Portrait of a Bank
2004 Annual Report
Portrait of a Bank
BANK OF AMERICA SERVES INDIVIDUALS, SMALL BUSINESSES, LARGE COMPANIES, PUBLIC- AND PRIVATE-SECTOR
institutions and nonprofits through four major lines of business (details on pages 28–29). Bank of America
is the nation’s largest consumer bank and the first to have a truly national retail franchise, with full-service
banking in 29 states and the District of Columbia. Bank of America is also the nation’s largest small business
bank and the number one financial institution providing domestic and global cash management services. In
addition, Bank of America operates one of the largest private banks in the United States, the third-largest
bank-owned brokerage and one of the world’s largest wealth management businesses. A leading financial
partner for corporate America, Bank of America has captured the largest share of middle-market and large
corporate relationships of any U.S. bank, including more than 95% of the Fortune 500. In 2004, Bank of America
was the world’s second most profitable banking institution and the world’s fifth most profitable company.
Contents
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Chairman’s Letter to Shareholders . . . . . . . . . . . . . . . . . . . . 5
Portrait of Leadership and Commitment . . . . . . . . . . . . . . . 9
Portrait of a Consumer Bank . . . . . . . . . . . . . . . . . . . . . . . 12
Portrait of a Small Business Bank . . . . . . . . . . . . . . . . . . . 16
Portrait of a Global Business and
Investment Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Portrait of a Personal Banker and
Investment Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Portrait of a Neighborhood Bank . . . . . . . . . . . . . . . . . . . . 24
Four Business Lines Partner to Deliver the Whole Bank . . . 28
Bank of America Earns Record $14.1 Billion in 2004 . . . . . 30
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Executive Officers and Directors . . . . . . . . . . . . . . . . . . . . 151
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Financial Highlights
(Dollars in millions, except per share information)
For the year
Revenue*
Net income
Shareholder value added
Earnings per common share
Diluted earnings per common share
Dividends paid per common share
Return on average assets
Return on average common
shareholders’ equity
Efficiency ratio*
Average common shares issued
and outstanding (in millions)
Year Ended December 31
2004
2003
$ 49,610
14,143
5,983
3.76
3.69
1.70
1.35 %
$ 38,557
10,810
5,621
3.63
3.57
1.44
1.44 %
16.83 %
54.48 %
21.99 %
52.27 %
3,759
2,973
At year end
Total assets
Total loans and leases
Total deposits
Total shareholders’ equity
Book value per common share
Market price per share of
common stock
Common shares issued and
outstanding (in millions)
$ 1,110,457
521,837
618,570
99,645
24.56
46.99
4,047
$719,483
371,463
414,113
47,980
16.63
40.22
2,882
In 2005, Bank of America renamed its business segments to
better reflect their current reach. Only the names have been
changed; the entities that comprise each business segment
are the same. This annual report uses the new names in
reporting on these business segments’ activities for 2004.
The new name and former name of each business segment
follows: Global Consumer and Small Business Banking was
called Consumer and Small Business Banking; Global
Business and Financial Services was called Commercial
Banking; Global Capital Markets and Investment Banking
was called Global Corporate and Investment Banking; and
Global Wealth and Investment Management was called
Wealth and Investment Management.
2004 Revenue*
($ in millions)
2004 Net Income
($ in millions)
*Fully taxable-equivalent basis
**All Other consists primarily of Latin America,
Equity Investments, noninterest income and
expense amounts associated with the asset and
liability management process, and the results of
certain businesses that are being liquidated.
BANK OF AMERICA 2004
3
Global Wealth and Investment Management$5,918Global Consumer and Small Business Banking$26,857Global Business and Financial Services$6,722All Other$1,064**Global Capital Markets andInvestment Banking$9,049Global Wealth and Investment Management$1,584Global Consumer and Small Business Banking$6,548Global Business and Financial Services$2,833All Other$1,228**Global Capital Markets andInvestment Banking$1,950
“Our associates are working with teammates across the
company to create new opportunities to deliver
the full power of Bank of America to our customers.”
C H A I R M A N , C H I E F E X E C U T I V E O F F I C E R A N D P R E S I D E N T
K E N N E T H D . L E W I S
4 BANK OF AMERICA 2004
To our shareholders:
Two great tasks defined your company’s efforts in 2004. First, we accelerated the execution of our organic growth
strategy, creating value for shareholders by building and expanding millions of customer and client relationships
across the country. Second, we acquired and began to integrate the operations of FleetBoston Financial Corporation,
adding more than 6 million customers and greatly increasing our opportunities for value creation and future growth
in a single stroke.
Some observers outside the company saw strategic conflict or a kind of corporate ambivalence in these two
tasks. We do not.
In fact, we view our acquisition of Fleet as tightly connected to our ongoing commitment to organic growth. We
said from the moment our two companies came together that our goal was not just to reduce costs, but to accelerate
organic growth in the Northeast. And that’s just what we have done.
At the same time, the momentum we have been building for several years with our customers throughout the
company continued to grow. In our retail banking operations, continuing improvements to products, services and the
banking center experience are driving customer “delight” and revenue to all-time highs. In our wholesale banking
businesses, bankers are working together to bring a full range of investment banking products and services to more of
our clients than ever before. In our wealth management business, we are expanding our financial advisor network and
increasing market share across the nation’s best and fastest-growing wealth markets.
While our associates are working within their lines of business to build customer relationships, they also are
reaching out to work with teammates across the company to create new opportunities to deliver the full power of
Bank of America to our customers. For example, investment bankers are working with commercial bankers to
provide M&A advice to middle-market CEOs. Personal financial advisors are working with teammates across the
bank to help us serve more of our consumer, small business, commercial and corporate customers with wealth
management services.
And last year, we launched an initiative called the Fixed Income Strategies Group that enables our Global
Capital Markets and Investment Banking business to distribute fixed-income products through Global Wealth and
Investment Management’s network of financial advisors serving high-net-worth and retail clients, expanding the suite of
product offerings available to our clients.
All this work is creating strong, consistent financial performance for our shareholders. You can read more
about how our associates are working together to grow the company starting on page 9 of this report.
Strategic vision, financial results
Our associates are pursuing our vision of a nationwide, universal bank for consumers and small businesses; a
full-service corporate and investment bank with global capabilities for our commercial and corporate clients; and a
company that produces strong, consistent financial returns for its shareholders by delivering higher standards of service
for our customers every day. Our financial results are evidence that, in this pursuit, we are winning in the marketplace.
In 2004, Bank of America earned $14.1 billion, was the world’s fifth most profitable company and, with a market
capitalization at year-end of $190 billion, was the second most highly valued financial services company in the world.
Our results exceeded our goals in most important financial categories, including diluted earnings per share, net
income, revenue and credit quality. I hope you will review our financial results in more detail in the financial summary
BANK OF AMERICA 2004
5
($ in billions)
Revenue (Fully taxable-equivalent basis)
($ in billions)
Net Income
on page 30 and in the Management Discussion & Analysis starting on page 33.
Our financial results in 2004 continued the strong returns we have posted for our shareholders over the past
four years. In fact, we have met or exceeded the rising expectations of Wall Street every quarter since the beginning
of 2001. From 2000 through 2004, our diluted earnings per share grew at a 10% annual rate, despite an economic
slowdown and market turbulence that derailed many competitors.
Our strong profit growth provides us multiple opportunities for capital deployment, which we pursue in three
broad categories: investments in existing lines of business, acquisitions of other companies and capital returned to
shareholders.
Our internal investments are tightly focused on areas of the company with strong long-term growth prospects.
Prominent examples include a $675 million investment beginning in 2005 in Global Capital Markets and Investment
Banking, where growth priorities include expanding capabilities in debt sales and trading, client management, our equity
platform, and our ability to serve clients’ needs in Europe and Asia. In Global Wealth and Investment Management, we
continue to invest in sales and relationship management capacity. And in Global Consumer and Small Business
Banking, we’re continuing to build out our banking center network as we move into new and fast-growing markets.
Our most visible acquisition last year was Fleet, but our acquisition of National Processing Corporation was a
great example of an effort to build scale and capabilities in an existing business. The addition of National Processing
to Bank of America Merchant Services is enabling us to offer more payments solutions to our customers. As payments
continue to shift from paper to plastic, the Merchant Services expansion has enabled us to strengthen our leadership
position in the payments business.
In deploying capital, we have complemented investments and acquisitions with an extremely shareholder-
friendly capital strategy. Since 1998, Bank of America has returned more than $65 billion in capital to shareholders
through a combination of increasing dividends and the repurchase of shares. Our dividend has grown at an annual
rate of 13% over the past 27 years, from $0.07 in 1977 to $1.70 today, and our current dividend yield of almost 4% is
among the most attractive in the industry.
Our strategic vision and financial results have been rewarded in the marketplace. Over the past five years, our
shares have appreciated faster than our peers’, faster than the KBW Banks Index, faster than the S&P 500 and faster
than the Dow Jones Industrial Average. With an annualized total shareholder return (including stock price apprecia-
tion and dividends) of 18% from 1999 through 2004, Bank of America has been an extremely strong investment.
Growth in the Northeast
When we agreed to acquire Fleet, we believed that by bringing our successful retail model to the Fleet franchise we
could immediately start taking market share from our competitors, increasing customer satisfaction and generating
growth in accounts and revenue. And that’s exactly what has happened.
6 BANK OF AMERICA 2004
'02'03'04$35.1$38.6$49.6'02'03'04$9.2$10.8$14.1 Earnings Per Common Share
(Diluted)
Return on Average Common
Shareholders’ Equity
The results for our first nine months as one company, from April 1 to December 31, confirm that we achieved
what we set out to do.
For example, net checking account growth in the Northeast increased from about 35,000 in 2003 to about
200,000 in 2004, and savings account growth registered strong gains as well. Not only are customers giving us a vote
of confidence with their purchase decisions, they’re also telling us their satisfaction is growing, which bodes well for
future growth. Between June and December, customers in the Northeast who rated their experience in the banking
centers a 9 or a 10 on a 10-point scale increased from 51% to 61%.
We have been extremely pleased with our early results, and these results have been gaining in strength since
we launched the Bank of America brand across the Northeast between August and December of last year. Even so,
we believe our greatest growth potential in the Northeast lies before us, not behind us. Even given our strong results
so far, our market penetration and share of wallet in Northeast markets remains low relative to potential business
opportunity. This is especially true in Global Wealth and Investment Management, where we see significant opportuni-
ties to grow by capturing more of our existing customers’ wealth planning business.
The merger transition process itself has been, without qualification, the smoothest and fastest I have seen in
my career. From the beginning, we planned and executed the transition and all associated projects with strict
adherence to a disciplined Six Sigma approach, improving processes, driving down costs and enhancing quality and
productivity along the way.
We continue to face significant transition challenges and opportunities in the Northeast in 2005. We will meet
those challenges and seize those opportunities with the same energy, enthusiasm and intensity that led to our success
in 2004, and drive toward ever-higher growth goals throughout the Northeast for the future.
Smart growth
To generate strong, consistent, sustainable organic growth in financial services, achieving excellence in sales and
service is half the battle. The other half is developing the art and science of risk and reward management as a core
competency and competitive advantage.
Today, your company is developing the skills and tools that enable us to grow by taking the right risks, and by
getting paid appropriately for the risks we take. We are continuing to build a risk and reward management structure
and culture of shared responsibility, in which every associate—from front-line bankers to risk managers to auditors—
is accountable for managing risks to help the business grow.
This structure is important in helping us manage credit risk, but we also apply it to a broad view of risk, including
market risks and operational risks related to technology, systems, events, or legal, compliance and reputation issues.
We believe industry-leading risk management means playing good offense as well as good defense. At the
beginning of this letter, for example, I mentioned a partnership through which we distribute fixed-income
BANK OF AMERICA 2004
7
'02'03'04$2.95$3.57$3.69'02'03'0419.4%22.0%16.8%
products originated by Global Capital Markets and Investment Banking to the bank’s high-net-worth and retail
clients through our network of financial advisors. This partnership wouldn’t work without a strong culture of
shared accountability, effective governance controls, and the active participation of Risk partners and the Audit
group in the business.
The key message that our associates are embracing is that managing risk and reward is not about avoiding
risk. It’s about taking calculated risks in pursuit of growth. Effecting a shift in our culture that encourages every
associate to understand, anticipate and manage the full range of potential risks and rewards in their area—whether
relating to a credit score, a market or interest rate fluctuation, a marketing opportunity or a regulatory issue—is a
fundamental part of our strategy for growth.
Leadership, past and future
Your company is in business for many reasons.
We provide the financial capital that creates economic opportunity for individual families, for businesses, for
the communities we serve, and for the global economy as a whole. As teammates, we help one another grow and
succeed, personally and professionally. And, of course, all our work is aimed at generating strong, consistent and
sustainable growth in financial returns for our shareholders.
Playing a key role in leading your company to achieve these strategic and financial goals for the past 18 years
has been our chief financial officer and vice chairman, Jim Hance, who retired from the company at the end of January.
Jim has been one of the key architects of our company for the last two decades, and has been a major ambassador for
our company on Wall Street and a major force within Bank of America driving for better results for all of our
constituencies. I could not have asked for a better partner during my time as chief executive.
Stepping into the role of chief financial officer is Marc Oken, who had served the company as principal finance
executive since 1989. Marc has a sharp financial mind and a strong, confident leadership style that will serve your
company well in his new role.
Also retiring from the company is Chad Gifford, our chairman and my partner in the Bank of America–Fleet
merger that brought Bank of America into New England and the Northeast. Chad is a tremendous leader who
directed the growth and success of BankBoston and Fleet over the past 38 years. Chad remains on our board of direc-
tors, and I look forward to his continued advice and counsel.
Finally, we have two departures from our board this spring. Donald Guinn, chairman emeritus of Pacific Telesis
Group, will retire from the board of directors at this year’s Annual Meeting of Shareholders. Don has been a valued
director and a strong voice on our board since 1998, and has chaired our audit committee for the past six years. His
leadership will be missed. And Steve McMillan, chairman of Sara Lee Corporation, has resigned from our board. I
appreciate all Steve has done for Bank of America during his time as a director.
