ability to make distributions to stockholders.
A financial holding company, and the companies under its control, are permitted to engage in activities considered “financial in nature” as defined by the Gramm-Leach-Bliley Act and Federal Reserve Board interpretations (including, without limitation, insurance and securities activities), and therefore may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries. A financial holding company may engage directly or indirectly in activities considered financial in nature, either de novo or by acquisition, provided the financial holding company gives the Federal Reserve Board after-the-fact notice of the new activities. The Gramm-Leach-Bliley Act also permits national banks, such as the Banks, to engage in activities considered financial in
nature through a financial subsidiary, subject to certain conditions and limitations and with the approval of the OCC.
Bank holding companies (including bank holding companies that also are financial holding companies) also are 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 non-affiliated bank. 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 located 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, after 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 or such lesser or greater amount set by state 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 to create interstate banks. The Interstate Banking and Branching Act also permits a bank to open new branches in a state in which it does not already have banking operations if such state enacts a law permitting de novo branching.
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 proposals or legislation and the impact they might have on Bank of America and our subsidiaries cannot be determined at this time.
Capital and Operational Requirements
The Federal Reserve Board, the OCC and the FDIC have issued substantially 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 anticipated growth. The Federal Reserve Board risk-based guidelines define a three-tier capital framework. Tier 1 capital includes common shareholders’ equity, trust preferred securities, minority interests and qualifying preferred stock, less goodwill and other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, and the allowance for credit losses up to 1.25 percent of risk-weighted assets and other adjustments. 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 Federal 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. The sum of Tier 1 and Tier 2 capital less investments in unconsolidated subsidiaries represents our qualifying total capital. Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of 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. Our Tier 1 and total risk-based capital ratios under these guidelines at December 31, 20062007 were 8.646.87 percent and 11.88 percent, respectively.11.02 percent. At December 31, 2006,2007, we had no subordinated debt that qualified as Tier 3 capital.
2 | Bank of America 2007 |
The leverage ratio is determined by dividing Tier 1 capital by adjusted quarterly average total assets. Although the statedassets, after certain adjustments. Well-capitalized bank holding companies must have a minimum Tier 1 leverage ratio is 100 to 200 basis points aboveof three percent banking organizationsand are requirednot subject to an FRB directive to maintain a ratio of at least five percent to be classified as well capitalized.higher capital levels. Our leverage ratio at December 31, 20062007 was 6.36 percent. We exceed5.04 percent, which exceeded our leverage ratio requirement.
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, 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 progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. 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 guarantee 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’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 regulations 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-based capital ratio of at least ten 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 was considered well capitalized as of December 31, 2006.2007.
Regulators also must take into consideration: (a) concentrations of credit risk; (b) interest rate risk; and (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. This evaluation will be made as a part of the institution’s regular safety and soundness examination. In addition, Bank of America, and any Bank with significant trading activity, must incorporate a measure for market risk in their regulatory capital calculations.
Distributions
Our funds for cash distributions to our 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 our indebtedness, 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
authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof.
In addition, the ability of Bank of America 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 Bank of America, our stockholders and our creditors to participate in any distribution of the assets or earnings of its subsidiaries is further subject 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 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.
Additional Information
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See also the following additional information which is incorporated herein by reference: Net Interest Income (under the captions “Financial Highlights—Highlights – Net Interest Income” and “Supplemental Financial Data” in Item 7, Management’s Discussion and Analysis of Financial ConditionsCondition and Results of Operations (the “MD&A”) and Tables I, II and XIII of the Statistical Financial Information)Tables); Securities (under the caption “Balance Sheet Analysis – Debt Securities” and “Interest Rate Risk Management—Management for Nontrading Activities – Securities” in the MD&A and NotesNote 1 – Summary of Significant Accounting Principles and Note 5 – Securitiesof the Notes to the Consolidated Financial Statements in Item 8, Financial Statements and Supplemental Data (the “Notes”)); Outstanding Loans and Leases (under the caption “Balance Sheet Analysis – Loans and Leases; Net of Allowance for Loan and Lease Losses” and “Credit Risk Management” in the MD&A, Table III of
the Statistical Financial Information,Tables, and NotesNote 1 – Summary of Significant Accounting Principles and Note 6 – Outstanding Loans and Leases of the Notes); Deposits (under the caption “Balance Sheet Analysis – Deposits” and “Liquidity Risk and Capital Management—Management – Liquidity Risk” in the MD&A andNote 11 – Deposits of the Notes); Short-Term Borrowings (under the caption “Balance Sheet Analysis – Commercial Paper and other Short-term Borrowings” and “Liquidity Risk and Capital Management—Management – Liquidity Risk” in the MD&A, Table IX of the Statistical Financial InformationTables andNote 12 – Short-term Borrowings and Long-term Debt of the Notes); Trading Account Assets and Liabilities (under the caption “Balance Sheet Analysis – Trading Account Assets”, “Balance Sheet Analysis – Trading Account Liabilities” and “Market Risk Management—Management – Trading Risk Management” in the MD&A andNote 3 – Trading Account Assets and Liabilities of the Notes); Market Risk Management (under the caption “Market Risk Management” in the MD&A); Liquidity Risk Management (under the caption “Liquidity Risk and Capital Management” in the MD&A); Operational Risk Management (under the caption “Operational Risk Management” in the MD&A); and Performance by Geographic Area (underNote 2224 – Performance by Geographical Area of the Notes).
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Item 1A. Risk Factors
The following discusses some of the key risk factors that could affect Bank of America’s business and operations. Other factors besides those discussed below or elsewhere in this report also could adversely affect our business and operations, and these risk factors should not be considered a complete list of potential risks that may affect Bank of America.
General business,Business, economic and political conditions.Our businesses and earnings are affected by general business, economic and political conditions in the United States and abroad. Given the concentration of our business activities in the United States, we are particularly exposed to downturns in the United States economy. For example, in a poor economic environment there is a greater likelihood that more of our customers or counterparties could become delinquent on their loans or other obligations to us, which, in turn, could result in a higher level of charge-offs and provision for credit losses, all of which would adversely affect our earnings. General business and economic conditions that could affect us include the level and volatility of short-term and long-term interest rates, inflation, variations in monetary supply, fluctuations in both debt and equity capital markets, liquidity of the global financial markets, the availability and cost of credit, investor confidence, and the strength of the United States economy and the local economies in which we operate. Geopolitical conditions can also affect our earnings. Acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, could affect business and economic conditions in the United States and abroad.
In the second half of 2007, certain credit markets experienced difficult conditions and volatility. These conditions resulted in less liquidity, greater volatility, widening of credit spreads and a lack of price transparency. The Corporation’sGlobal Corporate and Investment Banking business operates in these markets, either directly or indirectly, through exposures in securities, loans, derivatives and other commitments. While it is difficult to predict how long these conditions will exist and which markets, products or other businesses of the Corporation will ultimately be affected, these factors could continue to adversely impact the Corporation’s results of operations.
Access to funds from subsidiaries.The Corporation is a separate and distinct legal entity from our banking and nonbanking subsidiaries. We therefore depend on dividends, distributions and other payments from our banking and nonbanking subsidiaries to fund dividend payments on the common stock and our preferred stock and to fund all payments on our other obligations, including debt obligations. Many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to the Corporation. Regulatory action of that kind could impede access to funds we need to make payments on our obligations or dividend payments. In addition, the Corporation’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
Changes in accounting standards.Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time the Financial Accounting Standards Board (“FASB”) changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the Corporation restating prior period financial statements.
Competition.We operate in a highly competitive environment that could experience intensified competition as continued merger activity in
the financial services industry produces larger, better-capitalized companies that are capable of offering a wider array of financial products and services and at more competitive prices. In addition, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products, and for financial institutions to compete with technology companies in providing electronic and Internet-based financial solutions. Many of our competitors have fewer regulatory constraints and some have lower cost structures.structures than we do. Increased competition may affect our results by creating pressure to lower prices on our products and services and reducing market share.
Credit risk.When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of losses if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contract.contracts. A number of our products expose us to credit risk, including loans, leases and lending commitments, derivatives, trading account assets and assets held-for-sale. As one of the nation’s largest lenders,
the credit quality of our portfolio can have a significant impact on our earnings. We allowestimate and establish reserves for and reserve against credit risks based on our assessment ofand potential credit losses inherent in our credit exposure (including unfunded credit commitments). This process, which is critical to our financial results and condition, requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans. As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify.
For a further discussion of credit risk and our credit risk management policies and procedures, see “Credit Risk Management” in the MD&A.
Federal and state regulation.Bank of America, the Banks and many of our nonbank subsidiaries are heavily regulated by bank regulatory agencies at the federal and state levels. This regulatory oversight is established to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Bank of America and its nonbanking subsidiaries are also heavily regulated by securities regulators, domestically and internationally. This regulation is designed to protect investors in securities we sell or underwrite. Congress and state legislatures and foreign, federal and state regulatory agencies continually review laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer and increasing the ability of nonbanks to offer competing financial services and products.
Governmental fiscal and monetary policy.Our businesses and earnings are affected by domestic and international monetary policy. For example, the Federal Reserve Board regulates the supply of money and credit in the United States and its policies determine in large part our cost of funds for lending, investing and investingcapital raising activities and the return we earn on those loans and investments, both of which affect our net interest margin. The actions of the Federal Reserve Board also can materially affect the value of financial instruments we hold, such as debt securities and mortgage servicing rights and its policies also can affect our borrowers, potentially increasing the risk that they may fail to repay their loans. Our businesses and earnings also are affected by the fiscal or other policies that are adopted by various regulatory authorities of the United States, non-U.S. governments and international agencies. Changes in domestic and international monetary policy are beyond our control and hard to predict.
Liquidity risk. Liquidity is essential to our businesses. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash. This situation may arise due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects third parties or us. Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our liquidity and competitive position, increase our borrowing costs, limit our access to the capital markets or trigger unfavorable contractual obligations.
For a further discussion of our liquidity pictureposition and the policies and procedures we use to manage our liquidity risks, see “Liquidity Risk and Capital Management” in the MD&A.
Litigation risks. We face significant legal risks in our businesses, and the volume of claims and amount of damages and penalties claimed
4 | Bank of America 2007 |
in litigation and regulatory proceedings against financial institutions remain high. Substantial legal liability or significant regulatory action against Bank of America could have material adverse financial effects or cause significant reputational harm to Bank of America, which in turn could seriously harm our business prospects.
For a further discussion of litigation risks, see “Litigation and Regulatory Matters” inNote 13 – Commitments and Contingencies of the Notes.
Market risk. We are directly and indirectly affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected by changes in market conditions. For example, changes in interest rates could adversely affect our net interest margin—margin – the difference between the yield we earn on our assets and the interest rate we pay for deposits and other sources of funding—funding – which could in turn affect our net interest income and earnings. Market risk is inherent in the financial instruments associated with our operations and activities including loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives. Just a few of the market conditions that may shift from time to time, thereby exposing us to market risk, include fluctuations in interest and currency exchange rates, equity and futures prices, changes in the implied volatility of interest rates, foreign exchange rates, equity and futures prices, and price deterioration or changes in value due to changes in market
perception or actual credit quality of either the issuer or its country of origin. Accordingly, depending on the instruments or activities impacted, market risks can have wide ranging, complex adverse affectseffects on our results from operations and our overall financial condition.
For a further discussion of market risk and our market risk management policies and procedures, see “Market Risk Management” in the MD&A.
Merger risks. There are significant risks and uncertainties associated with mergers. For example, we may fail to realize the growth opportunities and cost savings anticipated to be derived from the merger. In addition, it is possible that the integration process could result in the loss of key employees, or that the disruption of ongoing business from the merger could adversely affect our ability to maintain relationships with clients or suppliers. We have an active acquisition program and there is a risk that integration difficulties may cause us not to realize expected benefits from the transactions and affect our results. We will be subject to similar risks and difficulties in connection with future acquisitions, as well as decisions to downsize, sell or close units or otherwise change the business mix of the Corporation.
Non-U.S. operations; trading in non-U.S. securities. We do business throughout the world, including in developing regions of the world commonly known as emerging markets. Our businesses and revenues derived from non-U.S. operations are subject to risk of loss from currency fluctuations, social instability, changes in governmental policies or policies of central banks, expropriation, nationalization, confiscation of assets, unfavorable political and diplomatic developments and changes in legislation relating to non-U.S. ownership. We also invest in the securities of corporations located in non-U.S. jurisdictions, including emerging markets. Revenues from the trading of non-U.S. securities also may be subject to negative fluctuations as a result of the above factors. The impact of these fluctuations could be accentuated,magnified, because generally non-U.S. trading markets, particularly in emerging market countries, are smaller, less liquid and more volatile than U.S. trading markets.
Operational risks.The potential for operational risk exposure exists throughout our organization. Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships
with third parties and the vast array of associates and key executives in our day-to-day and ongoing operations. Failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes but is not limited to operational or technical failures, unlawful tampering with our technical systems, terrorist activities, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of the key individuals to perform properly.
For further discussion of operating risks, see “Operational Risk Management” in the MD&A.
Products and services.Our reputationbusiness model is important.based on a diversified mix of businesses that provides a broad range of financial products and services, delivered through multiple distribution channels. Our success depends, in part, on our ability to adapt our products and services to evolving industry standards. There is increasing pressure by competition to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require us to incur substantial expenditures to modify or adapt our existing products and services. We might not be successful in developing and introducing new products and services, responding or adapting to changes in consumer spending and saving habits, achieving market acceptance of our products and services, or developing and maintaining loyal customers.
Regulatory considerations.Bank of America, the Banks and many of our nonbank subsidiaries are heavily regulated by bank regulatory agencies at the federal and state levels. This regulatory oversight is established to protect depositors, federal deposit insurance funds and the banking system as a whole, not security holders. Bank of America and its nonbanking subsidiaries are also heavily regulated by securities regulators, domestically and internationally. This regulation is designed to protect investors in securities we sell or underwrite. Congress and state legislatures and foreign, federal and state regulatory agencies continually review laws, regulations and policies for possible changes. Changes to statutes, regulations or regulatory policies, including interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways including limiting the types of financial services and products we may offer and increasing the ability of nonbanks to offer competing financial services and products.
Reputational risks. Our ability to attract and retain customers and employees could be adversely affected to the extent our reputation is damaged. Our failure to address,actual or to appear to failperceived failure to address various issues that could give rise to reputational risk that could cause harm to Bank of America and our business prospects. These issues include, but are not limited to, appropriately addressing potential conflicts of interest; legal and regulatory requirements; ethical issues; money-laundering; privacy; properly maintaining customer and associate personal information; record keeping; sales and trading practices; and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products. Failure to appropriately address these issues could also give rise to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses.
Products and services.Our business model is based on a diversified mix of businesses that provide a broad range of financial products and services, delivered through multiple distribution channels. Our success depends, in part, on our ability to adapt our products and services to evolving industry standards. There is increasing pressure by competition to provide products and services at lower prices. This can reduce our net interest margin and revenues from our fee-based products and services. In addition, the widespread adoption of new technologies, including internet services, could require us to make substantial expenditures to modify or adapt our existing products and services. We might not be successful in introducing new products and services, responding or adapting to changes in consumer spending and saving habits, achieving market acceptance of our products and services, or developing and maintaining loyal customers.
Risk management processes and strategies.We seek to monitor and control our risk exposure through a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems. While we employ a broad
and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financialfinan-
Bank of America 2007 | 5 |
cial outcome or the specifics and timing of such outcomes. Accordingly, our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results. For a further discussion of our risk management policies and procedures, see “Managing Risk” in the MD&A.
We operate many different businesses.Additional risks and uncertainties. We are a diversified financial services company. In addition to banking, we provide investment, mortgage, investment banking, credit card and consumer finance services. Although we believe our diversity helps lessen the effect when downturns affect any one segment of our industry, it also means our earnings could be subject to different risks and uncertainties than the ones discussed in herein. If any of the risks that we face actually occur, irrespective of whether those risks are described in this section or elsewhere in this report, our business, financial condition and operating results could be materially adversely affected.
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There are no unresolved written comments that were received from the Securities and Exchange Commission’s staff 180 days or more before the end of Bank of America’s fiscal year relating to our periodic or current reports filed under the Securities Exchange Act of 1934.
Item 2. Properties
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As of December 31, 2006,2007, Bank of America’s principal offices and primarily all of our business segments were located in the 60-story Bank of America Corporate Center in Charlotte, North Carolina, which is owned by one of our subsidiaries. We occupy approximately 637,000592,000 square feet and lease approximately 547,000609,000 square feet to third parties at market rates, which represents substantially all of the space in this facility. We occupy approximately 926,000932,000 square feet of space at 100 Federal Street in Boston, Massachusetts, which is the headquarters for one of our primary business segments, the Global Wealth and Investment Management Group.. The 37-story building is owned by one of our subsidiaries which also leases approximately 463,000321,000 square feet to third parties. We also lease or own a significant amount of space worldwide. As of December 31, 2006,2007, Bank of America and our subsidiaries owned or leased approximately 25,50025,200 locations in 3841 states, the District of Columbia and 28more than 30 foreign countries.
Item 3. Legal Proceedings
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See “Litigation and Regulatory Matters” inNote 13 – Commitments and Contingenciesof the Consolidated Financial StatementsNotes beginning on page 137122 for Bank of America’s litigation disclosure which is incorporated herein by reference.
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There were no matters submitted to a vote of stockholders during the quarter ended December 31, 2006.2007.
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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 of Bank of America are listed below along with such officer’s business experience during the past five years.experience. Officers are appointed annually by the Board of Directors at the meeting of directors immediately following the annual meeting of stockholders.
Keith T. Banks, 52, President, Global Wealth and Investment Management. Mr. Banks was named to his present position in October 2007. From August 2000 to April 2004, he served as Chief Executive Officer and Chief Investment Officer of FleetBoston Financial Corporation’s asset management organization; and from April 2004 to October 2007, he
served as President and Chief Investment Officer of Columbia Management, Bank of America’s asset management organization. He first became an officer in 1981. He also serves as President, Global Wealth and Investment Management and a director of Bank of America, N.A., FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Amy Woods Brinkley, age 51, Global52, Chief Risk Executive.Officer. Ms. Brinkley was named to her present position in April 2002. From July 2001 to April 2002, she served as Chairman, Credit Policy and Deputy Corporate Risk Management Executive;
and from August 1999 to July 2001, she served as President, Consumer Products. She first became an officer in 1979. She also serves as GlobalChief Risk ExecutiveOfficer and a director of Bank of America, N.A. and, FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Barbara J. Desoer, age 54,55, Global Technology and Operations Executive. MsMs. Desoer was named to her present position in August 2004. From July 2001 to August 2004, she served as President, Consumer Products; and from September 1999 to July 2001, she served as Director of Marketing. She first became an officer in 1977. She also serves as Global Technology and Operations Executive and a director of Bank of America, N.A. and, FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Kenneth D. Lewis, age 59,60, Chairman, Chief Executive Officer and President. Mr. Lewis was named Chief Executive Officer in April 2001, President in July 2004 and Chairman in February 2005. From April 2001 to April 2004, he served as Chairman; from January 1999 to April 2004, he served as President; and from October 1999 to April 2001, he served as Chief Operating Officer. He first became an officer in 1971. Mr. Lewis also serves as a director of the Corporation and as Chairman, Chief Executive Officer, President and a director of Bank of America, N.A. and, FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Liam E. McGee, age 52,53, President, Global Consumer and Small Business Banking. Mr. McGee was named to his present position in August 2004. From August 2001 to August 2004, he served as President, Global Consumer Banking; from August 2000 to August 2001, he served as President, Bank of America California; and from August 1998 to August 2000, he served as President, Southern California Region. He first became an officer in 1990. He also serves as President, Global Consumer and Small Business Banking and a director of Bank of America, N.A. and, FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Brian T. Moynihan, age 47,48, President, Global WealthCorporate and Investment Management.Banking. Mr. Moynihan was named to his present position in October 2007. From April 2004.2004 to October 2007, he served as President, Global Wealth and Investment Management. Previously he held the following positions at FleetBoston Financial Corporation: from 1999 to April 2004, he served as Executive Vice President with responsibility for Brokerage and Wealth Management from 2000, and Regional Commercial Financial Services and Investment Management from May 2003. He first became an officer in 1993. He also serves as President, Global WealthCorporate and Investment ManagementBanking and a director of Bank of America, N.A. and, FIA Card Services, N.A., LaSalle Bank, N.A., LaSalle Bank Midwest, N.A. and United States Trust Company, N.A.
Joe L. Price, age 46,47, Chief Financial Officer. Mr. Price was named to his present position in January 2007. From June 2003 to December 2006, he served as GCIB Risk Management Executive; from July 2002 to May 2003 he served as Senior Vice President Corporate Strategy and President, Consumer Special Assets; from November 1999 to July 2002 he
6 | Bank of America 2007 |
served as President, Consumer Finance; from August 1997 to October 1999 he served as Corporate Risk Evaluation Executive and General Auditor; from June 1995 to July 1997 he served as Controller; and from April 1993 to May 1995 he served as Accounting Policy and Finance Executive.
He first became an officer in 1993. He also serves as Chief Financial Officer and a director of Bank of America, N.A. and, FIA Card Services, N.A.
R. Eugene Taylor, age 59, Vice Chairman and President, Global Corporate and Investment Banking. Mr. Taylor was named to his present position in July, 2005. From February 2005 to July 2005, he served as President, Global Business and Financial Services; from August 2004 to February 2005, he served as President, Commercial Banking; from June 2000 to August 2004, he served as President, Consumer and Commercial Banking; from February 2000 to June 2000, he served as President, Central Region; and from October 1998 to June 2000, he served as President, West Region. He first became an officer in 1970. He also serves as Vice-Chairman and President, Global Corporate and Investment Banking and a director of, LaSalle Bank, of America,N.A., LaSalle Bank Midwest, N.A. and FIA Card Services,United States Trust Company, N.A.
Bank of America 2007 | 7 |
Part II |
Bank of America Corporation and Subsidiaries |
Item 5. Market for Registrant’s Common Equity and Related Stock 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 certain shares are listed on the Tokyo Stock Exchange. The following table sets forth the high and low closing sales prices of the Common Stock on the New York Stock Exchange for the periods indicated:
Quarter | High | Low | ||||||||
Bank of America Corporation | ||||||||||
2005 | first | $ | 47.08 | $ | 43.66 | |||||
second | 47.08 | 44.01 | ||||||||
third | 45.98 | 41.60 | ||||||||
fourth | 46.99 | 41.57 | ||||||||
2006 | first | 47.08 | 43.09 | |||||||
second | 50.47 | 45.48 | ||||||||
third | 53.57 | 47.98 | ||||||||
fourth | 54.90 | 51.66 |
Quarter | High | Low | |||||
2006 | first | $ | 47.08 | 43.09 | |||
second | 50.47 | 45.48 | |||||
third | 53.57 | 47.98 | |||||
fourth | 54.90 | 51.66 | |||||
2007 | first | 54.05 | 49.46 | ||||
second | 51.82 | 48.80 | |||||
third | 51.87 | 47.00 | |||||
fourth | 52.71 | 41.10 |
As of February 26, 2007,20, 2008, there were 272,123 record holders263,761 registered shareholders of Common Stock. During 20052006 and 2006,2007, Bank of America paid dividends on the Common Stock on a quarterly basis. The following table sets forth dividends paid per share of Common Stock for the periods indicated:
Quarter | Dividend | ||||||||
2005 | first | $.45 | |||||||
second | .45 | ||||||||
third | .50 | ||||||||
fourth | .50 | Quarter | Dividend | ||||||
2006 | first | .50 | first | $ | .50 | ||||
second | .50 | second | .50 | ||||||
third | .56 | third | .56 | ||||||
fourth | .56 | fourth | .56 | ||||||
2007 | first | .56 | |||||||
second | .56 | ||||||||
third | .64 | ||||||||
fourth | .64 |
For additional information regarding the Corporation’s ability to pay dividends, see the discussion under the heading “Government Supervision and Regulation—Regulation – Distributions” in this report andNote 15 – Regulatory Requirements and Restrictions of the Consolidated Financial StatementsNotes on page 149127 which is incorporated herein by reference.
For information on the Corporation’s equity compensation plans, see Item 12 on page 153 of this report andNote 17 – Stock-Based Compensation Plansof the Consolidated Financial StatementsNotes on page 156133, both of which isare incorporated herein by reference.
See Note 14 of the Consolidated Financial Statements on page 145 for information on the monthlyThe table below presents share repurchasesrepurchase activity for each quarterly period in 2007, each month within the threefourth quarter of 2007 and twelve monthsthe year ended December 31, 2006, 2005 and 2004,2007, including total common shares repurchased andunder announced programs, weighted average per share price and the remaining buy back authority under announced programsprograms. For additional information on shareholders’ equity and earnings per common share, seeNote 14 – Shareholders’ Equity and Earnings Per Common Share of the Notes on page 125 which is incorporated herein by reference.
(Dollars in millions, except per share information; shares in thousands) | Common Shares Repurchased (1) | Weighted Average Per Share Price | Remaining Buyback Authority (2) | |||||||
Amounts | Shares | |||||||||
Three months ended March 31, 2007 | 48,000 | $ | 52.23 | $ | 16,366 | 215,088 | ||||
Three months ended June 30, 2007 | 13,450 | 50.91 | 15,681 | 201,638 | ||||||
Three months ended September 30, 2007 | 9,580 | 49.47 | 13,605 | 192,058 | ||||||
October 1-31, 2007 | 1,000 | 47.35 | 13,558 | 191,058 | ||||||
November 1-30, 2007 | 1,700 | 45.98 | 13,480 | 189,358 | ||||||
December 1-31, 2007 | – | – | 13,480 | 189,358 | ||||||
Three months ended December 31, 2007 | 2,700 | 46.49 | ||||||||
Year ended December 31,2007 | 73,730 | 51.42 |
(1) | Reduced shareholders’ equity by $3.8 billion and increased diluted earnings per common share by approximately $0.02 in 2007. These repurchases were partially offset by the issuance of approximately 53.5 million shares of common stock under employee plans, which increased shareholders’ equity by $2.5 billion, net of $10 million of deferred compensation related to restricted stock awards, and decreased diluted earnings per common share by approximately $0.01 in 2007. |
(2) | On January 24, 2007, the Board of Directors (the Board) authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $14.0 billion and is limited to a period of 12 to 18 months. On April 26, 2006, the Board authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $12.0 billion and to be completed within a period of 12 to 18 months. This repurchase plan was completed during the third quarter of 2007. |
The Corporation did not have any unregistered sales of its equity securities in fiscal year 2006.2007.
Item 6. Selected Financial Data
See Table 5 in the MD&A on page 2116 and Table XII of the Statistical Financial InformationTables on page 9582 which are incorporated herein by reference.
8 | Bank of America 2007 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Throughout the MD&A, we use certain acronyms and
abbreviations which are defined in the Glossary beginning on page 85.
Bank of America 2007 | 9 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Bank of America Corporation and Subsidiaries
This report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of the Annual Report of Bank of America Corporation and its subsidiaries (the Corporation) should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed under Item 1A. “Risk Factors.” The statements are representative only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement.
Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: changes in general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense; changes in the interest rate environment and market liquidity which may reduce interest margins, and impact funding sources;sources and affect the ability to originate and distribute financial products in the primary and secondary markets; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial instruments, and other similar financial instruments; political conditions and related actions by the United States abroad which may adversely affect the Corporation’s businesses and economic conditions as a whole; liabilities resulting from litigation and regulatory investigations, including costs, expenses, settlements and judgments; changes in domestic or foreign tax laws, rules and regulations as well as court, Internal Revenue Service or other governmental agencies’ interpretations thereof; various monetary and fiscal policies and regulations, including those determined by the Board of Governors of the Federal Reserve System, (FRB), the Office of the Comptroller of the Currency, (OCC), the Federal Deposit Insurance Corporation, (FDIC), state regulators and the Financial Services Authority (FSA);Authority; changes in accounting standards, rules and interpretations; competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions; ability to grow core businesses; ability to develop and introduce new banking-related products, services and enhancements, and gain market acceptance of such products; mergers and acquisitions and their integration into the Corporation; decisions to downsize, sell or close units or otherwise change the business mix of the Corporation; and management’s ability to manage these and other risks.
The Corporation, headquartered in Charlotte, North Carolina, operates in 3032 states, the District of Columbia and 44more than 30 foreign countries. The Corporation provides a diversified range of banking and
nonbanking financial services and products domestically and internationally through three business segments:Global Consumer and Small Business Banking (GCSBB),Global Corporate and Investment Banking (GCIB), andGlobal Wealth and Investment Management (GWIM).
At December 31, 2006,2007, the Corporation had $1.5$1.7 trillion in assets and approximately 203,000210,000 full-time equivalent employees. Notes to Consolidated Financial Statements referred to in Management’s Discussion and Analysis of Financial Condition and Results of Operationsthe MD&A are incorporated by reference into Management’s Discussion and Analysis of Financial Condition and Results of Operations.the MD&A. Certain prior period amounts have been reclassified to conform to current period presentation.
2007 Market Dislocation
During the second half of 2007, extreme dislocations emerged in the financial markets, including the leveraged finance, subprime mortgage, and commercial paper markets. These dislocations were further compounded by the decoupling of typical correlations in the various markets in which we do business. Furthermore, in the fourth quarter of 2007, the credit ratings of certain structured securities (e.g., CDOs) were downgraded which among other things triggered further widening of credit spreads for these types of securities. We have been an active participant in the CDO market and maintain ongoing exposure to these securities and have incurred losses associated with these exposures. For more information regardingCapital Markets and Advisory Services (CMAS) results including CDOs, leveraged finance and related ongoing exposure, see theCMAS discussion beginning on page 27.
In addition, the market dislocation impacted the credit ratings of structured investment vehicles (SIVs) in the market place.GWIM manages certain cash funds which have invested in SIV transactions. We have entered into capital commitments to support these funds and have incurred losses associated with these commitments including losses on certain securities purchased earlier from these funds at fair value. For more information on our cash fund support, see theGWIM discussion beginning on page 31.
In 2008, we continue to have exposure to those items noted above, and depending upon market conditions, we may experience additional losses.
Current Business Environment
The financial conditions mentioned above continue to negatively affect the economy and the financial services sector in 2008. The slowdown of the economy, significant decline in consumer real estate prices, and the continued and rapid deterioration in the housing sector have affected our home equity portfolio and will, in all likelihood, impact other areas of our consumer portfolio. We expect that certain industry sectors, in particular those that are dependent on the housing sector, and certain geographic regions will experience further stress. For more information on the impact of the current business environment on credit, see the Credit Risk Management discussion beginning on page 44.
The subprime mortgage dislocation has also impacted the ratings of certain monoline insurance providers (monolines) which has affected the
Bank of America 2007 |
pricing of certain municipal securities and the liquidity of the short term public finance markets. We have direct and indirect exposure to monolines and as a result are continuing to monitor this exposure as the markets evolve. For more information related to our monoline exposure, see the Industry Concentrations discussion on page 54.
The above conditions together with uncertainty in energy costs and the overall economic slowdown, which may ultimately lead to recessionary conditions, will affect other markets in which we do business and will adversely impact our results in 2008. The degree of the impact is dependent upon the duration and severity of the aforementioned conditions in this rapidly changing business and interest rate environment. For more information on interest rate sensitivity, see the Interest Rate Risk Management for Nontrading Activities discussion on page 65.
Other Recent Events
In January 2008, we announced changes in ourCMAS business withinGCIB which better align the strategy of this business withGCIB’s broader integrated platform. We will continue to provide corporate, commercial and sponsored clients with debt and equity capital raising services, strategic advice, and a full range of corporate banking capabilities. However, we will reduce activities in certain structured products (e.g., CDOs) and will resize the international platform to emphasize debt, cash management, and selected trading services, including rates and foreign exchange. This realignment will result in the reduction of 650 front office personnel with additional infrastructure headcount reduction to follow. We also plan to sell our equity prime brokerage business. This is in addition to our announcement in October 2007 to eliminate approximately 3,000 positions within various businesses, which includes reductions inGCIB as part of ourGCIB business strategic review to enhance the operating platform, reductions in the wholesale mortgage-related business included inGCSBB and reductions in other related infrastructure positions.
In August of 2007, we made a $2.0 billion investment in Countrywide Financial Corporation (Countrywide), the largest mortgage lender in the U.S., in the form of Series B non-voting convertible preferred securities yielding 7.25 percent. In January 2008, we announced a definitive agreement to purchase all outstanding shares of Countrywide for approximately $4.0 billion in common stock. The acquisition would make us the nation’s leading mortgage lender and loan servicer. The closing of this transaction is subject to closing conditions and regulatory approvals and is expected to close early in the third quarter of 2008.
In January 2007,2008, the Board of Directors (the Board) authorizeddeclared a stock repurchase program of up to 200 million shares of the Corporation’sregular quarterly cash dividend on common stock at an aggregate cost notof $0.64 per share, payable on March 28, 2008 to exceed $14.0 billion to be completed within a periodcommon shareholders of 12 to 18 months.record on March 7, 2008. In April 2006, the Board authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $12.0 billion to be completed within a period of 12 to 18 months, of which the lesser of approximately $4.9 billion, or 63.1 million shares, remains available for repurchase under the program at December 31, 2006.
In JanuaryOctober 2007, the Board declared a regular quarterly cash dividend on common stock of $0.56$0.64 per share payablewhich was paid on March 23,December 28, 2007 to common shareholders of record on March 2,December 7, 2007. In October 2006, the Board declared a regular
quarterly cash dividend on common stock of $0.56 per share which was paid on December 22, 2006 to common shareholders of record on December 1, 2006. In July 2006,2007, the Board increased the quarterly cash dividend on common stock 1214 percent from $0.50$0.56 to $0.56$0.64 per share.
In January 2008, we issued 240 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K with a par value of $0.01 per share for $6.0 billion. The fixed rate is 8.00 percent through January 29, 2018 and then adjusts to three-month LIBOR plus 363 basis points (bps) thereafter. In addition, we issued 6.9 million shares of Bank of America Corporation 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L with a par value of $0.01 per share for $6.9 billion. In November and December 2006, theof 2007, we issued 41 thousand shares of Bank of America Corporation 7.25% Non-Cumulative Preferred Stock, Series J with a par value of $0.01 per share for $1.0 billion. In September 2007, we issued 22 thousand shares of Bank of America Corporation 6.625% Non-Cumulative Preferred Stock, Series I with a par value of $0.01 per share for $550 million.
In December 2007, we completed the sale of itsMarsico Capital Management, LLC (Marsico), a 100 percent owned investment manager, to Thomas F. Marsico, founder and chief executive officer of Marsico, and realized a pre-tax gain of approximately $1.5 billion.
On October 1, 2007, we acquired all the outstanding shares of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion in cash. With this acquisition, we significantly expanded our presence in metropolitan Chicago, Illinois and Michigan, by adding LaSalle’s commercial banking clients, retail customers and commercial business in Hong Kong and Macau (Asia Commercial Banking business) to China Construction Bank (CCB) for $1.25 billion. The sale resulted in a $165 million gain (pre-tax) that was recorded in Other Income.banking centers.
In November 2006,On July 1, 2007, we acquired all the Corporation announced a definitive agreement to acquireoutstanding shares of U.S. Trust Corporation (U.S. Trust) for $3.3 billion in cash. U.S. Trust is one of the largest and most respected U.S. firms whichCorporation focuses exclusively on managing wealth for high net-worth and ultra high net-worth individuals and families. The acquisition will significantly increaseincreases the size and capabilities of the Corporation’sour wealth management business and positionpositions it as one of the largest financial services companies managing private wealth in the U.S. The transaction is expected to close in the third quarter of 2007.
In November 2006, the Corporation issued 81,000 shares of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series E with a par value of $0.01 per share for $2.0 billion. In September 2006, the Corporation issued 33,000 shares of Bank of America Corporation 6.204% Non-Cumulative Preferred Stock, Series D with a par value of $0.01 per share for $825 million. In July 2006, the Corporation redeemed its 700,000 shares, or $175 million, of Fixed/Adjustable Rate Cumulative Preferred Stock and redeemed its 382,450 shares, or $96 million, of 6.75% Perpetual Preferred Stock. Both classes were redeemed at their stated value of $250 per share, plus accrued and unpaid dividends.
In September 2006, the Corporation completed the sale of its Brazilian operations in exchange for approximately $1.9 billion in equity of Banco Itaú Holding Financeira S.A. (Banco Itaú), Brazil’s second largest nongovernment-owned banking company. The sale resulted in a $720 million gain (pre-tax) that was recorded in Other Income. In AugustOn January 1, 2006, we announced a definitive agreement to sell our operations in Chile and Uruguay for stock in Banco Itaú and other consideration totaling approximately $615 million. These transactions, as well as the previously announced sale of our operations in Argentina, are expected to close in early 2007.
The Corporation acquired 100 percent of the outstanding stock of MBNA Corporation (MBNA) on January 1, 2006, for $34.6 billion. In connection therewith 1,260 million shares of MBNA common stock were exchanged for 631 million shares of the Corporation’s common stock. Prior to the MBNA merger, this represented approximately 16 percent of the Corporation’s outstanding common stock. MBNA shareholders also received cash of $5.2 billion. The MBNA merger was a tax-free merger for the Corporation. The acquisition expands the Corporation’sexpanded our customer base and its opportunity to deepen customer relationships across the full breadth of the Corporation by delivering innovative deposit, lending and investment products and services to MBNA’s customer base. Additionally, the acquisition allows the Corporationallowed us to significantly increase itsour affinity relationships through MBNA’s credit card operations and sell these credit cards through our delivery channels (includingincluding the retail branch network). MBNA’s results of operations were included in the Corporation’s results beginning January 1, 2006. The purchase price has been allocated to the assets acquired and the liabilities assumed based on their fair values at the MBNA merger date. network.
For more information related to the MBNA merger,these mergers, seeNote 2 of– Merger and Restructuring Activity to the Corporation’s Consolidated Financial Statements.
In 2006, the U.S. economic performance was healthy as2007, notwithstanding significant declines in housing, soaring oil prices and tremendous turmoil in financial markets, real Gross Domestic Product (GDP) grew an estimated annualized 3.42.2 percent. Growth softened significantly in the fourth quarter. Consumer spending remained resilient, despite significantas increases in employment and wages offset the negative influences of declining home prices. Fueled by another year of strong exports and a slowdown in imports, the U.S. trade deficit fell sharply, lifting U.S. domestic production. However, declines in housing and mortgage refinancing activities.residential construction subtracted nearly a full percentage point from GDP growth, more than offsetting the boost provided by international trade. Corporate profits declined modestly in the second half of the year from all-time record highs. Global economies recorded another solidtheir fourth consecutive year of rapid expansion, driven by sustained robust growth led by robust expansion in Asia. Importantly, GermanyChina, India and other emerging market economies. Growth in Europe and Japan maintained their economic momentum as the U.S. weathered a soft patch in growth. The FRB concluded two consecutive years of rate hikes in June, raising its rate to 5.25 percent, as increases remained on holdmoderated in the second half of the year. The yield curve remained inverted for much ofHigher energy prices pushed up inflation throughout the year. However, excluding food and energy, core inflation receded in the second half of the year, reflecting the FRB’s rate increases, its inflation-fighting credibility, and rising foreign capital inflows. Inin lagged response to the rate hikesdeceleration of nominal spending growth. A sharp rise in defaults on subprime mortgages and removalworries about the potential fallout from the faltering housing and subprime mortgage markets triggered financial market turbulence beginning in the summer. A dramatic repricing of monetary accommodation, housing salescredit risk and construction fell sharply, median house prices flattened after surging for a half decade, and mortgage refinancing activity fell sharply. However, business investment remained strong, and solid increases in nonresidential
construction partially offset theunprecedented capital losses stemming from sharp declines in housing. Consumer spending, buoyed by rising personal incomes, relative lowthe value of structured credit products based on subprime debt deepened the financial crisis. In response, the FRB eased short-term interest rates, reduced the discount rate relative to its federal funds rate target and record-breaking wealth, continued to grow, endingin December created a new facility for auctioning short-term funds through the yeardiscount window of the Federal Reserve Banks. The fourth quarter ended on a strong note. Dramatic declines in oil and energy prices in August through October sharplyweak note, as consumer spending moderated, businesses reduced inflation, while core measures of inflation, excluding the volatile energy and food components, rose through September. Core inflation drifted modestly lower through year end, but remained above the two percent upper bound of the FRB’s comfort range. With the exception of housing, automobiles and related industries sustained healthy product demand and modest pricing power provided businesses record profits. In this environment, businesses continued to hire,production, employment slowed and the unemployment rate receded to 4.5 percent, well below its historic average.rose.
11 |
Net Income reachedincome was $15.0 billion, or $3.30 per diluted common share in 2007, decreases of 29 percent and 28 percent from $21.1 billion, or $4.59 per diluted common share in 2006, increases of 28 percent and 14 percent from $16.5 billion, or $4.04 per diluted common share in 2005.2006.
Table 1
Business Segment Total Revenue and Net Income
Total Revenue | Net Income | |||||||||||||
(Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||||||||
Global Consumer and Small Business Banking | $ | 41,691 | $ | 28,323 | $ | 11,171 | $ | 7,021 | ||||||
Global Corporate and Investment Banking | 22,691 | 20,600 | 6,792 | 6,384 | ||||||||||
Global Wealth and Investment Management | 7,779 | 7,316 | 2,403 | 2,316 | ||||||||||
All Other | 2,086 | 684 | 767 | 744 | ||||||||||
Total FTE basis(1) | 74,247 | 56,923 | 21,133 | 16,465 | ||||||||||
FTE adjustment(1) | (1,224 | ) | (832 | ) | — | — | ||||||||
Total Consolidated | $ | 73,023 | $ | 56,091 | $ | 21,133 | $ | 16,465 |
Total Revenue(1) | Net Income | |||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Global Consumer and Small Business Banking(2) | $ | 47,682 | $ | 44,926 | $ | 9,430 | $ | 11,378 | ||||||||
Global Corporate and Investment Banking | 13,417 | 21,161 | 538 | 6,032 | ||||||||||||
Global Wealth and Investment Management | 7,923 | 7,357 | 2,095 | 2,223 | ||||||||||||
All Other(2) | (954 | ) | �� | 360 | 2,919 | 1,500 | ||||||||||
Total FTE basis | 68,068 | 73,804 | 14,982 | 21,133 | ||||||||||||
FTE adjustment | (1,749 | ) | (1,224 | ) | – | – | ||||||||||
Total Consolidated | $ | 66,319 | $ | 72,580 | $ | 14,982 | $ | 21,133 |
(1) | Total revenue is net of interest expense, and is on a FTE basis for the business segments andAll Othe |
(2) | GCSBB is presented on a managed basis with a corresponding offset recorded inAll Other. |
Global Consumer and Small Business Banking
Net Income increased $4.2income decreased $1.9 billion, or 5917 percent, to $11.2$9.4 billion and Total Revenue increased $13.4in 2007 compared to 2006. Managed net revenue rose $2.8 billion, or 47six percent, to $41.7$47.7 billion in 2006 compared to 2005. These increases were driven by higher Net Interest Income and Noninterest Income. Net Interest Income increased primarily due to the MBNA merger and organic growth which increased Average Loans and Leases. Noninterest Income increased primarily due to the MBNA merger which resulted in an increase in Card Income driven by increases in excess servicingboth noninterest and net interest income. Noninterest income increased $2.1 billion, or 13 percent, to $18.9 billion driven by higher card, service charge and mortgage banking income. Net interest income increased $612 million, or two percent, to $28.8 billion due to the impacts of organic growth and the LaSalle acquisition on average loans and leases, and deposits. These increases in revenues were more than offset by the increase in provision for credit losses of $4.4 billion, or 51 percent, to $12.9 billion. This increase reflects portfolio growth and seasoning, increases from the unusually low loss levels experienced in 2006 post bankruptcy reform, the impact of housing market weakness on the home equity portfolio, and growth and deterioration in the small business portfolio. Noninterest expense increased $1.7 billion, or nine percent, mainly due to increases in personnel and technology-related costs. For more information onGCSBB, see page 21.
Global Corporate and Investment Banking
Net income decreased $5.5 billion, or 91 percent, to $538 million, and total revenue decreased $7.7 billion, or 37 percent, to $13.4 billion in 2007 compared to 2006. These decreases were driven by $5.6 billion in losses resulting from our CDO exposure and other trading losses. These decreases were partially offset by an increase in net interest income, primarily market-based, of $1.3 billion, or 14 percent. The provision for credit losses increased $643 million driven by the absence of 2006 releases of reserves, higher net charge-offs and an increase in reserves during 2007 reflecting the impact of the weak housing market particularly on the homebuilder loan portfolio. Noninterest expense increased $347 million, or three percent, mainly due to an increase in expenses related to the addition of LaSalle partially offset by a reduction inCMAS performance-based incentive compensation. For more information onGCIB, see page 25.
Global Wealth and Investment Management
Net income decreased $128 million, or six percent, to $2.1 billion in 2007 compared to 2006 as an increase in noninterest expense was partially offset by an increase in total revenue. Total revenue grew $566 million, or eight percent, to $7.9 billion driven by higher noninterest income of $380 million. Noninterest income increased due to growth in investment and brokerage services income of $827 million. The increase was due to higher AUM primarily attributable to the impact of the U.S. Trust Corpo-
ration acquisition, net client inflows and favorable market conditions combined with an increase in brokerage activity. This increase was partially offset by a decrease in all other income of $447 million due to losses of $382 million associated with the support provided to certain cash advance fees, interchangefunds. Noninterest expense increased $768 million driven by the addition of U.S. Trust Corporation, higher revenue-related expenses and marketing costs.
AUM increased $100.6 billion to $643.5 billion at December 31, 2007 compared to December 31, 2006 reflecting the acquisition of U.S. Trust Corporation, net inflows and market appreciation which was partially offset by the sale of Marsico. For more information onGWIM, see page 31.
All Other
Net income increased $1.4 billion to $2.9 billion in 2007 compared to 2006. Excluding the securitization offset, total revenue increased $283 million resulting from an increase in noninterest income of $1.6 billion partially offset by a decrease in net interest income of $1.3 billion. The increase in noninterest income was driven by the $1.5 billion gain from the sale of Marsico and an increase of $873 million in equity investment income, partially offset by losses of $394 million on securities after they were purchased from certain cash funds managed withinGWIM at fair value. In addition, net interest income, noninterest income and noninterest expense decreased due to certain international operations that were sold in late fees.2006 and the beginning of 2007. Merger and restructuring charges decreased $395 million. For more information onAll Other, see page 34.
Net Interest Income
Net interest income on a FTE basis increased $367 million to $36.2 billion for 2007 compared to 2006. The increase was driven by the contribution from market-based net interest income related to ourCMAS business, higher levels of consumer and commercial loans, the impact of the LaSalle acquisition, and a one-time tax benefit from restructuring our existing non-U.S. based commercial aircraft leasing business. These increases were partially offset by higher Noninterest Expense and Provision for Credit Losses, primarily driven by the addition of MBNA. For more information onGlobal Consumer and Small Business Banking, see page 26.
Net Income increased $408 million, or six percent, to $6.8 billion in 2006 compared to 2005. Total Revenue increased $2.1 billion, or 10 percent, to $22.7 billion in 2006 compared to 2005, driven primarily by higher Trading Account Profits and Investment Banking Income, and gains on the sales of our Brazilian operations and Asia Commercial Banking business. Offsetting these increases was spread compression, in the loan portfolios which adversely impacted Net Interest Income. In addition, Net Income in 2006 was impacted by increases in Noninterest Expense and Provision for Credit Losses, and a decrease in Gains on Sales of Debt Securities. For more information onGlobal Corporate and Investment Banking, see page 33.
Net Income increased $87 million, or four percent, to $2.4 billion in 2006 compared to 2005. The increase was due to higher Total Revenue of $463 million, or six percent, primarily as a result of an increase in Investment and Brokerage Services partially offset by an increase in Noninterest Expense of $295 million, or eight percent, driven by higher personnel-related costs.
Total assets under management increased $60.6 billion to $542.9 billion at December 31, 2006 compared to December 31, 2005. For more information onGlobal Wealth and Investment Management, see page 38.
Net Income increased $23 million to $767 million in 2006 compared to 2005. This increase was primarily a result of higher Equity Investment Gains of $902 million and Net Interest Income of $446 million offset by lower Gains (Losses) on Sales of Debt Securities of $(495) million in 2006 compared to $823 million in 2005. For more information onAll Other, see page 41.
Net Interest Income on a FTE basis increased $4.2 billion to $35.8 billion in 2006 compared to 2005. The primary drivers of the increase were the impact of the MBNA merger (volumes and spreads), consumer and commercial loan growth, and increases in the benefits from asset and liability management (ALM) activities including higher portfolio balances (primarily residential mortgages)hedge costs and the impact of changesdivestitures of certain foreign operations in spreads across all product categories. These increases were partially offset by a lower contribution from market-based earning assetslate 2006 and the higher costs associated with higher levelsbeginning of wholesale funding.2007. The net interest yield on a FTE basis decreased two basis points (bps)22 bps to 2.822.60 percent infor 2007 compared to 2006, due primarily to an increase in lower yielding market-based earning assets and loan spreads that continued to tighten due towas driven by spread compression, and the flat to inverted yield curve. These decreases wereimpact of the funding of the LaSalle merger, partially offset by widening of spreads on core deposits.an improvement in market-based yield
12 | Bank of America 2007 |
related to ourCMAS business. For more information on Net Interest Incomenet interest income on a FTE basis, see Tables I and II beginning on page 88.
Table 273.
Noninterest Income
(Dollars in millions) | 2006 | 2005 | ||||
Card income | $ | 14,293 | $ | 5,753 | ||
Service charges | 8,224 | 7,704 | ||||
Investment and brokerage services | 4,456 | 4,184 | ||||
Investment banking income | 2,317 | 1,856 | ||||
Equity investment gains | 3,189 | 2,212 | ||||
Trading account profits | 3,166 | 1,763 | ||||
Mortgage banking income | 541 | 805 | ||||
Other income | 2,246 | 1,077 | ||||
Total noninterest income | $ | 38,432 | $ | 25,354 |
Table 2 Noninterest Income
(Dollars in millions) | 2007 | 2006 | ||||||
Card income | $ | 14,077 | $ | 14,290 | ||||
Service charges | 8,908 | 8,224 | ||||||
Investment and brokerage services | 5,147 | 4,456 | ||||||
Investment banking income | 2,345 | 2,317 | ||||||
Equity investment income | 4,064 | 3,189 | ||||||
Trading account profits (losses) | (5,131 | ) | 3,166 | |||||
Mortgage banking income | 902 | 541 | ||||||
Gains (losses) on sales of debt securities | 180 | (443 | ) | |||||
Other income | 1,394 | 2,249 | ||||||
Total noninterest income | $ | 31,886 | $ | 37,989 |
Noninterest Income increased $13.1income decreased $6.1 billion to $38.4$31.9 billion in 20062007 compared to 2005,2006.
· | Card income on a held basis decreased $213 million primarily due to the impact of higher credit losses on excess servicing income resulting from seasoning in the securitized portfolio and increases from the unusually low loss levels experienced in 2006 post bankruptcy reform. This decrease was partially offset by increases in cash advance fees and debit card interchange income. |
· | Service charges grew $684 million resulting from new account growth in deposit accounts and the beneficial impact of the LaSalle merger. |
· | Investment and brokerage services increased $691 million due primarily to organic growth in AUM, brokerage activity and the U.S. Trust Corporation acquisition. |
· | Equity investment income increased $875 million driven by the $600 million gain on the sale of private equity funds to Conversus Capital and the increase in income received on strategic investments. |
· | Trading account profits (losses) were $(5.1) billion in 2007 compared to $3.2 billion in 2006. The decrease in trading account profits (losses) was driven by losses of $4.9 billion, out of a total of $5.6 billion in losses, associated with CDO exposure and the impact of the market disruptions on various parts of ourCMAS businesses in the second half of the year. For more information on the impact of these events refer to theGCIB discussion beginning on page 25. |
· | Mortgage banking income increased $361 million due to the favorable performance of the MSRs partially offset by the impact of widening credit spreads on income from mortgage production. Mortgage banking also benefited from the adoption of the fair value option. |
· | Gains (losses) on sales of debt securities were $180 million for 2007 compared to $(443) million for 2006. The losses in the prior year were largely a result of the sale of $43.7 billion of mortgage-backed debt securities in the third quarter of 2006. |
· | Other income decreased $855 million as the $1.5 billion gain from the sale of Marsico was more than offset by fourth quarter losses of $752 million, out of a total of $5.6 billion in losses associated with our CDO exposure, losses of $394 million on securities after they were purchased from certain cash funds at fair value, losses of $382 million associated with the support provided to certain cash funds managed withinGWIM, and the absence of a $720 million gain on the sale of our Brazilian operations recognized in 2006. |
Provision for Credit Losses
The provision for credit losses increased $3.4 billion to the following:
Card Income increased $8.5$8.4 billion primarily duein 2007 compared to the addition of MBNA resulting in higher excess servicing income, cash advance fees, interchange income and late fees.
Service Charges grew $520 million due to increased non-sufficient funds fees and overdraft charges, account service charges, and ATM fees resulting from new account growth and increased account usage.
Investment and Brokerage Services increased $272 million primarily reflecting higher levels of assets under management.
Investment Banking Income increased $461 million2006 due to higher market activitynet charge-offs, reserve additions and continued strength in debt underwriting.
Equity Investment Gains increased $977 millionthe absence of 2006 commercial reserve releases. Higher net charge-offs of $1.9 billion were primarily due to favorable market conditions driven by liquidityseasoning of the consumer portfolios, seasoning and deterioration in the capital marketssmall business and home equity portfolios as well as a $341 million gain recorded on the liquidation of a strategic European investment.
Trading Account Profits increased $1.4 billion due to a favorable market environment, and benefits from previous investments in personnel and trading infrastructure.
Mortgage Banking Income decreased $264 million primarily due to weaker production income driven by margin compression, which negatively impacted the pricing of loans, and a decision to retain a larger portion of mortgage production.
Other Income increased $1.2 billion primarily related to the $720 million (pre-tax) gain on the sale of our Brazilian operations and the $165 million (pre-tax) gain on the sale of our Asia Commercial Banking business.
The Provision for Credit Losses increased $996 million to $5.0 billion in 2006 compared to 2005. Provision expense rose due to increases from the addition of MBNA, reduced benefits from releases of commercial reserves and lower commercial recoveries. Reserves were increased in the home equity and homebuilder loan portfolios on continued weakness in the housing market. Reserves were also added for small business portfolio seasoning and deterioration as well as growth in the consumer portfolios. These increases were partially offset by lower bankruptcy-related credit costs onreductions in reserves from the domestic consumer credit card portfolio.
sale of the Argentina portfolio in the first quarter of 2007. For more information on credit quality, see Provision for Credit Risk ManagementLosses beginning on page 53.58.
Gains (Losses) on Sales of Debt Securities were $(443) million in 2006 compared to $1.1 billion in 2005. The decrease was primarily due to a loss on the sale of mortgage-backed securities in 2006 compared to gains recorded in 2005. For more information on Gains (Losses) on Sales of Debt Securities, see “Interest Rate Risk Management – Securities” beginning on page 77.
Noninterest Expense |
Table 3
Noninterest Expense
(Dollars in millions) | 2006 | 2005 | ||||
Personnel | $ | 18,211 | $ | 15,054 | ||
Occupancy | 2,826 | 2,588 | ||||
Equipment | 1,329 | 1,199 | ||||
Marketing | 2,336 | 1,255 | ||||
Professional fees | 1,078 | 930 | ||||
Amortization of intangibles | 1,755 | 809 | ||||
Data processing | 1,732 | 1,487 | ||||
Telecommunications | 945 | 827 | ||||
Other general operating | 4,580 | 4,120 | ||||
Merger and restructuring charges | 805 | 412 | ||||
Total noninterest expense | $ | 35,597 | $ | 28,681 |
Table 3 Noninterest Expense
(Dollars in millions) | 2007 | 2006 | ||||
Personnel | $ | 18,753 | $ | 18,211 | ||
Occupancy | 3,038 | 2,826 | ||||
Equipment | 1,391 | 1,329 | ||||
Marketing | 2,356 | 2,336 | ||||
Professional fees | 1,174 | 1,078 | ||||
Amortization of intangibles | 1,676 | 1,755 | ||||
Data processing | 1,962 | 1,732 | ||||
Telecommunications | 1,013 | 945 | ||||
Other general operating | 5,237 | 4,580 | ||||
Merger and restructuring charges | 410 | 805 | ||||
Total noninterest expense | $ | 37,010 | $ | 35,597 |
Noninterest expense increased $6.9$1.4 billion to $35.6$37.0 billion in 20062007 compared to 2005,2006, primarily due to the MBNA merger, increased Personnel expense related to higher performance-based compensation and higher Marketing expense related to consumer banking initiatives. Amortization of Intangibles expense was higher due to increases in purchased credit card relationships, affinity relationships, core deposit intangiblespersonnel expense and other intangibles,general operating expense partially offset by a decrease in merger and restructuring charges. Personnel expense increased $542 million due to the acquisitions of LaSalle and U.S. Trust Corporation partially offset by a reduction in performance-based incentive compensation withinGCIB. Other general operating expense increased by $657 million and was impacted by our acquisitions and various other items including trademarks.litigation- related costs. Merger and restructuring charges decreased $395 million mainly due to the declining integration costs associated with the MBNA acquisition partially offset by costs associated with the integration of U.S. Trust Corporation and LaSalle.
Income Tax Expense
Income tax expense was $5.9 billion in 2007 compared to $10.8 billion in 2006, compared to $8.0 billion in 2005, resulting in an effective tax rate of 28.4 percent in 2007 and 33.9 percent in 2006 and 32.7 percent in 2005.2006. The increasedecrease in the effective tax rate was primarily due to the charge to Income Tax Expense arisinglower pre-tax income, a one-time tax benefit from the change in tax legislation discussed below, the one-time benefit recorded during 2005 related to the repatriation of certain foreign earningsrestructuring our existing non-U.S. based commercial aircraft leasing business and the January 1, 2006 addition of MBNA. For more information on Income Tax Expense, see Note 18 of the Consolidated Financial Statements.
During the second quarter of 2006, the President signed into law the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA). Among other things, TIPRA repealed certain provisions of prior law relating to transactions entered into under the extraterritorial income and foreign sales corporation regimes. The TIPRA repeal results in an increase in the U.S. taxes expected to be paid on certain portionsrelative percentage of our earnings taxed solely outside of the income earned from such transactions after December 31, 2006. Accounting forU.S. In addition, the change in law resulted in2007 effective tax rate excludes the recognitionimpact of a $175 million charge in 2006 resulting from a change in tax legislation. For more information on income tax expense, seeNote 18 – Income Taxesto Income Tax Expense in 2006.the Consolidated Financial Statements.
Bank of America 2007 | 13 |
Table 4
Table 4Selected Balance Sheet Data
December 31 | Average Balance | |||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||
Assets | ||||||||||||||
Federal funds sold and securities purchased under agreements to resell | $ | 129,552 | $ | 135,478 | $ | 155,828 | $ | 175,334 | ||||||
Trading account assets | 162,064 | 153,052 | 187,287 | 145,321 | ||||||||||
Debt securities | 214,056 | 192,846 | 186,466 | 225,219 | ||||||||||
Loans and leases, net of allowance for loan and lease losses | 864,756 | 697,474 | 766,329 | 643,259 | ||||||||||
All other assets | 345,318 | 280,887 | 306,163 | 277,548 | ||||||||||
Total assets | $ | 1,715,746 | $ | 1,459,737 | $ | 1,602,073 | $ | 1,466,681 | ||||||
Liabilities | ||||||||||||||
Deposits | $ | 805,177 | $ | 693,497 | $ | 717,182 | $ | 672,995 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 221,435 | 217,527 | 253,481 | 286,903 | ||||||||||
Trading account liabilities | 77,342 | 67,670 | 82,721 | 64,689 | ||||||||||
Commercial paper and other short-term borrowings | 191,089 | 141,300 | 171,333 | 124,229 | ||||||||||
Long-term debt | 197,508 | 146,000 | 169,855 | 130,124 | ||||||||||
All other liabilities | 76,392 | 58,471 | 70,839 | 57,278 | ||||||||||
Total liabilities | 1,568,943 | 1,324,465 | 1,465,411 | 1,336,218 | ||||||||||
Shareholders’ equity | 146,803 | 135,272 | 136,662 | 130,463 | ||||||||||
Total liabilities and shareholders’ equity | $ | 1,715,746 | $ | 1,459,737 | $ | 1,602,073 | $ | 1,466,681 |
December 31 | Average Balance | |||||||||||
(Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||||||
Assets | ||||||||||||
Federal funds sold and securities purchased under agreements to resell | $ | 135,478 | $ | 149,785 | $ | 175,334 | $ | 169,132 | ||||
Trading account assets | 153,052 | 131,707 | 145,321 | 133,502 | ||||||||
Debt securities | 192,846 | 221,603 | 225,219 | 219,843 | ||||||||
Loans and leases, net of allowance for loan and lease losses | 697,474 | 565,746 | 643,259 | 528,793 | ||||||||
All other assets | 280,887 | 222,962 | 277,548 | 218,622 | ||||||||
Total assets | $ | 1,459,737 | $ | 1,291,803 | $ | 1,466,681 | $ | 1,269,892 | ||||
Liabilities | ||||||||||||
Deposits | $ | 693,497 | $ | 634,670 | $ | 672,995 | $ | 632,432 | ||||
Federal funds purchased and securities sold under agreements to repurchase | 217,527 | 240,655 | 286,903 | 230,751 | ||||||||
Trading account liabilities | 67,670 | 50,890 | 64,689 | 57,689 | ||||||||
Commercial paper and other short-term borrowings | 141,300 | 116,269 | 124,229 | 95,657 | ||||||||
Long-term debt | 146,000 | 100,848 | 130,124 | 97,709 | ||||||||
All other liabilities | 58,471 | 46,938 | 57,278 | 55,793 | ||||||||
Total liabilities | 1,324,465 | 1,190,270 | 1,336,218 | 1,170,031 | ||||||||
Shareholders’ equity | 135,272 | 101,533 | 130,463 | 99,861 | ||||||||
Total liabilities and shareholders’ equity | $ | 1,459,737 | $ | 1,291,803 | $ | 1,466,681 | $ | 1,269,892 |
At December 31, 2006, Total Assets2007, total assets were $1.5$1.7 trillion, an increase of $167.9$256.0 billion, or 1318 percent, from December 31, 2005. 2006. Growth in period end total assets was due to an increase in loans and leases, AFS debt securities and all other assets. The increase in loans and leases was attributable to organic growth and the LaSalle merger. The increases in AFS debt securities and all other assets were driven by the LaSalle merger. The fair value of the assets acquired in the LaSalle merger was approximately $120 billion. All other assets also increased due to higher loans held-for-sale and the fair market value adjustment associated with our investment in China Construction Bank (CCB).
Average Total Assetstotal assets in 20062007 increased $196.8$135.4 billion, or 15nine percent, from 2005. Growth2006 primarily due to the increase in average loans and leases driven by the same factors as described above. Average trading account assets also increased during 2007 reflective of growth in the underlying business in the first half of 2007. These increases were partially offset by a decrease in AFS debt securities. The acquisition of LaSalle occurred in the fourth quarter of 2007 minimizing its impact on the average balance sheet.
At December 31, 2007, total liabilities were $1.6 trillion, an increase of $244.5 billion, or 18 percent, from December 31, 2006. Average total liabilities in 2007 increased $129.2 billion, or 10 percent, from 2006. The increase in period end and average Total Assetstotal liabilities was primarily attributable to increases in deposits and long-term debt, which were utilized to support the MBNA merger, which had $83.3 billion of Total Assets on January 1, 2006. The increasegrowth in Loans and Leases was also attributable to organic growth.overall assets. In addition, market-based earning assets increased $42.2 billion and $46.9 billion on a period end and average basis due to continued growth and build out in theCapital Markets and Advisory Services business withinGlobal Corporate and Investment Banking.
At December 31, 2006, Total Liabilities were $1.3 trillion, an increase of $134.2 billion, or 11 percent, from December 31, 2005. Average Total Liabilities in 2006 increased $166.2 billion, or 14 percent, from 2005. Growth in period end and average Total Liabilitiestotal liabilities was primarily attributabledue to increases in Depositsthe funding of, and Long-term Debt, due to the assumption of liabilities in connectionassociated with, the MBNA merger andLaSalle merger. The fair value of the net issuances of Long-term Debt. Funding requirements related to the support of growth in assets, including the financing needs of our trading business, resulted in increases in certain other funding categories.
Period end and average Shareholders’ Equity increased primarily from the issuance of stock related to the MBNA merger.
The Federal Funds Sold and Securities Purchased under Agreements to Resell average balance increased $6.2 billion, or four percent, in 2006 compared to the prior year. The increase was from activitiesliabilities assumed in the trading businesses, primarily in interest rate and equity products, as a result of expanded activities related to a variety of client needs.LaSalle merger was approximately $100 billion.
Trading Account Assets
Trading account assets consist primarily of fixed income securities (including government and corporate debt), equity and convertible instruments. The average balance increased $11.8$42.0 billion to $145.3$187.3 billion in 2006, which was2007, due to growth in client-driven market-making activities in interest rate, credit and equity products.products but was negatively impacted by the market disruptions in the second half of 2007. For additional information, see Market Risk Management beginning on page 72.
|
Available-for-sale (AFS) Debt Securities
AFS debt securities include fixed income securities such as mortgage-backed securities, foreign debt, asset-backed securities,ABS, municipal debt, U.S. Government agencies and corporate debt. We use the AFS portfolio primarily to manage interest rate risk and liquidity risk and to take advantage of market conditions that create more economically attractive returns on these investments. The average balance in the debt securities portfolio increased $5.4decreased $38.8 billion from 2005 primarily2006 due to the increase in the AFS portfolio in the first halfthird quarter 2006 sale of the year partially offset by the sale$43.7 billion of mortgage-backed securities as well as maturities and paydowns. The period end balances were also impacted by the addition of $43.7 billion in the third quarter of 2006.LaSalle. For additional information on our AFS debt securities portfolio, see Market Risk Management beginning– Securities on page 72.66 andNote 5 – Securities to the Consolidated Financial Statements.
Loans and Leases, Net |
Average Loans and Leases, net of Allowance for Loan and Lease Losses
Average loans and leases, net of allowance for loan and lease losses, was $643.3$766.3 billion in 2006,2007, an increase of 2219 percent from 2005.2006. The average consumer loan and lease portfolio increased $83.9$88.3 billion primarily due to higher retained mortgage production and the MBNA merger.production. The average commercial loan and lease portfolio increased $31.3$35.4 billion primarily due to organic growthgrowth. The average commercial and, to a lesser extent, consumer loans and leases increased due to the MBNA merger, includingaddition of loans acquired as a result of the business card portfolio.LaSalle merger. For a more detailed discussion of the loan portfolio and the allowance for credit losses, see Credit Risk Management beginning on page 53,44,Note 6 – Outstanding Loans and Notes 6Leases andNote 7 of– Allowance for Credit Losses to the Consolidated Financial Statements.
All Other Assets
Period end all other assets increased $64.4 billion at December 31, 2007, an increase of 23 percent from December 31, 2006, driven primarily by an increase of $15.9 billion in loans held-for-sale and a pre-tax $13.4 billion fair value adjustment associated with our CCB investment. Additionally, the increase in all other assets was impacted by the LaSalle merger.
Bank of America 2007 |
Deposits
Average Depositsdeposits increased $40.6$44.2 billion to $673.0$717.2 billion in 20062007 compared to 20052006 due to a $24.2 billion increase in average foreign interest-bearing deposits and a $14.0$31.3 billion increase in average domestic interest-bearing deposits primarily due to the assumption of liabilitiesand a $16.6 billion increase in connection with the MBNA merger.average foreign interest-bearing deposits. We categorize our deposits as core or market-based deposits. Core deposits are generally customer-based and represent a stable, low-cost funding source that usually reactreacts more slowly to interest rate changes than market-based deposits. Core deposits include savings, NOW and money market accounts, consumer CDs and IRAs, and noninterest-bearing deposits. Core deposits exclude negotiable CDs, public funds, other domestic time deposits and foreign interest-bearing deposits. Average core deposits increased $11.0$19.3 billion to $574.6$593.9 billion in 2006,2007, a twothree percent increase from the prior year. The increase was distributed betweenattributable to growth in our average consumer CDs and IRAs due to a shift from noninterest-bearing and lower yielding deposits partially offset by decreases in NOW and money market deposits, and savings. The increase in consumer CDs was impacted by the shift of deposit balances from NOW and money market deposits and savings to consumer CDs as a result of the favorable rates offered on consumerour higher yielding CDs. Average market-based deposit funding increased $29.6$24.9 billion to $98.4$123.3 billion in 20062007 compared to 20052006 due to increases of $24.2$16.6 billion in foreign interest-bearing deposits and $5.3$8.4 billion in negotiable CDs, public funds and other time deposits related to funding of growth in core and market-based assets. The increase in deposits was also impacted by the assumption of deposits, primarily money market, consumer CDs, and other domestic time deposits associated with the LaSalle merger.
The Federal Funds Purchased and Securities Sold under Agreements to Repurchase average balance increased $56.2 billion to $286.9 billion in 2006 as a result of expanded trading activities within interest rate and equity products related to client activities.
Trading Account Liabilities
Trading account liabilities consist primarily of short positions in fixed income securities (including government and corporate debt), equity and convertible instruments. The average balance increased $7.0$18.0 billion to $64.7
$82.7 billion in 2006,2007, which was due to growth in client-driven market-makingmarket- making activities in equity products, partially offset by a reduction in interest rate products. For additional information, see Market Risk Management beginning on page 72.
Commercial Paper and Other Short-term Borrowings
Commercial paper and other short-term borrowings provide a funding source to supplement Depositsdeposits in our ALM strategy. The average balance increased $28.6$47.1 billion to $124.2$171.3 billion in 2006,2007, mainly due to the increase inincreased commercial paper and Federal Home Loan Bank advances to fund core asset growth, primarily in the ALM portfolio.portfolio and the funding of the LaSalle acquisition.
Period end and average Long-term Debt
Average long-term debt increased $45.2$39.7 billion and $32.4to $169.9 billion. The increase resulted from the funding of core asset growth, the addition of MBNA and the issuancefunding of, subordinated debt to support Tier 2 capital.and assumption of liabilities associated with, the LaSalle merger. For additional information, seeNote 12 of– Short-term Borrowings and Long-term Debt to the Consolidated Financial Statements.
Shareholders’ Equity
Period end and average Shareholders’ Equityshareholders’ equity increased $33.7$11.5 billion and $30.6$6.2 billion primarily due to the issuance ofnet income, increased net gains in accumulated OCI, including an $8.4 billion, net-of-tax, fair value adjustment relating to our investment in CCB, common stock related to the MBNA merger. This increase alongissued in connection with Net Incomeemployee benefit plans, and issuances of Preferred Stock, waspreferred stock issued. These increases were partially offset by cash dividends, netdividend payments, share repurchases and the adoption of Common Stock and redemption of Preferred Stock.certain new accounting standards.
Bank of America 2007 | 15 |
Table 5
Table 5Five Year Summary of Selected Financial Data
(Dollars in millions, except per share information) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Income statement | ||||||||||||||||||||
Net interest income | $ | 34,591 | $ | 30,737 | $ | 27,960 | $ | 20,505 | $ | 20,117 | ||||||||||
Noninterest income | 38,432 | 25,354 | 21,005 | 17,329 | 14,874 | |||||||||||||||
Total revenue | 73,023 | 56,091 | 48,965 | 37,834 | 34,991 | |||||||||||||||
Provision for credit losses | 5,010 | 4,014 | 2,769 | 2,839 | 3,697 | |||||||||||||||
Gains (losses) on sales of debt securities | (443 | ) | 1,084 | 1,724 | 941 | 630 | ||||||||||||||
Noninterest expense | 35,597 | 28,681 | 27,012 | 20,155 | 18,445 | |||||||||||||||
Income before income taxes | 31,973 | 24,480 | 20,908 | 15,781 | 13,479 | |||||||||||||||
Income tax expense | 10,840 | 8,015 | 6,961 | 5,019 | 3,926 | |||||||||||||||
Net income | 21,133 | 16,465 | 13,947 | 10,762 | 9,553 | |||||||||||||||
Average common shares issued and outstanding (in thousands) | 4,526,637 | 4,008,688 | 3,758,507 | 2,973,407 | 3,040,085 | |||||||||||||||
Average diluted common shares issued and outstanding (in thousands) | 4,595,896 | 4,068,140 | 3,823,943 | 3,030,356 | 3,130,935 | |||||||||||||||
Performance ratios | ||||||||||||||||||||
Return on average assets | 1.44 | % | 1.30 | % | 1.34 | % | 1.44 | % | 1.46 | % | ||||||||||
Return on average common shareholders’ equity | 16.27 | 16.51 | 16.47 | 21.50 | 19.96 | |||||||||||||||
Total ending equity to total ending assets | 9.27 | 7.86 | 9.03 | 6.76 | 7.92 | |||||||||||||||
Total average equity to total average assets | 8.90 | 7.86 | 8.12 | 6.69 | 7.33 | |||||||||||||||
Dividend payout | 45.66 | 46.61 | 46.31 | 39.76 | 38.79 | |||||||||||||||
Per common share data | ||||||||||||||||||||
Earnings | $ | 4.66 | $ | 4.10 | $ | 3.71 | $ | 3.62 | $ | 3.14 | ||||||||||
Diluted earnings | 4.59 | 4.04 | 3.64 | 3.55 | 3.05 | |||||||||||||||
Dividends paid | 2.12 | 1.90 | 1.70 | 1.44 | 1.22 | |||||||||||||||
Book value | 29.70 | 25.32 | 24.70 | 16.86 | 17.04 | |||||||||||||||
Average balance sheet | ||||||||||||||||||||
Total loans and leases | $ | 652,417 | $ | 537,218 | $ | 472,617 | $ | 356,220 | $ | 336,820 | ||||||||||
Total assets | 1,466,681 | 1,269,892 | 1,044,631 | 749,104 | 653,732 | |||||||||||||||
Total deposits | 672,995 | 632,432 | 551,559 | 406,233 | 371,479 | |||||||||||||||
Long-term debt | 130,124 | 97,709 | 92,303 | 67,077 | 65,550 | |||||||||||||||
Common shareholders’ equity | 129,773 | 99,590 | 84,584 | 50,035 | 47,837 | |||||||||||||||
Total shareholders’ equity | 130,463 | 99,861 | 84,815 | 50,091 | 47,898 | |||||||||||||||
Asset Quality | ||||||||||||||||||||
Allowance for credit losses | $ | 9,413 | $ | 8,440 | $ | 9,028 | $ | 6,579 | $ | 6,851 | ||||||||||
Nonperforming assets | 1,856 | 1,603 | 2,455 | 3,021 | 5,262 | |||||||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding | 1.28 | % | 1.40 | % | 1.65 | % | 1.66 | % | 1.85 | % | ||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases | 505 | 532 | 390 | 215 | 126 | |||||||||||||||
Net charge-offs | $ | 4,539 | $ | 4,562 | $ | 3,113 | $ | 3,106 | $ | 3,697 | ||||||||||
Net charge-offs as a percentage of average loans and leases | 0.70 | % | 0.85 | % | 0.66 | % | 0.87 | % | 1.10 | % | ||||||||||
Nonperforming loans and leases as a percentage of total loans and leases outstanding | 0.25 | 0.26 | 0.42 | 0.77 | 1.47 | |||||||||||||||
Nonperforming assets as a percentage of total loans, leases, and foreclosed properties | 0.26 | 0.28 | 0.47 | 0.81 | 1.53 | |||||||||||||||
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs | 1.99 | 1.76 | 2.77 | 1.98 | 1.72 | |||||||||||||||
Capital ratios (period end) | ||||||||||||||||||||
Risk-based capital: | ||||||||||||||||||||
Tier 1 | 8.64 | % | 8.25 | % | 8.20 | % | 8.02 | % | 8.41 | % | ||||||||||
Total | 11.88 | 11.08 | 11.73 | 12.05 | 12.63 | |||||||||||||||
Tier 1 Leverage | 6.36 | 5.91 | 5.89 | 5.86 | 6.44 | |||||||||||||||
Market capitalization | $ | 238,021 | $ | 184,586 | $ | 190,147 | $ | 115,926 | $ | 104,418 | ||||||||||
Market price per share of common stock | ||||||||||||||||||||
Closing | $ | 53.39 | $ | 46.15 | $ | 46.99 | $ | 40.22 | $ | 34.79 | ||||||||||
High closing | 54.90 | 47.08 | 47.44 | 41.77 | 38.45 | |||||||||||||||
Low closing | 43.09 | 41.57 | 38.96 | 32.82 | 27.08 |
Income statement Net interest income Noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense, before merger and restructuring charges Merger and restructuring charges Income before income taxes Income tax expense Net income Average common shares issued and outstanding (in thousands) Average diluted common shares issued and outstanding (in thousands) Performance ratios Return on average assets Return on average common shareholders’ equity Return on average tangible shareholders’ equity(1) Total ending equity to total ending assets Total average equity to total average assets Dividend payout Per common share data Earnings Diluted earnings Dividends paid Book value Market price per share of common stock Closing High closing Low closing Market capitalization Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders’ equity Total shareholders’ equity Asset Quality Allowance for credit losses(2) Nonperforming assets measured at historical cost Allowance for loan and lease losses as a percentage of total loans and leases outstanding measured at historical cost(3) Allowance for loan and lease losses as a percentage of total nonperforming loans and leases measured at historical cost Net charge-offs Net charge-offs as a percentage of average loans and leases outstanding measured at historical cost(3) Nonperforming loans and leases as a percentage of total loans and leases outstanding measured at historical cost(3) Nonperforming assets as a percentage of total loans, leases and foreclosed properties(3) Ratio of the allowance for loan and lease losses at December 31 to net charge-offs Capital ratios (period end) Risk-based capital: Tier 1 Total Tier 1 Leverage(Dollars in millions, except per share information) 2007 2006 2005 2004 2003 $ 34,433 $ 34,591 $ 30,737 $ 27,960 $ 20,505 31,886 37,989 26,438 22,729 18,270 66,319 72,580 57,175 50,689 38,775 8,385 5,010 4,014 2,769 2,839 36,600 34,792 28,269 26,394 20,155 410 805 412 618 – 20,924 31,973 24,480 20,908 15,781 5,942 10,840 8,015 6,961 5,019 14,982 21,133 16,465 13,947 10,762 4,423,579 4,526,637 4,008,688 3,758,507 2,973,407 4,480,254 4,595,896 4,068,140 3,823,943 3,030,356 0.94 % 1.44 % 1.30 % 1.34 % 1.44 % 11.08 16.27 16.51 16.47 21.50 22.25 32.80 30.19 28.93 27.84 8.56 9.27 7.86 9.03 6.76 8.53 8.90 7.86 8.12 6.69 72.26 45.66 46.61 46.31 39.76 $ 3.35 $ 4.66 $ 4.10 $ 3.71 $ 3.62 3.30 4.59 4.04 3.64 3.55 2.40 2.12 1.90 1.70 1.44 32.09 29.70 25.32 24.70 16.86 $ 41.26 $ 53.39 $ 46.15 $ 46.99 $ 40.22 54.05 54.90 47.08 47.44 41.77 41.10 43.09 41.57 38.96 32.82 $ 183,107 $ 238,021 $ 184,586 $ 190,147 $ 115,926 $ 776,154 $ 652,417 $ 537,218 $ 472,617 $ 356,220 1,602,073 1,466,681 1,269,892 1,044,631 749,104 717,182 672,995 632,432 551,559 406,233 169,855 130,124 97,709 92,303 67,077 133,555 129,773 99,590 84,584 50,035 136,662 130,463 99,861 84,815 50,091 $ 12,106 $ 9,413 $ 8,440 $ 9,028 $ 6,579 5,948 1,856 1,603 2,455 3,021 1.33 % 1.28 % 1.40 % 1.65 % 1.66 % 207 505 532 390 215 $ 6,480 $ 4,539 $ 4,562 $ 3,113 $ 3,106 0.84 % 0.70 % 0.85 % 0.66 % 0.87 % 0.64 0.25 0.26 0.42 0.77 0.68 0.26 0.28 0.47 0.81 1.79 1.99 1.76 2.77 1.98 6.87 % 8.64 % 8.25 % 8.20 % 8.02 % 11.02 11.88 11.08 11.73 12.05 5.04 6.36 5.91 5.89 5.86
(1) | Tangible shareholders’ equity is a non-GAAP measure. For additional information on ROTE and a corresponding reconciliation of tangible shareholders’ equity to a GAAP financial measure, see Supplemental Financial Data beginning on page 17. |
(2) | Includes the allowance for loan and lease losses, and the reserve for unfunded lending commitments. |
(3) | Ratios do not include loans measured at fair value in accordance with SFAS 159 at and for the year ended December 31, 2007. Loans measured at fair value were $4.59 billion at December 31, 2007. |
Bank of America 2007 |
Table 6 provides a reconciliation of the supplemental financial data mentioned below with financial measures defined by accounting principles generally accepted in the United States (GAAP).GAAP. Other companies may define or calculate supplemental financial data differently.
Operating Basis Presentation
In managing our business, we may at times look at performance excluding certain nonrecurring items. For example, as an alternative to Net Income,net income, we view results on an operating basis, which represents Net Incomenet income excluding Mergermerger and Restructuring Charges.restructuring charges. The operating basis of presentation is not defined by GAAP. We believe that the exclusion of Mergermerger and Restructuring Charges,restructuring charges, which represent events outside our normal operations, provides a meaningful year-to-year comparison and is more reflective of normalized operations.
Net Interest Income – FTE Basis
In addition, we view Net Interest Incomenet interest income and related ratios and analysis (i.e., efficiency ratio, net interest yield and operating leverage) on a FTE basis. Although this is a non-GAAP measure, we believe managing the business with Net Interest Incomenet interest income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, Net Interest Incomenet interest income is adjusted to reflect tax-exempt income on an equivalent before-tax basis with a corresponding increase in Income Tax Expense.income tax expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of Net Interest Incomenet interest income arising from taxable and tax-exempt sources.