In closing, I’d like to thank all our directors for their guidance during what has been a year of great progress
and success. As we continue our work to deliver ever-higher standards of service and performance for our customers,
our shareholders and our communities, I look forward to all we’ll accomplish together.
As always, I welcome your thoughts and suggestions.
K E N N E T H D . L E W I S
C H A I R M A N , C H I E F E X E C U T I V E O F F I C E R A N D P R E S I D E N T
M A R C H 1 , 2 0 0 5
8 BANK OF AMERICA 2004
Portrait of Leadership and Commitment
Customer focus and process discipline
produce breakthrough results.
THE KEY TO BANK OF AMERICA’S SUCCESSFUL EXECUTION OF ITS GROWTH STRATEGY IS CREATING CUSTOMER SATISFACTION.
The company achieves growth, CEO Ken Lewis says, “by satisfying so many customers so completely that they bring
us more of their business and recommend us to their neighbors, friends and family.”
Lewis adds, “To attain that level of satisfaction, and attract, retain and expand customer relationships, we know
we have to focus the energy and resources of the company on the basic work processes that drive every customer
experience.” It also is essential for all the bank’s diverse businesses and centers of expertise to be able to work together
effectively to ensure that the right resources, products and services are available everywhere to every customer.
The focus of the bank’s leaders and every associate, then, is clear: Consistent, enthusiastic execution and
teamwork produce customer satisfaction, which drives revenue growth.
Bank of America conducts its business around the clock, serving some 33 million households and more than
3 million businesses coast to coast and throughout the world, interacting with customers more than 400 times every
second. We’re there wherever and whenever the customer needs us: making an online transfer in the middle of the
night for a worried parent who needs to get money to a child at college; efficiently underwriting and marketing a multi-
billion-dollar bond issue to finance plant and equipment for a Fortune 1000 company; loaning on inventory to get a
small business over a temporary cash flow crisis; making an affordable mortgage available to a young family to finance
their first home; making it easy for recent immigrants to send money back to family in their old country; providing
investment advice so a hardworking couple in their 30s can retire in their 50s; helping a family transfer wealth from
one generation to the next. This—and much more—is what Bank of America does every minute of every day.
In a business this big and complex, “nothing can be left to chance,” says Milton Jones, the company’s quality
and productivity executive.
To deliver consistent, high-quality service, Bank of America has undertaken a pioneering effort to apply Six
Sigma process improvement discipline to virtually every facet of the company’s operations. Six Sigma is a sophisticated
set of fact-based tools and techniques that allows associates to identify the key drivers of a business process and
determine what should be changed in order to achieve the greatest possible improvement.
Since leadership made Six Sigma an integral part of the company’s culture in 2001, the resulting process
improvements have contributed to increases in revenue growth, operating efficiency and—perhaps most impor-
tantly—customer delight, which has increased 25%. The company considers customers “delighted” when they rate us
9 or 10 on a 10-point scale. Research shows that delighted customers are far more likely to stay with the company and
recommend us to others. Equally important, delighting customers is simply the right way to do business.
Six Sigma puts the customer at the center of the company’s thinking, so associates are viewing the world from the
outside in, designing processes that make a meaningful difference to customers. It’s changed the way individuals approach
their jobs, and it’s raised the confidence and enthusiasm of associates, who can clearly see their efforts bearing fruit.
In addition, an integrated business planning process ties each individual’s performance plan to the company’s
strategic objectives so that everybody is on the same team. The resulting teamwork, crossing traditional organizational
boundaries, enables Bank of America to deliver the full spectrum of the company’s broad capabilities to all its customers.
This annual report, Portrait of a Bank, shows how Bank of America’s leaders and associates are putting the
bank’s strategy into practice on behalf of customers to create value for shareholders.
BANK OF AMERICA 2004
9
Portrait of a Management Philosophy
J. S T E E L E A L P H I N
GLOBAL PERSONNEL EXECUTIVE
C AT H E R I N E P. B E S S A N T
GLOBAL MARKETING EXECUTIVE
A M Y W O O D S B R I N K L E Y
GLOBAL RISK EXECUTIVE
“Associates at every
level are committed to our
vision of making Bank
of America the world’s most
admired company.”
“Our strong brand is a significant
competitive advantage, and
in building it, everything matters.
The substance of our people, culture,
process and presence uniquely
set us apart.”
“With higher standards
comes shared accountability.
We have hardwired values and
ethics into the character,
the very DNA, of our company.”
G R E G O RY L . C U R L
GLOBAL CORPORATE PLANNING
AND STRATEGY EXECUTIVE
A LVA R O G . D E M O L I NA
PRESIDENT, GLOBAL CAPITAL MARKETS
AND INVESTMENT BANKING
B A R B A R A J. D E S O E R
GLOBAL TECHNOLOGY, SERVICE
AND FULFILLMENT EXECUTIVE
“Bank of America’s diversity,
capital strength and profitability
give it an advantage in
developing new ways to grow
for our shareholders.”
“We are using our competitive
edge as a universal bank to work
together to deliver all of the
company’s resources to clients and
drive revenue for shareholders.”
(More on page 19)
“Really understanding what
our customers want is essential
to creating a consistently
outstanding experience for
them across all of our channels.”
10 BANK OF AMERICA 2004
M I LT O N H . J O N E S , J R .
GLOBAL QUALITY AND PRODUCTIVITY EXECUTIVE
“Our focus on quality and
Six Sigma tools in our leadership
and customer interactions helps
make us a stronger, more
profitable company.”
L I A M E . M C G E E
PRESIDENT, GLOBAL CONSUMER AND
SMALL BUSINESS BANKING
B R I A N T. M O Y N I H A N
PRESIDENT, GLOBAL WEALTH
AND INVESTMENT MANAGEMENT
“The key to growth and customer
delight is emotionally connecting
with customers and delivering
a consistent, familiar experience
throughout the franchise.”
(More on page 12)
“Everything we do is
designed to help our clients achieve
their financial goals through
strong, long-term relationships
based on mutual trust.”
(More on page 21)
M A R C D . O K E N
CHIEF FINANCIAL OFFICER
“Our goal is to produce
consistent, attractive
earnings growth at high
rates of profitability for our
shareholders.”
H . JAY S A R L E S
VICE CHAIRMAN AND SPECIAL
ADVISOR TO THE CEO
R . E U G E N E TAY L O R
PRESIDENT, GLOBAL BUSINESS AND
FINANCIAL SERVICES
“When Bank of America
and Fleet merged, our goals were
to retain customers and
increase deposits and loans, and
we achieved those goals.”
“With our unparalleled
resources, products and industry
expertise, we can do more for our
clients—and do it better—
than anyone else.”
(More on page 19)
BANK OF AMERICA 2004
11
Portrait of a Consumer Bank
Convenience, process excellence
and consistent service standards drive growth.
B (Net new accounts in millions)
on a consistent experience and easy access to their hometown bank virtually anywhere they live, work, play and
travel. A Boston family that vacations in New York and Florida, visits relatives in Dallas and St. Louis, or has
business connections in Los Angeles or Seattle finds Bank of America right there—in person, online or via
telephone or ATM.
comparable with the nation’s leading retailers—an achievement unique in American banking.
The benefits for U.S. customers are dramatic. For the first time, they can count
Growth of net new checking
accounts and net new
savings accounts
ANK OF AMERICA HAS BUILT A NATIONAL FRANCHISE ON A SCALE
*includes Fleet
Checking
Savings
Along with this convenience, Bank of America raised the stakes for service quality beginning in early 2002.
We dropped the less rigorous industry practice of measuring average customer satisfaction and began reporting
against the tougher standard of “highly satisfied” or “delighted” customers—those who rate their experience as
a 9 or 10 on a 10-point scale. By year-end 2004, 71% of customers said they were highly satisfied with their banking
center experience.
With the addition of the Fleet franchise early in 2004, Bank of America is now a fixture in all four densely
populated corners of the United States, including New York’s Times Square, pictured at right, as well as in the fastest-
growing markets in between—in all, 29 states and the District of Columbia. Seventy-six percent of the U.S. population lives
in our geographic footprint, including the vast majority of multicultural residents who drive U.S. population growth:
93% of Hispanic households, 86% of Asian households and 77% of African-American households.
Beyond these obvious geographic and cultural advantages, our 33 million customer households enjoy the speed
and convenience of Bank of America’s leading online banking and electronic bill-pay services; a voice-recognition
telephone system that balances easy self-service options with quick access to highly trained telephone bankers; and
the largest bank-owned ATM network in the nation.
Through these multiple channels, Bank of America provides a broad and innovative range of services, including
banking center access to residential mortgages, consumer investment and retirement services.
12 BANK OF AMERICA 2004
1.30.532.1*’02’03’04’02’03’04(0.26)0.642.6*
In addition to nearly 6,000 banking centers and the nation’s largest
bank-owned ATM network, Bank of America is the leading online bank,
with more than 12 million active online customers and nearly 6 million active bill-pay
customers—more than all other competitors combined. Customers make,
on average, 30 million electronic bill payments per month.
Consumer Banking product sales in 2004 increased 33% over the previous year, including 6.2 million
new credit card accounts, compared with 5.9 million the previous year.
The 11% retail deposit growth in 2004 was nearly double the national retail deposit growth rate of 5.6% in the same period.
Bank of America set a new standard in the remittance industry by eliminating SafeSend®
money-transfer fees for Chicago customers who send money to Mexico—the first step toward eliminating
those charges nationwide during 2005.
14 BANK OF AMERICA 2004
The density of our presence in the nation’s diverse
urban regions creates the opportunity to provide financial
solutions to movers, home buyers and neighborhood
businesses, as well as newcomers to the United States
who confront language and cultural challenges. We are
a market leader, for example, with Hispanics, doing
business with 44% of U.S. Hispanic households. The
majority of new banking centers we opened over the past
two years serve Hispanic neighborhoods.
Along with serving consumers in many languages
and providing online, ATM and telephone banking services
in Spanish, we recruit talented people with numerous lan-
guage skills and cultural backgrounds. In 2004, nearly half
of all external hires in the consumer bank were bilingual.
The Fleet merger not only completed the bank’s
geographic continuity but also set a standard unmatched
in two decades of tumultuous consolidation in U.S. bank-
6 million active bill-pay customers—more than all of
our competitors combined. They make, on average,
30 million electronic bill payments every month.
n Our nearly 17,000 ATMs recorded more than 1.1 billion
transactions in 2004, including 175 million deposits.
n Bank of America Telephone Banking handles 700
million calls annually. Customers responded positively
in 2004 to new voice-recognition technology, which
makes banking by phone faster, friendlier and more
flexible for customers who need specialized help.
Bank of America is also the nation’s fastest-
growing major credit card company. The bank puts
credit cards at the core of its consumer business rather
than operating it as a stand-alone company, as many of
our competitors do. Credit cards are leading relationship
builders that pave the way for new banking relationships
with non-customers. During 2004, the bank sold 6.2
With the addition of FleetBoston early in 2004, Bank of America is now
a fixture in the four densely populated corners of the
United States—and most of the fastest-growing markets in between.
ing. Associates across the Northeast grew the customer
base while taking on the complex challenges of transi-
tion, more than doubling average daily sales per seller in
2004 and gaining five times more net new checking
accounts than the previous year.
The record indicates that customers across the
country take full advantage of the convenience, range of
choices and combination of personal service and technol-
ogy tools Bank of America offers them:
n Our nearly 6,000 banking centers host 600 million
customer visits annually. In 2004, Bank of America
tellers handled 1 billion over-the-counter transactions
for consumers and small business owners.
n In 2004, the number of active online banking customers
grew 34% to more than 12 million, including 734,000
small business customers. These numbers include
million new credit card accounts, compared with 5.9
million the previous year (including Fleet).
Mortgage-related products play a similar
relationship-building role for Bank of America. In 2004,
Bank of America was the nation’s number five retail
mortgage originator and the number two home equity
lender. The franchise of banking centers, combined with
Consumer Real Estate account executives and online
access, brings the mortgage application and preapproval
process closer to home for consumers and makes the
entire experience faster and easier than ever.
With superior products and services, associates
who really care and the unparalleled convenience of our
banking center, ATM, online and telephone banking
network, we can do more for customers than any other
financial institution.
BANK OF AMERICA 2004
15
Portrait of a Small Business Bank
Entrepreneurs choose Bank of America
for experience, skill and attention to their needs.
11,758*
9,263
4,251
SBA Loan GrowthW
of small businesses—the storefront boutiques, machine shops and corner grocery stores that provide basic services,
create jobs and contribute diversity and personality to communities across America.
Bank of America is the leading small business bank in the diverse urban markets where smaller firms drive the
economy, grow two to three times faster than business overall, and create breakthrough opportunities for newcomers
to the United States. One in four U.S. consumers is a small business owner. This represents both a tremendous
opportunity and responsibility for Bank of America to provide a broad range of business services through banking
centers, online and telephone channels, and a new segment, Business Banking, where client managers can respond to
even the most complex financial needs.
ITH NEARLY 6,000 BANKING CENTERS, BANK OF AMERICA IS LITERALLY A NEIGHBOR TO MILLIONS
(Number of loans)
*includes Fleet
’02 ’03 ’04
These customers rely on our night drops, merchant tellers and face-to-face services on a daily basis. Many use
personal credit cards and home equity lines to manage operating expenses. In addition, small business specialists in many
banking centers and business bankers are trained to connect with capabilities anywhere in Bank of America to provide
credit, deposit, transaction and investment services; credit and debit card services; cash management; payroll services—
even employee benefit plans.
Small business specialists and business bankers are able to provide guidance for every stage in the life of a
small business, along with the capital to fuel growth. They can help arrange retirement and succession planning when
a mature business needs to change ownership. Additional services are available by phone from our specialized small
business call center and online through our small business Web site, which was ranked best in overall quality and ease
of use for three straight years by Gomez, Inc., a leading firm in tracking Internet performance.
Through our relationship approach, we also meet the personal needs of business owners, their families and
employees. Business owners can leverage their personal and company banking relationships to get favorable pricing.