Performance Measures
As mentioned above, certain performance measures including the efficiency ratio, net interest yield and operating leverage utilize Net Interest Incomenet interest income (and thus Total Revenue)total revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield evaluates how many basis points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated planning process, we set operating leverage and efficiency targets for the Corporation and each line of business. We believe the use of these non-GAAP measures provides additional clarity in assessing the results of the Corporation.our results. Targets vary by year and by business, and are based on a variety of factors including maturity of the business, investment appetite, competitive environment, market factors, and other items (e.g., risk appetite). The aforementioned performance measures and ratios, earnings per common share (EPS), return on average assets and dividend payout ratio, as well as those measures discussed more fully below, are presented in Table 6.
Return on Average Common Shareholders’ Equity and Return on Average Tangible Shareholders’ Equity
We also evaluate our business based upon return on average common shareholders’ equity (ROE), return on average tangible shareholders’ equity (ROTE),ROE and shareholder value added (SVA)ROTE measures. ROE ROTE and SVAROTE utilize non-GAAP allocation methodologies. ROE measures the earnings contribution of a unit as a percentage of the Shareholders’ Equityshareholders’ equity allocated to that unit. ROTE measures theour earnings contribution of the Corporation as a percentage of Shareholders’ Equityshareholders’ equity reduced by Goodwill. SVA is defined as cash basis earnings on an operating basis less a charge for the use of capital.goodwill. These measures are used to evaluate our use of equity (i.e., capital) at the individual unit level and are integral components in the analytics for resource allocation. We believe using SVA as a performance measure places specific focus on whether incremental investments generate returns in excess of the costs of capital associated with those investments. In addition, profitability, relationship, and investment models all use ROE and SVA as key measures to support our overall growth goal.
Bank of America 2007 | 17 |
Table 6
Table 6 Supplemental Financial Data and Reconciliations to GAAP Financial Measures
(Dollars in millions, except per share information) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||||||||||||||||||||||
Operating basis | ||||||||||||||||||||||||||||||||||||||||
Operating earnings | $ | 21,640 | $ | 16,740 | $ | 14,358 | $ | 10,762 | $ | 9,553 | $ | 15,240 | $ | 21,640 | $ | 16,740 | $ | 14,358 | $ | 10,762 | ||||||||||||||||||||
Operating earnings per common share | 4.78 | 4.17 | 3.82 | 3.62 | 3.14 | |||||||||||||||||||||||||||||||||||
Diluted operating earnings per common share | 4.70 | 4.11 | 3.75 | 3.55 | 3.05 | |||||||||||||||||||||||||||||||||||
Shareholder value added | 9,121 | 6,594 | 5,718 | 5,475 | 4,509 | |||||||||||||||||||||||||||||||||||
Return on average assets | 1.48 | % | 1.32 | % | 1.37 | % | 1.44 | % | 1.46 | % | 0.95 | % | 1.48 | % | 1.32 | % | 1.37 | % | 1.44 | % | ||||||||||||||||||||
Return on average common shareholders’ equity | 16.66 | 16.79 | 16.96 | 21.50 | 19.96 | 11.27 | 16.66 | 16.79 | 16.96 | 21.50 | ||||||||||||||||||||||||||||||
Return on average tangible shareholders’ equity | 33.59 | 30.70 | 29.79 | 27.84 | 26.01 | 22.64 | 33.59 | 30.70 | 29.79 | 27.84 | ||||||||||||||||||||||||||||||
Operating efficiency ratio (FTE basis) | 46.86 | 49.66 | 53.13 | 52.38 | 51.84 | 53.77 | 47.14 | 48.73 | 51.35 | 51.13 | ||||||||||||||||||||||||||||||
Dividend payout ratio | 44.59 | 45.84 | 44.98 | 39.76 | 38.79 | 71.02 | 44.59 | 45.84 | 44.98 | 39.76 | ||||||||||||||||||||||||||||||
Operating leverage | 7.25 | 7.48 | (1.85 | ) | (1.12 | ) | n/a | |||||||||||||||||||||||||||||||||
Operating leverage (FTE basis) | (12.97 | ) | 4.15 | 5.74 | (0.55 | ) | (0.41 | ) | ||||||||||||||||||||||||||||||||
FTE basis data | ||||||||||||||||||||||||||||||||||||||||
Net interest income | $ | 35,815 | $ | 31,569 | $ | 28,677 | $ | 21,149 | $ | 20,705 | $ | 36,182 | $ | 35,815 | $ | 31,569 | $ | 28,677 | $ | 21,149 | ||||||||||||||||||||
Total revenue | 74,247 | 56,923 | 49,682 | 38,478 | 35,579 | |||||||||||||||||||||||||||||||||||
Total revenue, net of interest expense | 68,068 | 73,804 | 58,007 | 51,406 | 39,419 | |||||||||||||||||||||||||||||||||||
Net interest yield | 2.82 | % | 2.84 | % | 3.17 | % | 3.26 | % | 3.63 | % | 2.60 | % | 2.82 | % | 2.84 | % | 3.17 | % | 3.26 | % | ||||||||||||||||||||
Efficiency ratio | 47.94 | 50.38 | 54.37 | 52.38 | 51.84 | 54.37 | 48.23 | 49.44 | 52.55 | 51.13 | ||||||||||||||||||||||||||||||
Reconciliation of net income to operating earnings | ||||||||||||||||||||||||||||||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 10,762 | $ | 9,553 | $ | 14,982 | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 10,762 | ||||||||||||||||||||
Merger and restructuring charges | 805 | 412 | 618 | — | — | 410 | 805 | 412 | 618 | – | ||||||||||||||||||||||||||||||
Related income tax benefit | (298 | ) | (137 | ) | (207 | ) | — | — | (152 | ) | (298 | ) | (137 | ) | (207 | ) | – | |||||||||||||||||||||||
Operating earnings | $ | 21,640 | $ | 16,740 | $ | 14,358 | $ | 10,762 | $ | 9,553 | $ | 15,240 | $ | 21,640 | $ | 16,740 | $ | 14,358 | $ | 10,762 | ||||||||||||||||||||
Reconciliation of average shareholders’ equity to average tangible shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Average shareholders’ equity | $ | 130,463 | $ | 99,861 | $ | 84,815 | $ | 50,091 | $ | 47,898 | $ | 136,662 | $ | 130,463 | $ | 99,861 | $ | 84,815 | $ | 50,091 | ||||||||||||||||||||
Average goodwill | (66,040 | ) | (45,331 | ) | (36,612 | ) | (11,440 | ) | (11,171 | ) | (69,333 | ) | (66,040 | ) | (45,331 | ) | (36,612 | ) | (11,440 | ) | ||||||||||||||||||||
Average tangible shareholders’ equity | $ | 64,423 | $ | 54,530 | $ | 48,203 | $ | 38,651 | $ | 36,727 | $ | 67,329 | $ | 64,423 | $ | 54,530 | $ | 48,203 | $ | 38,651 | ||||||||||||||||||||
Reconciliation of EPS to operating EPS | ||||||||||||||||||||||||||||||||||||||||
Earnings per common share | $ | 4.66 | $ | 4.10 | $ | 3.71 | $ | 3.62 | $ | 3.14 | ||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | 0.12 | 0.07 | 0.11 | — | — | |||||||||||||||||||||||||||||||||||
Operating earnings per common share | $ | 4.78 | $ | 4.17 | $ | 3.82 | $ | 3.62 | $ | 3.14 | ||||||||||||||||||||||||||||||
Reconciliation of diluted EPS to diluted operating EPS | ||||||||||||||||||||||||||||||||||||||||
Diluted earnings per common share | $ | 4.59 | $ | 4.04 | $ | 3.64 | $ | 3.55 | $ | 3.05 | ||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | 0.11 | 0.07 | 0.11 | — | — | |||||||||||||||||||||||||||||||||||
Diluted operating earnings per common share | $ | 4.70 | $ | 4.11 | $ | 3.75 | $ | 3.55 | $ | 3.05 | ||||||||||||||||||||||||||||||
Reconciliation of net income to shareholder value added | ||||||||||||||||||||||||||||||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 10,762 | $ | 9,553 | ||||||||||||||||||||||||||||||
Amortization of intangibles | 1,755 | 809 | 664 | 217 | 218 | |||||||||||||||||||||||||||||||||||
Merger and restructuring charges, net of tax benefit | 507 | 275 | 411 | — | — | |||||||||||||||||||||||||||||||||||
Cash basis earnings on an operating basis | 23,395 | 17,549 | 15,022 | 10,979 | 9,771 | |||||||||||||||||||||||||||||||||||
Capital charge | (14,274 | ) | (10,955 | ) | (9,304 | ) | (5,504 | ) | (5,262 | ) | ||||||||||||||||||||||||||||||
Shareholder value added | $ | 9,121 | $ | 6,594 | $ | 5,718 | $ | 5,475 | $ | 4,509 | ||||||||||||||||||||||||||||||
Reconciliation of return on average assets to operating return on average assets | ||||||||||||||||||||||||||||||||||||||||
Return on average assets | 1.44 | % | 1.30 | % | 1.34 | % | 1.44 | % | 1.46 | % | 0.94 | % | 1.44 | % | 1.30 | % | 1.34 | % | 1.44 | % | ||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | 0.04 | 0.02 | 0.03 | — | — | |||||||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net-of-tax | 0.01 | 0.04 | 0.02 | 0.03 | – | |||||||||||||||||||||||||||||||||||
Operating return on average assets | 1.48 | % | 1.32 | % | 1.37 | % | 1.44 | % | 1.46 | % | 0.95 | % | 1.48 | % | 1.32 | % | 1.37 | % | 1.44 | % | ||||||||||||||||||||
Reconciliation of return on average common shareholders’ equity to operating return on average common shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Return on average common shareholders’ equity | 16.27 | % | 16.51 | % | 16.47 | % | 21.50 | % | 19.96 | % | 11.08 | % | 16.27 | % | 16.51 | % | 16.47 | % | 21.50 | % | ||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | 0.39 | 0.28 | 0.49 | — | — | |||||||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net-of-tax | 0.19 | 0.39 | 0.28 | 0.49 | – | |||||||||||||||||||||||||||||||||||
Operating return on average common shareholders’ equity | 16.66 | % | 16.79 | % | 16.96 | % | 21.50 | % | 19.96 | % | 11.27 | % | 16.66 | % | 16.79 | % | 16.96 | % | 21.50 | % | ||||||||||||||||||||
Reconciliation of return on average tangible shareholders’ equity to operating return on average tangible shareholders’ equity | ||||||||||||||||||||||||||||||||||||||||
Return on average tangible shareholders’ equity | 32.80 | % | 30.19 | % | 28.93 | % | 27.84 | % | 26.01 | % | 22.25 | % | 32.80 | % | 30.19 | % | 28.93 | % | 27.84 | % | ||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | 0.79 | 0.51 | 0.86 | — | — | |||||||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net-of-tax | 0.39 | 0.79 | 0.51 | 0.86 | – | |||||||||||||||||||||||||||||||||||
Operating return on average tangible shareholders’ equity | 33.59 | % | 30.70 | % | 29.79 | % | 27.84 | % | 26.01 | % | 22.64 | % | 33.59 | % | 30.70 | % | 29.79 | % | 27.84 | % | ||||||||||||||||||||
Reconciliation of efficiency ratio to operating efficiency ratio (FTE basis) | ||||||||||||||||||||||||||||||||||||||||
Efficiency ratio | 47.94 | % | 50.38 | % | 54.37 | % | 52.38 | % | 51.84 | % | 54.37 | % | 48.23 | % | 49.44 | % | 52.55 | % | 51.13 | % | ||||||||||||||||||||
Effect of merger and restructuring charges | (1.08 | ) | (0.72 | ) | (1.24 | ) | — | — | (0.60 | ) | (1.09 | ) | (0.71 | ) | (1.20 | ) | – | |||||||||||||||||||||||
Operating efficiency ratio | 46.86 | % | 49.66 | % | 53.13 | % | 52.38 | % | 51.84 | % | 53.77 | % | 47.14 | % | 48.73 | % | 51.35 | % | 51.13 | % | ||||||||||||||||||||
Reconciliation of dividend payout ratio to operating dividend payout ratio | ||||||||||||||||||||||||||||||||||||||||
Dividend payout ratio | 45.66 | % | 46.61 | % | 46.31 | % | 39.76 | % | 38.79 | % | 72.26 | % | 45.66 | % | 46.61 | % | 46.31 | % | 39.76 | % | ||||||||||||||||||||
Effect of merger and restructuring charges, net of tax benefit | (1.07 | ) | (0.77 | ) | (1.33 | ) | — | — | ||||||||||||||||||||||||||||||||
Effect of merger and restructuring charges, net-of-tax | (1.24 | ) | (1.07 | ) | (0.77 | ) | (1.33 | ) | – | |||||||||||||||||||||||||||||||
Operating dividend payout ratio | 44.59 | % | 45.84 | % | 44.98 | % | 39.76 | % | 38.79 | % | 71.02 | % | 44.59 | % | 45.84 | % | 44.98 | % | 39.76 | % | ||||||||||||||||||||
Reconciliation of operating leverage to operating basis operating leverage | ||||||||||||||||||||||||||||||||||||||||
Reconciliation of operating leverage to operating basis operating leverage (FTE basis) | ||||||||||||||||||||||||||||||||||||||||
Operating leverage | 6.32 | % | 8.40 | % | (4.91 | ) % | (1.12 | ) % | n/a | (11.74 | )% | 3.12 | % | 6.67 | % | (3.62 | )% | (0.41 | )% | |||||||||||||||||||||
Effect of merger and restructuring charges | 0.93 | (0.92 | ) | 3.06 | — | n/a | (1.23 | ) | 1.03 | (0.93 | ) | 3.07 | – | |||||||||||||||||||||||||||
Operating leverage | 7.25 | % | 7.48 | % | (1.85 | ) % | (1.12 | ) % | n/a | (12.97 | )% | 4.15 | % | 5.74 | % | (0.55 | )% | (0.41 | )% |
18 | Bank of America 2007 |
Table 7 Core Net Interest Income – Managed Basis
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||
Net interest income(1) | ||||||||||||
As reported | $ | 36,182 | $ | 35,815 | $ | 31,569 | ||||||
Impact of market-based net interest income (2) | (2,716 | ) | (1,660 | ) | (1,975 | ) | ||||||
Core net interest income | 33,466 | 34,155 | 29,594 | |||||||||
Impact of securitizations(3) | 7,841 | 7,045 | 323 | |||||||||
Core net interest income – managed basis | $ | 41,307 | $ | 41,200 | $ | 29,917 | ||||||
Average earning assets | ||||||||||||
As reported | $ | 1,390,192 | $ | 1,269,144 | $ | 1,111,994 | ||||||
Impact of market-based earning assets(2) | (412,326 | ) | (370,187 | ) | (323,361 | ) | ||||||
Core average earning assets | 977,866 | 898,957 | 788,633 | |||||||||
Impact of securitizations | 103,371 | 98,152 | 9,033 | |||||||||
Core average earning assets – managed basis | $ | 1,081,237 | $ | 997,109 | $ | 797,666 | ||||||
Net interest yield contribution(1) | ||||||||||||
As reported | 2.60 | % | 2.82 | % | 2.84 | % | ||||||
Impact of market-based activities(2) | 0.82 | 0.98 | 0.91 | |||||||||
Core net interest yield on earning assets | 3.42 | 3.80 | 3.75 | |||||||||
Impact of securitizations | 0.40 | 0.33 | – | |||||||||
Core net interest yield on earning assets – managed basis | 3.82 | % | 4.13 | % | 3.75 | % |
(1) |
|
(2) | Represents the impact of market-based amounts included in theCMAS business withinGCIB and excludes |
(3) | Represents the impact of securitizations utilizing actual bond costs. This is different from the business segment view which utilizes funds transfer pricing methodologies. |
n/a = not available
Core Net Interest Income – Managed Basis
In managing our business, we reviewWe manage core net interest income – managed basis, which adjusts reported Net Interest Incomenet interest income on a FTE basis for the impact of market-based activities and certain securitizations, net of retained securities. As discussed in theGlobal Corporate and Investment BankingGCIB business segment section beginning on page 33,25, we evaluate our market-based results and strategies on a total market-based revenue approach by combining Net Interest Incomenet interest income and Noninterest Incomenoninterest income for the Capital Markets and Advisory ServicesCMAS business.. We also adjust for loans that we originated and subsequently sold into certain securitizations. These securitizations include off-balance sheet Loansloans and Leases, specifically those loans in revolving securitizations and otherleases, primarily credit card securitizations where servicing is retained by the Corporation, (e.g., credit card and home equity lines).but excludes first mortgage securitizations. Noninterest Income,income, rather than Net Interest Incomenet interest income and Provisionprovision for Credit Losses,credit losses, is recorded for assets that have been securitized as we are compensated for servicing the securitized assets and record servicing income and gains or losses on securitizations, where appropriate. We believe the use of this non-GAAP presentation provides additional clarity in assessing the results of the Corporation.managing our results. An analysis of core net interest income – managed basis, core average earning assets – managed basis and core net interest yield on earning assets – managed basis, which adjusts for the impact of these two non-core items from reported Net Interest Incomenet interest income on a FTE basis, is shown below.in the table above.
Table 7
Core Net Interest Income – Managed Basis
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||
Net interest income | ||||||||||||
As reported (FTE basis) | $ | 35,815 | $ | 31,569 | $ | 28,677 | ||||||
Impact of market-based net interest income (1) | (1,651 | ) | (1,938 | ) | (2,606 | ) | ||||||
Core net interest income | 34,164 | 29,631 | 26,071 | |||||||||
Impact of securitizations | 7,045 | 323 | 1,040 | |||||||||
Core net interest income – managed basis | $ | 41,209 | $ | 29,954 | $ | 27,111 | ||||||
Average earning assets | ||||||||||||
As reported | $ | 1,269,144 | $ | 1,111,994 | $ | 905,273 | ||||||
Impact of market-based earning assets (1) | (369,164 | ) | (322,236 | ) | (246,704 | ) | ||||||
Core average earning assets | 899,980 | 789,758 | 658,569 | |||||||||
Impact of securitizations | 98,152 | 9,033 | 13,591 | |||||||||
Core average earning assets – managed basis | $ | 998,132 | $ | 798,791 | $ | 672,160 | ||||||
Net interest yield contribution | ||||||||||||
As reported (FTE basis) | 2.82 | % | 2.84 | % | 3.17 | % | ||||||
Impact of market-based activities | 0.98 | 0.91 | 0.79 | |||||||||
Core net interest yield on earning assets | 3.80 | 3.75 | 3.96 | |||||||||
Impact of securitizations | 0.33 | — | 0.07 | |||||||||
Core net interest yield on earning assets – managed basis | 4.13 | % | 3.75 | % | 4.03 | % |
|
|
Core net interest income on a managed basis increased $11.3 billion. This$107 million in 2007 compared to 2006. The increase was primarily driven by higher levels of consumer and commercial loans, the impact of the MBNA merger (volumesLaSalle acquisition, and spreads), consumer (primarily home equity) anda one-time tax benefit from restructuring our existing non-U.S. based commercial loan growth, andaircraft leasing business. These increases in the benefits from ALM activities, includingwere partially offset by spread compression, increased portfolio balances (primarily residential mortgages)hedge costs and the impact of changesdivestitures of certain foreign operations in spreads across all product categories. Partially offsetting these increases waslate 2006 and the higher costs associated with higher levelsbeginning of wholesale funding.2007.
On a managed basis, core average earning assets increased $199.3$84.1 billion primarilyin 2007 compared to 2006 due to the impact of the MBNA merger, higher levels of consumer and commercial managed loans and increased levels from organic growth and higher ALM levels (primarily residential mortgages).activities partially offset by a decrease in average balances from the divestitures mentioned above.
Core net interest yield on a managed basis increased 38decreased 31 bps as a resultto 3.82 percent compared to 2006 and was driven by spread compression, higher costs of deposits, the impact of the MBNAfunding of the LaSalle merger (volumes and spreads) and core deposit spread widening, partially offset by loan spread compression due to the flat to inverted yield curve and increased costs associated with higher levelssale of wholesale funding.
Business Segment Operations |
The Corporation reportsSegment Description
We report the results of itsour operations through three business segments:Global Consumer and Small Business Banking, Global Corporate and Investment Banking,GCSBB, GCIB andGlobal Wealth and Investment ManagementGWIM., with the remaining operations recorded inAll Other consists. Certain prior period amounts have been reclassified to conform to current period presentation. For more information on our basis of equity investment activities including Principal Investing, Corporate Investmentspresentation, selected financial information for the business segments and Strategic Investments,reconciliations to consolidated total revenue, net income and period end total asset amounts, seeNote 22 – Business Segment Information to the residual impactConsolidated Financial Statements.
Basis of the allowance for credit losses and the cost allocation processes, Merger and Restructuring Charges, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are being liquidated.All Other also includes certain amounts associated with ALM activities, including the residual impact of funds transfer pricing allocation methodologies, amounts associated with the change in the value of derivatives used as economic hedges of interest rate and foreign exchange rate fluctuations that do not qualify for Statement of Financial Accounting Standards (SFAS) No. 133 “Accounting for Derivative Instruments and Hedging Activities, as amended” (SFAS 133) hedge accounting treatment, certain gains or losses on sales of whole mortgage loans, and Gains (Losses) on Sales of Debt Securities.Presentation
We prepare and evaluate segment results using certain non-GAAP methodologies and performance measures, many of which are discussed in Supplemental Financial Data beginning on page 22.17. We begin by evaluating the operating results of the businesses which by definition excludes Mergermerger and Restructuring Charges.restructuring charges. The segment results also reflect certain revenue and expense methodologies which are utilized to determine operatingnet income. The Net Interest Incomenet interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics.
The management accounting reporting process derives segment and business results by utilizing allocation methodologies for revenue, expense and capital. The Net Incomenet income derived for the businesses areis dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing, and other methodologies and assumptions management believes are appropriate to reflect the results of the business.
Bank of America 2007 | 19 |
The Corporation’sOur ALM activities maintain an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significantmanage fluctuations in earnings that are caused by interest rate volatility. The Corporation’sOur goal is to manage interest rate sensitivity so that movements in interest rates do not significantly adversely affect Net Interest Income.net interest income. The results of the business segments will fluctuate based on the performance of corporate ALM activities. Some ALM activities are recorded in the businesses (i.e.(e.g.,Deposits) such as external product pricing decisions, including deposit pricing strategies, as well as the effects of our internal funds transfer pricing process and other ALM actions such as portfolio positioning.process. The net effects of other ALM activities are reported in each of the Corporation’sour segments underALM/Other. In addition, anycertain residual effectimpacts of the funds transfer pricing process isare retained inAll OtherOther..
Certain expenses not directly attributable to a specific business segment are allocated to the segments based on pre-determined means. The most significant of these expenses include data processing costs, item processing costs and certain centralized or shared functions. Data
processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The costs of certain centralized or shared functions are allocated based on methodologies which reflect utilization.
Equity is allocated to business segments and related businesses using a risk-adjusted methodology incorporating each unit’s credit, market, interest rate and operational risk components. The Corporation as a whole benefits from risk diversification across the different businesses. This benefit is reflected as a reduction to allocated equity for each segment and is recorded inALM/Other. The nature of these risks is discussed further beginning on page 53. ROE is calculated by dividing Net Income by average allocated equity. SVA is defined as cash basis earnings on an operating basis less a charge for the use of capital (i.e., equity). Cash basis earnings on an operating basis is defined as Net Income adjusted to exclude Merger and Restructuring Charges and Amortization of Intangibles. The charge for capital is calculated by multiplying 11 percent (management’s estimate of the shareholders’ minimum required rate of return on capital invested) by average total common shareholders’ equity at the corporate level and by average allocated equity at the business segment level.40. Average equity is allocated to the business level using a methodology identical to that used in the ROE calculation. Management reviews the estimate of the rate used to calculate the capital charge annually. The Capital Asset Pricing Model is used to estimate our cost of capital.
See Note 20 of the Consolidated Financial Statements for additional business segment information, selected financial information for the business segments and reconciliationsrelated businesses, and is impacted by the portion of goodwill that is specifically assigned to consolidated Total Revenuethe businesses and Net Income amounts.the unallocated portion of goodwill that resides inALM/Other.
Bank of America 2007 |
2006 | ||||||||||||||||||||||||
(Dollars in millions) | Total | Deposits | Card Services(1) | Mortgage | Home Equity | ALM/Other | ||||||||||||||||||
Net interest income(2) | $ | 21,100 | $ | 9,767 | $ | 8,805 | $ | 599 | $ | 1,406 | $ | 523 | ||||||||||||
Noninterest income | ||||||||||||||||||||||||
Card income | 13,504 | 1,911 | 11,593 | — | — | — | ||||||||||||||||||
Service charges | 5,343 | 5,343 | — | — | — | ��� | ||||||||||||||||||
Mortgage banking income | 877 | — | — | 793 | 84 | — | ||||||||||||||||||
All other income | 867 | — | 1,087 | 44 | — | (264 | ) | |||||||||||||||||
Total noninterest income | 20,591 | 7,254 | 12,680 | 837 | 84 | (264 | ) | |||||||||||||||||
Total revenue(2) | 41,691 | 17,021 | 21,485 | 1,436 | 1,490 | 259 | ||||||||||||||||||
Provision for credit losses | 5,172 | 165 | 4,727 | 17 | 47 | 216 | ||||||||||||||||||
Gains (losses) on sales of debt securities | (1 | ) | — | — | — | — | (1 | ) | ||||||||||||||||
Noninterest expense | 18,830 | 9,053 | 7,827 | 972 | 641 | 337 | ||||||||||||||||||
Income before income taxes(2) | 17,688 | 7,803 | 8,931 | 447 | 802 | (295 | ) | |||||||||||||||||
Income tax expense (benefit) | 6,517 | 2,875 | 3,291 | 165 | 295 | (109 | ) | |||||||||||||||||
Net income | $ | 11,171 | $ | 4,928 | $ | 5,640 | $ | 282 | $ | 507 | $ | (186 | ) | |||||||||||
Shareholder value added | $ | 5,738 | $ | 3,610 | $ | 1,908 | $ | 75 | $ | 343 | $ | (198 | ) | |||||||||||
Net interest yield(2) | 6.42 | % | 2.94 | % | 8.93 | % | 1.77 | % | 2.47 | % | n/m | |||||||||||||
Return on average equity | 17.70 | 32.53 | 12.67 | 14.95 | 33.96 | n/m | ||||||||||||||||||
Efficiency ratio(2) | 45.17 | 53.19 | 36.43 | 67.71 | 43.01 | n/m | ||||||||||||||||||
Period end—total assets (3) | $ | 382,392 | $ | 342,443 | $ | 143,179 | $ | 37,282 | $ | 63,742 | n/m | |||||||||||||
2005 | ||||||||||||||||||||||||
(Dollars in millions) | Total | Deposits | Card Services(1) | Mortgage | Home Equity | ALM/Other | ||||||||||||||||||
Net interest income(2) | $ | 16,898 | $ | 8,537 | $ | 5,009 | $ | 745 | $ | 1,291 | $ | 1,316 | ||||||||||||
Noninterest income | ||||||||||||||||||||||||
Card income | 5,084 | 1,560 | 3,524 | — | — | — | ||||||||||||||||||
Service charges | 4,996 | 4,996 | — | — | — | — | ||||||||||||||||||
Mortgage banking income | 1,012 | — | — | 935 | 77 | — | ||||||||||||||||||
All other income | 333 | — | 57 | 21 | — | 255 | ||||||||||||||||||
Total noninterest income | 11,425 | 6,556 | 3,581 | 956 | 77 | 255 | ||||||||||||||||||
Total revenue(2) | 28,323 | 15,093 | 8,590 | 1,701 | 1,368 | 1,571 | ||||||||||||||||||
Provision for credit losses | 4,243 | 98 | 3,999 | 21 | 38 | 87 | ||||||||||||||||||
Gains (losses) on sales of debt securities | (2 | ) | — | — | — | — | (2 | ) | ||||||||||||||||
Noninterest expense | 13,124 | 8,079 | 2,968 | 1,059 | 646 | 372 | ||||||||||||||||||
Income before income taxes(2) | 10,954 | 6,916 | 1,623 | 621 | 684 | 1,110 | ||||||||||||||||||
Income tax expense | 3,933 | 2,484 | 582 | 223 | 246 | 398 | ||||||||||||||||||
Net income | $ | 7,021 | $ | 4,432 | $ | 1,041 | $ | 398 | $ | 438 | $ | 712 | ||||||||||||
Shareholder value added | $ | 4,318 | $ | 3,118 | $ | 21 | $ | 212 | $ | 315 | $ | 652 | ||||||||||||
Net interest yield(2) | 5.65 | % | 2.77 | % | 8.90 | % | 1.99 | % | 2.71 | % | n/m | |||||||||||||
Return on average equity | 23.73 | 29.56 | 9.28 | 23.12 | 39.20 | n/m | ||||||||||||||||||
Efficiency ratio(2) | 46.34 | 53.52 | 34.55 | 62.26 | 47.24 | n/m | ||||||||||||||||||
Period end—total assets (3) | $ | 331,259 | $ | 321,030 | $ | 66,338 | $ | 42,183 | $ | 51,401 | n/m |
Global Consumer and Small Business Banking
2007 | ||||||||||||||||||||
(Dollars in millions) | Total(1) | Deposits | Card Services (1) | Consumer Real Estate (2) | ALM/ Other | |||||||||||||||
Net interest income(3) | $ | 28,809 | $ | 9,423 | $ | 16,562 | $ | 2,281 | $ | 543 | ||||||||||
Noninterest income: | ||||||||||||||||||||
Card income | 10,189 | 2,155 | 8,028 | 6 | – | |||||||||||||||
Service charges | 6,008 | 6,003 | – | 5 | – | |||||||||||||||
Mortgage banking income | 1,333 | – | – | 1,333 | – | |||||||||||||||
All other income | 1,343 | (4 | ) | 943 | 54 | 350 | ||||||||||||||
Total noninterest income | 18,873 | 8,154 | 8,971 | 1,398 | 350 | |||||||||||||||
Total revenue, net of interest expense | 47,682 | 17,577 | 25,533 | 3,679 | 893 | |||||||||||||||
Provision for credit losses(4) | 12,929 | 256 | 11,317 | 1,041 | 315 | |||||||||||||||
Noninterest expense | 20,060 | 9,106 | 8,294 | 2,033 | 627 | |||||||||||||||
Income (loss) before income taxes | 14,693 | 8,215 | 5,922 | 605 | (49 | ) | ||||||||||||||
Income tax expense (benefit)(3) | 5,263 | 2,988 | 2,210 | 234 | (169 | ) | ||||||||||||||
Net income | $ | 9,430 | $ | 5,227 | $ | 3,712 | $ | 371 | $ | 120 | ||||||||||
Net interest yield(3) | 8.15 | % | 2.97 | % | 7.87 | % | 2.04 | % | n/m | |||||||||||
Return on average equity(5) | 14.94 | 33.61 | 8.43 | 9.00 | n/m | |||||||||||||||
Efficiency ratio(3) | 42.07 | 51.81 | 32.49 | 55.24 | n/m | |||||||||||||||
Period end – total assets (6) | $ | 442,987 | $ | 358,626 | $ | 257,000 | $ | 133,324 | n/m |
2006 | |||||||||||||||||||
(Dollars in millions) | Total(1) | Deposits | Card Services (1) | Consumer Real Estate (2) | ALM/ Other | ||||||||||||||
Net interest income(3) | $ | 28,197 | $ | 9,405 | $ | 16,357 | $ | 1,994 | $ | 441 | |||||||||
Noninterest income: | |||||||||||||||||||
Card income | 9,374 | 1,907 | 7,460 | 7 | – | ||||||||||||||
Service charges | 5,342 | 5,338 | – | 4 | – | ||||||||||||||
Mortgage banking income | 877 | – | – | 877 | – | ||||||||||||||
All other income | 1,136 | 1 | 819 | 27 | 289 | ||||||||||||||
Total noninterest income | 16,729 | 7,246 | 8,279 | 915 | 289 | ||||||||||||||
Total revenue, net of interest expense | 44,926 | 16,651 | 24,636 | 2,909 | 730 | ||||||||||||||
Provision for credit losses(4) | 8,534 | 165 | 8,089 | 63 | 217 | ||||||||||||||
Noninterest expense | 18,375 | 8,783 | 7,519 | 1,718 | 355 | ||||||||||||||
Income before income taxes | 18,017 | 7,703 | 9,028 | 1,128 | 158 | ||||||||||||||
Income tax expense(3) | 6,639 | 2,840 | 3,328 | 416 | 55 | ||||||||||||||
Net income | $ | 11,378 | $ | 4,863 | $ | 5,700 | $ | 712 | $ | 103 | |||||||||
Net interest yield(3) | 8.20 | % | 2.93 | % | 8.52 | % | 2.19 | % | n/m | ||||||||||
Return on average equity(5) | 18.11 | 33.42 | 12.90 | 22.18 | n/m | ||||||||||||||
Efficiency ratio(3) | 40.90 | 52.75 | 30.52 | 59.06 | n/m | ||||||||||||||
Period end – total assets (6) | $ | 399,373 | $ | 339,717 | $ | 235,106 | $ | 101,175 | n/m |
(1) | Presented on a managed basis, specificallyCard Services |
(2) |
|
(3) | FTE basis |
(4) | Represents provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio. |
(5) | Average allocated equity forGCSBB was $63.1 billion and $62.8 billion in 2007 and 2006. |
(6) | Total |
n/m = not meaningful
Total loans and leases Total earning assets(1) Total assets(1) Total deposits Allocated equity December 31 Average Balance (Dollars in millions) 2006 2005 2006 2005 $ 206,040 $ 151,657 $ 192,072 $ 144,027 319,552 302,619 328,528 298,904 382,392 331,259 390,257 326,243 327,236 306,101 330,072 306,098 60,373 36,861 63,121 29,581
n/m | = not meaningful |
Bank of America 2007 | 21 |
December 31 | Average Balance | |||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||
Total loans and leases | $ | 359,946 | $ | 307,661 | $ | 327,810 | $ | 288,131 | ||||||
Total earning assets(1) | 383,384 | 343,338 | 353,591 | 344,013 | ||||||||||
Total assets(1) | 442,987 | 399,373 | 408,034 | 396,559 | ||||||||||
Total deposits | 344,850 | 329,195 | 328,918 | 332,242 |
(1) | Total earning assets and |
The strategy offor Global Consumer and Small Business BankingGCSBB is to attract, retain and deepen customer relationships. We achieve this strategy through our ability to offer a wide range of products and services through a franchise that stretches coast to coast through 3032 states and the District of Columbia. With the recent merger with MBNA, weWe also provide credit card products to customers in Canada, Ireland, Spain and the United Kingdom. In the U.S., we serve more than 55approximately 59 million consumer and small business relationships utilizing our network of 5,7476,149 banking centers, 17,07918,753 domestic branded ATMs, and telephone and Internet channels. WithinGlobal Consumer and Small Business BankingGCSBB, there are fourthree primary businesses:Deposits,,Card Services,Mortgage andHome Equity.Consumer Real Estate. In addition,ALM/Other includes the results of ALM activities and other consumer-related businesses (e.g., insurance).GCSBB, specificallyCard Services, is presented on a managed basis. For a reconciliation of managedGCSBB to heldGCSBB, seeNote 22 – Business Segment Information to the Consolidated Financial Statements.
During 2007, Visa Inc. filed a registration statement with the SEC with respect to a proposed IPO. Subject to market conditions and other factors, Visa Inc. expects the IPO to occur in the first half of 2008. We expect to record a gain associated with the IPO. In addition, we expect that a portion of the proceeds from the IPO will be used by Visa Inc. to fund liabilities arising from litigation which would allow us to record an offset to the litigation liabilities that we recorded in the fourth quarter of 2007 as discussed below.
Net Income increased $4.2income decreased $1.9 billion, or 5917 percent, to $11.2$9.4 billion and Net Interest Income increased $4.2 billion, or 25 percent in 2006 compared to 2005. These2006 as increases in noninterest income and net interest income were primarilymore than offset by increases in provision for credit losses and noninterest expense.
Net interest income increased $612 million, or two percent, to $28.8 billion due to the MBNA merger andimpacts of organic growth whichand the LaSalle acquisition on average loans and leases, and deposits compared to 2006. Noninterest income increased Average Loans and Leases.
Noninterest Income increased $9.2$2.1 billion, or 8013 percent, mainly due to increases of $8.4$18.9 billion compared to the same period in Card Income, $534 million in all other income and $347 million in Service Charges. Card Income was higher2006, mainly due to increases in excess servicingcard income, cash advance fees, interchange incomeservice charges and late fees due primarily to the impact of the MBNA merger. All other income increased primarily as a result of the MBNA merger. Service Charges increased due to new account growth and increased usage.mortgage banking income.
The Provision for Credit Lossescredit losses increased $929 million,$4.4 billion, or 2251 percent, to $5.2$12.9 billion in 2006 compared to 20052006. This increase primarily resultingresulted from a $728 million$3.2 billion increase inCard Services mainly driven by the MBNA merger.and a $978 million increase inConsumer Real Estate. For further discussion of thisthe increase in the Provisionprovision for Credit Lossescredit losses related toCard Services andConsumer Real Estate, see theCard Services discussion beginning on page 28.their respective discussions.
Noninterest Expenseexpense increased $5.7$1.7 billion, or 43nine percent, in 2006 compared to 2005. The primary driver of the increase was the MBNA merger, which increased most expense items including Personnel, Marketing and Amortization of Intangibles. Amortization of Intangibles expense was higher$20.1 billion largely due to increases in purchased credit card relationships, affinity relationships, core deposit intangiblespersonnel-related expenses, Visa-related litigation costs, equally allocated toCard Services and other intangibles, including trademarksTreasury Services on a management accounting basis, and technology related costs. For additional information on Visa-related litigation, seeNote 13 – Commitments and Contingenciesto the MBNA merger.Consolidated Financial Statements.
Deposits
Deposits provides a comprehensive range of products to consumers and small businesses. Our products include traditional savings accounts, money market savings accounts, CDs and IRAs, and regularnoninterest and interest-checking
interest-bearing checking accounts. Debit card results are also included inDeposits.
Deposit products provide a relatively stable source of funding and liquidity. We earn net interest spread revenues from investing this liquidity in earning assets through client facingclient-facing lending activity and our ALM activities. The revenue is attributedallocated to the deposit products using our funds transfer pricing process which takes into account the interest rates and maturity characteristics of the deposits.Deposits also generate various account fees such as account service fees, non-sufficient fund fees, overdraft charges and account serviceATM fees, while debit cards generate merchant interchange fees. Interchange fees are volume based and paid by merchants to have the debit transactions processed.on purchase volume.
WeExcluding accounts obtained through acquisitions, we added approximately 2.42.3 million net new retail checking accounts and 1.2 million net new retail savings accounts during 2006.in 2007. These additions resulted from continued improvement in sales and service results in the Banking Center Channel and Online, and the introductionsuccess of such products such as Keep the ChangeTM as well as eCommerce accessibility, Risk Free CDs, Balance Rewards and customer referrals.Affinity.
The Corporation migratesWe continue to migrate qualifying affluent customers and their related deposit balances fromGCSBB toGWIM. In 2007, a total of $11.4 billion of deposits were migrated fromGCSBB toGWIM compared to $10.7 billion in 2006. After migration, the associated net interest income, service charges and associated Net Interest Income from thenoninterest expense are recorded inGlobal Consumer and Small Business Banking segment toGlobal Wealth and Investment ManagementGWIM.
Net Incomeincome increased $496$364 million, or 11seven percent, in 2006to $5.2 billion compared to 2005. The2006 as an increase in Net Incomenoninterest income was drivenpartially offset by an increase in Total Revenuenoninterest expense. Net interest income remained relatively flat at $9.4 billion compared to 2006 as the addition of $1.9LaSalle and higher deposit spreads resulting from disciplined pricing were offset by the impact of lower balances. Average deposits decreased $3.2 billion, or 13one percent, compared to 2005. Driving this growth was an increase of $1.2 billion, or 14 percent, in Net Interest Income resulting from higher average deposit levels and an increase in deposit spreads. Average deposits increased $24.0 billion, or eight percent, compared to 2005, primarilylargely due to the MBNA merger. Deposit spreads increased 17 bpsmigration of customer relationships and related balances to 3.00 percent, compared to 2005 as we effectively managed pricing in a rising interest rate environment. The increase in deposits wasGWIM, partially offset by the migrationacquisition of deposit balances toGlobal Wealth and Investment Management. Noninterest Income increased $698 million, or 11 percent,LaSalle. The increase in noninterest income was driven by higher service charges of $665 million, or 12 percent, primarily as a result of new demand deposit account growth and the addition of LaSalle. Additionally, debit card interchange income and higher Service Charges. The increase in debit card interchange incomerevenue growth of $248 million, or 13 percent, was primarily due to a higher number of active debit cards,checking accounts, increased usage, the addition of LaSalle and continued improvementsmarket penetration (i.e., increase in penetration and activation rates. Service Charges were higherthe number of existing account holders with debit cards).
Noninterest expense increased $323 million, or four percent, to $9.1 billion compared to 2006, primarily due to increased non-sufficient funds feesthe addition of LaSalle, and overdraft charges,to higher account service charges and ATM fees resulting from new account growth and increased usage.transaction volumes.
Card Services
Total Noninterest Expense increased $974 million, or 12 percent, in 2006 compared to 2005, primarily driven by costs associated with increased account volume.
Card Services,, which excludes the results of debit cards (included inDeposits), provides a broad offering of products, including U.S. Consumer and Business Card, Unsecured Lending, Merchant Services and International Card Businesses. As a result of the MBNA merger, weCard. We offer a variety of co-branded and affinity credit card products and have become the leading issuer of credit cards through endorsed marketing.marketing in the U.S. and Europe. During 2007, Merchant Services was transferred toTreasury Services within GCIB. Previously their results were reported inCard Services. Prior period amounts have been reclassified.
22 | Bank of America 2007 |
The Corporation reports itsGCSBB results, specificallyCard Services, on a managed basis, which is consistent with the way that management evaluates the results ofGCSBB. Managed basis assumes that securitized loans were not sold and presents earnings on these loans in a manner similar to the mergerway loans that have not been sold (i.e., held loans) are presented. Loan securitization is an alternative funding process that is used by the Corporation to diversify funding sources. Loan securitization removes loans from the Consolidated Balance Sheet through the sale of loans to an off-balance sheet QSPE which is excluded from the Corporation’s Consolidated Financial Statements in accordance with MBNA,Card Services included U.S. Consumer Card, U.S. Business Card, and Merchant Services.GAAP.
We present ourCard Services business on both a held and managed basis (a non-GAAP measure). The performance of the managed portfolio is importantSecuritized loans continue to understandingCard Services’ results as it demonstrates the results of the entire portfoliobe serviced by the business as the receivables that have been securitizedand are subject to the same underwriting standards and ongoing monitoring as the held loans. For assets that have been securitized,In addition, excess servicing income is exposed to similar credit risk and repricing of interest rates as held loans.
Net income decreased $2.0 billion, or 35 percent, to $3.7 billion compared to 2006 as growth in noninterest income and net interest income fee revenue and recoveries in excess of interest paid to the investors, grosswas more than offset by higher provision for credit losses and other trust expensesnoninterest expense. Net interest income increased $205 million, or one percent, to $16.6 billion as an increase in managed average loans and leases of $18.5 billion was partially offset by spread compression.
Noninterest income increased $692 million, or eight percent, to $9.0 billion mainly due to higher cash advance fees related to the securitized receivables are all reclassified into excess servicingorganic loan growth in domestic credit card and unsecured lending. All other income which is a component of Card Income. Managed noninterest income includes the impact of gains recognized on securitized loan principal receivables in accordance with SFAS No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities—a replacement of FASB Statement No. 125” (SFAS 140). Managed credit impact represents the held increased $124 million primarily due to higher foreign revenues.
Provision for Credit Lossescredit losses increased $3.2 billion, or 40 percent, to $11.3 billion compared to 2006. The increase was primarily driven by higher managed net losses from portfolio seasoning and increases from unusually low loss levels experienced in 2006 post bankruptcy reform. The higher provision was also driven by reserve increases in our small business portfolio reflective of growth in the business and portfolio deterioration. In addition, higher provision was due to seasoning of the unsecured lending portfolio. These increases in provision were partially offset by a higher level of reserve reduction from the addition of higher loss profile accounts to the domestic credit card securitization trust.
Noninterest expense increased $775 million, or 10 percent, to $8.3 billion compared to 2006, largely due to increases in personnel-related expenses,Card Services’ allocation of the Visa-related litigation costs and technology related costs. For additional information on Visa-related litigation, seeNote 13 – Commitments and Contingencies to the Consolidated Financial Statements.
Key Statistics
(Dollars in millions) | 2007 | 2006 | ||||||||
Card Services | ||||||||||
Average – total loans and leases: | ||||||||||
Managed | $ | 209,774 | $ | 191,314 | ||||||
Held | 106,490 | 95,076 | ||||||||
Period end – total loans and leases: | ||||||||||
Managed | 227,822 | 203,151 | ||||||||
Held | 124,855 | 101,286 | ||||||||
Managed net losses(1): | ||||||||||
Amount | 10,099 | 7,236 | ||||||||
Percent | 4.81 | % | 3.78 | % | ||||||
Credit Card (2) | ||||||||||
Average – total loans and leases: | ||||||||||
Managed | $ | 171,376 | $ | 163,409 | ||||||
Held | 70,242 | 72,979 | ||||||||
Period end – total loans and leases: | ||||||||||
Managed | 183,691 | 170,489 | ||||||||
Held | 80,724 | 72,194 | ||||||||
Managed net losses(1): | ||||||||||
Amount | 8,214 | 6,375 | ||||||||
Percent | 4.79 | % | 3.90 | % |
Table I
Table I Year-to-date Average Balances and Interest Rates – FTE Basis
2006 | 2005 | 2004 | |||||||||||||||||||||||||||||
(Dollars in millions) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||||||||
Earning assets | |||||||||||||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 15,611 | $ | 646 | 4.14 | % | $ | 14,286 | $ | 472 | 3.30 | % | $ | 14,254 | $ | 362 | 2.54 | % | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | 175,334 | 7,823 | 4.46 | 169,132 | 5,012 | 2.96 | 128,981 | 1,940 | 1.50 | ||||||||||||||||||||||
Trading account assets | 145,321 | 7,552 | 5.20 | 133,502 | 5,883 | 4.41 | 104,616 | 4,092 | 3.91 | ||||||||||||||||||||||
Debt securities(1) | 225,219 | 11,845 | 5.26 | 219,843 | 11,047 | 5.03 | 150,171 | 7,320 | 4.88 | ||||||||||||||||||||||
Loans and leases(2): | |||||||||||||||||||||||||||||||
Residential mortgage | 207,879 | 11,608 | 5.58 | 173,773 | 9,424 | 5.42 | 167,270 | 9,056 | 5.42 | ||||||||||||||||||||||
Credit card – domestic | 63,838 | 8,638 | 13.53 | 53,997 | 6,253 | 11.58 | 43,435 | 4,653 | 10.71 | ||||||||||||||||||||||
Credit card – foreign | 9,141 | 1,147 | 12.55 | — | — | — | — | — | — | ||||||||||||||||||||||
Home equity lines | 68,696 | 5,105 | 7.43 | 56,289 | 3,412 | 6.06 | 39,400 | 1,835 | 4.66 | ||||||||||||||||||||||
Direct/Indirect consumer(3) | 59,597 | 4,552 | 7.64 | 44,981 | 2,589 | 5.75 | 38,078 | 2,093 | 5.50 | ||||||||||||||||||||||
Other consumer(4) | 10,713 | 1,089 | 10.17 | 6,908 | 667 | 9.67 | 7,717 | 594 | 7.70 | ||||||||||||||||||||||
Total consumer | 419,864 | 32,139 | 7.65 | 335,948 | 22,345 | 6.65 | 295,900 | 18,231 | 6.16 | ||||||||||||||||||||||
Commercial – domestic | 151,231 | 10,897 | 7.21 | 128,034 | 8,266 | 6.46 | 114,644 | 6,978 | 6.09 | ||||||||||||||||||||||
Commercial real estate(5) | 36,939 | 2,740 | 7.42 | 34,304 | 2,046 | 5.97 | 28,085 | 1,263 | 4.50 | ||||||||||||||||||||||
Commercial lease financing | 20,862 | 995 | 4.77 | 20,441 | 992 | 4.85 | 17,483 | 819 | 4.68 | ||||||||||||||||||||||
Commercial – foreign | 23,521 | 1,674 | 7.12 | 18,491 | 1,292 | 6.99 | 16,505 | 850 | 5.15 | ||||||||||||||||||||||
Total commercial | 232,553 | 16,306 | 7.01 | 201,270 | 12,596 | 6.26 | 176,717 | 9,910 | 5.61 | ||||||||||||||||||||||
Total loans and leases | 652,417 | 48,445 | 7.43 | 537,218 | 34,941 | 6.50 | 472,617 | 28,141 | 5.95 | ||||||||||||||||||||||
Other earning assets | 55,242 | 3,498 | 6.33 | 38,013 | 2,103 | 5.53 | 34,634 | 1,815 | 5.24 | ||||||||||||||||||||||
Total earning assets(6) | 1,269,144 | 79,809 | 6.29 | 1,111,994 | 59,458 | 5.35 | 905,273 | 43,670 | 4.82 | ||||||||||||||||||||||
Cash and cash equivalents | 34,052 | 33,199 | 28,511 | ||||||||||||||||||||||||||||
Other assets, less allowance for loan and lease losses | 163,485 | 124,699 | 110,847 | ||||||||||||||||||||||||||||
Total assets | $ | 1,466,681 | $ | 1,269,892 | $ | 1,044,631 | |||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||
Domestic interest-bearing deposits: | |||||||||||||||||||||||||||||||
Savings | $ | 34,608 | $ | 269 | 0.78 | % | $ | 36,602 | $ | 211 | 0.58 | % | $ | 33,959 | $ | 119 | 0.35 | % | |||||||||||||
NOW and money market deposit accounts | 218,077 | 3,923 | 1.80 | 227,722 | 2,839 | 1.25 | 214,542 | 1,921 | 0.90 | ||||||||||||||||||||||
Consumer CDs and IRAs | 144,738 | 6,022 | 4.16 | 124,385 | 4,091 | 3.29 | 94,770 | 2,540 | 2.68 | ||||||||||||||||||||||
Negotiable CDs, public funds and other time deposits | 12,195 | 483 | 3.97 | 6,865 | 250 | 3.65 | 5,977 | 290 | 4.85 | ||||||||||||||||||||||
Total domestic interest-bearing deposits | 409,618 | 10,697 | 2.61 | 395,574 | 7,391 | 1.87 | 349,248 | 4,870 | 1.39 | ||||||||||||||||||||||
Foreign interest-bearing deposits: | |||||||||||||||||||||||||||||||
Banks located in foreign countries | 34,985 | 1,982 | 5.67 | 22,945 | 1,202 | 5.24 | 18,426 | 679 | 3.68 | ||||||||||||||||||||||
Governments and official institutions | 12,674 | 586 | 4.63 | 7,418 | 238 | 3.21 | 5,327 | 97 | 1.82 | ||||||||||||||||||||||
Time, savings and other | 38,544 | 1,215 | 3.15 | 31,603 | 661 | 2.09 | 27,739 | 275 | 0.99 | ||||||||||||||||||||||
Total foreign interest-bearing deposits | 86,203 | 3,783 | 4.39 | 61,966 | 2,101 | 3.39 | 51,492 | 1,051 | 2.04 | ||||||||||||||||||||||
Total interest-bearing deposits | 495,821 | 14,480 | 2.92 | 457,540 | 9,492 | 2.08 | 400,740 | 5,921 | 1.48 | ||||||||||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 411,132 | 19,840 | 4.83 | 326,408 | 11,615 | 3.56 | 227,565 | 4,072 | 1.79 | ||||||||||||||||||||||
Trading account liabilities | 64,689 | 2,640 | 4.08 | 57,689 | 2,364 | 4.10 | 35,326 | 1,317 | 3.73 | ||||||||||||||||||||||
Long-term debt | 130,124 | 7,034 | 5.41 | 97,709 | 4,418 | 4.52 | 92,303 | 3,683 | 3.99 | ||||||||||||||||||||||
Total interest-bearing liabilities(6) | 1,101,766 | 43,994 | 3.99 | 939,346 | 27,889 | 2.97 | 755,934 | 14,993 | 1.98 | ||||||||||||||||||||||
Noninterest-bearing sources: | |||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 177,174 | 174,892 | 150,819 | ||||||||||||||||||||||||||||
Other liabilities | 57,278 | 55,793 | 53,063 | ||||||||||||||||||||||||||||
Shareholders’ equity | 130,463 | 99,861 | 84,815 | ||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,466,681 | $ | 1,269,892 | $ | 1,044,631 | |||||||||||||||||||||||||
Net interest spread | 2.30 | % | 2.38 | % | 2.84 | % | |||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.52 | 0.46 | 0.33 | ||||||||||||||||||||||||||||
Net interest income/yield on earning assets(7) | $ | 35,815 | 2.82 | % | $ | 31,569 | 2.84 | % | $ | 28,677 | 3.17 | % |
2007 | 2006(1) | 2005 | |||||||||||||||||||||||||||||
(Dollars in millions) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||||||||
Earning assets | |||||||||||||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 13,152 | $ | 627 | 4.77 | % | $ | 15,611 | $ | 646 | 4.14 | % | $ | 14,286 | $ | 472 | 3.30 | % | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | 155,828 | 7,722 | 4.96 | 175,334 | 7,823 | 4.46 | 169,132 | 5,012 | 2.96 | ||||||||||||||||||||||
Trading account assets | 187,287 | 9,747 | 5.20 | 145,321 | 7,552 | 5.20 | 133,502 | 5,883 | 4.41 | ||||||||||||||||||||||
Debt securities(2) | 186,466 | 10,020 | 5.37 | 225,219 | 11,845 | 5.26 | 219,843 | 11,047 | 5.03 | ||||||||||||||||||||||
Loans and leases(3): | |||||||||||||||||||||||||||||||
Residential mortgage | 264,650 | 15,112 | 5.71 | 207,879 | 11,608 | 5.58 | 173,773 | 9,424 | 5.42 | ||||||||||||||||||||||
Credit card – domestic | 57,883 | 7,225 | 12.48 | 63,838 | 8,638 | 13.53 | 53,997 | 6,253 | 11.58 | ||||||||||||||||||||||
Credit card – foreign | 12,359 | 1,502 | 12.15 | 9,141 | 1,147 | 12.55 | – | – | – | ||||||||||||||||||||||
Home equity(4) | 98,765 | 7,385 | 7.48 | 78,318 | 5,773 | 7.37 | 63,852 | 3,931 | 6.16 | ||||||||||||||||||||||
Direct/Indirect consumer(5) | 70,260 | 6,002 | 8.54 | 53,371 | 4,185 | 7.84 | 37,472 | 2,072 | 5.53 | ||||||||||||||||||||||
Other consumer(6) | 4,259 | 389 | 9.14 | 7,317 | 788 | 10.78 | 6,854 | 665 | 9.72 | ||||||||||||||||||||||
Total consumer | 508,176 | 37,615 | 7.40 | 419,864 | 32,139 | 7.65 | 335,948 | 22,345 | 6.65 | ||||||||||||||||||||||
Commercial – domestic | 180,102 | 12,884 | 7.15 | 151,231 | 10,897 | 7.21 | 128,034 | 8,266 | 6.46 | ||||||||||||||||||||||
Commercial real estate(7) | 42,950 | 3,145 | 7.32 | 36,939 | 2,740 | 7.42 | 34,304 | 2,046 | 5.97 | ||||||||||||||||||||||
Commercial lease financing | 20,435 | 1,212 | 5.93 | 20,862 | 995 | 4.77 | 20,441 | 992 | 4.85 | ||||||||||||||||||||||
Commercial – foreign | 24,491 | 1,452 | 5.93 | 23,521 | 1,674 | 7.12 | 18,491 | 1,292 | 6.99 | ||||||||||||||||||||||
Total commercial | 267,978 | 18,693 | 6.98 | 232,553 | 16,306 | 7.01 | 201,270 | 12,596 | 6.26 | ||||||||||||||||||||||
Total loans and leases | 776,154 | 56,308 | 7.25 | 652,417 | 48,445 | 7.43 | 537,218 | 34,941 | 6.50 | ||||||||||||||||||||||
Other earning assets | 71,305 | 4,629 | 6.49 | 55,242 | 3,498 | 6.33 | 38,013 | 2,103 | 5.53 | ||||||||||||||||||||||
Total earning assets(8) | 1,390,192 | 89,053 | 6.41 | 1,269,144 | 79,809 | 6.29 | 1,111,994 | 59,458 | 5.35 | ||||||||||||||||||||||
Cash and cash equivalents | 33,091 | 34,052 | 33,199 | ||||||||||||||||||||||||||||
Other assets, less allowance for loan and lease losses | 178,790 | 163,485 | 124,699 | ||||||||||||||||||||||||||||
Total assets | $ | 1,602,073 | $ | 1,466,681 | $ | 1,269,892 | |||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||
Domestic interest-bearing deposits: | |||||||||||||||||||||||||||||||
Savings | $ | 32,316 | $ | 188 | 0.58 | % | $ | 34,608 | $ | 269 | 0.78 | % | $ | 36,602 | $ | 211 | 0.58 | % | |||||||||||||
NOW and money market deposit accounts | 220,207 | 4,361 | 1.98 | 218,077 | 3,923 | 1.80 | 227,722 | 2,839 | 1.25 | ||||||||||||||||||||||
Consumer CDs and IRAs | 167,801 | 7,817 | 4.66 | 144,738 | 6,022 | 4.16 | 124,385 | 4,091 | 3.29 | ||||||||||||||||||||||
Negotiable CDs, public funds and other time deposits | 20,557 | 974 | 4.74 | 12,195 | 483 | 3.97 | 6,865 | 250 | 3.65 | ||||||||||||||||||||||
Total domestic interest-bearing deposits | 440,881 | 13,340 | 3.03 | 409,618 | 10,697 | 2.61 | 395,574 | 7,391 | 1.87 | ||||||||||||||||||||||
Foreign interest-bearing deposits: | |||||||||||||||||||||||||||||||
Banks located in foreign countries | 42,788 | 2,174 | 5.08 | 34,985 | 1,982 | 5.67 | 22,945 | 1,202 | 5.24 | ||||||||||||||||||||||
Governments and official institutions | 16,523 | 812 | 4.91 | 12,674 | 586 | 4.63 | 7,418 | 238 | �� | 3.21 | |||||||||||||||||||||
Time, savings and other | 43,443 | 1,767 | 4.07 | 38,544 | 1,215 | 3.15 | 31,603 | 661 | 2.09 | ||||||||||||||||||||||
Total foreign interest-bearing deposits | 102,754 | 4,753 | 4.63 | 86,203 | 3,783 | 4.39 | 61,966 | 2,101 | 3.39 | ||||||||||||||||||||||
Total interest-bearing deposits | 543,635 | 18,093 | 3.33 | 495,821 | 14,480 | 2.92 | 457,540 | 9,492 | 2.08 | ||||||||||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 424,814 | 21,975 | 5.17 | 411,132 | 19,840 | 4.83 | 326,408 | 11,615 | 3.56 | ||||||||||||||||||||||
Trading account liabilities | 82,721 | 3,444 | 4.16 | 64,689 | 2,640 | 4.08 | 57,689 | 2,364 | 4.10 | ||||||||||||||||||||||
Long-term debt | 169,855 | 9,359 | 5.51 | 130,124 | 7,034 | 5.41 | 97,709 | 4,418 | 4.52 | ||||||||||||||||||||||
Total interest-bearing liabilities(8) | 1,221,025 | 52,871 | 4.33 | 1,101,766 | 43,994 | 3.99 | 939,346 | 27,889 | 2.97 | ||||||||||||||||||||||
Noninterest-bearing sources: | |||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 173,547 | 177,174 | 174,892 | ||||||||||||||||||||||||||||
Other liabilities | 70,839 | 57,278 | 55,793 | ||||||||||||||||||||||||||||
Shareholders’ equity | 136,662 | 130,463 | 99,861 | ||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,602,073 | $ | 1,466,681 | $ | 1,269,892 | |||||||||||||||||||||||||
Net interest spread | 2.08 | % | 2.30 | % | 2.38 | % | |||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.52 | 0.52 | 0.46 | ||||||||||||||||||||||||||||
Net interest income/yield on earning assets | $ | 36,182 | 2.60 | % | $ | 35,815 | 2.82 | % | $ | 31,569 | 2.84 | % |
(1) |
|
|
|
|
|
|
|
|
|
|
|
| Interest income (FTE basis) in 2006 does not include the cumulative tax charge resulting from a change in tax legislation relating to extraterritorial tax income and foreign sales corporation regimes. The FTE impact to |
(2) | Yields on AFS debt securities are calculated based on fair value rather than historical cost balances. The use of fair value does not have a material impact on net interest yield. |
(3) | Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. |
(4) | Includes home equity loans of $16.7 billion, $9.7 billion and $7.6 billion in 2007, 2006 and 2005, respectively. |
(5) | Includes foreign consumer loans of $3.8 billion, $3.4 billion, and $53 million in 2007, 2006 and 2005, respectively. |
(6) | Includes consumer finance loans of $3.2 billion, $2.9 billion, $3.1 billion in 2007, 2006 and 2005, respectively; and other foreign consumer loans of $1.1 billion, $4.4 billion and $3.5 billion in 2007, 2006 and 2005, respectively. |
(7) | Includes domestic commercial real estate loans of $42.1 billion, $36.2 billion and $33.8 billion in 2007, 2006 and 2005, respectively. |
(8) | Interest income includes the impact of interest rate risk management contracts, which increased (decreased) interest income on the underlying assets $(542) million, $(372) million and $704 million in 2007, 2006 and 2005, respectively. Interest expense includes the impact of interest rate risk management contracts, which increased interest expense on the underlying liabilities $813 million, $106 million and $1.3 billion in 2007, 2006 and 2005, respectively. For further information on interest rate contracts, see Interest Rate Risk Management for Nontrading Activities beginning on page 65. |
Bank of America 2007 | 73 |
Table II
Table II Analysis of Changes in Net Interest Income—Income – FTE Basis
From 2005 to 2006 | From 2004 to 2005 | ||||||||||||||||||||||||
Due to Change in (1) | Net Change | Due to Change in (1) | Net Change | ||||||||||||||||||||||
(Dollars in millions) | Volume | Rate | Volume | Rate | |||||||||||||||||||||
Increase (decrease) in interest income | |||||||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 43 | $ | 131 | $ | 174 | $ | 1 | $ | 109 | $ | 110 | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | 178 | 2,633 | 2,811 | 597 | 2,475 | 3,072 | |||||||||||||||||||
Trading account assets | 526 | 1,143 | 1,669 | 1,128 | 663 | 1,791 | |||||||||||||||||||
Debt securities | 282 | 516 | 798 | 3,408 | 319 | 3,727 | |||||||||||||||||||
Loans and leases: | |||||||||||||||||||||||||
Residential mortgage | 1,843 | 341 | 2,184 | 362 | 6 | 368 | |||||||||||||||||||
Credit card—domestic | 1,139 | 1,246 | 2,385 | 1,130 | 470 | 1,600 | |||||||||||||||||||
Credit card—foreign | 1,147 | — | 1,147 | — | — | — | |||||||||||||||||||
Home equity lines | 751 | 942 | 1,693 | 788 | 789 | 1,577 | |||||||||||||||||||
Direct/Indirect consumer | 838 | 1,125 | 1,963 | 381 | 115 | 496 | |||||||||||||||||||
Other consumer | 369 | 53 | 422 | (62 | ) | 135 | 73 | ||||||||||||||||||
Total consumer | 9,794 | 4,114 | |||||||||||||||||||||||
Commercial—domestic | 1,504 | 1,127 | 2,631 | 819 | 469 | 1,288 | |||||||||||||||||||
Commercial real estate | 159 | 535 | 694 | 281 | 502 | 783 | |||||||||||||||||||
Commercial lease financing | 20 | (17 | ) | 3 | 138 | 35 | 173 | ||||||||||||||||||
Commercial—foreign | 352 | 30 | 382 | 102 | 340 | 442 | |||||||||||||||||||
Total commercial | 3,710 | 2,686 | |||||||||||||||||||||||
Total loans and leases | 13,504 | 6,800 | |||||||||||||||||||||||
Other earning assets | 952 | 443 | 1,395 | 177 | 111 | 288 | |||||||||||||||||||
Total interest income | $ | 20,351 | $ | 15,788 | |||||||||||||||||||||
Increase (decrease) in interest expense | |||||||||||||||||||||||||
Domestic interest-bearing deposits: | |||||||||||||||||||||||||
Savings | $ | (10 | ) | $ | 68 | $ | 58 | $ | 9 | $ | 83 | $ | 92 | ||||||||||||
NOW and money market deposit accounts | (113 | ) | 1,197 | 1,084 | 128 | 790 | 918 | ||||||||||||||||||
Consumer CDs and IRAs | 671 | 1,260 | 1,931 | 781 | 770 | 1,551 | |||||||||||||||||||
Negotiable CDs, public funds and other time deposits | 195 | 38 | 233 | 43 | (83 | ) | (40 | ) | |||||||||||||||||
Total domestic interest-bearing deposits | 3,306 | 2,521 | |||||||||||||||||||||||
Foreign interest-bearing deposits: | |||||||||||||||||||||||||
Banks located in foreign countries | 631 | 149 | 780 | 165 | 358 | 523 | |||||||||||||||||||
Governments and official institutions | 169 | 179 | 348 | 38 | 103 | 141 | |||||||||||||||||||
Time, savings and other | 145 | 409 | 554 | 38 | 348 | 386 | |||||||||||||||||||
Total foreign interest-bearing deposits | 1,682 | 1,050 | |||||||||||||||||||||||
Total interest-bearing deposits | 4,988 | 3,571 | |||||||||||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 3,021 | 5,204 | 8,225 | 1,771 | 5,772 | 7,543 | |||||||||||||||||||
Trading account liabilities | 288 | (12 | ) | 276 | 835 | 212 | 1,047 | ||||||||||||||||||
Long-term debt | 1,464 | 1,152 | 2,616 | 216 | 519 | 735 | |||||||||||||||||||
Total interest expense | 16,105 | 12,896 | |||||||||||||||||||||||
Net increase in net interest income(2) | $ | 4,246 | $ | 2,892 |
From 2006 to 2007 | From 2005 to 2006 | ||||||||||||||||||||||
Due to Change in (1) | Net Change | Due to Change in (1) | Net Change | ||||||||||||||||||||
(Dollars in millions) | Volume | Rate | Volume | Rate | |||||||||||||||||||
Increase (decrease) in interest income | |||||||||||||||||||||||
Time deposits placed and other short-term investments | $ | (102 | ) | $ | 83 | $ | (19 | ) | $ | 43 | $ | 131 | $ | 174 | |||||||||
Federal funds sold and securities purchased under agreements to resell | (873 | ) | 772 | (101 | ) | 178 | 2,633 | 2,811 | |||||||||||||||
Trading account assets | 2,187 | 8 | 2,195 | 526 | 1,143 | 1,669 | |||||||||||||||||
Debt securities | (2,037 | ) | 212 | (1,825 | ) | 282 | 516 | 798 | |||||||||||||||
Loans and leases: | |||||||||||||||||||||||
Residential mortgage | 3,159 | 345 | 3,504 | 1,843 | 341 | 2,184 | |||||||||||||||||
Credit card – domestic | (806 | ) | (607 | ) | (1,413 | ) | 1,139 | 1,246 | 2,385 | ||||||||||||||
Credit card – foreign | 404 | (49 | ) | 355 | 1,147 | – | 1,147 | ||||||||||||||||
Home equity | 1,506 | 106 | 1,612 | 893 | 949 | 1,842 | |||||||||||||||||
Direct/Indirect consumer | 1,323 | 494 | 1,817 | 879 | 1,234 | 2,113 | |||||||||||||||||
Other consumer | (329 | ) | (70 | ) | (399 | ) | 46 | 77 | 123 | ||||||||||||||
Total consumer | 5,476 | 9,794 | |||||||||||||||||||||
Commercial – domestic | 2,088 | (101 | ) | 1,987 | 1,504 | 1,127 | 2,631 | ||||||||||||||||
Commercial real estate | 447 | (42 | ) | 405 | 159 | 535 | 694 | ||||||||||||||||
Commercial lease financing | (20 | ) | 237 | 217 | 20 | (17 | ) | 3 | |||||||||||||||
Commercial – foreign | 70 | (292 | ) | (222 | ) | 352 | 30 | 382 | |||||||||||||||
Total commercial | 2,387 | 3,710 | |||||||||||||||||||||
Total loans and leases | 7,863 | 13,504 | |||||||||||||||||||||
Other earning assets | 1,016 | 115 | 1,131 | 952 | 443 | 1,395 | |||||||||||||||||
Total interest income | $ | 9,244 | $ | 20,351 | |||||||||||||||||||
Increase (decrease) in interest expense | |||||||||||||||||||||||
Domestic interest-bearing deposits: | |||||||||||||||||||||||
Savings | $ | (17 | ) | $ | (64 | ) | $ | (81 | ) | $ | (10 | ) | $ | 68 | $ | 58 | |||||||
NOW and money market deposit accounts | 41 | 397 | 438 | (113 | ) | 1,197 | 1,084 | ||||||||||||||||
Consumer CDs and IRAs | 959 | 836 | 1,795 | 671 | 1,260 | 1,931 | |||||||||||||||||
Negotiable CDs, public funds and other time deposits | 333 | 158 | 491 | 195 | 38 | 233 | |||||||||||||||||
Total domestic interest-bearing deposits | 2,643 | 3,306 | |||||||||||||||||||||
Foreign interest-bearing deposits: | |||||||||||||||||||||||
Banks located in foreign countries | 444 | (252 | ) | 192 | 631 | 149 | 780 | ||||||||||||||||
Governments and official institutions | 179 | 47 | 226 | 169 | 179 | 348 | |||||||||||||||||
Time, savings and other | 153 | 399 | 552 | 145 | 409 | 554 | |||||||||||||||||
Total foreign interest-bearing deposits | 970 | 1,682 | |||||||||||||||||||||
Total interest-bearing deposits | 3,613 | 4,988 | |||||||||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 679 | 1,456 | 2,135 | 3,021 | 5,204 | 8,225 | |||||||||||||||||
Trading account liabilities | 735 | 69 | 804 | 288 | (12 | ) | 276 | ||||||||||||||||
Long-term debt | 2,155 | 170 | 2,325 | 1,464 | 1,152 | 2,616 | |||||||||||||||||
Total interest expense | 8,877 | 16,105 | |||||||||||||||||||||
Net increase in net interest income(2) | $ | 367 | $ | 4,246 |
(1) | The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that category. The unallocated change in rate or volume variance has been allocated between the rate and volume variances. |
(2) | Interest income (FTE basis) in 2006 does not include the cumulative tax charge resulting from a change in tax legislation relating to extraterritorial tax income and foreign sales corporation regimes. The FTE impact to |
74 | Bank of America 2007 |
Table III
Table III Outstanding Loans and Leases
December 31 | |||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||
Consumer | |||||||||||||||
Residential mortgage | $ | 241,181 | $ | 182,596 | $ | 178,079 | $ | 140,483 | $ | 108,332 | |||||
Credit card—domestic | 61,195 | 58,548 | 51,726 | 34,814 | 24,729 | ||||||||||
Credit card—foreign | 10,999 | — | — | — | — | ||||||||||
Home equity lines | 74,888 | 62,098 | 50,126 | 23,859 | 23,236 | ||||||||||
Direct/Indirect consumer(1) | 68,224 | 45,490 | 40,513 | 33,415 | 31,068 | ||||||||||
Other consumer(2) | 9,218 | 6,725 | 7,439 | 7,558 | 10,355 | ||||||||||
Total consumer | 465,705 | 355,457 | 327,883 | 240,129 | 197,720 | ||||||||||
Commercial | |||||||||||||||
Commercial—domestic | 161,982 | 140,533 | 122,095 | 91,491 | 99,151 | ||||||||||
Commercial real estate(3) | 36,258 | 35,766 | 32,319 | 19,367 | 20,205 | ||||||||||
Commercial lease financing | 21,864 | 20,705 | 21,115 | 9,692 | 10,386 | ||||||||||
Commercial—foreign | 20,681 | 21,330 | 18,401 | 10,754 | 15,428 | ||||||||||
Total commercial | 240,785 | 218,334 | 193,930 | 131,304 | 145,170 | ||||||||||
Total loans and leases | $ | 706,490 | $ | 573,791 | $ | 521,813 | $ | 371,433 | $ | 342,890 |
(Dollars in millions) | December 31 | ||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||
Consumer | |||||||||||||||
Residential mortgage | $ | 274,949 | $ | 241,181 | $ | 182,596 | $ | 178,079 | $ | 140,483 | |||||
Credit card – domestic | 65,774 | 61,195 | 58,548 | 51,726 | 34,814 | ||||||||||
Credit card – foreign | 14,950 | 10,999 | – | – | – | ||||||||||
Home equity(1) | 114,834 | 87,893 | 70,229 | 57,439 | 27,507 | ||||||||||
Direct/Indirect consumer(1, 2) | 76,844 | 59,378 | 37,407 | 33,257 | 29,799 | ||||||||||
Other consumer (1, 3) | 3,850 | 5,059 | 6,677 | 7,382 | 7,526 | ||||||||||
Total consumer | 551,201 | 465,705 | 355,457 | 327,883 | 240,129 | ||||||||||
Commercial | |||||||||||||||
Commercial – domestic(4) | 208,297 | 161,982 | 140,533 | 122,095 | 91,491 | ||||||||||
Commercial real estate(5) | 61,298 | 36,258 | 35,766 | 32,319 | 19,367 | ||||||||||
Commercial lease financing | 22,582 | 21,864 | 20,705 | 21,115 | 9,692 | ||||||||||
Commercial – foreign | 28,376 | 20,681 | 21,330 | 18,401 | 10,754 | ||||||||||
Total commercial loans measured at historical cost | 320,553 | 240,785 | 218,334 | 193,930 | 131,304 | ||||||||||
Commercial loans measured at fair value(6) | 4,590 | n/a | n/a | n/a | n/a | ||||||||||
Total commercial | 325,143 | 240,785 | 218,334 | 193,930 | 131,304 | ||||||||||
Total loans and leases | $ | 876,344 | $ | 706,490 | $ | 573,791 | $ | 521,813 | $ | 371,433 |
(1) |
|
(2) | Includes foreign consumer loans of |
(3) | Includes other foreign consumer loans of $829 million, $2.3 billion, $3.8 billion, |
| Includes small business commercial—domestic loans, primarily card related, of $17.8 billion, $13.7 billion, $7.2 billion, $5.4 billion, and $2.7 billion at December 31, 2007, 2006, 2005, 2004 and 2003, respectively. |
(5) | Includes domestic commercial real estate loans of $60.2 billion, $35.7 billion, $35.2 billion, $31.9 billion, |
(6) | Certain commercial loans are measured at fair value in accordance with SFAS 159 and |
Table IVn/a = not applicable
Bank of America 2007 | 75 |
Table IV Nonperforming Assets
December 31 | |||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||
Consumer | |||||||||||||||
Residential mortgage | $ | 660 | $ | 570 | $ | 554 | $ | 531 | $ | 612 | |||||
Home equity lines | 249 | 117 | 66 | 43 | 66 | ||||||||||
Direct/Indirect consumer | 44 | 37 | 33 | 28 | 30 | ||||||||||
Other consumer | 77 | 61 | 85 | 36 | 25 | ||||||||||
Total consumer(1) | 1,030 | 785 | 738 | 638 | 733 | ||||||||||
Commercial | |||||||||||||||
Commercial—domestic | 584 | 581 | 855 | 1,388 | 2,621 | ||||||||||
Commercial real estate | 118 | 49 | 87 | 142 | 164 | ||||||||||
Commercial lease financing | 42 | 62 | 266 | 127 | 160 | ||||||||||
Commercial—foreign | 13 | 34 | 267 | 578 | 1,359 | ||||||||||
Total commercial(2) | 757 | 726 | 1,475 | 2,235 | 4,304 | ||||||||||
Total nonperforming loans and leases | 1,787 | 1,511 | 2,213 | 2,873 | 5,037 | ||||||||||
Foreclosed properties | 69 | 92 | 102 | 148 | 225 | ||||||||||
Nonperforming securities(3) | — | — | 140 | — | — | ||||||||||
Total nonperforming assets(4) | $ | 1,856 | $ | 1,603 | $ | 2,455 | $ | 3,021 | $ | 5,262 |
December 31 | |||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||
Consumer | |||||||||||||||
Residential mortgage | $ | 1,999 | $ | 660 | $ | 570 | $ | 554 | $ | 531 | |||||
Home equity(1) | 1,340 | 291 | 151 | 94 | 67 | ||||||||||
Direct/Indirect consumer(1) | 8 | 2 | 3 | 5 | 4 | ||||||||||
Other consumer | 95 | 77 | 61 | 85 | 36 | ||||||||||
Total consumer(2) | 3,442 | 1,030 | 785 | 738 | 638 | ||||||||||
Commercial | |||||||||||||||
Commercial – domestic(3) | 869 | 505 | 550 | 847 | 1,383 | ||||||||||
Commercial real estate | 1,099 | 118 | 49 | 87 | 142 | ||||||||||
Commercial lease financing | 33 | 42 | 62 | 266 | 127 | ||||||||||
Commercial – foreign | 19 | 13 | 34 | 267 | 578 | ||||||||||
2,020 | 678 | 695 | 1,467 | 2,230 | |||||||||||
Small business commercial – domestic | 135 | 79 | 31 | 8 | 5 | ||||||||||
Total commercial(4) | 2,155 | 757 | 726 | 1,475 | 2,235 | ||||||||||
Total nonperforming loans and leases | 5,597 | 1,787 | 1,511 | 2,213 | 2,873 | ||||||||||
Foreclosed properties | 351 | 69 | 92 | 102 | 148 | ||||||||||
Nonperforming securities(5) | – | – | – | 140 | – | ||||||||||
Total nonperforming assets(6, 7) | $ | 5,948 | $ | 1,856 | $ | 1,603 | $ | 2,455 | $ | 3,021 |
(1) | Nonperforming home equity loan balances previously included in direct/indirect consumer were reclassified to home equity to conform to current year presentation. |
(2) | In |
| Excludes small business commercial – domestic loans. |
(4) | In |
|
|
| Balances do not include |
(7) | Balances do not include loans measured at fair value in accordance with SFAS 159. At December 31, 2007, there were no nonperforming loans measured under fair value in accordance with SFAS 159. |
76 | Bank of America 2007 |
Table V
Table V Accruing Loans and Leases Past Due 90 Days or More
December 31 | |||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||
Consumer | |||||||||||||||
Residential mortgage(1) | $ | 118 | $ | — | $ | — | $ | — | $ | — | |||||
Credit card—domestic | 1,991 | 1,197 | 1,075 | 616 | 424 | ||||||||||
Credit card—foreign | 184 | — | — | — | — | ||||||||||
Direct/Indirect consumer | 347 | 75 | 58 | 47 | 56 | ||||||||||
Other consumer | 38 | 15 | 23 | 35 | 61 | ||||||||||
Total consumer | 2,678 | 1,287 | 1,156 | 698 | 541 | ||||||||||
Commercial | |||||||||||||||
Commercial—domestic | 265 | 117 | 121 | 110 | 132 | ||||||||||
Commercial real estate | 78 | 4 | 1 | 23 | 91 | ||||||||||
Commercial lease financing | 26 | 15 | 14 | n/a | n/a | ||||||||||
Commercial—foreign | 9 | 32 | 2 | 29 | — | ||||||||||
Total commercial | 378 | 168 | 138 | 162 | 223 | ||||||||||
Total accruing loans and leases past due 90 days or more | $ | 3,056 | $ | 1,455 | $ | 1,294 | $ | 860 | $ | 764 |
December 31 | |||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||
Consumer | |||||||||||||||
Residential mortgage(1) | $ | 237 | $ | 118 | $ | – | $ | – | $ | – | |||||
Credit card – domestic | 1,855 | 1,991 | 1,197 | 1,075 | 616 | ||||||||||
Credit card – foreign | 272 | 184 | – | – | – | ||||||||||
Direct/Indirect consumer | 745 | 378 | 75 | 58 | 47 | ||||||||||
Other consumer | 4 | 7 | 15 | 23 | 35 | ||||||||||
Total consumer | 3,113 | 2,678 | 1,287 | 1,156 | 698 | ||||||||||
Commercial | |||||||||||||||
Commercial – domestic(2) | 119 | 66 | 117 | 121 | 110 | ||||||||||
Commercial real estate | 36 | 78 | 4 | 1 | 23 | ||||||||||
Commercial lease financing | 25 | 26 | 15 | 14 | n/a | ||||||||||
Commercial – foreign | 16 | 9 | 32 | 2 | 29 | ||||||||||
196 | 179 | 168 | 138 | 162 | |||||||||||
Small business commercial – domestic | 427 | 199 | – | – | – | ||||||||||
Total commercial | 623 | 378 | 168 | 138 | 162 | ||||||||||
Total accruing loans and leases past due 90 days or more(3) | $ | 3,736 | $ | 3,056 | $ | 1,455 | $ | 1,294 | $ | 860 |
(1) |
|
(2) | Excludes small business commercial-domestic loans. |
(3) | Balances do not include loans measured at fair value in accordance with SFAS 159. At December 31, 2007, there were no accruing loans or leases past due 90 days or more measured under fair value in accordance with SFAS 159. |
n/a = not available
| ||
Bank of America 2007 | 77 |
Table VI
Table VI Allowance for Credit Losses
(Dollars in millions) | 2006 | 2005 | 2004 | 2003 | 2002 | |||||||||||||||
Allowance for loan and lease losses, January 1 | $ | 8,045 | $ | 8,626 | $ | 6,163 | $ | 6,358 | $ | 6,278 | ||||||||||
FleetBoston balance, April 1, 2004 | — | — | 2,763 | — | — | |||||||||||||||
MBNA balance, January 1, 2006 | 577 | — | — | — | — | |||||||||||||||
Loans and leases charged off | ||||||||||||||||||||
Residential mortgage | (74 | ) | (58 | ) | (62 | ) | (64 | ) | (56 | ) | ||||||||||
Credit card—domestic | (3,546 | ) | (4,018 | ) | (2,536 | ) | (1,657 | ) | (1,210 | ) | ||||||||||
Credit card—foreign | (292 | ) | — | — | — | — | ||||||||||||||
Home equity lines | (67 | ) | (46 | ) | (38 | ) | (38 | ) | (40 | ) | ||||||||||
Direct/Indirect consumer | (748 | ) | (380 | ) | (344 | ) | (322 | ) | (355 | ) | ||||||||||
Other consumer | (436 | ) | (376 | ) | (295 | ) | (343 | ) | (395 | ) | ||||||||||
Total consumer | (5,163 | ) | (4,878 | ) | (3,275 | ) | (2,424 | ) | (2,056 | ) | ||||||||||
Commercial—domestic | (597 | ) | (535 | ) | (504 | ) | (857 | ) | (1,625 | ) | ||||||||||
Commercial real estate | (7 | ) | (5 | ) | (12 | ) | (46 | ) | (45 | ) | ||||||||||
Commercial lease financing | (28 | ) | (315 | ) | (39 | ) | (132 | ) | (168 | ) | ||||||||||
Commercial—foreign | (86 | ) | (61 | ) | (262 | ) | (408 | ) | (566 | ) | ||||||||||
Total commercial | (718 | ) | (916 | ) | (817 | ) | (1,443 | ) | (2,404 | ) | ||||||||||
Total loans and leases charged off | (5,881 | ) | (5,794 | ) | (4,092 | ) | (3,867 | ) | (4,460 | ) | ||||||||||
Recoveries of loans and leases previously charged off | ||||||||||||||||||||
Residential mortgage | 35 | 31 | 26 | 24 | 14 | |||||||||||||||
Credit card—domestic | 452 | 366 | 231 | 143 | 116 | |||||||||||||||
Credit card—foreign | 67 | — | — | — | — | |||||||||||||||
Home equity lines | 16 | 15 | 23 | 26 | 14 | |||||||||||||||
Direct/Indirect consumer | 224 | 132 | 136 | 141 | 145 | |||||||||||||||
Other consumer | 133 | 101 | 102 | 88 | 99 | |||||||||||||||
Total consumer | 927 | 645 | 518 | 422 | 388 | |||||||||||||||
Commercial—domestic | 261 | 365 | 327 | 224 | 314 | |||||||||||||||
Commercial real estate | 4 | 5 | 15 | 5 | 7 | |||||||||||||||
Commercial lease financing | 56 | 84 | 30 | 8 | 9 | |||||||||||||||
Commercial—foreign | 94 | 133 | 89 | 102 | 45 | |||||||||||||||
Total commercial | 415 | 587 | 461 | 339 | 375 | |||||||||||||||
Total recoveries of loans and leases previously charged off | 1,342 | 1,232 | 979 | 761 | 763 | |||||||||||||||
Net charge-offs | (4,539 | ) | (4,562 | ) | (3,113 | ) | (3,106 | ) | (3,697 | ) | ||||||||||
Provision for loan and lease losses | 5,001 | 4,021 | 2,868 | 2,916 | 3,801 | |||||||||||||||
Other | (68 | ) | (40 | ) | (55 | ) | (5 | ) | (24 | ) | ||||||||||
Allowance for loan and lease losses, December 31 | 9,016 | 8,045 | 8,626 | 6,163 | 6,358 | |||||||||||||||
Reserve for unfunded lending commitments, January 1 | 395 | 402 | 416 | 493 | 597 | |||||||||||||||
FleetBoston balance, April 1, 2004 | — | — | 85 | — | — | |||||||||||||||
Provision for unfunded lending commitments | 9 | (7 | ) | (99 | ) | (77 | ) | (104 | ) | |||||||||||
Other | (7 | ) | — | — | — | — | ||||||||||||||
Reserve for unfunded lending commitments, December 31 | 397 | 395 | 402 | 416 | 493 | |||||||||||||||
Total | $ | 9,413 | $ | 8,440 | $ | 9,028 | $ | 6,579 | $ | 6,851 | ||||||||||
Loans and leases outstanding at December 31 | $ | 706,490 | $ | 573,791 | $ | 521,813 | $ | 371,433 | $ | 342,890 | ||||||||||
Allowance for loan and lease losses as a percentage of loans and leases outstanding at December 31 | 1.28 | % | 1.40 | % | 1.65 | % | 1.66 | % | 1.85 | % | ||||||||||
Consumer allowance for loan and lease losses as a percentage of consumer loans and leases outstanding at December 31 | 1.19 | 1.27 | 1.34 | 1.25 | 0.95 | |||||||||||||||
Commercial allowance for loan and lease losses as a percentage of commercial loans and leases outstanding at December 31 | 1.44 | 1.62 | 2.19 | 2.40 | 2.43 | |||||||||||||||
Average loans and leases outstanding during the year | $ | 652,417 | $ | 537,218 | $ | 472,617 | $ | 356,220 | $ | 336,820 | ||||||||||
Net charge-offs as a percentage of average loans and leases outstanding during the year(1) | 0.70 | % | 0.85 | % | 0.66 | % | 0.87 | % | 1.10 | % | ||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 | 505 | 532 | 390 | 215 | 126 | |||||||||||||||
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs(1) | 1.99 | 1.76 | 2.77 | 1.98 | 1.72 |
(Dollars in millions) | 2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||||||
Allowance for loan and lease losses, January 1 | $ | 9,016 | $ | 8,045 | $ | 8,626 | $ | 6,163 | $ | 6,358 | ||||||||||
Adjustment due to the adoption of SFAS 159 | (32 | ) | – | – | – | – | ||||||||||||||
LaSalle balance, October 1, 2007 | 725 | – | – | – | – | |||||||||||||||
U.S. Trust Corporation balance, July 1, 2007 | 25 | – | – | – | – | |||||||||||||||
MBNA balance, January 1, 2006 | – | 577 | – | – | – | |||||||||||||||
FleetBoston balance, April 1, 2004 | – | – | – | 2,763 | – | |||||||||||||||
Loans and leases charged off | ||||||||||||||||||||
Residential mortgage | (79 | ) | (74 | ) | (58 | ) | (62 | ) | (64 | ) | ||||||||||
Credit card – domestic | (3,410 | ) | (3,546 | ) | (4,018 | ) | (2,536 | ) | (1,657 | ) | ||||||||||
Credit card – foreign | (452 | ) | (292 | ) | – | – | – | |||||||||||||
Home equity | (286 | ) | (67 | ) | (46 | ) | (38 | ) | (38 | ) | ||||||||||
Direct/Indirect consumer | (1,885 | ) | (857 | ) | (380 | ) | (344 | ) | (322 | ) | ||||||||||
Other consumer | (346 | ) | (327 | ) | (376 | ) | (295 | ) | (343 | ) | ||||||||||
Total consumer charge-offs | (6,458 | ) | (5,163 | ) | (4,878 | ) | (3,275 | ) | (2,424 | ) | ||||||||||
Commercial – domestic(1) | (1,135 | ) | (597 | ) | (535 | ) | (504 | ) | (857 | ) | ||||||||||
Commercial real estate | (54 | ) | (7 | ) | (5 | ) | (12 | ) | (46 | ) | ||||||||||
Commercial lease financing | (55 | ) | (28 | ) | (315 | ) | (39 | ) | (132 | ) | ||||||||||
Commercial – foreign | (28 | ) | (86 | ) | (61 | ) | (262 | ) | (408 | ) | ||||||||||
Total commercial charge-offs | (1,272 | ) | (718 | ) | (916 | ) | (817 | ) | (1,443 | ) | ||||||||||
Total loans and leases charged off | (7,730 | ) | (5,881 | ) | (5,794 | ) | (4,092 | ) | (3,867 | ) | ||||||||||
Recoveries of loans and leases previously charged off | ||||||||||||||||||||
Residential mortgage | 22 | 35 | 31 | 26 | 24 | |||||||||||||||
Credit card – domestic | 347 | 452 | 366 | 231 | 143 | |||||||||||||||
Credit card – foreign | 74 | 67 | – | – | – | |||||||||||||||
Home equity | 12 | 16 | 15 | 23 | 26 | |||||||||||||||
Direct/Indirect consumer | 512 | 247 | 132 | 136 | 141 | |||||||||||||||
Other consumer | 68 | 110 | 101 | 102 | 88 | |||||||||||||||
Total consumer recoveries | 1,035 | 927 | 645 | 518 | 422 | |||||||||||||||
Commercial – domestic(2) | 128 | 261 | 365 | 327 | 224 | |||||||||||||||
Commercial real estate | 7 | 4 | 5 | 15 | 5 | |||||||||||||||
Commercial lease financing | 53 | 56 | 84 | 30 | 8 | |||||||||||||||
Commercial – foreign | 27 | 94 | 133 | 89 | 102 | |||||||||||||||
Total commercial recoveries | 215 | 415 | 587 | 461 | 339 | |||||||||||||||
Total recoveries of loans and leases previously charged off | 1,250 | 1,342 | 1,232 | 979 | 761 | |||||||||||||||
Net charge-offs | (6,480 | ) | (4,539 | ) | (4,562 | ) | (3,113 | ) | (3,106 | ) | ||||||||||
Provision for loan and lease losses | 8,357 | 5,001 | 4,021 | 2,868 | 2,916 | |||||||||||||||
Other | (23 | ) | (68 | ) | (40 | ) | (55 | ) | (5 | ) | ||||||||||
Allowance for loan and lease losses, December 31 | 11,588 | 9,016 | 8,045 | 8,626 | 6,163 | |||||||||||||||
Reserve for unfunded lending commitments, January 1 | 397 | 395 | 402 | 416 | 493 | |||||||||||||||
Adjustment due to the adoption of SFAS 159 | (28 | ) | – | – | – | – | ||||||||||||||
LaSalle balance, October 1, 2007 | 124 | – | – | – | – | |||||||||||||||
FleetBoston balance, April 1, 2004 | – | – | – | 85 | – | |||||||||||||||
Provision for unfunded lending commitments | 28 | 9 | (7 | ) | (99 | ) | (77 | ) | ||||||||||||
Other | (3 | ) | (7 | ) | – | – | – | |||||||||||||
Reserve for unfunded lending commitments, December 31 | 518 | 397 | 395 | 402 | 416 | |||||||||||||||
Allowance for credit losses, December 31 | $ | 12,106 | $ | 9,413 | $ | 8,440 | $ | 9,028 | $ | 6,579 | ||||||||||
Loans and leases outstanding measured at historical cost at December 31 | $ | 871,754 | $ | 706,490 | $ | 573,791 | $ | 521,813 | $ | 371,433 | ||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding measured at historical cost at December 31(3) | 1.33 | % | 1.28 | % | 1.40 | % | 1.65 | % | 1.66 | % | ||||||||||
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 | 1.23 | 1.19 | 1.27 | 1.34 | 1.25 | |||||||||||||||
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding measured at historical cost at December 31(3) | 1.51 | 1.44 | 1.62 | 2.19 | 2.40 | |||||||||||||||
Average loans and leases outstanding measured at historical cost during the year | $ | 773,142 | $ | 652,417 | $ | 537,218 | $ | 472,617 | $ | 356,220 | ||||||||||
Net charge-offs as a percentage of average loans and leases outstanding measured at historical cost during the year(3, 4, 5) | 0.84 | % | 0.70 | % | 0.85 | % | 0.66 | % | 0.87 | % | ||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases measured at historical cost at December 31 | 207 | 505 | 532 | 390 | �� | 215 | ||||||||||||||
Ratio of the allowance for loan and lease losses at December 31 to | 1.79 | 1.99 | 1.76 | 2.77 | 1.98 |
(1) |
|
(2) | Includes small business commercial – domestic recoveries of $42 million and $48 million in 2007 and 2006. Small business commercial – domestic recoveries were not material in 2005, 2004 and 2003. |
(3) | Ratios do not include loans measured at fair value in accordance with SFAS 159 at and for the year ended December 31, 2007. Loans measured at fair value were $4.59 billion at December 31, 2007. |
(4) | In 2007, the impact of SOP 03-3 decreased net charge-offs by $75 million. Excluding the impact of SOP 03-3, net charge-offs as a percentage of average loans and leases outstanding measured at historical cost in 2007 would have been 0.85 percent and the ratio of the allowance for loan and lease losses to net charge-offs would have been 1.77 percent at December 31, 2007. |
(5) | In 2006, the impact of SOP 03-3 decreased net charge-offs by $288 million. Excluding the impact of SOP 03-3, net charge-offs as a percentage of average loans and leases outstanding |
78 | Bank of America 2007 |
Table VII
Table VII Allocation of the Allowance for Credit Losses by Product Type
December 31 | ||||||||||||||||||||||||||||||
2006 | 2005 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||||
(Dollars in millions) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||
Allowance for loan and lease losses | ||||||||||||||||||||||||||||||
Residential mortgage | $ | 248 | 2.8 | % | $ | 277 | 3.4 | % | $ | 240 | 2.8 | % | $ | 185 | 3.0 | % | $ | 108 | 1.7 | % | ||||||||||
Credit card—domestic | 3,176 | 35.2 | 3,301 | 41.0 | 3,148 | 36.5 | 1,947 | 31.6 | 1,031 | 16.2 | ||||||||||||||||||||
Credit card—foreign | 336 | 3.7 | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Home equity lines | 133 | 1.5 | 136 | 1.7 | 115 | 1.3 | 72 | 1.2 | 49 | 0.8 | ||||||||||||||||||||
Direct/Indirect consumer | 1,200 | 13.3 | 421 | 5.2 | 375 | 4.3 | 347 | 5.6 | 361 | 5.7 | ||||||||||||||||||||
Other consumer | 467 | 5.2 | 380 | 4.8 | 500 | 5.9 | 456 | 7.4 | 332 | 5.2 | ||||||||||||||||||||
Total consumer | 5,560 | 61.7 | 4,515 | 56.1 | 4,378 | 50.8 | 3,007 | 48.8 | 1,881 | 29.6 | ||||||||||||||||||||
Commercial—domestic | 2,162 | 24.0 | 2,100 | 26.1 | 2,101 | 24.3 | 1,756 | 28.5 | 2,231 | 35.1 | ||||||||||||||||||||
Commercial real estate | 588 | 6.5 | 609 | 7.6 | 644 | 7.5 | 484 | 7.9 | 439 | 6.9 | ||||||||||||||||||||
Commercial lease financing | 217 | 2.4 | 232 | 2.9 | 442 | 5.1 | 235 | 3.8 | n/a | n/a | ||||||||||||||||||||
Commercial—foreign | 489 | 5.4 | 589 | 7.3 | 1,061 | 12.3 | 681 | 11.0 | 855 | 13.4 | ||||||||||||||||||||
Total commercial (1) | 3,456 | 38.3 | 3,530 | 43.9 | 4,248 | 49.2 | 3,156 | 51.2 | 3,525 | 55.4 | ||||||||||||||||||||
General(2) | — | — | — | — | — | — | — | — | 952 | 15.0 | ||||||||||||||||||||
Allowance for loan and lease losses | 9,016 | 100.0 | % | 8,045 | 100.0 | % | 8,626 | 100.0 | % | 6,163 | 100.0 | % | 6,358 | 100.0 | % | |||||||||||||||
Reserve for unfunded lending commitments | 397 | 395 | 402 | 416 | 493 | |||||||||||||||||||||||||
Total | $ | 9,413 | $ | 8,440 | $ | 9,028 | $ | 6,579 | $ | 6,851 |
December 31 | ||||||||||||||||||||||||||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | ||||||||||||||||||||||||||||||||||
(Dollars in millions) | Amount | Percent of total | Amount | Percent of total | Amount | Percent of total | Amount | Percent of total | Amount | Percent of total | ||||||||||||||||||||||||||||
Allowance for loan and lease losses | ||||||||||||||||||||||||||||||||||||||
Residential mortgage | $ | 207 | 1.8 | % | $ | 248 | 2.8 | % | $ | 277 | 3.4 | % | $ | 240 | 2.8 | % | $ | 185 | 3.0 | % | ||||||||||||||||||
Credit card – domestic | 2,919 | 25.2 | 3,176 | 35.2 | 3,301 | 41.0 | 3,148 | 36.5 | 1,947 | 31.6 | ||||||||||||||||||||||||||||
Credit card – foreign | 441 | 3.8 | 336 | 3.7 | – | – | – | – | – | – | ||||||||||||||||||||||||||||
Home equity | 963 | 8.3 | 133 | 1.5 | 136 | 1.7 | 115 | 1.3 | 72 | 1.2 | ||||||||||||||||||||||||||||
Direct/Indirect consumer | 2,077 | 17.9 | 1,378 | 15.3 | 421 | 5.2 | 375 | 4.3 | 347 | 5.6 | ||||||||||||||||||||||||||||
Other consumer | 151 | 1.3 | 289 | 3.2 | 380 | 4.8 | 500 | 5.9 | 456 | 7.4 | ||||||||||||||||||||||||||||
Total consumer | 6,758 | 58.3 | 5,560 | 61.7 | 4,515 | 56.1 | 4,378 | 50.8 | 3,007 | 48.8 | ||||||||||||||||||||||||||||
Commercial – domestic(1) | 3,194 | 27.6 | 2,162 | 24.0 | 2,100 | 26.1 | 2,101 | 24.3 | 1,756 | 28.5 | ||||||||||||||||||||||||||||
Commercial real estate | 1,083 | 9.3 | 588 | 6.5 | 609 | 7.6 | 644 | 7.5 | 484 | 7.9 | ||||||||||||||||||||||||||||
Commercial lease financing | 218 | 1.9 | 217 | 2.4 | 232 | 2.9 | 442 | 5.1 | 235 | 3.8 | ||||||||||||||||||||||||||||
Commercial – foreign | 335 | 2.9 | 489 | 5.4 | 589 | 7.3 | 1,061 | 12.3 | 681 | 11.0 | ||||||||||||||||||||||||||||
Total commercial(2) | 4,830 | 41.7 | 3,456 | 38.3 | 3,530 | 43.9 | 4,248 | 49.2 | 3,156 | 51.2 | ||||||||||||||||||||||||||||
Allowance for loan and lease losses | 11,588 | 100.0 | % | 9,016 | 100.0 | % | 8,045 | 100.0 | % | 8,626 | 100.0 | % | 6,163 | 100.0 | % | |||||||||||||||||||||||
Reserve for unfunded lending commitments | 518 | 397 | 395 | 402 | 416 | |||||||||||||||||||||||||||||||||
Allowance for credit losses | $ | 12,106 | $ | 9,413 | $ | 8,440 | $ | 9,028 | $ | 6,579 |
(1) | Includes allowance for |
(2) |
|
n/a= Not available; included in commercial – domestic at December 31, 2002.
Table VIII
Selected Loan Maturity Data(1)(1, 2)
December 31, 2006 | ||||||||||||||||
(Dollars in millions) | Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total | ||||||||||||
Commercial—domestic | $ | 57,067 | $ | 66,351 | $ | 38,564 | $ | 161,982 | ||||||||
Commercial real estate—domestic | 14,562 | 17,774 | 3,344 | 35,680 | ||||||||||||
Foreign and other(2) | 22,509 | 4,432 | 496 | 27,437 | ||||||||||||
Total selected loans | $ | 94,138 | $ | 88,557 | $ | 42,404 | $ | 225,099 | ||||||||
Percent of total | 41.8 | % | 39.3 | % | 18.9 | % | 100.0 | % | ||||||||
Sensitivity of selected loans to changes in interest rates for loans due after one year: | ||||||||||||||||
Fixed interest rates | $ | 8,588 | $ | 19,793 | ||||||||||||
Floating or adjustable interest rates | 79,969 | 22,611 | ||||||||||||||
Total | $ | 88,557 | $ | 42,404 |
December 31, 2007 | ||||||||||||||||
(Dollars in millions) | Due in One Year or Less | Due After One Year Through Five Years | Due After Five Years | Total | ||||||||||||
Commercial – domestic | $ | 80,087 | $ | 91,835 | $ | 39,870 | $ | 211,792 | ||||||||
Commercial real estate – domestic | 24,048 | 31,185 | 5,305 | 60,538 | ||||||||||||
Foreign and other(3) | 27,615 | 5,773 | 1,085 | 34,473 | ||||||||||||
Total selected loans | $ | 131,750 | $ | 128,793 | $ | 46,260 | $ | 306,803 | ||||||||
Percent of total | 42.9 | % | 42.0 | % | 15.1 | % | 100.0 | % | ||||||||
Sensitivity of selected loans to changes in interest rates for loans due after one year: | ||||||||||||||||
Fixed interest rates | $ | 11,689 | $ | 22,085 | ||||||||||||
Floating or adjustable interest rates | 117,104 | 24,175 | ||||||||||||||
Total | $ | 128,793 | $ | 46,260 |
(1) | Loan maturities are based on the remaining maturities under contractual terms. |
(2) | Includes loans measured at fair value in accordance with SFAS 159. |
(3) | Loan maturities include direct/indirect consumer, other consumer, commercial |
Bank of America 2007 | 79 |
Table IX
Table IX Short-term Borrowings
2007 | 2006 | 2005 | ||||||||||||||||||||
(Dollars in millions) | Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||
Federal funds purchased | ||||||||||||||||||||||
At December 31 | $ | 14,187 | 4.15 | % | $ | 12,232 | 5.35 | % | $ | 2,715 | 4.06 | % | ||||||||||
Average during year | 7,595 | 4.84 | 5,292 | 5.11 | 3,670 | 3.09 | ||||||||||||||||
Maximum month-end balance during year | 14,187 | – | 12,232 | – | 5,964 | – | ||||||||||||||||
Securities sold under agreements to repurchase | ||||||||||||||||||||||
At December 31 | 207,248 | 4.63 | 205,295 | 4.94 | 237,940 | 4.26 | ||||||||||||||||
Average during year | 245,886 | 5.21 | 281,611 | 4.66 | 227,081 | 3.62 | ||||||||||||||||
Maximum month-end balance during year | 277,196 | – | 312,955 | – | 273,544 | – | ||||||||||||||||
Commercial paper | ||||||||||||||||||||||
At December 31 | 55,596 | 4.85 | 41,223 | 5.34 | 24,968 | 4.21 | ||||||||||||||||
Average during year | 57,712 | 5.03 | 33,942 | 5.15 | 26,335 | 3.22 | ||||||||||||||||
Maximum month-end balance during year | 69,367 | – | 42,511 | – | 31,380 | – | ||||||||||||||||
Other short-term borrowings | ||||||||||||||||||||||
At December 31 | 135,493 | 4.95 | 100,077 | 5.43 | 91,301 | 4.58 | ||||||||||||||||
Average during year | 113,621 | 5.18 | 90,287 | 5.21 | 69,322 | 3.51 | ||||||||||||||||
Maximum month-end balance during year | 142,047 | – | 104,555 | – | 91,301 | – |
80 | Bank of America 2007 |
2006 | 2005 | 2004 | ||||||||||||||||
(Dollars in millions) | Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||
Federal funds purchased | ||||||||||||||||||
At December 31 | $ | 12,232 | 5.35 | % | $ | 2,715 | 4.06 | % | $ | 3,108 | 2.23 | % | ||||||
Average during year | 5,292 | 5.11 | 3,670 | 3.09 | 3,724 | 1.31 | ||||||||||||
Maximum month-end balance during year | 12,232 | — | 5,964 | — | 7,852 | — | ||||||||||||
Securities sold under agreements to repurchase | ||||||||||||||||||
At December 31 | 205,295 | 4.94 | 237,940 | 4.26 | 116,633 | 2.23 | ||||||||||||
Average during year | 281,611 | 4.66 | 227,081 | 3.62 | 161,494 | 1.86 | ||||||||||||
Maximum month-end balance during year | 312,955 | — | 273,544 | — | 191,899 | — | ||||||||||||
Commercial paper | ||||||||||||||||||
At December 31 | 41,223 | 5.34 | 24,968 | 4.21 | 25,379 | 2.09 | ||||||||||||
Average during year | 33,942 | 5.15 | 26,335 | 3.22 | 21,178 | 1.45 | ||||||||||||
Maximum month-end balance during year | 42,511 | — | 31,380 | — | 26,486 | — | ||||||||||||
Other short-term borrowings | ||||||||||||||||||
At December 31 | 100,077 | 5.43 | 91,301 | 4.58 | 53,219 | 2.48 | ||||||||||||
Average during year | 90,287 | 5.21 | 69,322 | 3.51 | 41,169 | 1.73 | ||||||||||||
Maximum month-end balance during year | 104,555 | — | 91,301 | — | 53,756 | — |
Table X
Non-exchange Traded Commodity Contracts
(Dollars in millions) | Asset Positions | Liability Positions | ||||||
Net fair value of contracts outstanding, January 1, 2007 | $ | 1,272 | $ | 1,130 | ||||
Effects of legally enforceable master netting agreements | 2,339 | 2,339 | ||||||
Gross fair value of contracts outstanding, January 1, 2007 | 3,611 | 3,469 | ||||||
Contracts realized or otherwise settled | (3,477 | ) | (3,372 | ) | ||||
Fair value of new contracts | 4,646 | 4,736 | ||||||
Other changes in fair value | (59 | ) | (34 | ) | ||||
Gross fair value of contracts outstanding, December 31, 2007 | 4,721 | 4,799 | ||||||
Effects of legally enforceable master netting agreements | (3,573 | ) | (3,573 | ) | ||||
Net fair value of contracts outstanding, December 31, 2007 | $ | 1,148 | $ | 1,226 |
(Dollars in millions) | Asset Positions | Liability Positions | ||||||
Net fair value of contracts outstanding, January 1, 2006 | $ | 3,021 | $ | 2,279 | ||||
Effects of legally enforceable master netting agreements | 5,636 | 5,636 | ||||||
Gross fair value of contracts outstanding, January 1, 2006 | 8,657 | 7,915 | ||||||
Contracts realized or otherwise settled | (2,797 | ) | (2,792 | ) | ||||
Fair value of new contracts | 1,182 | 1,127 | ||||||
Other changes in fair value | (3,431 | ) | (2,781 | ) | ||||
Gross fair value of contracts outstanding, December 31, 2006 | 3,611 | 3,469 | ||||||
Effects of legally enforceable master netting agreements | (2,339 | ) | (2,339 | ) | ||||
Net fair value of contracts outstanding, December 31, 2006 | $ | 1,272 | $ | 1,130 |
Table XI
Non-exchange Traded Commodity Contract Maturities
December 31, 2007 | ||||||||
(Dollars in millions) | Asset Positions | Liability Positions | ||||||
Maturity of less than 1 year | $ | 2,948 | $ | 2,964 | ||||
Maturity of 1-3 years | 1,491 | 1,590 | ||||||
Maturity of 4-5 years | 274 | 224 | ||||||
Maturity in excess of 5 years | 8 | 21 | ||||||
Gross fair value of contracts outstanding | 4,721 | 4,799 | ||||||
Effects of legally enforceable master netting agreements | (3,573 | ) | (3,573 | ) | ||||
Net fair value of contracts outstanding | $ | 1,148 | $ | 1,226 |
Bank of America 2007 | 81 |
December 31, 2006 | ||||||||
(Dollars in millions) | Asset Positions | Liability Positions | ||||||
Maturity of less than 1 year | $ | 1,244 | $ | 1,165 | ||||
Maturity of 1-3 years | 1,963 | 1,878 | ||||||
Maturity of 4-5 years | 321 | 346 | ||||||
Maturity in excess of 5 years | 83 | 80 | ||||||
Gross fair value of contracts | 3,611 | 3,469 | ||||||
Effects of legally enforceable master netting agreements | (2,339 | ) | (2,339 | ) | ||||
Net fair value of contracts outstanding | $ | 1,272 | $ | 1,130 |
Table XII
Selected Quarterly Financial Data
2006 Quarters | 2005 Quarters | |||||||||||||||||||||||||||||||
(Dollars in millions, except per share information) | Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||
Income statement | ||||||||||||||||||||||||||||||||
Net interest income | $ | 8,599 | $ | 8,586 | $ | 8,630 | $ | 8,776 | $ | 7,859 | $ | 7,735 | $ | 7,637 | $ | 7,506 | ||||||||||||||||
Noninterest income | 9,866 | 10,067 | 9,598 | 8,901 | 5,951 | 6,416 | 6,955 | 6,032 | ||||||||||||||||||||||||
Total revenue | 18,465 | 18,653 | 18,228 | 17,677 | 13,810 | 14,151 | 14,592 | 13,538 | ||||||||||||||||||||||||
Provision for credit losses | 1,570 | 1,165 | 1,005 | 1,270 | 1,400 | 1,159 | 875 | 580 | ||||||||||||||||||||||||
Gains (losses) on sales of debt securities | 21 | (469 | ) | (9 | ) | 14 | 71 | 29 | 325 | 659 | ||||||||||||||||||||||
Noninterest expense | 9,093 | 8,863 | 8,717 | 8,924 | 7,320 | 7,285 | 7,019 | 7,057 | ||||||||||||||||||||||||
Income before income taxes | 7,823 | 8,156 | 8,497 | 7,497 | 5,161 | 5,736 | 7,023 | 6,560 | ||||||||||||||||||||||||
Income tax expense | 2,567 | 2,740 | 3,022 | 2,511 | 1,587 | 1,895 | 2,366 | 2,167 | ||||||||||||||||||||||||
Net income | 5,256 | 5,416 | 5,475 | 4,986 | 3,574 | 3,841 | 4,657 | 4,393 | ||||||||||||||||||||||||
Average common shares issued and outstanding (in thousands) | 4,464,110 | 4,499,704 | 4,534,627 | 4,609,481 | 3,996,024 | 4,000,573 | 4,005,356 | 4,032,550 | ||||||||||||||||||||||||
Average diluted common shares issued and outstanding (in thousands) | 4,536,696 | 4,570,558 | 4,601,169 | 4,666,405 | 4,053,859 | 4,054,659 | 4,065,355 | 4,099,062 | ||||||||||||||||||||||||
Performance ratios | ||||||||||||||||||||||||||||||||
Return on average assets | 1.39 | % | 1.43 | % | 1.51 | % | 1.43 | % | 1.09 | % | 1.18 | % | 1.46 | % | 1.49 | % | ||||||||||||||||
Return on average common shareholders’ equity | 15.76 | 16.64 | 17.26 | 15.44 | 14.21 | 15.09 | 18.93 | 17.97 | ||||||||||||||||||||||||
Total ending equity to total ending assets | 9.27 | 9.22 | 8.85 | 9.41 | 7.86 | 8.12 | 8.13 | 8.16 | ||||||||||||||||||||||||
Total average equity to total average assets | 8.97 | 8.63 | 8.75 | 9.26 | 7.66 | 7.82 | 7.74 | 8.28 | ||||||||||||||||||||||||
Dividend payout | 47.49 | 46.82 | 41.76 | 46.75 | 56.24 | 52.60 | 38.90 | 41.71 | ||||||||||||||||||||||||
Per common share data | ||||||||||||||||||||||||||||||||
Earnings | $ | 1.17 | $ | 1.20 | $ | 1.21 | $ | 1.08 | $ | 0.89 | $ | 0.96 | $ | 1.16 | $ | 1.09 | ||||||||||||||||
Diluted earnings | 1.16 | 1.18 | 1.19 | 1.07 | 0.88 | 0.95 | 1.14 | 1.07 | ||||||||||||||||||||||||
Dividends paid | 0.56 | 0.56 | 0.50 | 0.50 | 0.50 | 0.50 | 0.45 | 0.45 | ||||||||||||||||||||||||
Book value | 29.70 | 29.52 | 28.17 | 28.19 | 25.32 | 25.28 | 25.16 | 24.45 | ||||||||||||||||||||||||
Average balance sheet | ||||||||||||||||||||||||||||||||
Total loans and leases | $ | 683,598 | $ | 673,477 | $ | 635,649 | $ | 615,968 | $ | 563,589 | $ | 539,497 | $ | 520,415 | $ | 524,921 | ||||||||||||||||
Total assets | 1,495,150 | 1,497,987 | 1,456,004 | 1,416,373 | 1,305,057 | 1,294,754 | 1,277,478 | 1,200,859 | ||||||||||||||||||||||||
Total deposits | 680,245 | 676,851 | 674,796 | 659,821 | 628,922 | 632,771 | 640,593 | 627,420 | ||||||||||||||||||||||||
Long-term debt | 140,756 | 136,769 | 125,620 | 117,018 | 99,601 | 98,326 | 96,697 | 96,167 | ||||||||||||||||||||||||
Common shareholders’ equity | 132,004 | 129,098 | 127,102 | 130,881 | 99,677 | 100,974 | 98,558 | 99,130 | ||||||||||||||||||||||||
Total shareholders’ equity | 134,047 | 129,262 | 127,373 | 131,153 | 99,948 | 101,246 | 98,829 | 99,401 | ||||||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||||||||||
Allowance for credit losses | $ | 9,413 | $ | 9,260 | $ | 9,475 | $ | 9,462 | $ | 8,440 | $ | 8,716 | $ | 8,702 | $ | 8,707 | ||||||||||||||||
Nonperforming assets | 1,856 | 1,656 | 1,641 | 1,680 | 1,603 | 1,597 | 1,895 | 2,338 | ||||||||||||||||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding | 1.28 | % | 1.33 | % | 1.36 | % | 1.46 | % | 1.40 | % | 1.50 | % | 1.57 | % | 1.57 | % | ||||||||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases | 505 | 562 | 579 | 572 | 532 | 556 | 470 | 401 | ||||||||||||||||||||||||
Net charge-offs | $ | 1,417 | $ | 1,277 | $ | 1,023 | $ | 822 | $ | 1,648 | $ | 1,145 | $ | 880 | $ | 889 | ||||||||||||||||
Annualized Net charge-offs as a percentage of average loans and leases | 0.82 | % | 0.75 | % | 0.65 | % | 0.54 | % | 1.16 | % | 0.84 | % | 0.68 | % | 0.69 | % | ||||||||||||||||
Nonperforming loans and leases as a percentage of total loans and leases outstanding | 0.25 | 0.24 | 0.23 | 0.26 | 0.26 | 0.27 | 0.33 | 0.39 | ||||||||||||||||||||||||
Nonperforming assets as a percentage of total loans, leases, and foreclosed properties | 0.26 | 0.25 | 0.25 | 0.27 | 0.28 | 0.29 | 0.36 | 0.44 | ||||||||||||||||||||||||
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs | 1.60 | 1.75 | 2.21 | 2.72 | 1.23 | 1.83 | 2.36 | 2.30 | ||||||||||||||||||||||||
Capital ratios (period end) | ||||||||||||||||||||||||||||||||
Risk-based capital: | ||||||||||||||||||||||||||||||||
Tier 1 | 8.64 | % | 8.48 | % | 8.33 | % | 8.45 | % | 8.25 | % | 8.27 | % | 8.16 | % | 8.26 | % | ||||||||||||||||
Total | 11.88 | 11.46 | 11.25 | 11.32 | 11.08 | 11.19 | 11.23 | 11.52 | ||||||||||||||||||||||||
Tier 1 Leverage | 6.36 | 6.16 | 6.13 | 6.18 | 5.91 | 5.90 | 5.66 | 5.86 | ||||||||||||||||||||||||
Market capitalization | $ | 238,021 | $ | 240,966 | $ | 217,794 | $ | 208,633 | $ | 184,586 | $ | 168,950 | $ | 183,202 | $ | 177,958 | ||||||||||||||||
Market price per share of common stock | ||||||||||||||||||||||||||||||||
Closing | $ | 53.39 | $ | 53.57 | $ | 48.10 | $ | 45.54 | $ | 46.15 | $ | 42.10 | $ | 45.61 | $ | 44.10 | ||||||||||||||||
High closing | 54.90 | 53.57 | 50.47 | 47.08 | 46.99 | 45.98 | 47.08 | 47.08 | ||||||||||||||||||||||||
Low closing | 51.66 | 47.98 | 45.48 | 43.09 | 41.57 | 41.60 | 44.01 | 43.66 |
Table XIII
Quarterly Average Balances and Interest Rates - FTE Basis
Fourth Quarter 2006 | Third Quarter 2006 | |||||||||||||||||||
(Dollars in millions) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||
Earning assets | ||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 15,760 | $ | 166 | 4.19 | % | $ | 15,629 | $ | 173 | 4.39 | % | ||||||||
Federal funds sold and securities purchased under agreements to resell | 174,167 | 2,068 | 4.73 | 173,381 | 2,146 | 4.94 | ||||||||||||||
Trading account assets | 167,163 | 2,289 | 5.46 | 146,817 | 1,928 | 5.24 | ||||||||||||||
Debt securities(1) | 193,601 | 2,504 | 5.17 | 236,033 | 3,136 | 5.31 | ||||||||||||||
Loans and leases(2): | ||||||||||||||||||||
Residential mortgage | 225,985 | 3,202 | 5.66 | 222,889 | 3,151 | 5.65 | ||||||||||||||
Credit card—domestic | 59,802 | 2,101 | 13.94 | 62,508 | 2,189 | 13.90 | ||||||||||||||
Credit card—foreign | 10,375 | 305 | 11.66 | 9,455 | 286 | 12.02 | ||||||||||||||
Home equity lines | 73,218 | 1,411 | 7.65 | 70,075 | 1,351 | 7.65 | ||||||||||||||
Direct/Indirect consumer(3) | 65,158 | 1,316 | 8.00 | 61,361 | 1,193 | 7.74 | ||||||||||||||
Other consumer(4) | 10,606 | 225 | 8.47 | 11,075 | 298 | 10.66 | ||||||||||||||
Total consumer | 445,144 | 8,560 | 7.65 | 437,363 | 8,468 | 7.71 | ||||||||||||||
Commercial—domestic | 158,604 | 2,907 | 7.27 | 153,007 | 2,805 | 7.28 | ||||||||||||||
Commercial real estate(5) | 36,851 | 704 | 7.58 | 37,471 | 724 | 7.67 | ||||||||||||||
Commercial lease financing | 21,159 | 254 | 4.80 | 20,875 | 232 | 4.46 | ||||||||||||||
Commercial—foreign | 21,840 | 337 | 6.12 | 24,761 | 454 | 7.27 | ||||||||||||||
Total commercial | 238,454 | 4,202 | 7.00 | 236,114 | 4,215 | 7.09 | ||||||||||||||
Total loans and leases | 683,598 | 12,762 | 7.42 | 673,477 | 12,683 | 7.49 | ||||||||||||||
Other earning assets | 65,172 | 1,058 | 6.46 | 57,029 | 914 | 6.38 | ||||||||||||||
Total earning assets(6) | 1,299,461 | 20,847 | 6.39 | 1,302,366 | 20,980 | 6.41 | ||||||||||||||
Cash and cash equivalents | 32,816 | 33,495 | ||||||||||||||||||
Other assets, less allowance for loan and lease losses | 162,873 | 162,126 | ||||||||||||||||||
Total assets | $ | 1,495,150 | $ | 1,497,987 | ||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||
Domestic interest-bearing deposits: | ||||||||||||||||||||
Savings | $ | 32,965 | $ | 48 | 0.58 | % | $ | 34,268 | $ | 69 | 0.81 | % | ||||||||
NOW and money market deposit accounts | 211,055 | 966 | 1.81 | 212,690 | 1,053 | 1.96 | ||||||||||||||
Consumer CDs and IRAs | 154,621 | 1,794 | 4.60 | 147,607 | 1,658 | 4.46 | ||||||||||||||
Negotiable CDs, public funds and other time deposits | 13,052 | 140 | 4.30 | 14,105 | 150 | 4.19 | ||||||||||||||
Total domestic interest-bearing deposits | 411,693 | 2,948 | 2.84 | 408,670 | 2,930 | 2.84 | ||||||||||||||
Foreign interest-bearing deposits: | ||||||||||||||||||||
Banks located in foreign countries | 38,648 | 507 | 5.21 | 38,588 | 562 | 5.78 | ||||||||||||||
Governments and official institutions | 14,220 | 168 | 4.70 | 12,801 | 156 | 4.83 | ||||||||||||||
Time, savings and other | 41,328 | 366 | 3.50 | 40,444 | 328 | 3.22 | ||||||||||||||
Total foreign interest-bearing deposits | 94,196 | 1,041 | 4.38 | 91,833 | 1,046 | 4.52 | ||||||||||||||
Total interest-bearing deposits | 505,889 | 3,989 | 3.13 | 500,503 | 3,976 | 3.15 | ||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 405,748 | 5,222 | 5.11 | 429,882 | 5,467 | 5.05 | ||||||||||||||
Trading account liabilities | 75,261 | 800 | 4.21 | 69,462 | 727 | 4.15 | ||||||||||||||
Long-term debt | 140,756 | 1,881 | 5.34 | 136,769 | 1,916 | 5.60 | ||||||||||||||
Total interest-bearing liabilities(6) | 1,127,654 | 11,892 | 4.19 | 1,136,616 | 12,086 | 4.23 | ||||||||||||||
Noninterest-bearing sources: | ||||||||||||||||||||
Noninterest-bearing deposits | 174,356 | 176,348 | ||||||||||||||||||
Other liabilities | 59,093 | 55,761 | ||||||||||||||||||
Shareholders’ equity | 134,047 | 129,262 | ||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,495,150 | $ | 1,497,987 | ||||||||||||||||
Net interest spread | 2.20 | 2.18 | ||||||||||||||||||
Impact of noninterest-bearing sources | 0.55 | 0.55 | ||||||||||||||||||
Net interest income/yield on earning assets(7) | $ | 8,955 | 2.75 | % | $ | 8,894 | 2.73 | % |
2007 Quarters | 2006 Quarters | |||||||||||||||||||||||||||||||||
(Dollars in millions, except per share information) | Fourth | Third | Second | First | Fourth | Third | Second | First | ||||||||||||||||||||||||||
Income statement | ||||||||||||||||||||||||||||||||||
Net interest income | $ | 9,164 | $ | 8,615 | $ | 8,386 | $ | 8,268 | $ | 8,599 | $ | 8,586 | $ | 8,630 | $ | 8,776 | ||||||||||||||||||
Noninterest income | 3,508 | 7,314 | 11,177 | 9,887 | 9,887 | 9,598 | 9,589 | 8,915 | ||||||||||||||||||||||||||
Total revenue, net of interest expense | 12,672 | 15,929 | 19,563 | 18,155 | 18,486 | 18,184 | 18,219 | 17,691 | ||||||||||||||||||||||||||
Provision for credit losses | 3,310 | 2,030 | 1,810 | 1,235 | 1,570 | 1,165 | 1,005 | 1,270 | ||||||||||||||||||||||||||
Noninterest expense, before merger and restructuring charges | 10,137 | 8,459 | 9,018 | 8,986 | 8,849 | 8,594 | 8,523 | 8,826 | ||||||||||||||||||||||||||
Merger and restructuring charges | 140 | 84 | 75 | 111 | 244 | 269 | 194 | 98 | ||||||||||||||||||||||||||
Income (loss) before income taxes | (915 | ) | 5,356 | 8,660 | 7,823 | 7,823 | 8,156 | 8,497 | 7,497 | |||||||||||||||||||||||||
Income tax expense (benefit) | (1,183 | ) | 1,658 | 2,899 | 2,568 | 2,567 | 2,740 | 3,022 | 2,511 | |||||||||||||||||||||||||
Net income | 268 | 3,698 | 5,761 | 5,255 | 5,256 | 5,416 | 5,475 | 4,986 | ||||||||||||||||||||||||||
Average common shares issued and outstanding (in thousands) | 4,421,554 | 4,420,616 | 4,419,246 | 4,432,664 | 4,464,110 | 4,499,704 | 4,534,627 | 4,609,481 | ||||||||||||||||||||||||||
Average diluted common shares issued and outstanding (in thousands) | 4,470,108 | 4,475,917 | 4,476,799 | 4,497,028 | 4,536,696 | 4,570,558 | 4,601,169 | 4,666,405 | ||||||||||||||||||||||||||
Performance ratios | ||||||||||||||||||||||||||||||||||
Return on average assets | 0.06 | % | 0.93 | % | 1.48 | % | 1.40 | % | 1.39 | % | 1.43 | % | 1.51 | % | 1.43 | % | ||||||||||||||||||
Return on average common shareholders’ equity | 0.60 | 11.02 | 17.55 | 16.16 | 15.76 | 16.64 | 17.26 | 15.44 | ||||||||||||||||||||||||||
Total ending equity to total ending assets | 8.56 | 8.77 | 8.85 | 8.98 | 9.27 | 9.22 | 8.85 | 9.41 | ||||||||||||||||||||||||||
Total average equity to total average assets | 8.32 | 8.51 | 8.55 | 8.78 | 8.97 | 8.63 | 8.75 | 9.26 | ||||||||||||||||||||||||||
Dividend payout | n/m | 77.97 | 43.60 | 48.02 | 47.49 | 46.82 | 41.76 | 46.75 | ||||||||||||||||||||||||||
Per common share data | ||||||||||||||||||||||||||||||||||
Earnings | $ | 0.05 | $ | 0.83 | $ | 1.29 | $ | 1.18 | $ | 1.17 | $ | 1.20 | $ | 1.21 | $ | 1.08 | ||||||||||||||||||
Diluted earnings | 0.05 | 0.82 | 1.28 | 1.16 | 1.16 | 1.18 | 1.19 | 1.07 | ||||||||||||||||||||||||||
Dividends paid | 0.64 | 0.64 | 0.56 | 0.56 | 0.56 | 0.56 | 0.50 | 0.50 | ||||||||||||||||||||||||||
Book value | 32.09 | 30.45 | 29.95 | 29.74 | 29.70 | 29.52 | 28.17 | 28.19 | ||||||||||||||||||||||||||
Market price per share of common stock | ||||||||||||||||||||||||||||||||||
Closing | $ | 41.26 | $ | 50.27 | $ | 48.89 | $ | 51.02 | $ | 53.39 | $ | 53.57 | $ | 48.10 | $ | 45.54 | ||||||||||||||||||
High closing | 52.71 | 51.87 | 51.82 | 54.05 | 54.90 | 53.57 | 50.47 | 47.08 | ||||||||||||||||||||||||||
Low closing | 41.10 | 47.00 | 48.80 | 49.46 | 51.66 | 47.98 | 45.48 | 43.09 | ||||||||||||||||||||||||||
Market capitalization | $ | 183,107 | $ | 223,041 | $ | 216,922 | $ | 226,481 | $ | 238,021 | $ | 240,966 | $ | 217,794 | $ | 208,633 | ||||||||||||||||||
Average balance sheet | ||||||||||||||||||||||||||||||||||
Total loans and leases | $ | 868,119 | $ | 780,516 | $ | 740,199 | $ | 714,042 | $ | 683,598 | $ | 673,477 | $ | 635,649 | $ | 615,968 | ||||||||||||||||||
Total assets | 1,742,467 | 1,580,565 | 1,561,649 | 1,521,418 | 1,495,150 | 1,497,987 | 1,456,004 | 1,416,373 | ||||||||||||||||||||||||||
Total deposits | 781,625 | 702,481 | 697,035 | 686,704 | 680,245 | 676,851 | 674,796 | 659,821 | ||||||||||||||||||||||||||
Long-term debt | 196,444 | 175,265 | 158,500 | 148,627 | 140,756 | 136,769 | 125,620 | 117,018 | ||||||||||||||||||||||||||
Common shareholders’ equity | 141,085 | 131,606 | 130,700 | 130,737 | 132,004 | 129,098 | 127,102 | 130,881 | ||||||||||||||||||||||||||
Total shareholders’ equity | 144,924 | 134,487 | 133,551 | 133,588 | 134,047 | 129,262 | 127,373 | 131,153 | ||||||||||||||||||||||||||
Asset Quality | ||||||||||||||||||||||||||||||||||
Allowance for credit losses(1) | $ | 12,106 | $ | 9,927 | $ | 9,436 | $ | 9,106 | $ | 9,413 | $ | 9,260 | $ | 9,475 | $ | 9,462 | ||||||||||||||||||
Nonperforming assets measured at historical cost | 5,948 | 3,372 | 2,392 | 2,059 | 1,856 | 1,656 | 1,641 | 1,680 | ||||||||||||||||||||||||||
Allowance for loan and lease losses as a percentage of total loans and leases outstanding measured at historical cost (2) | 1.33 | % | 1.21 | % | 1.20 | % | 1.21 | % | 1.28 | % | 1.33 | % | 1.36 | % | 1.46 | % | ||||||||||||||||||
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases measured at historical cost | 207 | 300 | 397 | 443 | 505 | 562 | 579 | 572 | ||||||||||||||||||||||||||
Net charge-offs | $ | 1,985 | $ | 1,573 | $ | 1,495 | $ | 1,427 | $ | 1,417 | $ | 1,277 | $ | 1,023 | $ | 822 | ||||||||||||||||||
Annualized net charge-offs as a percentage of average loans and leases outstanding measured at historical cost(2) | 0.91 | % | 0.80 | % | 0.81 | % | 0.81 | % | 0.82 | % | 0.75 | % | 0.65 | % | 0.54 | % | ||||||||||||||||||
Nonperforming loans and leases as a percentage of total loans and leases outstanding measured at historical cost (2) | 0.64 | 0.40 | 0.30 | 0.27 | 0.25 | 0.24 | 0.23 | 0.26 | ||||||||||||||||||||||||||
Nonperforming assets as a percentage of total loans, leases and foreclosed properties(2) | 0.68 | 0.43 | 0.32 | 0.29 | 0.26 | 0.25 | 0.25 | 0.27 | ||||||||||||||||||||||||||
Ratio of the allowance for loan and lease losses at period end to annualized net charge-offs | 1.47 | 1.53 | 1.51 | 1.51 | 1.60 | 1.75 | 2.21 | 2.72 | ||||||||||||||||||||||||||
Capital ratios (period end) | ||||||||||||||||||||||||||||||||||
Risk-based capital: | ||||||||||||||||||||||||||||||||||
Tier 1 | 6.87 | % | 8.22 | % | 8.52 | % | 8.57 | % | 8.64 | % | 8.48 | % | 8.33 | % | 8.45 | % | ||||||||||||||||||
Total | 11.02 | 11.86 | 12.11 | 11.94 | 11.88 | 11.46 | 11.25 | 11.32 | ||||||||||||||||||||||||||
Tier 1 Leverage | 5.04 | 6.20 | 6.33 | 6.25 | 6.36 | 6.16 | 6.13 | 6.18 |
(1) | Includes the allowance for loan and lease losses, and the reserve for unfunded lending commitments. |
(2) | Ratios do not include loans measured at fair value in accordance with SFAS 159 at and for the year ended December 31, 2007. Loans measured at fair value were $4.59 billion at December 31, 2007. |
n/m = not meaningful
82 | Bank of America 2007 |
Table XIII Quarterly Average Balances and Interest Rates – FTE Basis
Fourth Quarter 2007 | Third Quarter 2007 | |||||||||||||||||||
(Dollars in millions) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||
Earning assets | ||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 10,459 | $ | 122 | 4.63 | % | $ | 11,879 | $ | 148 | 4.92 | % | ||||||||
Federal funds sold and securities purchased under agreements to resell | 151,938 | 1,748 | 4.59 | 139,259 | 1,839 | 5.27 | ||||||||||||||
Trading account assets | 190,700 | 2,422 | 5.06 | 194,661 | 2,604 | 5.33 | ||||||||||||||
Debt securities(1) | 206,873 | 2,795 | 5.40 | 174,568 | 2,380 | 5.45 | ||||||||||||||
Loans and leases(2): | ||||||||||||||||||||
Residential mortgage | 277,058 | 3,972 | 5.73 | 274,385 | 3,928 | 5.72 | ||||||||||||||
Credit card – domestic | 60,063 | 1,781 | 11.76 | 57,491 | 1,780 | 12.29 | ||||||||||||||
Credit card – foreign | 14,329 | 464 | 12.86 | 11,995 | 371 | 12.25 | ||||||||||||||
Home equity(3) | 112,372 | 2,043 | 7.21 | 98,611 | 1,884 | 7.58 | ||||||||||||||
Direct/Indirect consumer(4) | 75,423 | 1,658 | 8.72 | 73,245 | 1,600 | 8.67 | ||||||||||||||
Other consumer(5) | 3,918 | 71 | 7.24 | 4,055 | 96 | 9.47 | ||||||||||||||
Total consumer | 543,163 | 9,989 | 7.32 | 519,782 | 9,659 | 7.39 | ||||||||||||||
Commercial – domestic | 213,200 | 3,704 | 6.89 | 176,554 | 3,207 | 7.21 | ||||||||||||||
Commercial real estate(6) | 59,702 | 1,053 | 6.99 | 38,977 | 733 | 7.47 | ||||||||||||||
Commercial lease financing | 22,239 | 574 | 10.33 | 20,044 | 246 | 4.91 | ||||||||||||||
Commercial – foreign | 29,815 | 426 | 5.67 | 25,159 | 377 | 5.95 | ||||||||||||||
Total commercial | 324,956 | 5,757 | 7.03 | 260,734 | 4,563 | 6.95 | ||||||||||||||
Total loans and leases | 868,119 | 15,746 | 7.21 | 780,516 | 14,222 | 7.25 | ||||||||||||||
Other earning assets | 74,909 | 1,296 | 6.89 | 74,912 | 1,215 | 6.46 | ||||||||||||||
Total earning assets(7) | 1,502,998 | 24,129 | 6.39 | 1,375,795 | 22,408 | 6.48 | ||||||||||||||
Cash and cash equivalents | 33,714 | 31,356 | ||||||||||||||||||
Other assets, less allowance for loan and lease losses | 205,755 | 173,414 | ||||||||||||||||||
Total assets | $ | 1,742,467 | $ | 1,580,565 | ||||||||||||||||
Interest-bearing liabilities | ||||||||||||||||||||
Domestic interest-bearing deposits: | ||||||||||||||||||||
Savings | $ | 31,961 | $ | 50 | 0.63 | % | $ | 31,510 | $ | 50 | 0.62 | % | ||||||||
NOW and money market deposit accounts | 240,914 | 1,334 | 2.20 | 215,078 | 1,104 | 2.04 | ||||||||||||||
Consumer CDs and IRAs | 183,910 | 2,179 | 4.70 | 165,840 | 1,949 | 4.66 | ||||||||||||||
Negotiable CDs, public funds and other time deposits | 34,997 | 420 | 4.76 | 17,392 | 227 | 5.20 | ||||||||||||||
Total domestic interest-bearing deposits | 491,782 | 3,983 | 3.21 | 429,820 | 3,330 | 3.07 | ||||||||||||||
Foreign interest-bearing deposits: | ||||||||||||||||||||
Banks located in foreign countries | 45,050 | 557 | 4.91 | 43,727 | 564 | 5.12 | ||||||||||||||
Governments and official institutions | 16,506 | 192 | 4.62 | 17,206 | 218 | 5.03 | ||||||||||||||
Time, savings and other | 51,919 | 521 | 3.98 | 41,868 | 433 | 4.09 | ||||||||||||||
Total foreign interest-bearing deposits | 113,475 | 1,270 | 4.44 | 102,801 | 1,215 | 4.69 | ||||||||||||||
Total interest-bearing deposits | 605,257 | 5,253 | 3.44 | 532,621 | 4,545 | 3.39 | ||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 456,530 | 5,599 | 4.87 | 409,070 | 5,521 | 5.36 | ||||||||||||||
Trading account liabilities | 81,500 | 825 | 4.02 | 86,118 | 906 | 4.17 | ||||||||||||||
Long-term debt | 196,444 | 2,638 | 5.37 | 175,265 | 2,446 | 5.58 | ||||||||||||||
Total interest-bearing liabilities(7) | 1,339,731 | 14,315 | 4.25 | 1,203,074 | 13,418 | 4.43 | ||||||||||||||
Noninterest-bearing sources: | ||||||||||||||||||||
Noninterest-bearing deposits | 176,368 | 169,860 | ||||||||||||||||||
Other liabilities | 81,444 | 73,144 | ||||||||||||||||||
Shareholders’ equity | 144,924 | 134,487 | ||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,742,467 | $ | 1,580,565 | ||||||||||||||||
Net interest spread | 2.14 | % | 2.05 | % | ||||||||||||||||
Impact of noninterest-bearing sources | 0.47 | 0.56 | ||||||||||||||||||
Net interest income/yield on earning assets | $ | 9,814 | 2.61 | % | $ | 8,990 | 2.61 | % |
(1) | Yields on AFS debt securities are calculated based on fair value rather than historical cost balances. The use of fair value does not have a material impact on net interest yield. |
(2) | Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. |
(3) | Includes home equity loans of |
(4) | Includes foreign consumer loans of $3.6 billion, $3.8 billion, $3.9 billion and $3.9 billion in the fourth, third, second and first quarters of 2007, and $3.8 billion in the fourth quarter of 2006, respectively. |
(5) | Includes consumer finance loans of |
| Includes domestic commercial real estate loans of |
| Interest income includes the impact of interest rate risk management contracts, which |
|
| |
Bank of | 83 |
Earning assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Debt securities(1) Loans and leases(2): Residential mortgage Credit card—domestic Credit card—foreign Home equity lines Direct/Indirect consumer(3) Other consumer(4) Total consumer Commercial—domestic Commercial real estate(5) Commercial lease financing Commercial—foreign Total commercial Total loans and leases Other earning assets Total earning assets(6) Cash and cash equivalents Other assets, less allowance for loan and lease losses Total assets Interest-bearing liabilities Domestic interest-bearing deposits: Savings NOW and money market deposit accounts Consumer CDs and IRAs Negotiable CDs, public funds and other time deposits Total domestic interest-bearing deposits Foreign interest-bearing deposits: Banks located in foreign countries Governments and official institutions Time, savings and other Total foreign interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings Trading account liabilities Long-term debt Total interest-bearing liabilities (6) Noninterest-bearing sources: Noninterest-bearing deposits Other liabilities Shareholders’ equity Total liabilities and shareholders’ equity Net interest spread Impact of noninterest-bearing sources Net interest income/yield on earning assets(7) Second Quarter 2006 First Quarter 2006 Fourth Quarter 2005 (Dollars in millions) Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate Average
Balance Interest
Income/
Expense Yield/
Rate $ 16,691 $ 168 4.05 % $ 14,347 $ 139 3.92 % $ 14,619 $ 133 3.59 % 179,104 1,900 4.25 174,711 1,709 3.94 165,908 1,477 3.55 133,556 1,712 5.13 133,361 1,623 4.89 139,441 1,648 4.72 236,967 3,162 5.34 234,606 3,043 5.19 221,411 2,842 5.13 197,228 2,731 5.54 184,796 2,524 5.48 178,764 2,427 5.42 64,980 2,168 13.38 68,169 2,180 12.97 56,858 1,748 12.19 8,305 269 12.97 8,403 287 13.86 — — — 67,182 1,231 7.35 64,198 1,112 7.02 60,571 1,011 6.63 56,715 1,057 7.46 55,025 986 7.24 47,181 703 5.91 10,804 294 10.95 10,357 272 10.59 6,653 182 11.01 405,214 7,750 7.66 390,948 7,361 7.60 350,027 6,071 6.90 148,445 2,695 7.28 144,693 2,490 6.97 137,224 2,279 6.59 36,749 680 7.41 36,676 632 6.99 36,017 597 6.58 20,896 262 5.01 20,512 247 4.82 20,178 241 4.79 24,345 456 7.52 23,139 427 7.48 20,143 379 7.45 230,435 4,093 7.12 225,020 3,796 6.83 213,562 3,496 6.50 635,649 11,843 7.47 615,968 11,157 7.32 563,589 9,567 6.75 51,928 808 6.24 46,618 718 6.22 40,582 594 5.83 1,253,895 19,593 6.26 1,219,611 18,389 6.08 1,145,550 16,261 5.65 35,070 34,857 33,693 167,039 161,905 125,814 $ 1,456,004 $ 1,416,373 $ 1,305,057 $ 35,681 $ 76 0.84 % $ 35,550 $ 76 0.87 % $ 35,535 $ 68 0.76 % 221,198 996 1.81 227,606 908 1.62 224,122 721 1.28 141,408 1,393 3.95 135,068 1,177 3.53 120,321 1,028 3.39 13,005 123 3.80 8,551 70 3.30 5,085 27 2.13 411,292 2,588 2.52 406,775 2,231 2.22 385,063 1,844 1.90 32,456 489 6.05 30,116 424 5.71 24,451 356 5.77 13,428 155 4.63 10,200 107 4.25 7,579 74 3.84 37,178 276 2.98 35,136 245 2.83 32,624 202 2.46 83,062 920 4.44 75,452 776 4.17 64,654 632 3.87 494,354 3,508 2.85 482,227 3,007 2.53 449,717 2,476 2.18 408,734 4,842 4.75 399,896 4,309 4.37 364,140 3,855 4.20 61,263 596 3.90 52,466 517 3.99 56,880 619 4.32 125,620 1,721 5.48 117,018 1,516 5.18 99,601 1,209 4.85 1,089,971 10,667 3.92 1,051,607 9,349 3.60 970,338 8,159 3.34 180,442 177,594 179,205 58,218 56,019 55,566 127,373 131,153 99,948 $ 1,456,004 $ 1,416,373 $ 1,305,057 2.34 2.48 2.31 0.51 0.50 0.51 $ 8,926 2.85 % $ 9,040 2.98 $ 8,102 2.82 %
Quarterly Average Balances and Interest Rates – FTE Basis (continued)
Second Quarter 2007 | First Quarter 2007 | Fourth Quarter 2006 | |||||||||||||||||||||||||||||
(Dollars in millions) | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | Average Balance | Interest Income/ Expense | Yield/ Rate | ||||||||||||||||||||||
Earning assets | |||||||||||||||||||||||||||||||
Time deposits placed and other short-term investments | $ | 15,310 | $ | 188 | 4.92 | % | $ | 15,023 | $ | 169 | 4.57 | % | $ | 15,760 | $ | 166 | 4.19 | % | |||||||||||||
Federal funds sold and securities purchased under agreements to resell | 166,258 | 2,156 | 5.19 | 166,195 | 1,979 | 4.79 | 174,167 | 2,068 | 4.73 | ||||||||||||||||||||||
Trading account assets | 188,287 | 2,364 | 5.03 | 175,249 | 2,357 | 5.41 | 167,163 | 2,289 | 5.46 | ||||||||||||||||||||||
Debt securities(1) | 177,834 | 2,394 | 5.39 | 186,498 | 2,451 | 5.27 | 193,601 | 2,504 | 5.17 | ||||||||||||||||||||||
Loans and leases(2): | |||||||||||||||||||||||||||||||
Residential mortgage | 260,099 | 3,708 | 5.70 | 246,618 | 3,504 | 5.69 | 225,985 | 3,202 | 5.66 | ||||||||||||||||||||||
Credit card – domestic | 56,235 | 1,777 | 12.67 | 57,720 | 1,887 | 13.26 | 59,802 | 2,101 | 13.94 | ||||||||||||||||||||||
Credit card – foreign | 11,946 | 350 | 11.76 | 11,133 | 317 | 11.55 | 10,375 | 305 | 11.66 | ||||||||||||||||||||||
Home equity(3) | 94,267 | 1,779 | 7.57 | 89,559 | 1,679 | 7.60 | 84,905 | 1,626 | 7.60 | ||||||||||||||||||||||
Direct/Indirect consumer(4) | 68,175 | 1,441 | 8.48 | 64,038 | 1,303 | 8.25 | 57,273 | 1,185 | 8.21 | ||||||||||||||||||||||
Other consumer(5) | 4,153 | 100 | 9.71 | 4,928 | 122 | 9.93 | 6,804 | 141 | 8.32 | ||||||||||||||||||||||
Total consumer | 494,875 | 9,155 | 7.41 | 473,996 | 8,812 | 7.50 | 445,144 | 8,560 | 7.65 | ||||||||||||||||||||||
Commercial – domestic | 166,529 | 3,039 | 7.32 | 163,620 | 2,934 | 7.27 | 158,604 | 2,907 | 7.27 | ||||||||||||||||||||||
Commercial real estate(6) | 36,788 | 687 | 7.49 | 36,117 | 672 | 7.55 | 36,851 | 704 | 7.58 | ||||||||||||||||||||||
Commercial lease financing | 19,784 | 217 | 4.40 | 19,651 | 175 | 3.55 | 21,159 | 254 | 4.80 | ||||||||||||||||||||||
Commercial – foreign | 22,223 | 319 | 5.75 | 20,658 | 330 | 6.48 | 21,840 | 337 | 6.12 | ||||||||||||||||||||||
Total commercial | 245,324 | 4,262 | 6.97 | 240,046 | 4,111 | 6.94 | 238,454 | 4,202 | 7.00 | ||||||||||||||||||||||
Total loans and leases | 740,199 | 13,417 | 7.26 | 714,042 | 12,923 | 7.31 | 683,598 | 12,762 | 7.42 | ||||||||||||||||||||||
Other earning assets | 70,311 | 1,108 | 6.31 | 64,939 | 1,010 | 6.28 | 65,172 | 1,058 | 6.46 | ||||||||||||||||||||||
Total earning assets(7) | 1,358,199 | 21,627 | 6.38 | 1,321,946 | 20,889 | 6.37 | 1,299,461 | 20,847 | 6.39 | ||||||||||||||||||||||
Cash and cash equivalents | 33,689 | 33,623 | 32,816 | ||||||||||||||||||||||||||||
Other assets, less allowance for loan and lease losses | 169,761 | 165,849 | 162,873 | ||||||||||||||||||||||||||||
Total assets | $ | 1,561,649 | $ | 1,521,418 | $ | 1,495,150 | |||||||||||||||||||||||||
Interest-bearing liabilities | |||||||||||||||||||||||||||||||
Domestic interest-bearing deposits: | |||||||||||||||||||||||||||||||
Savings | $ | 33,039 | $ | 47 | 0.58 | % | $ | 32,773 | $ | 41 | 0.50 | % | $ | 32,965 | $ | 48 | 0.58 | % | |||||||||||||
NOW and money market deposit accounts | 212,330 | 987 | 1.86 | 212,249 | 936 | 1.79 | 211,055 | 966 | 1.81 | ||||||||||||||||||||||
Consumer CDs and IRAs | 161,703 | 1,857 | 4.61 | 159,505 | 1,832 | 4.66 | 154,621 | 1,794 | 4.60 | ||||||||||||||||||||||
Negotiable CDs, public funds and other time deposits | 16,256 | 191 | 4.70 | 13,376 | 136 | 4.12 | 13,052 | 140 | 4.30 | ||||||||||||||||||||||
Total domestic interest-bearing deposits | 423,328 | 3,082 | 2.92 | 417,903 | 2,945 | 2.86 | 411,693 | 2,948 | 2.84 | ||||||||||||||||||||||
Foreign interest-bearing deposits: | |||||||||||||||||||||||||||||||
Banks located in foreign countries | 41,940 | 522 | 4.99 | 40,372 | 531 | 5.34 | 38,648 | 507 | 5.21 | ||||||||||||||||||||||
Governments and official institutions | 17,868 | 224 | 5.02 | 14,482 | 178 | 4.98 | 14,220 | 168 | 4.70 | ||||||||||||||||||||||
Time, savings and other | 40,335 | 433 | 4.31 | 39,534 | 380 | 3.90 | 41,328 | 366 | 3.50 | ||||||||||||||||||||||
Total foreign interest-bearing deposits | 100,143 | 1,179 | 4.72 | 94,388 | 1,089 | 4.68 | 94,196 | 1,041 | 4.38 | ||||||||||||||||||||||
Total interest-bearing deposits | 523,471 | 4,261 | 3.27 | 512,291 | 4,034 | 3.19 | 505,889 | 3,989 | 3.13 | ||||||||||||||||||||||
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings | 419,260 | 5,537 | 5.30 | 414,104 | 5,318 | 5.20 | 405,748 | 5,222 | 5.11 | ||||||||||||||||||||||
Trading account liabilities | 85,550 | 821 | 3.85 | 77,635 | 892 | 4.66 | 75,261 | 800 | 4.21 | ||||||||||||||||||||||
Long-term debt | 158,500 | 2,227 | 5.62 | 148,627 | 2,048 | 5.51 | 140,756 | 1,881 | 5.34 | ||||||||||||||||||||||
Total interest-bearing liabilities(7) | 1,186,781 | 12,846 | 4.34 | 1,152,657 | 12,292 | 4.31 | 1,127,654 | 11,892 | 4.19 | ||||||||||||||||||||||
Noninterest-bearing sources: | |||||||||||||||||||||||||||||||
Noninterest-bearing deposits | 173,564 | 174,413 | 174,356 | ||||||||||||||||||||||||||||
Other liabilities | 67,753 | 60,760 | 59,093 | ||||||||||||||||||||||||||||
Shareholders’ equity | 133,551 | 133,588 | 134,047 | ||||||||||||||||||||||||||||
Total liabilities and shareholders’ equity | $ | 1,561,649 | $ | 1,521,418 | $ | 1,495,150 | |||||||||||||||||||||||||
Net interest spread | 2.04 | % | 2.06 | % | 2.20 | % | |||||||||||||||||||||||||
Impact of noninterest-bearing sources | 0.55 | 0.55 | 0.55 | ||||||||||||||||||||||||||||
Net interest income/yield on earning assets | $ | 8,781 | 2.59 | % | $ | 8,597 | 2.61 | % | $ | 8,955 | 2.75 | % |
For Footnotes, see page 83.
Bank of America 2007 |
Assets in Custody — – Consist largely of custodial and non-discretionary trust assets administered for customers excluding brokerage assets. Trust assets encompass a broad range of asset types including real estate, private company ownership interest, personal property and investments.
Assets Under Management (AUM)— – The total market value of assets under the investment advisory and discretion ofGlobal Wealth and Investment Management which generate asset management fees based on a percentage of the assets’ market value. AUM reflects assets that are generally managed for institutional, high net-worth and retail clients and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts.
Bridge Loan — – A short-term loan or security which is expected to be replaced by permanent financing (debt or equity securities, loan syndication or asset sales) prior to the maturity date of the loan. Bridge loans may include an unfunded commitment, as well as funded amounts, and are generally expected to be retired in one year or less.
CDOs-Squared – A type of CDO where the underlying collateralizing securities include tranches of other CDOs.
Client Brokerage Assets— – Include client assets which are held in brokerage accounts. This includes non-discretionary brokerage and fee-based assets which generate brokerage income and asset management fee revenue.
Co-branding Affinity Agreements — Contracts with our endorsing partners outlining specific marketing rights, compensation and other terms and conditions mutually agreed to by the Corporation and its partners.
Committed Credit Exposure — – Committed credit exposure includes any funded portion of a facility plus the unfunded portion of a facility on which the Corporation is legally bound to advance funds during a specified period under prescribed conditions.
Core Net Interest Income -Managed –Managed Basis — – Net Interest Incomeinterest income on a fully taxable-equivalent basis excluding the impact of market-based activities and certain securitizations.
Credit Derivatives/ Credit Default Swaps (CDS) — – A derivative contract that provides protection against the deterioration of credit quality and would allow one party to receive payment in the event of default by a third party under a borrowing arrangement.
Derivative — – A contract or agreement whose value is derived from changes in an underlying index such as interest rates, foreign exchange rates or prices of securities. Derivatives utilized by the Corporation include swaps, financial futures and forward settlement contracts, and option contracts.
Excess Servicing Income — – For certain assets that have been securitized, interest income, fee revenue and recoveries in excess of interest paid to the investors, gross credit losses and other trust expenses related to the securitized receivables are all reclassified into excess servicing income, which is a component of Card Income.card income. Excess servicing income also includes the changes in fair market value adjustments related toof the Corporation’s interest-only strips as a result of changes in the estimated future net cash flows expected to be earned in future periods and changes in projected loan payment rates.card related retained interests.
Interest-only (IO) Strip —Strip– A residual interest in a securitization trust representing the right to receive future net cash flows from securitized assets after payments to third party investors and net credit losses. These arise when assets are transferred to a special purpose entity as part of an asset securitization transaction qualifying for sale treatment under GAAP.
Letter of Credit — – A document issued by the Corporation on behalf of a customer to a third party promising to pay that third party upon presentation of specified documents. A letter of credit effectively substitutes the Corporation’s credit for that of the Corporation’s customer.
Managed Basis —– Managed basis presentation includes results from both on-balance sheet loans and off-balance sheet loans, and excludes the impact of securitization activity, with the exception of the mark-to-market adjustment on residual interests from securitization and the impact of the gains recognized on securitized loan principal receivables. Managed basis
disclosures assumeassumes that securitized loans were not sold and presents earnings on these loans in a manner similar to the way loans that have not been sold (i.e., held loans) are presented. Noninterest income, both on a held and presentmanaged basis, also includes the resultsimpact of adjustments to the securitizedinterest-only strip that are recorded in card income.
Managed Net Losses – Represents net charge-offs on held loans in the same manner as the Corporation’s held loans. Managed credit impact represents the Corporation’s held Provision for Credit Losses combined with realized credit losses associated with the securitized loan portfolio.
Mortgage Servicing Right (MSR) — – The right to service a mortgage loan retained when the underlying loan is sold or securitized. Servicing includes collections for principal, interest and escrow payments from borrowers and accounting for and remitting principal and interest payments to investors.
Net Interest Yield — – Net Interest Incomeinterest income divided by average total interest-earning assets.
Operating Basis — – A basis of presentation not defined by GAAP that excludes merger and restructuring charges.
Qualified Special Purpose Entity (QSPE) – A special purpose entity whose activities are strictly limited to holding and servicing financial assets and meet the requirements set forth in SFAS 140. A qualified special purpose entity is generally not required to be consolidated by any party.
Return on Average Common Shareholders’ Equity (ROE) — – Measures the earnings contribution of a unit as a percentage of the Shareholders’ Equityshareholders’ equity allocated to that unit.
Return on Average Tangible Shareholders’ Equity (ROTE) – Measures the earnings contribution of a unit as a percentage of the shareholders’ equity allocated to that unit reduced by allocated goodwill.
Securitize / Securitization — – A process by which financial assets are sold to a special purpose entity, which then issues securities collateralized by those underlying assets, and the return on the securities issued is based on the principal and interest cash flow of the underlying assets.
Shareholder Value Added (SVA) — Cash basis earnings on an operating basis less a charge forStructured Investment Vehicle (SIV) – An entity that issues short duration debt and uses the use of capital.proceeds from the issuance to purchase longer-term fixed income securities.
Unrecognized Tax Benefit (UTB) – The difference between the benefit recognized for a tax position in accordance with FIN 48, which is measured as the largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement, and the tax benefit claimed on a tax return.
Value-at-Risk (VAR) — – A VAR model estimates a range of hypothetical scenarios to calculate a potential loss which is not expected to be exceeded with a specified confidence level. VAR is a key statistic used to measure and manage market risk.
Variable Interest Entities (VIE) — An– A term defined by FIN 46R for an entity whose equity investors do not have a controlling financial interest. The entity may not have sufficient equity at risk to finance its activities without additional subordinated financial support from third parties. The equity investors may lack the ability to make significant decisions about the entity’s activities, or they may not absorb the losses or receive the residual returns generated by the assets and other contractual arrangements of the VIE. A VIE must be consolidated by its primary beneficiary, if any, which is the partyThe entity that will absorb a majority of expected variability (the sum of the majorityabsolute values of the expected losses orand expected residual returns ofreturns) consolidates the VIE or both.and is referred to as the primary beneficiary.
Bank of America 2007 | 85 |
Accounting Pronouncements
SFAS 52 | Foreign Currency Translation | |
Accounting for Income Taxes | ||
SFAS 133 | Accounting for Derivative Instruments and Hedging Activities, as amended | |
SFAS 140 | Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a replacement of FASB Statement No. 125 | |
SFAS 142 | Goodwill and Other Intangible Assets | |
SFAS 157 | Fair Value Measurements | |
SFAS 159 | The Fair Value Option for Financial Assets and Financial Liabilities | |
FIN 46R | Consolidation of Variable Interest Entities (revised December 2003) – an interpretation of ARB No. 51 | |
FIN 48 | Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 | |
FSP 13-2 | Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction | |
SOP 03-3 | Accounting for Certain Loans or Debt Securities Acquired in a Transfer |
Acronyms
ABS | Asset-backed securities | ||
AFS | Available-for-sale | ||
AICPA | American Institute of Certified Public Accountants | ||
ALCO | Asset and Liability Committee | ||
ALM | Asset and liability management | ||
CDO | Collateralized debt obligation | ||
CLO | Collateralized loan obligation | ||
CMBS | Commercial mortgage-backed securities | ||
EPS | Earnings per common share | ||
FASB | Financial Accounting Standards Board | ||
FDIC | Federal Deposit and Insurance Corporation | ||
FFIEC | Federal Financial Institutions Examination Council | ||
FIN | Financial Accounting Standards Board Interpretation | ||
FRB | Board of Governors of the Federal Reserve System | ||
FSP | Financial Accounting Standards Board Staff Position | ||
FTE | Fully taxable-equivalent | ||
GAAP | Generally accepted accounting principles in the United States | ||
IPO | Initial public offering | ||
IRLC | Interest rate lock commitment | ||
LIBOR | London InterBank Offered Rate | ||
MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
OCC | Office of the Comptroller of the Currency | ||
OCI | Other | ||
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SBLCs | Standby letters of credit | ||
SEC | Securities and Exchange Commission | ||
SFAS | Financial Accounting Standards Board Statement of Financial Accounting Standards | ||
SOP | American Institute of Certified Public Accountants Statement of Position | ||
SPE | Special |
86 | Bank of America 2007 |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
See “MarketMarket Risk Management”Management in the MD&A beginning on page 7261 which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Report of Management on Internal Control Over Financial Reporting
The management of Bank of America Corporation is responsible for establishing and maintaining adequate internal control over financial reporting.
The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The Corporation’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2006,2007, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission inInternal Control – Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2006,2007, the Corporation’sinternal control over financial reporting is effective based on the criteria established inInternal Control – Integrated Framework.
Management’s assessment of theThe effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2006,2007, has been audited by PricewaterhouseCoopers, LLP, an independent registered public accounting firm.
Kenneth D. Lewis
Chairman, Chief Executive Officer and President
Joe L. Price
Chief Financial Officer
|
|
Tothe
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Bank of America Corporation:
We have completed integrated audits of Bank of America Corporation’s Consolidated Financial Statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Consolidated Financial Statements
In our opinion, the accompanying Consolidated Balance Sheet and the related Consolidated Statement of Income, Consolidated Statement of Changes in Shareholders’ Equity and Consolidated Statement of Cash FlowspresentFlows present fairly, in all material respects, the financial position of Bank of America Corporation and its subsidiaries at December 31, 20062007 and 2005,2006, and the results of theiroperationstheir operations and their cash flows for each of the three years in the period ended December 31, 2006in2007 in conformity with accounting principles generally accepted in the United States of America. These Consolidated Financial Statements areAlso in our opinion, the responsibilityCorporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established inInternal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management.management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control Over Financial Reporting appearing on page 87 of the 2007 Annual Report to Shareholders. Our responsibility is to express an opinionopinions on these Consolidated Financial Statementsfinancial statements and on the Corporation’s internal control over financial reporting based on our integrated audits. We conducted our audits of these Consolidated Financial Statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements includesincluded 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reportingopinions.
Also,As discussed in our opinion, management’s assessment, included inNote 1 –Summary of Significant Accounting Principles to the Report of Management on Internal Control OverConsolidated Financial Reporting, thatStatements, the Corporation maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established inInternal Control—Integrated Framework issued by the COSO. The Corporation’s management is responsiblehas adopted SFAS No. 157, “Fair Value Measurements” and SFAS No. 159, “The Fair Value Option for maintaining effective internal control over financial reportingFinancial Assets and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Corporation’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.Financial Liabilities.”