In 2004, for the third consecutive year, Bank of America was the nation’s leading Small Business Administration
(SBA) lender, providing more SBA loans to minority and nonminority borrowers than any other lender by a significant
margin. Through our banking centers, we serve neighborhood firms of varying size and complexity, but most impor-
tant, we consider no business too small for our services. In 2004, our customers’ small business loans ranged from
several thousand to tens of millions of dollars, and our average loan size was around $30,000.
16 BANK OF AMERICA 2004
Small business owners want to work with bankers who provide a
one-stop shop for a broad range of financial services and who also understand their
challenges well enough to help them plan and make critical decisions.
We are the nation’s leading small business bank, serving more than 3 million small businesses
in our markets across 29 states and the District of Columbia, or nearly one in five.
More than 500 client managers provide one-on-one trusted advice to
nearly 200,000 businesses with more complex financial needs.
Established a new Client Development Group in 2004, a telephone-based team of client managers,
scheduled for enterprise-wide rollout in 2005.
Doubled the number of associates who are specially
trained to serve more than 2.5 million small businesses that use our banking centers.
BANK OF AMERICA 2004
17
By breaking down the barriers
between traditional commercial
banking and investment banking,
we can offer the services of our
trading rooms—such as this
one in Charlotte, NC—to middle-
market companies, like the
large retailer pictured
on page 20.
Portrait of a Global Business
and Investment Bank
Unlocking the power of the universal banking model
B
ANK OF AMERICA IS ONE OF A VERY SMALL GROUP OF FINANCIAL INSTITUTIONS WITH THE ABILITY
to offer businesses of all sizes credit, deposit, treasury management and other traditional banking products and
services, plus all the services of a major investment bank. In this universal banking model, teams of consumer,
commercial and investment bankers work together to provide all clients, regardless of size, the right combination of
products and services to meet their needs.
By taking this innovative approach to how we deliver our expertise to corporate clients, we can greatly enhance
each client’s experience and deepen each relationship. We are collaborating to create access to our capabilities that
is based on clients’ financial and strategic needs, rather than their size. Some clients regularly use our array of
traditional and investment banking products and services. Others primarily use standard products, with occasional need
for more complex investment banking expertise. Smaller companies that are beginning to realize their potential through
strong revenue growth might need a trusted advisor to serve as a key strategic counselor and help craft business
development plans and financial strategies to support them.
By understanding these varying needs, we can pair clients with the right team of bankers to deliver unparalleled
service and financial solutions to meet their needs. We also can expand our teams, bringing in experts in additional
product and service areas as client needs change. By bringing the right people to the table at the right time, we can
quickly and easily use the full breadth of our investment banking capabilities, our client and industry knowledge, and
our product expertise to provide clients with insightful solutions and seamless access to the financial services they need.
We will be enhancing our sales and trading capabilities to provide our large institutional investor clients—from
hedge funds to insurance companies—with cutting-edge access to the products they need. And we continue to explore
ways to expand the use of our expertise to structure and distribute what we originate across the company to an
expanding investor client base.
We deliver our services through Global Business and Financial Services and Global Capital Markets and
Investment Banking, and we are now breaking down these walls to deliver the bank’s entire platform to our clients.
Global Business and Financial Services is an industry leader, providing clients with deposit, credit, payments, cash
BANK OF AMERICA 2004
19
management and other traditional banking services.
We are the number one provider of treasury services to
companies of all sizes; the predominant U.S. middle-
market bank, serving one in five midsize companies; and
the leading bank-owned asset-based lender.
As a fully integrated corporate and investment
bank, Global Capital Markets and Investment Banking
provides large corporate clients with innovative capital-
raising, trading and advisory services; foreign exchange;
extensive derivatives; and other risk management
products, as well as traditional bank services. We are an
industry leader in loan syndications and the capital mar-
kets debt business, and we continue to gain momentum
in equity capital markets and M&A advisory services.
Our derivatives, risk management and foreign exchange
capabilities regularly rank number one in independent
client surveys.
Our unmatched capabilities and ease of doing
business mean added value for our clients. Working
together, we believe the possibilities are endless.
In 2004, Bank of America moved into double-digit market share for U.S. high yield underwriting, and was named U.S.
Leveraged Lease Loan House of the Year by International Financing Review.
Number one U.S. treasury services provider (top three globally), serving 90% of the U.S. Fortune 500.
Predominant U.S. middle-market bank, serving one in five midsize companies, and leading provider of financial
services to the commercial real estate industry and home builders.
20 BANK OF AMERICA 2004
Portrait of a Personal Banker
and Investment Advisor
Teamwork delivers powerful products and personalized
service to affluent clients.
C
OMPLEX, RAPIDLY CHANGING AND OFTEN UNCERTAIN—THOSE ARE THE CHARACTERISTICS OF THE FINANCIAL
journey traveled every day by 18 million affluent Americans contending with their saving and borrowing needs while
seeking to build and manage their wealth.
For help navigating this journey, these customers have access to a variety of providers offering standard
financial planning, consumer banking products and/or investments. At Bank of America, we offer a very different and
unique solution through Premier Banking & Investments, our organization focused entirely on serving the specific,
comprehensive needs of America’s affluent individuals and families. In contrast to others, Premier Banking
& Investments delivers personal attention, trusted advice and guidance, plus integrated custom-tailored banking,
credit, investment and day-to-day transaction services to clients with less than $3 million in investable assets. Every
feature of this business is designed to reward clients for their relationship with Bank of America.
By filling the traditional gap between consumer banking and private financial services for the very wealthy,
Premier Banking & Investments is steadily gaining market share and building new and expanded client relationships
in our country’s largest and fastest-growing wealth markets. Premier Banking & Investments now has a coast-to-coast
network of nearly 4,000 client managers and financial advisors, including more than 1,800 skilled advisor teams
and 58 Wealth Centers in markets with the highest concentration of affluent households and the strongest growth
potential. In these markets, where Bank of America already has more than twice the deposit share of its closest com-
petitor, Premier Banking & Investments is fast becoming the financial destination of choice for our 4.8 million affluent
households, which are broadening their existing deposit relationships to include other products and services.
Premier Banking & Investments begins with a closely integrated team—a skilled Premier Banking client
manager brings the banking expertise; a highly trained, experienced financial advisor from our brokerage company,
Banc of America Investment Services, Inc., provides the investment planning skills. The Premier Banking &
Investments teams work on a dedicated, one-to-one basis with their clients.
The teams draw their strength from a product and service foundation that is unparalleled. On the banking
BANK OF AMERICA 2004
21
By filling the traditional gap between consumer banking and
private financial services for the very wealthy,
Premier Banking & Investments is steadily gaining market
share and building new and expanded client relationships in our
country’s largest and fastest-growing wealth markets,
including Walnut Creek, California, above.
When qualified consumer banking customers join Premier Banking, their average balances grow by 9%.
Premier Banking revenue grew by 36% in 2004.
Total balances in Premier Banking & Investments (deposits, loans and client brokerage assets)
have increased from $98 billion in 2002 to $199 billion in 2004.
22 BANK OF AMERICA 2004
side, there is the geographic
scope and deposit and credit
expertise of America’s largest
consumer bank. For asset
growth and preservation, our
investment management areas
provide a rich spectrum of tools
and products, ranging from
brokerage services to trust and
estate planning to investment
products offered through our
proprietary asset management
organization, Columbia Man-
agement Group, as well as
third-party providers. Premier Banking & Investments’
capabilities span the financial universe—from jumbo
Deposits
Client satisfaction has produced growth in
deposits, loans and client brokerage asset balances
among Premier Banking & Investments clients.
Loans
Client Brokerage
Assets
($ in billions)
Premier Banking &
Investments plans to contin-
ue growing in key markets
across the country, particu-
larly in the Northeast—home
to the nation’s largest concentration of personal wealth
and to 400 new Premier Banking client managers.
help is needed, the Center
staff procures it.
And if our customers’
needs become more complex
over time, The Private Bank at
Bank of America will serve
them through its nationwide
network of wealth manage-
ment experts.
“We are building upon America’s most powerful consumer
banking franchise to deliver tailored, relationship-driven services that meet the
specific needs of affluent clients nationwide. Customers are responding
with increased satisfaction and increased business.”
BRIAN T. MOYNIHAN, PRESIDENT,
GLOBAL WEALTH AND INVESTMENT MANAGEMENT
mortgages through equity and fixed-income products
to retirement accounts and wealth transfer strategies.
For daily banking transactions, Premier Banking &
Investments delivers priority service
from its Premier Relationship Centers—
backed up by the nation’s largest network
of banking centers and ATMs and the
nation’s most extensive online banking
capability. The Centers provide Premier
clients immediate telephone contact with
specially trained banking professionals.
Calls are answered in less than 20
seconds on average, and most questions
and banking needs, such as funds
transfers and CD rollovers, are responded
to during the initial call. If additional
With the “home-field advantage” of Bank of
America’s scale and scope and a powerful, industry-
leading solution, Premier Banking & Investments is well
positioned to propel business growth.
The results are already impressive. The
revenue from a consumer banking cus-
tomer grows more than 12% on average
during the year he or she becomes
a Premier Banking & Investments
client, and client retention rates
increase significantly. The percentage of
clients who rank our service 9 or 10 on a
10-point scale—our measure of client
delight—is growing every year. In 2004,
three out of four clients with client
managers ranked our service 9 or 10.
(Number of client relationships)
Premier Banking & Investments
has seen dramatic growth
in its client base.
BANK OF AMERICA 2004
23
'02'03'04$44$28$22'02'03'04$84$48$33'02'03’04$71$51$43'02'03'04606,000425,000383,000
Portrait of a Neighborhood Bank
Innovative enterprise-wide initiatives
are making a difference in our communities.
In 1998, Bank of America
made an unprecedented
commitment to lend or
invest at least $350 billion
in community development
over the next 10 years.
Significantly ahead of the
run rate to achieve that
goal, in 2004, we set a new
10-year goal of $750 billion,
beginning in 2005.
I
N PORTLAND, CONSTRUCTION BEGINS ON OREGON’S LARGEST PUBLIC HOUSING DEVELOPMENT TO
create 850 new units of affordable housing on the site of a blighted complex built for World War II defense
workers. In New York City, with the 2004 national elections in high gear, a world-famous square along Fifth
Avenue is transformed into Democracy Plaza, a unique celebration of America’s democratic values. In cities
across the nation, nearly 800 Bank of America associates partner with CHOICES, a nonprofit organization
that challenges students to think about their futures, to teach 70,000 middle and high school students about
the importance of their personal and academic decisions.
In the wake of devastating hurricanes in Florida and the unimaginable horrors of the tsunami in
southern Asia, Bank of America pledges large grants, partners with relief agencies, mobilizes associates
and marshals its banking centers to collect public donations.
These efforts to improve neighborhoods and people’s lives, while sharing Bank of America’s
commitment to higher standards, are being replicated thousands of times across the bank’s nationwide
footprint, driven by our 10-year commitment to lend or invest at least $750 billion in community
development. From our signature initiative called Neighborhood Excellence to our new position as the “Official
Bank of Baseball,” we are creating programs that transform our values into stronger, healthier communities.
Neighborhood Excellence, introduced in 30 communities in 2004, is Bank of America’s sweeping
($ in billions)
program to focus a significant portion of philanthropic resources on the priority needs of our neighborhoods.
Neighborhood Excellence recognizes, nurtures and rewards Local Heroes, Student Leaders and organizations that are
creating positive change in their communities.
In the first year of Neighborhood Excellence, we committed up to $500,000 in each of 30 key markets, including
new markets in the Northeast. With the help of committees of local leaders in each market, we chose two Neighborhood
Builders—nonprofit organizations to which we will provide $200,000 each in funding, plus leadership training over the
course of two years. We also recognized five Local Heroes in each market who have contributed to neighborhood
24 BANK OF AMERICA 2004
’02’01’00’99’03’04$350$230.8$163.3$114.4$69.4$39.60$288.1
In 2004, Bank of America loaned and invested more than
$12.4 billion to create affordable new homes for families and individuals,
including the City View development in Orlando, Florida, above.
Through our volunteer network, Team Bank of America, 100,000 associates provided 700,000
volunteer hours to 3,500 nonprofit organizations within our communities. Because Bank of America allows
full-time associates to volunteer up to two hours per week of company time to such activities, many other associates
also made significant contributions of their time to meet community needs in 2004.
With one of the largest philanthropic budgets of any corporation in the nation, our charitable investments
in 2004 totaled $108 million. We have set a philanthropic goal of $1.5 billion over the next 10 years.
BANK OF AMERICA 2004
25
vitality, and five exemplary Student Leaders. The Local
Heroes were each granted $5,000 for an eligible
nonprofit of their choice. Student Leaders will receive
paid summer internships with local nonprofits and
mentoring from Bank of America leaders.
It’s an example of how we leverage our resources
to benefit a broad range of stakeholders, increasing
neighborhood impact while clearly communicating the
values that make Bank of America the strong brand it is.
Going forward, we will expand Neighborhood Excellence
to new markets and continue to make charitable invest-
ments in community institutions that focus on a broad
range of health, education and cultural objectives.
In addition to philanthropy, Bank of America
brings an integrated program of community investments
to the people and places we serve.
80 stadiums where we have a market presence. Our
sponsorship of Little League Baseball—the largest youth
sports organization in the world, with 2.7 million
participants—includes on-site presence at state and
regional tournaments, the Little League World Series
and other promotional programs.
Consistent with our company’s values and the
role we have played in our nation’s history, we launched
Democracy Plaza at Rockefeller Center in New York City
in the days leading up to the 2004 national election.
Focusing on the traditions of citizenship, democracy and
the electoral process, the exhibit served as the backdrop
for Election Day broadcasting on the NBC network,
providing public awareness of our support for the
communities, infrastructure, traditions and industries
that keep America strong.
In 2004 we became the first company ever to be
designated the Official Bank of Baseball. This unique
Illustrating the broad scope of our ongoing
support for community access to cultural institutions, we
“We have an ambitious goal:
to be the bank of choice in all of our neighborhoods.
Our capabilities, resources and commitment
are unmatched and enable us to strengthen and build
America’s cities and communities.”