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Charlotte, North Carolina
February 22, 200720, 2008
88 | Bank of America
|
Year Ended December 31 | ||||||||||
(Dollars in millions, except per share information) | 2006 | 2005 | 2004 | |||||||
Interest income | ||||||||||
Interest and fees on loans and leases | $ | 48,274 | $ | 34,843 | $ | 28,051 | ||||
Interest and dividends on securities | 11,655 | 10,937 | 7,256 | |||||||
Federal funds sold and securities purchased under agreements to resell | 7,823 | 5,012 | 1,940 | |||||||
Trading account assets | 7,232 | 5,743 | 4,016 | |||||||
Other interest income | 3,601 | 2,091 | 1,690 | |||||||
Total interest income | 78,585 | 58,626 | 42,953 | |||||||
Interest expense | ||||||||||
Deposits | 14,480 | 9,492 | 5,921 | |||||||
Short-term borrowings | 19,840 | 11,615 | 4,072 | |||||||
Trading account liabilities | 2,640 | 2,364 | 1,317 | |||||||
Long-term debt | 7,034 | 4,418 | 3,683 | |||||||
Total interest expense | 43,994 | 27,889 | 14,993 | |||||||
Net interest income | 34,591 | 30,737 | 27,960 | |||||||
Noninterest income | ||||||||||
Card income | 14,293 | 5,753 | 4,592 | |||||||
Service charges | 8,224 | 7,704 | 6,989 | |||||||
Investment and brokerage services | 4,456 | 4,184 | 3,614 | |||||||
Investment banking income | 2,317 | 1,856 | 1,886 | |||||||
Equity investment gains | 3,189 | 2,212 | 1,024 | |||||||
Trading account profits | 3,166 | 1,763 | 1,013 | |||||||
Mortgage banking income | 541 | 805 | 414 | |||||||
Other income | 2,246 | 1,077 | 1,473 | |||||||
Total noninterest income | 38,432 | 25,354 | 21,005 | |||||||
Total revenue | 73,023 | 56,091 | 48,965 | |||||||
Provision for credit losses | 5,010 | 4,014 | 2,769 | |||||||
Gains (losses) on sales of debt securities | (443 | ) | 1,084 | 1,724 | ||||||
Noninterest expense | ||||||||||
Personnel | 18,211 | 15,054 | 13,435 | |||||||
Occupancy | 2,826 | 2,588 | 2,379 | |||||||
Equipment | 1,329 | 1,199 | 1,214 | |||||||
Marketing | 2,336 | 1,255 | 1,349 | |||||||
Professional fees | 1,078 | 930 | 836 | |||||||
Amortization of intangibles | 1,755 | 809 | 664 | |||||||
Data processing | 1,732 | 1,487 | 1,330 | |||||||
Telecommunications | 945 | 827 | 730 | |||||||
Other general operating | 4,580 | 4,120 | 4,457 | |||||||
Merger and restructuring charges | 805 | 412 | 618 | |||||||
Total noninterest expense | 35,597 | 28,681 | 27,012 | |||||||
Income before income taxes | 31,973 | 24,480 | 20,908 | |||||||
Income tax expense | 10,840 | 8,015 | 6,961 | |||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | ||||
Net income available to common shareholders | $ | 21,111 | $ | 16,447 | $ | 13,931 | ||||
Per common share information | ||||||||||
Earnings | $ | 4.66 | $ | 4.10 | $ | 3.71 | ||||
Diluted earnings | $ | 4.59 | $ | 4.04 | $ | 3.64 | ||||
Dividends paid | $ | 2.12 | $ | 1.90 | $ | 1.70 | ||||
Average common shares issued and outstanding (in thousands) | 4,526,637 | 4,008,688 | 3,758,507 | |||||||
Average diluted common shares issued and outstanding (in thousands) | 4,595,896 | 4,068,140 | 3,823,943 |
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Year Ended December 31 | |||||||||||
(Dollars in millions, except per share information) | 2007 | 2006 | 2005 | ||||||||
Interest income | |||||||||||
Interest and fees on loans and leases | $ | 55,681 | $ | 48,274 | $ | 34,843 | |||||
Interest on debt securities | 9,784 | 11,655 | 10,937 | ||||||||
Federal funds sold and securities purchased under agreements to resell | 7,722 | 7,823 | 5,012 | ||||||||
Trading account assets | 9,417 | 7,232 | 5,743 | ||||||||
Other interest income | 4,700 | 3,601 | 2,091 | ||||||||
Total interest income | 87,304 | 78,585 | 58,626 | ||||||||
Interest expense | |||||||||||
Deposits | 18,093 | 14,480 | 9,492 | ||||||||
Short-term borrowings | 21,975 | 19,840 | 11,615 | ||||||||
Trading account liabilities | 3,444 | 2,640 | 2,364 | ||||||||
Long-term debt | 9,359 | 7,034 | 4,418 | ||||||||
Total interest expense | 52,871 | 43,994 | 27,889 | ||||||||
Net interest income | 34,433 | 34,591 | 30,737 | ||||||||
Noninterest income | |||||||||||
Card income | 14,077 | 14,290 | 5,753 | ||||||||
Service charges | 8,908 | 8,224 | 7,704 | ||||||||
Investment and brokerage services | 5,147 | 4,456 | 4,184 | ||||||||
Investment banking income | 2,345 | 2,317 | 1,856 | ||||||||
Equity investment income | 4,064 | 3,189 | 2,212 | ||||||||
Trading account profits (losses) | (5,131 | ) | 3,166 | 1,763 | |||||||
Mortgage banking income | 902 | 541 | 805 | ||||||||
Gains (losses) on sales of debt securities | 180 | (443 | ) | 1,084 | |||||||
Other income | 1,394 | 2,249 | 1,077 | ||||||||
Total noninterest income | 31,886 | 37,989 | 26,438 | ||||||||
Total revenue, net of interest expense | 66,319 | 72,580 | 57,175 | ||||||||
Provision for credit losses | 8,385 | 5,010 | 4,014 | ||||||||
Noninterest expense | |||||||||||
Personnel | 18,753 | 18,211 | 15,054 | ||||||||
Occupancy | 3,038 | 2,826 | 2,588 | ||||||||
Equipment | 1,391 | 1,329 | 1,199 | ||||||||
Marketing | 2,356 | 2,336 | 1,255 | ||||||||
Professional fees | 1,174 | 1,078 | 930 | ||||||||
Amortization of intangibles | 1,676 | 1,755 | 809 | ||||||||
Data processing | 1,962 | 1,732 | 1,487 | ||||||||
Telecommunications | 1,013 | 945 | 827 | ||||||||
Other general operating | 5,237 | 4,580 | 4,120 | ||||||||
Merger and restructuring charges | 410 | 805 | 412 | ||||||||
Total noninterest expense | 37,010 | 35,597 | 28,681 | ||||||||
Income before income taxes | 20,924 | 31,973 | 24,480 | ||||||||
Income tax expense | 5,942 | 10,840 | 8,015 | ||||||||
Net income | $ | 14,982 | $ | 21,133 | $ | 16,465 | |||||
Preferred stock dividends | 182 | 22 | 18 | ||||||||
Net income available to common shareholders | $ | 14,800 | $ | 21,111 | $ | 16,447 | |||||
Per common share information | |||||||||||
Earnings | $ | 3.35 | $ | 4.66 | $ | 4.10 | |||||
Diluted earnings | 3.30 | 4.59 | 4.04 | ||||||||
Dividends paid | 2.40 | 2.12 | 1.90 | ||||||||
Average common shares issued and outstanding (in thousands) | 4,423,579 | 4,526,637 | 4,008,688 | ||||||||
Average diluted common shares issued and outstanding (in thousands) | 4,480,254 | 4,595,896 | 4,068,140 |
See accompanying Notes to Consolidated Financial Statements.
Bank of America
| 89 |
December 31 | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 36,429 | $ | 36,999 | ||||
Time deposits placed and other short-term investments | 13,952 | 12,800 | ||||||
Federal funds sold and securities purchased under agreements to resell (includes$135,409 and $148,299 pledged as collateral) | 135,478 | 149,785 | ||||||
Trading account assets (includes$92,274and $68,223 pledged as collateral) | 153,052 | 131,707 | ||||||
Derivative assets | 23,439 | 23,712 | ||||||
Debt Securities: | ||||||||
Available-for-sale (includes$83,785 and $116,659 pledged as collateral) | 192,806 | 221,556 | ||||||
Held-to-maturity, at cost (market value—$40 and $47) | 40 | 47 | ||||||
Total debt securities | 192,846 | 221,603 | ||||||
Loans and leases | 706,490 | 573,791 | ||||||
Allowance for loan and lease losses | (9,016 | ) | (8,045 | ) | ||||
Loans and leases, net of allowance | 697,474 | 565,746 | ||||||
Premises and equipment, net | 9,255 | 7,786 | ||||||
Mortgage servicing rights (includes$2,869 measured at fair value at December 31, 2006) | 3,045 | 2,806 | ||||||
Goodwill | 65,662 | 45,354 | ||||||
Intangible assets | 9,422 | 3,194 | ||||||
Other assets | 119,683 | 90,311 | ||||||
Total assets | $ | 1,459,737 | $ | 1,291,803 | ||||
Liabilities | ||||||||
Deposits in domestic offices: | ||||||||
Noninterest-bearing | $ | 180,231 | $ | 179,571 | ||||
Interest-bearing | 418,100 | 384,155 | ||||||
Deposits in foreign offices: | ||||||||
Noninterest-bearing | 4,577 | 7,165 | ||||||
Interest-bearing | 90,589 | 63,779 | ||||||
Total deposits | 693,497 | 634,670 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 217,527 | 240,655 | ||||||
Trading account liabilities | 67,670 | 50,890 | ||||||
Derivative liabilities | 16,339 | 15,000 | ||||||
Commercial paper and other short-term borrowings | 141,300 | 116,269 | ||||||
Accrued expenses and other liabilities (includes$397 and $395 of reserve for unfunded lending commitments) | 42,132 | 31,938 | ||||||
Long-term debt | 146,000 | 100,848 | ||||||
Total liabilities | 1,324,465 | 1,190,270 | ||||||
Commitments and contingencies (Notes 9 and 13) | ||||||||
Shareholders’ equity | ||||||||
Preferred stock, $0.01 par value; authorized—100,000,000 shares; issued and outstanding—121,739 and 1,090,189 shares | 2,851 | 271 | ||||||
Common stock and additional paid-in capital, $0.01 par value; authorized—7,500,000,000 shares; issued and outstanding—4,458,151,391 and 3,999,688,491 shares | 61,574 | 41,693 | ||||||
Retained earnings | 79,024 | 67,552 | ||||||
Accumulated other comprehensive income (loss) | (7,711 | ) | (7,556 | ) | ||||
Other | (466 | ) | (427 | ) | ||||
Total shareholders’ equity | 135,272 | 101,533 | ||||||
Total liabilities and shareholders’ equity | $ | 1,459,737 | $ | 1,291,803 |
Bank of America Corporation and Subsidiaries
Consolidated Balance Sheet
December 31 | ||||||||
(Dollars in millions) | 2007 | 2006 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 42,531 | $ | 36,429 | ||||
Time deposits placed and other short-term investments | 11,773 | 13,952 | ||||||
Federal funds sold and securities purchased under agreements to resell (includes$2,578 measured at fair value at December 31, 2007 and $128,887 and $135,409 pledged as collateral) | 129,552 | 135,478 | ||||||
Trading account assets (includes$88,745 and $92,274 pledged as collateral) | 162,064 | 153,052 | ||||||
Derivative assets | 34,662 | 23,439 | ||||||
Debt securities: | ||||||||
Available-for-sale (includes$107,440 and $83,785 pledged as collateral) | 213,330 | 192,806 | ||||||
Held-to-maturity, at cost (fair value –$726 and $40) | 726 | 40 | ||||||
Total debt securities | 214,056 | 192,846 | ||||||
Loans and leases (includes$4,590 measured at fair value at December 31, 2007 and$115,285 and $24,632 pledged as collateral) | 876,344 | 706,490 | ||||||
Allowance for loan and lease losses | (11,588 | ) | (9,016 | ) | ||||
Loans and leases, net of allowance | 864,756 | 697,474 | ||||||
Premises and equipment, net | 11,240 | 9,255 | ||||||
Mortgage servicing rights (includes$3,053 and $2,869 measured at fair value) | 3,347 | 3,045 | ||||||
Goodwill | 77,530 | 65,662 | ||||||
Intangible assets | 10,296 | 9,422 | ||||||
Other assets (includes$41,088 measured at fair value at December 31, 2007) | 153,939 | 119,683 | ||||||
Total assets | $ | 1,715,746 | $ | 1,459,737 | ||||
Liabilities | ||||||||
Deposits in domestic offices: | ||||||||
Noninterest-bearing | $ | 188,466 | $ | 180,231 | ||||
Interest-bearing (includes$2,000 measured at fair value at December 31, 2007) | 501,882 | 418,100 | ||||||
Deposits in foreign offices: | ||||||||
Noninterest-bearing | 3,761 | 4,577 | ||||||
Interest-bearing | 111,068 | 90,589 | ||||||
Total deposits | 805,177 | 693,497 | ||||||
Federal funds purchased and securities sold under agreements to repurchase | 221,435 | 217,527 | ||||||
Trading account liabilities | 77,342 | 67,670 | ||||||
Derivative liabilities | 22,423 | 16,339 | ||||||
Commercial paper and other short-term borrowings | 191,089 | 141,300 | ||||||
Accrued expenses and other liabilities (includes$660 measured at fair value at December 31, 2007 and$518 and $397 of reserve for unfunded lending commitments) | 53,969 | 42,132 | ||||||
Long-term debt | 197,508 | 146,000 | ||||||
Total liabilities | 1,568,943 | 1,324,465 | ||||||
Commitments and contingencies(Note 9 – Variable Interest Entities andNote 13 – Commitments and Contingencies) | ||||||||
Shareholders’ equity | ||||||||
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding –185,067 and 121,739 shares | 4,409 | 2,851 | ||||||
Common stock and additional paid-in capital, $0.01 par value; authorized – 7,500,000,000 shares; issued and outstanding –4,437,885,419 and 4,458,151,391 shares | 60,328 | 61,574 | ||||||
Retained earnings | 81,393 | 79,024 | ||||||
Accumulated other comprehensive income (loss) | 1,129 | (7,711 | ) | |||||
Other | (456 | ) | (466 | ) | ||||
Total shareholders’ equity | 146,803 | 135,272 | ||||||
Total liabilities and shareholders’ equity | $ | 1,715,746 | $ | 1,459,737 |
See accompanying Notes to Consolidated Financial Statements.
90 | Bank of America
|
(Dollars in millions, shares in thousands) | Preferred Stock | Common Stock and Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss)(1) | Other | Total Shareholders’ Equity | Comprehensive Income | ||||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||||||
Balance, December 31, 2003 | $ | 54 | 2,882,288 | $ | 29 | $ | 51,162 | $ | (2,434 | ) | $ | (154 | ) | $ | 48,657 | ||||||||||||||||
Net income | 13,947 | 13,947 | $ | 13,947 | |||||||||||||||||||||||||||
Net unrealized losses on available-for-sale debt and marketable equity securities | (127 | ) | (127 | ) | (127 | ) | |||||||||||||||||||||||||
Net unrealized gains on foreign currency translation adjustments | 13 | 13 | 13 | ||||||||||||||||||||||||||||
Net losses on derivatives | (185 | ) | (185 | ) | (185 | ) | |||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (6,452 | ) | (6,452 | ) | |||||||||||||||||||||||||||
Preferred | (16 | ) | (16 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 121,149 | 4,066 | (127 | ) | 3,939 | ||||||||||||||||||||||||||
Stock issued in acquisition(2) | 271 | 1,186,728 | 46,480 | 46,751 | |||||||||||||||||||||||||||
Common stock repurchased | (147,859 | ) | (6,375 | ) | 89 | (6,286 | ) | ||||||||||||||||||||||||
Conversion of preferred stock | (54 | ) | 4,240 | 54 | |||||||||||||||||||||||||||
Other | (18 | ) | 43 | (31 | ) | (6 | ) | (31 | ) | ||||||||||||||||||||||
Balance, December 31, 2004 | 271 | 4,046,546 | 44,236 | 58,773 | (2,764 | ) | (281 | ) | 100,235 | 13,617 | |||||||||||||||||||||
Net income | 16,465 | 16,465 | 16,465 | ||||||||||||||||||||||||||||
Net unrealized losses on available-for-sale debt and marketable equity securities | (2,781 | ) | (2,781 | ) | (2,781 | ) | |||||||||||||||||||||||||
Net unrealized gains on foreign currency translation adjustments | 32 | 32 | 32 | ||||||||||||||||||||||||||||
Net losses on derivatives | (2,059 | ) | (2,059 | ) | (2,059 | ) | |||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (7,665 | ) | (7,665 | ) | |||||||||||||||||||||||||||
Preferred | (18 | ) | (18 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 79,579 | 3,222 | (145 | ) | 3,077 | ||||||||||||||||||||||||||
Common stock repurchased | (126,437 | ) | (5,765 | ) | (5,765 | ) | |||||||||||||||||||||||||
Other | (3 | ) | 16 | (1 | ) | 12 | 16 | ||||||||||||||||||||||||
Balance, December 31, 2005 | 271 | 3,999,688 | 41,693 | 67,552 | (7,556 | ) | (427 | ) | 101,533 | 11,673 | |||||||||||||||||||||
Net income | 21,133 | 21,133 | 21,133 | ||||||||||||||||||||||||||||
Net unrealized gains on available-for-sale debt and marketable equity securities | 245 | 245 | 245 | ||||||||||||||||||||||||||||
Net unrealized gains on foreign currency translation adjustments | 269 | 269 | 269 | ||||||||||||||||||||||||||||
Net gains on derivatives | 641 | 641 | 641 | ||||||||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158 (3) | (1,308 | ) | (1,308 | ) | |||||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (9,639 | ) | (9,639 | ) | |||||||||||||||||||||||||||
Preferred | (22 | ) | (22 | ) | |||||||||||||||||||||||||||
Issuance of preferred stock | 2,850 | 2,850 | |||||||||||||||||||||||||||||
Redemption of preferred stock | (270 | ) | (270 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 118,418 | 4,863 | (39 | ) | 4,824 | ||||||||||||||||||||||||||
Stock issued in acquisition(4) | 631,145 | 29,377 | 29,377 | ||||||||||||||||||||||||||||
Common stock repurchased | (291,100 | ) | (14,359 | ) | (14,359 | ) | |||||||||||||||||||||||||
Other | (2 | ) | (2 | ) | (2 | ) | |||||||||||||||||||||||||
Balance, December 31, 2006 | $ | 2,851 | 4,458,151 | $ | 61,574 | $ | 79,024 | $ | (7,711 | ) | $ | (466 | ) | $ | 135,272 | $ | 22,286 |
Bank of America Corporation and Subsidiaries
Consolidated Statement of Changes in Shareholders’ Equity
Preferred | Common Stock and Additional Paid-in Capital | Retained | Accumulated | Other | Total | Comprehensive | |||||||||||||||||||||||||
(Dollars in millions, shares in thousands) | Shares | Amount | |||||||||||||||||||||||||||||
Balance, December 31, 2004 | $ | 271 | 4,046,546 | $ | 44,236 | $ | 58,773 | $ | (2,764 | ) | $ | (281 | ) | $ | 100,235 | ||||||||||||||||
Net income | 16,465 | 16,465 | $ | 16,465 | |||||||||||||||||||||||||||
Net changes in available-for-sale debt and marketable equity securities | (2,781 | ) | (2,781 | ) | (2,781 | ) | |||||||||||||||||||||||||
Net changes in foreign currency translation adjustments | 32 | 32 | 32 | ||||||||||||||||||||||||||||
Net changes in derivatives | (2,059 | ) | (2,059 | ) | (2,059 | ) | |||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (7,665 | ) | (7,665 | ) | |||||||||||||||||||||||||||
Preferred | (18 | ) | (18 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 79,579 | 3,222 | (145 | ) | 3,077 | ||||||||||||||||||||||||||
Common stock repurchased | (126,437 | ) | (5,765 | ) | (5,765 | ) | |||||||||||||||||||||||||
Other | (3 | ) | 16 | (1 | ) | 12 | 16 | ||||||||||||||||||||||||
Balance, December 31, 2005 | 271 | 3,999,688 | 41,693 | 67,552 | (7,556 | ) | (427 | ) | 101,533 | 11,673 | |||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158(2) | (1,308 | ) | (1,308 | ) | |||||||||||||||||||||||||||
Net income | 21,133 | 21,133 | 21,133 | ||||||||||||||||||||||||||||
Net changes in available-for-sale debt and marketable equity securities | 245 | 245 | 245 | ||||||||||||||||||||||||||||
Net changes in foreign currency translation adjustments | 269 | 269 | 269 | ||||||||||||||||||||||||||||
Net changes in derivatives | 641 | 641 | 641 | ||||||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (9,639 | ) | (9,639 | ) | |||||||||||||||||||||||||||
Preferred | (22 | ) | (22 | ) | |||||||||||||||||||||||||||
Issuance of preferred stock | 2,850 | 2,850 | |||||||||||||||||||||||||||||
Redemption of preferred stock | (270 | ) | (270 | ) | |||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 118,418 | 4,863 | (39 | ) | 4,824 | ||||||||||||||||||||||||||
Stock issued in acquisition(3) | 631,145 | 29,377 | 29,377 | ||||||||||||||||||||||||||||
Common stock repurchased | (291,100 | ) | (14,359 | ) | (14,359 | ) | |||||||||||||||||||||||||
Other | (2 | ) | (2 | ) | (2 | ) | |||||||||||||||||||||||||
Balance, December 31, 2006 | 2,851 | 4,458,151 | 61,574 | 79,024 | (7,711 | ) | (466 | ) | 135,272 | 22,286 | |||||||||||||||||||||
Cumulative adjustment for accounting changes (4) : | |||||||||||||||||||||||||||||||
Leveraged leases | (1,381 | ) | (1,381 | ) | |||||||||||||||||||||||||||
Fair value option and measurement | (208 | ) | (208 | ) | |||||||||||||||||||||||||||
Income tax uncertainties | (146 | ) | (146 | ) | |||||||||||||||||||||||||||
Net income | 14,982 | 14,982 | 14,982 | ||||||||||||||||||||||||||||
Net changes in available-for-sale debt and marketable equity securities | 9,269 | 9,269 | 9,269 | ||||||||||||||||||||||||||||
Net changes in foreign currency translation adjustments | 149 | 149 | 149 | ||||||||||||||||||||||||||||
Net changes in derivatives | (705 | ) | (705 | ) | (705 | ) | |||||||||||||||||||||||||
Employee benefit plan adjustments | 127 | 127 | 127 | ||||||||||||||||||||||||||||
Cash dividends paid: | |||||||||||||||||||||||||||||||
Common | (10,696 | ) | (10,696 | ) | |||||||||||||||||||||||||||
Preferred | (182 | ) | (182 | ) | |||||||||||||||||||||||||||
Issuance of preferred stock | 1,558 | 1,558 | |||||||||||||||||||||||||||||
Common stock issued under employee plans and related tax benefits | 53,464 | 2,544 | 10 | 2,554 | |||||||||||||||||||||||||||
Common stock repurchased | (73,730 | ) | (3,790 | ) | (3,790 | ) | |||||||||||||||||||||||||
Balance, December 31, 2007 | $ | 4,409 | 4,437,885 | $ | 60,328 | $ | 81,393 | $ | 1,129 | $ | (456 | ) | $ | 146,803 | $ | 23,822 |
(1) |
|
(2) |
|
| Includes accumulated adjustment to apply |
| Includes adjustment for the fair value of outstanding MBNA Corporation (MBNA) stock options of $435 million. |
(4) | Effective January 1, 2007, the Corporation adopted FSP 13-2, SFAS 157, SFAS 159 and FIN 48. For additional information on the adoption of these accounting pronouncements, seeNote 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements. |
See accompanying Notes to Consolidated Financial Statements.
Bank of America
| 91 |
Year Ended December 31 | ||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||
Operating activities | ||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | ||||||
Reconciliation of net income to net cash provided by (used in) operating activities: | ||||||||||||
Provision for credit losses | 5,010 | 4,014 | 2,769 | |||||||||
(Gains) losses on sales of debt securities | 443 | (1,084 | ) | (1,724 | ) | |||||||
Depreciation and premises improvements amortization | 1,114 | 959 | 972 | |||||||||
Amortization of intangibles | 1,755 | 809 | 664 | |||||||||
Deferred income tax expense (benefit) | 1,850 | 1,695 | (519 | ) | ||||||||
Net increase in trading and derivative instruments | (3,870 | ) | (18,911 | ) | (13,944 | ) | ||||||
Net increase in other assets | (17,070 | ) | (104 | ) | (11,928 | ) | ||||||
Net increase (decrease) in accrued expenses and other liabilities | 4,517 | (8,205 | ) | 4,594 | ||||||||
Other operating activities, net | (373 | ) | (7,861 | ) | 1,647 | |||||||
Net cash provided by (used in) operating activities | 14,509 | (12,223 | ) | (3,522 | ) | |||||||
Investing activities | ||||||||||||
Net increase in time deposits placed and other short-term investments | (3,053 | ) | (439 | ) | (1,147 | ) | ||||||
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell | 13,020 | (58,425 | ) | (3,880 | ) | |||||||
Proceeds from sales of available-for-sale securities | 53,446 | 134,490 | 117,672 | |||||||||
Proceeds from paydowns and maturities of available-for-sale securities | 22,417 | 39,519 | 26,973 | |||||||||
Purchases of available-for-sale securities | (40,905 | ) | (204,476 | ) | (243,573 | ) | ||||||
Proceeds from maturities of held-to-maturity securities | 7 | 283 | 153 | |||||||||
Proceeds from sales of loans and leases | 37,812 | 14,458 | 4,416 | |||||||||
Other changes in loans and leases, net | (145,779 | ) | (71,078 | ) | (32,350 | ) | ||||||
Net purchases of premises and equipment | (748 | ) | (1,228 | ) | (863 | ) | ||||||
Proceeds from sales of foreclosed properties | 93 | 132 | 198 | |||||||||
Investment in China Construction Bank | — | (3,000 | ) | — | ||||||||
(Acquisition) divestiture of business activities, net | (2,388 | ) | (49 | ) | 4,936 | |||||||
Other investing activities, net | (2,226 | ) | (632 | ) | (89 | ) | ||||||
Net cash used in investing activities | (68,304 | ) | (150,445 | ) | (127,554 | ) | ||||||
Financing activities | ||||||||||||
Net increase in deposits | 38,340 | 16,100 | 64,423 | |||||||||
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase | (22,454 | ) | 120,914 | 35,752 | ||||||||
Net increase in commercial paper and other short-term borrowings | 23,709 | 37,671 | 37,437 | |||||||||
Proceeds from issuance of long-term debt | 49,464 | 21,958 | 21,289 | |||||||||
Retirement of long-term debt | (17,768 | ) | (15,107 | ) | (16,904 | ) | ||||||
Proceeds from issuance of preferred stock | 2,850 | — | — | |||||||||
Redemption of preferred stock | (270 | ) | — | — | ||||||||
Proceeds from issuance of common stock | 3,117 | 2,846 | 3,712 | |||||||||
Common stock repurchased | (14,359 | ) | (5,765 | ) | (6,286 | ) | ||||||
Cash dividends paid | (9,661 | ) | (7,683 | ) | (6,468 | ) | ||||||
Excess tax benefits of share-based payments | 477 | — | — | |||||||||
Other financing activities, net | (312 | ) | (117 | ) | (91 | ) | ||||||
Net cash provided by financing activities | 53,133 | 170,817 | 132,864 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 92 | (86 | ) | 64 | ||||||||
Net increase (decrease) in cash and cash equivalents | (570 | ) | 8,063 | 1,852 | ||||||||
Cash and cash equivalents at January 1 | 36,999 | 28,936 | 27,084 | |||||||||
Cash and cash equivalents at December 31 | $ | 36,429 | $ | 36,999 | $ | 28,936 | ||||||
Supplemental cash flow disclosures | ||||||||||||
Cash paid for interest | $ | 42,355 | $ | 26,239 | $ | 13,765 | ||||||
Cash paid for income taxes | 7,210 | 7,049 | 6,088 |
Bank of America Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended December 31 | ||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||
Operating activities | ||||||||||||
Net income | $ | 14,982 | $ | 21,133 | $ | 16,465 | ||||||
Reconciliation of net income to net cash provided by (used in) operating activities: | ||||||||||||
Provision for credit losses | 8,385 | 5,010 | 4,014 | |||||||||
(Gains) losses on sales of debt securities | (180 | ) | 443 | (1,084 | ) | |||||||
Depreciation and premises improvements amortization | 1,168 | 1,114 | 959 | |||||||||
Amortization of intangibles | 1,676 | 1,755 | 809 | |||||||||
Deferred income tax (benefit) expense | (753 | ) | 1,850 | 1,695 | ||||||||
Net increase in trading and derivative instruments | (8,108 | ) | (3,870 | ) | (18,911 | ) | ||||||
Net increase in other assets | (15,855 | ) | (17,070 | ) | (104 | ) | ||||||
Net increase (decrease) in accrued expenses and other liabilities | 4,190 | 4,517 | (8,205 | ) | ||||||||
Other operating activities, net | 5,531 | (373 | ) | (7,861 | ) | |||||||
Net cash provided by (used in) operating activities | 11,036 | 14,509 | (12,223 | ) | ||||||||
Investing activities | ||||||||||||
Net (increase) decrease in time deposits placed and other short-term investments | 2,191 | (3,053 | ) | (439 | ) | |||||||
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell | 6,294 | 13,020 | (58,425 | ) | ||||||||
Proceeds from sales of available-for-sale debt securities | 28,107 | 53,446 | 134,490 | |||||||||
Proceeds from paydowns and maturities of available-for-sale debt securities | 19,233 | 22,417 | 39,519 | |||||||||
Purchases of available-for-sale debt securities | (28,016 | ) | (40,905 | ) | (204,476 | ) | ||||||
Proceeds from maturities of held-to-maturity debt securities | 630 | 7 | 283 | |||||||||
Purchases of held-to-maturity debt securities | (314 | ) | – | – | ||||||||
Proceeds from sales of loans and leases | 57,875 | 37,812 | 14,458 | |||||||||
Other changes in loans and leases, net | (177,665 | ) | (145,779 | ) | (71,078 | ) | ||||||
Net purchases of premises and equipment | (2,143 | ) | (748 | ) | (1,228 | ) | ||||||
Proceeds from sales of foreclosed properties | 104 | 93 | 132 | |||||||||
(Acquisition) divestiture of business activities, net | (19,816 | ) | (2,388 | ) | (49 | ) | ||||||
Other investing activities, net | 5,040 | (2,226 | ) | (3,632 | ) | |||||||
Net cash used in investing activities | (108,480 | ) | (68,304 | ) | (150,445 | ) | ||||||
Financing activities | ||||||||||||
Net increase in deposits | 45,368 | 38,340 | 16,100 | |||||||||
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase | (1,448 | ) | (22,454 | ) | 120,914 | |||||||
Net increase in commercial paper and other short-term borrowings | 32,840 | 23,709 | 37,671 | |||||||||
Proceeds from issuance of long-term debt | 67,370 | 49,464 | 21,958 | |||||||||
Retirement of long-term debt | (28,942 | ) | (17,768 | ) | (15,107 | ) | ||||||
Proceeds from issuance of preferred stock | 1,558 | 2,850 | – | |||||||||
Redemption of preferred stock | – | (270 | ) | – | ||||||||
Proceeds from issuance of common stock | 1,118 | 3,117 | 2,846 | |||||||||
Common stock repurchased | (3,790 | ) | (14,359 | ) | (5,765 | ) | ||||||
Cash dividends paid | (10,878 | ) | (9,661 | ) | (7,683 | ) | ||||||
Excess tax benefits of share-based payments | 254 | 477 | – | |||||||||
Other financing activities, net | (38 | ) | (312 | ) | (117 | ) | ||||||
Net cash provided by financing activities | 103,412 | 53,133 | 170,817 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 134 | 92 | (86 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents | 6,102 | (570 | ) | 8,063 | ||||||||
Cash and cash equivalents at January 1 | 36,429 | 36,999 | 28,936 | |||||||||
Cash and cash equivalents at December 31 | $ | 42,531 | $ | 36,429 | $ | 36,999 | ||||||
Supplemental cash flow disclosures | ||||||||||||
Cash paid for interest | $ | 51,829 | $ | 42,355 | $ | 26,239 | ||||||
Cash paid for income taxes | 9,196 | 7,210 | 7,049 |
The fair values of noncash assets acquired and liabilities assumed in the LaSalle Bank Corporation merger were $115.8 billion and $97.1 billion at October 1, 2007.
The fair values of noncash assets acquired and liabilities assumed in the U.S. Trust Corporation merger were $12.9 billion and $9.8 billion at July 1, 2007.
During 2007, the Corporation sold its operations in Chile and Uruguay for approximately $750 million in equity in Banco Itaú Holding Financeira S.A., and its assets in BankBoston Argentina for the assumption of its liabilities. The total assets and liabilities in these divestitures were $6.1 billion and $5.6 billion.
During 2007, the Corporation transferred $1.7 billion of trading account assets to AFS debt securities.
On January 1, 2007, the Corporation transferred $3.7 billion of AFS debt securities to trading account assets following the adoption of SFAS 159.
The fair values of noncash assets acquired and liabilities assumed in the MBNA merger were $83.3 billion and $50.4 billion.billion at January 1, 2006.
Approximately 631 million shares of common stock, valued at approximately $28.9 billion were issued in connection with the MBNA merger.
Net transfers of Loans and Leases to loans held-for-sale (included in Other Assets) from the loan portfolio for Asset and Liability Management purposes amounted to $73 million in 2005.
Net transfers of Loans and Leases from loans held-for-sale to the loan portfolio for Asset and Liability Management purposes amounted to $1.1 billion in 2004.
In 2004, the fair values of noncash assets acquired and liabilities assumed in the merger with FleetBoston were $224.5 billion and $182.9 billion.
In 2004, approximately 1.2 billion shares of common stock, valued at approximately $45.6 billion, were issued in connection with the merger with FleetBoston.
See accompanying Notes to Consolidated Financial Statements.
92 | Bank of America 2007 |
Bank of America Corporation and Subsidiaries |
Notes to Consolidated Financial Statements |
On JanuaryOctober 1, 2006,2007, Bank of America Corporation and its subsidiaries (the Corporation) acquired all the outstanding shares of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation (LaSalle), for $21.0 billion in cash. On July 1, 2007, the Corporation acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. On January 1, 2006, the Corporation acquired 100 percent of the outstanding stock of MBNA Corporation (MBNA). On April 1, 2004, the Corporation acquired all of the outstanding stock of FleetBoston Financial Corporation (FleetBoston). BothThese mergers were accounted for under the purchase method of accounting. Consequently, both MBNALaSalle, U.S. Trust Corporation and FleetBoston’sMBNA’s results of operations were included in the Corporation’s results from their dates of acquisition.
The Corporation, through its banking and nonbanking subsidiaries, provides a diverse range of financial services and products throughout the U.S. and in selected international markets. At December 31, 2006,2007, the Corporation operated its banking activities primarily under twothree charters: Bank of America, National Association (Bank of America, N.A.) and, FIA Card Services, N.A. and LaSalle Bank, N.A. Bank of America, N.A. was the surviving entity after the merger ofwith Fleet National Bank on June 13, 2005. Effective June 10, 2006, MBNA America Bank N.A. was renamed FIA Card Services, N.A., and on October 20, 2006, Bank of America, N.A. (USA) merged into FIA Card Services, N.A. These mergers had no impact on the Consolidated Financial Statements of the Corporation. LaSalle Bank, N.A. was acquired in connection with the LaSalle acquisition.
Principles of Consolidation and Basis of Presentation |
|
The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Results of operations of companies purchased are included from the dates of acquisition.acquisition and for VIEs, from the dates that the Corporation became the primary beneficiary. Assets held in an agency or fiduciary capacity are not included in the Consolidated Financial Statements. The Corporation accounts for investments in companies infor which it owns a voting interest of 20 percent to 50 percent and for which it has the ability to exercise significant influence over operating and financing decisions using the equity method of accounting. These investments are included in Other Assetsother assets and the Corporation’s proportionate share of income or loss is included in Equity Investment Gains.equity investment income.
The preparation of the Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates and assumptions.
In 2007, the Corporation changed its basis of presentation for its business segments. For additional information on the Corporation’s business segments seeNote 22 – Business Segment Information to the Consolidated Financial Statements. Also in 2007, the Corporation
changed the current and historical presentation of its Consolidated Statement of Income to present gains (losses) on sales of debt securities as a component of noninterest income.
Certain prior period amounts have been reclassified to conform to current period presentation.
Recently Issued Accounting Pronouncements
On February 15,December 4, 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 159, “The Fair Value Option141 (revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R modifies the accounting for Financial Assetsbusiness combinations and Financial Liabilities” (SFAS 159), which allows an entityrequires, with limited exceptions, the irrevocable optionacquirer in a business combination to electrecognize 100 percent of the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition-date fair value forvalue. In addition, SFAS 141R requires the initialexpensing of acquisition-related transaction and subsequent measurement forrestructuring costs, and certain financialcontingent assets and liabilities on a contract-by-contract basis. Subsequent changes inacquired, as well as contingent consideration, to be recognized at fair value of these financialvalue. SFAS 141R also modifies the accounting for certain acquired income tax assets and liabilities would be recognizedliabilities. SFAS 141R is effective for new acquisitions consummated on or after January 1, 2009 and early adoption is not permitted.
On December 4, 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interests in earnings when they occur.Consolidated Financial Statements” (SFAS 160). SFAS 159 further establishes certain additional160 requires all entities to report noncontrolling (i.e., minority) interests in subsidiaries as equity in the Consolidated Financial Statements and to account for transactions between an entity and noncontrolling owners as equity transactions if the parent retains its controlling financial interest in the subsidiary. SFAS 160 also requires expanded disclosure requirements.that distinguishes between the interests of the controlling owners and the interests of the noncontrolling owners of a subsidiary. SFAS 159160 is effective for the Corporation’s financial statements for the year beginning on January 1, 2008, with2009 and earlier adoption is not permitted. Management is currently evaluating the impact and timing of theThe adoption of SFAS 159160 is not expected to have a material impact on the Corporation’s financial condition and results of operations.
On September 29, 2006,November 5, 2007, the FASBSecurities and Exchange Commission (SEC) issued SFASStaff Accounting Bulletin (SAB) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158), which109, “Written Loan Commitments Recorded at Fair Value Through Earnings” (SAB 109). SAB 109 requires that the recognitionexpected net future cash flows related to servicing of a plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulated Other Comprehensive Income (OCI). SFAS 158 further requiresloan be included in the determinationmeasurement of theall written loan commitments that are accounted for at fair values of a plan’s assets at a company’s year-end and recognition of actuarial gains and losses, prior service costs or credits, and transition assets or obligations as a component of Accumulated OCI. This statement was effective as of December 31, 2006.value through earnings. The adoption of SFAS 158 reduced Accumulated OCI by approximately $1.3 billionSAB 109 is on a prospective basis and effective for the Corporation’s loan commitments measured at fair value through earnings which are issued or modified after tax in 2006.January 1, 2008. The adoption of SAB 109 will not have a material impact on the Corporation’s financial condition and results of operations.
On September 15, 2006,June 27, 2007, the FASB issuedratified the Emerging Issues Task Force (EITF) consensus on Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11). Effective January 1, 2008, EITF 06-11 requires on a prospective basis that the tax benefit related to dividend equivalents paid on restricted stock and restricted stock units which are expected to vest be recorded as an increase to additional paid-in capital. Prior to January 1, 2008, the Corpo-
Bank of America 2007 | 93 |
ration accounted for this tax benefit as a reduction to income tax expense. The adoption of EITF 06-11 will not have a material impact on the Corporation’s financial condition and results of operations.
Effective January 1, 2007, the Corporation adopted SFAS No. 157, “Fair Value Measurements” (SFAS 157) and SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 157 defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 is effective159 allows an entity the irrevocable option to elect fair value for the Corporation’sinitial and subsequent measurement for certain financial statements issued forassets and liabilities on a contract-by-contract basis. The impact of adopting both SFAS 157 and SFAS 159 reduced the year beginning onbalance of retained earnings as of January 1, 2008, with earlier adoption permitted. Management is currently evaluating the impact2007 by $208 million, net-of-tax. Subsequent changes in fair value of these financial assets and timing of the adoption of SFAS 157liabilities are recognized in earnings when they occur. For additional information on the Corporation’sfair value of certain financial conditionassets and resultsliabilities, see the Fair Value section of operations.this note and Note 19 – Fair Value Disclosures to the Consolidated Financial Statements.
On September 13, 2006,Effective January 1, 2007, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108). SAB 108 expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 states that in evaluating the materiality of financial statement misstatements, a corporation must quantify the impact of correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB 108 is effective for the year ended December 31, 2006. The application of SAB 108 did not have an impact on the Corporation’s financial condition and results of operations.
On July 13, 2006, the FASB issuedCorporation adopted FASB Staff Position (FSP) No. FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-2). The principal provision of FSP 13-2 is the requirement that a lessor recalculate the recognition of lease income when there is a change in the estimated timing of the cash flows relating to income taxes generated by such leveraged lease. The adoption of FSP 13-2 is effectivereduced the beginning balance of retained earnings as of January 1, 2007 and requires that the cumulative effect of adoption be reflected as an adjustment to the beginning balance of Retained Earningsby $1.4 billion, net-of-tax, with a corresponding offset decreasing the net investment in leveraged leases recorded as part of loans and leases. TheFollowing the adoption, of FSP 13-2 is expected to reduce Retained Earnings by approximately $1.4 billion after-tax inif during the first quarter of 2007. This estimate reflects new information that changed management’s previously disclosed assumptionremainder of the projectedlease term the timing and classification of futurethe income tax cash flows related togenerated by the leveraged leases are revised as a result of final determination by the Internal Revenue Service (IRS) on certain leveraged leases.leases or management changes its assumption about the timing of the tax cash flows, the rate of return shall be recalculated from the inception of the lease using the revised assumption and the change in the net investment shall be recognized as a gain or loss in the year in which the assumption is changed.
On July 13, 2006,Effective January 1, 2007, the FASB releasedCorporation adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the tax law may be uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. The Corporation will adopt FIN 48 in the first quarter of 2007. The adoption of FIN 48 is not expected to have a material impact onreduced the Corporation’s financial condition and resultsbeginning balance of operations.
On March 17, 2006, the FASB issued SFAS No. 156, “Accounting for Servicingretained earnings as of Financial Assets, an amendment of FASB Statement No. 140” (SFAS 156), which permits, but does not require, an entity to account for one or more classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at fair value, with the changes in fair value recorded in the Consolidated Statement of Income. The Corporation elected to early adopt the standard and to account for consumer-related MSRs using the fair value measurement method on January 1, 2006. Commercial-related MSRs continue to be accounted for using the amortization method (i.e., lower of cost or market). The adoption of this standard did not have a material impact on the Corporation’s financial condition2007 by $146 million and results of operations.increased goodwill by $52 million. For additional information on MSRs,income taxes, seeNote 8 of18 – Income Taxes to the Consolidated Financial Statements.
On February 16, 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments, an amendment of FASB Statements No. 133Cash and 140” (SFAS 155), which permits, but does not require, fair value accounting for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities, as amended” (SFAS 133). The statement also subjects beneficial interests issued by securitization vehicles to the requirements of SFAS 133. The Corporation will adopt SFAS 155 in the first quarter of 2007. The adoption of SFAS 155 is not expected to have a material impact on the Corporation’s financial condition and results of operations.
On January 1, 2006, the Corporation adopted SFAS No. 123 (revised 2004), “Share-based Payment” (SFAS 123R). Prior to January 1, 2006, the Corporation accounted for its stock-based compensation plans under a fair value-based method of accounting. The adoption of SFAS 123R impacted the recognition of stock compensation for any awards granted to retirement-eligible employees and the presentation of cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) in the Consolidated Statement of Cash Flows. For additional information, see Note 17 of the Consolidated Financial Statements.Equivalents
Cash on hand, cash items in the process of collection, and amounts due from correspondent banks and the Federal Reserve Bank are included in Cashcash and Cash Equivalents.cash equivalents.
Securities Purchased Under |
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 andtransactions. These agreements are recorded at the amounts at which the securities were acquired or sold plus accrued interest.interest, except for certain structured reverse repurchase agreements for which the Corporation has elected the fair value option. For more information on structured reverse repurchase agreements for which the Corporation has elected the fair value option, seeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements. The Corporation’s policy is to obtain the use of Securities Purchasedsecurities purchased under Agreementsagreements to Resell.resell. The market value of the underlying securities, including accrued interest, which collateralize the related receivable on agreements to resell, is monitored, including accrued interest.monitored. The Corporation may require counterparties to deposit additional collateral or return collateral pledged, when appropriate.
Collateral
The Corporation has acceptedaccepts collateral that it is permitted by contract or custom to sell or repledge. At December 31, 2007, the fair value of this collateral was approximately $210.7 billion of which $156.3 billion was sold or repledged. At December 31, 2006, the fair value of this collateral was approximately $186.6 billion of which $113.0 billion was sold or repledged. At December 31, 2005, the fair value of this collateral was approximately $179.1 billion of which $112.5 billion was sold or repledged. The primary source of this collateral is reverse repurchase agreements. The Corporation also pledges securities and loans as collateral in transactions that consist ofinclude repurchase agreements, public and trust deposits, Treasury tax and loan notes, and other short-term borrowings. This collateral can be sold or repledged by the counterparties to the transactions.
In addition, the Corporation obtains collateral in connection with its derivative activities. Required collateral levels vary depending on the credit risk rating and the type of counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. Based on provisions contained in legal netting agreements, the Corporation has netted cash collateral against the applicable derivative mark-to-market exposures. Accordingly, the Corporation offsets its obligation to return or its right to reclaim cash collateral against the fair value of the derivatives being collateralized. The Corporation also pledges collateral on its own derivative positions which can be applied against Derivative Liabilities.derivative liabilities.
Trading Instruments
Financial instruments utilized in trading activities are stated at fair value. Fair value is generally based on quoted market prices.prices or quoted market prices for similar assets and liabilities. If quotedthese market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or quoted pricessimilar techniques for instruments with similar characteristics.which the determination of fair value may require significant management judgment or estimation. Realized and unrealized gains and losses are recognized in Trading Account Profits.trading account profits (losses).
Derivatives and Hedging Activities |
The Corporation designates a derivative as held for trading, an economic hedge not designated as a SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities, as amended” (SFAS 133) hedge, or a qualifying SFAS 133 hedge when it enters into the derivative contract. The designation may change based upon management’s reassessment or changing circumstances. Derivatives utilized by the Corporation include swaps, financial futures and forward settlement contracts, and option contracts. A swap agreement is a contract between two parties to
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exchange cash flows based on specified underlying notional amounts, assets and/or indices. Financial futures and forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, 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 (including another derivative financial instrument), index, currency or commodity at a predetermined rate or price during a period or at a time in the future. Option agreements can be transacted on organized exchanges or directly between parties. The Corporation also provides credit derivatives to customers who wish to increase or decrease credit exposures. In addition, the Corporation utilizes credit derivatives to manage the credit risk associated with the loan portfolio.
All derivatives are recognized on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or quoted pricessimilar techniques for instrumentswhich the determination of fair value may require significant management judgment or estimation.
Valuations of derivative assets and liabilities reflect the value of the instrument including the values associated with similar characteristics.counterparty risk. With the issuance of SFAS 157, these values must also take into account the Corporation’s own credit standing, thus including in the valuation of the derivative instrument the value of the net credit differential between the counterparties to the derivative contract. Effective January 1, 2007, the Corporation updated its methodology to include the impact of both the counterparty and its own credit standing.
ThePrior to January 1, 2007, the Corporation recognizesrecognized gains and losses at inception of a derivative contract only if the fair value of the contract iswas evidenced by a quoted market price in an active market, an observable price or other market transaction, or other observable data supporting a valuation model in accordance with Emerging Issues Task Force (EITF)EITF Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities” (EITF 02-3). For those gains and losses not evidenced by the above mentioned market data, the transaction price iswas used as the fair value of the derivative contract. Any difference between the transaction price and the model fair value iswas considered an unrecognized gain or loss at inception of the contract. These unrecognized gains and losses arewere recorded in income using the straight line method of amortization over the contractual life of the derivative contract. Earlier recognitionThe adoption of SFAS 157 on January 1, 2007, eliminated the full unrecognized gain or loss is permitted if the trade is terminated early, subsequent market activity is observed which supports the model fair valuedeferral of the contract, or significant inputs used in the valuation model become observable in the market. As of December 31, 2006, the balance of the above unrecognizedthese gains and losses was not material. SFAS 157, when adopted, will nullify certain guidanceresulting in EITF 02-3 and, as a result, a portionthe recognition of the above unrecognizedpreviously deferred gains and losses will be accounted for as a cumulative-effect adjustmentan increase to the openingbeginning balance of Retained Earnings.retained earnings by a pre-tax amount of $22 million.
Trading Derivatives and Economic Hedges
The Corporation designates at inception whether the derivative contract is considered hedging or non-hedging for SFAS 133 accounting purposes. Derivatives held for trading purposes are included in Derivative Assetsderivative assets or Derivative Liabilitiesderivative liabilities with changes in fair value reflected in Trading Account Profits.trading account profits (losses).
Derivatives used as economic hedges but not designated in a hedging relationship for accounting purposes are also included in Derivative Assetsderivative assets or Derivative Liabilities.derivative liabilities. Changes in the fair value of derivatives that serve as economic hedges of MSRsmortgage servicing rights (MSRs), interest
rate lock commitments (IRLCs) and first mortgage loans held-for-sale that are originated by the Corporation are recorded in Mortgage Banking Income.mortgage banking income. Changes in the fair value of derivatives that serve as asset and liability management (ALM) economic hedges, which do not qualify or were not designated as accounting hedges, are recorded in Other Income.other income. Credit derivatives used by the Corporation do not qualify for hedge accounting under SFAS 133 despite being effective economic hedges with changes in the fair value of these derivatives included in Other Income.other income.
Derivatives Used For SFAS 133 Hedge Accounting Purposes
For SFAS 133 hedges, the Corporation formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various accounting hedges. Additionally, the Corporation uses dollar offset or regression analysis at the hedge’s inception and for each reporting period thereafter to assess whether the derivative used in its hedging transaction is expected to be and has been highly effective in offsetting changes in the fair value or cash flows of the hedged items.item. The Corporation discontinues hedge accounting when it is determined that a derivative is not expected to be or has ceased to be highly effective as a hedge, and then reflects changes in fair value of the derivative in earnings after termination of the hedge relationship.
The Corporation uses its derivatives designated as hedging for accounting purposes as either fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The Corporation manages interest rate and foreign currency exchange rate sensitivity predominantly through the use of derivatives. Fair value hedges are used to protect against changes in the fair value of the Corporation’s assets and liabilities that are due to interest rate or foreign exchange volatility. Cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate or foreign exchange fluctuation. For terminated cash flow hedges, the maximum length of time over which forecasted transactions are hedged is 2928 years, with a substantial portion of the hedged transactions being less than 10 years. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is less than seven years. Changes in the fair value of derivatives designated as fair value hedges are recorded in earnings, together and in the same income statement line item with changes in the fair value of the related hedged item. Changes in the fair value of derivatives designated as cash flow hedges are recorded in Accumulated OCIaccumulated other comprehensive income (OCI) and are reclassified into the line item in the Consolidated Statement of Income in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and losses on the excluded component of a derivative in assessing hedge effectiveness are recorded in earnings in the same income statement caption
line item that is used to record hedge effectiveness. SFAS 133 retains certain concepts underof SFAS No. 52, “Foreign Currency Translation,” (SFAS 52) for foreign currency exchange hedging. Consistent with SFAS 52, the Corporation records changes in the fair value of derivatives used as hedges of the net investment in foreign operations, to the extent effective, as a component of Accumulatedaccumulated OCI.
If a derivative instrument in a fair value hedge is terminated or the hedge designation removed, the previous adjustments to the carrying amount of the hedged asset or liability are subsequently accounted for in the same manner as other components of the carrying amount of that asset or liability. For interest-earning assets and interest-bearing liabilities, such adjustments are amortized to earnings over the remaining life of the respective asset or liability. If a derivative instrument in a cash flow hedge is terminated or the hedge designation is removed, related amounts in Accumulated
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accumulated OCI are reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings. If it is probable that a forecasted transaction will not occur, any related amounts in Accumulatedaccumulated OCI are reclassified into earnings in that period.
Interest Rate Lock Commitments |
The Corporation enters into interest rate lock commitments (IRLCs)IRLCs in connection with its mortgage banking activities to fund residential mortgage loans at specified times in the future. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” As such, these IRLCs are recorded at fair value with changes in fair value recorded in Mortgage Banking Income.mortgage banking income.
Consistent with SEC SAB No. 105, “Application of Accounting Principles to Loan Commitments,” (SAB 105) the Corporation doesdid not record any unrealized gain or loss at the inception of the loan commitment, which is the time the commitment is issued to the borrower. The Corporation recordsrecorded unrealized gains or losses based upon subsequent changes in the value from the inception of the loan commitment. In estimating the fair value of an IRLC, the Corporation assigns a probability to the loan commitment based on an expectation that it will be exercised and the loan will be funded. The fair value of the commitments is derived from the fair value of related mortgage loans which is based on observable market data. Changes to the fair value of IRLCs are recognized based on interest rate changes, changes in the probability that the commitment will be exercised and the passage of time. Changes from the expected future cash flows related to the customer relationship or loan servicing are excluded from the valuation of the IRLCs. Effective January 1, 2008, the Corporation will adopt SAB 109 for its derivative loan commitments issued or modified after the adoption date which will supersede SAB 105. For additional information on the adoption of SAB 109, see the Recently Issued Accounting Pronouncements section of this note.
Outstanding IRLCs expose the Corporation to the risk that the price of the loans underlying the commitments might decline from inception of the rate lock to funding of the loan. To protect against this risk, the Corporation utilizes forward loan sales commitments and other derivative instruments, including interest rate swaps and options, to economically hedge the risk of potential changes in the value of the loans that would result from the commitments. The changes in the fair value of these derivatives are recorded in Mortgage Banking Income.mortgage banking income.
Securities |
Debt Securitiessecurities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as Debt Securitiesdebt securities as of the trade date. Debt Securitiessecurities which management has the intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. Debt Securitiessecurities that are bought and held principally for the purpose of resale in the near term are classified as Trading Account Assetstrading account assets and are stated at fair value with unrealized gains and losses included in Trading Account Profits.trading account profits (losses). All other Debt Securitiesdebt securities that management has the intent and ability to hold to recovery unless there is a significant deterioration in credit quality in any individual securityfor the foreseeable future are classified as available-for-sale (AFS) and carried at fair value with net unrealized gains and losses included in Accumulatedaccumulated OCI on an after-tax basis. If there is an other-than-temporary deterioration in the fair value of any individual security classified as AFS, the Corporation will reclassify the associated net unrealized loss out of accumulated OCI with a corresponding adjustment to other income. If there is an other-than-temporary deterioration in the fair value of any individual security classified as held-to-maturity, the Corporation will write down the security to fair
value with a corresponding adjustment to other income. Interest on Debt Securities,debt securities, including amortization of premiums and accretion of discounts, is included in Interest Income.interest income. Realized gains and losses from the sales of Debt Securities,debt securities, which are included in Gains (Losses)gains (losses) on Salessales of Debt Securities,debt securities, are determined using the specific identification method.
Marketable equity securities are classified based on management’s intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as Trading Account Assetstrading account assets and are stated at fair value with unrealized gains and losses included in Trading Account Profits.trading account profits (losses). Other marketable equity securities that management has the intent and ability to hold for the foreseeable future are accounted for as AFS and classified in Other Assets.other assets. All AFS marketable equity securities in which management has the intent and ability to hold to recovery are carried at fair value with net unrealized gains and losses included in Accumulatedaccumulated OCI on a net-of-tax basis. If there is an after-tax basis.other-than-temporary deterioration in the fair value of any individual AFS marketable equity security, the Corporation will reclassify the associated net unrealized loss out of accumulated OCI with a corresponding adjustment to equity investment income. Dividend income on all AFS marketable equity securities is included in Equity Investment Gains.equity investment income. Realized gains and losses on the sale of all AFS marketable equity securities, which are recorded in Equity Investment Gains,equity investment income, are determined using the specific identification method.
Investments in equity securitiesEquity investments without readily determinable market values are recorded in Other Assets,other assets, are accounted for using the cost method and are subject to impairment testing asif applicable.
Equity investments held by Principal Investing, a diversified equity investor in companies at all stages of their life cycle from startup to buyout, are reported at fair value pursuant to the American Institute of Certified Public Accountants (AICPA) Investment Company Audit Guide and recorded in Other Assets.other assets. These investments are made either directly in a company or held through a fund. Equity investments for which there are active market quotes are carried at estimated fair value based on market prices. Nonpublic and other equity investments for which representative market quotes are not readily available are initially valued at cost.the transaction price. Subsequently, these investments are reviewed semi-annually or on a quarterly basis, where appropriate, and adjustedthe Corporation adjusts valuations when evidence is available to reflectsupport such adjustments. Such evidence includes changes in value as a result of initial public offerings (IPO), market comparables, market liquidity, the investees’ financial results, sales restrictions, or other than temporaryother-than-temporary declines in value. Gains and losses on these equity investments, both unrealized and realized, are recorded in Equity Investment Gains.equity investment income.
Loans and Leases |
Loans measured at historical cost are reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated 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 interest income using methods that approximate the interest method. Subsequent to the adoption of SFAS 159, on January 1, 2007 the Corporation elected the fair value option for certain loans. Fair values for these loans are based on market prices, where available, or discounted cash flows using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow calculations may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
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The Corporation purchases loans with and without evidence of credit quality deterioration since origination. Those loans with evidence of credit quality deterioration for which it is probable at purchase that wethe Corporation will be unable to collect all contractually required payments are accounted for under AICPA Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (SOP 03-3). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 requires impaired loans be recorded at fair value and prohibits “carrying over” or the creation of valuation allowances in the initial accounting of loans acquired in a transfer that are within the scope of this SOP (categories of loans for which it is probable, at the time of acquisition, that all amounts due according to the contractual terms of the loan agreement will not be collected).SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. Under SOP 03-3, the excess of cash flows expected at purchase over the purchase price is recorded as interest income over the life of the loan. For those loans not within the scope of SOP 03-3, any difference between the purchase price and the par value of the loan is reflected in interest income over the life of the loan.
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 leases, are carried net of nonrecourse debt. Unearned income on leveraged and direct financing leases is accreted to earningsinterest income over the lease terms by methods that approximate the interest method.
Allowance for Credit Losses |
The allowance for credit losses, which includes the Allowanceallowance for Loanloan and Lease Losseslease losses and the reserve for unfunded lending commitments, represents management’s estimate of probable losses inherent in the Corporation’s lending activities.activities that are carried at historical cost. The Allowanceallowance for Loanloan and Lease Losseslease losses represents the estimated probable credit losses in funded consumer and commercial loans and leases measured at historical cost while the reserve for unfunded lending commitments, including standby letters of credit (SBLCs) and binding unfunded loan commitments, represents estimated probable credit losses on these unfunded credit instruments based on utilization assumptions. The allowance for loan and lease losses and the reserve for unfunded lending commitments excludes loans and unfunded lending commitments measured at fair value in accordance with SFAS 159 as mark-to-market adjustments related to these instruments already reflect a credit component. Credit exposures, excluding Derivative Assetsderivative assets, trading account assets and Trading Account Assets,loans measured at fair value, deemed to be uncollectible are charged against these accounts. Cash recovered on previously charged off amounts are recorded as recoveries to these accounts.
The Corporation performs periodic and systematic detailed reviews of its lending portfolios to identify credit risks and to assess the overall collectibility of those portfolios. The allowance on certain homogeneous loan portfolios measured at historical cost, which generally consist of consumer loans (e.g., consumer real estate loans, credit card) and certain commercial loans such as the(e.g., business card and small business portfolio,portfolio) is based on aggregated portfolio segment evaluations generally by product type. Loss forecast models are utilized for these segments which consider a variety of factors including, but not limited to, historical loss experience, estimated defaults or foreclosures based on portfolio trends, delinquencies, economic conditions and credit scores. These models are
updated on a quarterly basis in order to incorporate information reflective of the current economic environment. The remaining commercial portfolios measured at historical cost 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 risk classifications, in conjunction with an analysis of historical loss experience, current economic conditions, industry performance trends, geographic or obligor concentrations within each portfolio segment, and any other pertinent information (including individual valuations on nonperforming loans in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114)) result in the estimation of the allowance for credit losses. The historical loss experience is updated quarterly to incorporate the most recent data reflective of the current economic environment.
If necessary, a specific Allowanceallowance for Loanloan and Lease Losseslease losses is established for individual impaired commercial loans.loans measured at historical cost. A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Once a loan has been identified as individually impaired, management measures impairment in accordance with SFAS 114. Individually 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 collateral for repayment, the estimated fair value of the collateral. If the recorded investment in impaired loans exceeds the present value of payments expected to be received, a specific allowance is established as a component of the Allowanceallowance for Loanloan and Lease Losses.lease losses.
The Allowanceallowance for Loanloan and Lease Losseslease losses includes two components which are allocated to cover the estimated probable losses in each loan and lease category based on the results of the Corporation’s detailed review process described above. The first component covers those commercial loans measured at historical cost that are either nonperforming or impaired. The second component covers consumer loans and leases, and performing commercial loans and leases.leases measured at historical cost. Included within this second component of the Allowanceallowance for Loanloan and Lease Losseslease losses and determined separately from the procedures outlined above are reserves which are maintained to cover uncertainties that affect the Corporation’s estimate of probable losses including the imprecision inherent in the forecasting methodologies, as well as domestic and global economic uncertainty and large single name defaults or event risk.defaults. Management evaluates the adequacy of the Allowanceallowance for Loanloan and Lease Losseslease losses based on the combined total of these two components.
In addition to the Allowanceallowance for Loanloan and Lease Losses,lease losses, the Corporation also estimates probable losses related to unfunded lending commitments, such as letters of credit and financial guarantees, and binding unfunded loan commitments. The reserve for unfunded lending commitments excludes commitments measured at fair value in accordance with SFAS 159. Unfunded lending commitments are subject to individual reviews and are analyzed and segregated by risk according to the Corporation’s internal risk rating scale. These risk classifications, in conjunction with an analysis of historical loss experience, utilization assumptions, current economic conditions, performance trends within specific portfolio segments and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments.
The allowance for credit losses related to the loan and lease portfolio is reported separately on the Consolidated Balance Sheet inwhereas the Allowance for Loan and Lease Losses. The allowance for credit losses related to the reserve for unfunded lending commitments is reported on the Consolidated Balance Sheet in Accrued Expensesaccrued expenses and Other Liabilities.other liabilities. Provision for Credit
Lossescredit losses related to the loan and lease portfolio and unfunded lending commitments is reported in the Consolidated Statement of Income in the Provisionprovision for Credit Losses.credit losses.
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Nonperforming Loans and Leases, Charge-offs, and Delinquencies
In accordance with the Corporation’s policies, non-bankrupt credit card loans, and open-end unsecured consumer loans andare charged off no later than the end of the month in which the account becomes 180 days past due. The outstanding balance of real estate secured loans that is in excess of the property value, less cost to sell, are charged off no later than the end of the month in which the account becomes 180 days past due. Personal property secured loans are charged off no later than the end of the month in which the account becomes 120 days past due. Accounts in bankruptcy are written down to collateral value either 60 days after bankruptcy notification (credit card and certain open-end unsecured accounts) or no later than the end of the month in which the account becomes 60 days past due. Only real estate secured accounts are generally placed into non accrualnonaccrual status and classified as nonperforming at 90 days past due. These loans canmay be returnedrestored to performing status when all principal orand interest is less than 90 days past due.current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection.
Commercial loans and leases, excluding business card loans, that are past due 90 days or more as to principal or interest, or where reasonable doubt exists as to timely collection, including loans that are individually identified as being impaired, are generally classified as nonperforming unless well-secured and in the process of collection. Loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties, without compensation on restructured loans, are classified as nonperforming until the loan is performing for an adequate period of time under the restructured agreement. In situations where the Corporation does not receive adequate compensation, the restructuring is considered a troubled debt restructuring. 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. Commercial loans and leases may be restored to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan otherwise becomes well-secured and is in the process of collection. Business card loans are charged off no later than the end of the month in which the account becomes 180 days past due or in which 60 days has elapsed since receipt of notification of bankruptcy filing, whichever comes first, and are not classified as nonperforming.
The entire balance of ana consumer and commercial loan account is contractually delinquent if the minimum payment is not received by the specified due date on the customer’s billing statement. Interest and fees continue to accrue on past due loans until the date the loan goes into nonaccrual status, if applicable. Delinquency is reported on accruing loans that are 30 days or more past due.
Loans Held-for-Sale |
Loans held-for-sale include residential mortgage,mortgages, loan syndications, and to a lesser degree, commercial real estate, consumer finance and other loans, and are carried at the lower of aggregate cost or market or fair value. The Corporation elected on January 1, 2007 to account for certain loans held-for-sale, including first mortgage loans held-for-sale, at fair value in accordance with SFAS 159. Fair values for loans held-for-sale are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the
Corporation’s current origination rates for similar loans and adjusted to reflect the inherent credit risk. Mortgage loan origination costs related to loans held-for-sale for which the Corporation elected the fair value option are recognized in noninterest expense when incurred. Mortgage loan origination costs for loans held-for-sale carried at the lower of cost or market are capitalized as part of the carrying amount of the loans and recognized as a reduction of mortgage banking income upon the sale of such loans. Loans held-for-sale are included in Other Assets.other assets.
Premises and Equipment |
Premises and Equipmentequipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method over the estimated useful lives of the assets. Estimated lives range up to 40 years for buildings, up to 12 years for furniture and equipment, and the shorter of lease term or estimated useful life for leasehold improvements.
Mortgage Servicing Rights |
Effective January 1, 2006, the Corporation early adopted SFAS No. 156 “Accounting for Servicing of Financial Assets” (SFAS 156) and began accounting for consumer-related MSRs at fair value with changes in fair value recorded in Mortgage Banking Income,mortgage banking income, while commercial-related and residential reverse mortgage MSRs continue to be accounted for using the amortization method (i.e., lower of cost or market) with impairment recognized as a reduction to Mortgage Banking Income.mortgage banking income. Certain derivatives are used as economic hedges of the MSRs, but are not designated as hedges under SFAS 133. These derivatives are marked to market and recognized through Mortgage Banking Income.
Prior to January 1, 2006, the Corporation applied SFAS 133 hedge accounting for derivative financial instruments that had been designated to hedge MSRs. The loans underlying the MSRs being hedged were stratified into pools that possessed similar interest rate and prepayment risk exposures. The Corporation had designated the hedged risk as the change in the overall fair value of these stratified pools within a daily hedge period. The Corporation performed both prospective and retrospective hedge effectiveness evaluations, using regression analyses. A prospective test was performed to determine whether the hedge was expected to be highly effective at the inception of the hedge. A retrospective test was performed at the end of the daily hedge period to determine whether the hedge was actually effective. Debt Securitiessecurities were also used as economic hedges of MSRs and were accounted for as AFS Securitiessecurities with realized gains or losses recorded in Gains (Losses)gains (losses) on Salessales of Debt Securitiesdebt securities and unrealized gains or losses recorded in Accumulatedaccumulated OCI in Shareholders’ Equity.shareholders’ equity. For additional information on MSRs, seeNote 8 of21 – Mortgage Servicing Rights to the Consolidated Financial Statements.
Goodwill and Intangible Assets
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Net assetsAssets and liabilities of companies acquired in purchase transactions are recorded at fair value at the datedates of acquisition. Identified intangibles are amortized on an accelerated or straight-line basis over the estimated period of benefit. Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or when events or circumstances indicate a potential impairment, at the reporting unit level. The impairment test is performed in two phases. The first step of the Goodwillgoodwill impairment test compares the fair value of the reporting unit with its carrying amount, including Goodwill.goodwill. If the fair value of the reporting unit exceeds its carrying amount, Goodwillgoodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional step has to be performed. This additional step compares the implied fair value of the reporting unit’s Goodwillgoodwill (as defined in SFAS No. 142, “Goodwill and Other Intangible
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Assets”) with the carrying amount of that Goodwill.goodwill. An impairment loss is recorded to the extent that the carrying amount of Goodwillgoodwill exceeds its implied fair value. In 2007, 2006 and 2005, and 2004, Goodwillgoodwill was tested for impairment and it was determined that Goodwillgoodwill was not impaired at any of these dates.
Intangible Assetsassets subject to amortization are evaluated for impairment in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” An impairment loss will be recognized if the carrying amount of the Intangible Assetintangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible is considered not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. At December 31, 2006, Intangible Assets2007, intangible assets included on the Consolidated Balance Sheet consist of purchased credit card relationship intangibles, core deposit intangibles, affinity relationships, and other intangibles that are amortized on an accelerated or straight-line basis over anticipated periods of benefit of up to 15 years. There were no events or changes in circumstances in 2007, 2006, 2005, and 20042005 that indicated the carrying amounts of ourthe Corporation’s intangibles may not be recoverable.
Special Purpose Financing Entities |
In the ordinary course of business, the Corporation supports its customers’ financing needs by facilitating the customers’ access to different funding sources, assets and risks. In addition, the Corporation utilizes certain financing arrangements to meet its balance sheet management, funding, liquidity, and market or credit risk management needs. These financing entities may be in the form of corporations, partnerships, limited liability companies or trusts, and are generally not consolidated on the Corporation’s Consolidated Balance Sheet. The majority of these activities are basic term or revolving securitization vehicles for mortgages, credit cards or other types of loans which are generally funded through term-amortizing debt structures. Other special purpose entities finance their activities by issuing short-term commercial paper. The securities issued from both types of vehicles are designed to be paid off from the underlying cash flows of the vehicles’ assets or the reissuance of commercial paper.
Securitizations
The Corporation securitizes, sells and services interests in residential mortgage loans and credit card loans, and from time to time, automobile, other consumer finance and commercial loans. The accounting for these activities is governed by SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—Liabilities – a replacement of FASB Statement No. 125” (SFAS 140). The securitization vehicles are Qualified Special Purpose Entitiesqualified special purpose entities (QSPEs) which, in accordance with SFAS 140, are legally isolated, bankruptcy remote and beyond the control of the seller. QSPEs are not
included in the consolidated financial statements of the seller.Corporation’s Consolidated Financial Statements. When the Corporation securitizes assets, it may retain interest- onlyinterest-only strips, one or more subordinated tranches, subordinated interests in accrued interest and fees on the securitized receivables and, in some cases, cash reserve accounts which are generally considered residual interests in the securitized assets. The Corporation may also retain senior tranches in these securitizations. Gains and losses upon sale of the assets are based on an allocation of the previous carrying amount of the assets to the retained interests. Carrying amounts of assets transferred are allocated in proportion to the relative fair values of the assets sold and interests retained.
Quoted market prices are used to obtain fair values of senior retained interests. Generally, quoted market prices for retained residual interests are not 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 interest yield curves, discount rates and other factors that impact the value of retained interests. SeeNote 9 of8 – Securitizations to the Consolidated Financial Statements for further discussion.
Interest-only strips retained in connection with credit card securitizations are classified in Other Assetsother assets and carried at fair value, with changes in fair value recorded in Card Income.card income. Other retained interests are primarily classifiedrecorded in Other Assets other assets and/or AFS Securitiesdebt securities and are carried at fair value or amounts that approximate fair value with changes in fair value recorded in Accumulatedincome or accumulated OCI. The excess cash flows expected to be received over the amortized cost of these retained interests is recognized as Interest Income using the effective yield method. If the fair value of such retained interests has declined below its carrying amount and there has been an adverse change in estimated contractual cash flows of the underlying assets, then such decline is determined to be other-than-temporary and the retained interest is written down to fair value with a corresponding adjustment to earnings.other income.
Other Special Purpose Financing Entities
Other special purpose financing entities (SPEs) (e.g., Corporation-sponsored multi-seller conduits, collateralized debt obligations, asset acquisition conduits) are generally funded with short-term commercial paper. These financing entities are usually contractually limited to a narrow range of activities that facilitate the transfer of or access to various types of assets or financial instruments and provide the investors in the transaction protection from creditors of the Corporation in the event of bankruptcy or receivership of the Corporation. In certain situations, the Corporation provides liquidity commitments and/or loss protection agreements.
The Corporation determines whether these entities should be consolidated by evaluating the degree to which it maintains control over the financing entity and will receive the risks and rewards of the assets in the financing entity. In making this determination, the Corporation considers whether the entity is a QSPE, which is generally not required to be consolidated by the seller or investors in the entity. For non-QSPE structures or VIEs, the Corporation assesses whether it is the primary beneficiary of the entity. In accordance with FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (FIN 46R), the primary beneficiary is the partyentity that consolidates a VIE based on its assessment that it will absorb a majority of expected variability (the sum of the absolute values of the expected losses orand expected residual returns ofreturns) consolidates the entity, or both.VIE and is referred to as the primary beneficiary. For additional information on other special purpose financing entities,SPEs, seeNote 9 of– Variable Interest Entities to the Consolidated Financial Statements.
Fair Value
Effective January 1, 2007, the Corporation determines the fair market values of its financial instruments based on the fair value hierarchy established in SFAS 157 which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value which are provided on the following page. The Corporation carries certain corporate loans and loan commitments, loans held-for-sale, structured reverse repurchase agreements, and long-term deposits at fair value in accordance with SFAS 159. The Corporation also carries trading account assets and liabilities, derivative assets and liabilities, AFS debt and marketable equity securities, MSRs, and certain other assets at fair value.
| 99 |
Level 1 | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts, residential mortgage and loans held-for-sale. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential MSRs, asset-backed securities (ABS), highly structured or long-term derivative contracts and certain collateralized debt obligations (CDO) where independent pricing information was not able to be obtained for a significant portion of the underlying assets. |
For more information on the fair value of the Corporation’s financial instruments seeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements.
Income Taxes
The Corporation accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (SFAS 109), as interpreted by FIN 48, resulting in two components of Income Tax Expense:income tax expense: current and deferred. Current income tax expense approximates taxes to be paid or refunded for the current period. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. These gross deferred tax assets and liabilities represent decreases or increases in taxes expected to be paid in the future because of future reversals of temporary differences in the bases of assets and liabilities as measured by tax laws and their bases as reported in the financial statements. Deferred tax assets haveare also been recognized for tax attributes such as net operating loss carryforwards and tax credit carryforwards. Valuation allowances are then recorded to reduce deferred tax assets to the amounts management concludes are more likely than notmore-likely-than-not to be realized.
Under FIN 48, income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more-likely-than-not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is measured as the largest dollar amount of
that position that is more-likely-than-not to be sustained upon settlement. The difference between the benefit recognized for a position in accordance with this FIN 48 model and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit (UTB). The Corporation accrues income-tax-related interest and penalties (if applicable) within income tax expense.
For additional information on income taxes, seeNote 18 of– Income Taxes to the Consolidated Financial Statements.
Retirement Benefits |
The Corporation has established qualified retirement plans covering substantially all full-time 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 regarding future experience under the plans.
In addition, the Corporation has established unfunded supplemental benefit plans and supplemental executive retirement plans for selected officers of the Corporation and its subsidiaries (SERPS) that provide benefits that cannot be paid from a qualified retirement plan due to Internal Revenue Code restrictions. The SERPS arewere frozen and the executive officesofficers do not accrue any additional benefits. These plans are nonqualified under the Internal Revenue Code and assets used to fund benefit payments are not segregated from other assets of the Corporation; therefore, in general, a participant’s or beneficiary’s claim to benefits under these plans is as a general creditor. In addition, the Corporation has established several postretirement healthcare and life insurance benefit plans.
The Corporation accounts for its retirement benefit plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” (SFAS 87), SFAS No. 88, “Employers’ Accounting for Settlements and Curtailment of Defined Benefit Pension Plans and for Termination Benefits,” and SFAS No. 106, “Employers“Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as applicable.
On December 31, 2006, the Corporation adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158) which requires the recognition of a plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulatedaccumulated OCI. SFAS 158 requires the determination of the fair values of a plan’s assets at a company’s year-endyear end and recognition of actuarial gains and losses, prior service costs or credits, and transition assets or obligations as a component of Accumulatedaccumulated OCI. These amounts were previously netted against the plans’ funded status in the Corporation’s Consolidated Balance Sheet. These amounts will be subsequently recognized as components of net periodic benefit costs. Further, actuarial gains and losses that arise in subsequent periods that are not initially recognized as a component of net periodic benefit cost will be recognized as a component of Accumulatedaccumulated OCI. Those amounts will subsequently be recorded as a component of net periodic benefit cost as they are amortized during future periods.
Accumulated Other Comprehensive Income |
The Corporation records gains and losses on cash flow hedges, unrealized gains and losses on AFS Securities,debt and marketable equity securities, unrecognized actuarial gains and losses, transition obligation and prior service costs on Pensionpension and Postretirementpostretirement plans, foreign currency translation adjustments, and related hedges of net investments in foreign operations in Accumulatedaccumulated OCI, net of tax.net-of-tax. Accumulated OCI also includes fair value adjustments on certain retained interests in the Corporation’s securitization transactions. Gains or losses on derivatives accounted for as cash
100 | Bank of America 2007 |
flow hedges are reclassified to Net Incomeincome when the hedged transaction affects earnings. Gains and losses on AFS Securitiesdebt and marketable equity securities are reclassified to Net Incomeincome as the gains or losses are realized upon sale of the securities. Other-than-temporary impairment charges are reclassified to Net Incomeincome at the time of the charge. Translation gains or losses on foreign currency translation adjustments are reclassified to Net Incomeincome upon the substantial sale or liquidation of investments in foreign operations.
Earnings Per Common Share |
Earnings per Common Sharecommon share is computed by dividing Net Income Availablenet income available to Common Shareholderscommon shareholders by the weighted average common shares issued and outstanding. For Diluted Earningsdiluted earnings per Common Share, Net Income Availablecommon share, net income available to Common Shareholders can be affected by the conversion of the registrant’s convertible preferred stock. Where the effect of this conversion would have been dilutive, Net Income Available to Common Shareholders is adjusted by the associated preferred dividends. This adjusted Net Incomecommon shareholders 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, restricted stock and restricted stock units, and the dilution resulting from the conversion of the registrant’s convertible preferred stock, if applicable. The effects of convertible preferred stock, restricted stock, restricted stock units and stock options are excluded from the computation of diluted earnings per common share in periods in which the effect would be antidilutive. Dilutive potential 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 certain of the foreign operations, the functional currency is the local currency, in which case the assets, liabilities and operations are translated, for consolidation purposes, at period-end rates from the local currency to the reporting currency, the U.S. dollar. The resulting unrealized gains or losses are reported as a component of Accumulatedaccumulated OCI on an after-taxa net-of-tax basis. When the foreign entity’s functional currency is determined to be the U.S. dollar, the resulting remeasurement currency gains or losses on foreign denominatedforeign-denominated assets or liabilities are included in Net Income.net income.
Credit Card Arrangements |
Endorsing organization agreementsOrganization Agreements
The Corporation contracts with other organizations to obtain their endorsement of the Corporation’s loan products. This endorsement may provide the Corporation exclusive rights to market to the organization’s members or to customers on behalf of the Corporation. These organizations endorse the Corporation’s loan products and provide the Corporation with their mailing lists and marketing activities. These agreements generally have terms that range from five to seven years. The Corporation typically pays royalties in exchange for their endorsement. These compensation costs to the Corporation are recorded as contra-revenue against Card Income.card income.
Cardholder reward agreementsReward Agreements
The Corporation offers reward programs that allow its cardholders to earn points that can be redeemed for a broad range of rewards including cash, travel and discounted products. The Corporation establishes a rewards liability based upon the points earned which are expected to be redeemed and the average cost per point redemption. The points to be redeemed are estimated based on past redemption behavior, card product type, account transaction activity and other historical card performance. The liability is reduced as the points are redeemed. The estimated cost of the rewards programs is recorded as contra-revenue against Card Income.card income.
Stock-based Compensation
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On January 1, 2006, the Corporation adopted SFAS 123RNo. 123 (Revised 2004), “Share-Based Payment” (SFAS 123R) under the modified-prospective application. The Corporation had previously adopted the fair value-based method of accounting for stock-based employee compensation under SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123,” (SFAS 148) prospectively, on January 1, 2003. Had the Corporation adopted SFAS 148 retrospectively, the impact in 2005 and 2004 would not have been material. For additional information on stock-based employee compensation, seeNote 17 of– Stock-Based Compensation Plans to the Consolidated Financial Statements.
Note 2 – Merger and Restructuring Activity
LaSalle Bank Corporation Merger
On October 1, 2007, the Corporation acquired all the outstanding shares of LaSalle, for $21.0 billion in cash. As part of the acquisition, ABN AMRO Bank N.V. (the seller) capitalized approximately $6.3 billion as equity of intercompany debt prior to the date of the acquisition. With this acquisition, the Corporation significantly expanded its presence in metropolitan Chicago, Illinois and Michigan by adding LaSalle’s commercial banking clients, retail customers, and banking centers. LaSalle’s results of operations were included in the Corporation’s results beginning October 1, 2007.
The LaSalle acquisition was accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations” (SFAS 141). The preliminary purchase price has been allocated to the assets acquired and the liabilities assumed based on their fair values at the LaSalle acquisition date as summarized in the following table.
LaSalle Preliminary Purchase Price Allocation
(Dollars in millions) | ||||
| $ | 21,015 | ||
Preliminary allocation of the purchase price | ||||
LaSalle stockholders’ equity | 12,495 | |||
LaSalle goodwill and | (2,728 | ) | ||
Adjustments to reflect assets acquired and liabilities assumed at fair value: | ||||
Loans and leases | (88 | ) | ||
Premises and equipment | (139 | ) | ||
Identified intangibles(1) | 1,029 | |||
Other assets | (248 | ) | ||
Exit and termination liabilities | (339 | ) | ||
Other liabilities and deferred income taxes | (72 | ) | ||
Fair value of net assets acquired | 9,910 | |||
Preliminary goodwill resulting from the LaSalle merger(2) | $ | 11,105 |
(1) | Includes core deposit intangibles of $700 million and other intangibles of $329 million. The amortization life for core deposit intangibles and other intangibles is 10 years. These intangibles are amortized on an accelerated basis. |
(2) | No goodwill is expected to be deductible for tax purposes. The goodwill has been allocated across all of the Corporation’s business segments. |
Bank of America 2007 | 101 |
The Corporation acquired certain loans for which there was, at the time of the merger, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. The outstanding contractual balance of such loans was approximately $850 million and the recorded fair value was approximately $650 million as of the merger date. At December 31, 2007, the outstanding contractual balance of such loans was approximately $710 million and the recorded fair value was approximately $590 million.
U.S. Trust Corporation Merger
On July 1, 2007, the Corporation acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. The Corporation allocated $1.6 billion to goodwill and $1.3 billion to intangible assets as part of the preliminary purchase price allocation. U.S. Trust Corporation’s results of operations were included in the Corporation’s results beginning July 1, 2007. The acquisition significantly increased the size and capabilities of the Corporation’s wealth management business and positions it as one of the largest financial services companies managing private wealth in the U.S.
MBNA Merger
On January 1, 2006, the Corporation acquired 100 percent of the outstandingout- standing stock of MBNA on January 1, 2006, for $34.6 billion. In connection therewith, 1,260 million shares of MBNA common stock were exchanged for 631 million shares of the Corporation’s common stock. Prior to the MBNA merger, this represented approximately 16 percent of the Corporation’s outstanding common stock. MBNA shareholders also received cash of $5.2 billion. The MBNA merger was a tax-free merger for the Corporation. The acquisition expandsexpanded the Corporation’s customer base and its opportunity to deepen customer relationships across the full breadth of the Corporation by delivering innovative deposit, lending and investment products and services to MBNA’s customer base. Additionally, the acquisition allowsallowed the Corporation to significantly increase its affinity relationships through MBNA’s credit card operations and sell these credit cards through ourthe Corporation’s delivery channels (including the retail branch network). MBNA’s results of operations were included in the Corporation’s results beginning January 1, 2006.
The MBNA merger was accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.”141. The purchase price has been allocated to the assets acquired and the liabilities assumed based on their fair values at the MBNA merger date as summarized in the following table.table below.
MBNA Purchase Price Allocation(In millions, except per share amounts) | |||||||
Purchase price | |||||||
Purchase price per share of the Corporation’s common stock(1) | $ | 45.856 | |||||
Exchange ratio | 0.5009 | ||||||
Purchase price per share of the Corporation’s common stock exchanged | $ | 22.969 | |||||
Cash portion of the MBNA merger consideration | 4.125 | ||||||
Implied value of one share of MBNA common stock | 27.094 | ||||||
MBNA common stock exchanged | 1,260 | ||||||
Total value of the Corporation’s common stock and cash exchanged | $ | 34,139 | |||||
Fair value of outstanding stock options and direct acquisition costs | 467 | ||||||
Total purchase price | $ | 34,606 | |||||
Allocation of the purchase price | |||||||
MBNA stockholders’ equity | $ | 13,410 | |||||
MBNA goodwill and other intangible assets | (3,564 | ) | |||||
Adjustments to reflect assets acquired and liabilities assumed at fair value: | |||||||
Loans and leases | (292 | ) | |||||
Premises and equipment | (563 | ) | |||||
Identified intangibles(2) | 7,881 | ||||||
Other assets | (683 | ) | |||||
Deposits | (97 | ) | |||||
Exit and termination liabilities | (269 | ) | |||||
Other personnel-related liabilities | (634 | ) | |||||
Other liabilities and deferred income taxes | (564 | ) | |||||
Long-term debt | (409 | ) | |||||
Fair value of net assets acquired | 14,216 | ||||||
Goodwill resulting from the MBNA merger(3) | $ | 20,390 |
MBNA Purchase Price Allocation
(Dollars in millions, except per share amounts) | |||||||
Purchase price | |||||||
Purchase price per share of the Corporation’s common stock(1) | $ | 45.856 | |||||
Exchange ratio | 0.5009 | ||||||
Purchase price per share of the Corporation’s common stock exchanged | $ | 22.969 | |||||
Cash portion of the MBNA merger consideration | 4.125 | ||||||
Implied value of one share of MBNA common stock | 27.094 | ||||||
MBNA common stock exchanged | 1,260 | ||||||
Total value of the Corporation’s common stock and cash exchanged | $ | 34,139 | |||||
Fair value of outstanding stock options and direct acquisition costs | 467 | ||||||
Total purchase price | $ | 34,606 | |||||
Allocation of the purchase price | |||||||
MBNA stockholders’ equity | $ | 13,410 | |||||
MBNA goodwill and intangible assets | (3,564 | ) | |||||
Adjustments to reflect assets acquired and liabilities assumed at fair value: | |||||||
Loans and leases | (292 | ) | |||||
Premises and equipment | (563 | ) | |||||
Identified intangibles(2) | 7,881 | ||||||
Other assets | (683 | ) | |||||
Deposits | (97 | ) | |||||
Exit and termination liabilities | (269 | ) | |||||
Other personnel-related liabilities | (634 | ) | |||||
Other liabilities and deferred income taxes | (564 | ) | |||||
Long-term debt | (409 | ) | |||||
Fair value of net assets acquired | 14,216 | ||||||
Goodwill resulting from the MBNA merger(3) | $ | 20,390 |
(1) | The value of the shares of common stock exchanged with MBNA shareholders was based upon the average of the closing prices of the Corporation’s common stock for the period commencing two trading days before, and ending two trading days after, June 30, 2005, the date of the MBNA merger announcement. |
(2) | Includes purchased credit card relationships of $5,698 million, affinity relationships of $1,641 million, core deposit intangibles of $214 million, and other intangibles, including trademarks, of $328 million. The amortization life for core deposit intangibles is 10 years, purchased credit card relationships and affinity relationships are 15 years, and other intangibles over periods not exceeding 10 years. These intangibles are primarily amortized on an accelerated basis. |
(3) | No |
As a result of the MBNA merger, the
102 | Bank of America 2007 |
The Corporation acquired certain loans for which there was, at the time of the merger, evidence of deterioration of credit quality since origination and for which it was probable that all contractually required payments would not be collected. These loans were accounted for in accordance with SOP 03-3 which requires that purchased impaired loans be recorded at fair value as of the merger date. The purchase accounting adjustment to reduce impaired loans to fair value resulted in an increase in Goodwill. In addition, an adjustment was made to the Allowance for Loan and Lease Losses for those impaired loans resulting in a decrease in Goodwill. The outstanding contractual balance and fair value of such loans was approximately $1.3 billion and the fair value was approximately $940 million as of the merger date. At December 31, 2007 and 2006, there werewas no outstanding balances forcontractual balance of such loans.
Unaudited Pro Forma Condensed Combined Financial Information for MBNA
The following unaudited pro forma condensed combined financial information presents the results of operations of the Corporation had the MBNA merger taken place at January 1, 20052005.
Pro Forma | |||
(Dollars in millions) | 2005 | ||
Net interest income | $ | 34,029 | |
Noninterest income | 33,731 | ||
Total revenue, net of interest expense | 67,760 | ||
Provision for credit losses | 5,082 | ||
Merger and restructuring charges | 1,179 | ||
Other noninterest expense | 34,411 | ||
Income before income taxes | 27,088 | ||
Net income | 18,157 |
Merger and 2004. Includedrestructuring charges in the 2004 pro forma amounts are FleetBoston results for the three months ended March 31, 2004.
Pro Forma | ||||||
(Dollars in millions) | 2005 | 2004 | ||||
Net interest income | $ | 34,029 | $ | 32,831 | ||
Noninterest income | 32,647 | 30,523 | ||||
Total revenue | 66,676 | 63,354 | ||||
Provision for credit losses | 5,082 | 3,983 | ||||
Gains on sales of debt securities | 1,084 | 1,775 | ||||
Merger and restructuring charges | 1,179 | 624 | ||||
Other noninterest expense | 34,411 | 34,373 | ||||
Income before income taxes | 27,088 | 26,149 | ||||
Net income | 18,157 | 17,300 |
Merger and Restructuring Charges in the abovepreceding table include a nonrecurring restructuring charge related to legacy MBNA of $767 million for 2005. Pro forma Earningsearnings per Common Sharecommon share and Diluted Earningsdiluted earnings per Common Share werecommon share would have been $3.90 and $3.86 for 2005, and $3.68 and $3.62 for 2004.2005.
Merger and Restructuring Charges
Merger and restructuring charges are recorded in the Consolidated Statement of Income and include incremental costs to integrate the operations of the Corporation, LaSalle, U.S. Trust Corporation, MBNA and MBNA.FleetBoston Financial Corporation (FleetBoston). These charges represent costs associated with these one-time activities and do not represent ongoing costs of the fully integrated combined organization. The following table presents severance and employee-related charges, systems integrations and related charges, and other merger-related charges. Merger
(Dollars in millions) | 2007 (1) | 2006 | 2005 (2) | ||||||
Severance and employee-related charges | $ | 106 | $ | 85 | $ | 39 | |||
Systems integrations and related charges | 240 | 552 | 218 | ||||||
Other | 64 | 168 | 155 | ||||||
Total merger and restructuring | $ | 410 | $ | 805 | $ | 412 |
(1) | Included for 2007 are merger-related charges of $233 million, $109 million and $68 million related to the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively. |
(2) | Charges for 2005 relate to the FleetBoston merger. |
Merger-related Exit Cost and Restructuring Charges for 2005 and 2004 were $412 million and $618 million and primarily related to the FleetBoston merger.
(Dollars in millions) | 2006 | ||
Severance and employee-related charges | $ | 85 | |
Systems integrations and related charges | 552 | ||
Other | 168 | ||
Total merger and restructuring charges | $ | 805 |
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On January 1, 2006, the Corporation initially recorded liabilities of $468 million for MBNA’s exit and termination costs as purchase accounting adjustments resulting in an increase in Goodwill. Included in the $468 million were $409 million for severance, relocation and other employee-related expenses and $59 million for contract terminations. During 2006, the Corporation revised certain of its initial estimates due to lower severance costs and updated integration plans including site consolidations that resulted in the reduction of exit cost reserves of $199 million. This reduction in reserves consisted of $177 million related to severance, relocation and other employee-related expenses and $22 million related to contract termination estimates. Cash payments of $144 million in 2006 consisted of $111 million of severance, relocation and other employee-related costs, and $33 million of contract terminations. The impact of these items reduced the balance in the liability to $125 million at December 31, 2006.
Restructuring reserves were also established for legacy Bank of America associate severance, other employee-related expenses and contract terminations. During 2006, $160 million was recorded to the restructuring reserves. Of these amounts, $80 million was related to associate severance and other employee-related expenses, and another $80 million to contract terminations. During 2006, cash payments of $22 million for severance and other employee-related costs and $71 million for contract termination have reduced this liability. The net impact of these items resulted in a balance of $67 million at December 31, 2006.
Payments under exit costs and restructuring reserves associated with the MBNA merger are expected to be substantially completed in 2007. The following table presents the changes in Exit Costsexit cost and Restructuring Reservesrestructuring reserves for the year ended December 31,2007 and 2006.
(Dollars in millions) | Exit Cost Reserves (1) | Restructuring Reserves(2) | ||||||
Balance, January 1, 2006 | $ | — | $ | — | ||||
MBNA exit costs | 269 | — | ||||||
Restructuring charges | — | 160 | ||||||
Cash payments | (144 | ) | (93 | ) | ||||
Balance, December 31, 2006 | $ | 125 | $ | 67 |
Exit Cost Reserves(1) | Restructuring Reserves (2) | |||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | ||||||||||||
Balance, January 1 | $ | 125 | $ | – | $ | 67 | $ | – | ||||||||
Exit cost and restructuring charges: | ||||||||||||||||
MBNA | – | 269 | 17 | 160 | ||||||||||||
U.S. Trust Corporation | 52 | – | 38 | – | ||||||||||||
LaSalle | 339 | – | 47 | – | ||||||||||||
Cash payments | (139 | ) | (144 | ) | (61 | ) | (93 | ) | ||||||||
Balance, December 31 | $ | 377 | $ | 125 | $ | 108 | $ | 67 |
(1) | Exit |
(2) | Restructuring reserves were established by a charge to |
As of December 31, 2006, there were $125 million of exit cost reserves related to the MBNA merger, including $121 million for severance, relocation and other employee-related expenses and $4 million for contract terminations. During 2007, $391 million was added to the exit cost reserves of which $52 million and $339 million related to the U.S. Trust Corporation and LaSalle mergers. Included in the $391 million exit cost charges during 2007 were approximately $193 million in severance, relocation and other employee-related costs and $198 million in contract terminations. Cash payments of $139 million during 2007 consisted of $127 million in severance, relocation and other employee-related costs and $12 million for contract terminations.
As of December 31, 2006, there were $67 million of restructuring reserves related to the MBNA acquisition, including $58 million related to
severance and other employee-related expenses and $9 million related to contract terminations. During 2007, $102 million was added to the restructuring reserves of which $17 million, $38 million and $47 million related to severance and other employee-related expenses associated with the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively. Cash payments of $61 million during 2007 consisted of $56 million in severance and other employee-related costs and $5 million in contract terminations.
Payments under exit cost and restructuring reserves associated with the MBNA merger were substantially completed in 2007 while payments associated with the U.S. Trust Corporation and LaSalle mergers will continue into 2009.
103 |
Note 3 – Trading Account Assets and Liabilities
The following table presents the fair values of the components of Trading Account Assetstrading account assets and Liabilitiesliabilities at December 31, 20062007 and 2005.2006.
December 31 | ||||||
(Dollars in millions) | 2006 | 2005 | ||||
Trading account assets | ||||||
Corporate securities, trading loans and other | $ | 53,923 | $ | 46,554 | ||
U.S. government and agency securities(1) | 36,656 | 31,091 | ||||
Equity securities | 27,103 | 31,029 | ||||
Mortgage trading loans and asset-backed securities | 15,449 | 12,290 | ||||
Foreign sovereign debt | 19,921 | 10,743 | ||||
Total | $ | 153,052 | $ | 131,707 | ||
Trading account liabilities | ||||||
U.S. government and agency securities(2) | $ | 26,760 | $ | 23,179 | ||
Equity securities | 23,908 | 11,371 | ||||
Foreign sovereign debt | 9,261 | 8,915 | ||||
Corporate securities and other | 7,741 | 7,425 | ||||
Total | $ | 67,670 | $ | 50,890 |
December 31 | ||||||
(Dollars in millions) | 2007 | 2006 | ||||
Trading account assets | ||||||
Corporate securities, trading loans and other | $ | 55,360 | $ | 53,923 | ||
U.S. Government and agency securities(1) | 48,240 | 36,656 | ||||
Equity securities | 22,910 | 27,103 | ||||
Mortgage trading loans and asset-backed securities | 18,393 | 15,449 | ||||
Foreign sovereign debt | 17,161 | 19,921 | ||||
Total trading account assets | $ | 162,064 | $ | 153,052 | ||
Trading account liabilities | ||||||
U.S. Government and agency securities | $ | 35,375 | $ | 26,760 | ||
Equity securities | 25,926 | 23,908 | ||||
Foreign sovereign debt | 9,292 | 9,261 | ||||
Corporate securities and other | 6,749 | 7,741 | ||||
Total trading account liabilities | $ | 77,342 | $ | 67,670 |
(1) | Includes |
Note 4 – Derivatives
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The Corporation designates derivatives as trading derivatives, economic hedges, or as derivatives used for SFAS 133 accounting purposes. For additional information on ourthe Corporation’s derivatives and hedging activities, seeNote 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Credit Risk Associated with Derivative Activities
Credit risk associated with derivatives is measured as the net replacement cost in the event the counterparties with contracts in a gain position to the Corporation completely fail to perform under the terms of those contracts. In managing derivative credit risk, both 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. The Corporation’s derivative activities are primarily with financial institutions and corporations. To minimize credit risk, the Corporation enters
into legally enforceable master netting agreements which reduce risk by permitting the closeout and netting of transactions
with the same counterparty upon occurrence of certain events. In addition, the Corporation reduces credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral will vary based on an assessment of the credit risk of the counterparty. Generally, the Corporation accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities. The Corporation held $24.2$34.2 billion of collateral on derivative positions, of which $14.9$21.3 billion could be applied against credit risk at December 31, 2006.2007.
A portion of the derivative activity involves exchange-traded instruments. Exchange-traded instruments conform to standard terms and are subject to policies set by the exchange involved, including margin and security deposit requirements. Management believes the credit risk associated with these types of instruments is minimal. The average fair value of Derivative Assets,derivative assets, less cash collateral, for 2007 and 2006 and 2005 was $24.2$29.7 billion and $25.9$24.2 billion. The average fair value of Derivative Liabilitiesderivative liabilities, less cash collateral, for 2007 and 2006 and 2005 was $16.6$20.6 billion and $16.8$16.6 billion.
104 | Bank of America 2007 |
December 31, 2007 | December 31, 2006 | |||||||||||
(Dollars in millions) | Contract/ Notional(1) | Credit Risk | Contract/ Notional(1) | Credit Risk | ||||||||
Interest rate contracts | ||||||||||||
Swaps | $ | 22,472,949 | $ | 15,368 | $ | 18,185,655 | $ | 9,601 | ||||
Futures and forwards | 2,596,146 | 10 | 2,283,579 | 103 | ||||||||
Written options | 1,402,626 | – | 1,043,933 | – | ||||||||
Purchased options | 1,479,985 | 2,508 | 1,308,888 | 2,212 | ||||||||
Foreign exchange contracts | ||||||||||||
Swaps | 505,878 | 7,350 | 451,462 | 4,241 | ||||||||
Spot, futures and forwards | 1,600,683 | 4,124 | 1,234,009 | 2,995 | ||||||||
Written options | 341,148 | – | 464,420 | – | ||||||||
Purchased options | 339,101 | 1,033 | 414,004 | 1,391 | ||||||||
Equity contracts | ||||||||||||
Swaps | 56,300 | 2,026 | 32,247 | 577 | ||||||||
Futures and forwards | 12,174 | 10 | 19,947 | 24 | ||||||||
Written options | 166,736 | – | 102,902 | – | ||||||||
Purchased options | 195,240 | 6,337 | 104,958 | 7,513 | ||||||||
Commodity contracts | ||||||||||||
Swaps | 13,627 | 770 | 4,868 | 1,129 | ||||||||
Futures and forwards | 14,391 | 12 | 13,513 | 2 | ||||||||
Written options | 14,206 | – | 9,947 | – | ||||||||
Purchased options | 13,093 | 372 | 6,796 | 184 | ||||||||
Credit derivatives | 3,046,381 | 7,493 | 1,497,869 | 756 | ||||||||
Credit risk before cash collateral | 47,413 | 30,728 | ||||||||||
Less: Cash collateral applied | 12,751 | 7,289 | ||||||||||
Total derivative assets | $ | 34,662 | $ | 23,439 |
(1) | Represents the total contract/notional amount of the derivatives outstanding and includes both short and long positions. |
The following table above presents the contract/notional amounts and credit risk amounts at December 31, 20062007 and 20052006 of all the Corporation’s derivative positions. These derivative positions are primarily executed in the over-the-counter market.
The credit risk amounts take into consideration the effects of legally enforceable master netting agreements, and on an aggregate basis have been reduced by the cash collateral applied against Derivative Assets.derivative assets. At December 31, 20062007 and 2005,2006, the cash collateral applied against Derivative Assetsderivative assets on the Consolidated Balance Sheet was $7.3$12.8 billion and $9.3$7.3 billion. In addition, at December 31, 20062007 and 2005,2006, the cash collateral placed against Derivative Liabilitiesderivative liabilities was $6.5$10.0 billion and $7.6$6.5 billion.
December 31, 2006 | December 31, 2005 | |||||||||||
(Dollars in millions) | Contract/ Notional | Credit Risk | Contract/ Notional | Credit Risk | ||||||||
Interest rate contracts | ||||||||||||
Swaps | $ | 18,185,655 | $ | 9,601 | $ | 14,401,577 | $ | 11,085 | ||||
Futures and forwards | 2,283,579 | 103 | 2,113,717 | — | ||||||||
Written options | 1,043,933 | — | 900,036 | — | ||||||||
Purchased options | 1,308,888 | 2,212 | 869,471 | 3,345 | ||||||||
Foreign exchange contracts | ||||||||||||
Swaps | 451,462 | 4,241 | 333,487 | 3,735 | ||||||||
Spot, futures and forwards | 1,234,009 | 2,995 | 944,321 | 2,481 | ||||||||
Written options | 464,420 | — | 214,668 | — | ||||||||
Purchased options | 414,004 | 1,391 | 229,049 | 1,214 | ||||||||
Equity contracts | ||||||||||||
Swaps | 32,247 | 577 | 28,287 | 548 | ||||||||
Futures and forwards | 19,947 | 24 | 6,479 | 44 | ||||||||
Written options | 102,902 | — | 69,048 | — | ||||||||
Purchased options | 104,958 | 7,513 | 57,693 | 6,729 | ||||||||
Commodity contracts | ||||||||||||
Swaps | 4,868 | 1,129 | 8,809 | 2,475 | ||||||||
Futures and forwards | 13,513 | 2 | 5,533 | — | ||||||||
Written options | 9,947 | — | 7,854 | — | ||||||||
Purchased options | 6,796 | 184 | 3,673 | 546 | ||||||||
Credit derivatives(1) | 1,497,869 | 756 | 722,190 | 766 | ||||||||
Credit risk before cash collateral | 30,728 | 32,968 | ||||||||||
Less: Cash collateral applied | 7,289 | 9,256 | ||||||||||
Total derivative assets | $ | 23,439 | $ | 23,712 |
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Interest rate contracts and foreign exchange contracts are utilized in the Corporation’s ALM activities. The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Corporation’s goal is to manage interest rate
sensitivity so that movements in interest rates do not significantly adversely affect Net Interest Income.net interest income. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in market value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation. Interest Incomeincome and Interest Expenseinterest expense on hedged variable-rate assets and liabilities increase or decrease as a result of interest rate fluctuations. Gains and losses on the derivative instruments that are linked to these hedged assets and liabilities are expected to substantially offset this variability in earnings.
Interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options and futures, allow the Corporation
to manage its interest rate risk position. Non-leveraged 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, floors and swaptions. Futures contracts used for the Corporation’s ALM activities are primarily 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 currency-denominated assets and liabilities, as well as the Corporation’s equity investments in foreign subsidiaries. Foreign exchange contracts, which include spot 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. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.
Fair Value, Cash Flow and Net Investment Hedges
The Corporation uses various types of interest rate and foreign currency exchange rate derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges).
For cash flow hedges, gains and losses on derivative contracts reclassified from Accumulated OCI to current period earnings are included in the line item in the Consolidated Statement of Income in which the hedged item is recorded and in the same period the hedged item affects earnings. During the next 12 months, net losses on derivative instruments included in Accumulatedaccumulated OCI of approximately $1.0$1.3 billion ($658820 million after-tax)net-of-tax) are expected to be reclassified into earnings. These net losses reclassified into earnings are expected to decreaseimpact net interest income or increase expense onrelated to the respective hedged items.
Bank of America 2007 | 105 |
The following table summarizes certain information related to the Corporation’s derivative hedges accounted for under SFAS 133 for 2007, 2006 and 2005:2005.
(Dollars in millions) | 2006 | 2005 | ||||||
Fair value hedges | ||||||||
Hedge ineffectiveness recognized in earnings(1) | $ | 23 | $ | 166 | ||||
Net gain (loss) excluded from assessment of effectiveness(2) | — | (13 | ) | |||||
Cash flow hedges | ||||||||
Hedge ineffectiveness recognized in earnings(3) | 18 | (31 | ) | |||||
Net investment hedges | ||||||||
Gains (losses) included in foreign currency translation adjustments within Accumulated OCI(4) | (475 | ) | 66 |
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||
Fair value hedges | ||||||||||
Hedge ineffectiveness recognized in net interest income and mortgage banking income(1) | $ | 55 | $ | 23 | $ | 166 | ||||
Net loss excluded from assessment of effectiveness(2) | – | – | (13 | ) | ||||||
Cash flow hedges | ||||||||||
Hedge ineffectiveness recognized in net interest income | 4 | 18 | (31 | ) | ||||||
Net gains on transactions which are probable of not occurring recognized in other income | 18 | – | – |
(1) | Hedge ineffectiveness was recognized |
(2) | Net |
The Corporation hedges its net investment in consolidated foreign operations determined to have functional currencies other than the U.S. dollar using forward foreign exchange contracts that typically settle in 90 days. The Corporation recorded net derivative losses in accumulated OCI associated with net investment hedges of $516 million for 2007 as compared to losses of $475 million in 2006 and gains of $66 million in 2005. Note 5 – Securities |
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The amortized cost, gross unrealized gains and losses, and fair value of AFS debt and marketable equity securities at December 31, 20062007 and 20052006 were:
Available-for-sale securities | |||||||||||||
(Dollars in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||
2006 | |||||||||||||
U.S. Treasury securities and agency debentures | $ | 697 | $ | — | $ | (9 | ) | $ | 688 | ||||
Mortgage-backed securities | 161,693 | 4 | (4,804 | ) | 156,893 | ||||||||
Foreign securities | 12,126 | 2 | (78 | ) | 12,050 | ||||||||
Other taxable securities(1) | 16,776 | 10 | (134 | ) | 16,652 | ||||||||
Total taxable securities | 191,292 | 16 | (5,025 | ) | 186,283 | ||||||||
Tax-exempt securities | 6,493 | 64 | (34 | ) | 6,523 | ||||||||
Total available-for-sale debt securities | $ | 197,785 | $ | 80 | $ | (5,059 | ) | $ | 192,806 | ||||
Available-for-sale marketable equity securities (2) | $ | 2,799 | $ | 408 | $ | (10 | ) | $ | 3,197 | ||||
2005 | |||||||||||||
U.S. Treasury securities and agency debentures | $ | 730 | $ | — | $ | (13 | ) | $ | 717 | ||||
Mortgage-backed securities | 197,101 | 198 | (5,268 | ) | 192,031 | ||||||||
Foreign securities | 10,944 | 1 | (54 | ) | 10,891 | ||||||||
Other taxable securities(1) | 13,198 | 126 | (99 | ) | 13,225 | ||||||||
Total taxable securities | 221,973 | 325 | (5,434 | ) | 216,864 | ||||||||
Tax-exempt securities | 4,693 | 31 | (32 | ) | 4,692 | ||||||||
Total available-for-sale debt securities | $ | 226,666 | $ | 356 | $ | (5,466 | ) | $ | 221,556 | ||||
Available-for-sale marketable equity securities (2) | $ | 575 | $ | 305 | $ | (18 | ) | $ | 862 |
(Dollars in millions) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||
Available-for-sale debt securities, December 31, 2007 | |||||||||||||
U.S. Treasury securities and agency debentures | $ | 749 | $ | 10 | $ | – | $ | 759 | |||||
Mortgage-backed securities(1) | 166,768 | 92 | (3,144 | ) | 163,716 | ||||||||
Foreign securities | 6,568 | 290 | (101 | ) | 6,757 | ||||||||
Corporate/Agency bonds | 3,107 | 2 | (76 | ) | 3,033 | ||||||||
Other taxable securities(2) | 24,608 | 69 | (84 | ) | 24,593 | ||||||||
Total taxable securities | 201,800 | 463 | (3,405 | ) | 198,858 | ||||||||
Tax-exempt securities | 14,468 | 73 | (69 | ) | 14,472 | ||||||||
Total available-for-sale debt securities | $ | 216,268 | $ | 536 | $ | (3,474 | ) | $ | 213,330 | ||||
Available-for-sale marketable equity securities(3) | $ | 6,562 | $ | 13,530 | $ | (352 | ) | $ | 19,740 | ||||
Available-for-sale debt securities, December 31, 2006 | |||||||||||||
U.S. Treasury securities and agency debentures | $ | 697 | $ | – | $ | (9 | ) | $ | 688 | ||||
Mortgage-backed securities(1) | 161,693 | 4 | (4,804 | ) | 156,893 | ||||||||
Foreign securities | 12,126 | 2 | (78 | ) | 12,050 | ||||||||
Corporate/Agency bonds | 4,699 | – | (96 | ) | 4,603 | ||||||||
Other taxable securities(2) | 12,077 | 10 | (38 | ) | 12,049 | ||||||||
Total taxable securities | 191,292 | 16 | (5,025 | ) | 186,283 | ||||||||
Tax-exempt securities | 6,493 | 64 | (34 | ) | 6,523 | ||||||||
Total available-for-sale debt securities | $ | 197,785 | $ | 80 | $ | (5,059 | ) | $ | 192,806 | ||||
Available-for-sale marketable equity securities(3) | $ | 2,799 | $ | 408 | $ | (10 | ) | $ | 3,197 |
(1) |
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(2) | Includes ABS. |
(3) | Represents those AFS marketable equity securities that are recorded in |
At December 31, 2007, the amortized cost and fair value of both taxable and tax-exempt held-to-maturity debt securities was $726 million. At December 31, 2006, the amortized cost and fair value of both taxable and tax-exempt Held-to-maturity Securitiesheld-to-maturity debt securities was $40 million. Effective January 1, 2007, the Corporation redesignated $909 million of debt securities at amortized cost from AFS to held-to-maturity.
At December 31, 2005, the amortized cost2007 and fair value of both taxable and tax-exempt Held-to-maturity Securities was $47 million.
At December 31, 2006, accumulated net unrealized lossesgains (losses) on AFS debt and marketable equity securities included in Accumulatedaccumulated OCI were $2.9$6.6 billion and $(2.9) billion, net of the related income tax (expense) benefit of $(3.7) billion and $1.7 billion. At December 31, 2005, accumulated net unrealized losses on these securities were $3.0 billion, net of the related income tax benefit of $1.8 billion.
106 | Bank of America 2007 |
The following table presents the current fair value and the associated gross unrealized losses only on investments in securities with gross unrealized losses at December 31, 20062007 and 2005.2006. The table also discloses whether these securities have had gross unrealized losses for less than twelve months, or for twelve months or longer.
December 31, 2006 | |||||||||||||||||||||
Less than twelve months | Twelve months or longer | Total | |||||||||||||||||||
(Dollars in millions) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||
Available-for-sale securities | |||||||||||||||||||||
U.S. Treasury securities and agency debentures | $ | 387 | $ | (9 | ) | $ | — | $ | — | $ | 387 | $ | (9 | ) | |||||||
Mortgage-backed securities | 4,684 | (128 | ) | 151,092 | (4,676 | ) | 155,776 | (4,804 | ) | ||||||||||||
Foreign securities | 45 | (1 | ) | 6,908 | (77 | ) | 6,953 | (78 | ) | ||||||||||||
Other taxable securities | 5,452 | (125 | ) | 287 | (9 | ) | 5,739 | (134 | ) | ||||||||||||
Total taxable securities | 10,568 | (263 | ) | 158,287 | (4,762 | ) | 168,855 | (5,025 | ) | ||||||||||||
Tax-exempt securities | 811 | (4 | ) | 1,271 | (30 | ) | 2,082 | (34 | ) | ||||||||||||
Total temporarily-impaired available-for-sale debt securities | 11,379 | (267 | ) | 159,558 | (4,792 | ) | 170,937 | (5,059 | ) | ||||||||||||
Temporarily-impaired marketable equity securities | 244 | (10 | ) | — | — | 244 | (10 | ) | |||||||||||||
Total temporarily-impaired securities | $ | 11,623 | $ | (277 | ) | $ | 159,558 | $ | (4,792 | ) | $ | 171,181 | $ | (5,069 | ) |
December 31, 2005 | ||||||||||||||||||||||||||||||||||||||||||
Less than twelve months | Twelve months or longer | Total | Less than twelve months | Twelve months or longer | Total | |||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities and agency debentures | $ | 251 | $ | (9 | ) | $ | 163 | $ | (4 | ) | $ | 414 | $ | (13 | ) | |||||||||||||||||||||||||||
Available-for-sale debt securities as of December 31, 2007 | ||||||||||||||||||||||||||||||||||||||||||
Mortgage-backed securities | 149,979 | (3,766 | ) | 40,236 | (1,502 | ) | 190,215 | (5,268 | ) | $ | 10,103 | $ | (438 | ) | $ | 140,600 | $ | (2,706 | ) | $ | 150,703 | $ | (3,144 | ) | ||||||||||||||||||
Foreign securities | 3,455 | (41 | ) | 852 | (13 | ) | 4,307 | (54 | ) | 357 | (88 | ) | 2,129 | (13 | ) | 2,486 | (101 | ) | ||||||||||||||||||||||||
Corporate/Agency bonds | 127 | (2 | ) | 2,181 | (74 | ) | 2,308 | (76 | ) | |||||||||||||||||||||||||||||||||
Other taxable securities | 3,882 | (79 | ) | 469 | (20 | ) | 4,351 | (99 | ) | 622 | (25 | ) | 712 | (59 | ) | 1,334 | (84 | ) | ||||||||||||||||||||||||
Total taxable securities | 157,567 | (3,895 | ) | 41,720 | (1,539 | ) | 199,287 | (5,434 | ) | 11,209 | (553 | ) | 145,622 | (2,852 | ) | 156,831 | (3,405 | ) | ||||||||||||||||||||||||
Tax-exempt securities | 2,308 | (27 | ) | 156 | (5 | ) | 2,464 | (32 | ) | 2,563 | (66 | ) | 505 | (3 | ) | 3,068 | (69 | ) | ||||||||||||||||||||||||
Total temporarily-impaired available-for-sale debt securities | 159,875 | (3,922 | ) | 41,876 | (1,544 | ) | 201,751 | (5,466 | ) | 13,772 | (619 | ) | 146,127 | (2,855 | ) | 159,899 | (3,474 | ) | ||||||||||||||||||||||||
Temporarily-impaired marketable equity securities | 146 | (18 | ) | — | — | 146 | (18 | ) | ||||||||||||||||||||||||||||||||||
Total temporarily-impaired securities | $ | 160,021 | $ | (3,940 | ) | $ | 41,876 | $ | (1,544 | ) | $ | 201,897 | $ | (5,484 | ) | |||||||||||||||||||||||||||
Temporarily-impaired available-for-sale marketable equity securities | 2,353 | (322 | ) | 57 | (30 | ) | 2,410 | (352 | ) | |||||||||||||||||||||||||||||||||
Total temporarily-impaired available-for-sale securities | $ | 16,125 | $ | (941 | ) | $ | 146,184 | $ | (2,885 | ) | $ | 162,309 | $ | (3,826 | ) | |||||||||||||||||||||||||||
Available-for-sale debt securities as of December 31, 2006 | ||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities and agency debentures | $ | 387 | $ | (9 | ) | $ | – | $ | – | $ | 387 | $ | (9 | ) | ||||||||||||||||||||||||||||
Mortgage-backed securities | 4,684 | (128 | ) | 151,092 | (4,676 | ) | 155,776 | (4,804 | ) | |||||||||||||||||||||||||||||||||
Foreign securities | 45 | (1 | ) | 6,908 | (77 | ) | 6,953 | (78 | ) | |||||||||||||||||||||||||||||||||
Corporate/Agency bonds | 4,199 | (96 | ) | – | – | 4,199 | (96 | ) | ||||||||||||||||||||||||||||||||||
Other taxable securities | 1,253 | (29 | ) | 287 | (9 | ) | 1,540 | (38 | ) | |||||||||||||||||||||||||||||||||
Total taxable securities | 10,568 | (263 | ) | 158,287 | (4,762 | ) | 168,855 | (5,025 | ) | |||||||||||||||||||||||||||||||||
Tax-exempt securities | 811 | (4 | ) | 1,271 | (30 | ) | 2,082 | (34 | ) | |||||||||||||||||||||||||||||||||
Total temporarily-impaired available-for-sale debt securities | 11,379 | (267 | ) | 159,558 | (4,792 | ) | 170,937 | (5,059 | ) | |||||||||||||||||||||||||||||||||
Temporarily-impaired available-for-sale marketable equity securities | 244 | (10 | ) | – | – | 244 | (10 | ) | ||||||||||||||||||||||||||||||||||
Total temporarily-impaired available-for-sale securities | $ | 11,623 | $ | (277 | ) | $ | 159,558 | $ | (4,792 | ) | $ | 171,181 | $ | (5,069 | ) |
Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when conditions warrant such evaluation. Factors considered in determining whether an impairment is other-than-temporary include (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2006,2007, the amortized cost of approximately 5,0007,000 securities in AFS securities exceeded their fair value by $5.1$3.8 billion. Included in the $5.1$3.8 billion of gross unrealized losses on AFS securities at December 31, 2006,2007, was $277$941 million of gross unrealized losses that have existed for less than twelve months and $4.8$2.9 billion of gross unrealized losses that have existed for a period of twelve months or longer. Of the gross unrealized losses existing for twelve months or more, $4.7longer, $2.7 billion, or 9894 percent, of the gross unrealized loss is related to approximately 1,500800 mortgage-backed securities. These securities are predominately all investment grade, with more than 90 percent rated AAA.predominantly guaranteed by either the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) or Government National Mortgage Association (GNMA). The gross unrealized losses on these mortgage-backed securities are due to overall increases in market interest rates.rates subsequent to purchase. The Corporation has the ability and intent to hold these securities for a period of time sufficient to recover all gross unrealized losses. Accordingly, the Corporation has not recognized any other-than-temporary impairment for these securities.
The Corporation had investments in securities from the Federal National Mortgage Association (Fannie Mae)Fannie Mae and Federal Home Loan Mortgage Corporation (Freddie Mac)Freddie Mac that exceeded 10 percent of consolidated Shareholders’ Equityshareholders’ equity as of December 31, 20062007 and 2005.2006. Those investments had marketfair values of $100.8 billion and $43.2 billion at December 31, 2007, and $109.9 billion and $42.0 billion at December 31,
2006, and $144.1 billion and $46.9 billion at December 31, 2005. 2006. In addition, these investments had total amortized costs of $102.9 billion and $43.9 billion at December 31, 2007, and $113.5 billion and $43.3 billion at December 31, 2006, and $148.0 billion and $48.3 billion at December 31, 2005.2006. As disclosed in the preceding paragraph, the Corporation has not recognized any other-than-temporary impairment for these securities.
The Corporation recognized $398 million of impairment losses on AFS debt securities during 2007. No such losses were recognized during 2006 or 2005.
Securities are pledged or assigned to secure borrowed funds, government and trust deposits and for other purposes. The carrying value of pledged securities was $83.8$107.4 billion and $116.7$83.8 billion at December 31, 20062007 and 2005.2006.
The expected maturity distribution of the Corporation’s mortgage-backed securities and the contractual maturity distribution of the Corporation’s other debt securities, and the yields of the Corporation’sits AFS debt securities portfolio at December 31, 20062007 are summarized in the following table. Actual maturities may differ from the contractual or expected maturities shown belowin the following table since borrowers may have the right to prepay obligations with or without prepayment penalties.
Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years (1) | Total | ||||||||||||||||||||||||||
(Dollars in millions) | Amount | Yield (2) | Amount | Yield (2) | Amount | Yield (2) | Amount | Yield (2) | Amount | Yield (2) | ||||||||||||||||||||
Fair value of available-for-sale debt securities | ||||||||||||||||||||||||||||||
U.S. Treasury securities and agency debentures | $ | 78 | 4.08 | % | $ | 524 | 3.96 | % | $ | 80 | 4.31 | % | $ | 6 | 5.73 | % | $ | 688 | 4.03 | % | ||||||||||
Mortgage-backed securities | 17 | 5.59 | 11,456 | 4.40 | 143,370 | 5.04 | 2,050 | 8.62 | 156,893 | 5.04 | ||||||||||||||||||||
Foreign securities | 819 | 4.88 | 6,177 | 5.27 | 4,949 | 5.37 | 105 | 6.27 | 12,050 | 5.29 | ||||||||||||||||||||
Other taxable securities | 3,581 | 4.70 | 10,435 | 5.19 | 2,237 | 5.33 | 399 | 6.40 | 16,652 | 5.13 | ||||||||||||||||||||
Total taxable | 4,495 | 4.73 | 28,592 | 4.87 | 150,636 | 5.06 | 2,560 | 8.17 | 186,283 | 5.06 | ||||||||||||||||||||
Tax-exempt securities (3) | 1,000 | 5.82 | 1,169 | 5.90 | 3,226 | 5.82 | 1,128 | 6.44 | 6,523 | 5.94 | ||||||||||||||||||||
Total available-for-sale debt securities | $ | 5,495 | 4.93 | % | $ | 29,761 | 4.91 | % | $ | 153,862 | 5.07 | % | $ | 3,688 | 7.64 | % | $ | 192,806 | 5.09 | % | ||||||||||
Amortized cost of available-for-sale debt securities | $ | 5,495 | $ | 30,293 | $ | 158,301 | $ | 3,696 | $ | 197,785 |
Bank of America 2007 | 107 |
December 31, 2007 | ||||||||||||||||||||||||||||||
Due in one year or less | Due after one year through five years | Due after five years through ten years | Due after ten years | Total | ||||||||||||||||||||||||||
(Dollars in millions) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | Amount | Yield (1) | ||||||||||||||||||||
Fair value of available-for-sale debt securities | ||||||||||||||||||||||||||||||
U.S. Treasury securities and agency debentures | $ | 93 | 3.82 | % | $ | 541 | 3.97 | % | $ | 119 | 4.45 | % | $ | 6 | 5.82 | % | $ | 759 | 4.04 | % | ||||||||||
Mortgage-backed securities | 30 | 7.50 | 7,484 | 5.20 | 141,558 | 5.08 | 14,644 | 6.81 | 163,716 | 5.24 | ||||||||||||||||||||
Foreign securities | 1,658 | 4.57 | 4,095 | 5.52 | 54 | 8.96 | 950 | 7.57 | 6,757 | 5.67 | ||||||||||||||||||||
Corporate/Agency bonds | 215 | 4.30 | 1,032 | 4.47 | 1,691 | 4.97 | 95 | 5.52 | 3,033 | 4.77 | ||||||||||||||||||||
Other taxable securities | 13,044 | 4.69 | 7,017 | 5.13 | 2,399 | 5.76 | 2,133 | 5.59 | 24,593 | 5.00 | ||||||||||||||||||||
Total taxable securities | 15,040 | 4.67 | 20,169 | 5.17 | 145,821 | 5.09 | 17,828 | 6.70 | 198,858 | 5.21 | ||||||||||||||||||||
Tax-exempt securities(2) | 352 | 5.79 | 2,891 | 5.89 | 8,058 | 6.38 | 3,171 | 6.86 | 14,472 | 6.38 | ||||||||||||||||||||
Total available-for-sale debt securities | $ | 15,392 | 4.69 | $ | 23,060 | 5.26 | $ | 153,879 | 5.16 | $ | 20,999 | 6.72 | $ | 213,330 | 5.29 | |||||||||||||||
Amortized cost of available-for-sale debt securities | $ | 15,120 | $ | 23,205 | $ | 156,495 | $ | 21,448 | $ | 216,268 |
(1) |
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| Yields are calculated based on the amortized cost of the securities. |
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The components of realized gains and losses on sales of debt securities for 2007, 2006 2005 and 20042005 were:
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||
Gross gains | $ | 87 | $ | 1,154 | $ | 2,270 | ||||||
Gross losses | (530 | ) | (70 | ) | (546 | ) | ||||||
Net gains (losses) on sales of debt securities | $ | (443 | ) | $ | 1,084 | $ | 1,724 |
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||
Gross gains | $ | 197 | $ | 87 | $ | 1,154 | ||||||
Gross losses | (17 | ) | (530 | ) | (70 | ) | ||||||
Net gains (losses) on sales of debt securities | $ | 180 | $ | (443 | ) | $ | 1,084 |
The Income Tax Expense (Benefit)income tax expense (benefit) attributable to realized net gains (losses) on sales of debt securities sales was $67 million, $(163) million and $400 million in 2007, 2006 and $640 million in 2006, 2005, and 2004, respectively.
Pursuant to an agreement dated June 17, 2005,Certain Corporate and Strategic Investments
In 2007, the Corporation agreed to purchasemade a $2.0 billion investment in Countrywide Financial Corporation (Countrywide), the largest mortgage lender in the U.S., in the form of Series B non-voting convertible preferred securities yielding 7.25 percent, which are recorded in other assets. This investment is accounted for under the cost method of accounting.
The Corporation owns approximately nineeight percent, or 19.1 billion common shares, of the stock of China Construction Bank (CCB).CCB. These common shares are accounted for at fair value and recorded as AFS marketable equity securities in other assets. Prior to the fourth quarter of 2007, these shares were accounted for at cost as they are non-transferablenontransferable until the third anniversaryOctober 2008. The cost and fair value of the initial public offeringCCB investment was approximately $3.0 billion and $16.4
billion at December 31, 2007. Dividend income on this investment is recorded in October 2008.equity investment income. The Corporation also holds an option to increase its ownership interest in CCB to 19.919.1 percent. Additional shares received upon exercise of this option are restricted through August 2011. This option expires in February 2011. At December 31, 2006,The strike price of the investment inoption is based on the CCB shares was included in Other Assets.IPO price that steps up on an annual basis and is currently at 103 percent of the IPO price. The strike price of the option is capped at 118 percent depending when the option is exercised.
Additionally, the Corporation sold its Brazilian operations toowns approximately 137.0 million and 41.1 million of preferred and common shares, respectively, of Banco Itaú Holding Financeira S.A. (Banco Itaú) for approximately $1.9 billionat December 31, 2007 which are recorded in preferred stock.other assets. These shares are non-transferable for three years from the date of the agreement dated May 1, 2006 and are accounted for at cost. The sale closed in September 2006. At December 31, 2006, this $1.9 billion of preferred stock was included in Other Assets.
Thecost as they are non-transferable until May 2009. These shares of CCB and Banco Itaú are currently carried at cost but as required by GAAP, will be accounted for as AFS marketable equity securities and carried at fair value with an offset to Accumulatedaccumulated OCI beginning in the fourth quarter of 2007 and second quarter of 2008, respectively.2008. Dividend income on this investment is recorded in equity investment income. The cost and fair valuesvalue of the CCB shares and Banco Itaú shares were approximately $12.2this investment was $2.6 billion and $2.5$4.6 billion at December 31, 2006.2007.
The Corporation has a 24.9 percent, or $2.6 billion, investment in Grupo Financiero Santander, S.A., the subsidiary of Grupo Santander, S.A. This investment is recorded in other assets and is accounted for under the equity method of accounting with income being recorded in equity investment income.
For additional information on securities, seeNote 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Bank of America 2007 |
Note 6 – Outstanding Loans and Leases
Outstanding loans and leases at December 31, 20062007 and 20052006 were:
December 31 | ||||||
(Dollars in millions) | 2006 | 2005 | ||||
Consumer | ||||||
Residential mortgage | $ | 241,181 | $ | 182,596 | ||
Credit card—domestic | 61,195 | 58,548 | ||||
Credit card—foreign | 10,999 | — | ||||
Home equity lines | 74,888 | 62,098 | ||||
Direct/Indirect consumer(1) | 68,224 | 45,490 | ||||
Other consumer(2) | 9,218 | 6,725 | ||||
Total consumer | 465,705 | 355,457 | ||||
Commercial | ||||||
Commercial—domestic | 161,982 | 140,533 | ||||
Commercial real estate(3) | 36,258 | 35,766 | ||||
Commercial lease financing | 21,864 | 20,705 | ||||
Commercial—foreign | 20,681 | 21,330 | ||||
Total commercial | 240,785 | 218,334 | ||||
Total | $ | 706,490 | $ | 573,791 |
December 31 | ||||||
(Dollars in millions) | 2007 | 2006 | ||||
Consumer | ||||||
Residential mortgage | $ | 274,949 | $ | 241,181 | ||
Credit card – domestic | 65,774 | 61,195 | ||||
Credit card – foreign | 14,950 | 10,999 | ||||
Home equity(1) | 114,834 | 87,893 | ||||
Direct/Indirect consumer(1, 2) | 76,844 | 59,378 | ||||
Other consumer(1, 3) | 3,850 | 5,059 | ||||
Total consumer | 551,201 | 465,705 | ||||
Commercial | ||||||
Commercial – domestic(4) | 208,297 | 161,982 | ||||
Commercial real estate(5) | 61,298 | 36,258 | ||||
Commercial lease financing | 22,582 | 21,864 | ||||
Commercial – foreign | 28,376 | 20,681 | ||||
Total commercial loans measured at historical cost | 320,553 | 240,785 | ||||
Commercial loans measured at fair value(6) | 4,590 | n/a | ||||
Total commercial | 325,143 | 240,785 | ||||
Total loans and leases | $ | 876,344 | $ | 706,490 |
(1) |
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(2) | Includes foreign consumer loans of |
(3) | Includes other foreign consumer loans of $829 million and $2.3 billion, and consumer finance loans of $3.0 billion and $2.8 billion |
| Includes small business commercial – domestic loans, primarily card-related, of $17.8 billion and $13.7 billion at December 31, 2007 and 2006. |
(5) | Includes domestic commercial real estate loans of |
(6) | Certain commercial loans are measured at fair value in accordance with SFAS 159 and include commercial – domestic loans of $3.5 billion, commercial – foreign loans of $790 million and commercial real estate loans of $304 million at December 31, 2007. SeeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements for additional discussion of fair value for certain financial instruments. |
n/a = not applicable
The following table presents the recorded loan amounts, without consideration for the specific component of the Allowanceallowance for Loanloan and Lease Losses,lease losses, that were considered individually impaired in accordance with SFAS 114 at December 31, 20062007 and 2005.2006. SFAS 114 impairment includes performing troubled debt restructurings and excludes all commercial leases.
December 31 | ||||||
(Dollars in millions) | 2006 | 2005 | ||||
Commercial—domestic | $ | 586 | $ | 613 | ||
Commercial real estate | 118 | 49 | ||||
Commercial—foreign | 13 | 34 | ||||
Total impaired loans | $ | 717 | $ | 696 |
December 31 | ||||||
(Dollars in millions) | 2007 | 2006 | ||||
Commercial – domestic(1) | $ | 1,018 | $ | 586 | ||
Commercial real estate | 1,099 | 118 | ||||
Commercial – foreign | 19 | 13 | ||||
Total impaired loans | $ | 2,136 | $ | 717 |
(1) | Includes small business commercial – domestic loans of $135 million and $79 million at December 31, 2007 and 2006. |
The average recorded investment in certain impaired loans for 2007, 2006 2005 and 20042005 was approximately $1.2 billion, $722 million $852 million and $1.6 billion,$852
million, respectively. At December 31, 20062007 and 2005,2006, the recorded investment in impaired loans requiring an Allowanceallowance for Loanloan and Lease Losseslease losses based on individual analysis per SFAS 114 guidelines was $567 million$1.2 billion and $517$567 million, and the related Allowanceallowance for Loanloan and Lease Losseslease losses was $43$123 million and $55$43 million. For 2007, 2006 and 2005, and 2004, Interest Incomeinterest income recognized on impaired loans totaled $130 million, $36 million $17 million and $21$17 million, respectively, all of which was recognized on a cash basis.
At December 31, 20062007 and 2005,2006, nonperforming loans and leases, including impaired loans and nonaccrual consumer loans, totaled $1.8$5.6 billion and $1.5$1.8 billion. In addition, included in Other Assetsother assets were consumer and commercial nonperforming loans held-for-sale of $80$188 million and $69$80 million at December 31, 20062007 and 2005.2006.
The Corporation has loan products with varying terms (e.g., interest-only mortgages, option adjustable rate mortgages, etc.) and loans with high loan-to-value ratios. Exposure to any of these loan products does not result in a significant concentration of credit risk. Terms of loan products, collateral coverage, the borrower’s credit history, and the amount of these loans that are retained on ourthe Corporation’s balance sheet are included in the Corporation’s assessment when establishing its Allowanceallowance for Loanloan and Lease Losses.lease losses.
109 |
Note 7 – Allowance for Credit Losses
The following table summarizes the changes in the allowance for credit losses for 2006, 2005 and 2004:
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||
Allowance for loan and lease losses, January 1 | $ | 8,045 | $ | 8,626 | $ | 6,163 | ||||||
FleetBoston balance, April 1, 2004 | — | — | 2,763 | |||||||||
MBNA balance, January 1, 2006 | 577 | — | — | |||||||||
Loans and leases charged off | (5,881 | ) | (5,794 | ) | (4,092 | ) | ||||||
Recoveries of loans and leases previously charged off | 1,342 | 1,232 | 979 | |||||||||
Net charge-offs | (4,539 | ) | (4,562 | ) | (3,113 | ) | ||||||
Provision for loan and lease losses | 5,001 | 4,021 | 2,868 | |||||||||
Other | (68 | ) | (40 | ) | (55 | ) | ||||||
Allowance for loan and lease losses, December 31 | 9,016 | 8,045 | 8,626 | |||||||||
Reserve for unfunded lending commitments, January 1 | 395 | 402 | 416 | |||||||||
FleetBoston balance, April 1, 2004 | — | — | 85 | |||||||||
Provision for unfunded lending commitments | 9 | (7 | ) | (99 | ) | |||||||
Other | (7 | ) | — | — | ||||||||
Reserve for unfunded lending commitments, December 31 | 397 | 395 | 402 | |||||||||
Total allowance for credit losses | $ | 9,413 | $ | 8,440 | $ | 9,028 |
Effective January 1, 2006, the Corporation adopted SFAS 156 and accounts for consumer-related MSRs at fair value with changes in fair value recorded in the Consolidated Statement of Income in Mortgage Banking Income. The Corporation economically hedges these MSRs with certain derivatives such as options and interest rate swaps. Prior to January 1, 2006, consumer-related MSRs were accounted for on a lower of cost or market basis and hedged with derivatives that qualified for SFAS 133 hedge accounting.
The following table presents activity for consumer-related MSRs for2007, 2006 and 2005.
(Dollars in millions) | 2006 | 2005 | ||||||
Balance, January 1 | $ | 2,658 | $ | 2,358 | ||||
MBNA balance, January 1, 2006 | 9 | — | ||||||
Additions | 572 | 860 | ||||||
Sales of MSRs | (71 | ) | (176 | ) | ||||
Impact of customer payments | (713 | ) | — | |||||
Amortization | — | (612 | ) | |||||
Other changes in MSR market value(1) | 414 | 228 | ||||||
Balance, December 31(2) | $ | 2,869 | $ | 2,658 |
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(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||
Allowance for loan and lease losses, January 1 | $ | 9,016 | $ | 8,045 | $ | 8,626 | ||||||
Adjustment due to the adoption of SFAS 159 | (32 | ) | – | – | ||||||||
LaSalle balance, October 1, 2007 | 725 | – | – | |||||||||
U.S. Trust Corporation balance, July 1, 2007 | 25 | – | – | |||||||||
MBNA balance, January 1, 2006 | – | 577 | – | |||||||||
Loans and leases charged off | (7,730 | ) | (5,881 | ) | (5,794 | ) | ||||||
Recoveries of loans and leases previously charged off | 1,250 | 1,342 | 1,232 | |||||||||
Net charge-offs | (6,480 | ) | (4,539 | ) | (4,562 | ) | ||||||
Provision for loan and lease losses | 8,357 | 5,001 | 4,021 | |||||||||
Other | (23 | ) | (68 | ) | (40 | ) | ||||||
Allowance for loan and lease losses, December 31 | 11,588 | 9,016 | 8,045 | |||||||||
Reserve for unfunded lending commitments, January 1 | 397 | 395 | 402 | |||||||||
Adjustment due to the adoption of SFAS 159 | (28 | ) | – | – | ||||||||
LaSalle balance, October 1, 2007 | 124 | – | – | |||||||||
Provision for unfunded lending commitments | 28 | 9 | (7 | ) | ||||||||
Other | (3 | ) | (7 | ) | – | |||||||
Reserve for unfunded lending commitments, December 31 | 518 | 397 | 395 | |||||||||
Allowance for credit losses, December 31 | $ | 12,106 | $ | 9,413 | $ | 8,440 |
Note 8 – Securitizations |
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Commercial-related MSRs are accounted for using the amortization method (i.e., lower of cost or market). Commercial-related MSRs were $176 million and $148 million at December 31, 2006 and 2005 and are not included in the table above.
The key economic assumptions used in valuations of MSRs included modeled prepayment rates and resultant weighted- average lives of the MSRs and the option adjusted spread (OAS) levels. An OAS model runs multiple interest rate scenarios and projects prepayments specific to each one of those interest rate scenarios.
As of December 31, 2006, the fair value of consumer-related MSRs was $2.9 billion, and the modeled weighted-average lives of MSRs related to fixed and adjustable rate loans (including hybrid Adjustable Rate Mortgages) were 4.98 years and 3.19 years. The following table presents the sensitivity of the weighted-average lives and fair value of MSRs to changes in modeled assumptions.
December 31, 2006 | ||||||||||
Change in Weighted-average lives | ||||||||||
(Dollars in millions) | Fixed | Adjustable | Change in Fair value | |||||||
Prepayment rates | ||||||||||
Impact of 10% decrease | 0.33 | years | 0.26 | years | $ | 135 | ||||
Impact of 20% decrease | 0.70 | 0.58 | 289 | |||||||
Impact of 10% increase | (0.29 | ) | (0.23 | ) | (120 | ) | ||||
Impact of 20% increase | (0.55 | ) | (0.42 | ) | (227 | ) | ||||
OAS level | ||||||||||
Impact of 100 bps decrease | n/a | n/a | 109 | |||||||
Impact of 200 bps decrease | n/a | n/a | 227 | |||||||
Impact of 100 bps increase | n/a | n/a | (101 | ) | ||||||
Impact of 200 bps increase | n/a | n/a | (195 | ) |
The Corporation securitizes assets andloans which may continue to holdbe serviced by the Corporation or by third parties. With each securitization, the Corporation may retain all or a portion or all of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized receivables, and, in some cases, cash reserve accounts, all of which are known ascalled retained interests. These retained interests whichare recorded in other assets and/or AFS debt securities and are carried at fair value or amounts that approximate fair value. Those assets may be serviced byvalue with changes recorded in income or accumulated OCI. Changes in the Corporation or by third parties.fair value for credit card-related interest-only strips are recorded in card income.
Mortgage-related Securitizations
The Corporation securitizes a portion of its residential mortgage loan originations in conjunction with or shortly after loan closing. In addition, the Corporation may, from time to time, securitize commercial mortgages and first residential mortgages that it originates or purchases from other entities. In 20062007 and 2005,2006, the Corporation converted a total of $65.5$84.5 billion (including $15.5$13.2 billion originated by other entities) and $95.1$70.4 billion (including $15.9$20.4 billion originated by other entities), of commercial mortgages and first residential mortgages into mortgage-backed securities issued through Fannie Mae, Freddie Mac, Government National Mortgage Association,GNMA, Bank of America, N.A. and Banc of America Mortgage Securities. At December 31, 20062007 and 2005,2006, the Corporation retained $9.2 billion (including $3.3 billion issued prior to 2007) and $5.5 billion (including $4.2 billion issued prior to 2006) and $7.2 billion (including $2.4 billion issued prior to 2005) of these securities. At December 31, 2006, these retained interestssecurities that were valued using quoted market prices. In addition, the Corporation retained securities, including residual interests, which totaled $196 million and $224 million at December 31, 2007 and 2006 and are classified in trading account assets, with changes in fair value recorded in earnings.
In 2007, the Corporation reported $633 million in gains on loans converted into securities and sold, of which gains of $584 million were from loans originated by the Corporation and $49 million were from loans originated by other entities. In 2006, the Corporation reported $341 million$357 mil-
lion in gains on loans converted into securities and sold, of which gains of $329 million were from loans originated by the Corporation and $12 million were from loans originated by other entities. In 2005, the Corporation reported $575 million in gains on loans converted into securities and sold, of which gains of $592 million were from loans originated by the Corporation and losses of $17$28 million were from loans originated by other entities. At December 31, 20062007 and 2005,2006, the Corporation had recourse obligations of $412$150 million and $471$412 million with varying terms up to seven years on loans that had been securitized and sold.
In 20062007 and 2005,2006, the Corporation purchased $17.4$18.1 billion and $19.6$17.4 billion of mortgage-backed securities from third parties and resecuritized them. Net gains, which include Net Interest Incomenet interest income earned during the holding period, totaled $25$13 million and $13$25 million. TheAt December 31, 2007, the Corporation did not retain anyretained $540 million of the securities issued in these transactions.
In 2006 and 2005, the Corporation also purchased an additional $4.9 billion and $7.2 billion of mortgage loans from third parties and securitized them. In At December 31, 2006, the Corporation retained residual interests in these transactions which totaled $224 million at December 31, 2006 and are classified in Trading Account Assets, with changes in fair value recorded in earnings. These residual interests are included in the sensitivity table below which sets forth the sensitivity of the fair value of residual interests to changes in key assumptions. In 2005, the Corporation resecuritized the residual interests and did not retain a significant interestany securities issued in the securitization trusts. The Corporation reported $16 million and $4 million in gains on these transactions in 2006 and 2005.transactions.
The Corporation has retained MSRs from the sale or securitization of mortgage loans. Servicing fee and ancillary fee income on all mortgage loans serviced, including securitizations, was $810 million and $775 million in 2007 and $789 million in 2006 and 2005.2006. For more information on MSRs, seeNote 8 of21 – Mortgage Servicing Rights to the Consolidated Financial Statements.
Due to current market conditions, members of the mortgage servicing industry are evaluating a number of programs for identifying subprime residential mortgage loan borrowers who are at risk of default and offering loss mitigation strategies, including repayment plans and loan modifications, to such borrowers. Generally these programs require that the borrower and subprime residential mortgage loan meet certain criteria in order to qualify for a modification. The SEC’s Office of the Chief Accountant (OCA) noted that if certain loan modification requirements are met, the OCA will not object to continued status of the transferee as a QSPE under SFAS 140. The Corporation does not currently originate or service significant subprime residential mortgage loans, nor does it hold a significant amount of beneficial interests in QSPE securitizations of subprime residential mortgage loans. The Corporation does not expect that the implementation of these programs will have a significant impact on its financial condition and results of operations.
Bank of America 2007 |
As a result of the MBNA merger, the
Credit Card and Other Securitizations
The Corporation acquiredmaintains interests in credit card, other consumer, and commercial loan securitization vehicles. These acquired interests include interest-only strips, subordinated tranches, cash reserve accounts, and subordinated interests in accrued interest and fees on the securitized receivables. During 2007 and 2006, the Corporation securitized $19.9 billion and $23.7 billion of credit card receivables resulting in $99 million and $104 million in gains (net of securitization transaction costs of $14 million and $28 million) which waswere recorded in Card Income. Aggregate debt securities outstanding for the MBNA credit card securitization trusts as of December 31, 2006 and January 1, 2006, were $96.0 billion and $81.6 billion.income. As of December 31, 20062007 and January 1, 2006, the aggregate debt securities outstanding for the Corporation’s credit card securitization trusts including MBNA, were $96.8$101.3 billion and $83.8$96.8 billion. The other consumer and commercial loan securitization vehicles acquired with MBNA were not material to the Corporation.
The Corporation also securitized $3.3 billion and $3.8 billion of automobile loans and recorded losses of $6 million and $17 million in 2006 and 2005.2006. The Corporation did not securitize any automobile loans in 2007. At December 31, 20062007 and 2005,2006, aggregate debt securities outstanding for the Corporation’s automobile securitization vehicles were $5.2$2.6 billion and $4.0$5.2 billion, and the Corporation held residual interests which totaled $130$100 million and $93$130 million. At December 31, 2007 and 2006, the remaining other consumer and commercial loan securitization vehicles were not material to the Corporation.
At December 31, 20062007 and 2005,2006, the Corporation held investment grade securities issued by its securitization vehicles of $2.1 billion ($425 million of which were issued in 2007) and $3.5 billion (none of which were issued in 2006) and $4.4 billion (including $2.6 billion issued in 2005),the AFS debt securities portfolio which are valued using quoted market prices, in the AFS securities portfolio.prices. At December 31, 20062007 and 2005,2006, there were no recognized servicing assets or liabilities associated with any of these credit card and other securitization transactions.
The Corporation has provided protection on a subset of one consumer finance securitization in the form of a guarantee with a maximum payment of $220 million that will only be paid if over-collateralization is not sufficient to absorb losses and certain other conditions are met. The Corporation projects no payments will be due over the remaining life of the contract, which is less than one year.
Key economic assumptions used in measuring the fair value of certain residual interests that continue to be held by the Corporation (included in Other Assets)other assets) in credit card securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are disclosed in the following table.table below.
Amortizing structures—annual constant prepayment rate: Fixed rate loans Adjustable rate loans Impact on fair value of 10% favorable change Impact on fair value of 25% favorable change Impact on fair value of 10% adverse change Impact on fair value of 25% adverse change Impact on fair value of 10% favorable change Impact on fair value of 25% favorable change Impact on fair value of 10% adverse change Impact on fair value of 25% adverse change Impact on fair value of 100 bps favorable change Impact on fair value of 200 bps favorable change Impact on fair value of 100 bps adverse change Impact on fair value of 200 bps adverse change Credit Card Consumer Finance(1) (Dollars in millions) 2006 2005 2006 2005 Carrying amount of residual interests(2) $ 2,929 $ 203 $ 811 $ 290 Balance of unamortized securitized loans 98,295 2,237 6,153 2,667 Weighted average life to call or maturity (in years) 0.3 0.5 0.3-2.7 0.8 Revolving structures—monthly payment rate 11.2-19.8 % 12.1 % 20.0-25.9 % 26.3-28.9 % 32.8-37.1 37.6 $ 43 $ 2 $ 7 $ 8 133 3 12 17 (38 ) (2 ) (15 ) (16 ) (82 ) (3 ) (23 ) (39 ) Expected credit losses(3) 3.8-5.8 % 4.0-4.3 % 4.4-5.9 % 3.9-5.6 % $ 86 $ 3 $ 16 $ 7 218 8 42 18 (85 ) (3 ) (15 ) (7 ) (211 ) (8 ) (36 ) (18 ) Residual cash flows discount rate (annual rate) 12.5 % 12.0 % 16.0-30.0 % 30.0 % $ 12 $ — $ 5 $ 5 17 — 11 11 (14 ) — (5 ) (5 ) (27 ) — (10 ) (10 )
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The sensitivities in the preceding table below 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, the effect of a variation in a particular assumption on the fair value of an interest that continues to be held by the Corporation 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. Additionally, the Corporation has the ability to hedge interest rate risk associated with retained residual positions. The above sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.
Static pool net credit losses are considered in determining the value of the retained interests of the consumer finance securitization. Static pool net credit losses include actual losses incurred plus projected credit losses divided by the original balance of each securitization pool. For consumer finance securitizations entered into in 2006, weighted average static pool net credit losses were 5.00 percent for the year ended December 31, 2006. For consumer finance securitizations entered into in 2001, weighted average static pool net credit losses were 5.29 percent for the year ended December 31, 2006, and 5.50 percent for the year ended December 31, 2005.
Principal proceeds from collections reinvested in revolving credit card securitizations were $178.6 billion and $163.4 billion in 2007 and $4.5 billion in 2006 and 2005.2006. Contractual credit card servicing fee income totaled $2.1 billion and $1.9 billion in 2007 and $97 million in 2006 and 2005.2006. Other cash flows received on retained interests, such as cash flow from interest-only strips, were $6.6 billion and $6.7 billion in 2007 and $183 million in 2006, and 2005, for credit card securitizations. Proceeds from collections reinvested in revolving commercial loan securitizations were $2.9 billion and $4.6 billion in 2007 and $8.7 billion in 2006 and 2005.2006. Servicing fees and other cash flows received on retained interests, such as cash flows from interest-only strips, were $1 million and $9 million in 2007, and $2 million and $15 million in 2006 and $3 million and $34 million in 2005 for commercial loan securitizations.
The Corporation also reviews its loans and leases portfolio on a managed basis. Managed loans and leases are defined as on-balance sheet Loansloans and Leasesleases as well as those loans in revolving securitizations and other securitizations where servicing is retained that are undertaken for corporate management purposes, which include credit card, commercial loans,
automobile and certain mortgage securitizations. Managed loans and leases exclude originate-to-distribute loans and other loans in securitizations where the Corporation has not retained servicing. New advances on accounts for which previous loan balances were sold to the securitization trusts will be recorded on the Corporation’s Consolidated Balance Sheet after the revolving period of the securitization, which has the effect of increasing Loansloans and Leasesleases on the Corporation’s Consolidated Balance Sheet and increasing Net Interest Incomenet interest income and charge-offs, with a related reduction in Noninterest Income.noninterest income.
(Dollars in millions) | 2007 | 2006 | ||||||
Carrying amount of residual interests (at fair value)(1) | $ | 2,766 | $ | 2,929 | ||||
Balance of unamortized securitized loans | 102,967 | 98,295 | ||||||
Weighted average life to call or maturity (in years) | 0.3 | 0.3 | ||||||
Monthly payment rate | 11.6-16.6 | % | 11.2-19.8 | % | ||||
Impact on fair value of 10% favorable change | $ | 51 | $ | 43 | ||||
Impact on fair value of 25% favorable change | 158 | 133 | ||||||
Impact on fair value of 10% adverse change | (35 | ) | (38 | ) | ||||
Impact on fair value of 25% adverse change | (80 | ) | (82 | ) | ||||
Expected credit losses (annual rate) | 3.7-5.4 | % | 3.8-5.8 | % | ||||
Impact on fair value of 10% favorable change | $ | 141 | $ | 86 | ||||
Impact on fair value of 25% favorable change | 374 | 218 | ||||||
Impact on fair value of 10% adverse change | (133 | ) | (85 | ) | ||||
Impact on fair value of 25% adverse change | (333 | ) | (211 | ) | ||||
Residual cash flows discount rate (annual rate) | 11.5 | % | 12.5 | % | ||||
Impact on fair value of 100 bps favorable change | $ | 9 | $ | 12 | ||||
Impact on fair value of 200 bps favorable change | 13 | 17 | ||||||
Impact on fair value of 100 bps adverse change | (12 | ) | (14 | ) | ||||
Impact on fair value of 200 bps adverse change | (23 | ) | (27 | ) |
(1) | Residual interests include interest-only strips, subordinated tranches, subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts which are carried at fair value or amounts that approximate fair value. |
Bank of America 2007 | 111 |
Portfolio balances, delinquency and historical loss amounts of the managed loans and leases portfolio for 20062007 and 20052006 were as follows:
December 31, 2006 | December 31, 2005(1) | ||||||||||||||||||||||
(Dollars in millions) | Total Loans and Leases | Accruing Loans and Leases Past Due 90 Days or More | Nonperforming Loans and Leases | Total Loans and Leases | Accruing Loans and Leases Past Due 90 Days or More | Nonperforming Loans and Leases | |||||||||||||||||
Residential mortgage(2) | $ | 245,840 | $ | 118 | $ | 660 | $ | 188,380 | $ | — | $ | 570 | |||||||||||
Credit card—domestic | 142,599 | 3,828 | n/a | 60,785 | 1,217 | n/a | |||||||||||||||||
Credit card—foreign | 27,890 | 608 | n/a | — | — | n/a | |||||||||||||||||
Home equity lines | 75,197 | — | 251 | 62,546 | 3 | 117 | |||||||||||||||||
Direct/Indirect consumer | 75,112 | 493 | 44 | 49,544 | 75 | 37 | |||||||||||||||||
Other consumer | 9,218 | 38 | 77 | 6,725 | 15 | 61 | |||||||||||||||||
Total consumer | 575,856 | 5,085 | 1,032 | 367,980 | 1,310 | 785 | |||||||||||||||||
Commercial—domestic | 163,274 | 265 | 598 | 142,447 | 117 | 581 | |||||||||||||||||
Commercial real estate | 36,258 | 78 | 118 | 35,766 | 4 | 49 | |||||||||||||||||
Commercial lease financing | 21,864 | 26 | 42 | 20,705 | 15 | 62 | |||||||||||||||||
Commercial—foreign | 20,681 | 9 | 13 | 21,330 | 32 | 34 | |||||||||||||||||
Total commercial | 242,077 | 378 | 771 | 220,248 | 168 | 726 | |||||||||||||||||
Total managed loans and leases | 817,933 | 5,463 | 1,803 | 588,228 | 1,478 | 1,511 | |||||||||||||||||
Managed loans in securitizations | (111,443 | ) | (2,407 | ) | (16 | ) | (14,437 | ) | (23 | ) | — | ||||||||||||
Total held loans and leases | $ | 706,490 | $ | 3,056 | $ | 1,787 | $ | 573,791 | $ | 1,455 | $ | 1,511 |
Year Ended December 31, 2006 | Year Ended December 31, 2005 (1) | |||||||||||||||||||||||
(Dollars in millions) | Average Loans and Leases Outstanding | Net Losses | Net Loss Ratio (3) | Average Loans and Leases Outstanding | Net Losses | Net Loss Ratio (3) | ||||||||||||||||||
Residential mortgage | $ | 213,097 | $ | 39 | 0.02 | % | $ | 179,474 | $ | 27 | 0.02 | % | ||||||||||||
Credit card—domestic | 138,592 | 5,395 | 3.89 | 59,048 | 4,086 | 6.92 | ||||||||||||||||||
Credit card—foreign | 24,817 | 980 | 3.95 | — | — | — | ||||||||||||||||||
Home equity lines | 69,071 | 51 | 0.07 | 56,821 | 31 | 0.05 | ||||||||||||||||||
Direct/Indirect consumer | 68,227 | 839 | 1.23 | 46,719 | 248 | 0.53 | ||||||||||||||||||
Other consumer | 10,713 | 303 | 2.83 | 6,908 | 275 | 3.99 | ||||||||||||||||||
Total consumer | 524,517 | 7,607 | 1.45 | 348,970 | 4,667 | 1.34 | ||||||||||||||||||
Commercial—domestic | 153,796 | 367 | 0.24 | 130,882 | 170 | 0.13 | ||||||||||||||||||
Commercial real estate | 36,939 | 3 | 0.01 | 34,304 | — | — | ||||||||||||||||||
Commercial lease financing | 20,862 | (28 | ) | (0.14 | ) | 20,441 | 231 | 1.13 | ||||||||||||||||
Commercial—foreign | 23,521 | (8 | ) | (0.04 | ) | 18,491 | (72 | ) | (0.39 | ) | ||||||||||||||
Total commercial | 235,118 | 334 | 0.14 | 204,118 | 329 | 0.16 | ||||||||||||||||||
Total managed loans and leases | 759,635 | 7,941 | 1.05 | 553,088 | 4,996 | 0.90 | ||||||||||||||||||
Managed loans in securitizations | (107,218 | ) | (3,402 | ) | 3.17 | (15,870 | ) | (434 | ) | 2.73 | ||||||||||||||
Total held loans and leases | $ | 652,417 | $ | 4,539 | 0.70 | % | $ | 537,218 | $ | 4,562 | 0.85 | % |
December 31, 2007 | December 31, 2006 | |||||||||||||||||||||||||
(Dollars in millions) | Total Loans and Leases | Accruing Loans and | Nonperforming Loans and Leases | Total Loans and Leases | Accruing or More | Nonperforming Loans and Leases | ||||||||||||||||||||
Residential mortgage(1) | $ | 278,733 | $ | 237 | $ | 1,999 | $ | 245,840 | $ | 118 | $ | 660 | ||||||||||||||
Credit card – domestic | 151,862 | 4,170 | n/a | 142,599 | 3,828 | n/a | ||||||||||||||||||||
Credit card – foreign | 31,829 | 714 | n/a | 27,890 | 608 | n/a | ||||||||||||||||||||
Home equity | 115,009 | – | 1,342 | 88,202 | – | 293 | ||||||||||||||||||||
Direct/Indirect consumer | 78,564 | 752 | 8 | 66,266 | 524 | 2 | ||||||||||||||||||||
Other consumer | 3,850 | 4 | 95 | 5,059 | 7 | 77 | ||||||||||||||||||||
Total consumer | 659,847 | 5,877 | 3,444 | 575,856 | 5,085 | 1,032 | ||||||||||||||||||||
Commercial – domestic(2, 3) | 209,087 | 546 | 1,004 | 163,274 | 265 | 598 | ||||||||||||||||||||
Commercial real estate | 61,298 | 36 | 1,099 | 36,258 | 78 | 118 | ||||||||||||||||||||
Commercial lease financing | 22,582 | 25 | 33 | 21,864 | 26 | 42 | ||||||||||||||||||||
Commercial – foreign | 28,376 | 16 | 19 | 20,681 | 9 | 13 | ||||||||||||||||||||
Total commercial | 321,343 | 623 | 2,155 | 242,077 | 378 | 771 | ||||||||||||||||||||
Total managed loans and leases measured at historical cost | 981,190 | 6,500 | 5,599 | 817,933 | 5,463 | 1,803 | ||||||||||||||||||||
Total measured at fair value | 4,590 | – | – | n/a | n/a | n/a | ||||||||||||||||||||
Managed loans in securitizations | (109,436 | ) | (2,764 | ) | (2 | ) | (111,443 | ) | (2,407 | ) | (16 | ) | ||||||||||||||
Total held loans and leases | $ | 876,344 | $ | 3,736 | $ | 5,597 | $ | 706,490 | $ | 3,056 | $ | 1,787 | ||||||||||||||
Year Ended December 31, 2007 | Year Ended December 31, 2006 | |||||||||||||||||||||||||
(Dollars in millions) | Average Outstanding | Net Losses | Net Loss Ratio(4) | Average Outstanding | Net Losses | Net Loss Ratio(4) | ||||||||||||||||||||
Residential mortgage | $ | 268,879 | $ | 57 | 0.02 | % | $ | 213,097 | $ | 39 | 0.02 | % | ||||||||||||||
Credit card – domestic | 141,795 | 6,960 | 4.91 | 138,592 | 5,395 | 3.89 | ||||||||||||||||||||
Credit card – foreign | 29,581 | 1,254 | 4.24 | 24,817 | 980 | 3.95 | ||||||||||||||||||||
Home equity | 99,023 | 274 | 0.28 | 78,692 | 51 | 0.07 | ||||||||||||||||||||
Direct/Indirect consumer | 74,829 | 1,603 | 2.14 | 62,002 | 925 | 1.49 | ||||||||||||||||||||
Other consumer | 4,259 | 278 | 6.54 | 7,317 | 217 | 2.97 | ||||||||||||||||||||
Total consumer | 618,366 | 10,426 | 1.69 | 524,517 | 7,607 | 1.45 | ||||||||||||||||||||
Commercial – domestic(2, 5) | 178,932 | 1,007 | 0.56 | 153,796 | 367 | 0.24 | ||||||||||||||||||||
Commercial real estate | 42,783 | 47 | 0.11 | 36,939 | 3 | 0.01 | ||||||||||||||||||||
Commercial lease financing | 20,435 | 2 | 0.01 | 20,862 | (28 | ) | (0.14 | ) | ||||||||||||||||||
Commercial – foreign | 23,931 | 1 | – | 23,521 | (8 | ) | (0.04 | ) | ||||||||||||||||||
Total commercial | 266,081 | 1,057 | 0.40 | 235,118 | 334 | 0.14 | ||||||||||||||||||||
Total managed loans and leases measured at historical cost | 884,447 | 11,483 | 1.30 | 759,635 | 7,941 | 1.05 | ||||||||||||||||||||
Total measured at fair value | 3,012 | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||
Managed loans in securitizations | (111,305 | ) | (5,003 | ) | 4.50 | (107,218 | ) | (3,402 | ) | 3.17 | ||||||||||||||||
Total held loans and leases | $ | 776,154 | $ | 6,480 | 0.84 | $ | 652,417 | $ | 4,539 | 0.70 |
(1) |
|
| Accruing loans and leases past due 90 days or more represent residential mortgage loans related to repurchases pursuant to |
(2) | Includes small business commercial – domestic loans. |
(3) | Includes small business – commercial domestic accruing loans and leases past due 90 days or more of $427 million and $199 million and nonperforming loans and leases of $135 million and $79 million at December 31, 2007 and 2006. |
(4) | The net loss |
(5) | Includes small business – commercial domestic net losses of $869 million, or 5.57 percent, and $361 million, or 3.00 percent, in 2007 and 2006. |
n/a | = not applicable |
112 | Bank of America 2007 |
|
At December 31, 2006 and 2005, the
Note 9 – Variable Interest Entities
The following table presents total assets and liabilities of the Corporation’s multi-seller asset-backed commercial paper conduits that have been consolidatedthose VIEs in accordance with FIN 46R were reflected in AFS Securities, Other Assets, and Commercial Paper and Other Short-term Borrowings. As of December 31, 2006 and 2005,which the Corporation held $10.5 billion and $6.6 billion of assets in these entities,holds a significant variable interest and, in the unlikely event that all of the assets in the VIEs become worthless, the Corporation’s maximum exposure to loss. The Corporation’s maximum exposure to loss exposureincorporates not only potential losses associated with assets recorded on the Corporation’s balance sheet but also off-balance sheet commitments, such as unfunded liquidity and lending commitments and other contractual arrangements.
Consolidated (1) | Unconsolidated | |||||||||||
(Dollars in millions) | Total Assets | Loss Exposure | Total Assets | Loss Exposure | ||||||||
Variable interest entities, December 31, 2007 | ||||||||||||
Corporation-sponsored multi-seller conduits | $ | 11,944 | $ | 16,984 | $ | 29,363 | $ | 47,335 | ||||
Collateralized debt obligation vehicles | 4,464 | 4,311 | 8,324 | 7,410 | ||||||||
Leveraged lease trusts | 6,236 | 6,236 | – | – | ||||||||
Other | 13,771 | 12,347 | 8,260 | 5,953 | ||||||||
Total variable interest entities | $ | 36,415 | $ | 39,878 | $ | 45,947 | $ | 60,698 | ||||
Variable interest entities, December 31, 2006 | ||||||||||||
Corporation-sponsored multi-seller conduits | $ | 9,090 | $ | 11,515 | $ | 18,983 | $ | 29,836 | ||||
Collateralized debt obligation vehicles | – | – | 8,489 | 7,658 | ||||||||
Leveraged lease trusts | 8,575 | 8,575 | – | – | ||||||||
Other | 4,717 | 3,019 | 12,709 | 9,310 | ||||||||
Total variable interest entities | $ | 22,382 | $ | 23,109 | $ | 40,181 | $ | 46,804 |
(1) | The Corporation consolidates VIEs when it is the primary beneficiary that will absorb the majority of the expected losses or expected residual returns of the VIEs or both. |
Corporation-Sponsored Multi-seller Conduits
The Corporation administers three multi-seller conduits which provide a low-cost funding alternative to its customers by facilitating their access to the commercial paper market. These customers sell or otherwise transfer assets to the conduits, which in turn issue high-grade, short-term commercial paper that is collateralized by the underlying assets. The Corporation receives fees for providing combinations of liquidity and SBLCs or similar loss protection commitments to the conduits.
At December 31, 2007, our liquidity commitments to the conduits were collateralized by various classes of assets. Assets held in the conduits incorporate features such as overcollateralization and cash reserves which are designed to provide credit support at a level that is equivalent to investment grade as determined in accordance with internal risk rating guidelines. During 2007, there were no material write-downs or downgrades of assets.
The Corporation is the primary beneficiary of one conduit which is included in the Consolidated Financial Statements. The assets of the consolidated conduit are recorded in AFS and held-to-maturity debt securities, and other assets. At December 31, 2007, the Corporation’s liquidity commitments to the conduit were collateralized by credit card loans (21 percent), auto loans (14 percent), equipment loans (13 percent), and student loans (eight percent). None of these assets are subprime residential mortgages. In addition, 29 percent of the Corporation’s liquidity commitments were collateralized by projected cash flows from long-term contracts (e.g., television broadcast contracts, stadium revenues and royalty payments) which, as mentioned above, incorporate features that provide credit support at a level equivalent to investment grade. Assets of the Corporation are not available to pay creditors of the consolidated conduit, except to the extent the Corporation may be obligated to perform under the liquidity commitments and SBLCs. Assets of the consolidated conduit are not available to pay creditors of the Corporation.