CATHERINE P. BESSANT,
GLOBAL MARKETING EXECUTIVE
relationship includes agreements with Major League,
Minor League and Little League Baseball, connecting
the bank with the nation’s passion for this all-American
sport and expressing our shared belief in individual
performance, teamwork and higher standards. Our part-
nership with baseball gives us a deep connection with
each of our local markets, from the big league ballparks
to the sandlots where kids first learn the game.
Bank of America already sponsors nine Major
League Baseball clubs and 11 Minor League teams. Our
agreement with Minor League Baseball includes a “Bank
of America Day” to be held simultaneously in about
launched our seventh season of Museums On Us!® in the
Northeast, offering Bank of America customers free
admission to 51 of the finest museums and cultural
venues in that region. Our customers can visit participat-
ing institutions simply by showing their ATM, debit or
credit card. Museums On Us! has attracted more
than 250,000 people to the finest museums and cultural
institutions over the last seven years. Our $12 million
investment strengthens the educational programming
of participating museums and helps expose families to
new forms of art and culture.
As a leader in the business of Community
26 BANK OF AMERICA 2004
In 2004, Bank of America became the first company ever to
be designated the Official Bank of Baseball—a unique
relationship with Major League, Minor League and Little League Baseball
that connects the bank with the nation’s passion for the sport
and gives us deep connections in our local markets.
Development Banking, we help build stronger and
healthier neighborhoods in the low- and moderate-
income areas we serve. Part of our integrated approach
to meeting priority neighborhood needs includes
delivering specialized financial resources to build and
preserve affordable housing, and creating jobs to
transform underserved and long-neglected blocks into
vibrant communities.
Our 10-year commitment, beginning in 2005, to
lend and invest at least $750 billion for community revi-
talization across the United States is one of the largest in
the history of U.S. commercial banks. It expands on
previous pledges by Bank of America and Fleet, and
delivers more than $205 million in community develop-
ment activity
in our neighborhoods every day.
Investments and lending in our communities will focus
on affordable housing and home ownership, small
business/small farm ownership, consumer loans and
economic development. Included in the goal is $25 billion
for lending programs for rural and Native American areas.
In all these ways and more, we are helping build
stronger, more vital communities—for the benefit of
local people, organizations, economies and, ultimately,
our enterprise.
BANK OF AMERICA 2004
27
Four Business Lines
Partner to Deliver the Whole Bank
Global Consumer and Small Business Banking
(Formerly Consumer and Small Business Banking)
Bank of America serves more consumers and small businesses in the United
States than any other bank, with nearly 6,000 banking centers and nearly
17,000 proprietary ATMs in 29 states plus the District of Columbia; an award-
winning online banking service with the most active users of any online bank
and more active online bill payers than all other bank competitors combined;
and a 24-hour telephone banking service that earns high ratings for customer
satisfaction. Positioned in the nation’s wealthiest, fastest-growing and most
diverse markets, the bank serves 33 million households and more than 3
million small businesses. We are the nation’s largest provider of checking
account services and the nation’s number one debit card provider. Global
Consumer and Small Business banking includes the nation’s fastest-growing
major credit card company, the number five provider of consumer first mortgages
and number two provider of home equity lines of credit.
Global Business and Financial Services
(Formerly Commercial Banking)
Global Business and Financial Services offers clients unrivaled market access,
flexibility and value from their banking relationships through a variety of
services, including Global Treasury Services, Middle Market Banking,
Commercial Real Estate Banking, Dealer Financial Services (auto, marine and
RV lending), Leasing and Business Capital (asset-based lending). Bank of
America is the predominant middle-market bank in the United States, providing
comprehensive financial solutions, including capital markets, investment
banking and traditional banking services. We also are the number one global
treasury services provider, the leading bank-owned asset-based lender and the
leading provider of financial services to commercial real estate developers,
homebuilders and commercial real estate firms. Effective January 1, 2005,
Bank of America will include the results of Latin America and Business
Banking (client-managed business accounts formerly included in Small
Business) in Global Business and Financial Services.
($ in billions)
Revenue*
Net Income
($ in billions)
Revenue*
Net Income
28 BANK OF AMERICA 2004
’02’03’04$18.3$20.9$26.9’02’03’04$4.4$4.5$6.7’02’03’04$1.4$1.5 $2.8’02’03’04$4.7$5.7$6.5 Global Capital Markets and Investment Banking
(Formerly Global Corporate and Investment Banking)
Global Capital Markets and Investment Banking is an integrated corporate and
investment bank that provides issuer clients with innovative, comprehensive
capital-raising solutions and advisory services, as well as traditional bank
deposit and loan products, cash management and payment services. Investor
clients are served by strong equity and debt research, sales and
trading capabilities. All clients benefit from extensive derivative and other
risk-management products. Through offices in 35 countries, Global Capital
Markets and Investment Banking serves domestic and international corporations,
including most of the Fortune 1000; institutional investors; financial institutions;
and government entities. Many of the company’s services to corporate and
institutional clients are provided through its U.S. and U.K. subsidiaries, Banc of
America Securities LLC and Banc of America Securities Limited.
Global Wealth and Investment Management
(Formerly Wealth and Investment Management)
Global Wealth and Investment Management delivers investment services shaped
by advice and guidance to more than 1.8 million individual and institutional
clients located across the United States and throughout the world. It includes
The Private Bank at Bank of America, which provides integrated credit, deposit,
investment and trust services to more high-net-worth clients than any other bank
in the United States, and Premier Banking, which delivers comprehensive
financial solutions shaped by personal advice to nearly 606,000 affluent client
relationships. It also includes the fast-growing Banc of America Investment
Services, Inc., brokerage with more than 2,100 financial advisors, and Columbia
Management Group, one of the world’s largest asset managers and the provider
of proprietary asset management products to retail and institutional investors.
Global Wealth and Investment Management has $708.4 billion in client assets,
including $451.5 billion in assets under management, with total average deposits
of $83 billion and average loans of $44 billion.
($ in billions)
Revenue*
Net Income
($ in billions)
Revenue*
Net Income
*Fully taxable-equivalent basis
BANK OF AMERICA 2004
29
’02’03’04$0.9$1.2 $1.6 ’02’03’04$3.6$4.0 $5.9 ’02’03’04$8.2$8.3 $9.0’02’03’04$1.6$1.8 $2.0 Bank of America Earns Record
$14.1 Billion in 2004
Business momentum, Fleet merger drive 31% net income gain.
BANK OF AMERICA IN 2004 EARNED A RECORD $14.1 BILLION,
making the company the fifth most profitable in the world.
Earnings were up 31% from a year earlier, due to
the addition of FleetBoston Financial Corporation, which
was acquired on April 1, 2004, and the company’s contin-
uing business momentum throughout the franchise.
Under purchase accounting rules, Fleet’s impact prior to
April 1, 2004, is not included in the financial results.
On a pro forma basis, if Fleet’s previous results
were included, net income was up 12% for the year.
Diluted earnings per share of $3.69 were up from
$3.57 in 2003. Return on equity in 2004 was 16.8%.
Revenue
Fully taxable-equivalent revenue grew 29% to $49.6
billion from $38.6 billion in 2003.
Fully taxable-equivalent net interest income rose
34% to $29.5 billion. In addition to the impact of Fleet, the
increase was driven by the results of asset-liability man-
agement activities, higher consumer loan levels and
higher core deposit levels, partially offset by reductions
in large corporate and foreign loan portfolios as well as
lower trading-related contributions and mortgage ware-
house levels.
Noninterest income grew 22% to $20.1 billion,
driven by the impact of Fleet and the growth of card
income, service charges, investment and brokerage fees,
equity investment gains, trading account profits and
investment banking income. This was partially offset by
lower mortgage banking income.
Securities gains were $2.12 billion, compared to
$941 million a year ago.
Efficiency
Noninterest expense grew 34% to $27 billion, driven by the
impact of Fleet, merger and restructuring costs, higher
personnel costs, revenue-related incentive compensation
and increased occupancy, marketing, and litigation-
related expense. The efficiency ratio was 54.5%.
Credit quality
All major commercial asset quality indicators showed
positive trends throughout the year. The credit card pro-
vision grew as a result of card portfolio growth, the return
of previously securitized loans to the balance sheet and
increases in minimum payment requirements. Consumer
asset quality remained strong in all other categories.
Provision expense was $2.77 billion in 2004, a 2%
decline from 2003 despite the addition of Fleet. Net
charge-offs totaled $3.11 billion, or 0.66% of loans and
leases, compared to $3.11 billion, or 0.87% of loans and
leases in 2003.
30 BANK OF AMERICA 2004
Nonperforming assets were 0.47% of total loans,
leases and foreclosed properties, or $2.46 billion, as of
December 31, 2004. This compared to 0.81%, or $3.02
billion, on December 31, 2003.
The allowance for loan and lease losses stood at
1.65% of loans and leases, or $8.63 billion, on December
31, 2004. This compared to 1.66%, or $6.16 billion, on
December 31, 2003. Criticized exposure declined from
$12.7 billion or 5.9% of total utilized commercial exposure
in 2003, to $10.2 billion or 3.4% in 2004.
Capital
Bank of America’s capital position remained strong in
2004. Total shareholders’ equity was $99.6 billion at
December 31, 2004, representing 9% of period-end assets
of $1.1 trillion. The Tier 1 capital ratio rose to 8.1% from
7.9% at the end of 2003.
Business segments
Global Consumer and Small Business Banking earned
$6.55 billion. In addition to adding Fleet, this segment
achieved strong growth in checking and savings
accounts, which helped to drive double-digit growth in
deposit balances. Home equity and credit card loan
outstandings grew. Mortgage results were adversely
affected by higher interest rates, which significantly
reduced refinance volumes, and by adjustments to the
value of mortgage servicing rights.
Global Business and Financial Services earned
$2.83 billion. The main drivers of this segment’s perform-
ance were significant improvements in credit quality,
which resulted in negative provision expense. Excluding
the impact of Fleet, loans grew modestly during the year
and deposits also rose. Treasury management fee growth
also contributed to higher net income.
Global Capital Markets and Investment Banking
earned $1.95 billion in 2004 and had negative provision
expense due to improved credit quality. Excluding the
impact of Fleet, investment banking income increased,
reflecting the company’s continued buildout of that
platform, and trading-related revenue also rose.
Results were adversely impacted by the mutual fund
settlement.
Global Wealth and Investment Management
earned $1.58 billion. Excluding the addition of Fleet,
growth in assets under management and earnings was
driven by strong performance in the credit portfolios of
Premier Banking and The Private Bank and increased
market valuations in the asset management portfolio.
Results were adversely impacted by the mutual fund
settlement.
BANK OF AMERICA 2004
31
Financial Review Contents
Management’s Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . . . . . . . . . 33
Statistical Financial Information . . . . . . . . . . . . . . . . . . . 84
Report of Management on Internal Control
Over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 94
Report of Independent Registered Public
Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Consolidated Statement of Income . . . . . . . . . . . . . . . . 96
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 97
Consolidated Statement of Changes in
Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Consolidated Statement of Cash Flows . . . . . . . . . . . . . 99
Notes to Consolidated Financial Statements . . . . . . . . 100
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
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. 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 which may reduce interest margins and
impact funding sources; 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 Internal Revenue
Service (IRS) 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 Currency, the Federal Deposit
Insurance Corporation and state regulators; 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 29 states and the District of Columbia and has offices located in
43 foreign countries. The Corporation provides a diversified range of
banking and nonbanking financial services and products both
domestically and internationally through four business segments. In
order to more closely align with the scope of our businesses, we have
renamed each of our business segments. Consumer and Small
Business Banking has been renamed Global Consumer and Small
Business Banking, Commercial Banking is now called Global Business
and Financial Services, Global Corporate and Investment Banking is
now called Global Capital Markets and Investment Banking, and
Wealth and Investment Management has been renamed Global Wealth
and Investment Management.
At December 31, 2004, the Corporation had $1.1 trillion in
assets and approximately 176,000 full-time equivalent employees.
Notes to Consolidated Financial Statements referred to in
Management’s Discussion and Analysis of Results of Operations and
Financial Condition are incorporated by reference into Management’s
Discussion and Analysis of Results of Operations and Financial
Condition. Certain prior period amounts have been reclassified to
conform to current period presentation.
On April 1, 2004, we completed our merger with FleetBoston
Financial Corporation (FleetBoston) (the Merger) after obtaining final
shareholder and regulatory approvals. The Merger was accounted for
under the purchase method of accounting. Accordingly, results for
2004 included nine months of combined company results. Results
for 2003 and at December 31, 2003 excluded FleetBoston. For
informational and comparative purposes, certain tables have been
expanded to include a column entitled FleetBoston, April 1, 2004.
This column represents balances acquired from FleetBoston as of
April 1, 2004, including purchase accounting adjustments.
On October 15, 2004, we acquired 100 percent of National
Processing, Inc. (NPC), for $1.4 billion in cash, creating the second
largest merchant processor in the United States.
During the second quarter of 2004, our Board of Directors
(the Board) approved a 2-for-1 stock split in the form of a common
stock dividend and increased the quarterly cash dividend 12.5 percent
from $0.40 to $0.45 per post-split share. The common stock dividend
was effective August 27, 2004 to common shareholders of record on
August 6, 2004 and the cash dividend was effective September 24,
2004 to common shareholders of record on September 3, 2004. All
prior period common share and related per common share information
has been restated to reflect the 2-for-1 stock split.
BANK OF AMERICA 2004 33
Economic Overview
In 2004, U.S. economic performance was solid, creating a generally
healthy environment for banking, while global growth exceeded
expectations. In the U.S., real Gross Domestic Product (GDP) grew
rapidly, as the negative impact of higher oil prices was more than offset
by sound fundamentals and the FRB's accommodative monetary pol-
icy. Consumer spending continued to rise, while consumer credit qual-
ity remained healthy. Sustained gains in productivity contributed to
rising corporate profits and cash flows. Businesses rebuilt invento-
ries and increased capital spending, particularly for information pro-
cessing equipment and software. Although overall corporate loan
demand remained soft, corporate credit quality improved as the econ-
omy strengthened in the second half of the year. Employment grew
and the unemployment rate receded, although the pace of job cre-
ation was soft relative to GDP growth, reflecting business efforts to
constrain operating costs. Housing activity rose to historic levels.
Inflation rose modestly but stayed low relative to historic standards.