The Corporation does not consolidate the other two conduits which issued capital notes and equity interests to independent third parties as it does not expect to absorb a majority of the variability of the conduits. At December 31, 2007, the Corporation’s liquidity commitments to the unconsolidated conduits were collateralized by student loans (27 percent), credit card loans and trade receivables (10 percent each), and auto loans (eight percent). Less than one percent of these assets are subprime
residential mortgages. In addition, 29 percent of the Corporation’s commitments were collateralized by the conduits’ short-term lending arrangements with investment funds, primarily real estate funds, which, as mentioned above, incorporate features that provide credit support at a level equivalent to investment grade. Amounts advanced under these arrangements will be repaid when the investment funds issue capital calls to their qualified equity investors.
Net revenues earned from fees associated with these commitments were $184 million and $121 million in 2007 and 2006.
Collateralized Debt Obligation Vehicles
CDO vehicles are SPEs that hold diversified pools of fixed income securities. They issue multiple tranches of debt securities, including commercial paper, and equity securities. The Corporation receives fees for structuring the CDOs and/or placing debt securities with third party investors. The Corporation provided total liquidity support to CDO vehicles of $12.3 billion and $7.7 billion notional amount at December 31, 2007 and 2006 consisting of $10.0 billion (including $3.2 billion for a consolidated CDO) and $2.1 billion of written put options and $2.3 billion and $5.5 billion of other liquidity support at December 31, 2007 and 2006.
The Corporation is the primary beneficiary of certain CDOs which are included in the Consolidated Financial Statements at December 31, 2007. Assets held in the consolidated CDOs are classified in trading account assets and AFS debt securities, including AFS debt securities with a fair value of $2.8 billion that were principally related to certain assets that were removed from the CDO conduit discussed below. The creditors of the consolidated CDOs have no recourse to the general credit of the Corporation.
At December 31, 2007 and 2006, the Corporation provided liquidity support in the form of written put options on $10.0 billion and $2.1 billion notional amount of commercial paper issued by CDOs including $3.2 billion issued by a consolidated CDO at December 31, 2007. The commercial paper is the most senior class of securities issued by the CDOs and benefits from the subordination of all other securities, including AAA-rated securities, issued by the CDOs. The Corporation is obligated under the written put options to provide funding to the CDOs by purchasing the commercial paper at predetermined contractual yields in the event of a severe disruption in the short-term funding market. These written put
Bank of America 2007 | 113 |
options are recorded as derivatives on the Consolidated Balance Sheet and are carried at fair value with changes in fair value recorded in trading account profits (losses). SeeNote 13 – Commitments and Contingencies to the Consolidated Financial Statements for more information on the written put options. Derivative activity related to these entities including unfunded lending commitmentsis included inNote 4 – Derivatives to the Consolidated Financial Statements.
The Corporation also administers a CDO conduit that obtains funds by issuing commercial paper to third party investors. The conduit held $2.3 billion and $5.5 billion of assets at December 31, 2007 and 2006 consisting of super senior tranches of debt securities issued by other CDOs. These securities benefit from overcollateralization exceeding the amount that would be approximately $12.9 billion and $8.3 billion. In addition,required for a AAA-rating. The Corporation provides liquidity support equal to the amount of assets in this conduit which obligates it to purchase the commercial paper at a predetermined contractual yield in the event of a severe disruption in the short-term funding market.
At December 31, 2007, the Corporation hadheld $6.6 billion of commercial paper on the balance sheet that was issued by unconsolidated CDO vehicles, of which $5.0 billion related to these written put options and $1.6 billion related to other liquidity support. The Corporation recorded losses of $3.5 billion, net investmentsof insurance, in 2007 (of which $3.2 billion was recorded in trading account profits (losses) and $288 million was recorded in other income) due to writedowns of assets in consolidated CDOs and losses recorded in connection with written put options and liquidity commitments to unconsolidated CDOs. No losses were recorded in 2006.
Net revenues earned from fees associated with these liquidity commitments were $5 million and $3 million in 2007 and 2006.
Leveraged Lease Trusts
The Corporation’s net investment in leveraged lease trusts totaling $8.6totaled $6.2 billion and $8.2$8.6 billion at December 31, 20062007 and 2005.2006. These amounts, which were reflectedrecorded in Loansloans and Leases,leases, represent the Corporation’s maximum loss exposure to these entities in the unlikely event that the leveraged lease investments become worthless. Debt issued by the leveraged lease trusts is nonrecourse to the Corporation. The Corporation also had contractual relationships with otherhas no liquidity exposure to these leveraged lease trusts.
Other
Other consolidated VIEs that engage in leasing or lending activities or real estate joint ventures. As ofat December 31, 2007 and 2006 consisted primarily of securitization vehicles, including an asset acquisition conduit that holds securities on the Corporation’s behalf and 2005,term securitization vehicles that did not meet QSPE status, as well as managed investment vehicles that invest in financial assets, primarily debt securities. The Corporation’s maximum exposure to loss of these VIEs included $7.4 billion and $272 million of liquidity exposure to consolidated trusts that hold municipal bonds and $1.6 billion and $1.1 billion of liquidity exposure to the amount ofconsolidated asset acquisition conduit at December 31, 2007 and 2006. The assets of these entities was $3.3 billionconsolidated VIEs were recorded in trading account assets, AFS debt securities and $750 million, and in the unlikely event that all of the assets in theother assets. Other unconsolidated VIEs become worthless, the Corporation’s maximum possible loss exposure would be $1.6 billion and $212 million.
Additionally, the Corporation had significant variable interests in other VIEs that it did not consolidate because it was not deemed to be the primary beneficiary. In such cases, the Corporation does not absorb the majority of the entities’ expected losses nor does it receive a majority of the entities’ expected residual returns. These entities typically support the financing needs of the Corporation’s customers by facilitating their access to the commercial paper markets. The Corporation functions as administrator and provides either liquidity and letters of credit, or derivatives to the VIE. The Corporation also provides asset management and related services to or invests in other special purpose vehicles that engage in lending, investing, or real estate activities. Total assets of these entities at December 31, 2007 and 2006 consisted primarily of securitization vehicles, managed investment vehicles that invest in financial assets, primarily debt securities, and 2005 were approximately $51.9 billion and $36.1 billion.investments in affordable housing investment partnerships. Revenues associated with administration, asset management, liquidity, letters of credit and other services were approximately $136$17 million and $122$20 million for the year ended December 31, 2006in 2007 and 2005. At December 31, 2006 and 2005, in the unlikely event that all of the assets in the VIEs become worthless, the Corporation’s maximum loss exposure associated with these VIEs would be approximately $46.0 billion and $30.4 billion, which is net of amounts syndicated.2006.
Management does not believe losses resulting from the Corporation’s involvement with the entities discussed above will be material. See Note 1 of the Consolidated Financial Statements for additional discussion of special purpose financing entities.
Note 10 – Goodwill and Intangible Assets |
The following table presents allocated Goodwilltables present goodwill and intangible assets at December 31, 20062007 and 2005 for each business segment andAll Other.
December 31 | |||||
(Dollars in millions) | 2006 | 2005 | |||
Global Consumer and Small Business Banking | $38,760 | $ | 18,491 | ||
Global Corporate and Investment Banking | 21,331 | 21,292 | |||
Global Wealth and Investment Management | 5,333 | 5,333 | |||
All Other | 238 | 238 | |||
Total | $65,662
| $ | 45,354 |
December 31 | ||||||
(Dollars in millions) | 2007 | 2006 | ||||
Global Consumer and Small Business Banking | $ | 40,340 | $ | 38,201 | ||
Global Corporate and Investment Banking | 29,648 | 21,979 | ||||
Global Wealth and Investment Management | 6,451 | 5,243 | ||||
All Other | 1,091 | 239 | ||||
Total goodwill | $ | 77,530 | $ | 65,662 |
The gross carrying values and accumulated amortization related to Intangible Assetsintangible assets at December 31, 20062007 and 20052006 are presented below:
December 31 | ||||||||||||
2006 | 2005 | |||||||||||
(Dollars in millions) | Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | ||||||||
Purchased credit card relationships | $ | 6,790 | $ | 1,159 | $ | 977 | $ | 450 | ||||
Core deposit intangibles | 3,850 | 2,396 | 3,661 | 1,881 | ||||||||
Affinity relationships | 1,650 | 205 | — | — | ||||||||
Other intangibles | 1,525 | 633 | 1,376 | 489 | ||||||||
Total | $ | 13,815 | $ | 4,393 | $ | 6,014 | $ | 2,820 |
December 31 | ||||||||||||||
2007 | 2006 | |||||||||||||
(Dollars in millions) | Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | ||||||||||
Purchased credit card relationships | $ | 7,027 | $ | 1,970 | $ | 6,790 | $ | 1,159 | ||||||
Core deposit intangibles | 4,594 | 2,828 | 3,850 | 2,396 | ||||||||||
Affinity relationships | 1,681 | 406 | 1,650 | 205 | ||||||||||
Other intangibles | 3,050 | 852 | 1,525 | 633 | ||||||||||
Total intangible assets | $ | 16,352 | $ | 6,056 | $ | 13,815 | $ | 4,393 |
The above tables include $11.1 billion and $1.6 billion of goodwill and $1.0 billion and $1.3 billion of intangible assets related to the preliminary purchase price allocations of LaSalle and U.S. Trust Corporation. For more information on the impact of the MBNA merger,these acquisitions, seeNote 2 of– Merger and Restructuring Activity to the Consolidated Financial Statements.
Amortization of Intangiblesintangibles expense was $1.7 billion, $1.8 billion and $809 million in 2007, 2006 and $664 million in 2006, 2005, and 2004, respectively. The increase for the year ended December 31, 2006 was primarily due to the MBNA merger. The Corporation estimates the aggregate amortization expense will be approximately $1.7 billion, $1.5 billion, $1.3$1.5 billion, $1.2 billion and $1.0 billion and $900 million for 2007, 2008 2009, 2010 and 2011,through 2012, respectively. These estimates exclude the impact of any planned acquisitions.
| Bank of America 2007 |
Note 11 – Deposits
The Corporation had domestic certificates of deposit of $100 thousand or more totaling $72.5 billion and $47.0 billion at December 31, 2006 and 2005. The Corporation had other domestic time deposits of $100 thousand or more totaling $1.9$94.4 billion and $1.4$74.5 billion at December 31, 20062007 and 2005.2006. Foreign certificates of deposit and other foreign time deposits of $100 thousand or more totaled $62.1$109.1 billion and $38.8$62.1 billion at December 31, 20062007 and 2005.2006.
|
(Dollars in millions) | Three months or less | Over three months to six months | Over six months to twelve months | Thereafter | Total | ||||||||||
Domestic certificates of deposit | $ | 33,540 | $ | 14,205 | $ | 20,794 | $ | 4,006 | $ | 72,545 | |||||
Domestic other time deposits | 300 | 364 | 399 | 885 | 1,948 | ||||||||||
Foreign certificates of deposit and other time deposits | 55,649 | 4,569 | 906 | 971 | 62,095 |
Time deposits of $100 thousand or more
(Dollars in millions) | Three months or less | Over three months to twelve months | Thereafter | Total | ||||||||
Domestic certificates of deposit and other time deposits | $ | 45,172 | $ | 46,199 | $ | 3,069 | $ | 94,440 | ||||
Foreign certificates of deposit and other time deposits | 100,515 | 5,900 | 2,706 | 109,121 |
At December 31, 2006,2007, the scheduled maturities for total time deposits were as follows:
(Dollars in millions) | Domestic | Foreign | Total | ||||||
Due in 2007 | $ | 154,509 | $ | 88,396 | $ | 242,905 | |||
Due in 2008 | 7,283 | 218 | 7,501 | ||||||
Due in 2009 | 4,590 | — | 4,590 | ||||||
Due in 2010 | 2,179 | 1 | 2,180 | ||||||
Due in 2011 | 807 | 2 | 809 | ||||||
Thereafter | 959 | 1,187 | 2,146 | ||||||
Total | $ | 170,327 | $ | 89,804 | $ | 260,131 |
|
(Dollars in millions) | Domestic | Foreign | Total | ||||||
Due in 2008 | $ | 205,359 | $ | 107,334 | $ | 312,693 | |||
Due in 2009 | 7,656 | 786 | 8,442 | ||||||
Due in 2010 | 3,484 | 180 | 3,664 | ||||||
Due in 2011 | 1,569 | 23 | 1,592 | ||||||
Due in 2012 | 1,776 | 1,023 | 2,799 | ||||||
Thereafter | 1,963 | 730 | 2,693 | ||||||
Total time deposits | $ | 221,807 | $ | 110,076 | $ | 331,883 |
Note 12 – Short-term Borrowings and Long-term Debt Short-term Borrowings |
Bank of America Corporation and certain otherof its subsidiaries issue commercial paper in order to meet short-term funding needs. Commercial paper outstanding at December 31, 20062007 was $41.2$55.6 billion compared to $25.0$41.2 billion at December 31, 2005.2006.
Bank of America, N.A. maintains a domestic program to offer up to a maximum of $50.0$75.0 billion, at any one time, of bank notes with fixed or floating rates and maturities of at least seven days from the date of issue. Short-term bank notes outstanding under this program totaled $12.3 billion at December 31, 2007 compared to $24.5 billion at December 31, 2006, compared to $22.5 billion at December 31, 2005.2006. These short-term bank notes, along with commercial paper, Federal Home Loan Bank advances, Treasury tax and loan notes, and term federal funds purchased, and commercial paper, are reflected in Commercial Papercommercial paper and Other Short-term Borrowingsother short-term borrowings on the Consolidated Balance Sheet.
| 115 |
Long-term Debt
The following table presents the balance of Long-term Debtlong-term debt at December 31, 20062007 and 20052006 and the related rates and maturity dates at December 31, 2006:2007:
December 31 | ||||||
(Dollars in millions) | 2006 | 2005 | ||||
Notes issued by Bank of America Corporation | ||||||
Senior notes: | ||||||
Fixed, with a weighted average rate of 4.51%, ranging from 0.84% to 7.50%, due 2007 to 2043 | $ | 38,587 | $ | 36,357 | ||
Floating, with a weighted average rate of 4.93%, ranging from 0.72% to 6.78%, due 2007 to 2041 | 26,695 | 19,050 | ||||
Subordinated notes: | ||||||
Fixed, with a weighted average rate of 6.08%, ranging from 2.94% to 10.20%, due 2007 to 2037 | 23,896 | 20,596 | ||||
Floating, with a weighted average rate of 5.69%, ranging from 5.11% to 5.70% due 2016 to 2019 | 510 | 10 | ||||
Junior subordinated notes (related to trust preferred securities): | ||||||
Fixed, with a weighted average rate of 6.77%, ranging from 5.25% to 11.45%, due 2026 to 2055 | 13,665 | 10,337 | ||||
Floating, with a weighted average rate of 6.07%, ranging from 5.92% to 8.72%, due 2027 to 2033 | 2,203 | 1,922 | ||||
Total notes issued by Bank of America Corporation | 105,556 | 88,272 | ||||
Notes issued by Bank of America, N.A. and other subsidiaries | ||||||
Senior notes: | ||||||
Fixed, with a weighted average rate of 5.03%, ranging from 0.93% to 11.30%, due 2007 to 2033 | 6,450 | 1,096 | ||||
Floating, with a weighted average rate of 5.28%, ranging from 3.69% to 6.78%, due 2007 to 2051 | 22,219 | 4,985 | ||||
Subordinated notes: | ||||||
Fixed, with a weighted average rate of 6.36%, ranging from 5.75% to 7.13%, due 2007 to 2036 | 4,294 | 1,871 | ||||
Floating, with a weighted average rate of 5.63%, ranging from 5.36% to 5.64%, due 2016 to 2019 | 918 | 8 | ||||
Total notes issued by Bank of America, N.A. and other subsidiaries | 33,881 | 7,960 | ||||
Notes issued by NB Holdings Corporation | ||||||
Junior subordinated notes (related to trust preferred securities): | ||||||
Fixed, with a weighted average rate of 8.02%, ranging from 7.95% to 8.06%, due 2026 | 515 | 515 | ||||
Floating, 6.00%, due 2027 | 258 | 258 | ||||
Total notes issued by NB Holdings Corporation | 773 | 773 | ||||
Other debt | ||||||
Advances from the Federal Home Loan Bank of Atlanta | ||||||
Floating, 5.49%, due 2007 | 500 | 2,750 | ||||
Advances from the Federal Home Loan Bank of New York | ||||||
Fixed, with a weighted average rate of 6.07%, ranging from 4.00% to 8.29%, due 2007 to 2016 | 285 | 296 | ||||
Advances from the Federal Home Loan Bank of Seattle | ||||||
Fixed, with a weighted average rate of 6.34%, ranging from 5.40% to 7.42%, due 2007 to 2031 | 125 | 578 | ||||
Floating, with a weighted average rate of 5.33%, ranging from 5.30% to 5.35%, due 2007 to 2008 | 3,200 | — | ||||
Advances from the Federal Home Loan Bank of Boston | ||||||
Fixed, with a weighted average rate of 5.83%, ranging from 1.00% to 7.72%, due 2007 to 2026 | 146 | 178 | ||||
Floating, with a weighted average rate of 5.43%, ranging from 5.30% to 5.50%, due 2008 to 2009 | 1,500 | — | ||||
Other | 34 | 41 | ||||
Total other debt | 5,790 | 3,843 | ||||
Total long-term debt | $ | 146,000 | $ | 100,848 |
December 31 | ||||||
(Dollars in millions) | 2007 | 2006 | ||||
Notes issued by Bank of America Corporation | ||||||
Senior notes: | ||||||
Fixed, with a weighted average rate of 4.62%, ranging from 0.84% to 8.61%, due 2008 to 2043 | $ | 47,430 | $ | 38,587 | ||
Floating, with a weighted average rate of 4.97%, ranging from 0.54% to 9.07%, due 2008 to 2041 | 41,791 | 26,695 | ||||
Subordinated notes: | ||||||
Fixed, with a weighted average rate of 5.78%, ranging from 2.40% to 10.20%, due 2008 to 2037 | 28,630 | 23,896 | ||||
Floating, with a weighted average rate of 5.78%, ranging from 4.58% to 7.52%, due 2016 to 2019 | 686 | 510 | ||||
Junior subordinated notes (related to trust preferred securities): | ||||||
Fixed, with a weighted average rate of 6.64%, ranging from 5.25% to 11.45%, due 2026 to 2055 | 13,866 | 13,665 | ||||
Floating, with a weighted average rate of 5.71%, ranging from 5.24% to 8.59%, due 2027 to 2056 | 3,359 | 2,203 | ||||
Total notes issued by Bank of America Corporation | 135,762 | 105,556 | ||||
Notes issued by Bank of America, N.A. and other subsidiaries | ||||||
Senior notes: | ||||||
Fixed, with a weighted average rate of 4.66%, ranging from 0.93% to 11.30%, due 2008 to 2027 | 5,648 | 6,450 | ||||
Floating, with a weighted average rate of 5.03%, ranging from 1.00% to 8.00%, due 2008 to 2051 | 32,873 | 22,219 | ||||
Subordinated notes: | ||||||
Fixed, with a weighted average rate of 5.99%, ranging from 5.30% to 7.13%, due 2008 to 2036 | 6,592 | 4,294 | ||||
Floating, with a weighted average rate of 5.25%, ranging from 4.85% to 5.29%, due 2010 to 2027 | 1,907 | 918 | ||||
Total notes issued by Bank of America, N.A. and other subsidiaries | 47,020 | 33,881 | ||||
Notes issued by NB Holdings Corporation | ||||||
Junior subordinated notes (related to trust preferred securities): | ||||||
Fixed | – | 515 | ||||
Floating, 5.54%, due 2027 | 258 | 258 | ||||
Total notes issued by NB Holdings Corporation | 258 | 773 | ||||
Notes issued by BAC North America Holding Company and subsidiaries(1) | ||||||
Senior notes: | ||||||
Fixed, with a weighted average rate of 5.04%, ranging from 3.00% to 8.00%, due 2008 to 2026 | 583 | – | ||||
Floating, 3.62%, due 2013 | 215 | – | ||||
Preferred Securities (related to securities issued by trusts): | ||||||
Fixed, 6.97%, redeemable on or after 9/15/2010 | 491 | – | ||||
Floating, with a weighted average rate of 6.56%, ranging from 5.05% to 7.00%, redeemable starting on or after 9/15/2010 | 1,627 | – | ||||
Total notes issued by BAC North America Holding Company and subsidiaries | 2,916 | – | ||||
Other debt | ||||||
Advances from the Federal Home Loan Bank of Atlanta | ||||||
Floating | – | 500 | ||||
Advances from the Federal Home Loan Bank of New York | ||||||
Fixed, with a weighted average rate of 6.06%, ranging from 4.00% to 8.29%, due 2008 to 2016 | 230 | 285 | ||||
Advances from the Federal Home Loan Bank of Seattle | ||||||
Fixed, with a weighted average rate of 6.34%, ranging from 5.40% to 7.42%, due 2008 to 2031 | 122 | 125 | ||||
Floating, with a weighted average rate of 5.20%, ranging from 5.12% to 5.22%, due 2008 | 2,100 | 3,200 | ||||
Advances from the Federal Home Loan Bank of Boston | ||||||
Fixed, with a weighted average rate of 5.89%, ranging from 1.00% to 7.72%, due 2008 to 2026 | 133 | 146 | ||||
Floating, with a weighted average rate of 4.42%, ranging from 4.36% to 4.45%, due 2008 to 2009 | 2,500 | 1,500 | ||||
Advances from the Federal Home Loan Bank of Chicago | ||||||
Fixed, with a weighted average rate of 4.03%, ranging from 2.97% to 8.29%, due 2008 to 2015 | 1,966 | – | ||||
Floating, with a weighted average rate of 4.90%, ranging from 4.76% to 5.00%, due 2008 to 2013 | 850 | – | ||||
Advances from the Federal Home Loan Bank of Indianapolis | ||||||
Fixed, with a weighted average rate of 4.13%, ranging from 2.95% to 6.61%, due 2008 to 2013 | 3,300 | – | ||||
Other | 351 | 34 | ||||
Total other debt | 11,552 | 5,790 | ||||
Total long-term debt | $ | 197,508 | $ | 146,000 |
(1) | Formerly ABN AMRO North America Holding Company which was acquired on October 1, 2007 as part of the LaSalle acquisition. |
116 | Bank of America 2007 |
The majority of the floating rates are based on three- and six-month London InterBank Offered Rates (LIBOR). Bank of America Corporation and Bank of America, N.A. maintain various domestic and international debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. dollars or foreign currencies. At December 31, 2006
2007 and 2005,2006, the amount of foreign currency denominatedcurrency-denominated debt translated into U.S. dollars included in total long-term debt was $37.8$58.8 billion and $23.1$37.8 billion. Foreign currency contracts are used to convert certain foreign currency denominatedcurrency-denominated debt into U.S. dollars.
At December 31, 20062007 and 2005,2006, Bank of America Corporation was authorized to issue approximately $58.1$64.0 billion and $27.0$58.1 billion of additional corporate debt and other securities under its existing shelf registrationshelf-registration statements. At December 31, 2007 and 2006, Bank of
America, N.A. was authorized to issue approximately $62.1 billion and 2005,$30.8 billion of bank notes. At December 31, 2007, Bank of America, N.A. was authorized to issue approximately $30.8 billion and $9.5$20.6 billion of bank notes and Euro medium-termadditional mortgage notes.
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, 2007) were 5.09 percent, 5.21 percent and 4.93 percent, respectively, at December 31, 2007 and (based on the rates in effect at December 31, 2006) were 5.32 percent, 5.41 percent and 5.18 percent, respectively, at December 31, 2006 and (based on the rates in effect at December 31, 2005) were 5.22 percent, 5.53 percent and 4.31 percent, respectively, at December 31, 2005.2006. These obligations were denominated primarily in U.S. dollars.
AggregateThe following table presents aggregate annual maturities of long-term debt obligations (based on final maturity dates) at December 31, 2006 are as follows:2007.
(Dollars in millions) | 2007 | 2008 | 2009 | 2010 | 2011 | Thereafter | Total | 2008 | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | ||||||||||||||||||||||||||||
Bank of America Corporation | $ | 4,377 | $ | 11,031 | $ | 15,260 | $ | 11,585 | $ | 7,943 | $ | 55,360 | $ | 105,556 | $ | 7,303 | $ | 13,487 | $ | 19,632 | $ | 8,430 | $ | 12,188 | $ | 74,722 | $ | 135,762 | ||||||||||||||
Bank of America, N.A. and other subsidiaries | 11,158 | 13,279 | 1,705 | 871 | 162 | 6,706 | 33,881 | 18,802 | 9,879 | 2,967 | 147 | 5,663 | 9,562 | 47,020 | ||||||||||||||||||||||||||||
NB Holdings Corporation | — | — | — | — | — | 773 | 773 | – | – | – | – | – | 258 | 258 | ||||||||||||||||||||||||||||
BAC North America Holding Company and subsidiaries | 16 | 73 | 91 | 51 | 15 | 2,670 | 2,916 | |||||||||||||||||||||||||||||||||||
Other | 1,659 | 2,668 | 1,019 | 234 | 4 | 206 | 5,790 | 4,314 | 2,783 | 1,781 | 1,505 | 116 | 1,053 | 11,552 | ||||||||||||||||||||||||||||
Total | $ | 17,194 | $ | 26,978 | $ | 17,984 | $ | 12,690 | $ | 8,109 | $ | 63,045 | $ | 146,000 | $ | 30,435 | $ | 26,222 | $ | 24,471 | $ | 10,133 | $ | 17,982 | $ | 88,265 | $ | 197,508 |
Trust Preferred and Hybrid Securities
Trust preferred securities (Trust Securities) are issued by the trust companies (the Trusts), which are not consolidated. These Trust Securities are mandatorily redeemable preferred security obligations of the Trusts. The sole assets of the Trusts are Junior Subordinated Deferrable Interest Notes of the Corporation (the Notes). The Trusts are 100 percent ownedpercent-owned finance subsidiaries of the Corporation. Obligations associated with the Notes are included in the Long-term Debt table on the previous page. See Note 15 of the Consolidated Financial Statements for a discussion regarding the treatment for regulatory capital purposes of the Trust Securities.
At December 31, 2006, the Corporation had 38 Trusts which have issued Trust Securities to the public. Certain of the Trust Securities were issued at a discount and may be redeemed prior to maturity at the option of the Corporation. The Trusts have invested the proceeds of such Trust Securities in the Notes. Each issue of the Notes has an interest rate equal to the corresponding Trust Securities 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, distributions on the Trust Securities will also be deferred and the Corporation’s ability to pay dividends on its common and preferred stock will be restricted.
The Trust 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.
Periodic cash payments and payments upon liquidation or redemption with respect to Trust Securities are guaranteed by the Corporation to the extent of funds held by the 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 subordinatedsub-
ordinated basis, by the Corporation of payments due on the Trust Securities.
Hybrid Income Term Securities (HITS) totaling $1.6 billion were also issued by the Trusts to institutional investors. The BAC Capital Trust XIII Floating Rate Preferred HITS have a distribution rate of three-month LIBOR plus 40 bps and the BAC Capital Trust XIV Fixed-to-Floating Rate Preferred HITS have an initial distribution rate of 5.63 percent. Both series of HITS represent beneficial interests in the assets of the respective capital trust, which consists of a series of the Corporation’s junior subordinated notes and a stock purchase contract for a specified series of the Corporation’s preferred stock. The Corporation will remarket the junior subordinated notes underlying each series of HITS on or about the five-year anniversary of the issuance to obtain sufficient funds for the capital trusts to buy the Corporation’s preferred stock under the stock purchase contracts.
In connection with the HITS, the Corporation entered into two replacement capital covenants for the benefit of investors in certain series of the Corporation’s long-term indebtedness (Covered Debt). As of the date of this report, the Corporation’s 6 5/8% Junior Subordinated Notes due 2036 constitutes the Covered Debt under the covenant corresponding to the Floating Rate Preferred HITS and the Corporation’s 5 5/8% Junior Subordinated Notes due 2035 constitutes the Covered Debt under the covenant corresponding to the Fixed-to-Floating Rate Preferred HITS. These covenants generally restrict the ability of the Corporation and its subsidiaries to redeem or purchase the HITS and related securities unless the Corporation has obtained the prior approval of the FRB if required under the FRB’s capital guidelines, the redemption or purchase price of the HITS does not exceed the amount received by the Corporation from the sale of certain qualifying securities, and such replacement securities qualify as Tier 1 Capital and are not “restricted core capital elements” under the FRB’s guidelines.
Bank of America 2007 | 117 |
The following table is a summary of the outstanding Trust Securities and the Notes at December 31, 20062007 as originated by Bank of America Corporation and the predecessor banks.
(Dollars in millions) Issuer | Issuance Date | Aggregate Principal Amount of Trust Securities | Aggregate Principal Amount of the Notes | Stated Maturity of the Notes | Per Annum Interest Rate of the Notes | Interest Payment Dates | Redemption Period | |||||||||||||||||||||||||||||
(Dollars in millions) | Issuance Date | Aggregate Principal Amount of Trust Securities | Aggregate Principal Amount of the Notes | Stated Maturity of the Notes | Per Annum Interest Rate of the Notes | Interest Payment Dates | Redemption Period | |||||||||||||||||||||||||||||
Issuer | ||||||||||||||||||||||||||||||||||||
Bank of America | ||||||||||||||||||||||||||||||||||||
Capital Trust I | December 2001 | $ | 575 | $ | 593 | December 2031 | 7.00 | % | 3/15,6/15,9/15,12/15 | On or after 12/15/06 | December 2001 | $ | 575 | $ | 593 | December 2031 | 7.00 | % | 3/15,6/15,9/15,12/15 | On or after 12/15/06 | ||||||||||||||||
Capital Trust II | January 2002 | 900 | 928 | February 2032 | 7.00 | 2/1, 5/1,8/1,11/1 | On or after 2/01/07 | January 2002 | 900 | 928 | February 2032 | 7.00 | 2/1,5/1,8/1,11/1 | On or after 2/01/07 | ||||||||||||||||||||||
Capital Trust III | August 2002 | 500 | 516 | August 2032 | 7.00 | 2/15, 5/15,8/15,11/15 | On or after 8/15/07 | August 2002 | 500 | 516 | August 2032 | 7.00 | 2/15,5/15,8/15,11/15 | On or after 8/15/07 | ||||||||||||||||||||||
Capital Trust IV | April 2003 | 375 | 387 | May 2033 | 5.88 | 2/1, 5/1,8/1,11/1 | On or after 5/01/08 | April 2003 | 375 | 387 | May 2033 | 5.88 | 2/1,5/1,8/1,11/1 | On or after 5/01/08 | ||||||||||||||||||||||
Capital Trust V | November 2004 | 518 | 534 | November 2034 | 6.00 | 2/3, 5/3,8/3,11/3 | On or after 11/03/09 | November 2004 | 518 | 534 | November 2034 | 6.00 | 2/3,5/3,8/3,11/3 | On or after 11/03/09 | ||||||||||||||||||||||
Capital Trust VI | March 2005 | 1,000 | 1,031 | March 2035 | 5.63 | 3/8,9/8 | Any time | March 2005 | 1,000 | 1,031 | March 2035 | 5.63 | 3/8,9/8 | Any time | ||||||||||||||||||||||
Capital Trust VII | August 2005 | 1,665 | 1,717 | August 2035 | 5.25 | 2/10,8/10 | Any time | August 2005 | 1,685 | 1,738 | August 2035 | 5.25 | 2/10,8/10 | Any time | ||||||||||||||||||||||
Capital Trust VIII | August 2005 | 530 | 546 | August 2035 | 6.00 | 2/25,5/25,8/25,11/25 | On or after 8/25/10 | August 2005 | 530 | 546 | August 2035 | 6.00 | 2/25,5/25,8/25,11/25 | On or after 8/25/10 | ||||||||||||||||||||||
Capital Trust X | March 2006 | 900 | 928 | March 2055 | 6.25 | 3/29,6/29,9/29,12/29 | On or after 3/29/11 | March 2006 | 900 | 928 | March 2055 | 6.25 | 3/29,6/29,9/29,12/29 | On or after 3/29/11 | ||||||||||||||||||||||
Capital Trust XI | May 2006 | 1,000 | 1,031 | May 2036 | 6.63 | 5/23,11/23 | Any time | May 2006 | 1,000 | 1,031 | May 2036 | 6.63 | 5/23,11/23 | Any time | ||||||||||||||||||||||
Capital Trust XII | August 2006 | 863 | 890 | August 2055 | 6.88 | 2/2,5/2,8/2,11/2 | On or after 8/02/11 | August 2006 | 863 | 890 | August 2055 | 6.88 | 2/2,5/2,8/2,11/2 | On or after 8/02/11 | ||||||||||||||||||||||
Capital Trust XIII | February 2007 | 700 | 700 | March 2043 | 3-mo. LIBOR +40 bps | 3/15,6/15,9/15,12/15 | On or after 3/15/17 | |||||||||||||||||||||||||||||
Capital Trust XIV | February 2007 | 850 | 850 | March 2043 | 5.63 | 3/15,9/15 | On or after 3/15/17 | |||||||||||||||||||||||||||||
Capital Trust XV | May 2007 | 500 | 500 | June 2056 | 3-mo. LIBOR +80 bps | 3/1,6/1,9/1,12/1 | On or after 6/01/37 | |||||||||||||||||||||||||||||
NationsBank | ||||||||||||||||||||||||||||||||||||
Capital Trust II | December 1996 | 365 | 376 | December 2026 | 7.83 | 6/15,12/15 | On or after 12/15/06 | December 1996 | 365 | 376 | December 2026 | 7.83 | 6/15,12/15 | On or after 12/15/06 | ||||||||||||||||||||||
Capital Trust III | February 1997 | 500 | 515 | January 2027 | 3-mo. LIBOR +55 bps | 1/15,4/15,7/15,10/15 | On or after 1/15/07 | February 1997 | 500 | 515 | January 2027 | 3-mo. LIBOR +55 bps | 1/15,4/15,7/15,10/15 | On or after 1/15/07 | ||||||||||||||||||||||
Capital Trust IV | April 1997 | 500 | 515 | April 2027 | 8.25 | 4/15,10/15 | On or after 4/15/07 | April 1997 | 500 | 515 | April 2027 | 8.25 | 4/15,10/15 | On or after 4/15/07 | ||||||||||||||||||||||
BankAmerica | ||||||||||||||||||||||||||||||||||||
Institutional Capital A | November 1996 | 450 | 464 | December 2026 | 8.07 | 6/30,12/31 | On or after 12/31/06 | November 1996 | 450 | 464 | December 2026 | 8.07 | 6/30,12/31 | On or after 12/31/06 | ||||||||||||||||||||||
Institutional Capital B | November 1996 | 300 | 309 | December 2026 | 7.70 | 6/30,12/31 | On or after 12/31/06 | November 1996 | 300 | 309 | December 2026 | 7.70 | 6/30,12/31 | On or after 12/31/06 | ||||||||||||||||||||||
Capital II | December 1996 | 450 | 464 | December 2026 | 8.00 | 6/15,12/15 | On or after 12/15/06 | December 1996 | 450 | 464 | December 2026 | 8.00 | 6/15,12/15 | On or after 12/15/06 | ||||||||||||||||||||||
Capital III | January 1997 | 400 | 412 | January 2027 | 3-mo. LIBOR +57 bps | 1/15,4/15, 7/15,10/15 | On or after 1/15/02 | January 1997 | 400 | 412 | January 2027 | 3-mo. LIBOR +57 bps | 1/15,4/15,7/15,10/15 | On or after 1/15/02 | ||||||||||||||||||||||
Barnett | ||||||||||||||||||||||||||||||||||||
Capital I | November 1996 | 300 | 309 | December 2026 | 8.06 | 6/1,12/1 | On or after 12/01/06 | |||||||||||||||||||||||||||||
Capital II | December 1996 | 200 | 206 | December 2026 | 7.95 | 6/1,12/1 | On or after 12/01/06 | |||||||||||||||||||||||||||||
Capital III | January 1997 | 250 | 258 | February 2027 | 3-mo. LIBOR +62.5 bps | 2/1,5/1,8/1,11/1 | On or after 2/01/07 | January 1997 | 250 | 258 | February 2027 | 3-mo. LIBOR +62.5 bps | 2/1,5/1,8/1,11/1 | On or after 2/01/07 | ||||||||||||||||||||||
Fleet | ||||||||||||||||||||||||||||||||||||
Capital Trust II | December 1996 | 250 | 258 | December 2026 | 7.92 | 6/15,12/15 | On or after 12/15/06 | December 1996 | 250 | 258 | December 2026 | 7.92 | 6/15,12/15 | On or after 12/15/06 | ||||||||||||||||||||||
Capital Trust V | December 1998 | 250 | 258 | December 2028 | 3-mo. LIBOR +100 bps | 3/18, 6/18,9/18, 12/18 | On or after 12/18/03 | December 1998 | 250 | 258 | December 2028 | 3-mo. LIBOR +100 bps | 3/18,6/18,9/18,12/18 | On or after 12/18/03 | ||||||||||||||||||||||
Capital Trust VIII | March 2002 | 534 | 550 | March 2032 | 7.20 | 3/15, 6/15,9/15,12/15 | On or after 3/08/07 | March 2002 | 534 | 550 | March 2032 | 7.20 | 3/15,6/15,9/15,12/15 | On or after 3/08/07 | ||||||||||||||||||||||
Capital Trust IX | July 2003 | 175 | 180 | August 2033 | 6.00 | 2/1, 5/1,8/1,11/1 | On or after 7/31/08 | July 2003 | 175 | 180 | August 2033 | 6.00 | 2/1,5/1,8/1,11/1 | On or after 7/31/08 | ||||||||||||||||||||||
BankBoston | ||||||||||||||||||||||||||||||||||||
Capital Trust I | November 1996 | 250 | 258 | December 2026 | 8.25 | 6/15,12/15 | On or after 12/15/06 | |||||||||||||||||||||||||||||
Capital Trust II | December 1996 | 250 | 258 | December 2026 | 7.75 | 6/15,12/15 | On or after 12/15/06 | |||||||||||||||||||||||||||||
Capital Trust III | June 1997 | 250 | 258 | June 2027 | 3-mo. LIBOR +75 bps | 3/15, 6/15,9/15,12/15 | On or after 6/15/07 | June 1997 | 250 | 258 | June 2027 | 3-mo. LIBOR +75 bps | 3/15,6/15,9/15,12/15 | On or after 6/15/07 | ||||||||||||||||||||||
Capital Trust IV | June 1998 | 250 | 258 | June 2028 | 3-mo. LIBOR +60 bps | 3/8, 6/8,9/8,12/8 | On or after 6/08/03 | June 1998 | 250 | 258 | June 2028 | 3-mo. LIBOR +60 bps | 3/8,6/8,9/8,12/8 | On or after 6/08/03 | ||||||||||||||||||||||
Summit | ||||||||||||||||||||||||||||||||||||
Capital Trust I | March 1997 | 150 | 155 | March 2027 | 8.40 | 3/15,9/15 | On or after 3/15/07 | |||||||||||||||||||||||||||||
Progress | ||||||||||||||||||||||||||||||||||||
Capital Trust I | June 1997 | 9 | 9 | June 2027 | 10.50 | 6/1,12/1 | On or after 6/01/07 | June 1997 | 9 | 9 | June 2027 | 10.50 | 6/1,12/1 | On or after 6/01/07 | ||||||||||||||||||||||
Capital Trust II | July 2000 | 6 | 6 | July 2030 | 11.45 | 1/19,7/19 | On or after 7/19/10 | July 2000 | 6 | 6 | July 2030 | 11.45 | 1/19,7/19 | On or after 7/19/10 | ||||||||||||||||||||||
Capital Trust III | November 2002 | 10 | 10 | November 2032 | 3-mo. LIBOR +335 bps | 2/15,5/15,8/15,11/15 | On or after 11/15/07 | November 2002 | 10 | 10 | November 2032 | 3-mo. LIBOR +335 bps | 2/15,5/15,8/15,11/15 | On or after 11/15/07 | ||||||||||||||||||||||
Capital Trust IV | December 2002 | 5 | 5 | January 2033 | 3-mo. LIBOR +335 bps | 1/7, 4/7,7/7,10/7 | On or after 1/07/08 | December 2002 | 5 | 5 | January 2033 | 3-mo. LIBOR +335 bps | 1/7,4/7,7/7,10/7 | On or after 1/07/08 | ||||||||||||||||||||||
MBNA | ||||||||||||||||||||||||||||||||||||
Capital Trust A | December 1996 | 250 | 258 | December 2026 | 8.28 | 6/1,12/1 | On or after 12/01/06 | December 1996 | 250 | 258 | December 2026 | 8.28 | 6/1,12/1 | On or after 12/01/06 | ||||||||||||||||||||||
Capital Trust B | January 1997 | 280 | 289 | February 2027 | 3-mo. LIBOR +80 bps | 2/1,5/1,8/1,11/1 | On or after 2/01/07 | January 1997 | 280 | 289 | February 2027 | 3-mo. LIBOR +80 bps | 2/1,5/1,8/1,11/1 | On or after 2/01/07 | ||||||||||||||||||||||
Capital Trust D | June 2002 | 300 | 309 | October 2032 | 8.13 | 1/1,4/1,7/1,10/1 | On or after 10/01/07 | June 2002 | 300 | 309 | October 2032 | 8.13 | 1/1,4/1,7/1,10/1 | On or after 10/01/07 | ||||||||||||||||||||||
Capital Trust E | November 2002 | 200 | 206 | February 2033 | 8.10 | 2/15,5/15,8/15,11/15 | On or after 2/15/08 | November 2002 | 200 | 206 | February 2033 | 8.10 | 2/15,5/15,8/15,11/15 | On or after 2/15/08 | ||||||||||||||||||||||
Total | $ | 15,960 | $ | 16,454 | $ | 16,880 | $ | 17,339 |
Bank of America 2007 |
In addition to the outstanding Trust Securities and Notes included in the preceding table, non-consolidated wholly-owned subsidiary funding vehicles of BAC North America Holding Company (BACNAH, formerly ABN AMRO North America Holding Company) and its direct subsidiary, LaSalle Bank Corporation (LBC) issued preferred securities (Funding Securities). These subsidiary funding vehicles have invested the proceeds of their Funding Securities in separate series of preferred securities of BACNAH or LBC (BACNAH Preferred Securities). The BACNAH Preferred Securities (and the corresponding Funding Securities) are non-cumulative and permit nonpayment of dividends within certain limitations. The issuance dates for the BACNAH Preferred Securities (and the related Funding Securities) range from 2000 to 2002. These Funding Securities are subject to mandatory redemption upon repayment by the Corporation of the corresponding series of BACNAH Preferred Securities at a redemption price equal to their liquidation amount plus accrued and unpaid distributions for up to one quarter.
For additional information on Trust Securities for regulatory capital purposes, seeNote 15 – Regulatory Requirements and Restrictions to the Consolidated Financial Statements.
Note 13 – 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 market risk limitation reviews as those instruments recorded on the Corporation’s Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of its customers. The outstanding unfunded legally binding lending commitments shown in the following table have been reduced byare net of amounts participateddistributed (e.g., syndicated) to other financial institutions of $30.5$39.2 billion and $30.4$30.5 billion at December 31, 20062007 and 2005. The2006. At December 31, 2007, the carrying amount forof these commitments, which represents the liability recorded related to these instruments, at December 31, 2006 and 2005excluding fair value adjustments as discussed below, was $444$550 million, including deferred revenue of $32 million and $458a reserve for unfunded legally binding lending commitments of $518 million. At December 31, 2006, the carrying amount includedof these commitments was $444 million, including deferred revenue of $47 million and a reserve for unfunded legally binding lending commitments of $397 million. AtThe carrying amount of these commitments is recorded in accrued expenses and other liabilities.
The table below also includes the notional value of commitments of $20.9 billion which was measured at fair value in accordance with SFAS 159 at December 31, 2005,2007. However, the carrying amount included deferred revenuetable below excludes the fair value adjustment of $63$660 million on these commitments that was recorded in accrued expenses and a reserveother liabilities. SeeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements for unfunded lending commitmentsadditional information on the adoption of $395 million.
December 31 | ||||||
(Dollars in millions) | 2006 | 2005 | ||||
Loan commitments(1) | $ | 338,205 | $ | 271,906 | ||
Home equity lines of credit | 98,200 | 78,626 | ||||
Standby letters of credit and financial guarantees | 53,006 | 48,129 | ||||
Commercial letters of credit | 4,482 | 5,972 | ||||
Legally binding commitments | 493,893 | 404,633 | ||||
Credit card lines(2) | 853,592 | 192,967 | ||||
Total | $ | 1,347,485 | $ | 597,600 |
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Legally binding commitments to extend credit generally have specified rates and maturities. Certain of these commitments have adverse change clauses that help to protect the Corporation against deterioration in the borrowers’ ability to pay.
(Dollars in millions) | Expires in 1 year or less | Expires after 1 year through 3 years | Expires after 3 years through 5 years | Expires after 5 years | Total | ||||||||||
Credit extension commitments, December 31, 2007 | |||||||||||||||
Loan commitments | $ | 178,931 | $ | 92,153 | $ | 106,904 | $ | 27,902 | $ | 405,890 | |||||
Home equity lines of credit | 8,482 | 1,828 | 2,758 | 107,055 | 120,123 | ||||||||||
Standby letters of credit and financial guarantees | 31,629 | 14,493 | 7,943 | 8,731 | 62,796 | ||||||||||
Commercial letters of credit | 3,753 | 50 | 33 | 717 | 4,553 | ||||||||||
Legally binding commitments(1) | 222,795 | 108,524 | 117,638 | 144,405 | 593,362 | ||||||||||
Credit card lines | 876,393 | 17,864 | – | – | 894,257 | ||||||||||
Total credit extension commitments | $ | 1,099,188 | $ | 126,388 | $ | 117,638 | $ | 144,405 | $ | 1,487,619 | |||||
Credit extension commitments, December 31, 2006 | |||||||||||||||
Loan commitments | $ | 151,604 | $ | 60,637 | $ | 90,988 | $ | 32,133 | $ | 335,362 | |||||
Home equity lines of credit | 1,738 | 1,801 | 2,742 | 91,919 | 98,200 | ||||||||||
Standby letters of credit and financial guarantees | 29,213 | 10,712 | 6,744 | 6,337 | 53,006 | ||||||||||
Commercial letters of credit | 3,880 | 180 | 27 | 395 | 4,482 | ||||||||||
Legally binding commitments(1) | 186,435 | 73,330 | 100,501 | 130,784 | 491,050 | ||||||||||
Credit card lines | 840,215 | 13,377 | – | – | 853,592 | ||||||||||
Total credit extension commitments | $ | 1,026,650 | $ | 86,707 | $ | 100,501 | $ | 130,784 | $ | 1,344,642 |
(1) | Includes commitments to VIEs disclosed inNote 9 – Variable Interest Entities to the Consolidated Financial Statements, including $47.3 billion and $29.8 billion to corporation-sponsored multi-seller conduits and $2.3 billion and $5.5 billion to CDOs at December 31, 2007 and 2006. Also includes commitments to SPEs that are not disclosed inNote 9 – Variable Interest Entities to the Consolidated Financial Statements because the Corporation does not hold a significant variable interest or because they are QSPEs, including $6.1 billion and $2.3 billion to municipal bond trusts and $1.7 billion and $4.6 billion to customer-sponsored conduits at December 31, 2007 and 2006. |
Bank of America 2007 | 119 |
The Corporation issues SBLCsalso facilitates bridge financing (high grade debt, high yield debt and financial guaranteesequity) to support the obligations of its customers to beneficiaries. Additionally, in many cases, the Corporation holds collateral in various forms against these SBLCs. As part of its risk management activities, the Corporation continuously monitors the creditworthiness of the customerfund acquisitions, recapitalizations and other short-term needs as well as SBLC exposure; however, ifprovide syndicated financing for clients. These concentrations are managed in part through the customer failsCorporation’s established “originate to perform the specified obligation to the beneficiary, the beneficiary may draw upon the SBLC by presenting documents thatdistribute” strategy. These client transactions are in compliance with the lettersometimes large and leveraged. They can also have a higher degree of credit terms. In that event,risk as the Corporation either repays the money borrowedis providing offers or advanced, makes payment on accountcommitments for various components of the indebtednessclients’ capital structures, including lower-rated unsecured and subordinated debt tranches and/or equity. In many cases, these offers to finance will not be accepted. If accepted, these conditional commitments are often retired prior to or shortly following funding via the placement of securities, syndication or the customer or makes payment on account of the default by the customer in the performance of an obligationclient’s decision to the beneficiary up to the full notional amount of the SBLC. The customer is obligated to reimburse the Corporation for any such payment. If the customer fails to pay, the Corporation would, as contractually permitted, liquidate collateral and/or offset accounts.
Commercial letters of credit, issued primarily to facilitate customer trade finance activities, are usually collateralized by the underlying goods being shipped to the customer and are generally short-term. Credit card lines are unsecured commitments that are not legally binding. Management reviews credit card lines at least annually, and upon evaluation of the customers’ creditworthiness,terminate. Where the Corporation has a commitment and there is a market disruption or other unexpected event, there may be heightened exposure in the right to terminate or change certain termsportfolios, and higher potential for loss, unless an orderly disposition of the credit card lines.
Theexposure can be made. These commitments are not necessarily indicative of actual risk or funding requirements as the commitments may expire unused, the borrower may not be successful in completing the proposed transaction or may utilize multiple financing sources, including other investment and commercial banks, as well as accessing the general capital markets instead of drawing on the commitment. In addition, the Corporation uses various techniquesmay reduce its portion of the commitment through syndications to manage risk associated withinvestors and/or lenders prior to funding. Therefore, these types of instruments that include obtaining collateral and/or adjustingcommitments are generally significantly greater than the amounts the Corporation will ultimately fund. Additionally, the borrower’s ability to draw on the commitment amounts based onmay be subject to there being no material adverse change in the borrower’s financial condition; therefore,condition, among other factors. Commitments also generally contain certain flexible pricing features to adjust for changing market conditions prior to closing. The Corporation’s share of the total commitment amount does not necessarily represent the actual riskleveraged finance forward calendar was $12.2 billion and $20.6 billion at December 31, 2007 and 2006. The Corporation also had unfunded real estate loan commitments of loss or future cash requirements. For each of these types of instruments, the Corporation’s maximum exposure to credit loss is represented by the contractual amount of these instruments.
Principal Investing and Other Equity Investments
At December 31, 2007 and 2006, the Corporation had unfunded equity investment commitments of approximately $2.6 billion and 2005,$2.8 billion. These commitments related primarily to those included in the Strategic Investments portfolio, as well as equity commitments included in the Corporation’s Principal Investing business, which is comprised of a diversified portfolio of investments in privately-held and publicly-traded companies at all stages of their life cycle from start-up to buyout. These investments are made either directly in a company or held through a fund and are accounted for at fair value. Included in the Corporation’s unfunded equity investment commitments were also unfunded bridge equity commitments of $1.2 billion at December 31, 2006. At December 31, 2007, the Corporation did not have any unfunded bridge equity commitments and had funded $1.2 billion of equity bridges that it still intends to distribute. Bridge equity commitments provide equity bridge financing to facilitate clients’ investment activities. These conditional commitments are often retired prior to or shortly following funding via syndication or the client’s decision to terminate. Where the Corporation has a binding equity bridge commitment and there is a market disruption or other unexpected event, there may be heightened exposure in the portfolio and higher potential for loss, unless an orderly disposition of the exposure can be made.
U.S. Government Guaranteed Charge Cards
At December 31, 2007 and 2006, the unfunded lending commitments related to charge cards (nonrevolving card lines) to individuals and government entities guaranteed by the U.S. governmentGovernment in the amount of $9.6$9.9 billion and $9.4$9.6 billion were not included in credit card line commitments in the previous table. The outstanding balances related to these charge cards were $193 million and $171 million at both December 31, 20062007 and 2005.2006.
Loan Purchases
At December 31, 2006,2007, the Corporation had wholenet collateralized mortgage obligation loan purchase commitments related to the Corporation’s ALM activities of $8.5 billion,$752 million, all of which will settle in the first quarter of 2007.2008. At December 31, 2005,2006, the Corporation had wholecollateralized mortgage obligation loan purchase commitments related to the Corporation’s ALM activities of $4.0$8.5 billion, all of which settled in the first quarter of 2006.
The Corporation has entered into operating leases for certain of its premises and equipment. Commitments under these leases approximate $1.4 billion in 2007, $1.3 billion in 2008, $1.1 billion in 2009, $931 million in 2010, $801 million in 2011, and $6.0 billion for all years thereafter.2007.
In 2005, the Corporation entered into an agreement for the committed purchase of retail automotive loans over a five-year period, ending June 30, 2010. In 2005, the Corporation purchased $5.0 billion of such loans. In2007 and 2006, the Corporation purchased $4.5 billion and $7.5 billion of such loans.loans under this agreement. Under the agreement, the Corporation is committed to purchase up to $5.0 billion of such loans for the fiscal period July 1, 2006 through2007 to June 30, 20072008 and up to $10.0 billion in each of the agreement’s next threefollowing two fiscal years. As of December 31, 2006,2007, the remaining commitment amount was $32.5$25.0 billion.
Operating Leases
The Corporation is a party to operating leases for certain of its premises and equipment. Commitments under these leases approximate $2.0 billion, $1.8 billion, $1.6 billion, $1.3 billion and $1.2 billion for 2008 through 2012, respectively, and $8.2 billion for all years thereafter.
Other Commitments
In the second half of 2007, the Corporation provided support to certain cash funds managed withinGWIM. The funds for which the Corporation provided support typically invest in high quality, short-term securities with a weighted average maturity of 90 days or less, including a limited number of securities issued by SIVs. Due to market disruptions, certain SIV investments were downgraded by the rating agencies and experienced a decline in fair value. The Corporation entered into capital commitments which required the Corporation to provide up to $565 million in cash to the funds in the event the net asset value per unit of a fund declines below certain thresholds. The capital commitments expire no later than the third quarter of 2010. At December 31, 2007, losses of $382 million had been recognized and $183 million is still outstanding associated with this capital commitment.
The Corporation may from time to time, but is under no obligation, provide additional support to funds managed withinGWIM. Future support, if any, may take the form of additional capital commitments to the funds or the purchase of assets from the funds.
The Corporation is not the primary beneficiary of the cash funds and does not consolidate the cash funds managed within theGWIM business segment because the subordinated support provided by the Corporation will not absorb a majority of the variability created by the assets of the funds. The cash funds had total assets under management of approximately $189 billion at December 31, 2007.
Bank of America 2007 |
Other Guarantees
Employee Retirement Protection
The Corporation sells products that offer book value protection primarily to plan sponsors of Employee Retirement Income Security Act of 1974 (ERISA) governed pension plans, such as 401(k) plans and 457 plans. The book value protection is provided on portfolios of intermediate/short-term investment grade fixed income securities and is intended to cover any shortfall in the event that plan participants withdraw funds when market value is below book value. The Corporation retains the option to exit the contract at any time. If the Corporation exercises its option, the purchaser can require the Corporation to purchase zero couponzero-coupon bonds with the proceeds of the liquidated assets to assure the return of principal. To manage its exposure, the Corporation imposes significant restrictions and constraints on the timing of the withdrawals, the manner in which the portfolio is liquidated and the funds are accessed, and the investment parameters of the underlying portfolio. These constraints, combined with structural protections, are designed to provide adequate buffers and guard against payments even under extreme stress scenarios. These guarantees are booked as derivatives and marked to market in the trading portfolio. At December 31, 20062007 and 2005,2006, the notional amount of these guarantees totaled $33.2$35.2 billion and $34.0$33.2 billion with estimated maturity dates between 20072008 and 2036.2037. As of December 31, 20062007 and 2005,2006, the Corporation has not made a payment under these products, and management believes thathas assessed the probability of payments under these guarantees as remote.
Written Put Options
At December 31, 2007 and 2006, the Corporation provided liquidity support in the form of written put options on $10.0 billion and $2.1 billion of commercial paper issued by CDOs, including $3.2 billion issued by a consolidated CDO at December 31, 2007. The commercial paper is the most senior class of securities issued by the CDOs and benefits from the subordination of all other securities, including AAA-rated securities, issued by the CDOs. The Corporation is obligated under the written put options to provide funding to the CDOs by purchasing the commercial paper at predetermined contractual yields in the event of a severe disruption in the short-term funding market. These agreements have various maturities ranging from two to five years. The underlying collateral in the CDOs includes mortgage-backed securities, ABS, and CDO securities issued by other vehicles. These written put options are recorded as derivatives on the Consolidated Balance Sheet and are carried at fair value with changes in fair value recorded in trading account profits (losses). Derivative activity related to these entities is included inNote 4 – Derivatives to the Consolidated Financial Statements. At December 31, 2007, the Corporation held $5.0 billion of commercial paper on the balance sheet that was issued by the unconsolidated CDOs and all of the commercial paper issued by the consolidated CDO. The Corporation recorded losses of $2.7 billion, net of insurance, in trading account profits (losses) in 2007 associated with these activities.
Indemnifications
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the inability to predict future changes in tax and other laws, the
difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of the early termination clause. Historically, any payments made under these guarantees have been de minimis. The Corporation has assessed the probability of making such payments in the future as remote.
Merchant Services
The Corporation provides credit and debit card processing services to various merchants by processing credit and debit card transactions on their behalf. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor and the merchant defaults upon its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to six months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the Corporation as the merchant processor. If the Corporation is unable to collect this amount from the merchant, it bears the loss for the amount paid to the cardholder. In 2007 and 2006, the Corporation processed $361.9 billion and $377.8 billion of transactions and recorded losses as a result of these chargebacks of $13 million and $20 million.
At December 31, 2007 and 2006, the Corporation held as collateral approximately $19 million and $32 million of merchant escrow deposits which the Corporation has the right to offset against amounts due from the individual merchants. The Corporation also has the right to offset any payments with cash flows otherwise due to the merchant. Accordingly, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last six months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of December 31, 2007 and 2006, the maximum potential exposure totaled approximately $151.2 billion and $176.0 billion.
Brokerage Business
Within the Corporation’s brokerage business, the Corporation has contracted with a third party to provide clearing services that include underwriting margin loans to its clients. This contract stipulates that the Corporation will indemnify the third party for any margin loan losses that occur in their issuing margin to its clients. The maximum potential future payment under this indemnification was $1.0 billion and $938 million at December 31, 2007 and 2006. Historically, any payments made under this indemnification have been immaterial. As these margin loans are highly collateralized by the securities held by the brokerage clients, the Corporation has assessed the probability of making such payments in the future as remote. This indemnification would end with the termination of the clearing contract.
Other Guarantees
The Corporation also sells products that guarantee the return of principal to investors at a preset future date. These guarantees cover a broad range of underlying asset classes and are designed to cover the shortfall between the market value of the underlying portfolio and the principal amount on the preset future date. To manage its exposure, the Corporation requires that these guarantees be backed by structural and investment constraints and certain pre-defined triggers that would require the underlying assets or portfolio to be liquidated and invested in zero-coupon
Bank of America 2007 | 121 |
bonds that mature at the preset future date. The Corporation is required to fund any shortfall at the preset future date between the proceeds of the liquidated assets and the purchase price of the zero-coupon bonds. These guarantees are booked as derivatives and marked to market in the trading portfolio. At December 31, 20062007 and 2005,2006, the notional amount of these guarantees totaled $4.0$1.5 billion and $6.5$4.0 billion. These guarantees have various maturities ranging from 2007two to 2013.five years. At December 31, 20062007 and 2005,2006, the Corporation had not made a payment under these products and management believes thathas assessed the probability of payments under these guarantees is remote.
The Corporation also has written put options on highly rated fixed income securities. Its obligation under these agreements is to buy back the assets at predetermined contractual yields in the event of a severe market disruption in the short-term funding market. These agreements have various maturities ranging from two to five years, and the pre-determined yields are based on the quality of the assets and the structural elements pertaining to the market disruption. The notional
amount of these put options was $2.1 billion and $803 million at December 31, 2006 and 2005. Due to the high quality of the assets and various structural protections, management believes that the probability of incurring a loss under these agreements is remote.
In the ordinary course of business, the Corporation enters into various agreements that contain indemnifications, such as tax indemnifications, whereupon payment may become due if certain external events occur, such as a change in tax law. These agreements typically contain an early termination clause that permits the Corporation to exit the agreement upon these events. The maximum potential future payment under indemnification agreements is difficult to assess for several reasons, including the inability to predict future changes in tax and other laws, the difficulty in determining how such laws would apply to parties in contracts, the absence of exposure limits contained in standard contract language and the timing of the early termination clause. Historically, any payments made under these guarantees have been de minimis. Management has assessed the probability of making such payments in the future as remote.
The Corporation has entered into additional guarantee agreements, including lease end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, sold risk participation swaps and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $2.0$4.8 billion and $1.8$2.0 billion at December 31, 20062007 and 2005.2006. The estimated maturity dates of these obligations are between 20072008 and 2033. The Corporation has made no material payments under these guarantees.
The Corporation provides credit and debit card processing services to various merchants, processing credit and debit card transactions on their behalf. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor and the merchant defaults upon its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to four months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the Corporation as the merchant processor. If the Corporation is unable to collect this amount from the merchant, it bears the loss for the amount paid to the cardholder. In 2006 and 2005, the Corporation processed $377.8 billion and $352.9 billion of transactions and recorded losses as a result of these chargebacks of $20 million and $13 million.
At December 31, 2006 and 2005, the Corporation held as collateral approximately $32 million and $248 million of merchant escrow deposits which the Corporation has the right to offset against amounts due from the individual merchants. The Corporation also has the right to offset any payments with cash flows otherwise due to the merchant. Accordingly, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last four months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of December 31, 2006 and 2005, the maximum potential exposure totaled approximately $114.5 billion and $118.2 billion.
Within the Corporation’s brokerage business, the Corporation has contracted with a third party to provide clearing services that include underwriting margin loans to the Corporation’s clients. This contract stipulates that the Corporation will indemnify the third party for any margin loan losses that occur in their issuing margin to the Corporation’s clients. The maximum potential future payment under this indemnification was $938 million and $1.1 billion at December 31, 2006 and 2005. Historically, any payments made under this indemnification have been immaterial. As these margin loans are highly collateralized by the securities held by the brokerage clients, the Corporation has assessed the probability of making such payments in the future as remote. This indemnification would end with the termination of the clearing contract.
For additional information on recourse obligations related to residential mortgage loans sold and other guarantees related to securitizations, seeNote 9 of8 – Securitizations to the Consolidated Financial Statements.
Litigation and Regulatory Matters
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to many pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. Certain of these actions and proceedings are based on alleged violations of consumer protection, securities, environmental, banking, employment and other laws. In certain of these actions and proceedings, claims for substantial monetary damages are asserted against the Corporation and its subsidiaries.
In the ordinary course of business, the Corporation and its subsidiaries are also subject to regulatory examinations, information gathering requests, inquiries and investigations. Certain subsidiaries of the Corporation are registered broker/dealers or investment advisors and are subject to regulation by the SEC,Securities and Exchange Commission (SEC), the National Association of Securities Dealers,Financial Industry Regulatory Authority, the New York Stock Exchange and state securities regulators. In connection with formal and informal inquiries by those agencies, such subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their regulated activities.
In view of the inherent difficulty of predicting the outcome of such litigation and regulatory matters, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Corporation cannot state with confidence what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines or penalties related to each pending matter may be.
In accordance with SFAS No. 5, “Accounting for Contingencies”, the Corporation establishes reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, the Corporation does not establish reserves. In some of the matters described below, including but not limited to a substantial portion of the Parmalat Finanziaria S.p.A. matters, loss contingencies are not both probable and estimable in the view of management, and, accordingly, reserves have not been established for those matters. Based on current knowledge, management does not believe that loss contingencies, if any, arising from
pending litigation and regulatory matters, including the litigation and regulatory matters described below, will have a material adverse effect on the consolidated financial position or liquidity of the Corporation, but may be material to the Corporation’s operating results for any particular reporting period.
Adelphia Communications Corporation (ACC)
Bank of America, N.A. (BANA), Banc of America Securities (BAS), Fleet National Bank and Fleet Securities, Inc. (FSI) are defendantsAdelphia Recovery Trust is the plaintiff in an adversary proceeding brought by the Official Committee of Unsecured Creditors (the Creditors’ Committee) on behalf of Adelphia and Adelphia as co-plaintiffs that had beena lawsuit pending in the U.S. Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). The lawsuit names over 400 defendants and asserts over 50 claims under federal statutes, including the Bank Holding Company Act, state common law, and various provisions of the Bankruptcy Code. The plaintiffs seek avoidance and recovery of payments, equitable subordination, disallowance and re-characterization of claims, and recovery of damages in an unspecified amount. The Official Committee of Equity Security Holders of Adelphia intervened in this proceeding and filed its own complaint, which is similar to the unsecured creditors’ committee complaint and also asserts claims under RICO and additional state law theories. BANA, BAS and FSI have filed motions to dismiss both complaints. On February 9, 2006, the U.S. District Court for the Southern District of New York overseeing the Adelphia securities litigation granted the motionsYork. The lawsuit names over 700 defendants, including Bank of America, N.A. (BANA), Banc of America Securities, LLC (BAS), Fleet National Bank, Fleet Securities, Inc. and other affiliated entities, and asserts over 50 claims under federal statutes and state common law. The principal claims include fraudulent transfer, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, and equitable disallowance and subordination. These claims relate to loans and other services provided to various affiliates of ACC and entities owned by members of the adversaryfounding family of ACC. The plaintiffs seek unspecified damages in an amount not less than $5 billion.
Data Treasury Litigation
The Corporation and BANA have been named as defendants in two cases filed by Data Treasury Corporation (Data Treasury) in the U.S. District Court for the Eastern District of Texas. In one case, Data Treasury alleges that defendants “provided, sold, installed, utilized, and assisted others to withdrawuse and utilize image-based banking and archival solutions” in a manner that infringes United States Patent Nos. 5,910,988 and 6,032,137. In the adversary proceeding fromother case, Data Treasury alleges that the Bankruptcy Court, except with respect toCorporation and BANA, among other defendants, are “making, using, selling, offering for sale, and/or importing into the pending motions to dismiss. On January 5, 2007,United States, directly, contributory, and/or by inducement, without authority, products and services that fall within the Bankruptcy Court entered an order confirming a planscope of reorganization of Adelphiathe claims of” United States Patent Nos. 5,265,007; 5,583,759; 5,717,868; and its subsidiaries, which provides that, effective on February 13, 2007, the adversary proceeding will be transferred to a liquidating trust created under the plan.5,930,778. Data Treasury seeks unspecified damages and injunctive relief in both cases.
In re Initial Public Offering Securities Litigation
Beginning in 2001, Robertson Stephens, Inc. (an investment banking subsidiary of FleetBoston that ceased operations during 2002), BAS, other underwriters, and various issuers and others, were named as defendants in certain of the 309 purportedputative class actionsaction lawsuits that have been consolidated in the U.S. District Court for the Southern District of New York asIn re Initial Public Offering Securities Litigation. The plaintiffsPlaintiffs contend that the defendants failed to make certain required disclosures and manipulated prices of IPO securities sold in initial public offerings through, among other things, alleged agreements with institutional investors receiving allocations to purchase additional shares in the aftermarket and seek unspecified damages. On October 13, 2004, the district court granted in part and denied in part plaintiffs’ motions to certify as class actions six of the 309 cases. On December 5, 2006, the U.S. Court of Appeals for the Second Circuit (the Second Circuit) reversed the district court’s class certification order. TheDistrict Court’s order certifying the proposed classes. On September 27, 2007, plaintiffs filed a motion to certify modified classes, which defendants have petitionedopposed. On June 25, 2007, the Second Circuit to reconsider its ruling. That petition is pending. The district court stayed all proceedings pending a decision on the petition.
On February 15, 2005, the district court conditionallyDistrict Court approved a settlementan agreement between the plaintiffs and many298 of the issuer defendants in which the issuer defendants guaranteed that the plaintiffs will receive at least $1 billion in the settled actions.
The district court has deferred a final ruling on this settlement until the Second Circuit decides whether it will reconsider its December 5, 2006 class certification ruling.IPO Underwriting Fee Litigation
BAS, Robertson Stephens, Inc., and other underwriters also have been named asare defendants in putative class action lawsuits captionedIn re Public Offering Fee Antitrust Litigation and In re Issuer Plaintiff Initial Public Offering Fee Antitrust Litigation, filed in the U.S. District Court for the Southern District of New York under the federal antitrust lawsin November 1998 and October 2000, respectively, alleging that the underwriters conspired to manipulatefix the aftermarkets for IPO securities and to extract anticompetitive feesunderwriters’ discount at 7% of the offering
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price in connection with IPOs.certain initial public offerings (IPOs). The complaints, which have been filed by both purchasers and certain issuers in IPOs, seek declaratory relieftreble damages and unspecified treble damages.injunctive relief. On February 24, 2004, the District Court granted defendants’ motion to dismiss as to the purchasers’ damages claims. On April 18, 2006, the District Court denied class certification with respect to the issuers’ damages claims. On September 28, 2005,11, 2007, the U.S. Court of Appeals for the Second Circuit reversed the district court’s dismissal of these cases, remanding themorder denying class certification as to the district courtissuers’ damages claims and remanded the case to the District Court for further class certification proceedings. On December 7, 2006, the U.S. Supreme Court granted the underwriters’ petition seeking review of the Second Circuit’s decision.
Interchange Antitrust Litigation and Visa-Related Litigation
The Corporation and certain of its subsidiaries are defendants in putative class actions filed on behalf of a putative class of retail merchants that accept Visa and MasterCard payment cards. The first of these actions was filed in June 2005. On April 24, 2006, putative class plaintiffs filed aAdditional defendants include Visa, MasterCard, and other financial institutions. Plaintiffs’ First Consolidated and Amended Class Action Complaint. Plaintiffs therein allegeComplaint alleges that the defendants conspired to fix the level of interchange and merchant discount fees and that certain other practices, including various Visa and MasterCard rules, violate federal and California antitrust laws. On May 22, 2006, the putative class plaintiffsPlaintiffs also filed a supplemental complaint against many of the samecertain defendants, including the Corporation and certain of its subsidiaries, alleging additional federal antitrust claims and a fraudulent conveyance claim under New York Debtor and Creditor Law, all arising out of MasterCard’s 2006 initial public offering. The putative class plaintiffs seek unspecified treble damages and injunctive relief. Additional defendants in the putative class actions include Visa, MasterCard, and other financial institutions.
The putative class actions are coordinated for pre-trial proceedings in the U.S. District Court for the Eastern District of New York together with additional, individual actions brought only against Visa and MasterCard under the captionIn Re Payment Card Interchange Fee and Merchant Discount Anti-Trust Litigation.Litigation (Interchange) Motions. On January 8, 2008, the District Court dismissed all claims for pre-2004 damages. A motion to dismiss portions of the First Consolidated and Amended Class Action Complaint and the supplemental complaint is pending.
The Corporation and certain of its subsidiaries have entered into agreements that provide for sharing liabilities in connection with antitrust litigation against Visa (the Visa-Related Litigation), includingDiscover Financial Services. v. Visa U.S.A., et al., pending in the U.S. District Court for the Southern District of New York, which alleges that Visa and others unlawfully inhibited competition in the payment card industry, andInterchange. The agreements also provide for sharing liabilities in connection withAmerican Express Travel Related Services Company v. Visa USA, et al., which was settled by Visa in November 2007. Under these agreements, the Corporation’s obligations to Visa are pending.capped at the Corporation’s membership interest of 12.1% in Visa USA. In November 2007, Visa Inc. filed a registration statement with the SEC with respect to a proposed initial public offering (Visa IPO). Subject to market conditions and other factors, Visa Inc. states that it expects the Visa IPO to occur in the first quarter of 2008. The Corporation expects that a portion of the proceeds from the Visa IPO will be used by Visa Inc. to fund liabilities arising from the Visa-Related Litigation.
Miller
On August 13, 1998, a predecessor of BANA was named as a defendant in a class action filed in Superior Court of California, County of San Francisco, entitledPaul J. Miller v. Bank of America, N.A.N.A., challenging its practice of debiting accounts that received, by direct deposit, governmental benefits to repay fees incurred in those accounts. The action alleges, among other claims, fraud, negligent misrepresentation and other violations of California law. On October 16, 2001, a class was certified consisting of more than one million California residents who have, had or will have, at any time after August 13, 1994, a deposit account with BANA into which payments of public benefits are or have been directly deposited by the government. The case proceeded to trial on January 20, 2004.
On March 4, 2005, the trial court entered a judgment that purported to award the plaintiff class restitution in the amount of $284 million, plus attorneys’ fees, and provided that class members whose accounts were assessed an insufficient funds fee in violation of law suffered substantial emotional or economic harm and, therefore, are entitled to an additional $1,000 statutory penalty. The judgment also purported to enjoin BANA, among other things, from engaging in the account balancing practices at issue. On November 22, 2005, the California Court of Appeal granted BANA’s request to staystayed the judgment, including the injunction, pending appeal.
On November 20, 2006, the California Court of Appeal reversed the judgment in its entirety, holding that BANA’s practice did not constitute a violation of California law. On December 14, 2006, the California Court of Appeal denied plaintiff’s petition for rehearing. Plaintiff has petitioned for review inMarch 21, 2007, the California Supreme Court.Court granted plaintiff’s petition to review the Court of Appeal’s decision.
Municipal Derivatives Matters
The Antitrust Division of the U.S. Department of Justice (DOJ), the SEC, and the Internal Revenue Service (IRS)IRS are investigating possible anticompetitive bidding practices in the municipal derivatives industry involving various parties, including BANA, from the early 1990s to date. The activities at issue in these industry-wide government investigations concern the bidding process for municipal derivatives that are offered to states, municipalities and other issuers of tax-exempt bonds. The Corporation has cooperated, and continues to cooperate, with the DOJ, the SEC and the IRS. On February 4, 2008, BANA received a Wells notice advising that the SEC staff is considering recommending that the SEC bring a civil injunctive action and/or an administrative proceeding “in connection with the bidding of various financial instruments associated with municipal securities.” BANA intends to respond to the notice. An SEC action or proceeding could seek a permanent injunction, disgorgement plus prejudgment interest, civil penalties and other remedial relief.
On January 11, 2007, the Corporation entered into a Corporate Conditional Leniency Letter (the Letter) with DOJ. Under the Letter and subject to the Corporation’s continuing cooperation, DOJ will not bring any criminal antitrust prosecution against the Corporation in connection with the matters that the Corporation reported to DOJ. Civil actions may be filed. Subject to satisfying DOJ and the court presiding over any civil litigation of the Corporation’s cooperation, the Corporation is eligible for (i) a limit on liability to single, rather than treble, damages in anycertain types of related civil antitrust actions, and (ii) relief from joint and several antitrust liability with other civil defendants. No such civil actions have been filed to date, but no assurances can be given that such actions will not be filed.
Parmalat Finanziaria S.p.A.
On December 24, 2003, Parmalat Finanziaria S.p.A. was admitted into insolvency proceedings in Italy, known as “extraordinary administration.” The Corporation, through certain of its subsidiaries, including BANA, provided financial services and extended credit to Parmalat and its related entities. On June 21, 2004, Extraordinary Commissioner Dr. Enrico Bondi filed with the Italian Ministry of Production Activities a plan of reorganization for the restructuring of the companies of the Parmalat group that are included in the Italian extraordinary administration proceeding.
In July 2004, the Italian Ministry of Production Activities approved the Extraordinary Commissioner’s restructuring plan, as amended, for the Parmalat group companies that are included in the Italian extraordinary administration proceeding. This plan was approved by the voting creditors and the Court of Parma, Italy in October of 2005.
Litigation and investigations relating to Parmalat are pending in both Italy and the United States, and the Corporation is responding to inquiries concerning Parmalat from regulatory and law enforcement authorities in Italy and the United States.
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Proceedings in Italy
On May 26, 2004, The Public Prosecutor’s Office for the Court of Milan, Italy filed criminal charges against Luca Sala, Luis Moncada, and Antonio Luzi, three former employees of the Corporation, alleging the crime of market manipulation in connection with a press release issued by Parmalat. The Public Prosecutor’s Office also filed a related charge against the Corporation asserting administrative liability based on an alleged failure to maintain an organizational model sufficient to prevent the alleged criminal activities of its former employees. Preliminary hearings have begunThe trial on this administrative charge and trial is expected tosuch charges will begin in the first quarter of 2007.March 2008.
The main trial of the market manipulation charges against Messrs. Luzi, Moncada, and Sala began in the Court of Milan, Italy on September 28, 2005. Hearing dates in this trial are currently set through July 2007.May of 2008. The Corporation is participating in this trial as a party that has been damaged by the alleged actions of defendants other than its former employees, including former Parmalat officials. Additionally, pursuant to a December 19, 2005 court ruling, other third parties are participating in the trial who claim damages against BANA as a result of the alleged criminal violations ofby the Corporation’s former employees and other defendants.
Separately, The Public Prosecutor’s Office for the Court of Parma, Italy is conducting an investigation into the collapse of Parmalat. The Corporation has cooperated, and continues to cooperate, with Thethe Public Prosecutor’s Office with respect to this investigation. The Public Prosecutor’s Office has given notice of its intention to file charges, including a charge of the crime of fraudulent bankruptcy under Italian criminal law, in connection with this investigation against the same three former employees of the Corporation who are named in the Milan criminal proceedings, Messrs. Luzi, Moncada and Sala.
Proceedings in the United States
On March 5, 2004, a First Amended Complaint was filed in a securities action pending in the U.S. District Court for the Southern District of New York entitledSouthern Alaska Carpenters Pension Fund et al. v. Bonlat Financing Corporation et al.,al which names the Corporation as a defendant.. The action is brought on behalf of a putative class of purchasers of Parmalat securities, and alleges violations of the federal securities laws against the Corporation and certain affiliates. After the court dismissed the initial complaint as to the Corporation, BANAaffiliates, and Banc of America Securities Limited (BASL), plaintiff filed a Second Amended Complaint, which seeks unspecified damages. Following the Corporation’s motionorders on motions to dismiss, the Second Amended Complaint, the court granted the Corporation’s motion to dismiss in part, allowing the plaintiff to proceed onremaining claims with respect toconcern two transactions entered into between the Corporation and Parmalat. The Corporation has filed an answer to the Second Amended Complaint. The putative class plaintiffs filed a motion for class certification on
September 21, 2006, which remains pending. The Corporation also filed on October 10, 2006 aOn July 24, 2007, the District Court granted the Corporation’s motion to dismiss the claims of foreign purchaser plaintiffs for lack of subject matter jurisdiction.
On October 7, 2004, Enrico Bondi filed an action in the U.S. District Court for the Western District of North Carolina on behalf of Parmalat and its shareholders and creditors against the Corporation and various related entities, entitledDr. EnricoBondi, Extraordinary Commissioner of Parmalat Finanziaria, S.p.A., et al. v. Bank of America Corporation, et al.al. (the Bondi Action). The complaint alleged federal and state RICO claims and various state law claims, including fraud. The complaint soughtseeks damages in excess of $10 billion. The Bondi Action was transferred to the U.S. District Court for the Southern District of New York for coordinated pre-trial purposes with the putative class actions and other related cases against non-Bank of America defendants under the captionIn re Parmalat Securities Litigation.
On August 5, 2005, the U.S. District Court for the Southern District of New York granted the Corporation’s motion Following orders on motions to dismiss, the Bondi Action in part, dismissing ten of the twelve counts. After the plaintiff’s filing of a First Amended Complaint and the Corporation’s motion to dismiss such complaint, the court granted the Corporation’s motion to dismiss in part, allowing the plaintiff to proceed on the previously dismissedremaining claims are federal and state RICO claims, a breach of fiduciary duty claim, and other state law claims with respect to three transactions entered into between the Corporation and Parmalat. The Corporation has filed an answer and counterclaims (the Bank of America Counterclaims) seeking damages against Parmalat and a number of its subsidiaries and affiliates as compensation for financial losses and other damages suffered. Parmalat fileddamages. The District Court granted in part a motion to dismiss certain of the Bank of America Counterclaims, leaving intact the
counterclaims for fraud, negligent misrepresentation and that motion is pending. On November 21, 2006,civil conspiracy against Parmalat filed a motion to amend the First Amended Complaint to addS.p.A., Parmalat Finanziaria S.p.A. and Parmalat Netherlands, B.V., as well as a claim of breach of fiduciary duty by the Corporation to Parmalat. That motion is pending.
On November 23, 2005, the Official Liquidators of Food Holdings Ltd.for securities fraud against Parmalat S.p.A. and Dairy Holdings Ltd., two entities in liquidation proceedings in the Cayman Islands, filed a complaint against the Corporation and several related entities in the U.S. District Court for the Southern District of New York, entitledFood Holdings Ltd., et al. v. Bank of America Corp., et al,(the Food Holdings Action). Also on November 23, 2005, the Provisional Liquidators of Parmalat Capital Finance Ltd. (who are also the liquidators in the Food Holdings Action), filed a complaint against the Corporation and several related entities in North Carolina state court for Mecklenburg County, entitledParmalat Capital Finance Limited v. Bank of America Corp., et al.(the PCFL Action). Both actions have been consolidated for pretrial purposes with the other pending actions in theIn Re Parmalat Securities Litigationmatter. The Food Holdings Action alleges that the Corporation and other defendants conspired with Parmalat in carrying out transactions involving the plaintiffs in connection with the funding of Parmalat’s Brazilian entities, and it asserts claims for fraud, breach of fiduciary duty, civil conspiracy and other related claims. The complaint seeks damages in excess of $400 million. The PCFL Action alleges that the Corporation and other defendants conspired with Parmalat insiders to loot and divert monies from PCFL, and it asserts claims for breach of fiduciary duty, civil conspiracy and other related claims. PCFL seeks “hundreds of millions of dollars” in damages. The Corporation has moved to dismiss both actions. The motions are pending.Finanziaria S.p.A.