The FRB raised the federal funds rate target from one percent at mid-
year to 2.25 percent, but the increases were widely anticipated and
bond yields remained low, generating a flatter yield curve.
Performance Overview
For the second year in a row, we achieved record earnings. Net
Income totaled $14.1 billion, or $3.69 per diluted common share in
2004, 31 percent and three percent increases, respectively, from
$10.8 billion, or $3.57 per diluted common share in 2003.
Business Segment Total Revenue and Net Income
(Dollars in millions)
Global Consumer and
Total Revenue
Net Income
2004
2003
2004
2003
Small Business Banking
$ 26,857
$20,930
$ 6,548
$ 5,706
Global Business and
Financial Services
Global Capital Markets
6,722
4,517
2,833
1,471
and Investment Banking
9,049
8,334
1,950
1,794
Global Wealth and
Investment Management
All Other
Total FTE basis(1)
FTE adjustment(1)
Total
5,918
1,064
49,610
(716)
$ 48,894
4,030
746
38,557
(643)
$37,914
1,584
1,228
14,143
–
$ 14,143
1,234
605
10,810
–
$ 10,810
(1) Total revenue for the segments and All Other is on a fully taxable-equivalent (FTE) basis. For more
information on a FTE basis, see Supplemental Financial Data beginning on page 38.
Global Consumer and Small Business Banking
Net Income increased $842 million, or 15 percent, to $6.5 billion in
2004, including the $1.1 billion impact of the Merger. Driving this
increase was the $5.2 billion increase in Net Interest Income and a
$1.5 billion increase in Card Income. Partially offsetting this was the
$3.0 billion increase in Noninterest Expense, a $1.7 billion increase
in Provision for Credit Losses and a $1.5 billion decrease in
Mortgage Banking Income. The Provision for Credit Losses increased
$1.7 billion to $3.3 billion, including higher credit card net charge-offs
of $791 million, of which $320 million was attributed to the addition
of the FleetBoston credit card portfolio. For more information on
Global Consumer and Small Business Banking, see page 41.
Global Business and Financial Services
Net Income increased $1.4 billion, or 93 percent, to $2.8 billion for
2004 including the $824 million impact of the addition of FleetBoston.
Both average Loans and Leases, and Deposits grew significantly, with
increases of $36.3 billion, or 39 percent, and $21.6 billion, or 69 percent,
respectively. Impacting these increases were the $29.3 billion
increase in average Loans and Leases and the $17.6 billion increase
in average Deposits related to the addition of FleetBoston. Also driv-
ing the improved results was the $699 million decrease in Provision
for Credit Losses, driven by lower net charge-offs and the continued
credit quality improvement in the commercial portfolio. For more infor-
mation on Global Business and Financial Services, see page 45.
Global Capital Markets and Investment Banking
Net Income increased $156 million, or nine percent, to $2.0 billion in
2004. Contributing to the increase in Net Income was a reduction of
$762 million in the Provision for Credit Losses and increases in
Trading Account Profits and Investment Banking Income of $441 mil-
lion and $147 million, respectively. Notable improvements in credit
quality in the large corporate portfolio and a 71 percent reduction in
net charge-offs drove the $762 million decrease in Provision for
Credit Losses. Partially offsetting these increases were the $460 mil-
lion impact of charges taken for litigation matters in 2004, an
increase of $279 million of incentive compensation for market-based
activities and the $143 million impact of the charges taken for the
mutual fund matter. For more information on Global Capital Markets
and Investment Banking, see page 46.
Global Wealth and Investment Management
Net Income increased $350 million, or 28 percent, to $1.6 billion in
2004. The increase in Net Income was driven by the $253 million
impact of the addition of FleetBoston and growth in both average Loans
and Leases, and Deposits. Total assets under management increased
$154.8 billion, or 52 percent, to $451.5 billion at December 31, 2004,
due to the addition of $148.9 billion of FleetBoston assets under
management and increased market valuation partially offset by
outflows, primarily in money market products. For more information
on Global Wealth and Investment Management, see page 48.
34 BANK OF AMERICA 2004
All Other
Net Income increased $623 million, or 103 percent, to $1.2 billion in
2004. This increase was driven by a $1.1 billion increase in Gains on
Sales of Debt Securities. In addition, Total Revenue increased $318
million, or 43 percent, to $1.1 billion due to improvements in both
Latin America and Equity Investments. Partially offsetting these
increases was a $607 million increase in Noninterest Expense,
driven by $618 million of Merger and Restructuring Charges. For
more information on All Other, see page 49.
Financial Highlights
Net Interest Income
Net Interest Income on a FTE basis increased $7.4 billion to $29.5
billion in 2004. This increase was driven by the impact of the Merger,
higher asset and liability management (ALM) portfolio levels (prima-
rily consisting of securities and whole loan mortgages), the impact of
higher rates, growth in consumer loan levels (primarily credit card and
home equity) and higher core deposit funding levels. Partially offset-
ting these increases were reductions in the large corporate and for-
lower
eign loan balances,
mortgage warehouse levels and the continued runoff of previously
exited consumer businesses. The net interest yield on a FTE basis
declined 14 basis points (bps) to 3.26 percent due to the negative
impact of increased trading-related balances, which have a lower yield
than other earning assets. For more information on Net Interest
Income on a FTE basis, see Table I on page 84.
lower trading-related contributions,
Noninterest Income
Noninterest Income
(Dollars in millions)
Service charges
Investment and brokerage services
Mortgage banking income
Investment banking income
Equity investment gains
Card income
Trading account profits
Other income
Total noninterest income
2004
$ 6,989
3,627
414
1,886
861
4,588
869
863
$ 20,097
2003
$ 5,618
2,371
1,922
1,736
215
3,052
409
1,127
$ 16,450
Noninterest Income increased $3.6 billion to $20.1 billion in 2004,
due primarily to the addition of FleetBoston, which contributed
$3.8 billion of Noninterest Income.
• Service Charges grew $1.4 billion driven by organic account
growth and approximately $960 million from the addition of
FleetBoston customers.
• Investment and Brokerage Services increased $1.3 billion due
to approximately $1.1 billion related to the addition of the
FleetBoston business as well as market appreciation.
• Mortgage Banking Income decreased $1.5 billion caused by
lower production levels, a decrease in the gains on sales of
loans to the secondary market and writedowns of the value of
Mortgage Servicing Rights (MSRs).
• Investment Banking Income increased $150 million on
increased market share in a variety of products.
• Equity Investment Gains increased $646 million due to a $576
million increase in Principal Investing gains.
• Card Income increased $1.5 billion due to increased fees and
interchange income, including the $832 million impact from the
addition of the FleetBoston card portfolio.
• Trading Account Profits increased $460 million due to
increased customer activity.
• Other Income decreased $264 million due to the absence of
whole mortgage loan sale gains in 2004, partially offset by the
addition of FleetBoston.
For more information on Noninterest Income, see Business Segment
Operations beginning on page 40.
Gains on Sales of Debt Securities
Gains on Sales of Debt Securities in 2004 were $2.1 billion compared
to $941 million in 2003, as we continued to reposition the ALM port-
folio in response to interest rate fluctuations and to manage mortgage
prepayment risk. For more information on Gains on Sales of Debt
Securities, see Market Risk Management beginning on page 72.
Provision for Credit Losses
The Provision for Credit Losses decreased $70 million to $2.8 billion
in 2004 driven by lower commercial net charge-offs of $748 million
and continued improvements in credit quality in the commercial loan
portfolio. Offsetting these decreases were increases in the Provision
for Credit Losses in our consumer credit card portfolio. These
increases included higher credit card net charge-offs of $791 million,
of which $320 million was attributed to the addition of the
FleetBoston credit card portfolio. Organic growth, overall seasoning of
credit card accounts, the return of securitized loans to the balance
sheet, and increases in minimum payment requirements drove higher
net charge-offs and Provision for Credit Losses. For more information
on credit quality, see Credit Risk Management beginning on page 58.
BANK OF AMERICA 2004 35
Assets
Average Loans and Leases increased $116.5 billion, or 33 percent,
in 2004. Of this increase, $88.9 billion related to the addition of
FleetBoston. The remaining increase was driven by growth in our res-
idential mortgage and consumer credit card portfolios of $16.1 billion
and $10.1 billion,
respectively. Average Available-for-sale (AFS)
Securities increased $79.7 billion, or 114 percent, as a result of
investing excess cash from deposit growth and repositioning our ALM
portfolio. Additionally, average trading-related assets increased
$55.0 billion as we expanded our trading book to accommodate the
needs of our clients. For more information, see Table I on page 84.
Liabilities and Shareholders’ Equity
Average core deposits increased $130.7 billion, or 36 percent. Of
this increase, $95.6 billion is attributable to the addition of
FleetBoston. The remaining increase was attributable to organic
growth which resulted from our continued improvements in customer
satisfaction, new product offerings and our account growth efforts. At
December 31, 2004, our Tier 1 Capital ratio was 8.10 percent, com-
pared to a ratio of 7.85 percent at December 31, 2003. For more
information, see Table I on page 84 and Note 14 of the Consolidated
Financial Statements.
FleetBoston Merger
Pursuant to the Agreement and Plan of Merger, dated October 27,
2003, between the Corporation and FleetBoston (the Merger
Agreement), we acquired 100 percent of the outstanding stock of
FleetBoston on April 1, 2004. The Merger created a banking institution
with leading market shares throughout the Northeast, Southeast,
Southwest and West regions of the United States. FleetBoston’s
results of operations were included in the Corporation’s results beginning
April 1, 2004.
As provided by the Merger Agreement, approximately 1.069 billion
shares of FleetBoston common stock were exchanged for approxi-
mately 1.187 billion shares of the Corporation’s common stock, as
adjusted for the stock split. At the date of the Merger, this repre-
sented approximately 29 percent of the Corporation’s outstanding
common stock. FleetBoston shareholders also received cash of $4
million in lieu of any fractional shares of the Corporation’s common
stock that would have otherwise been issued on April 1, 2004.
Holders of FleetBoston preferred stock received 1.1 million shares of
the Corporation’s preferred stock. The purchase price was adjusted
to reflect the effect of the 15.7 million shares of FleetBoston common
stock that we already owned.
Noninterest Expense
Noninterest Expense
(Dollars in millions)
Personnel
Occupancy
Equipment
Marketing
Professional fees
Amortization of intangibles
Data processing
Telecommunications
Other general operating
Merger and restructuring charges
Total noninterest expense
2004
$ 13,473
2,379
1,214
1,349
836
664
1,325
730
4,439
618
$ 27,027
2003
$ 10,446
2,006
1,052
985
844
217
1,104
571
2,930
–
$ 20,155
Noninterest Expense increased $6.9 billion to $27.0 billion in 2004,
due primarily to the addition of FleetBoston, which contributed
$5.0 billion of Noninterest Expense.
• Personnel Expense increased $3.0 billion due to the $2.3 billion
impact of FleetBoston associates.
• Marketing Expense increased $364 million due to increased
advertising for card programs and increased advertising costs
in the Northeast.
• Amortization of Intangibles increased $447 million driven by the
amortization of intangible assets acquired in the Merger.
• Other General Operating Expense increased $1.5 billion related
to the $904 million impact of the addition of FleetBoston, $370
million of litigation expenses incurred during 2004 and the
$285 million related to the mutual fund settlement (net of a
$90 million reserve established in 2003). This net settlement
expense was divided equally between Global Capital Markets
and Investment Banking and Global Wealth and Investment
Management for business segment reporting purposes.
• Merger and Restructuring Charges, including an infrastructure
initiative, were $618 million in connection with the integration
of FleetBoston’s operations. For more information on Merger
and Restructuring Charges, see Note 2 of the Consolidated
Financial Statements.
For more information on Noninterest Expense, see Business
Segment Operations beginning on page 40.
Income Tax Expense
Income Tax Expense was $7.1 billion, reflecting an effective tax rate
of 33.4 percent, in 2004 compared to $5.1 billion and 31.8 percent,
respectively, in 2003. The difference in the effective tax rate between
years resulted primarily from the application of purchase accounting
to certain leveraged leases acquired in the Merger, an increase in
state tax expense generally related to higher tax rates in the
Northeast and the reduction in 2003 of Income Tax Expense result-
ing from a tax settlement with the IRS. For more information on
Income Tax Expense, see Note 17 of the Consolidated Financial
Statements.
36 BANK OF AMERICA 2004
In connection with the Merger, we implemented a plan to integrate
our operations with FleetBoston’s. During 2004, including an infra-
structure initiative, $618 million was recorded as Merger and
Restructuring Charges and $658 million was recorded as an adjust-
ment to Goodwill related to these activities. During 2004, our inte-
gration activities progressed according to schedule. We rebranded all
banking centers in the former FleetBoston franchise, as well as a
majority of outstanding credit cards. In addition, we began to rollout
to the
customer service platforms,
Northeast. We also completed several key systems conversions
necessary for full integration. For more information on the Merger,
see Note 2 of the Consolidated Financial Statements.
including Premier Banking,
Table 1 Five-Year Summary of Selected Financial Data(1)
(Dollars in millions, except per share information)
Income statement
Net interest income
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Noninterest expense
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
Total equity to total assets (at year end)
Total average equity to total average assets
Dividend payout
Per common share data
Earnings
Diluted earnings
Dividends paid
Book value
Average balance sheet
Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity
Capital ratios (at year end)
Risk-based capital:
Tier 1
Total
Leverage
Market price per share of common stock
Closing
High closing
Low closing
2004
2003
2002
2001
2000
$
28,797
20,097
48,894
2,769
2,123
27,027
21,221
7,078
14,143
3,758,507
3,823,943
1.35%
16.83
8.97
8.06
45.67
3.76
3.69
1.70
24.56
$
$
21,464
16,450
37,914
2,839
941
20,155
15,861
5,051
10,810
2,973,407
3,030,356
1.44%
21.99
6.67
6.57
39.58
3.63
3.57
1.44
16.63
$
$
20,923
13,580
34,503
3,697
630
18,445
12,991
3,742
9,249
3,040,085
3,130,935
1.41%
19.44
7.78
7.28
40.07
3.04
2.95
1.22
16.75
$
$
20,290
14,348
34,638
4,287
475
20,709
10,117
3,325
6,792
3,189,914
3,251,308
1.05%
13.96
7.87
7.55
53.44
2.13
2.09
1.14
15.54
$
$ 472,645
1,044,660
551,559
93,330
83,953
84,183
$ 356,148
749,056
406,233
68,432
49,148
49,204
$ 336,819
653,774
371,479
66,045
47,552
47,613
$ 365,447
644,887
362,653
69,622
48,609
48,678
8.10%
11.63
5.82
46.99
47.44
38.96
$
7.85%
11.87
5.73
40.22
41.77
32.82
$
8.22%
12.43
6.29
34.79
38.45
27.08
8.30%
12.67
6.55
31.48
32.50
23.38
$
$
$
18,349
14,582
32,931
2,535
25
18,633
11,788
4,271
7,517
3,292,797
3,329,858
1.12%
15.96
7.45
7.03
45.02
2.28
2.26
1.03
14.74
392,622
670,078
353,294
70,293
47,057
47,132
7.50%
11.04
6.11
22.94
29.63
19.00
$
$
$
(1) As a result of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets” (SFAS 142) on January 1, 2002, we no longer amortize Goodwill.
Goodwill amortization expense was $662 and $635 in 2001 and 2000, respectively.
BANK OF AMERICA 2004 37
Supplemental Financial Data
Table 2 provides a reconciliation of the supplemental financial data
mentioned below with GAAP financial measures. 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 non-recurring items. For example, as an alternative
to Net Income, we view results on an operating basis, which repre-
sents Net Income excluding Merger and Restructuring Charges. The
operating basis of presentation is not defined by accounting princi-
ples generally accepted in the United States (GAAP). We believe that
the exclusion of Merger and Restructuring Charges, which represent
events outside our normal operations, provides a meaningful period-
to-period comparison and is more reflective of normalized operations.
Net Interest Income - FTE Basis
In addition, we view Net 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 manag-
ing the business with Net Interest Income on a FTE basis provides a
more accurate picture of the interest margin for comparative pur-
poses. To derive the FTE basis, Net Interest Income is adjusted to
reflect tax-exempt interest income on an equivalent before tax basis
with a corresponding increase in 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 Income arising
from both 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 Income (and thus Total Revenue) on a FTE basis. The effi-
ciency 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
plan process, we set operating leverage and efficiency targets for the
Corporation and each line of business. 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 (i.e. risk appetite). The aforementioned per-
formance measures and ratios, earnings per common share (EPS),
return on average assets, return on average common shareholders’
equity and dividend payout ratio, as well as those measures discussed
more fully below are presented in Table 2, Supplemental Financial
Data and Reconciliations to GAAP Financial Measures.
Return on Average Equity and Shareholder Value Added
We also evaluate our business based upon return on average equity
(ROE) and shareholder value added (SVA) measures. ROE and SVA,
both utilize non-GAAP allocation methodologies. ROE measures the
earnings contribution of a unit as a percentage of the Shareholders’
Equity allocated to that unit. SVA is defined as cash basis earnings
on an operating basis less a charge for the use of capital. For more
information, see Basis of Presentation beginning on page 40. Both
measures are used to evaluate the Corporation’s use of equity
(i.e. capital) at the individual unit level and are integral components
in the analytics for resource allocation. 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. Investments and initiatives are analyzed using
SVA during the annual planning process for maximizing allocation of
corporate resources. In addition, profitability,
relationship and
investment models all use SVA and ROE as key measures to support
our overall growth goal.
38 BANK OF AMERICA 2004
Table 2 Supplemental Financial Data and Reconciliations to GAAP Financial Measures
(Dollars in millions, except per share information)
Operating basis(1,2)
Operating earnings
Operating earnings per common share
Diluted operating earnings per common share
Shareholder value added
Return on average assets
Return on average common shareholders’ equity
Efficiency ratio (fully taxable-equivalent basis)
Dividend payout ratio
Fully taxable-equivalent basis data
Net interest income
Total revenue
Net interest yield
Efficiency ratio
Reconciliation of net income to operating earnings
Net income
Merger and restructuring charges
Related income tax benefit
Operating earnings
Reconciliation of EPS to operating EPS
Earnings per common share
Effect of merger and restructuring charges, net of tax benefit
Operating earnings per common share
Reconciliation of diluted EPS to diluted operating EPS
Diluted earnings per common share
Effect of merger and restructuring charges, net of tax benefit
Diluted operating earnings per common share
Reconciliation of net income to shareholder value added
Net income
Amortization of intangibles
Merger and restructuring charges, net of tax benefit
Cash basis earnings on an operating basis
Capital charge
Shareholder value added
Reconciliation of return on average assets to operating return on average assets
Return on average assets
Effect of merger and restructuring charges, net of tax benefit
Operating return on average assets
Reconciliation of return on average common shareholders’ equity
to operating return on average common shareholders’ equity
Return on average common shareholders’ equity
Effect of merger and restructuring charges, net of tax benefit
Operating return on average common shareholders’ equity
Reconciliation of efficiency ratio to operating efficiency ratio
(fully taxable-equivalent basis)
Efficiency ratio
Effect of merger and restructuring charges, net of tax benefit
Operating efficiency ratio
Reconciliation of dividend payout ratio to operating dividend payout ratio
Dividend payout ratio
Effect of merger and restructuring charges, net of tax benefit
Operating dividend payout ratio
2004
2003
2002
2001
2000
$ 14,554
3.87
3.80
5,983
1.39%
17.32
53.23
44.38
$ 29,513
49,610
3.26%
54.48
$ 14,143
618
(207)
$ 14,554
$
$
$
$
3.76
0.11
3.87
3.69
0.11
3.80
$ 14,143
664
411
15,218
(9,235)
5,983
$
1.35%
0.04
1.39%
16.83%
0.49
17.32%
54.48%
(1.25)
53.23%
45.67%
(1.29)
44.38%
$ 10,810
3.63
3.57
5,621
1.44%
21.99
52.27
39.58
$ 22,107
38,557
3.40%
52.27
$ 10,810
–
–
$ 10,810
$
$
$
$
3.63
–
3.63
3.57
–
3.57
$ 10,810
217
–
11,027
(5,406)
$ 5,621
1.44%
–
1.44%
21.99%
–
21.99%
52.27%
–
52.27%
39.58%
–
39.58%
$ 9,249
3.04
2.95
3,760
1.41%
19.44
52.56
40.07
$ 21,511
35,091
3.77%
52.56
$ 9,249
–
–
$ 9,249
$
$
$
$
3.04
–
3.04
2.95
–
2.95
$ 9,249
218
–
9,467
(5,707)
$ 3,760
1.41%
–
1.41%
19.44%
–
19.44%
52.56%
–
52.56%
40.07%
–
40.07%
$ 8,042
2.52
2.47
3,087
1.25%
16.53
55.47
45.13
$ 20,633
34,981
3.68%
59.20
$ 6,792
1,700
(450)
$ 8,042
$
$
$
$
2.13
0.39
2.52
2.09
0.38
2.47
$ 6,792
878
1,250
8,920
(5,833)
$ 3,087
1.05%
0.20
1.25%
13.96%
2.57
16.53%
59.20%
(3.73)
55.47%
53.44%
(8.31)
45.13%
$ 7,863
2.39
2.36
3,081
1.17%
16.70
54.38
43.04
$ 18,671
33,253
3.20%
56.03
$ 7,517
550
(204)
$ 7,863
$
$
$
$
2.28
0.11
2.39
2.26
0.10
2.36
$ 7,517
864
346
8,727
(5,646)
$ 3,081
1.12%
0.05
1.17%
15.96%
0.74
16.70%
56.03%
(1.65)
54.38%
45.02%
(1.98)
43.04%
(1) Operating basis excludes Merger and Restructuring Charges. Merger and Restructuring Charges were $618 and $550 in 2004 and 2000, respectively. Merger and Restructuring Charges in 2001 repre-
sented Provision for Credit Losses of $395 and Noninterest Expense of $1,305, both of which were related to the exit of certain consumer finance businesses.
(2) As a result of the adoption of SFAS 142 on January 1, 2002, we no longer amortize Goodwill. Goodwill amortization expense was $662 and $635 in 2001 and 2000, respectively.
BANK OF AMERICA 2004 39
Core Net Interest Income
In addition, we review core net interest income which adjusts reported
Net Interest Income on a FTE basis for the impact of trading-related
activities. As discussed in the Global Capital Markets and Investment
Banking business segment section beginning on page 46, we evaluate
our trading results and strategies based on total trading-related rev-
enue, calculated by combining trading-related Net Interest Income with
Trading Account Profits. We also adjust for loans that we originated and
sold into revolving credit card, home equity line and commercial loan
securitizations. Noninterest Income, rather than Net Interest Income
and Provision for 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. An analysis of core net interest income, earning
assets and yields, which excludes these two non-core items from
reported Net Interest Income on a FTE basis, is shown below.
Table 3 Core Net Interest Income
(Dollars in millions)
Net interest income
As reported
2004
2003
2002
(fully taxable-equivalent basis)
Trading-related net interest income
Impact of revolving securitizations
Core net interest income
$ 29,513
(2,039)
931
$ 28,405
$ 905,302
(227,861)
10,181
$ 687,622
Average earning assets
As reported
Trading-related earning assets
Impact of revolving securitizations
Core average earning assets
Net interest yield on earning assets
As reported
(fully taxable-equivalent basis)
Impact of trading-related activities
Impact of revolving securitizations
Core net interest yield on
$ 22,107
(2,239)
313
$ 20,181
$ 649,548
(172,825)
3,342
$ 480,065
$ 21,511
(1,977)
517
$ 20,051
$ 570,530
(121,291)
5,943
$ 455,182
3.26%
0.80
0.06
3.40%
0.76
0.03
3.77%
0.58
0.05
earning assets
4.12%
4.19%
4.40%
Core net interest income increased $8.2 billion for 2004. Approximately
half of the increase was due to the Merger. Other activities within the
portfolio affecting core net interest income were higher ALM portfolio lev-
els, the impact of higher rates, higher consumer loan levels (primarily
credit card loans and home equity lines) and higher core deposit fund-
ing levels, partially offset by reductions in the large corporate and foreign
loan balances, and lower mortgage warehouse levels.
Core average earning assets increased $207.6 billion primarily
due to higher ALM levels, (primarily securities and mortgages) and
higher levels of consumer loans (primarily credit card loans and home
equity lines). The increases in these assets were due to both the
Merger and organic growth.
The core net interest yield decreased seven bps due to the
impact of ALM portfolio repositioning, partially offset by the impact of
higher levels of consumer loans and core deposits.
40 BANK OF AMERICA 2004
Business Segment Operations
Segment Description
In connection with the Merger, we realigned our business segment
reporting to reflect the new business model of the combined company.
As a part of this realignment, the segment formerly reported as
Consumer and Commercial Banking was split into two new segments,
Global Consumer and Small Business Banking and Global Business and
Financial Services. We have repositioned Asset Management as Global
Wealth and Investment Management, which now includes Premier
Banking. Premier Banking was included in Consumer and Commercial
Banking in the past, and is made up of our affluent retail customers.
This will enable us to serve our customers with a diverse offering of
wealth management products. Global Capital Markets and Investment
Banking remained relatively unchanged, with the exception of moving
the commercial leasing business to Global Business and Financial
Services, and Latin America moving to All Other. All Other consists
primarily of Latin America, the former Equity Investments segment,
Noninterest Income and Expense amounts associated with the ALM
process, including Gains on Sales of Debt Securities, the allowance
for credit losses process, the residual impact of methodology allocations,
intersegment eliminations, and the results of certain consumer
finance and commercial lending businesses that are being liquidated.
Basis of Presentation
We prepare and evaluate segment results using certain non-GAAP
methodologies and performance measures many of which were dis-
cussed in Supplemental Financial Data on page 38. The starting
point in evaluating results is the operating results of the businesses,
which by definition excludes Merger and Restructuring Charges. The
segment results also reflect certain revenue and expense method-
ologies, which are utilized to determine operating income. The Net
Interest Income of the business segments includes the results of a
funds transfer pricing process that matches assets and liabilities
with similar interest rate sensitivity and maturity characteristics. Net
Interest Income also reflects an allocation of Net Interest Income
generated by assets and liabilities used in our ALM process. The
results of business segments will fluctuate based on the perform-
ance of corporate ALM activities.
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 pro-
cessing costs, item processing costs and certain centralized or
shared functions. Data processing costs are allocated to the seg-
ments based on equipment usage. Item processing costs are allo-
cated 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 using a risk-adjusted
methodology incorporating each unit’s credit, market and operational
risk components. The nature of these risks is discussed further
beginning on page 58. ROE is calculated by dividing Net Income by
allocated equity. SVA is defined as cash basis earnings on an oper-
ating basis less a charge for the use of capital (i.e. equity). Cash
basis earnings on an operating basis are defined as Net Income
adjusted to exclude Merger and Restructuring Charges, and
Amortization of Intangibles. The charge for use of capital is calcu-
lated by multiplying 11 percent (management’s estimate of the share-
holders’ 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. Average
equity is allocated to the business level using a methodology identi-
cal to that used in the ROE calculation. Management reviews the esti-
mate of the rate used to calculate the capital charge annually. In
2003, management reduced this rate from 12 percent to 11 percent.
We use the Capital Asset Pricing Model to estimate our cost of capital.
The change in the cost of capital rate from 12 percent to 11 percent
was driven by a decline in long-term Treasury rates, which impacted
the risk-free rate component of the calculation.
See Note 19 of the Consolidated Financial Statements for addi-
tional business segment information, selected financial information
for the business segments and reconciliations to consolidated Total
Revenue, Net Income and Total Assets amounts.
Global Consumer and Small Business Banking
Our strategy is to attract, retain and deepen customer relationships.
A critical component of that strategy includes continuously improving
customer satisfaction. We believe this focus will help us achieve our
goal of being recognized as the best retail bank in North America.
The major businesses within this segment are Consumer
Banking, Consumer Products and Small Business Banking.
Consumer Banking distributes a wide range of services to
33 million consumer households in 29 states and the District of
Columbia through its network of 5,885 banking centers, 16,791
domestic branded ATMs, and telephone and Internet channels.