Certain purchasers of Parmalat-related private placement offerings have filed complaints against the Corporation and various related entities in the following actions:Principal Global Investors, LLC, et al. v. Bank of America Corporation, et al.al. in the U.S. District Court for the Southern District of Iowa;Monumental Life Insurance Company, et al. v. Bank of America Corporation, et al.al. in the U.S. District Court for the Northern District of Iowa;Prudential Insurance Company of America and Hartford Life Insurance Company v. Bank of America Corporation, et al.al. in the U.S. District Court for the Northern District of Illinois;Allstate Life Insurance Company v. Bank of America Corporation, et al. in the U.S. District Court for the Northern District of Illinois;Hartford Life Insurance v. Bank of America Corporation, et al.al. in the U.S. District Court for the Southern District of New York; andJohn Hancock Life Insurance Company, et al. v. Bank of America Corporation et al.al. in the U.S. District Court for the District of Massachusetts. The actions variously allege violations of federal and state securities law and state common law, and seek rescission and unspecified damages based upon the Corporation’s and related entities’ alleged roles in certain private placement offerings issued by Parmalat-related companies. Except for theJohn Hancock Life Insurancecase, the most recently filed matter, theAll cases have been transferred to the U.S. District Court for the Southern District of New York for coordinated pre-trial purposes with theIn re Parmalat Securities Litigation matter. The plaintiffs seek rescission and unspecified damages resulting from alleged purchases of approximately $305 million in private placement instruments. In addition to claims relating to private placement transactions, theJohn Hancock Life Insurancecase also claims damages relating to a separate Eurobond investment alleged in the amount of $25 million.
On January 18, 2006, Gerald K. Smith, in his capacity as Trustee of Farmland Dairies LLC Litigation Trust, filed a complaint against the Corporation, BANA, BAS, BASL, Bank of America National Trust & Savings Association and
BankAmerica International Limited, as well as other financial institutions and accounting firms, in the U.S. District Court for the Southern District of New York, entitledGerald K. Smith, Litigation Trustee v. Bank of America Corporation, et al. (the Farmland Action). Prior to bankruptcy restructuring, Farmland Dairies LLC was a wholly-owned subsidiary of Parmalat USA Corporation, which was a wholly-owned subsidiary of Parmalat SpA. The Farmland Action asserts claims of aiding and abetting, breach of fiduciary duty, civil conspiracy and related claims against the Bank of America defendants and other defendants. The plaintiff seeks unspecified damages. On February 23, 2006, the plaintiff filed its First Amended Complaint, which was dismissed on August 16, 2006, with leave to file a Second Amended Complaint, which plaintiff filed on September 8, 2006. The Corporation has moved to dismiss the Second Amended Complaint.
On April 21, 2006, the Plan Administrator of the Plan of Liquidation of Parmalat-USA Corporation filed a complaint in the U.S. District Court for the Southern District of New York against the Corporation and certain of its subsidiaries, as well as other financial institutions and accounting firms entitledG. Peter Pappas in his capacity as the Plan Administrator of the Plan of Liquidation of Parmalat-USA Corporation v. Bank of America Corporation, et al. (the Parmalat USA Action). The Parmalat USA Action asserts claims of aiding and abetting, breach of fiduciary duty, civil conspiracy and related claims against the Bank of America defendants and other defendants. The plaintiff seeks unspecified damages. The Corporation has moved to dismiss the Parmalat USA Action. The motion is pending.
Pension Plan Matters
The Corporation is a defendant in a putative class action entitledWilliam L. Pender, et al. v. Bank of America Corporation, et al.(formerly (formerly captionedAnita Pothier, et al. v. Bank of America Corporation, et al.), which was initially filed June 2004is pending in the U.S. District Court for the Southern District of Illinois and subsequently transferred to the U.S. District Court for the Western District of North Carolina. The action is brought on behalf of participants in or beneficiaries of The Bank of America Pension Plan (formerly known as the NationsBank Cash Balance Plan) and The Bank of America 401(k) Plan (formerly known as the NationsBank 401(k) Plan). The Third Amended Complaint names as defendants the Corporation, BANA, The Bank of America Pension Plan, The Bank of America 401(k) Plan, the Bank of America Corporation Corporate Benefits Committee and various members thereof, and PricewaterhouseCoopers LLP. The two named plaintiffsLLP are alleged to be a current and a former participant in The Bank of America Pension Plan and 401(k) Plan.
defendants. The complaint alleges the defendants violated various provisionsviolations of ERISA, including that the design of The Bank of America Pension Plan violated ERISA’s defined benefit pension plan standards and that such plan’s definition of normal retirement age is invalid. In addition, the complaint alleges age discrimination in the design and operation ofby The Bank of America Pension Plan, unlawful lump sum benefit calculation, violation of ERISA’s “anti-backloading” rule, that certain voluntary transfers of assets by participants in The Bank of America 401(k) Plan to The Bank of America Pension Plan violated ERISA, and other related claims. The complaint alleges that current and formerplan participants in these plans are entitled to greater benefits and seeks declaratory relief, monetary relief in an unspecified amount, equitable relief, including an order reforming The Bank of America Pension Plan, attorneys’ fees and interest.
On September 25, 2005, defendants moved to dismiss the complaint. On December 1, 2005, the named plaintiffs moved to certify classes consisting of, among others, (i) all persons who accrued or who are currently accruing benefits under The Bank of America Pension Plan and (ii) all persons who elected to have amounts representing their account balances under The Bank of America 401(k) Plan transferred to The Bank of America Pension Plan. TheThat motion, and a motion to dismiss and the motion for class certificationcomplaint, are pending.
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The IRS is conducting an audit of the 1998 and 1999 tax returns of The Bank of America Pension Plan and The Bank of America 401(k) Plan. This audit includes a review of voluntary transfers by participants of 401(k) Plan assets to The Bank of America Pension Plan and whether such transfers were in accordance with applicable law. In December 2005, theThe Corporation has received a Technical Advice MemorandumMemoranda from the National Office of the IRS that (i) concluded that the amendments made to The Bank of America 401(k) Plan in 1998 to permit the voluntary transfers to The Bank of America Pension Plan violated the anti-cutback rule of Section 411(d)(6) of the Internal Revenue Code. In November 2006, the Corporation received another Technical Advice Memorandum denyingCode and (ii) denied the Corporation’s request that the conclusion reached in the first Technical Advice Memorandum be applied prospectively only. The Corporation continues to participate in administrative proceedings with the IRS regarding issues raised in the audit.
On September 29, 2004, a separate putative class action, now entitledDonna C. Richards v. FleetBoston Financial Corp. and, the FleetBoston Financial Pension Plan and Bank of America Corporation (Fleet Pension Plan), was filed in the U.S. District Court for the District of
Connecticut on behalf of allcertain former and current Fleet employees who on December 31, 1996, were not at least age 50 with 15 years of vesting service and who participated in the Fleet Pension Plan before January 1, 1997, and who have participated in the Fleet Pension Plan at any time since January 1, 1997. The complaint allegedemployees. Plaintiffs allege that FleetBoston or its predecessor violated ERISA by amending the Fleet Financial Group, Inc. Pension Plan (a predecessor to the FleetFleetBoston Financial Pension Plan) to add a cash balance benefit formula without notifying participants that the amendment reduced their plan benefits, by conditioning the amount of benefits payable under the Fleet Pension Plan upon the form of benefit elected, by reducing the rate of benefit accruals on account of age, and by failing to inform participants of the correct amount of their pensions and related claims. The complaint also alleged violationIn September 2007, the Corporation and the other named defendants agreed in principle with class counsel to settle all claims brought on behalf of the “anti-backloading” rule of ERISA.class. The complaint sought equitable and remedial relief, including a declaration that the amendment was ineffective, additional unspecified benefit payments, attorneys’ fees and interest.
On March 31, 2006, the court certified a class with respect to plaintiff’s claims that (i) the cash balance benefit formula reduces the rate of benefit accrual on account of age, (ii) the participants did not receive proper notice of the alleged reduction of future benefit accrual, and (iii) the summary plan description was not adequate. Plaintiff filed an amended complaint realleging the three claims as to which a class was certified and amending two claims the court had dismissed, and defendants moved to dismiss plaintiff’s amended claims. The court dismissed plaintiff’s amended anti-backloading claim and a portion of the plaintiff’s amended breach of fiduciary duty claim. The court subsequently certified a class asagreement is subject to the portionsexecution of plaintiff’s breach of fiduciary duty claim that were not dismissed. On December 12, 2006, plaintiff filed a second amended complaint adding new allegations to the breach of fiduciary dutydefinitive settlement agreement and summary plan description claims, and a new claim alleging that the Fleet Pension Plan violated ERISA in calculating lump-sum distributions. On December 22, 2006, plaintiff filed a motion to extend class certification to the new allegations and claim in the second amended complaint.court approval.
RefcoNote 14 – Shareholders’ Equity and Earnings Per Common Share
Beginning in October 2005, BAS was named as a defendant in several putative class action lawsuits filed in the U.S. District Court for the Southern District of New York relating to Refco Inc. (Refco). The lawsuits, which have been consolidated and seek unspecified damages, name as other defendants Refco’s outside auditors, certain officers and directors of Refco, other financial services companies, and other individuals and companies. The lawsuits allege violations of the disclosure requirements of the federal securities laws in connection with Refco’s senior subordinated notes offering in August 2004 and Refco’s initial public offering in August 2005. BAS and certain other underwriter defendants have moved to dismiss the claims relating to the notes offering. BAS is also responding to various regulatory inquiries relating to Refco.
Trading and Research ActivitiesCommon Stock
The SEC has been conducting a formal investigation with respect to certain trading and research-related activitiesCorporation repurchased approximately 73.7 million shares of BAS. These matters primarily arose duringcommon stock in 2007 which more than offset the period 1999-2001 in BAS’ San Francisco operations. In September 2005, the SEC staff advised BAS that it intends to recommend to the SEC an enforcement action against BAS in connection with these matters. This matter remains pending.
The following table presents share repurchase activity for the three months and years ended December 31, 2006, 2005 and 2004, including total common53.5 million shares repurchasedissued under announced programs, weighted average per share price and the remaining buyback authority under announced programs.
Share Repurchase Activity
Number of Common Shares Repurchased under Announced Programs(1) | Weighted Average Per Share Price | Remaining Buyback Authority under Announced Programs (2) | ||||||||||
(Dollars in millions, except per share information; shares in thousands) | Amounts | Shares | ||||||||||
Three months ended March 31, 2006 | 88,450 | $ | 46.02 | $ | 5,847 | 65,738 | ||||||
Three months ended June 30, 2006 | 83,050 | 48.16 | 11,169 | 182,688 | ||||||||
Three months ended September 30, 2006 | 59,500 | 51.51 | 8,104 | 123,188 | ||||||||
October 1-31, 2006 | 16,000 | 53.82 | 7,243 | 107,188 | ||||||||
November 1-30, 2006 | 22,100 | 54.33 | 6,042 | 85,088 | ||||||||
December 1-31, 2006 | 22,000 | 53.16 | 4,873 | 63,088 | ||||||||
Three months ended December 31, 2006 | 60,100 | 53.77 | ||||||||||
Year ended December 31, 2006 | 291,100 | 49.35 | ||||||||||
Number of Common Shares Repurchased under Announced Programs(3) | Weighted Average Per Share Price | Remaining Buyback Authority under Announced Programs(2) | ||||||||||
(Dollars in millions, except per share information; shares in thousands) | Amounts | Shares | ||||||||||
Three months ended March 31, 2005 | 43,214 | $ | 46.05 | $ | 14,688 | 237,411 | ||||||
Three months ended June 30, 2005 | 40,300 | 45.38 | 11,865 | 197,111 | ||||||||
Three months ended September 30, 2005 | 10,673 | 43.32 | 11,403 | 186,438 | ||||||||
October 1-31, 2005 | — | — | 11,403 | 186,438 | ||||||||
November 1-30, 2005 | 11,550 | 45.38 | 10,879 | 174,888 | ||||||||
December 1-31, 2005 | 20,700 | 46.42 | 9,918 | 154,188 | ||||||||
Three months ended December 31, 2005 | �� | 32,250 | 46.05 | |||||||||
Year ended December 31, 2005 | 126,437 | 45.61 | ||||||||||
Number of Common Shares Repurchased under Announced Programs(4) | Weighted Average Per Share Price | Remaining Buyback Authority under Announced Programs(2) | ||||||||||
(Dollars in millions, except per share information; shares in thousands) | Amounts | Shares | ||||||||||
Three months ended March 31, 2004 | 24,306 | $ | 40.03 | $ | 12,378 | 204,178 | ||||||
Three months ended June 30, 2004 | 49,060 | 41.07 | 7,978 | 155,118 | ||||||||
Three months ended September 30, 2004 | 40,430 | 43.56 | 6,217 | 114,688 | ||||||||
October 1-31, 2004 | 16,102 | 44.24 | 5,505 | 98,586 | ||||||||
November 1-30, 2004 | 11,673 | 45.84 | 4,969 | 86,913 | ||||||||
December 1-31, 2004 | 6,288 | 46.32 | 4,678 | 80,625 | ||||||||
Three months ended December 31, 2004 | 34,063 | 45.17 | ||||||||||
Year ended December 31, 2004 | 147,859 | 42.52 |
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employee stock plans. The Corporation will continue tomay repurchase shares, from time to time, in the open market or in private transactions through the Corporation’s approved repurchase program. The Corporation expects to continue to repurchase a number of shares of common stock at least equalcomparable to any shares issued under the Corporation’s employee stock plans.
Effective for the third quarter dividend, the Board increased the quarterly cash dividend on common stock 14 percent from $0.50$0.56 to $0.56.$0.64 per share. In October 2006,2007, the Board declared a fourth quarter cash dividend, which was paid on December 22, 200628, 2007 to common shareholders of record on December 7, 2007.
Preferred Stock
In January 2008, the Corporation issued 240 thousand shares of Bank of America Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K (Series K Preferred Stock) with a par value of $0.01 per share for $6.0 billion. The fixed rate is 8.00 percent through January 29, 2018 and then adjusts to three-month LIBOR plus 363 bps thereafter. Ownership is held in the form of depositary shares, each representing a 1/25th interest in a share of Series K Preferred Stock, paying a semiannual cash dividend through January 29, 2018 then adjusts to a quarterly cash dividend, on the liquidation preference of $25,000 per share of Series K Preferred Stock.
Also in January 2008, the Corporation issued 6.9 million shares of Bank of America Corporation 7.25% Non-Cumulative Perpetual Convertible Preferred Stock, Series L (Series L Preferred Stock) with a par value of $0.01 per share for $6.9 billion, paying a quarterly cash dividend on the liquidation preference of $1,000 per share of Series L Preferred Stock at
an annual rate of 7.25 percent. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common stock plus cash in lieu of fractional shares. On or after January 30, 2013, the Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable conversion price of the Series L Preferred Stock. If the Corporation exercises its right to cause the automatic conversion of Series L Preferred Stock on January 30, 2013, it will still pay any accrued dividends payable on January 30, 2013 to the applicable holders of record.
In November and December 2007, the Corporation issued 41 thousand shares of Bank of America Corporation 7.25% Non-Cumulative Preferred Stock, Series J (Series J Preferred Stock) with a par value of $0.01 per share for $1.0 billion. Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of Series J Preferred Stock, paying a quarterly cash dividend on the liquidation preference of $25,000 per share of Series J Preferred Stock at an annual rate of 7.25 percent. On any dividend date on or after November 1, 2006.2012, the Corporation may redeem Series J Preferred Stock, in whole or in part, at its option, at $25,000 per share, plus accrued and unpaid dividends.
In September 2007, the Corporation issued 22 thousand shares of Bank of America Corporation 6.625% Non-Cumulative Preferred Stock, Series I (Series I Preferred Stock) with a par value of $0.01 per share for $550 million. Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of Series I Preferred Stock, paying a quarterly cash dividend on the liquidation preference of $25,000 per share of Series I Preferred Stock at an annual rate of 6.625 percent. On any dividend date on or after October 1, 2017, the Corporation may redeem Series I Preferred Stock, in whole or in part, at its option, at $25,000 per share, plus accrued and unpaid dividends.
In November 2006, the Corporation authorized 85,100 shares and issued 81,00081 thousand shares, or $2.0 billion, of Bank of America Corporation Floating Rate Non-Cumulative Preferred Stock, Series E (Series E Preferred Stock) with a par value of $0.01 per share. Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of Series E Preferred Stock, paying a quarterly cash dividend on the liquidation preference of $25,000 per share of Series E Preferred Stock at an annual rate equal to the greater of (a) three-month LIBOR plus 0.35 percent and (b) 4.00 percent, payable quarterly in arrears. On any dividend date on or after November 15, 2011, the Corporation may redeem Series E Preferred Stock, in whole or in part, at its option, at $25,000 per share, plus accrued and unpaid dividends.
In September 2006, the Corporation authorized 34,500 shares and issued 33,00033 thousand shares, or $825 million, of Bank of America Corporation 6.204% Non-Cumulative Preferred Stock, Series D (Series D Preferred Stock) with a par value of $0.01 per share. Ownership is held in the form of depositary shares, each representing a 1/1,000th interest in a share of Series D Preferred Stock, paying a quarterly cash dividend on the liquidation preference of $25,000 per share of Series D Preferred Stock at an annual rate of 6.204 percent. On any dividend date on or after September 14, 2011, the Corporation may redeem Series D Preferred Stock, in whole or in part, at its option, at $25,000 per share, plus accrued and unpaid dividends.
Series E Preferred Stock and Series D Preferred Stock (these Series)The shares of the series of preferred stock discussed above are not subject to the operations of a sinking fund and have no participation rights andrights. With the exception of the Series L Preferred Stock, the shares of the series of preferred stock discussed above are not convertible. The
Bank of America 2007 | 125 |
holders of these Seriesseries have no general voting rights. If any quarterly dividend payable on these Seriesseries is in arrears for six or more quarterly dividend periods (whether consecutive or not), the holders of these Seriesseries and any other class or series of preferred stock ranking equally as to payment of dividends and upon which equivalent voting rights have been conferred and are exercisable (voting as a single class) will be entitled to vote for the election of two additional directors. These voting rights terminate when the Corporation has paid in full dividends on these Seriesseries for at least four quarterly dividend periods following the dividend arrearage.
During October 2006, the Board declared a $0.38775 regular cash dividend on the Series D Preferred Stock. The dividend was payable December 14, 2006, to shareholders of record on November 30, 2006.
On July 14, 2006, the Corporation redeemed its 6.75% Perpetual Preferred Stock with a stated value of $250 per share. The 382,450382 thousand shares, or $96 million, outstanding of preferred stock were redeemed at the stated value of $250 per share, plus accrued and unpaid dividends.
On July 3, 2006, the Corporation redeemed its Fixed/Adjustable Rate Cumulative Preferred Stock with a stated value of $250 per share. The 700,000700 thousand shares, or $175 million, outstanding of preferred stock were redeemed at the stated value of $250 per share, plus accrued and unpaid dividends.
In addition to the preferred stock described above, the Corporation had 35,045 shares authorized and 7,739eight thousand shares, or $1 million, outstanding of the Series B7% Cumulative Redeemable Preferred Stock with a stated value of $100 per share paying dividends quarterly at an annual rate of 7.00 percent.
All preferred stock outstanding has preference over ourthe Corporation’s common stock with respect to the payment of dividends and distribution of ourthe Corporation’s assets in the event of a liquidation or dissolution. Except in certain circumstances, the holders of preferred stock have no voting rights.
The following table presents the changes in Accumulatedaccumulated OCI for 2007, 2006 and 2005, and 2004, net of tax.net-of-tax.
(Dollars in millions) | Securities (1,2) | Derivatives (3) | Other (4) | Total | ||||||||||||
Balance, December 31, 2003 | $ | (70 | ) | $ | (2,094 | ) | $ | (270 | ) | $ | (2,434 | ) | ||||
Net change in fair value recorded in Accumulated OCI | 1,088 | (294 | ) | (18 | ) | 776 | ||||||||||
Net realized (gains) losses reclassified into earnings(5) | (1,215 | ) | 109 | — | (1,106 | ) | ||||||||||
Balance, December 31, 2004 | (197 | ) | (2,279 | ) | (288 | ) | (2,764 | ) | ||||||||
Net change in fair value recorded in Accumulated OCI | (1,907 | ) | (2,225 | ) | 48 | (4,084 | ) | |||||||||
Net realized (gains) losses reclassified into earnings(5) | (874 | ) | 166 | — | (708 | ) | ||||||||||
Balance, December 31, 2005 | (2,978 | ) | (4,338 | ) | (240 | ) | (7,556 | ) | ||||||||
Net change in fair value recorded in Accumulated OCI | 465 | 534 | (1,091 | ) | (92 | ) | ||||||||||
Net realized (gains) losses reclassified into earnings(5) | (220 | ) | 107 | 50 | (63 | ) | ||||||||||
Balance, December 31, 2006 | $ | (2,733 | ) | $ | (3,697 | ) | $ | (1,281 | ) | $ | (7,711 | ) |
(Dollars in millions) | Securities (1, 2) | Derivatives (3) | Employee Benefit Plans | Foreign Currency | Total | |||||||||||||||
Balance, December 31, 2006 | $ | (2,733 | ) | $ | (3,697 | ) | $ | (1,428 | ) | $ | 147 | $ | (7,711 | ) | ||||||
Net change in fair value recorded in accumulated OCI(4) | 9,416 | (1,252 | ) | 4 | 142 | 8,310 | ||||||||||||||
Net realized (gains) losses reclassified into earnings(5) | (147 | ) | 547 | 123 | 7 | 530 | ||||||||||||||
Balance, December 31, 2007 | $ | 6,536 | $ | (4,402 | ) | $ | (1,301 | ) | $ | 296 | $ | 1,129 | ||||||||
Balance, December 31, 2005 | $ | (2,978 | ) | $ | (4,338 | ) | $ | (118 | ) | $ | (122 | ) | $ | (7,556 | ) | |||||
Net change in fair value recorded in accumulated OCI(6) | 465 | 534 | (1,310 | ) | 219 | (92 | ) | |||||||||||||
Net realized (gains) losses reclassified into earnings(5) | (220 | ) | 107 | – | 50 | (63 | ) | |||||||||||||
Balance, December 31, 2006 | $ | (2,733 | ) | $ | (3,697 | ) | $ | (1,428 | ) | $ | 147 | $ | (7,711 | ) | ||||||
Balance, December 31, 2004 | $ | (197 | ) | $ | (2,279 | ) | $ | (134 | ) | $ | (154 | ) | $ | (2,764 | ) | |||||
Net change in fair value recorded in accumulated OCI | (1,907 | ) | (2,225 | ) | 16 | 32 | (4,084 | ) | ||||||||||||
Net realized (gains) losses reclassified into earnings(5) | (874 | ) | 166 | – | – | (708 | ) | |||||||||||||
Balance, December 31, 2005 | $ | (2,978 | ) | $ | (4,338 | ) | $ | (118 | ) | $ | (122 | ) | $ | (7,556 | ) |
(1) | In 2007, 2006 |
(2) | Accumulated OCI includes fair value |
(3) | The |
(4) |
|
(5) | Included in this line item are amounts related to derivatives used in cash flow hedge relationships. These amounts are reclassified into earnings in the same |
(6) |
Employee benefit plans include the accumulated adjustment to initially apply SFAS 158 of $(1.3) billion. |
Earnings per Common Share
The calculation of earnings per common share and diluted earnings per common share for 2007, 2006 2005, and 20042005 is presented below. SeeNote 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements for a discussion on the calculation of earnings per common share.
(Dollars in millions, except per share information; shares in thousands) | 2006 | 2005 | 2004 | |||||||||
Earnings per common share | ||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | ||||||
Preferred stock dividends | (22 | ) | (18 | ) | (16 | ) | ||||||
Net income available to common shareholders | $ | 21,111 | $ | 16,447 | $ | 13,931 | ||||||
Average common shares issued and outstanding | 4,526,637 | 4,008,688 | 3,758,507 | |||||||||
Earnings per common share | $ | 4.66 | $ | 4.10 | $ | 3.71 | ||||||
Diluted earnings per common share | ||||||||||||
Net income available to common shareholders | $ | 21,111 | $ | 16,447 | $ | 13,931 | ||||||
Convertible preferred stock dividends | — | — | 2 | |||||||||
Net income available to common shareholders and assumed conversions | $ | 21,111 | $ | 16,447 | $ | 13,933 | ||||||
Average common shares issued and outstanding | 4,526,637 | 4,008,688 | 3,758,507 | |||||||||
Dilutive potential common shares(1, 2) | 69,259 | 59,452 | 65,436 | |||||||||
Total diluted average common shares issued and outstanding | 4,595,896 | 4,068,140 | 3,823,943 | |||||||||
Diluted earnings per common share | $ | 4.59 | $ | 4.04 | $ | 3.64 |
(Dollars in millions, except per share information; shares in thousands) | 2007 | 2006 | 2005 | |||||||||
Earnings per common share | ||||||||||||
Net income | $ | 14,982 | $ | 21,133 | $ | 16,465 | ||||||
Preferred stock dividends | (182 | ) | (22 | ) | (18 | ) | ||||||
Net income available to common shareholders | $ | 14,800 | $ | 21,111 | $ | 16,447 | ||||||
Average common shares issued and outstanding | 4,423,579 | 4,526,637 | 4,008,688 | |||||||||
Earnings per common share | $ | 3.35 | $ | 4.66 | $ | 4.10 | ||||||
Diluted earnings per common share | ||||||||||||
Net income available to common shareholders | $ | 14,800 | $ | 21,111 | $ | 16,447 | ||||||
Average common shares issued and outstanding | 4,423,579 | 4,526,637 | 4,008,688 | |||||||||
Dilutive potential common shares(1, 2) | 56,675 | 69,259 | 59,452 | |||||||||
Total diluted average common shares issued and outstanding | 4,480,254 | 4,595,896 | 4,068,140 | |||||||||
Diluted earnings per common share | $ | 3.30 | $ | 4.59 | $ | 4.04 |
(1) | For 2007, 2006 |
(2) | Includes incremental shares from restricted stock units, restricted stock shares and stock options. |
Bank of America 2007 |
Note 15 – Regulatory Requirements and Restrictions
The Board of Governors of the Federal Reserve System (FRB) requires the Corporation’s banking subsidiaries to maintain reserve balances based on a percentage of certain deposits. Average daily reserve balances required by the FRB were $5.7 billion and $5.6 billion for 2007 and $6.4 billion for 2006 and 2005.2006. Currency and coin residing in branches and cash vaults (vault cash) are used to partially satisfy the reserve requirement. The average daily reserve balances, in excess of vault cash, held with the FRB amounted to $49 million and $27 million for 2007 and $361 million for 2006 and 2005.2006.
The primary source of funds for cash distributions by the Corporation to its shareholders isare dividends received from its banking subsidiaries Bank of America, N.A. and, FIA Card Services, N.A. Effective June 10, 2006, MBNA America, and LaSalle Bank, N.A. was renamed FIA Card Services, N.A. Additionally, on October 20, 2006, Bank of America, N.A. (USA) merged into FIA Card Services, N.A. In 2006,2007, Bank of America Corporation received $16.0$15.4 billion in dividends from its banking subsidiaries. In 2007,2008, Bank of America, N.A. and, FIA Card Services, N.A., and LaSalle Bank, N.A. can declare and pay dividends to Bank of America Corporation of $11.4$4.6 billion, $1.6 billion, and $356$155 million plus an additional amount equal to their net profits for 2007,2008, as defined by statute, up to the date of any such dividend declaration. The other subsidiary national banks can initiate aggregate dividend payments in 20072008 of $68$338 million plus an additional amount equal to their net profits for 2007,2008, 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 combined with its net retained profits, as defined, for the preceding two years.
The FRB, the OCC and the Federal Deposit Insurance Corporation (collectively, the Agencies) have issued regulatory capital guidelines for U.S. banking organizations. Failure to meet the capital requirements can initiate certain mandatory and discretionary actions by regulators that could have a material effect on the Corporation’s financial statements. At December 31, 2006,2007, the Corporation, Bank of America, N.A. and, FIA Card Services, N.A., and LaSalle Bank, N.A. were classified as “well-capitalized” under this regulatory framework. At December 31, 2005,2006, the Corporation, Bank of America N.A., and Bank of America.FIA Card Services, N.A. (USA) were also classified as “well-capitalized.” There have been no conditions or events since December 31, 20062007 that management believes have changed the Corporation’s, Bank of America, N.A.’s, and FIA Card Services, N.A.’s, and LaSalle Bank, N.A.’s capital classifications.
The regulatory capital guidelines measure capital in relation to the credit and market risks of both onoff- and off-balanceon-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,common shareholders’ equity, Trust Securities, minority interests and qualifying Preferred Stock,preferred stock, less Goodwillgoodwill and other adjustments. Tier 2 Capital consists of Preferred Stockpreferred stock not qualifying as Tier 1 Capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, the allowance for credit losses up to 1.25 percent of risk-weighted assets and other adjustments. 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 FRB 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. Tier 3 Capital can only be used to satisfy the Corporation’s market risk capital requirement and may not be used to support its credit risk requirement. At December 31, 2007 and
2006, and 2005, the Corporation had no subordinated debt that qualified as Tier 3 Capital.
Certain corporate sponsored trust companies which issue Trust Securities are not consolidated under FIN 46R. As a result, the Trust Securities are not included on ourthe Corporation’s Consolidated Balance Sheet. On March 1, 2005, the FRB issued Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital (the Final Rule) which allows Trust Securities to continue to qualify as Tier 1 Capital with revised quantitative limits that would be effective after a five-year transition period. As a result, Trust Securities are included in Tier 1 Capital.
The FRB’s Final Rule limits restricted core capital elements to 15 percent for internationally active bank holding companies. Internationally active bank holding companies are those with consolidated assets greater than $250 billion or on-balance sheet exposure greater than $10 billion. In addition, the FRB revised the qualitative standards for capital instruments included in regulatory capital. At December 31, 2006, our2007, the Corporation’s restricted core capital elements comprised 17.320.3 percent of total core capital elements. We expectThe Corporation expects to be fully compliant with the revised limits prior to the implementation date of March 31, 2009.
To meet minimum, adequately-capitalized regulatory requirements, an institution must maintain a Tier 1 Capital ratio of four percent and a Total Capital ratio of eight percent. A well-capitalized institution must generally maintain capital ratios 200 bps higher than the minimum guidelines. The risk-based capital rules have been further supplemented by a leverage ratio, defined as Tier 1 Capital divided by adjusted quarterly average Total Assets,total assets, after certain adjustments. The leverage ratio guidelines establish“Well-capitalized” bank holding companies must have a minimum Tier 1 Leverage ratio of three percent. Banking organizationspercent and are not subject to a FRB directive to maintain higher capital levels. National banks must maintain a leverage capitalTier 1 Leverage ratio of at least five percent to be classified as “well-capitalized.” As of December 31, 2006, the Corporation was classified as “well-capitalized” for regulatory purposes, the highest classification.
Net Unrealized Gains (Losses)unrealized gains (losses) on AFS Debt Securities, Net Unrealized Gainsdebt securities, net unrealized gains on AFS Marketable Equity Securities, Net Unrealized Gains (Losses)marketable equity securities, net unrealized gains (losses) on Derivatives,derivatives, and the impact of SFAS No. 158 includedemployee benefit plan adjustments in Shareholders’ Equityshareholders’ equity at December 31, 20062007 and 2005,2006, are excluded from the calculations of Tier 1 Capital and leverageLeverage ratios. The Total Capital ratio excludes all of the above with the exception of up to 45 percent of Net Unrealized Gainsnet unrealized pre-tax gains on AFS Marketable Equity Securities.marketable equity securities.
Regulatory Capital Developments
On September 25, 2006, the Agencies officially published updates specific to U.S. market implementation of the risk-based capital rules originally published by the Basel Committee of Banking Supervision inIn June 2004. These updates provided clarification and additional guidance related to the rules and their implementation, as well as started an official comment period, which was subsequently extended in December 2006 for an additional 90 days.
Several of our international units have begun local parallel implementation reporting2004, Basel II ratioswas published with the intent of more closely aligning regulatory capital requirements with underlying risks. Similar to their host countries during 2006, with full implementation expected during 2007. With the recently published updates, revisedeconomic capital measures, Basel II seeks to address credit risk, market risk, and operational risk. On December 7, 2007, U.S. regulatory agencies published the final Basel II rules are scheduled to be fully implemented in 2008, while(Basel II Rules) providing detailed capital requirements for credit and operational risk under Pillar 1, supervisory requirements under Pillar 2 and disclosure requirements under Pillar 3. The Corporation is still awaiting final rules are subjectfor market risk requirements under Basel II.
The Basel II Rules’ effective date is April 1, 2008, which allows U.S. financial institutions to abegin parallel test period, supervisory approval and subsequent implementation. Duringreporting as early as 2008. The Corporation continues execution efforts to ensure preparedness with all Basel II requirements. The goal is to achieve full compliance by the parallel testing environment, current regulatory capital measures will be utilized simultaneously with the new rules. Duringend of the three-year implementation period in 2011. Further, internationally Basel II was implemented in several countries during the U.S.second half of 2007, while others will impose floors (limits) on capital reductions when compared to current measures.begin implementation in 2008 and 2009.
Bank of America 2007 | 127 |
Regulatory Capital
December 31 | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Actual | Minimum Required (1) | Actual | Minimum Required (1) | |||||||||||||
(Dollars in millions) | Ratio | Amount | Ratio | Amount | ||||||||||||
Risk-based capital | ||||||||||||||||
Tier 1 | ||||||||||||||||
Bank of America Corporation | 8.64 | % | $91,064 | $42,181 | 8.25 | % | $74,375 | $36,059 | ||||||||
Bank of America, N.A. | 8.89 | 76,174 | 34,264 | 8.70 | 69,547 | 31,987 | ||||||||||
FIA Card Services, N.A. (2) | 14.08 | 19,562 | 5,558 | — | — | — | ||||||||||
Bank of America, N.A. (USA) (3) | — | — | — | 8.66 | 5,567 | 2,570 | ||||||||||
Total | ||||||||||||||||
Bank of America Corporation | 11.88 | 125,226 | 84,363 | 11.08 | 99,901 | 72,118 | ||||||||||
Bank of America, N.A. | 11.19 | 95,867 | 68,529 | 10.73 | 85,773 | 63,973 | ||||||||||
FIA Card Services, N.A. (2) | 17.02 | 23,648 | 11,117 | — | — | — | ||||||||||
Bank of America, N.A. (USA) (3) | — | — | — | 11.46 | 7,361 | 5,140 | ||||||||||
Tier 1 Leverage | ||||||||||||||||
Bank of America Corporation | 6.36 | 91,064 | 42,935 | 5.91 | 74,375 | 37,732 | ||||||||||
Bank of America, N.A. | 6.63 | 76,174 | 34,487 | 6.69 | 69,547 | 31,192 | ||||||||||
FIA Card Services, N.A. (2) | 16.88 | 19,562 | 3,478 | — | — | — | ||||||||||
Bank of America, N.A. (USA) (3) | — | — | — | 9.37 | 5,567 | 1,783 |
December 31 | ||||||||||||||||||||
2007 | 2006 | |||||||||||||||||||
Actual | Minimum | Actual | Minimum | |||||||||||||||||
(Dollars in millions) | Ratio | Amount | Required (1) | Ratio | Amount | Required (1) | ||||||||||||||
Risk-based capital | ||||||||||||||||||||
Tier 1 | ||||||||||||||||||||
Bank of America Corporation | 6.87 | % | $ | 83,372 | $ | 48,516 | 8.64 | % | $ | 91,064 | $ | 42,181 | ||||||||
Bank of America, N.A. | 8.23 | 75,395 | 36,661 | 8.89 | 76,174 | 34,264 | ||||||||||||||
FIA Card Services, N.A. | 14.29 | 21,625 | 6,053 | 14.08 | 19,562 | 5,558 | ||||||||||||||
LaSalle Bank, N.A.(2) | 9.91 | 6,838 | 2,759 | – | – | – | ||||||||||||||
Total | ||||||||||||||||||||
Bank of America Corporation | 11.02 | 133,720 | 97,032 | 11.88 | 125,226 | 84,363 | ||||||||||||||
Bank of America, N.A. | 11.01 | 100,891 | 73,322 | 11.19 | 95,867 | 68,529 | ||||||||||||||
FIA Card Services, N.A. | 16.82 | 25,453 | 12,105 | 17.02 | 23,648 | 11,117 | ||||||||||||||
LaSalle Bank, N.A.(2) | 11.02 | 7,605 | 5,518 | – | – | – | ||||||||||||||
Tier 1 Leverage | ||||||||||||||||||||
Bank of America Corporation | 5.04 | 83,372 | 49,595 | 6.36 | 91,064 | 42,935 | ||||||||||||||
Bank of America, N.A. | 5.94 | 75,395 | 38,092 | 6.63 | 76,174 | 34,487 | ||||||||||||||
FIA Card Services, N.A. | 16.37 | 21,625 | 3,963 | 16.88 | 19,562 | 3,478 | ||||||||||||||
LaSalle Bank, N.A.(2) | 9.21 | 6,838 | 2,226 | – | – | – |
(1) | Dollar amount required to meet guidelines for adequately capitalized institutions. |
(2) |
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Note 16 – Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors noncontributory trusteed qualified 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 Bank of America Pension Plan (the Pension Plan) provides participants with compensation credits, generally based on age and years of service. TheFor account balances based on compensation credits prior to January 1, 2008, the Pension Plan allows participants to select from various earnings measures, which are based on the returns of certain funds or common stock of the Corporation. The participant-selected earnings measures determine the earnings rate on the individual participant account balances in the Pension Plan. Participants may elect to modify earnings measure allocations on a periodic basis subject to the provisions of the Pension Plan. TheFor account balances based on compensation credits subsequent to December 31, 2007, the account balance earnings rate is based on a benchmark rate. For eligible employees in the Pension Plan on or after January 1, 2008, the benefits become vested upon completion of fivethree years of service. It is the policy of the Corporation to fund not less than the minimum funding amount required by ERISA.
The Pension Plan has a balance guarantee feature for account balances with participant-selected earnings, applied at the time a benefit payment is made from the plan that protects participant balances transferred and certain compensation credits from future market downturns. The Corporation is responsible for funding any shortfall on the guarantee feature.
As a result of recent mergers, the Corporation assumed the obligations related to the pension plans of former FleetBoston, MBNA, U.S. Trust Corporation and MBNA.LaSalle. These plans together with the Pension Plan, are referred to as the Qualified Pension Plans. The Bank of America Pension Plan for Legacy Fleet (the FleetFleetBoston Pension Plan) isand the Bank of America Pension Plan for Legacy U.S. Trust Corporation (the U.S. Trust Pension Plan) are substantially similar to the Bank of AmericaPension Plan discussed above; however, the Fleet Pension Plan doesthese plans do not allow participants to select various earnings measures; rather the earnings rate is based on a benchmark rate.rate; in addition, both plans include participants with benefits
determined under formulas based on average or career compensation and years of service rather than by reference to a pension account. The Bank of America Pension Plan for Legacy MBNA (the MBNA Pension Plan) and The Bank of America Pension Plan for Legacy LaSalle (the LaSalle Pension Plan) provide retirement benefits are based on the number of years of benefit service and a percentage of the participant’s average annual compensation during the five highest paid consecutive years of their last ten years of employment.
The Corporation sponsors a number of noncontributory, nonqualified pension plans.plans (the Nonqualified Pension Plans). As a result of mergers, the Corporation assumed the obligations related to the noncontributory, nonqualified pension plans of former FleetBoston, MBNA, U.S. Trust Corporation, and MBNA.LaSalle. These plans, which are unfunded, provide defined pension benefits to certain employees.
In addition to retirement pension benefits, full-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. Based on the other provisions of the individual plans, certain retirees may also have the cost of these benefits partially paid by the Corporation. The obligations assumed as a result of the merger with FleetBostonmergers are substantially similar to the Corporation’s Postretirement Health and Life Plans. The MBNA Postretirement Health and Life Plan provides certain health care and life insurance benefits for a closed group upon early retirement.
The tables within this Note include the information related to the MBNA plans described above beginning January 1, 2006, the U.S. Trust Corporation plans beginning July 1, 2007 and the FleetBostonLaSalle plans beginning AprilOctober 1, 2004.2007.
On December 31, 2006, the Corporation adopted SFAS 158 which requires the recognition of a plan’s over-funded or under-funded status as an asset or liability with an offsetting adjustment to Accumulatedaccumulated OCI. SFAS 158 requires the determination of the fair values of a plan’s assets at a company’s year-endyear end and recognition of actuarial gains and losses, prior service costs or credits, and transition assets or obligations as a component of Accumulatedaccumulated OCI. These amounts were previously netted against the plans’ funded status in the Corporation’s Consolidated Balance Sheet pursuant to the provisions of SFAS 87. These amounts will be subsequently recognized as components of net periodic benefit costs. Further, actuarial gains and losses that arise in subsequent periods that
128 | Bank of America 2007 |
are not initially recognized as a component of net periodic benefit cost will be recognized as a component of Accumulatedaccumulated OCI. Those amounts will subsequently be recognized as a component of net periodic benefit cost as they are amortized during future periods.
The incremental effects of adopting the provisions of SFAS 158 on the Corporation’s Consolidated Balance Sheet at December 31, 2006 are presented in the following table.table below. The adoption of SFAS 158 had no effect on the Corporation’s Consolidated Statement of Income for the year ended December 31, 2006, or for any year presented.
(Dollars in millions) | Before Application of Statement 158 | Adjustments | After Application of Statement 158 | |||||||||
Other assets(1) | $ | 121,649 | $ | (1,966 | ) | $ | 119,683 | |||||
Total assets | 1,461,703 | (1,966 | ) | 1,459,737 | ||||||||
Accrued expenses and other liabilities(2) | 42,790 | (658 | ) | 42,132 | ||||||||
Total liabilities | 1,325,123 | (658 | ) | 1,324,465 | ||||||||
Accumulated OCI(3) | (6,403 | ) | (1,308 | ) | (7,711 | ) | ||||||
Total shareholders’ equity | 136,580 | (1,308 | ) | 135,272 | ||||||||
Total liabilities and shareholders’ equity | 1,461,703 | (1,966 | ) | 1,459,737 |
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Amounts included in Accumulated OCI (pre-tax) at December 31, 2006 were as follows:
(Dollars in millions) | Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | Total | ||||||||||
Net actuarial loss | $ | 1,765 | $ | 224 | $ | (68 | ) | $ | 1,921 | |||||
Transition obligation | — | — | 189 | 189 | ||||||||||
Prior service cost | 201 | (44 | ) | — | 157 | |||||||||
Amount recognized in Accumulated OCI(1) | $ | 1,966 | $ | 180 | $ | 121 | $ | 2,267 |
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The estimated net actuarial loss and prior service cost for the Qualified Pension Plans that will be amortized from Accumulated OCI, (pre-tax), into net periodic benefit cost during 2007 are $130 million and $46 million. The estimated net actuarial loss and prior service cost for the Nonqualified Pension Plans that will be amortized from Accumulated OCI, (pre-tax), into net periodic benefit cost during 2007 are $19 million and $(8) million. The estimated net actuarial loss and transition obligation for the Postretirement Health and Life Plans that will be amortized from Accumulated OCI, (pre-tax), into net periodic benefit cost during 2007 is $(22) million and $31 million.
The following table on page 130 summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 20062007 and 2005.2006. Amounts recognized at December 31, 20062007 and 20052006 are reflected
in Other Assets,other assets, and Accrued Expensesaccrued expenses and Other Liabilitiesother liabilities on the Consolidated Balance Sheet. The discount rate assumption is based on a cash flow matching technique and is subject to change each year. This technique utilizes a yield curve based upon Aa ratedAa-rated corporate bonds with cash flows that match estimated benefit payments to produce the discount rate assumption. For the Pension Plan, the FleetBoston Pension Plan, and the MBNA Pension Plan, (the Qualified Pension Plans),Plans, the Nonqualified Pension Plans and the Postretirement Health and Life Plans, the discount rate at December 31, 2006,2007, was 5.756.00 percent. For both the Qualified Pension Plans and the Postretirement Health and Life Plans, the expected long-term return on plan assets is 8.00 percent for 2007.2008. The expected return on plan assets is determined using the calculated market-related value for the Qualified Pension Plans and the fair value for the Postretirement Health and Life Plans. The asset valuation method for the Qualified Pension Plans 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.
Qualified Pension Plans(1) | Nonqualified Pension Plans(1) | Postretirement Health and Life Plans (1) | ||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | ||||||||||||||||||
Change in fair value of plan assets | ||||||||||||||||||||||||
(Primarily listed stocks, fixed income and real estate) | ||||||||||||||||||||||||
Fair value, January 1 | $ | 13,097 | $ | 12,153 | $ | 1 | $ | 1 | $ | 126 | $ | 166 | ||||||||||||
MBNA balance, January 1, 2006 | 555 | — | — | — | — | — | ||||||||||||||||||
Actual return on plan assets | 1,829 | 803 | — | — | 15 | 11 | ||||||||||||||||||
Company contributions(2) | 2,200 | 1,000 | 321 | 118 | 52 | 27 | ||||||||||||||||||
Plan participant contributions | — | — | — | — | 98 | 98 | ||||||||||||||||||
Benefits paid | (888 | ) | (859 | ) | (322 | ) | (118 | ) | (213 | ) | (176 | ) | ||||||||||||
Federal subsidy on benefits paid | n/a | n/a | n/a | n/a | 12 | n/a | ||||||||||||||||||
Fair value, December 31 | $ | 16,793 | $ | 13,097 | $ | — | $ | 1 | $ | 90 | $ | 126 | ||||||||||||
Change in projected benefit obligation | ||||||||||||||||||||||||
Projected benefit obligation, January 1 | $ | 11,690 | $ | 11,461 | $ | 1,108 | $ | 1,094 | $ | 1,420 | $ | 1,352 | ||||||||||||
MBNA balance, January 1, 2006 | 695 | — | 486 | — | 278 | — | ||||||||||||||||||
Service cost | 306 | 261 | 13 | 11 | 13 | 11 | ||||||||||||||||||
Interest cost | 676 | 643 | 78 | 61 | 86 | 78 | ||||||||||||||||||
Plan participant contributions | — | — | — | — | 98 | 98 | ||||||||||||||||||
Plan amendments | 33 | (77 | ) | — | (1 | ) | — | — | ||||||||||||||||
Actuarial (gains) losses | 168 | 261 | (18 | ) | 61 | (145 | ) | 57 | ||||||||||||||||
Benefits paid | (888 | ) | (859 | ) | (322 | ) | (118 | ) | (213 | ) | (176 | ) | ||||||||||||
Federal subsidy on benefits paid | n/a | n/a | n/a | n/a | 12 | n/a | ||||||||||||||||||
Projected benefit obligation, December 31 | $ | 12,680 | $ | 11,690 | $ | 1,345 | $ | 1,108 | $ | 1,549 | $ | 1,420 | ||||||||||||
Funded status, December 31 | ||||||||||||||||||||||||
Accumulated benefit obligation | $ | 12,151 | $ | 11,383 | $ | 1,345 | $ | 1,085 | n/a | n/a | ||||||||||||||
Overfunded (unfunded) status of ABO | 4,642 | 1,714 | (1,345 | ) | (1,084 | ) | n/a | n/a | ||||||||||||||||
Provision for future salaries | 529 | 307 | — | 23 | n/a | n/a | ||||||||||||||||||
Projected benefit obligation | 12,680 | 11,690 | 1,345 | 1,108 | 1,549 | 1,420 | ||||||||||||||||||
Overfunded (unfunded) status of PBO | $ | 4,113 | $ | 1,407 | $ | (1,345 | ) | $ | (1,107 | ) | $ | (1,459 | ) | $ | (1,294 | ) | ||||||||
Unrecognized net actuarial loss(3) | n/a | 2,621 | n/a | 262 | n/a | 92 | ||||||||||||||||||
Unrecognized transition obligation (3) | n/a | — | n/a | — | n/a | 221 | ||||||||||||||||||
Unrecognized prior service cost (3) | n/a | 209 | n/a | (52 | ) | n/a | — | |||||||||||||||||
Amount recognized, December 31 | $ | 4,113 | $ | 4,237 | $ | (1,345 | ) | $ | (897 | ) | $ | (1,459 | ) | $ | (981 | ) | ||||||||
Weighted average assumptions, December 31 | ||||||||||||||||||||||||
Discount rate | 5.75 | % | 5.50 | % | 5.75 | % | 5.50 | % | 5.75 | % | 5.50 | % | ||||||||||||
Expected return on plan assets | 8.00 | 8.50 | n/a | n/a | 8.00 | 8.50 | ||||||||||||||||||
Rate of compensation increase | 4.00 | 4.00 | 4.00 | 4.00 | n/a | n/a |
(Dollars in millions) | December 31, 2006 Balance Sheet Before Application of SFAS 158 | SFAS 158 Adoption Adjustments | December 31, 2006 Balance Sheet After Application of | |||||||||
Other assets(1) | $ | 121,649 | $ | (1,966 | ) | $ | 119,683 | |||||
Total assets | 1,461,703 | (1,966 | ) | 1,459,737 | ||||||||
Accrued expenses and other liabilities(2) | 42,790 | (658 | ) | 42,132 | ||||||||
Total liabilities | 1,325,123 | (658 | ) | 1,324,465 | ||||||||
Accumulated OCI(3) | (6,403 | ) | (1,308 | ) | (7,711 | ) | ||||||
Total shareholders’ equity | 136,580 | (1,308 | ) | 135,272 | ||||||||
Total liabilities and shareholders’ equity | 1,461,703 | (1,966 | ) | 1,459,737 |
(1) | Amounts represent adjustments to plans in an asset position of $(2.0) billion. |
(2) | Adjustments to plans in a liability position of $301 million, the reversal of the additional minimum liability adjustment of $(190) million and an adjustment to deferred tax liabilities of $(769) million. |
(3) | Includes employee benefit plan adjustments of $(1.4) billion, net-of-tax, and the reversal of the additional minimum liability adjustment of $120 million, net-of-tax. |
Bank of America 2007 | 129 |
Qualified Pension Plans(1) | Nonqualified Pension Plans(1) | Postretirement Health and Life Plans(1) | ||||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||
Change in fair value of plan assets | ||||||||||||||||||||||||
Fair value, January 1 | $ | 16,793 | $ | 13,097 | $ | – | $ | 1 | $ | 90 | $ | 126 | ||||||||||||
MBNA balance, January 1, 2006 | – | 555 | – | – | – | – | ||||||||||||||||||
U.S. Trust Corporation balance, July 1, 2007 | 437 | – | – | – | – | – | ||||||||||||||||||
LaSalle balance, October 1, 2007 | 1,400 | – | – | – | 85 | – | ||||||||||||||||||
Actual return on plan assets | 1,043 | 1,829 | – | – | 7 | 15 | ||||||||||||||||||
Company contributions(2) | – | 2,200 | 159 | 321 | 84 | 52 | ||||||||||||||||||
Plan participant contributions | – | – | – | – | 109 | 98 | ||||||||||||||||||
Benefits paid | (953 | ) | (888 | ) | (157 | ) | (322 | ) | (225 | ) | (213 | ) | ||||||||||||
Federal subsidy on benefits paid | n/a | n/a | n/a | n/a | 15 | 12 | ||||||||||||||||||
Fair value, December 31 | $ | 18,720 | $ | 16,793 | $ | 2 | $ | – | $ | 165 | $ | 90 | ||||||||||||
Change in projected benefit obligation | ||||||||||||||||||||||||
Projected benefit obligation, January 1 | $ | 12,680 | $ | 11,690 | $ | 1,345 | $ | 1,108 | $ | 1,549 | $ | 1,420 | ||||||||||||
MBNA balance, January 1, 2006 | – | 695 | – | 486 | – | 278 | ||||||||||||||||||
U.S. Trust Corporation balance, July 1, 2007 | 363 | – | 6 | – | 9 | – | ||||||||||||||||||
LaSalle balance, October 1, 2007 | 1,133 | – | 108 | – | 120 | – | ||||||||||||||||||
Service cost | 316 | 306 | 9 | 13 | 16 | 13 | ||||||||||||||||||
Interest cost | 761 | 676 | 71 | 78 | 84 | 86 | ||||||||||||||||||
Plan participant contributions | – | – | – | – | 109 | 98 | ||||||||||||||||||
Plan amendments | 3 | 33 | (1 | ) | – | – | – | |||||||||||||||||
Actuarial (gains) losses | (103 | ) | 168 | (74 | ) | (18 | ) | (101 | ) | (145 | ) | |||||||||||||
Benefits paid | (953 | ) | (888 | ) | (157 | ) | (322 | ) | (225 | ) | (213 | ) | ||||||||||||
Federal subsidy on benefits paid | n/a | n/a | n/a | n/a | 15 | 12 | ||||||||||||||||||
Projected benefit obligation, December 31 | $ | 14,200 | $ | 12,680 | $ | 1,307 | $ | 1,345 | $ | 1,576 | $ | 1,549 | ||||||||||||
Amount recognized, December 31 | $ | 4,520 | $ | 4,113 | $ | (1,305 | ) | $ | (1,345 | ) | $ | (1,411 | ) | $ | (1,459 | ) | ||||||||
Funded status, December 31 | ||||||||||||||||||||||||
Accumulated benefit obligation | $ | 13,540 | $ | 12,151 | $ | 1,284 | $ | 1,345 | n/a | n/a | ||||||||||||||
Overfunded (unfunded) status of ABO | 5,180 | 4,642 | (1,282 | ) | (1,345 | ) | n/a | n/a | ||||||||||||||||
Provision for future salaries | 660 | 529 | 23 | – | n/a | n/a | ||||||||||||||||||
Projected benefit obligation | 14,200 | 12,680 | 1,307 | 1,345 | $ | 1,576 | $ | 1,549 | ||||||||||||||||
Weighted average assumptions, December 31 | ||||||||||||||||||||||||
Discount rate | 6.00 | % | 5.75 | % | 6.00 | % | 5.75 | % | 6.00 | % | 5.75 | % | ||||||||||||
Expected return on plan assets | 8.00 | 8.00 | n/a | n/a | 8.00 | 8.00 | ||||||||||||||||||
Rate of compensation increase | 4.00 | 4.00 | 4.00 | 4.00 | n/a | n/a |
(1) | The measurement date for the Qualified Pension Plans, Nonqualified Pension Plans, and Postretirement Health and Life Plans was December 31 of each year reported. |
(2) | The Corporation’s best estimate of its contributions to be made to the Qualified Pension Plans, Nonqualified Pension Plans, and Postretirement Health and Life Plans in |
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n/a = not applicable
Amounts recognized in the Consolidated Financial Statements at December 31, 20062007 and 20052006 were as follows:
December 31, 2006 | |||||||||||
(Dollars in millions) | Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | ||||||||
Other assets | $ | 4,113 | $ | — | $ | — | |||||
Accrued expenses and other liabilities | — | (1,345 | ) | (1,459 | ) | ||||||
Net amount recognized at December 31 | $ | 4,113 | $ | (1,345 | ) | $ | (1,459 | ) |
December 31, 2005 | |||||||||||
(Dollars in millions) | Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | ||||||||
Prepaid benefit cost | $ | 4,237 | $ | — | $ | — | |||||
Accrued benefit cost | — | (897 | ) | (981 | ) | ||||||
Additional minimum liability | — | (187 | ) | — | |||||||
SFAS 87 Accumulated OCI adjustment(1) | — | 187 | — | ||||||||
Net amount recognized at December 31 | $ | 4,237 | $ | (897 | ) | $ | (981 | ) |
Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | ||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||
Other assets | $ | 4,520 | $ | 4,113 | $ | – | $ | – | $ | – | $ | – | ||||||||||
Accrued expenses and other liabilities | – | – | (1,305 | ) | (1,345 | ) | (1,411 | ) | (1,459 | ) | ||||||||||||
Net amount recognized at December 31 | $ | 4,520 | $ | 4,113 | $ | (1,305 | ) | $ | (1,345 | ) | $ | (1,411 | ) | $ | (1,459 | ) |
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130 | Bank of |
Net periodic benefit cost (income) for 2007, 2006 2005 and 20042005 included the following components:
Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | ||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | |||||||||||||||||||||||||||
Components of net periodic benefit cost | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 306 | $ | 261 | $ | 257 | $ | 13 | $ | 11 | $ | 27 | $ | 13 | $ | 11 | $ | 9 | ||||||||||||||||||
Interest cost | 676 | 643 | 623 | 78 | 61 | 62 | 86 | 78 | 76 | |||||||||||||||||||||||||||
Expected return on plan assets | (1,034 | ) | (983 | ) | (915 | ) | — | — | — | (10 | ) | (14 | ) | (16 | ) | |||||||||||||||||||||
Amortization of transition obligation | — | — | — | — | — | — | 31 | 31 | 32 | |||||||||||||||||||||||||||
Amortization of prior service cost (credits) | 41 | 44 | 55 | (8 | ) | (8 | ) | 3 | — | — | 1 | |||||||||||||||||||||||||
Recognized net actuarial loss | 229 | 182 | 92 | 20 | 24 | 14 | 12 | 80 | 74 | |||||||||||||||||||||||||||
Recognized loss due to settlements and curtailments | — | — | — | — | 9 | — | — | — | — | |||||||||||||||||||||||||||
Net periodic benefit cost | $ | 218 | $ | 147 | $ | 112 | $ | 103 | $ | 97 | $ | 106 | $ | 132 | $ | 186 | $ | 176 | ||||||||||||||||||
Weighted average assumptions used to determine net cost for years ended December 31 | ||||||||||||||||||||||||||||||||||||
Discount rate(1) | 5.50 | % | 5.75 | % | 6.25 | % | 5.50 | % | 5.75 | % | 6.25 | % | 5.50 | % | 5.75 | % | 6.25 | % | ||||||||||||||||||
Expected return on plan assets | 8.00 | 8.50 | 8.50 | n/a | n/a | n/a | 8.00 | 8.50 | 8.50 | |||||||||||||||||||||||||||
Rate of compensation increase | 4.00 | 4.00 | 4.00 | 4.00 | 4.00 | 4.00 | n/a | n/a | n/a |
Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | ||||||||||||||||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||
Components of net periodic benefit cost (income) | ||||||||||||||||||||||||||||||||||||
Service cost | $ | 316 | $ | 306 | $ | 261 | $ | 9 | $ | 13 | $ | 11 | $ | 16 | $ | 13 | $ | 11 | ||||||||||||||||||
Interest cost | 761 | 676 | 643 | 71 | 78 | 61 | 84 | 86 | 78 | |||||||||||||||||||||||||||
Expected return on plan assets | (1,312 | ) | (1,034 | ) | (983 | ) | – | – | – | (8 | ) | (10 | ) | (14 | ) | |||||||||||||||||||||
Amortization of transition obligation | – | – | – | – | – | – | 32 | 31 | 31 | |||||||||||||||||||||||||||
Amortization of prior service cost (credits) | 47 | 41 | 44 | (7 | ) | (8 | ) | (8 | ) | – | – | – | ||||||||||||||||||||||||
Recognized net actuarial (gain) loss | 156 | 229 | 182 | 17 | 20 | 24 | (60 | ) | 12 | 80 | ||||||||||||||||||||||||||
Recognized loss (gain) due to settlements and curtailments | – | – | – | 14 | – | 9 | (2 | ) | – | – | ||||||||||||||||||||||||||
Net periodic benefit cost (income) | $ | (32 | ) | $ | 218 | $ | 147 | $ | 104 | $ | 103 | $ | 97 | $ | 62 | $ | 132 | $ | 186 | |||||||||||||||||
Weighted average assumptions used to determine net cost for years ended December 31 | ||||||||||||||||||||||||||||||||||||
Discount rate(1) | 5.75 | % | 5.50 | % | 5.75 | % | 5.75 | % | 5.50 | % | 5.75 | % | 5.75 | % | 5.50 | % | 5.75 | % | ||||||||||||||||||
Expected return on plan assets | 8.00 | 8.00 | 8.50 | n/a | n/a | n/a | 8.00 | 8.00 | 8.50 | |||||||||||||||||||||||||||
Rate of compensation increase | 4.00 | 4.00 | 4.00 | 4.00 | 4.00 | 4.00 | n/a | n/a | n/a |
(1) | In connection with the |
n/a = not applicable
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 standard 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 recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health Care Plans. The assumed health care cost trend rate used to measure the
expected cost of benefits covered by the Postretirement Health Care Plans was 9.0 percent for 2007,2008, reducing in steps to 5.0 percent in 20122013 and 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 $5 million and $64 million in 2007, and $3 million and $51 million in both 2006 $3 million and $51 million in 2005, and $4 million and $56 million in 2004.2005. A one-percentage-point decrease in assumed health care cost trend rates would have lowered the service and interest costs and the benefit obligation by $4 million and $54 million in 2007, $3 million and $44 million in 2006, and $3 million and $43 million in 2005,2005.
Pre-tax amounts included in accumulated OCI at December 31, 2007 and $32006 were as follows:
Qualified Pension Plans | Nonqualified Pension Plans | Postretirement Health and Life Plans | Total | |||||||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | ||||||||||||||||||||
Net actuarial (gain) loss | $ | 1,776 | $ | 1,765 | $ | 119 | $ | 224 | $ | (106 | ) | $ | (68 | ) | $ | 1,789 | $ | 1,921 | ||||||||||
Transition obligation | – | – | – | – | 157 | 189 | 157 | 189 | ||||||||||||||||||||
Prior service cost (credits) | 157 | 201 | (38 | ) | (44 | ) | – | – | 119 | 157 | ||||||||||||||||||
Amounts recognized in accumulated OCI | $ | 1,933 | $ | 1,966 | $ | 81 | $ | 180 | $ | 51 | $ | 121 | $ | 2,065 | $ | 2,267 |
Bank of America 2007 | 131 |
Pre-tax amounts recognized in OCI for 2007 included the following components:
Qualified | Nonqualified | Postretirement | Total | |||||||||||||
(Dollars in millions) | ||||||||||||||||
Other changes in plan assets and benefit obligations recognized in OCI | ||||||||||||||||
Settlements and curtailments | $ | – | $ | (14 | ) | $ | 2 | $ | (12 | ) | ||||||
Current year actuarial (gain) loss | 167 | (74 | ) | (100 | ) | (7 | ) | |||||||||
Amortization of actuarial gain (loss) | (156 | ) | (17 | ) | 60 | (113 | ) | |||||||||
Current year prior service (credit) cost | 3 | (1 | ) | – | 2 | |||||||||||
Amortization of prior service credit (cost) | (47 | ) | 7 | – | (40 | ) | ||||||||||
Amortization of transition asset (obligation) | – | – | (32 | ) | (32 | ) | ||||||||||
Total recognized in OCI | $ | (33 | ) | $ | (99 | ) | $ | (70 | ) | $ | (202 | ) |
The estimated net actuarial (gain) loss and prior service cost (credit) for the Qualified Pension Plans that will be amortized from accumulated OCI into net periodic benefit cost (income) during 2008 are pre-tax amounts of $64 million and $48$47 million. The estimated net actuarial (gain) loss and prior service cost (credit) for the Nonqualified Pension Plans that will be amortized from accumulated OCI into net periodic benefit cost (income) during 2008 are pre-tax amounts of $11 million in 2004.
The Qualified Pension Plans have been established as retirement vehicles for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plans. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long-term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/reward profile of the assets. Asset allocation ranges are established, periodically reviewed, and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the equity exposure of participant-selected earnings measures. For example, the common stock
of the Corporation held in the trust is maintained as an offset to the exposure related to participants who selected to receive an earnings measure based on the return performance of common stock of the Corporation. No plan assets are expected to be returned to the Corporation during 2007.2008.
The Expected Return on Asset Assumption (EROA assumption) was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The EROA assumption represents a long-term average view of the performance of the Qualified Pension Plans and Postretirement Health and Life Plan assets, a return that may or may not be achieved during any one calendar year. In a simplistic analysis of the EROA assumption, the building blocks used to arrive at the long-term return assumption would include an implied return from equity securities of 8.75 percent, debt securities of 5.75 percent, and real estate of 7.00 percent for all pension plans and postretirement health and life plans.
The Qualified Pension Plans’ and Postretirement Health and Life Plans’ asset allocations at December 31, 20062007 and 20052006 and target allocations for 20072008 by asset category are as follows:presented in the table below.
Asset Category | Qualified Pension Plans | Postretirement Health and Life Plans | ||||||||||||||||
Percentage of Plan Assets at December 31 | Percentage of Plan Assets at December 31 | |||||||||||||||||
2007 Target Allocation | 2006 | 2005 | 2007 Target Allocation | 2006 | 2005 | |||||||||||||
Equity securities | 65 - 80 | % | 68 | % | 71 | % | 50 - 70 | % | 61 | % | 57 | % | ||||||
Debt securities | 20 - 35 | 30 | 27 | 30 - 50 | 36 | 41 | ||||||||||||
Real estate | 0 - 5 | 2 | 2 | 0 - 5 | 3 | 2 | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
Equity securities for the Qualified Pension Plans include common stock of the Corporation in the amounts of $667 million (3.56 percent of total plan assets) and $882 million (5.25 percent of total plan assets) and $798 million (6.10 percent of total plan assets) at December 31, 20062007 and 2005.2006.
The Bank of America, MBNA, U.S. Trust Corporation, and MBNALaSalle Postretirement Health and Life Plans had no investment in the common stock of the Corporation at December 31, 20062007 or 2005.2006. The FleetBoston Postretirement Health and Life Plans included common stock of the Corporation in the amount of $0.3 million (0.20 percent of total plan assets) and $0.4 million (0.46 percent of total plan assets) and $0.3 million (0.27 percent of total plan assets) at December 31, 20062007 and December 31, 2005, respectively.2006.
Asset Category
Qualified Pension Plans | Postretirement Health and Life Plans | |||||||||||||||||
2008 Target Allocation | Percentage of Plan Assets at December 31 | 2008 Target Allocation | Percentage of Plan Assets at December 31 | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||||
Equity securities | 60 – 80 | % | 70 | % | 68 | % | 50 – 75 | % | 67 | % | 61 | % | ||||||
Debt securities | 20 – 40 | 27 | 30 | 25 – 45 | 30 | 36 | ||||||||||||
Real estate | 0 – 5 | 3 | 2 | 0 – 5 | 3 | 3 | ||||||||||||
Total | 100 | % | 100 | % | 100 | % | 100 | % |
Bank of America 2007 |
Projected Benefit Payments
Benefit payments projected to be made from the Qualified Pension Plans, the Nonqualified Pension Plans and the Postretirement Health and Life Plans are as follows:
Qualified Pension Plans (1) | Nonqualified Pension Plans (2) | Postretirement Health and Life Plans | |||||||||||
(Dollars in millions) | Net Payments (3) | Medicare Subsidy | |||||||||||
2007 | $ | 1,007 | $ | 97 | $ | 135 | $ | (12 | ) | ||||
2008 | 1,022 | 101 | 135 | (12 | ) | ||||||||
2009 | 1,026 | 104 | 137 | (12 | ) | ||||||||
2010 | 1,035 | 103 | 138 | (12 | ) | ||||||||
2011 | 1,051 | 105 | 138 | (12 | ) | ||||||||
2012 - 2016 | 5,262 | 518 | 656 | (58 | ) |
(Dollars in millions) | Qualified Pension Plans(1) | Nonqualified Pension Plans(2) | Postretirement Health and Life Plans | ||||||||||
Net Payments (3) | Medicare Subsidy | ||||||||||||
2008 | $ | 1,057 | $ | 105 | $ | 150 | $ | (15 | ) | ||||
2009 | 1,068 | 104 | 150 | (15 | ) | ||||||||
2010 | 1,059 | 103 | 152 | (16 | ) | ||||||||
2011 | 1,110 | 105 | 153 | (16 | ) | ||||||||
2012 | 1,105 | 103 | 152 | (17 | ) | ||||||||
2013 – 2017 | 5,324 | 479 | 735 | (82 | ) |
(1) | Benefit payments expected to be made from the plans’ assets. |
(2) | Benefit payments expected to be made from the Corporation’s assets. |
(3) | Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets. |
Defined Contribution Plans
The Corporation maintains qualified defined contribution retirement plans and nonqualified defined contribution retirement plans. As a result of the FleetBoston merger, beginning on April 1, 2004, the Corporation maintains the defined contribution plans of former FleetBoston. As a result of the MBNA merger on January 1, 2006, the Corporation also maintains the defined contribution plans of former MBNA.
The Corporation contributed approximately $420 million, $328 million and $274 million for 2007, 2006 and $267 million for 2006, 2005, and 2004, in cash, and stock, respectively. At December 31, 20062007 and 2005,2006, an aggregate of 9993 million shares and 10699 million shares of the Corporation’s common stock were held by the 401(k) Plans. During 2004, the Corporation converted the ESOP Preferred Stock held by the Bank of America 401(k) PlanPayments to common stock so that there were no outstanding shares of preferred stock at December 31, 2004 in the 401(k) Plans.
Under the terms of the Employee Stock Ownership Plan (ESOP) Preferred Stock provision for the Bank of America 401(k) Plan, payments to the planplans for dividends on the ESOP Preferred Stock were $4 million for 2004. Payments to the Bank of America 401(k) Plan and legacy FleetBoston 401(k) Plan for dividends on Common Stock were $208 million, $207 million and $181 million during 2006, 2005 and 2004, respectively. Payments to the MBNA 401(k) Plan for dividends on the Corporation’s common stock were $8$228 million, in 2006.$216 million and $207 million during 2007, 2006 and 2005, respectively.
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.
Note 17 – Stock-Based Compensation Plans
In 2005, the Corporation introduced a broad-based cash incentive plan for associates that meet certain eligibility criteria and are below certain compensation levels. The amount of the cash award is determined based on the Corporation’s operating net income and common stock price performance for the full year. During 2006 and 2005, the Corporation recorded an expense of $237 million and $145 million for this Plan.
On January 1, 2006, the Corporation adopted SFAS 123R under the modified-prospective application.
The compensation cost recognized in income for the plans described below was $1.2 billion, $1.0 billion and $805 million in 2007, 2006 and $536 million in 2006, 2005, and 2004, respectively. The related income tax benefit recognized in income was $438 million, $382 million and $294 million for 2007, 2006 and $188 million for 2006, 2005, and 2004, respectively.
Prior to the adoption of SFAS 123R, awards granted to retirement-eligible employees were expensed over the stated vesting period. SFAS 123R requires that the Corporation recognize stock compensation cost immediately for any awards granted to retirement-eligible employees, or over the vesting period or the period from the grant date to the date retirement eligibility is achieved, whichever is shorter. Upon the grant of awards in the first quarter of 2006, the Corporation recognized approximately $320 million in equity-based compensation due to awards being granted to retirement-eligible employees.
Prior to the adoption of SFAS 123R, the Corporation presented tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statement of Cash Flows. SFAS 123R requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The Corporation classified $254 million and $477 million in excess tax benefits as a financing cash inflow for 2007 and 2006.
Prior to January 1, 2006, the Corporation estimated the fair value of stock options granted on the date of grant using the Black-Scholes option-pricing model. On January 1, 2006, the Corporation began using a lattice option-pricing model to estimate the grant date fair value of stock options granted. The following table below presents the assumptions used to estimate the fair value of stock options granted on the date of grant using the lattice option-pricing model for 2007 and 2006. Lattice option-pricing models incorporate ranges of assumptions for inputs and those ranges are disclosed in the table below. The risk-free rate for periods within the contractual life of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatilities are based on implied volatilities from traded stock options on the Corporation’s common stock, historical volatility of the Corporation’s common stock, and other factors. The Corporation uses historical data to estimate stock option exercise and employee termination within the model. The expected term of stock options granted is derived from the output of the model and represents the period of time that stock options granted are expected to be outstanding. The table below also includes the assumptions used to estimate the fair value of stock options granted on the date of grant using the Black-Scholes option-pricing model for 2005 and 2004.2005. The estimates of fair value from these models are theoretical values for stock options and changes in the assumptions used in the models could result in materially different fair value estimates. The actual value of the stock options will depend on the market value of the Corporation’s common stock when the stock options are exercised.
2006 | 2005 | 2004 | |||||||
Risk-free interest rate | 4.59 – 4.70 | % | 3.94 | % | 3.36 | % | |||
Dividend yield | 4.50 | 4.60 | 4.56 | ||||||
Expected volatility | 17.00 – 27.00 | 20.53 | 22.12 | ||||||
Weighted-average volatility | 20.30 | n/a | n/a | ||||||
Expected lives (years) | 6.5 | 6 | 5 |
2007 | 2006 | 2005 | |||||||
Risk-free interest rate | 4.72 – 5.16 | % | 4.59 – 4.70 | % | 3.94 | % | |||
Dividend yield | 4.40 | 4.50 | 4.60 | ||||||
Expected volatility | 16.00 – 27.00 | 17.00 – 27.00 | 20.53 | ||||||
Weighted average volatility | 19.70 | 20.30 | n/a | ||||||
Expected lives (years) | 6.5 | 6.5 | 6 |
n/a = not applicable
The Corporation has equity compensation plans that were approved by its shareholders. These plans are the Key Employee Stock Plan and the Key Associate Stock Plan. Additionally one equity compensation plan (2002 Associates Stock Option Plan) was not approved by the Corporation’s shareholders. Descriptions of the material features of these plans follow.
133 |
Key Employee Stock Plan
The Key Employee Stock Plan, as amended and restated, provided for different types of awards. These include stock options, restricted stock shares and restricted stock units. Under the plan,Plan, ten-year options to purchase approximately 260 million shares of common stock were granted through December 31, 2002, to certain employees at the closing market price on the respective grant dates. Options granted under the planPlan generally vest in three or four equal annual installments. At December 31, 2006,2007, approximately 6657 million options were outstanding under this plan.Plan. No further awards may be granted.
Key Associate Stock Plan
On April 24, 2002, the shareholders approved the Key Associate Stock Plan to be effective January 1, 2003. This approval authorized and reserved 200 million shares for grant in addition to the remaining amount under the Key Employee Stock Plan as of December 31, 2002, which was approximately 34 million shares plus any shares covered by awards under the Key Employee Stock Plan that terminate, expire, lapse or are cancelled after December 31, 2002. Upon the FleetBoston
merger, the shareholders authorized an additional 102 million shares and on April 26, 2006, the shareholders authorized an additional 180 million shares for grant under the Key Associate Stock Plan. At December 31, 2006,2007, approximately 135151 million options were outstanding under this plan. Approximately 18 million shares of restricted stock and restricted stock units were granted in 2006.2007. These shares of restricted stock generally vest in three equal annual installments beginning one year from the grant date. The Corporation incurred restricted stock expense of $778 million, $486 million, and $288 million in 2006, 2005 and 2004.
The Bank of America Corporation 2002 Associates Stock Option Plan was a broad-based plan that covered all employees below a specified executive grade level and was not approved by the Corporation’s shareholders. Under the plan, eligible employees received a one-time award of a predetermined number of options entitling them to purchase shares of the Corporation’s common stock. All options are nonqualified and have an exercise price equal to the fair market value on the date of grant. Approximately 108 million options were granted on February 1, 2002. The award included two performance-based vesting triggers, which were subsequently achieved. At December 31, 2006, approximately 5 million options were outstanding under this plan. The options expire on January 31, 2007. No further awards may be granted.
The following table presents information on equity compensation plans at December 31, 2006:
Number of Shares to be Issued(1, 3) | Weighted Average Exercise Price of Outstanding Options(2) | Number of Shares Remaining for Future Issuance Under Equity Compensation Plans | |||||
Plans approved by shareholders | 215,115,189 | $ | 37.59 | 304,107,699 | |||
Plan not approved by shareholders(4) | 5,148,042 | 30.68 | — | ||||
Total | 220,263,231 | 37.42 | 304,107,699 |
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The following table presents the status of all option plans at December 31, 2006,2007, and changes during 2006:2007:
Employee stock options | December 31, 2006 | |||||
Shares | Weighted Average Exercise Price | |||||
Outstanding at January 1, 2006 | 298,132,802 | $ | 35.13 | |||
Options assumed through acquisition | 31,506,268 | 32.70 | ||||
Granted | 31,534,150 | 44.42 | ||||
Exercised | (111,615,059 | ) | 32.93 | |||
Forfeited | (4,484,991 | ) | 41.48 | |||
Outstanding at December 31, 2006 | 245,073,170 | 36.89 | ||||
Options exercisable at December 31, 2006 | 178,277,236 | 34.17 | ||||
Options vested and expected to vest(1) | 244,223,346 | 36.87 |
Employee stock options
December 31, 2007 | ||||||
Shares | Weighted Average Exercise Price | |||||
Outstanding at January 1, 2007 | 245,073,170 | $ | 36.89 | |||
Granted | 34,253,805 | 53.83 | ||||
Exercised | (45,434,338 | ) | 35.56 | |||
Forfeited | (5,232,588 | ) | 46.09 | |||
Outstanding at December 31, 2007 (1) | 228,660,049 | 39.49 | ||||
Options exercisable at December 31, 2007 | 168,956,467 | 35.86 | ||||
Options vested and expected to vest(2) | 227,941,654 | 39.45 |
(1) | Includes 57 million options under the Key Employee Stock Plan, 151 million options under the Key Associate Stock Plan and 20 million options to employees of predecessor companies assumed in mergers. |
(2) | Includes vested shares and nonvested shares after a forfeiture rate is applied. |
At December 31, 2007, the aggregate intrinsic value of options outstanding, exercisable, and vested and expected to vest was $1.1 billion. The weighted average remaining contractual term and aggregate intrinsic value of options outstanding was 5.75.6 years, and $4.0 billion,of options exercisable was 4.74.6 years, and $3.4 billion, andof options vested and expected to vest was 5.75.6 years and $4.0 billion at December 31, 2006.2007.
The weighted average grant-date fair value of options granted in 2007, 2006 and 2005 was $8.44, $6.90 and 2004 was $6.90, $6.48, and $5.59.respectively. The total intrinsic value of options exercised in 20062007 was $2.0 billion.$717 million.
The following table presents the status of the nonvested sharesrestricted stock/unit awards at December 31, 2006,2007, and changes during 2006:2007:
Restricted stock/unit awards | December 31, 2006 | |||||
Shares | Weighted Average Grant Date Fair Value | |||||
Outstanding at January 1, 2006 | 27,278,106 | $ | 42.79 | |||
Share obligations assumed through acquisition | 754,740 | 30.40 | ||||
Granted | 18,128,115 | 44.43 | ||||
Vested | (12,319,864 | ) | 41.41 | |||
Cancelled | (2,251,755 | ) | 44.52 | |||
Outstanding at December 31, 2006 | 31,589,342 | 43.85 |
Restricted stock/unit awards
December 31, 2007 | ||||||
Shares | Weighted Average Grant Date Fair Value | |||||
Outstanding at January 1, 2007 | 31,589,342 | $ | 43.85 | |||
Granted | 18,213,053 | 53.82 | ||||
Vested | (15,499,957 | ) | 44.53 | |||
Cancelled | (2,480,714 | ) | 49.26 | |||
Outstanding at December 31, 2007 | 31,821,724 | 48.80 |
At December 31, 2006,2007, there was $766$696 million of total unrecognized compensation cost related to share-based compensation arrangements for all awards that is expected to be recognized over a weighted average period of .860.93 years. The total fair value of restricted stock vested in 20062007 was $559$810 million.
Bank of America 2007 |
Note 18 – Income Taxes
The components of Income Tax Expenseincome tax expense for 2007, 2006 2005 and 20042005 were as follows:
(Dollars in millions) | 2006 | 2005 | 2004 | ||||||||
Current income tax expense | |||||||||||
Federal | $ | 7,398 | $ | 5,229 | $ | 6,392 | |||||
State | 796 | 676 | 683 | ||||||||
Foreign | 796 | 415 | 405 | ||||||||
Total current expense | 8,990 | 6,320 | 7,480 | ||||||||
Deferred income tax expense (benefit) | |||||||||||
Federal | 1,807 | 1,577 | (512 | ) | |||||||
State | 45 | 85 | (23 | ) | |||||||
Foreign | (2 | ) | 33 | 16 | |||||||
Total deferred expense (benefit) | 1,850 | 1,695 | (519 | ) | |||||||
Total income tax expense (1) | $ | 10,840 | $ | 8,015 | $ | 6,961 |
(Dollars in millions) | 2007 | 2006 | 2005 | ||||||||
Current income tax expense | |||||||||||
Federal | $ | 5,210 | $ | 7,398 | $ | 5,229 | |||||
State | 681 | 796 | 676 | ||||||||
Foreign | 804 | 796 | 415 | ||||||||
Total current expense | 6,695 | 8,990 | 6,320 | ||||||||
Deferred income tax expense (benefit) | |||||||||||
Federal | (710 | ) | 1,807 | 1,577 | |||||||
State | (18 | ) | 45 | 85 | |||||||
Foreign | (25 | ) | (2 | ) | 33 | ||||||
Total deferred expense (benefit) | (753 | ) | 1,850 | 1,695 | |||||||
Total income tax expense (1) | $ | 5,942 | $ | 10,840 | $ | 8,015 |
(1) | Does not reflect the deferred tax effects of |
Income Tax Expensetax expense for 2007, 2006 2005 and 20042005 varied from the amount computed by applying the statutory income tax rate to Incomeincome before Income Taxes.income taxes. A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 35 percent to the Corporation’s actual Income Tax Expenseincome tax expense and resulting effective tax rate for 2007, 2006 and 2005 are presented in the following table.
As a result of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) and the American Jobs Creation Act of 2004 follows:(the AJCA), the Corporation’s non-U.S. based commercial aircraft leasing business no
longer qualified for a reduced U.S. tax rate. Accounting for the change in law resulted in the discrete recognition of a $175 million charge to income tax expense during 2006. However, the AJCA modified the anti-deferral provisions associated with the active leasing of aircraft operated predominantly outside the U.S. The restructuring of the Corporation’s non-U.S. based commercial aircraft leasing business in compliance with the provisions of the AJCA resulted in a one-time income tax benefit of $221 million in 2007.