Consumer Banking distributes a wide range of products, and serv-
ices, including deposit products such as checking accounts, money
market savings accounts, time deposits and IRAs, debit card products,
and credit products such as credit card, home equity products and
residential mortgages. Consumer Banking recorded $16.7 billion of
Total Revenue for 2004. This represented a 35 percent increase. Total
average Deposits within Consumer Banking were $276.7 billion, up 35
percent from 2003.
Consumer Products provides and manages products and services
including the issuance and servicing of credit cards, origination,
fulfillment and servicing of residential mortgage loans, including
home equity loan products, direct banking via the Internet, deposit
services, student lending and certain insurance services. Consumer
Products contributed $8.4 billion of Total Revenue, which represented
a 16 percent improvement. Average Loans and Leases during the
year increased 52 percent to $49.9 billion.
Small Business Banking helps small businesses grow through
the offering of business products and services which include payroll,
merchant services, online banking and bill payment, as well as 401(k)
programs. In addition, we provide specialized products like treasury
management, lockbox, check cards with photo security and succession
planning. Small Business Banking reported $1.7 billion of Total
Revenue, compared to $1.2 billion in 2003. Average Loans and
Leases improved 28 percent to $15.3 billion. Also, Total Deposits
within Small Business Banking grew 37 percent to $31.9 billion due
to the impact of the Merger and account growth.
Global Consumer and Small Business Banking
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Noninterest expense
Income before income taxes
Income tax expense
Net income
Shareholder value added
Net interest yield (fully taxable-equivalent basis)
Return on average equity
Efficiency ratio (fully taxable-equivalent basis)
Average:
Total loans and leases
Total assets
Total deposits
Common equity/Allocated equity
Year end:
Total loans and leases
Total assets
Total deposits
2004
$ 17,308
9,549
26,857
3,341
117
13,334
10,299
3,751
6,548
3,390
$
$
2003
$ 12,114
8,816
20,930
1,678
13
10,333
8,932
3,226
5,706
4,367
$
$
5.35%
19.89
49.64
4.98%
42.25
49.37
$ 137,357
352,789
314,652
32,925
156,280
378,359
333,723
$ 92,776
258,251
240,371
13,505
97,341
264,578
240,428
Total Revenue for Global Consumer and Small Business Banking
increased $5.9 billion, or 28 percent, of which FleetBoston con-
tributed $4.3 billion. Provision for Credit Losses increased $1.7 billion
to $3.3 billion. Noninterest Expense grew by $3.0 billion, or 29 percent,
to $13.3 billion. Net Income rose $842 million, or 15 percent, including
the $1.1 billion impact of the addition of FleetBoston. SVA decreased
$977 million, or 22 percent. This decrease was caused by an
increase in the capital allocation as a result of the Merger partially
offset by the increase in cash basis earnings.
BANK OF AMERICA 2004 41
Our extensive network of delivery channels including banking
centers, ATMs, telephone channel and online banking enable us to
provide cost effective, convenient and innovative products to our
customers. Active online banking subscribers increased 73 percent
in 2004. Approximately half of this growth was due to the addition
of FleetBoston.
Net Interest Income increased $5.2 billion largely due to the net
effect of the growth in consumer loan and lease, and deposit bal-
ances, and ALM activities. Net Interest Income was positively
impacted by the $44.6 billion, or 48 percent, increase in average
Loans and Leases. This increase was driven by a $15.2 billion, or 54
percent, increase in average on-balance sheet consumer credit card
outstandings, a $14.8 billion, or 83 percent, increase in home equity
lines and a $6.8 billion, or 26 percent, increase in residential mort-
gages. The FleetBoston portfolio accounted for $5.0 billion, $14.0
billion and $10.8 billion of the increases, respectively.
Deposit growth positively impacted Net Interest Income. Higher
consumer deposit balances from the addition of FleetBoston cus-
tomers of $63.1 billion, government tax cuts, higher customer retention
and our focus on adding new customers drove the $74.3 billion, or
31 percent, increase in average Deposits.
Noninterest Income increased $733 million, or eight percent, to
$9.5 billion in 2004. FleetBoston contributed $1.4 billion to
Noninterest Income. Overall, this increase was primarily due to a
$1.5 billion, or 49 percent, increase in Card Income to $4.5 billion
and a $913 million, or 25 percent, increase in Service Charges to
$4.5 billion. Card Income increased mainly due to increases in pur-
chase volumes for both credit and debit cards, and increases in aver-
age managed credit card outstandings. These increases were due to
both the growth of our card businesses, and the addition of the
FleetBoston portfolio. The increase in Service Charges was due pri-
marily to the addition of FleetBoston customers and the growth in
new accounts. Partially offsetting these increases was a $1.5 billion,
or 72 percent, decrease in Mortgage Banking Income to $595 million
and a $186 million decrease in Trading Account Profits to a loss of
$359 million. The decrease in Mortgage Banking Income was due to
decreases in production volume and secondary market sales, com-
bined with the MSR impairments recorded during the second half of the
year. The decrease in Trading Account Profits was due to the negative
impact of faster prepayment speeds and changes in other assumptions
on the value of the Excess Spread Certificates (Certificates) prior
to their conversion to MSRs. For more information on the conversion
of the Certificates into MSRs, see Note 1 of the Consolidated
Financial Statements.
The Provision for Credit Losses increased $1.7 billion to
$3.3 billion, including higher credit card net charge-offs of $791 million,
of which $320 million was attributed to the addition of the
FleetBoston credit card portfolio. Organic growth, overall seasoning of
credit card accounts, the return of securitized loans to the balance
sheet, and increases in minimum payment requirements drove higher
net charge-offs and Provision for Credit Losses. The increase in min-
imum payment requirements is the result of changes in industry prac-
tices and will result in increased charge-offs in 2005. For more
information, see Credit Risk Management beginning on page 58.
Noninterest Expense increased $3.0 billion, or 29 percent.
Driving this increase were increases in Processing Costs of $977 million,
Personnel Expense of $763 million and Other General Operating
Expense of $512 million. Personnel Expense increased as a result of
higher salaries of $537 million and higher benefit costs of $185 million.
The impact of the addition of FleetBoston to Noninterest Expense
was $1.9 billion, including $538 million of Personnel Expense and
$443 million of Data Processing Costs.
Across the three major businesses within Global Consumer and
Small Business Banking, our most significant product lines are Card
Services, Consumer Real Estate and Consumer Deposit Products.
Card Services
Card Services provides a broad offering of credit cards to an array of
customers including consumers and small businesses. Our products
include traditional credit cards, a variety of co-branded and affinity
card products, as well as purchasing, and travel and entertainment
card products. We also provide processing services for merchant
card receipts, a business where we are a market leader, due in part
to our acquisition of NPC during the fourth quarter of 2004.
We evaluate our Card Services business on both a held and
managed basis. Managed card revenue excludes the impact of card
securitization activity, which is used as a financing tool. On a held
basis, for assets that have been securitized, we record Noninterest
Income, rather than Net Interest Income and Provision for Credit
Losses, as we are compensated for servicing income and gains or
losses on securitizations. Managed card revenue excludes the impact
of the securitized credit card portfolio of $134 million and $7 million
for 2004 and 2003, respectively. These amounts are the result of the
differences in internal and external funding costs as well as the amor-
tization of previously recognized securitization gains. After the revolv-
ing period of the securitizations, the card receivables will return to our
Balance Sheet. This has the effect of increasing Loans and Leases on
our Balance Sheet and increasing Net Interest Income and the
Provision for Credit Losses, with a reduction in Noninterest Income.
42 BANK OF AMERICA 2004
The following table presents the components of Total Revenue
for Card Services on a managed and held basis.
Card Services Revenue
2004
2003
(Dollars in millions)
Net interest income
Noninterest income
Managed
$ 5,079
3,061
Total card services revenue $ 8,140
Held
$4,236
3,246
$7,482
Managed
$ 2,856
1,930
$ 4,786
Held
$ 2,537
2,065
$ 4,602
Strong credit card performance and the addition of the FleetBoston
card portfolio drove Card Services results. Held credit card revenue
increased $2.9 billion, or 63 percent, to $7.5 billion. Driving this
increase was the $1.7 billion increase in held Net Interest Income,
due to a $15.2 billion, or 54 percent, increase in average held con-
sumer credit card outstandings, partially offset by a decline in average
Deposits of $3.3 billion. The increase in held consumer credit card
outstandings was due to the addition of over five million new accounts
through our branch network and direct marketing programs, and the
$5.0 billion impact of the addition of the held FleetBoston consumer
credit card portfolio. The decline in Deposits was due to a change in
the fee structure in the merchant business for certain accounts from
a compensating balance to a fee for service agreement. Managed
credit card revenue increased $3.4 billion, or 70 percent, to $8.1 billion.
This increase included the $2.2 billion, or 78 percent, increase in
managed Net Interest Income. Average managed consumer credit card
outstandings were $50.3 billion in 2004 compared to $31.6 billion.
The increase in held credit card Noninterest Income of $1.2 billion
resulted from higher interchange fees of $381 million. Interchange
fees increased mainly due to a $21.4 billion, or 38 percent, increase
in consumer credit card purchase volumes. Also impacting
Noninterest Income were increases in late fees of $238 million, mer-
chant discount fees of $197 million, overlimit fees of $107 million
and cash advance fees of $64 million. The effect of the addition of
FleetBoston on these fee categories was $169 million on interchange
fees, $77 million on late fees, $47 million on merchant discount
fees, $37 million on overlimit fees, and $24 million on cash advance
fees, respectively. Noninterest Income on a managed basis increased
$1.1 billion, or 59 percent, during 2004.
The held Provision for Credit Losses increased $1.2 billion, or
68 percent, to $3.0 billion driven by higher net charge-offs of $791
million, of which $320 million was attributable to the addition of the
FleetBoston card portfolio. Organic growth, overall seasoning of
accounts, the return of securitized loans to the balance sheet and
increases in minimum payment requirements drove higher net
charge-offs and Provision for Credit Losses. Net losses on the port-
folio that was securitized were $524 million and $177 million for
2004 and 2003. The increase was attributable to the addition of the
FleetBoston portfolio. For more information, see Credit Risk
Management beginning on page 58.
Consumer Real Estate
Consumer Real Estate generates revenue by providing an extensive
line of mortgage products and services to customers nationwide.
Consumer Real Estate products are available to our customers
through a retail network of personal bankers located in 5,885 bank-
ing centers, dedicated sales account executives in over 190 loca-
tions and through a devoted sales force offering our customers direct
telephone and online access to our products. Additionally, we serve
our customers through a partnership with more than 7,200 mortgage
brokers in all 50 states. The mortgage product offerings for home
purchase and refinancing needs include fixed and adjustable rate
loans, first and second lien loans, home equity lines of credit, and lot
and construction loans. To manage this portfolio, these products are
either sold into the secondary mortgage market to investors while we
retain the customer relationship and servicing rights or are held in
our ALM portfolio.
Consumer Real Estate is managed with a focus on its two primary
businesses, first mortgage and home equity. The first mortgage busi-
ness includes the origination, fulfillment and servicing of first mort-
gage loan products. The home equity business includes lines of
credit and second mortgages. These two businesses provide us with
a business model that meets customer mortgage borrowing needs in
various interest rate cycles.
The following table shows the revenue components of the
Consumer Real Estate business.
Consumer Real Estate Revenue
(Dollars in millions)
Net interest income
Mortgage banking income(1,2)
Trading account profits
Gains on sales of debt securities
Other income
Total consumer real estate revenue
2004
$ 2,224
595
(349)
117
61
$ 2,648
2003
$ 1,795
2,140
(159)
–
96
$ 3,872
(1) Includes gains related to hedge ineffectiveness of cash flow hedges on our mortgage
warehouse of $117 and $38 for 2004 and 2003.
(2) For 2004 and 2003, Mortgage Banking Income included revenue of $181 and $218 for
mortgage services provided to other segments that are eliminated in consolidation (in All Other).
Total revenue for the Consumer Real Estate business decreased by
$1.2 billion, or 32 percent, in 2004. Net Interest Income increased
by $429 million driven by higher average balances in the home equity
line and loan portfolio, which grew from $21.7 billion in 2003 to
$39.0 billion in 2004. This portfolio growth was attributable to an
expanded home equity market through the addition of FleetBoston,
which contributed $18.5 billion, and the increased product distribu-
tion. The home equity business had a record year in 2004, producing
$57.1 billion in loans and lines compared to $23.4 billion in 2003.
Partially offsetting this growth, Net Interest Income decreased $90
million in 2004 due to a lower level of escrow deposits held on loans
serviced. Average escrow balances declined $2.8 billion during the
year.
BANK OF AMERICA 2004 43
Mortgage Banking Income decreased from $2.1 billion in 2003
to $595 million. The following summarizes the components of
Mortgage Banking Income. Mortgage Banking Income includes the
performance of loans sold in the secondary market and the performance
of the servicing portfolio.
Mortgage Banking Income
(Dollars in millions)
Production income
Servicing income:
Servicing fees and ancillary income
Amortization of MSRs
Net MSR and SFAS 133 derivative
hedge adjustments(1)
Impairment of MSRs
Total net servicing income
Total mortgage banking income
2004
$ 771
614
(345)
18
(463)
(176)
$ 595
2003
$ 1,927
348
(135)
–
–
213
$ 2,140
(1) Represents derivative hedge gains of $228, offset by a decrease in the value of the MSRs
under SFAS 133 hedges of $210 for 2004. See Note 8 of the Consolidated Financial Statements.
The decrease in Mortgage Banking Income was primarily driven by a
decline in the size of the first mortgage production market from the
record levels of 2003. In 2004, we produced $87.5 billion residential
first mortgages compared to $131.1 billion in the prior year. Of the
2004 volume, $57.5 billion was originated through retail channels
and $30.0 billion was originated in our wholesale channel. This com-
pares to 2003 with $91.8 billion originated through retail channels
and $39.3 billion originated through wholesale channels. During
2004, approximately 58 percent of the production was refinance activ-
ity compared to 84 percent in 2003. Additionally, the market and cus-
tomer preference has shifted the mix of fixed rate loans to 64 percent
in 2004, down from 80 percent in 2003. The decline in the size of the
market, excess industry capacity, and the rising interest rate environ-
ment also resulted in decreased operating margins. The volume reduc-
tions resulted in lower loan sales to the secondary market, which
totaled $69.4 billion, a 35 percent decrease from the prior year.