2006 | 2005 | 2004 | 2007 | 2006 | 2005 | |||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
Expected federal income tax expense | $ | 11,191 | 35.0 | % | $ | 8,568 | 35.0 | % | $ | 7,318 | 35.0 | % | $ | 7,323 | 35.0 | % | $ | 11,191 | 35.0 | % | $ | 8,568 | 35.0 | % | ||||||||||||||||||
Increase (decrease) in taxes resulting from: | ||||||||||||||||||||||||||||||||||||||||||
Tax-exempt income, including dividends | (630 | ) | (2.0 | ) | (605 | ) | (2.5 | ) | (526 | ) | (2.5 | ) | (683 | ) | (3.3 | ) | (630 | ) | (2.0 | ) | (605 | ) | (2.5 | ) | ||||||||||||||||||
State tax expense, net of federal benefit | 547 | 1.7 | 495 | 2.0 | 429 | 2.1 | ||||||||||||||||||||||||||||||||||||
Low income housing credits/other credits | (537 | ) | (1.7 | ) | (423 | ) | (1.7 | ) | (352 | ) | (1.7 | ) | (590 | ) | (2.8 | ) | (537 | ) | (1.7 | ) | (423 | ) | (1.7 | ) | ||||||||||||||||||
Foreign tax differential | (291 | ) | (0.9 | ) | (99 | ) | (0.4 | ) | (78 | ) | (0.4 | ) | (485 | ) | (2.3 | ) | (291 | ) | (0.9 | ) | (99 | ) | (0.4 | ) | ||||||||||||||||||
TIPRA—FSC/ETI | 175 | 0.5 | — | — | — | — | ||||||||||||||||||||||||||||||||||||
State tax expense, net of federal benefit | 431 | 2.1 | 547 | 1.7 | 495 | 2.0 | ||||||||||||||||||||||||||||||||||||
Non-U.S. leasing – TIPRA/AJCA | (221 | ) | (1.1 | ) | 175 | 0.5 | – | – | ||||||||||||||||||||||||||||||||||
Other | 385 | 1.3 | 79 | 0.3 | 170 | 0.8 | 167 | 0.8 | 385 | 1.3 | 79 | 0.3 | ||||||||||||||||||||||||||||||
Total income tax expense | $ | 10,840 | 33.9 | % | $ | 8,015 | 32.7 | % | $ | 6,961 | 33.3 | % | $ | 5,942 | 28.4 | % | $ | 10,840 | 33.9 | % | $ | 8,015 | 32.7 | % |
The Corporation adopted the provisions of FIN 48 on January 1, 2007. FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the tax law may be uncertain. As a result of the adoption of FIN 48, the Corporation recognized a $198 million increase in the UTB balance, reducing retained earnings by $146 million and increasing goodwill by $52 million. The beginning UTB balance of $2.7 billion reconciles to the December 31, 2007 balance in the following table.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions) | ||||
Balance, January 1, 2007 | $ | 2,667 | ||
Increases related to positions taken during prior years | 67 | |||
Increases related to positions taken during the current year | 456 | |||
Positions acquired or assumed in business combinations | 328 | |||
Decreases related to positions taken during prior years | (227 | ) | ||
Settlements | (108 | ) | ||
Expiration of statute of limitations | (88 | ) | ||
Balance, December 31, 2007 | $ | 3,095 |
Bank of America 2007 | 135 |
As of December 31, 2007 and January 1, 2007, the balance of the Corporation’s UTBs which would, if recognized, affect the Corporation’s effective tax rate was $1.8 billion and $1.5 billion. Included in the UTB balance are some items the recognition of which would not affect the effective tax rate, such as the tax effect of certain temporary differences, the portion of gross state UTBs that would be offset by the tax benefit of the associated federal deduction and UTBs related to acquired entities that will impact goodwill if recognized. Once SFAS 141R is effective, beginning January 1, 2009, any change in the UTBs related to acquired entities that occurs beyond the measurement period will not impact good-will but will instead be recognized in earnings. The portion of the December 31, 2007 UTB balance that, if recognized after the adoption of SFAS 141R, would impact the effective tax rate was $577 million.
During 2007, the IRS is currently examiningcompleted the examination phase of the audit of the Corporation’s federal income tax returns for the years 2000 through 2002. In addition,2002 and issued Revenue Agent’s Reports (RAR) to the federal incomeCorporation. Included in these RARs were proposed adjustments to disallow certain foreign tax returnscredits and to recharacterize certain leveraged leases referred to by the IRS as “SILOs.” The Corporation filed protests of FleetBoston and certain other subsidiaries are currently under examination for years ranging from 1997 through 2004these proposed adjustments as well as certain other of the federalRAR adjustments with the Appeals office of the IRS. The Corporation believes the crediting of the Corporation’s foreign taxes against U.S. income taxes was appropriate. Further, the Corporation believes the tax treatment of the SILO position as true leases for U.S. income tax returns of MBNA for years ranging from 2001 through 2004. The Corporation’s current estimatepurposes is supported by the relevant facts and tax authorities. However, final determination of the resolution of these various examinations is reflected in accrued income taxes; however, final settlement of the examinationsaudit or changes in the Corporation’s estimate may result in future income tax expense or benefit. The Corporation’s federal income tax returns for the years 2003 and 2004 remain under examination by the IRS. In addition, the federal income tax returns of FleetBoston are currently under examination for the years 1997 through March 31, 2004. Upon the final determination of each of the above audits, the UTB balance will decrease, since resolved items would be removed from the balance whether their resolution resulted in payment or recognition. The Corporation does not expect these matters to be concluded within the next twelve months.
The federal income tax returns of LaSalle are currently under examination for the years 2003 through 2005. The Corporation anticipates that it is reasonably possible that the final determination of these audits will occur during 2008 and does not anticipate that such resolution would result in a material change to the Corporation’s financial position.
Finally, the audit of the federal income tax returns of MBNA for the tax years 2001 through 2004 was completed during 2007.
All tax years subsequent to the above years remain open to examination.
The Corporation files income tax returns in more than 100 state and foreign jurisdictions each year and is under continuous examination by various state and foreign taxing authorities. While many of these examinations are resolved every year, the Corporation does not anticipate that resolutions occurring within the next twelve months would result in a material change to the Corporation’s financial position.
During 2007, the Corporation recognized $161 million, net of taxes, of interest and penalties within income tax expense. As of December 31, 2007 and January 1, 2007, the Corporation’s accrual for interest and penalties that related to income taxes, net of taxes and remittances, including applicable interest on certain leveraged lease positions, was $573 million and $769 million. The decrease during 2007 primarily resulted from remittances to the IRS to stop the potential accrual of interest on certain items relating to the above examinations.
Significant components of the Corporation’s net deferred tax liability at December 31, 20062007 and 20052006 are presented in the following table.
December 31 | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Deferred tax liabilities | ||||||||
Equipment lease financing | $ | 6,895 | $ | 6,455 | ||||
Intangibles | 1,198 | 506 | ||||||
Fee income | 1,065 | 386 | ||||||
Mortgage servicing rights | 787 | 632 | ||||||
Foreign currency | 659 | 251 | ||||||
State income taxes | 353 | 168 | ||||||
Fixed assets | — | 152 | ||||||
Loan fees and expenses | — | 142 | ||||||
Other | 1,232 | 1,137 | ||||||
Gross deferred tax liabilities | 12,189 | 9,829 | ||||||
Deferred tax assets | ||||||||
Allowance for credit losses | 3,054 | 2,623 | ||||||
Security valuations | 2,703 | 3,208 | ||||||
Available-for-sale securities | 1,632 | 1,845 | ||||||
Accrued expenses | 1,283 | 1,235 | ||||||
Employee compensation and retirement benefits | 1,273 | 559 | ||||||
Foreign tax credit carryforward | 117 | 169 | ||||||
Other | 198 | 429 | ||||||
Gross deferred tax assets | 10,260 | 10,068 | ||||||
Valuation allowance(1) | (122 | ) | (253 | ) | ||||
Total deferred tax assets, net of valuation allowance | 10,138 | 9,815 | ||||||
Net deferred tax liabilities(2) | $ | 2,051 | $ | 14 |
December 31 | ||||||||
(Dollars in millions) | 2007 | 2006 | ||||||
Deferred tax liabilities | ||||||||
Equipment lease financing | $ | 6,875 | $ | 6,895 | ||||
Available-for-sale securities | 3,836 | – | ||||||
Intangibles | 2,015 | 1,198 | ||||||
Fee income | 1,445 | 1,065 | ||||||
Mortgage servicing rights | 859 | 787 | ||||||
State income taxes | 347 | 353 | ||||||
Foreign currency | 47 | 659 | ||||||
Other | 1,620 | 1,232 | ||||||
Gross deferred tax liabilities | 17,044 | 12,189 | ||||||
Deferred tax assets | ||||||||
Allowance for credit losses | 4,056 | 3,054 | ||||||
Security valuations | 3,673 | 2,703 | ||||||
Employee compensation and retirement benefits | 1,541 | 1,273 | ||||||
Accrued expenses | 1,307 | 1,283 | ||||||
Available-for-sale securities | – | 1,632 | ||||||
Foreign tax credit carryforward | – | 117 | ||||||
Other | 73 | 198 | ||||||
Gross deferred tax assets | 10,650 | 10,260 | ||||||
Valuation allowance(1) | (148 | ) | (122 | ) | ||||
Total deferred tax assets, net of valuation allowance | 10,502 | 10,138 | ||||||
Net deferred tax liabilities(2) | $ | 6,542 | $ | 2,051 |
(1) | At December 31, 2007 and 2006, |
(2) | The Corporation’s net deferred tax liabilities were adjusted during |
The valuation allowance at December 31, 20062007 and 20052006 is attributable to deferred tax assets generated in certain state and foreign jurisdictions for which management believes it is more likely than not that realization of these assets will not occur. The decreasechange in the valuation allowance primarily resulted from acurrent year losses in foreign jurisdictions offset by the remeasurement of certain state temporary differences against which valuation allowances had been recorded and the conclusion of state tax examinations.
The foreign tax credit carryforward reflected in the table above represents foreign income taxes paid that are creditable against future U.S. income taxes. If not used, these credits begin to expire after 2013 and could fully expire after 2016.
The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law in 2006. Among other things, TIPRA repealed certain provisions of prior law relating to transactions entered into under the extraterritorial income and foreign sales corporation regimes. The TIPRA repeal results in an increase in the U.S. taxes expected to be paid on certain portions of the income earned from such transactions after December 31, 2006. Accounting for the change in law resulted in the recognition of a $175 million charge to Income Tax Expense during 2006.
The American Jobs Creation Act of 2004 (the Act) provides U.S. companies with the ability to elect to apply a special one-time tax deduction equal to 85 percent of certain earnings remitted from foreign subsidiaries, provided certain criteria are met. Management elected to apply the Act for 2005 and recorded a one-time tax benefit of $70 million for the year ended December 31, 2005.recorded.
At December 31, 20062007 and 2005,2006, federal income taxes had not been provided on $4.4$5.8 billion and $1.4$4.4 billion 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 $573$925 million and $249$573 million of tax expense, net of credits for foreign taxes paid on such earnings and for the related foreign withholding taxes, would have resulted as of December 31, 2007 and 2006.
136 | Bank of America 2007 |
Note 19 – Fair Value Disclosures
Effective January 1, 2007, the Corporation adopted SFAS 157, which provides a framework for measuring fair value under GAAP. SFAS 157 also eliminated the deferral of gains and losses at inception of certain derivative contracts whose fair value was not evidenced by market observable data. SFAS 157 requires that the impact of this change in 2006accounting for derivative contracts be recorded as an adjustment to beginning retained earnings in the period of adoption.
The Corporation also adopted SFAS 159 on January 1, 2007. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and 2005.subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis. The Corporation elected to adopt the fair value option for certain financial instruments on the adoption date. SFAS 159 requires that the difference between the carrying value before election of the fair value option and the fair value of these instruments be recorded as an adjustment to beginning retained earnings in the period of adoption.
The following table summarizes the impact of the change in accounting for derivative contracts described above and the impact of adopting the fair value option for certain financial instruments on January 1, 2007. Amounts shown represent the carrying value of the affected instruments before and after the changes in accounting resulting from the adoption of SFAS 157 and SFAS 159.
Transition Impact
(Dollars in millions) | Ending Balance December 31, 2006 | Adoption Net Gain/(Loss) | Opening Balance January 1, 2007 | |||||||||
Impact of adopting SFAS 157 | ||||||||||||
Net derivative assets and liabilities(1) | $ | 7,100 | $ | 22 | $ | 7,122 | ||||||
Impact of electing the fair value option under SFAS 159 | ||||||||||||
Loans and leases (2) | 3,968 | (21 | ) | 3,947 | ||||||||
Accrued expenses and other liabilities(3) | (28 | ) | (321 | ) | (349 | ) | ||||||
Other assets(4) | 8,778 | – | 8,778 | |||||||||
Available-for-sale debt securities(5) | 3,692 | – | 3,692 | |||||||||
Federal funds sold and securities purchased under agreements to resell(6) | 1,401 | (1 | ) | 1,400 | ||||||||
Interest-bearing deposit liabilities in domestic offices(7) | (548 | ) | 1 | (547 | ) | |||||||
Cumulative-effect adjustment, pre-tax | (320 | ) | ||||||||||
Tax impact | 112 | |||||||||||
Cumulative-effect adjustment, net-of-tax, decrease to retained earnings | $ | (208 | ) |
(1) | The transition adjustment reflects the impact of recognizing previously deferred gains and losses as a result of the rescission of certain requirements of EITF 02-3 in accordance with SFAS 157. |
(2) | Includes loans to certain large corporate clients. The ending balance at December 31, 2006 and the transition adjustment were net of a $32 million reduction in the allowance for loan and lease losses. |
(3) | The January 1, 2007 balance after adoption represents the fair value of certain unfunded commercial loan commitments. The December 31, 2006 balance prior to adoption represents the reserve for unfunded lending commitments associated with these commitments. |
(4) | Other assets include loans held-for-sale. No transition adjustment was recorded for the loans held-for-sale because they were already recorded at fair value pursuant to lower of cost or market accounting. |
(5) | Changes in fair value of these AFS debt securities resulting from foreign currency exposure, which is the primary driver of fair value for these securities, had previously been hedged by derivatives that qualified for fair value hedge accounting in accordance with SFAS 133. As a result, there was no transition adjustment. Following the election of the fair value option, these AFS debt securities have been transferred to trading account assets. |
(6) | Includes structured reverse repurchase agreements that were hedged with derivatives in accordance with SFAS 133. |
(7) | Includes long-term fixed rate deposits that were economically hedged with derivatives. |
Fair Value Option Elections
Corporate Loans and Loan Commitments
The Corporation elected to account for certain large corporate loans and loan commitments which exceeded the Corporation’s single name credit risk concentration guidelines at fair value in accordance with SFAS 159. Lending commitments, both funded and unfunded, are actively managed and monitored, and, as appropriate, credit risk for these lending relationships may be mitigated through the use of credit derivatives, with the Corporation’s credit view and market perspectives determining the size and timing of the hedging activity. These credit derivatives do not meet the requirements for hedge accounting under SFAS 133 and are therefore carried at fair value with changes in fair value recorded in other income. Electing the fair value option allows the Corporation to account for these loans and loan commitments at fair value, which is more consistent with management’s view of the underlying economics and the manner in which they are managed. In addition, accounting for these loans and loan commitments at fair value reduces the accounting asymmetry that would otherwise result from carrying the loans at historical cost and the credit derivatives at fair value.
Fair values for the loans and loan commitments are based on market prices, where available, or discounted cash flows using market-based
credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow calculations may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
At December 31, 2007, funded loans which the Corporation has elected to fair value had an aggregate fair value of $4.59 billion recorded in loans and leases and an aggregate outstanding principal balance of $4.82 billion. At December 31, 2007, unfunded loan commitments that the Corporation has elected to fair value had an aggregate fair value of $660 million recorded in accrued expenses and other liabilities and an aggregate committed exposure of $20.9 billion. Interest income on these loans is recorded in interest and fees on loans and leases. At December 31, 2007, none of these loans were 90 days or more past due and still accruing interest or had been placed on nonaccrual status. Net losses resulting from changes in fair value of these loans and loan commitments of $413 million were recorded in other income during 2007. These losses were significantly attributable to changes in instrument-specific credit risk. Following adoption of SFAS 159, approximately $5 million of direct loan origination fees and costs related to items for which the fair value option was elected were recognized in earnings during 2007. Previously, these items would have been capitalized and amortized to earnings over the life of the loans.
Bank of America 2007 | 137 |
Loans Held-for-Sale
The Corporation also elected to account for certain loans held-for-sale at fair value. Electing to use fair value allows a better offset of the changes in fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting under SFAS 133. The Corporation has not elected to fair value other loans held-for-sale primarily because these loans are floating rate loans that are not economically hedged using derivative instruments. Fair values for loans held-for-sale are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans and adjusted to reflect the inherent credit risk. At December 31, 2007, residential mortgage loans, commercial mortgage loans, and other loans held-for-sale for which the fair value option was elected had an aggregate fair value of $15.77 billion and an aggregate outstanding principal balance of $16.72 billion and were recorded in other assets. Interest income on these loans is recorded in other interest income. Net gains (losses) resulting from changes in fair value of these loans, including realized gains (losses) on sale, of $333 million were recorded in mortgage banking income, $(348) million were recorded in trading account profits (losses), and $(58) million were recorded in other income during 2007. These changes in fair value are mostly offset by hedging activities. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk. The adoption of SFAS 159 resulted in an increase of $256 million in mortgage banking income, and in an increase of $212 million in noninterest expense for 2007. Subsequent to the adoption of SFAS 159, mortgage loan origination costs are recognized in noninterest expense when incurred. Previously, mortgage loan origination costs would have been capitalized as part of the carrying amount of the loans and recognized as a reduction of mortgage banking income upon the sale of such loans.
Debt Securities
Effective January 1, 2007, the Corporation elected to fair value $3.7 billion of AFS debt securities through earnings. Changes in fair value resulting from foreign currency exposure, which was the primary driver of fair value for these securities, had previously been hedged by derivatives that qualified for fair value hedge accounting in accordance with SFAS 133. Electing the fair value option allows the Corporation to eliminate the burden of complying with the requirements for hedge accounting under SFAS 133 without introducing accounting volatility. Following election of the fair value option, these securities were reclassified to trading account assets.
The Corporation did not elect the fair value option for other AFS debt securities because they were not hedged by derivatives that qualified for hedge accounting in accordance with SFAS 133.
Structured Reverse Repurchase Agreements
The Corporation elected to fair value certain structured reverse repurchase agreements which were hedged with derivatives which qualified for fair value hedge accounting in accordance with SFAS 133. Election of the fair value option allows the Corporation to reduce the burden of complying with the requirements of hedge accounting under SFAS 133. At December 31, 2007, these instruments had an aggregate fair value of $2.58 billion and a principal balance of $2.54 billion recorded in federal funds sold and securities purchased under agreements to resell. Interest earned on these instruments continues to be recorded in interest income. Net gains resulting from changes in fair value of these instruments of $23 million were recorded in other income for 2007. The Corporation did not elect to fair value other financial instruments within the same balance sheet category because they were not economically hedged using derivatives.
Long-term Deposits
The Corporation elected to fair value certain long-term fixed rate deposits which are economically hedged with derivatives. At December 31, 2007, these instruments had an aggregate fair value of $2.00 billion and principal balance of $1.99 billion recorded in interest-bearing deposits. Interest paid on these instruments continues to be recorded in interest expense. Net losses resulting from changes in fair value of these instruments of $26 million were recorded in other income for 2007. Election of the fair value option will allow the Corporation to reduce the accounting volatility that would otherwise result from the accounting asymmetry created by accounting for the financial instruments at historical cost and the economic hedges at fair value. The Corporation did not elect to fair value other financial instruments within the same balance sheet category because they were not economically hedged using derivatives.
Fair Value Measurement
SFAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Corporation measures fair value, seeNote 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements.
Bank of |
Assets and liabilities measured at fair value on a recurring basis, including financial instruments for which the Corporation has elected the fair value option, are summarized below:
December 31, 2007 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
(Dollars in millions) | Level 1 | Level 2 | Level 3 | Netting Adjustments (1) | Assets/Liabilities at Fair Value | |||||||||||
Assets | ||||||||||||||||
Federal funds sold and securities purchased under agreements to resell(2) | $ | – | $ | 2,578 | $ | – | $ | – | $ | 2,578 | ||||||
Trading account assets | 42,986 | 115,051 | 4,027 | – | 162,064 | |||||||||||
Derivative assets | 516 | 442,471 | 8,972 | (417,297 | ) | 34,662 | ||||||||||
Available-for-sale debt securities | 2,089 | 205,734 | 5,507 | – | 213,330 | |||||||||||
Loans and leases(2, 3) | – | – | 4,590 | – | 4,590 | |||||||||||
Mortgage servicing rights | – | – | 3,053 | – | 3,053 | |||||||||||
Other assets(4) | 19,796 | 15,971 | 5,321 | – | 41,088 | |||||||||||
Total assets | $ | 65,387 | $ | 781,805 | $ | 31,470 | $ | (417,297 | ) | $ | 461,365 | |||||
Liabilities | ||||||||||||||||
Interest-bearing deposits in domestic offices (2) | $ | – | $ | 2,000 | $ | – | $ | – | $ | 2,000 | ||||||
Trading account liabilities | 57,331 | 20,011 | – | – | 77,342 | |||||||||||
Derivative liabilities | 534 | 426,223 | 10,175 | (414,509 | ) | 22,423 | ||||||||||
Accrued expenses and other liabilities(2) | – | – | 660 | – | 660 | |||||||||||
Total liabilities | $ | 57,865 | $ | 448,234 | $ | 10,835 | $ | (414,509 | ) | $ | 102,425 |
(1) | Amounts represent the impact of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and also cash collateral held or placed with the same counterparties. |
(2) | Amounts represent items for which the Corporation has elected the fair value option under SFAS 159. |
(3) | Loans and leases at December 31, 2007 included $22.6 billion of leases that were not eligible for the fair value option as they were specifically excluded from fair value option election in accordance with SFAS 159. |
(4) | Other assets include equity investments held by Principal Investing, AFS equity investments and certain retained interests in securitization vehicles, including interest-only strips, all of which were carried at fair value prior to the adoption of SFAS 159; and loans held-for-sale for which the Corporation has elected the fair value option under SFAS 159. Substantially all of other assets are eligible for fair value accounting at December 31, 2007. |
The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2007. Level 3 loans and loan commitments are carried at fair value due to adoption of the fair value option, as described on page 137. Other Level 3 instruments presented in the table, including net derivatives, trading account assets, AFS debt securities, MSRs, certain equity investments and retained interests in securitizations, were carried
at fair value prior to the adoption of SFAS 159. During 2007 certain financial instruments, including certain ABS issued by CDOs and portfolios of loans held-for-sale, were transferred from Level 2 to Level 3 due to the lack of current observable market activity. These instruments were valued using pricing models and discounted cash flow methodologies incorporating assumptions that, in management’s judgment, reflect the assumptions a marketplace participant would use at December 31, 2007.
Level 3 Instruments Only
Total Fair Value Measurements | ||||||||||||||||||||||||||||
(Dollars in millions) | Net Derivatives (1) | Trading Account Assets (2) | Available-for- Sale Debt Securities (2, 3) | Loans and Leases (4) | Mortgage Servicing Rights (2) | Other Assets (5) | Accrued Expenses and Other Liabilities (4) | |||||||||||||||||||||
Balance, December 31, 2006 | $ | 766 | $ | 303 | $ | 1,133 | $ | 3,968 | $ | 2,869 | $ | 6,605 | $ | (28 | ) | |||||||||||||
Impact of SFAS 157 and SFAS 159 adoption | 22 | – | – | (21 | ) | – | – | (321 | ) | |||||||||||||||||||
Balance, January 1, 2007 | $ | 788 | $ | 303 | $ | 1,133 | $ | 3,947 | $ | 2,869 | $ | 6,605 | $ | (349 | ) | |||||||||||||
Total gains or losses (realized/unrealized): | ||||||||||||||||||||||||||||
Included in earnings | (341 | ) | (2,959 | ) | (398 | ) | (140 | ) | 231 | 2,059 | (279 | ) | ||||||||||||||||
Included in other comprehensive income | – | – | (206 | ) | – | – | (79 | ) | – | |||||||||||||||||||
Purchases, issuances, and settlements | (333 | ) | 708 | 4,588 | 783 | (47 | ) | (5,897 | ) | (32 | ) | |||||||||||||||||
Transfers in to/out of Level 3 | (1,317 | ) | 5,975 | 390 | – | – | 2,633 | – | ||||||||||||||||||||
Balance, December 31, 2007 | $ | (1,203 | ) | $ | 4,027 | $ | 5,507 | $ | 4,590 | $ | 3,053 | $ | 5,321 | $ | (660 | ) |
(1) | Net derivatives at December 31, 2007 included derivative assets of $8.97 billion and derivative liabilities of $10.18 billion. Amounts at January 1, 2007 were carried at fair value prior to the adoption of SFAS 159. |
(2) | Amounts represented items which were carried at fair value prior to the adoption of SFAS 159. |
(3) | Certain securities valued using internally developed pricing inputs had been classified as Level 2 measurements at January 1, 2007. The Corporation subsequently determined that these securities are more appropriately classified as Level 3 measurements which has been reflected as such in the beginning balance. This change in classification did not impact the recorded fair value of the securities. |
(4) | Amounts represented items for which the Corporation had elected the fair value option under SFAS 159 including commercial loan commitments recorded in accrued expenses and other liabilities. |
(5) | Other assets included equity investments held by Principal Investing and certain retained interests in securitization vehicles, including interest-only strips, all of which were carried at fair value prior to the adoption of SFAS 159, and certain portfolios of loans held-for-sale, principally reverse mortgages, for which the Corporation had elected the fair value option under SFAS 159. |
Bank of America 2007 | 139 |
Level 3 Valuation Techniques
Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. For more information on Level 3 financial instruments, seeNote 1 – Summary of Significant Accounting Policies to the Consolidated Financial Statements. A brief description of the valuation techniques used for Level 3 assets and liabilities is provided below.
Derivatives
The fair values of Level 3 derivative instruments are estimated using proprietary valuation models that utilize both market observable and unobservable parameters. Level 3 derivative instruments have primary risk
characteristics that relate to unobservable pricing parameters such as private name credit spreads, credit correlations, long dated equity or interest rate volatility skews and forward spreads.
Trading Account Assets and Available-for-Sale Debt Securities
Level 3 trading account assets and available-for-sale debt securities include CDO positions and other ABS. At December 31, 2007, the majority of these instruments were valued using a net asset value approach, which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing based on the vintages and ratings, where applicable, of the assets. In some situations when other market information was not available, securities are valued using projected cash flows, similar to the valuation of an interest-only strip, based on estimated average life, seniority level and vintage of underlying assets.
Loans and Leases
Certain large corporate loans including loan commitments, which the Corporation has elected to account for at fair value and for which observable market prices are not available, are considered Level 3. This is normally the result of illiquidity due to the customer, the size of the loan or
the particular loan terms. In these cases, fair value is estimated using discounted cash flow models with market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers.
Mortgage Servicing Rights
The fair value of MSRs is determined using models which depend on estimates of prepayment rates and resultant weighted average lives of the MSRs and the option adjusted spread levels (OAS). For more information on Level 3 MSRs, seeNote 21 – Mortgage Servicing Rights to the Consolidated Financial Statements.
Other Assets
Level 3 other assets consist primarily of non-public equity investments, certain held-for-sale loans and retained residual interests in securitizations. Non-public equity investments are initially valued at transaction price and subsequently, adjusted when evidence is available to support such adjustments. Such evidence includes changes in value as a result of IPOs, market comparables, market liquidity, the investees’ financial results, sales restrictions, or other changes in value. Mortgages are valued based on instruments or portfolios with similar loan terms, collateral type and credit quality. Retained residual interests in securitizations are based on certain observable inputs such as interest rates and credit spreads, as well as unobservable inputs such as estimated net charge-off and payment rates.
The table below summarizes gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recorded in earnings for Level 3 assets and liabilities during 2007. These amounts include gains and losses generated by loans, loans held-for-sale and loan commitments for which the fair value option was elected and by other instruments, including certain derivative contracts, trading account assets, AFS debt securities, MSRs, equity investments and retained interests in securitizations, which were carried at fair value prior to the adoption of SFAS 159.
Level 3 Instruments Only
Total Gains and Losses | |||||||||||||||||||||||||||||||
(Dollars in millions) | Net Derivatives (1) | Trading Account Assets (1) | Available-for- Sale Debt Securities (1, 5) | Loans and Leases (2) | Mortgage Servicing Rights (1) | Other Assets (3) | Accrued Expenses and Other Liabilities (2) | Total | |||||||||||||||||||||||
Classification of gains and losses (realized/unrealized) included in earnings for 2007: | |||||||||||||||||||||||||||||||
Card income | $ | – | $ | – | $ | – | $ | – | $ | – | $ | 103 | $ | – | $ | 103 | |||||||||||||||
Equity investment income(4) | – | – | – | – | – | 1,971 | – | 1,971 | |||||||||||||||||||||||
Trading account losses | (515 | ) | (2,959 | ) | – | (1 | ) | – | (61 | ) | (5 | ) | (3,541 | ) | |||||||||||||||||
Mortgage banking income (loss) | 174 | – | – | – | 231 | (29 | ) | – | 376 | ||||||||||||||||||||||
Other income | – | – | (398 | ) | (139 | ) | – | 75 | (274 | ) | (736 | ) | |||||||||||||||||||
Total | $ | (341 | ) | $ | (2,959 | ) | $ | (398 | ) | $ | (140 | ) | $ | 231 | $ | 2,059 | $ | (279 | ) | $ | (1,827 | ) |
(1) | Amounts represented items which were carried at fair value prior to the adoption of SFAS 159. |
(2) | Amounts represented items for which the Corporation had elected the fair value option under SFAS 159. |
(3) | Amounts represented items which were carried at fair value prior to the adoption of SFAS 159 and certain portfolios of loans held-for-sale for which the Corporation had elected the fair value option under SFAS 159. |
(4) | During 2007, more than 90 percent of equity investment income’s Level 3 net gains were received in cash. |
(5) | Amount represents writedowns on certain securities that were deemed to be other-than-temporarily impaired during 2007. |
140 | Bank of America 2007 |
The table below summarizes changes in unrealized gains or losses recorded in earnings during 2007 for Level 3 assets and liabilities that are still held at December 31, 2007. These amounts include changes in fair value of loans, loans held-for-sale and loan commitments for which the fair value option was elected and changes in fair value for other instruments, including certain derivative contracts, trading account assets, AFS debt securities, MSRs, equity investments and retained interests in securitizations, which were carried at fair value prior to the adoption of SFAS 159.
Level 3 Instruments Only
Changes in Unrealized Gains or Losses | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Net Derivatives (1) | Trading Account Assets (1) | Available- for-Sale Debt Securities (1) | Loans and Leases (2) | Mortgage Servicing Rights (1) | Other Assets (3) | Accrued Expenses and Other Liabilities (3) | Total | ||||||||||||||||||||||||
Changes in unrealized gains or losses relating to assets still held at reporting date for 2007: | ||||||||||||||||||||||||||||||||
Card income | $ | – | $ | – | $ | – | $ | – | $ | – | $ | (136 | ) | $ | – | $ | (136 | ) | ||||||||||||||
Equity investment income | – | – | – | – | – | (65 | ) | – | (65 | ) | ||||||||||||||||||||||
Trading account losses | (196 | ) | (2,857 | ) | – | – | – | (58 | ) | (1 | ) | (3,112 | ) | |||||||||||||||||||
Mortgage banking income (loss) | 139 | – | – | – | (43 | ) | (22 | ) | – | 74 | ||||||||||||||||||||||
Other income | – | – | (398 | ) | (167 | ) | – | – | (395 | ) | (960 | ) | ||||||||||||||||||||
Total | $ | (57 | ) | $ | (2,857 | ) | $ | (398 | ) | $ | (167 | ) | $ | (43 | ) | $ | (281 | ) | $ | (396 | ) | $ | (4,199 | ) |
(1) | Amounts represented items which were carried at fair value prior to the adoption of SFAS 159. |
(2) | Amounts represented items for which the Corporation had elected the fair value option under SFAS 159. |
(3) | Amounts represented items which were carried at fair value prior to the adoption of SFAS 159 and certain portfolios of loans held-for-sale for which the Corporation had elected the fair value option under SFAS 159. |
Certain assets and liabilities are measured at fair value on a non-recurring basis (e.g., loans held-for-sale, unfunded loan commitments held-for-sale, and commercial and residential reverse mortgage MSRs all of which are carried at the lower of cost or market). At December 31, 2007, loans held-for-sale for which the Corporation had not elected the fair value option which had an aggregate cost of $14.70 billion had been written down to fair value of $14.50 billion (of which $1.20 billion and $13.30 billion were measured using Level 2 and Level 3 inputs within the fair value hierarchy). In addition, unfunded loan commitments held-for-sale and the Corporation’s share of the forward calendar were written down by
$142 million and were recorded in accrued expenses and other liabilities at December 31, 2007, all of which were measured using Level 3 inputs within the fair value hierarchy. During 2007, losses of $172 million were recorded in other income (primarily leveraged loans and loan commitments held-for-sale), losses of $2 million were recorded in mortgage banking income (primarily consumer mortgage loans held-for-sale), and losses of $145 million were recorded in trading account profits (losses) (primarily commercial mortgage loans and loan commitments held-for-sale).
Bank of America 2007 | 141 |
Note 20 – Fair Value of Financial Instruments (SFAS 107 Disclosure)
SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” (SFAS 107), requires the disclosure of the estimated fair value of financial instruments. Theinstruments including those financial instruments for which the Corporation did not elect the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices, if available, are utilized as estimates of the fair values of financial instruments. Since no quoted market prices exist for certain of the Corporation’s financial instruments, theoption. The fair values of such instruments have been derived, based onin part, by management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. The estimation methods for individual classifications of financial instruments are described more fully below. Different assumptions could significantly affect these estimates.estimated fair values. 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 instruments and should not be considered an indication of the fair value of the combined Corporation.
The provisions of SFAS 107 do not require the disclosure of the fair value of lease financing arrangements and nonfinancial instruments, including Goodwillgoodwill and Intangible Assetsintangible assets such as purchased credit card, affinity and trust relationships.
The following disclosures represent financial instruments in which the ending balance at December 31, 2007 are not carried at fair value in its entirety on the Corporation’s Consolidated Balance Sheet.
Short-term Financial Instruments
|
The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed, federal funds sold and purchased, resale and certain repurchase agreements, commercial paper and other short-term investments and 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 short-term maturities and carry interest rates that approximate market.
Held-to-maturity securities, AFS debt and marketable equity securities, trading account instruments, long-term debt traded actively in In accordance with SFAS 159, the secondary market and strategic investments have been valued using quoted market prices. TheCorporation elected to fair values of trading account instruments, securities and strategic investments are reported in Notes 3 and 5 ofvalue certain structured reverse repurchase agreements. SeeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements.Statements for additional information on these structured reverse repurchase agreements.
Loans
All derivatives are recognized on the Consolidated Balance Sheet at fair value, net of cash collateral held and taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics. The fair value of the Corporation’s derivative assets and liabilities is presented in Note 4 of the Consolidated Financial Statements.
Fair values were estimated for certain groups of similar loans based upon type of loan and maturity. The fair value of these loans was determined by
discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans and adjusted to reflect the inherent credit risk. Where quoted market prices were available, primarily for certain residential mortgage loans and commercial loans, such market prices were utilized as estimates for fair values. In accordance with SFAS 159, the Corporation elected to fair value certain large corporate loans which exceeded the Corporation’s single name credit risk concentration guidelines. SeeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements for additional information on loans for which the Corporation adopted the fair value option.
Substantially all of the foreign loans reprice within relatively short timeframes. Accordingly, for foreign loans, the net carrying values were assumed to approximate their fair values.
Deposits
|
The fair value for certain deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying value of foreign time deposits approximates 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. In accordance with SFAS 159, the Corporation elected to fair value certain long-term fixed rate deposits which are economically hedged with derivatives. SeeNote 19 – Fair Value Disclosures to the Consolidated Financial Statements for additional information on these long-term fixed rate deposits.
Long-term Debt
The Corporation uses quoted market prices for its long-term debt when available. When quoted market prices are not available, fair value is estimated based on current market interest rates for debt with similar maturities.
The book and fair values of certain financial instruments at December 31, 2007 and 2006 and 2005 were as follows:are presented in the table below.
December 31 | ||||||||||||
2006 | 2005 | |||||||||||
(Dollars in millions) | Book Value | Fair Value | Book Value | Fair Value | ||||||||
Financial assets | ||||||||||||
Loans(1) | $ | 675,544 | $ | 679,738 | $ | 545,238 | $ | 542,626 | ||||
Financial liabilities | ||||||||||||
Deposits | 693,497 | 693,041 | 634,670 | 633,928 | ||||||||
Long-term debt | 146,000 | 148,120 | 100,848 | 101,446 |
December 31 | ||||||||||||
2007 | 2006 | |||||||||||
(Dollars in millions) | Book Value | Fair Value | Book Value | Fair Value | ||||||||
Financial assets | ||||||||||||
Loans(1) | $ | 842,392 | $ | 847,405 | $ | 675,544 | $ | 679,738 | ||||
Financial liabilities | ||||||||||||
Deposits | 805,177 | 806,511 | 693,497 | 693,041 | ||||||||
Long-term debt | 197,508 | 195,835 | 146,000 | 148,120 |
(1) | Presented net of |
Bank of America 2007 |
Note 21 – Mortgage Servicing Rights
The Corporation accounts for residential first mortgage MSRs at fair value with changes in fair value recorded in the Consolidated Statement of Income in mortgage banking income. The Corporation economically hedges these MSRs with certain derivatives such as options and interest rate swaps.
The following table presents activity for residential first mortgage MSRs for 2007 and 2006.
(Dollars in millions) | 2007 | 2006 | ||||||
Balance, January 1 | $ | 2,869 | $ | 2,658 | ||||
MBNA balance, January 1, 2006 | – | 9 | ||||||
Additions | 792 | 572 | ||||||
Sales of MSRs | – | (71 | ) | |||||
Impact of customer payments | (766 | ) | (713 | ) | ||||
Other changes in MSR market value | 158 | 414 | ||||||
Balance, December 31 | $ | 3,053 | $ | 2,869 |
In 2007, other changes in MSR market value of $158 million reflect the change in discount rates and prepayment speed assumptions, mostly due to changes in interest rates. The amount does not include $73 million resulting from the actual cash received exceeding expected prepayments. The total amount of $231 million is included in the line “mortgage banking income (loss)” in the table “Total Gains and Losses” inNote 19 – Fair Value Disclosures to the Consolidated Financial Statements.
The key economic assumptions used in valuations of MSRs include modeled prepayment rates and resultant weighted average lives of the MSRs and the OAS levels. Commercial and residential reverse mortgage MSRs are accounted for using the amortization method (i.e., lower of cost or market). Commercial and residential reverse mortgage MSRs totaled $294 million at December 31, 2007, and commercial MSRs totaled $176 million at December 31, 2006 and are not included in the preceding table.
As of December 31, 2007, the fair value of residential first mortgage MSRs was $3.1 billion, and the modeled weighted average lives of MSRs related to fixed and adjustable rate loans (including hybrid adjustable rate mortgages) were 4.80 years and 2.75 years. The table below presents the sensitivity of the weighted average lives and fair value of MSRs to changes in modeled assumptions.
December 31, 2007 | ||||||||||||||
Change in Weighted Average Lives | ||||||||||||||
(Dollars in millions) | Fixed | Adjustable | Change in Fair Value | |||||||||||
Prepayment rates | ||||||||||||||
Impact of 10% decrease | 0.33 | years | 0.25 | years | $ | 169 | ||||||||
Impact of 20% decrease | 0.72 | 0.56 | 362 | |||||||||||
Impact of 10% increase | (0.29 | ) | (0.21 | ) | (149 | ) | ||||||||
Impact of 20% increase | (0.55 | ) | (0.39 | ) | (280 | ) | ||||||||
OAS level | ||||||||||||||
Impact of 100 bps decrease | n/a | n/a | $ | 128 | ||||||||||
Impact of 200 bps decrease | n/a | n/a | 267 | |||||||||||
Impact of 100 bps increase | n/a | n/a | (118 | ) | ||||||||||
Impact of 200 bps increase | n/a | n/a | (226 | ) |
n/a = not applicable
Bank of America 2007 | 143 |
Note 22 – Business Segment Information
The Corporation reports the results of its operations through three business segments:Global Consumer and Small Business Banking (GCSBB), Global Corporate and Investment Banking (GCIB) andGlobal Wealth and Investment Management (GWIM). The Corporation may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment.
Global Consumer and Small Business Banking
GCSBB provides a diversified range of products and services to individuals and small businessesbusinesses. The Corporation reportsGCSBB’s results, specifically credit card, business card and certain unsecured lending portfolios, on a managed basis. This basis of presentation excludes the Corporation’s securitized mortgage and home equity portfolios for which the Corporation retains servicing. Reporting on a managed basis is consistent with the way that management evaluates the results ofGCSBB. Managed basis assumes that securitized loans were not sold and presents earnings on these loans in a manner similar to the way loans that have not been sold (i.e., held loans) are presented. Loan securitization is an alternative funding process that is used by the Corporation to diversify funding sources. Loan securitization removes loans from the Consolidated Balance Sheet through its primary businesses:the sale of loans to an off-balance sheet QSPE which is excluded from the Corporation’s Consolidated Financial Statements in accordance with GAAP.
The performance of the managed portfolio is important in understandingDeposits, Card Services, MortgageGCSBB’s results as it demonstrates the results of the entire portfolio serviced by the business. Securitized loans continue to be serviced by the business and are subject to the same underwriting standards and ongoing monitoring as held loans. In addition, retained excess servicing income is exposed to similar credit risk and repricing of interest rates as held loans.Home EquityGCSBB’s. managed income statement line items differ from a held basis as follows:
· | Managed net interest income includesGCSBB’s net interest income on held loans and interest income on the securitized loans less the internal funds transfer pricing allocation related to securitized loans. |
· | Managed noninterest income includesGCSBB’s noninterest income on a held basis less the reclassification of certain components of card income (e.g., excess servicing income) to record managed net interest income and provision for credit losses. Noninterest income, both on a held and managed basis, also includes the impact of adjustments to the interest-only strip that are recorded in card income as management continues to manage this impact withinGCSBB. |
· | Provision for credit losses represents the provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio. |
Global Corporate and Investment Banking
GCIB serves domestic and internationalprovides a wide range of financial services to both the Corporation’s issuer and investor clients providing financial services, specialized industry expertise and local delivery through its primary businesses:Business Lending, Capital Markets and Advisory Services, andTreasury Services. These businesses provide traditional bank deposit and loan productsthat range from business banking clients to large corporationsinternational corporate and institutional investor clients capital-raising solutions,using a strategy to deliver value-added financial products and advisory services, derivatives capabilities, equity and debt sales and trading for clients, as well as treasury management and payment services.solutions.
Global Wealth and Investment Management
GWIM offers investment and brokerage services, estate management, financial planning services, fiduciary management, credit and banking expertise, and diversified asset management products to institutional clients, as well as affluent and high-net-worth individuals through its primary businesses:high net-worth individuals.The Private Bank,Columbia ManagementGWIM andalso includes the impact of migrated qualifying affluent customers, including their related deposit balances, fromPremier BankingGCSBB. After migration, the associated net interest income, service charges and Investmentsnoninterest expense on the deposit balances are recorded inGWIM..
All Other
All Other consists of equity investment activities including Principal Investing, Corporate Investments and Strategic Investments,,the residual impact of the allowance for credit losses and the cost allocation processes, Mergermerger and Restructuring Charges,restructuring charges, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are expected to be or have been sold or are in the process of being liquidated.liquidated (e.g., the Corporation’s Brazilian operations, Asia Commercial Banking business and operations in Chile and Uruguay).All Other also includes certain amounts associated with ALM activities, including the residual impact of funds transfer pricing allocation methodologies, amounts associated with the change in the value of derivatives used as economic hedges of interest rate and foreign exchange rate fluctuations that dodid not qualify for SFAS 133 hedge accounting treatment, foreign exchange rate fluctuations related to SFAS 52 revaluation of foreign-denominated debt issuances, certain gains or losses(losses) on sales of whole mortgage loans, and Gains (Losses)gains (losses) on Salessales of Debt Securities.debt securities.All Other also includes adjustments to noninterest income and income tax expense to remove the FTE impact of items (primarily low-income housing tax credits) that have been grossed up within noninterest income to a FTE amount in the business segments. In addition,GCSBB is reported on a managed basis which includes a “securitization impact” adjustment which has the effect of assuming that loans that have been securitized were not sold and presenting these loans in a manner similar to the way loans that have not been sold are presented.All Other’s results include a corresponding “securitization offset” which removes the impact of these securitized loans in order to present the consolidated results of the Corporation on a GAAP basis (i.e., held basis).
Basis of Presentation
Total Revenuerevenue, net of interest expense, includes Net Interest Incomenet interest income on a FTE basis and Noninterest Income.noninterest income. The adjustment of Net Interest Incomenet interest income to a FTE basis results in a corresponding increase in Income Tax Expense.income tax expense. The Net Interest Incomenet interest income of the businesses includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net Interest Incomeinterest income of the business segments also includes an allocation of Net Interest Incomenet interest income generated by the Corporation’s ALM activities.
Certain expenses not directly attributable to a specific business segment are allocated to the segments based on pre-determinedpredetermined means. The most significant of these expenses include data processing costs, item processing costs and certain centralized or shared functions. Data processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The costs of certain centralized or shared functions are allocated based on methodologies which reflect utilization.
144 | Bank of America 2007 |
The following table presents Total Revenuetables present total revenue, net of interest expense, on a FTE basis and Net Income innet income for 2007, 2006 and 2005, and 2004, and Total Assetstotal assets at December 31, 20062007 and 20052006 for each business segment, as well asAll Other.
Business Segments
At and for the Year Ended December 31 | Total Corporation | Global Consumer and Small Business Banking(1, 2) | ||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||
Net interest income (FTE basis) | $ | 35,815 | $ | 31,569 | $ | 28,677 | $ | 21,100 | $ | 16,898 | $ | 15,767 | ||||||||||||
Noninterest income | 38,432 | 25,354 | 21,005 | 20,591 | 11,425 | 8,958 | ||||||||||||||||||
Total revenue (FTE basis) | 74,247 | 56,923 | 49,682 | 41,691 | 28,323 | 24,725 | ||||||||||||||||||
Provision for credit losses | 5,010 | 4,014 | 2,769 | 5,172 | 4,243 | 3,331 | ||||||||||||||||||
Gains (losses) on sales of debt securities | (443 | ) | 1,084 | 1,724 | (1 | ) | (2 | ) | 117 | |||||||||||||||
Amortization of intangibles | 1,755 | 809 | 664 | 1,511 | 551 | 441 | ||||||||||||||||||
Other noninterest expense | 33,842 | 27,872 | 26,348 | 17,319 | 12,573 | 12,003 | ||||||||||||||||||
Income before income taxes | 33,197 | 25,312 | 21,625 | 17,688 | 10,954 | 9,067 | ||||||||||||||||||
Income tax expense | 12,064 | 8,847 | 7,678 | 6,517 | 3,933 | 3,300 | ||||||||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 11,171 | $ | 7,021 | $ | 5,767 | ||||||||||||
Period-end total assets | $ | 1,459,737 | $ | 1,291,803 | $ | 382,392 | $ | 331,259 | ||||||||||||||||
Global Corporate and Investment Banking(1) | Global Wealth and Investment Management(1, 2) | |||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2006 | 2005 | 2004 | ||||||||||||||||||
Net interest income (FTE basis) | $ | 10,693 | $ | 11,156 | $ | 10,670 | $ | 3,881 | $ | 3,820 | $ | 2,921 | ||||||||||||
Noninterest income | 11,998 | 9,444 | 7,982 | 3,898 | 3,496 | 3,079 | ||||||||||||||||||
Total revenue (FTE basis) | 22,691 | 20,600 | 18,652 | 7,779 | 7,316 | 6,000 | ||||||||||||||||||
Provision for credit losses | (6 | ) | (291 | ) | (886 | ) | (40 | ) | (7 | ) | (22 | ) | ||||||||||||
Gains (losses) on sales of debt securities | 53 | 263 | (10 | ) | — | — | — | |||||||||||||||||
Amortization of intangibles | 164 | 174 | 152 | 76 | 79 | 66 | ||||||||||||||||||
Other noninterest expense | 11,834 | 10,959 | 10,149 | 3,929 | 3,631 | 3,392 | ||||||||||||||||||
Income before income taxes | 10,752 | 10,021 | 9,227 | 3,814 | 3,613 | 2,564 | ||||||||||||||||||
Income tax expense | 3,960 | 3,637 | 3,311 | 1,411 | 1,297 | 932 | ||||||||||||||||||
Net income | $ | 6,792 | $ | 6,384 | $ | 5,916 | $ | 2,403 | $ | 2,316 | $ | 1,632 | ||||||||||||
Period-end total assets | $ | 689,248 | $ | 633,362 | $ | 137,739 | $ | 129,232 | ||||||||||||||||
All Other | ||||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||||||||||||||
Net interest income (FTE basis) | $ | 141 | $ | (305 | ) | $ | (681 | ) | ||||||||||||||||
Noninterest income | 1,945 | 989 | 986 | |||||||||||||||||||||
Total revenue (FTE basis) | 2,086 | 684 | 305 | |||||||||||||||||||||
Provision for credit losses | (116 | ) | 69 | 346 | ||||||||||||||||||||
Gains (losses) on sales of debt securities | (495 | ) | 823 | 1,617 | ||||||||||||||||||||
Amortization of intangibles | 4 | 5 | 5 | |||||||||||||||||||||
Other noninterest expense | 760 | 709 | 804 | |||||||||||||||||||||
Income before income taxes | 943 | 724 | 767 | |||||||||||||||||||||
Income tax expense (benefit) | 176 | (20 | ) | 135 | ||||||||||||||||||||
Net income | $ | 767 | $ | 744 | $ | 632 | ||||||||||||||||||
Period-end total assets | $ | 250,358 | $ | 197,950 |
Business Segments
At and for the Year Ended December 31 | Total Corporation(1) | Global Consumer and Small Business Banking(2, 3) | ||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||
Net interest income(4) | $ | 36,182 | $ | 35,815 | $ | 31,569 | $ | 28,809 | $ | 28,197 | $ | 17,571 | ||||||||
Noninterest income | 31,886 | 37,989 | 26,438 | 18,873 | 16,729 | 10,848 | ||||||||||||||
Total revenue, net of interest expense | 68,068 | 73,804 | 58,007 | 47,682 | 44,926 | 28,419 | ||||||||||||||
Provision for credit losses(5) | 8,385 | 5,010 | 4,014 | 12,929 | 8,534 | 4,706 | ||||||||||||||
Amortization of intangibles | 1,676 | 1,755 | 809 | 1,336 | 1,452 | 480 | ||||||||||||||
Other noninterest expense | 35,334 | 33,842 | 27,872 | 18,724 | 16,923 | 12,277 | ||||||||||||||
Income before income taxes | 22,673 | 33,197 | 25,312 | 14,693 | 18,017 | 10,956 | ||||||||||||||
Income tax expense(4) | 7,691 | 12,064 | 8,847 | 5,263 | 6,639 | 3,934 | ||||||||||||||
Net income | $ | 14,982 | $ | 21,133 | $ | 16,465 | $ | 9,430 | $ | 11,378 | $ | 7,022 | ||||||||
Period-end total assets | $ | 1,715,746 | $ | 1,459,737 | $ | 442,987 | $ | 399,373 |
Global Corporate and Investment Banking (2) | Global Wealth and Investment Management(2) | |||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | ||||||||||||||||
Net interest income(4) | $ | 11,217 | $ | 9,877 | $ | 10,337 | $ | 3,857 | $ | 3,671 | $ | 3,554 | ||||||||||
Noninterest income | 2,200 | 11,284 | 9,530 | 4,066 | 3,686 | 3,320 | ||||||||||||||||
Total revenue, net of interest expense | 13,417 | 21,161 | 19,867 | 7,923 | 7,357 | 6,874 | ||||||||||||||||
Provision for credit losses | 652 | 9 | 44 | 14 | (39 | ) | (5 | ) | ||||||||||||||
Amortization of intangibles | 178 | 218 | 239 | 150 | 72 | 74 | ||||||||||||||||
Other noninterest expense | 11,747 | 11,360 | 10,217 | 4,485 | 3,795 | 3,667 | ||||||||||||||||
Income before income taxes | 840 | 9,574 | 9,367 | 3,274 | 3,529 | 3,138 | ||||||||||||||||
Income tax expense(4) | 302 | 3,542 | 3,413 | 1,179 | 1,306 | 1,126 | ||||||||||||||||
Net income | $ | 538 | $ | 6,032 | $ | 5,954 | $ | 2,095 | $ | 2,223 | $ | 2,012 | ||||||||||
Period-end total assets | $ | 776,107 | $ | 685,935 | $ | 157,157 | $ | 125,287 |
All Other (2, 3) | ||||||||||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||||||||||
Net interest income(4) | $ | (7,701 | ) | $ | (5,930 | ) | $ | 107 | ||||||||||||
Noninterest income | 6,747 | 6,290 | 2,740 | |||||||||||||||||
Total revenue, net of interest expense | (954 | ) | 360 | 2,847 | ||||||||||||||||
Provision for credit losses(5) | (5,210 | ) | (3,494 | ) | (731 | ) | ||||||||||||||
Amortization of intangibles | 12 | 13 | 16 | |||||||||||||||||
Other noninterest expense | 378 | 1,764 | 1,711 | |||||||||||||||||
Income before income taxes | 3,866 | 2,077 | 1,851 | |||||||||||||||||
Income tax expense(4) | 947 | 577 | 374 | |||||||||||||||||
Net income | $ | 2,919 | $ | 1,500 | $ | 1,477 | ||||||||||||||
Period-end total assets | $ | 339,495 | $ | 249,142 |
(1) | There were no material intersegment revenues among the segments. |
(2) | Total |
(3) | GCSBB is presented on a managed basis with a corresponding offset recorded inAll Other. |
(4) | FTE basis |
(5) | Provision for credit losses represents: ForGCSBB – Provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio and forAll Other – Provision for credit losses combined with theGCSBB securitization offset. |
Bank of America 2007 | 145 |
GCSBB is reported on a managed basis which includes a “securitization impact” adjustment which has the effect of presenting securitized loans in a manner similar to the way loans that have not been sold are presented.All Other’s results include a corresponding “securitization offset” which removes the impact of these securitized loans in order to present the consolidated results of the Corporation on a held basis. The tables below reconcileGCSBB andAll Other to a held basis by reclassifying net interest income, all other income and realized credit losses associated with the securitized loans to card income.
Global Consumer and Small Business Banking – Reconciliation
2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||
(Dollars in millions) | Managed Basis (1) | Securitization Impact(2) | Held Basis | Managed Basis (1) | Securitization Impact(2) | Held Basis | Managed Basis (1) | Securitization Impact(2) | Held Basis | |||||||||||||||||||||||||
Net interest income (3) | $ | 28,809 | $ | (8,027 | ) | $ | 20,782 | $ | 28,197 | $ | (7,593 | ) | $ | 20,604 | $ | 17,571 | $ | (503 | ) | $ | 17,068 | |||||||||||||
Noninterest income: | ||||||||||||||||||||||||||||||||||
Card income | 10,189 | 3,356 | 13,545 | 9,374 | 4,566 | 13,940 | 4,512 | 69 | 4,581 | |||||||||||||||||||||||||
Service charges | 6,008 | – | 6,008 | 5,342 | – | 5,342 | 4,994 | – | 4,994 | |||||||||||||||||||||||||
Mortgage banking income | 1,333 | – | 1,333 | 877 | – | 877 | 1,012 | – | 1,012 | |||||||||||||||||||||||||
All other income | 1,343 | (288 | ) | 1,055 | 1,136 | (335 | ) | 801 | 330 | – | 330 | |||||||||||||||||||||||
Total noninterest income | 18,873 | 3,068 | 21,941 | 16,729 | 4,231 | 20,960 | 10,848 | 69 | 10,917 | |||||||||||||||||||||||||
Total revenue, net of interest expense | 47,682 | (4,959 | ) | 42,723 | 44,926 | (3,362 | ) | 41,564 | 28,419 | (434 | ) | 27,985 | ||||||||||||||||||||||
Provision for credit losses | 12,929 | (4,959 | ) | 7,970 | 8,534 | (3,362 | ) | 5,172 | 4,706 | (434 | ) | 4,272 | ||||||||||||||||||||||
Noninterest expense | 20,060 | – | 20,060 | 18,375 | – | 18,375 | 12,757 | – | 12,757 | |||||||||||||||||||||||||
Income before income taxes | 14,693 | – | 14,693 | 18,017 | – | 18,017 | 10,956 | – | 10,956 | |||||||||||||||||||||||||
Income tax expense (3) | 5,263 | – | 5,263 | 6,639 | – | 6,639 | 3,934 | – | 3,934 | |||||||||||||||||||||||||
Net income | $ | 9,430 | $ | – | $ | 9,430 | $ | 11,378 | $ | – | $ | 11,378 | $ | 7,022 | $ | – | $ | 7,022 |
(1) | Provision for credit losses represents provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio. |
(2) | The securitization impact on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses. |
(3) | FTE basis |
All Other – Reconciliation
2007 | 2006 | 2005 | ||||||||||||||||||||||||||||||||||||||
(Dollars in millions) | Reported Basis (1) | Securitization Offset(2) | As Adjusted | Reported Basis (1) | Securitization Offset(2) | As Adjusted | Reported Basis (1) | Securitization Offset(2) | As Adjusted | |||||||||||||||||||||||||||||||
Net interest income (3) | $ | (7,701 | ) | $ | 8,027 | $ | 326 | $ | (5,930 | ) | $ | 7,593 | $ | 1,663 | $ | 107 | $ | 503 | $ | 610 | ||||||||||||||||||||
Noninterest income: | ||||||||||||||||||||||||||||||||||||||||
Card income | 2,816 | (3,356 | ) | (540 | ) | 3,795 | (4,566 | ) | (771 | ) | 166 | (69 | ) | 97 | ||||||||||||||||||||||||||
Equity investment income | 3,745 | – | 3,745 | 2,872 | – | 2,872 | 2,033 | – | 2,033 | |||||||||||||||||||||||||||||||
Gains (losses) on sales of debt securities | 180 | – | 180 | (475 | ) | – | (475 | ) | 969 | – | 969 | |||||||||||||||||||||||||||||
All other income | 6 | 288 | 294 | 98 | 335 | 433 | (428 | ) | – | (428 | ) | |||||||||||||||||||||||||||||
Total noninterest income | 6,747 | (3,068 | ) | 3,679 | 6,290 | (4,231 | ) | 2,059 | 2,740 | (69 | ) | 2,671 | ||||||||||||||||||||||||||||
Total revenue, net of interest expense | (954 | ) | 4,959 | 4,005 | 360 | 3,362 | 3,722 | 2,847 | 434 | 3,281 | ||||||||||||||||||||||||||||||
Provision for credit losses | (5,210 | ) | 4,959 | (251 | ) | (3,494 | ) | 3,362 | (132 | ) | (731 | ) | 434 | (297 | ) | |||||||||||||||||||||||||
Merger and restructuring charges | 410 | – | 410 | 805 | – | 805 | 412 | – | 412 | |||||||||||||||||||||||||||||||
All other noninterest expense | (20 | ) | – | (20 | ) | 972 | – | 972 | 1,315 | – | 1,315 | |||||||||||||||||||||||||||||
Income before income taxes | 3,866 | – | 3,866 | 2,077 | – | 2,077 | 1,851 | – | 1,851 | |||||||||||||||||||||||||||||||
Income tax expense(3) | 947 | – | 947 | 577 | – | 577 | 374 | – | 374 | |||||||||||||||||||||||||||||||
Net income | $ | 2,919 | $ | – | $ | 2,919 | $ | 1,500 | $ | – | $ | 1,500 | $ | 1,477 | $ | – | $ | 1,477 |
(1) | Provision for credit losses represents provision for credit losses inAll Other combined with theGCSBB securitization offset. |
(2) | The securitization offset on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses. |
(3) | FTE basis |
146 | Bank of America 2007 |
The following tables present reconciliations of the three business segments’ Total Revenue(GCSBB, GCIB andGWIM) total revenue, net of interest expense, on a FTE basis and Net Incomenet income to the Consolidated Statement of Income, and Total Assetstotal assets to the Consolidated Balance Sheet. The adjustments presented in the table below include consolidated income and expense amounts not specifically allocated to individual business segments.
Year Ended December 31 | ||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | |||||||||
Segments’ total revenue (FTE basis) | $ | 72,161 | $ | 56,239 | $ | 49,377 | ||||||
Adjustments: | ||||||||||||
ALM activities(1) | (441 | ) | (501 | ) | 20 | |||||||
Equity investment gains | 2,866 | 1,964 | 911 | |||||||||
Liquidating businesses | 267 | 214 | 282 | |||||||||
FTE basis adjustment | (1,224 | ) | (832 | ) | (717 | ) | ||||||
Other | (606 | ) | (993 | ) | (908 | ) | ||||||
Consolidated revenue | $ | 73,023 | $ | 56,091 | $ | 48,965 | ||||||
Segments’ net income | $ | 20,366 | $ | 15,721 | $ | 13,315 | ||||||
Adjustments, net of taxes: | ||||||||||||
ALM activities(1, 2, 3) | (816 | ) | 52 | 869 | ||||||||
Equity investment gains | 1,806 | 1,257 | 583 | |||||||||
Liquidating businesses | 139 | 109 | 78 | |||||||||
Merger and restructuring charges | (507 | ) | (275 | ) | (411 | ) | ||||||
Other | 145 | (399 | ) | (487 | ) | |||||||
Consolidated net income | $ | 21,133 | $ | 16,465 | $ | 13,947 |
Year Ended December 31 | ||||||||||||
(Dollars in millions) | 2007 | 2006 | 2005 | |||||||||
Segments’ total revenue, net of interest expense(1) | $ | 69,022 | $ | 73,444 | $ | 55,160 | ||||||
Adjustments: | ||||||||||||
ALM activities(2) | 66 | (936 | ) | 319 | ||||||||
Equity investment income | 3,745 | 2,872 | 2,033 | |||||||||
Liquidating businesses | 628 | 2,670 | 1,937 | |||||||||
FTE basis adjustment | (1,749 | ) | (1,224 | ) | (832 | ) | ||||||
Managed securitization impact to total revenue, net of interest expense | (4,959 | ) | (3,362 | ) | (434 | ) | ||||||
Other | (434 | ) | (884 | ) | (1,008 | ) | ||||||
Consolidated revenue, net of interest expense | $ | 66,319 | $ | 72,580 | $ | 57,175 | ||||||
Segments’ net income | $ | 12,063 | $ | 19,633 | $ | 14,988 | ||||||
Adjustments, net of taxes: | ||||||||||||
ALM activities(2, 3) | (241 | ) | (816 | ) | 52 | |||||||
Equity investment income | 2,359 | 1,809 | 1,281 | |||||||||
Liquidating businesses | 416 | 1,138 | 856 | |||||||||
Merger and restructuring charges | 258 | 507 | 275 | |||||||||
Other | 127 | (1,138 | ) | (987 | ) | |||||||
Consolidated net income | $ | 14,982 | $ | 21,133 | $ | 16,465 |
(1) | FTE basis |
(2) | Includes |
| Includes |
|
|
December 31 | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Segments’ total assets | $ | 1,209,379 | $ | 1,093,853 | ||||
Adjustments: | ||||||||
ALM activities, including securities portfolio | 378,211 | 365,060 | ||||||
Equity investments | 15,639 | 13,960 | ||||||
Liquidating businesses | 3,280 | 3,399 | ||||||
Elimination of segment excess asset allocations to match liabilities | (166,618 | ) | (204,788 | ) | ||||
Other | 19,846 | 20,319 | ||||||
Consolidated total assets | $ | 1,459,737 | $ | 1,291,803 |
Segments’ total assets Adjustments: ALM activities, including securities portfolio Equity investments Liquidating businesses Elimination of segment excess asset allocations to match liabilities Elimination of managed securitized loans (1) Other Consolidated total assets December 31 (Dollars in millions) 2007 2006 $ 1,376,251 $ 1,210,595 452,626 384,459 31,306 15,639 5,340 10,224 (72,611 ) (79,926 ) (102,967 ) (101,865 ) 25,801 20,611 $ 1,715,746 $ 1,459,737
(1) | RepresentsGCSBB’s securitized loans. |
147 |
Note 23 – Parent Company Information
The following tables present the Parent Company Only financial information:
Condensed Statement of Income
Year Ended December 31 | Year Ended December 31 | ||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2007 | 2006 | 2005 | |||||||||||||
Income | |||||||||||||||||||
Dividends from subsidiaries: | |||||||||||||||||||
Bank subsidiaries | $ | 15,950 | $ | 10,400 | $ | 8,100 | |||||||||||||
Other subsidiaries | 111 | 63 | 133 | ||||||||||||||||
Bank holding companies and related subsidiaries | $ | 20,615 | $ | 15,950 | $ | 10,400 | |||||||||||||
Nonbank companies and related subsidiaries | 181 | 111 | 63 | ||||||||||||||||
Interest from subsidiaries | 3,944 | 2,581 | 1,085 | 4,939 | 3,944 | 2,581 | |||||||||||||
Other income | 2,346 | 1,719 | 2,463 | 3,319 | 2,346 | 1,719 | |||||||||||||
Total income | 22,351 | 14,763 | 11,781 | 29,054 | 22,351 | 14,763 | |||||||||||||
Expense | |||||||||||||||||||
Interest on borrowed funds | 5,799 | 3,843 | 2,876 | 7,834 | 5,799 | 3,843 | |||||||||||||
Noninterest expense | 3,019 | 2,636 | 2,057 | 3,127 | 3,019 | 2,636 | |||||||||||||
Total expense | 8,818 | 6,479 | 4,933 | 10,961 | 8,818 | 6,479 | |||||||||||||
Income before income taxes and equity in undistributed earnings of subsidiaries | 13,533 | 8,284 | 6,848 | 18,093 | 13,533 | 8,284 | |||||||||||||
Income tax benefit | 1,002 | 791 | 360 | 1,136 | 1,002 | 791 | |||||||||||||
Income before equity in undistributed earnings of subsidiaries | 14,535 | 9,075 | 7,208 | 19,229 | 14,535 | 9,075 | |||||||||||||
Equity in undistributed earnings of subsidiaries: | |||||||||||||||||||
Bank subsidiaries | 5,613 | 6,518 | 6,165 | ||||||||||||||||
Other subsidiaries | 985 | 872 | 574 | ||||||||||||||||
Total equity in undistributed earnings of subsidiaries | 6,598 | 7,390 | 6,739 | ||||||||||||||||
Equity in undistributed earnings (losses) of subsidiaries: | |||||||||||||||||||
Bank holding companies and related subsidiaries | (4,497 | ) | 5,613 | 6,518 | |||||||||||||||
Nonbank companies and related subsidiaries | 250 | 985 | 872 | ||||||||||||||||
Total equity in undistributed earnings (losses) of subsidiaries | (4,247 | ) | 6,598 | 7,390 | |||||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 14,982 | $ | 21,133 | $ | 16,465 | |||||||
Net income available to common shareholders | $ | 21,111 | $ | 16,447 | $ | 13,931 | $ | 14,800 | $ | 21,111 | $ | 16,447 |
148 | Bank of America 2007 |
Condensed Balance Sheet
December 31 | December 31 | |||||||||||
(Dollars in millions) | 2006 | 2005 | 2007 | 2006 | ||||||||
Assets | ||||||||||||
Cash held at bank subsidiaries | $ | 54,989 | $ | 49,670 | $ | 51,953 | $ | 54,989 | ||||
Securities | 2,932 | 2,285 | ||||||||||
Debt securities | 3,198 | 2,932 | ||||||||||
Receivables from subsidiaries: | ||||||||||||
Bank subsidiaries | 17,063 | 14,581 | ||||||||||
Other subsidiaries | 20,661 | 18,766 | ||||||||||
Bank holding companies and related subsidiaries | 30,032 | 17,063 | ||||||||||
Nonbank companies and related subsidiaries | 33,637 | 20,661 | ||||||||||
Investments in subsidiaries: | ||||||||||||
Bank subsidiaries | 162,291 | 119,210 | ||||||||||
Other subsidiaries | 6,488 | 2,472 | ||||||||||
Bank holding companies and related subsidiaries | 181,248 | 162,291 | ||||||||||
Nonbank companies and related subsidiaries | 6,935 | 6,488 | ||||||||||
Other assets | 19,118 | 13,685 | 30,919 | 19,118 | ||||||||
Total assets | $ | 283,542 | $ | 220,669 | $ | 337,922 | $ | 283,542 | ||||
Liabilities and shareholders’ equity | ||||||||||||
Commercial paper and other short-term borrowings | $ | 31,852 | $ | 19,333 | $ | 40,667 | $ | 31,852 | ||||
Accrued expenses and other liabilities | 9,929 | 7,228 | 13,226 | 9,929 | ||||||||
Payables to subsidiaries: | ||||||||||||
Bank subsidiaries | 857 | 1,824 | ||||||||||
Other subsidiaries | 76 | 2,479 | ||||||||||
Bank holding companies and related subsidiaries | 1,464 | 857 | ||||||||||
Nonbank companies and related subsidiaries | – | 76 | ||||||||||
Long-term debt | 105,556 | 88,272 | 135,762 | 105,556 | ||||||||
Shareholders’ equity | 135,272 | 101,533 | 146,803 | 135,272 | ||||||||
Total liabilities and shareholders’ equity | $ | 283,542 | $ | 220,669 | $ | 337,922 | $ | 283,542 |
Bank of America 2007 | 149 |
Condensed Statement of Cash Flows
Year Ended December 31 | Year Ended December 31 | |||||||||||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2004 | 2007 | 2006 | 2005 | ||||||||||||||||||
Operating activities | ||||||||||||||||||||||||
Net income | $ | 21,133 | $ | 16,465 | $ | 13,947 | $ | 14,982 | $ | 21,133 | $ | 16,465 | ||||||||||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Equity in undistributed earnings of subsidiaries | (6,598 | ) | (7,390 | ) | (6,739 | ) | ||||||||||||||||||
Equity in undistributed (earnings) losses of subsidiaries | 4,247 | (6,598 | ) | (7,390 | ) | |||||||||||||||||||
Other operating activities, net | 2,159 | (1,035 | ) | (1,487 | ) | (276 | ) | 2,159 | (1,035 | ) | ||||||||||||||
Net cash provided by operating activities | 16,694 | 8,040 | 5,721 | 18,953 | 16,694 | 8,040 | ||||||||||||||||||
Investing activities | ||||||||||||||||||||||||
Net (purchases) sales of securities | (705 | ) | 403 | (1,348 | ) | (839 | ) | (705 | ) | 403 | ||||||||||||||
Net payments from (to) subsidiaries | (13,673 | ) | (3,145 | ) | 821 | |||||||||||||||||||
Net payments to subsidiaries | (44,457 | ) | (13,673 | ) | (3,145 | ) | ||||||||||||||||||
Other investing activities, net | (1,300 | ) | (3,001 | ) | 3,348 | (824 | ) | (1,300 | ) | (3,001 | ) | |||||||||||||
Net cash provided by (used in) investing activities | (15,678 | ) | (5,743 | ) | 2,821 | |||||||||||||||||||
Net cash used in investing activities | (46,120 | ) | (15,678 | ) | (5,743 | ) | ||||||||||||||||||
Financing activities | ||||||||||||||||||||||||
Net increase (decrease) in commercial paper and other short-term borrowings | 12,519 | (292 | ) | 15,937 | 8,873 | 12,519 | (292 | ) | ||||||||||||||||
Proceeds from issuance of long-term debt | 28,412 | 20,477 | 19,965 | 38,730 | 28,412 | 20,477 | ||||||||||||||||||
Retirement of long-term debt | (15,506 | ) | (11,053 | ) | (9,220 | ) | (12,056 | ) | (15,506 | ) | (11,053 | ) | ||||||||||||
Proceeds from issuance of preferred stock | 2,850 | — | — | 1,558 | 2,850 | – | ||||||||||||||||||
Redemption of preferred stock | (270 | ) | — | — | – | (270 | ) | – | ||||||||||||||||
Proceeds from issuance of common stock | 3,117 | 2,846 | 3,712 | 1,118 | 3,117 | 2,846 | ||||||||||||||||||
Common stock repurchased | (14,359 | ) | (5,765 | ) | (6,286 | ) | (3,790 | ) | (14,359 | ) | (5,765 | ) | ||||||||||||
Cash dividends paid | (9,661 | ) | (7,683 | ) | (6,468 | ) | (10,878 | ) | (9,661 | ) | (7,683 | ) | ||||||||||||
Other financing activities, net | (2,799 | ) | 1,705 | 520 | 576 | (2,799 | ) | 1,705 | ||||||||||||||||
Net cash provided by financing activities | 4,303 | 235 | 18,160 | 24,131 | 4,303 | 235 | ||||||||||||||||||
Net increase in cash held at bank subsidiaries | 5,319 | 2,532 | 26,702 | |||||||||||||||||||||
Net increase (decrease) in cash held at bank subsidiaries | (3,036 | ) | 5,319 | 2,532 | ||||||||||||||||||||
Cash held at bank subsidiaries at January 1 | 49,670 | 47,138 | 20,436 | 54,989 | 49,670 | 47,138 | ||||||||||||||||||
Cash held at bank subsidiaries at December 31 | $ | 54,989 | $ | 49,670 | $ | 47,138 | $ | 51,953 | $ | 54,989 | $ | 49,670 |
Bank of America 2007 |
Note 24 – Performance by Geographical Area
Since the Corporation’s operations are highly integrated, certain asset, liability, income and expense amounts must be allocated to arrive at Total Assets, Total Revenue, Income Before Income Taxestotal assets, total revenue, net of interest expense, income before income taxes and Net Incomenet income by geographic area. The Corporation identifies its geographic performance based upon the business unit structure used to manage the capital or expense deployed in the region as applicable. This requires certain judgments related to the allocation of revenue so that revenue can be appropriately matched with the related expense or capital deployed in the region.
Year | At December 31 | Year Ended December 31 | ||||||||||||
(Dollars in millions) | Total Assets(1) | Total Revenue (2) | Income Before Income Taxes | Net Income | ||||||||||
Domestic(3) | 2006 | $ | 1,300,711 | $ | 64,189 | $ | 28,041 | $ | 18,605 | |||||
2005 | 1,183,953 | 51,860 | 21,880 | 14,778 | ||||||||||
2004 | 45,767 | 19,369 | 12,943 | |||||||||||
Asia | 2006 | 32,886 | 1,117 | 637 | 420 | |||||||||
2005 | 32,272 | 909 | 521 | 344 | ||||||||||
2004 | 718 | 286 | 204 | |||||||||||
Europe, Middle East and Africa | 2006 | 113,129 | 5,470 | 1,843 | 1,193 | |||||||||
2005 | 57,226 | 1,783 | 920 | 603 | ||||||||||
2004 | 1,420 | 605 | 395 | |||||||||||
Latin America and the Caribbean | 2006 | 13,011 | 2,247 | 1,452 | 915 | |||||||||
2005 | 18,352 | 1,539 | 1,159 | 740 | ||||||||||
2004 | 1,060 | 648 | 405 | |||||||||||
Total Foreign | 2006 | 159,026 | 8,834 | 3,932 | 2,528 | |||||||||
2005 | 107,850 | 4,231 | 2,600 | 1,687 | ||||||||||
2004 | 3,198 | 1,539 | 1,004 | |||||||||||
Total Consolidated | 2006 | $ | 1,459,737 | $ | 73,023 | $ | 31,973 | $ | 21,133 | |||||
2005 | 1,291,803 | 56,091 | 24,480 | 16,465 | ||||||||||
2004 | 48,965 | 20,908 | 13,947 |
At December 31 | Year Ended December 31 | |||||||||||||||
(Dollars in millions) | Year | Total Assets(1) | Total Revenue, Net of Interest Expense(2) | Income Before Income Taxes | Net Income | |||||||||||
Domestic(3) | 2007 | $ | 1,529,899 | $ | 59,731 | $ | 18,039 | $ | 13,137 | |||||||
2006 | 1,312,912 | 64,381 | 28,041 | 18,605 | ||||||||||||
2005 | 52,944 | 21,880 | 14,778 | |||||||||||||
Asia | 2007 | 46,359 | 1,613 | 1,146 | 721 | |||||||||||
2006 | 32,886 | 1,117 | 637 | 420 | ||||||||||||
2005 | 909 | 521 | 344 | |||||||||||||
Europe, Middle East and Africa | 2007 | 129,303 | 4,097 | 894 | 592 | |||||||||||
2006 | 100,928 | 4,835 | 1,843 | 1,193 | ||||||||||||
2005 | 1,783 | 920 | 603 | |||||||||||||
Latin America and the Caribbean | 2007 | 10,185 | 878 | 845 | 532 | |||||||||||
2006 | 13,011 | 2,247 | 1,452 | 915 | ||||||||||||
2005 | 1,539 | 1,159 | 740 | |||||||||||||
Total Foreign | 2007 | 185,847 | 6,588 | 2,885 | 1,845 | |||||||||||
2006 | 146,825 | 8,199 | 3,932 | 2,528 | ||||||||||||
2005 | 4,231 | 2,600 | 1,687 | |||||||||||||
Total Consolidated | 2007 | $ | 1,715,746 | $ | 66,319 | $ | 20,924 | $ | 14,982 | |||||||
2006 | 1,459,737 | 72,580 | 31,973 | 21,133 | ||||||||||||
2005 | 57,175 | 24,480 | 16,465 |
(1) | Total |
(2) | There were no material intercompany revenues between geographic regions for any of the periods presented. |
(3) | Includes the Corporation’s Canadian operations, which had |
Bank of America 2007 | 151 |
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.
Item 9A. Controls And Procedures
As of the end of the period covered by this report and pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), the Corporation’sBank of America’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness and design of our disclosure controls and procedures (as that term is defined in RulesRule 13a-15(e) and 15d-15(e) of the Exchange Act). Based upon that evaluation, the Corporation’sBank of America’s Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this report, that Bank of America’s disclosure controls and procedures were effective in recording, processing, summarizing and reporting information required to be disclosed, within the time periods specified in the Securities and Exchange Commission’s rules and forms.
SeeThe Report of Management on Internal Control over Financial Reporting is set forth on page 100 for87 and incorporated herein by reference. The Report of Independent Registered Public Accounting Firm with respect to management’s report on the Corporation’sassessment of internal control over financial reporting which is set forth on page 88 and incorporated herein by reference.
In addition, and as of the end of the period covered by this report, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2006,2007, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
152 | Bank of America 2007 |
|
None
Item 10. Directors, Executive Officers and Corporate Governance
Information included under the following captions in the Corporation’s proxy statement relating to its 20072008 annual meeting of stockholders (the “2007“2008 Proxy Statement”) is incorporated herein by reference:
“The Nominees”;
“Section 16(a) Beneficial Ownership Reporting Compliance”;
“Corporate Governance - Code of Ethics”; and
“Corporate Governance - Audit Committee.”
· | “The Nominees”; |
· | “Section 16(a) Beneficial Ownership Reporting Compliance”; |
· | Corporate Governance – Corporate Governance Principles, Committee Charters and Code of Ethics; |
· | “Corporate Governance – Code of Ethics”; |
· | Corporate Governance – 2007/2008 Bank of America Committee Composition; and |
· | “Corporate Governance – Audit Committee.” |
Additional information required by Item 10 with respect to executive officers is set forth in Part I, Item 4A hereof. Information regarding the Corporation’s directors is set forth in the 2008 Proxy Statement on pages 1415 through 1617 under “The Nominees.”
Item 11. Executive Compensation
Information included under the following captions in the 20072008 Proxy Statement is incorporated herein by reference:
“Corporate Governance - Director Compensation”;
· | “Compensation Discussion and Analysis”; |
· | “Executive Compensation”; |
· | “Corporate Governance – Director Compensation”; |
· | “Compensation and Benefits Committee Report”; and |
· | “Compensation and Benefits Committee Interlocks and Insider Participation.” |
Item 12. Security Ownership of Certain Beneficial Owners and Analysis”;
“Executive Compensation”;
“Compensation Committee InterlocksManagement and Insider Participation”; andRelated Stockholder Matters
“Compensation Committee Report.”
Information included under the following caption in the 20072008 Proxy Statement is incorporated herein by reference:
· | “Stock Ownership.” |
“Stock Ownership.”The following table presents information on equity compensation plans at December 31, 2007:
See also Note 17 of the Consolidated Financial Statements for
Number of Shares to be Issued (1, 3) | Weighted Average Exercise Price of Outstanding Option (2) | Number of Shares Remaining for Future Issuance Under Equity Compensation Plans | |||||
Plans approved by shareholders | 224,912,652 | $ | 40.21 | 258,520,053 | |||
Plan not approved by shareholders | – | – | – | ||||
Total equity compensation plans | 224,912,652 | $ | 40.21 | 258,520,053 |
(1) | Includes 16,193,802 unvested restricted stock units. |
(2) | Does not take into account unvested restricted stock units. |
(3) | In addition to the securities presented in the table above, there were outstanding options to purchase 19,941,199 shares of the Corporation’s common stock granted to employees of predecessor companies assumed in mergers. The weighted average option price of the assumed options was $31.91 at December 31, 2007. |
For additional information on Bank of America’s equity compensation plans.plans seeNote 17 – Stock-Based Compensation Plans of the Notes on page 133 which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information included under the following captions in the 20072008 Proxy Statement is incorporated herein by reference:
“Corporate Governance - Director Independence”; and
“Certain Transactions.”
· | “Certain Transactions”; and |
“Corporate Governance – Director Independence.” |
Item 14. Principal Accountant Fees and Services
Information included under the following captionscaption in the 20072008 Proxy Statement is incorporated herein by reference:
· | “Item 2: Ratification of the Independent Registered Public Accounting Firm.”
Item 15. Exhibits, Financial Statement Schedules
With the exception of the information expressly incorporated herein by reference, the
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. Date: February 28,
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 registrant and in the capacities and on the dates indicated.
INDEX TO EXHIBITS
|