During 2004, impairment charges totaled $463 million, includ-
ing a $261 million adjustment for changes in valuation assumptions
and prepayment adjustments to align with changing market condi-
tions and customer behavioral trends. As an economic hedge to the
changes associated with the value of MSRs, a combination of deriv-
atives and AFS securities (e.g. mortgage-backed securities) was uti-
lized. During 2004, Consumer Real Estate realized $117 million in
Gains on Sales of Debt Securities and $65 million of Net Interest
Income from Securities used as an economic hedge of MSRs. At
December 31, 2004, $564 million in MSRs were covered by these
economic hedges. The remaining $1.8 billion in MSRs were hedged
using a SFAS No. 133, “Accounting for Derivative Instruments and
Hedging Activities” (SFAS 133) strategy.
Additionally, contributing to Consumer Real Estate revenue,
Trading Account Profits decreased by $190 million. Prior to conversion
of the Certificates to MSRs in June 2004, changes in the value of the
Certificates, MSRs and derivatives used for risk management were
recognized as Trading Account Profits. Trading Account Profits
included $342 million and $310 million of downward adjustments for
changes to valuation assumptions and prepayment adjustments in
2004 and 2003, respectively. For more information on the conversion,
see Note 1 of the Consolidated Financial Statements.
Other income includes premiums collected through our mortgage
insurance captive and other miscellaneous revenue items.
Servicing income is recognized when cash is received for per-
forming servicing activities for others. Servicing activities primarily
include collecting cash for principal, interest and escrow payments
from borrowers, and accounting for and remitting principal and inter-
est payments to investors of mortgage-backed securities. Servicing
income also includes any ancillary income, such as late fees, derived
in connection with these activities. The servicing portfolio includes
originated and retained residential mortgages, loans serviced for
others and home equity loans. As discussed more fully below, the
servicing portfolio ended 2004 at $332.5 billion, an increase of
$57.4 billion from December 31, 2003. The addition of FleetBoston
customers contributed $33.8 billion of this increase.
We recognize an intangible asset for the MSRs, which repre-
sents the right to perform specified residential mortgage servicing
activities for others. The amount capitalized as MSRs represents the
current fair value of future net cash flows expected to be realized for
performing servicing activities. MSRs are amortized as a reduction of
actual servicing income received. The following table outlines statistical
information on the MSRs:
Mortgage Servicing Rights
(Dollars in millions)
MSR data:
Balance(1,2)
Capitalization rate
Unpaid balance(3)
Number of customers (in thousands)
December 31
2004
2003
$
2,359
$
2,684
1.19%
1.47%
$ 197,795
1,582
$ 183,116
1,586
(1) MSRs outside of Global Consumer and Small Business Banking at December 31, 2004 and 2003
were $123 and $78, respectively, in Global Capital Markets and Investment Banking.
(2) Includes $2,283 of Certificates at December 31, 2003. For more information on the Certificates,
see Note 1 of the Consolidated Financial Statements.
(3) Represents only loans serviced for others.
As of December 31, 2004, the MSR balance was $2.4 billion, or 12
percent lower than at the end of 2003. This value represented 119
bps as a percent of the related unpaid principal balance, a 19 percent
decrease from 2003. For more information on MSRs, see Notes 1
and 8 of the Consolidated Financial Statements.
44 BANK OF AMERICA 2004
Consumer Deposit Products
Consumer Deposit Products provides a comprehensive range of deposit
products to consumers and small businesses. Our deposit products
include traditional savings accounts, money market savings accounts,
CDs and IRAs, regular and interest checking accounts, and a variety of
business checking options. These products are further segmented to
address customer specific needs and our multicultural strategy.
We added approximately 2.1 million net new checking accounts
and 2.6 million net new savings accounts during 2004. This growth
resulted from continued improvement in sales and service results in
the Banking Center Channel, improved cross-sale ratios, the intro-
duction of new products, advancement of our multicultural strategy,
and access to the former FleetBoston franchise, where we opened
174,000 net new checking and 193,000 net new savings accounts
since April 1, 2004. Account growth has occurred through productivity
improvements in existing stores, as well as new store openings,
which totaled 167 in 2004.
We generate revenue on deposit products through the results of
a funds transfer pricing process that matches assets and liabilities
with similar interest rate sensitivity and maturity characteristics, fees
generated on our accounts, and interchange income from our debit
cards. Our deposit-taking activities are integrally linked to our liquid-
ity management and ALM interest rate risk management processes.
We seek to optimize the value of deposits through both our client-fac-
ing asset generation and our ALM investment process. The following
table presents the components of Total Revenue for Consumer
Deposit Products.
Consumer Deposit Products Revenue
(Dollars in millions)
Net interest income
Deposit service charges
Debit card income
Total noninterest income
Total deposit revenue(1)
2004
$ 7,735
4,496
1,232
5,728
$ 13,463
2003
$ 5,647
3,577
896
4,473
$ 10,120
(1) Deposit revenue outside of Global Consumer and Small Business Banking was $985 and $666,
respectively, for 2004 and 2003.
Deposit revenue grew $3.3 billion, or 33 percent. Driving this
growth was the addition of FleetBoston, which contributed $2.1 bil-
lion of deposit revenue.
Net Interest Income increased $2.1 billion, or 37 percent. The
primary driver of the increase was the $80.3 billion, or 35 percent,
increase in average Deposits. Of this growth, $63.0 billion was related
to the addition of FleetBoston customers through the Merger. The addi-
tion of FleetBoston contributed $1.5 billion to Net Interest Income.
Deposit service charges increased $919 million, or 26 percent,
due to the $515 million impact of the addition of FleetBoston, and
the growth of new accounts across our franchise.
Debit card income increased $336 million, or 38 percent. Driving
the increase was growth in transaction activity, evidenced by a 40 percent
increase in purchase volumes, partially offset by the negative impact of
a lower interchange rate on signature debit card transactions. The impact
of the addition of FleetBoston to debit card income was $134 million.
Global Business and Financial Services
This segment provides financial solutions to our clients throughout all
stages of their financial cycles. Our strategy is to bring the capabili-
ties of a global financial services organization to the local level. We
serve our clients through a variety of businesses including Global
Treasury Services, Middle Market Banking, Commercial Real Estate
Banking, Leasing, Business Capital and Dealer Financial Services.
Beginning in 2005, Global Business and Financial Services will include
Latin America. See page 49 for more information on Latin America.
Also beginning in 2005, Global Business and Financial Services will
include Business Banking, which serves our client-managed small
business customers.
Global Treasury Services provides integrated working capital
management and treasury solutions to clients across the U.S. and
37 countries. Our clients include multi-nationals, middle market com-
panies, correspondent banks, commercial real estate firms and gov-
ernments. Our services include treasury management, trade finance,
foreign exchange, short-term credit facilities and short-term investing.
The revenues and operating results where customers and clients are
serviced are reflected in this segment, as well as Global Consumer
and Small Business Banking, and Global Capital Markets and
Investment Banking.
Middle Market Banking provides commercial lending, treasury
management products and investment banking services to middle-
market companies across the U.S.
Commercial Real Estate Banking, with offices in more than 60
cities across the U.S., provides project financing and treasury man-
agement to private developers, homebuilders and commercial real
estate firms. Commercial Real Estate Banking also includes commu-
nity development banking, which provides lending and investing serv-
ices to low- and moderate-income communities.
Leasing provides leasing solutions to small business, middle-
market and large corporations in the U.S. and internationally, offer-
ing expertise in the municipal, corporate aircraft, healthcare and
vendor markets.
Business Capital provides asset-based lending financing solu-
tions customized to meet clients' capital needs by leveraging their
assets on a secured basis in the U.S., Canada and European markets.
Dealer Financial Services provides lending and investing serv-
ices, including floor plan programs for marine, recreational vehicle and
auto dealerships to more than 10,000 dealer clients across the U.S.
BANK OF AMERICA 2004 45
Global Business and Financial Services
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Shareholder value added
Net interest yield (fully taxable-equivalent basis)
Return on average equity
Efficiency ratio (fully taxable-equivalent basis)
Average:
Total loans and leases
Total assets
Total deposits
Common equity/Allocated equity
Year end:
Total loans and leases
Total assets
Total deposits
$
$
$
2004
4,593
2,129
6,722
(241)
2,476
4,487
1,654
2,833
884
3.40%
15.34
36.84
$ 129,671
154,521
53,088
18,473
145,072
178,093
61,395
2003
$ 3,118
1,399
4,517
458
1,797
2,262
791
$ 1,471
846
$
3.19%
25.01
39.75
$ 93,378
103,786
31,461
5,882
96,168
107,791
37,882
Total Revenue for Global Business and Financial Services increased
$2.2 billion, or 49 percent, in 2004. The addition of FleetBoston
accounted for $1.7 billion of the increase. The Provision for Credit
Losses decreased $699 million,
to a negative $241 million.
Noninterest Expense increased $679 million to $2.5 billion. Net
Income rose $1.4 billion, or 93 percent, including the $824 million
impact of the Merger. SVA increased $38 million, or four percent. This
segment’s capital allocation increased due to Goodwill as a result of
the Merger which was offset by the increase in Net Income.
Net Interest Income increased $1.5 billion, largely due to the
increase in commercial loan and lease, and deposit balances driven
by the addition of FleetBoston earning assets and the net results of
ALM activities. Net Interest Income was positively impacted by the
$36.3 billion, or 39 percent, increase in average outstanding com-
mercial loans. Also contributing to the improvement in Net Interest
Income was the $21.6 billion, or 69 percent, increase in average
commercial deposits. Impacting these increases was the $29.3 bil-
lion effect on average Loans and Leases, and the $17.6 billion effect
on average Deposits related to the addition of FleetBoston.
During 2004, Noninterest Income increased $730 million, or 52
percent, to $2.1 billion. Included in the results was $601 million of
Noninterest Income related to FleetBoston. Overall, the increase was
driven by a $341 million increase in Other Noninterest Income to
$518 million, and a $261 million, or 36 percent, increase in Service
Charges to $988 million. Other Noninterest Income increased by $109
million due to higher income from community development tax credit
real estate investments. The increase in Service Charges was primarily
driven by the Merger. Also affecting the increase in Noninterest Income
was the $43 million increase in Trading Account Profits.
The Provision for Credit Losses declined $699 million to a neg-
ative $241 million. The decrease was partially driven by a $264 mil-
lion, or 59 percent, decrease in net charge-offs. Additionally, notable
improvement in credit quality has been achieved in a number of our
major businesses. For more
information, see Credit Risk
Management beginning on page 58.
Noninterest Expense increased $679 million, or 38 percent, due
to the $644 million addition of FleetBoston. Driving the increase was a
$300 million increase in total Personnel Expense and a $260 million
increase in Data Processing Expense.
Global Capital Markets and Investment Banking
Our strategy is to align our resources with sectors where we can
deliver value-added financial advisory solutions to our issuer and
investor clients. This segment provides a broad range of financial
services to domestic and international corporations, financial institu-
tions, and government entities. Clients are supported through offices
in 35 countries that are divided into four distinct geographic regions:
U.S. and Canada; Asia; Europe, Middle East and Africa; and Mexico.
Products and services provided include loan originations, mergers
and acquisitions advisory, debt and equity underwriting and trading,
cash management, derivatives, foreign exchange, leveraged finance,
structured finance and trade services.
This segment offers clients a comprehensive range of global
capabilities through the following three financial services:
Global Investment Banking, Global Credit Products and Global
Treasury Services.
Global Investment Banking is comprised of Corporate and
Investment Banking and Global Capital Markets. Global Investment
Banking underwrites and makes markets in equity and equity-linked
securities, high-grade and high-yield corporate debt securities, com-
mercial paper, and mortgage-backed and asset-backed securities. We
also provide debt and equity securities research, loan syndications,
mergers and acquisitions advisory services and private placements.
Further, we provide risk management solutions for customers using
interest rate, equity, credit and commodity derivatives,
foreign
exchange, fixed income and mortgage-related products. In support of
these activities, the businesses may take positions in these products
and participate in market-making activities. The Global Investment
Banking business is a primary dealer in the U.S. and in several inter-
national locations.
Global Credit Products provides credit and lending services for
our corporate clients and institutional investors. Global Credit
Products is also responsible for actively managing loan and counter-
party risk in our large corporate portfolio using available risk mitigation
techniques, including credit default swaps.
Global Treasury Services provides the technology, strategies and
integrated solutions to help financial institutions, government agencies
and corporate clients manage their cash flows.
46 BANK OF AMERICA 2004
Global Capital Markets and Investment Banking
Investment Banking Income
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Losses on sales of debt securities
Noninterest expense
Income before income taxes
Income tax expense
Net income
Shareholder value added
Net interest yield (fully taxable-equivalent basis)
Return on average equity
Efficiency ratio (fully taxable-equivalent basis)
Average:
Total loans and leases
Total assets
Total deposits
Common equity/Allocated equity
Year end:
Total loans and leases
Total assets
Total deposits
$
$
$
2004
4,122
4,927
9,049
(459)
(10)
6,556
2,942
992
1,950
891
1.49%
19.46
72.45
$ 34,237
323,101
76,884
10,021
33,899
307,451
79,376
2003
$ 4,289
4,045
8,334
303
(14)
5,327
2,690
896
$ 1,794
893
$
1.86%
21.35
63.91
$ 36,640
272,942
66,095
8,404
29,104
225,839
58,504
Total Revenue was $9.0 billion, reflecting a $715 million, or nine per-
cent, increase in 2004. The increase in Market-based revenues was
driven by trading-related revenue and Investment Banking Income.
The Provision for Credit Losses decreased $762 million to a negative
$459 million. Total Noninterest Expense increased $1.2 billion to
$6.6 billion. Net Income increased $156 million, or nine percent. SVA
was relatively flat in 2004.
Net Interest Income decreased $167 million, or four percent, to
$4.1 billion. Driving this decrease was the $200 million, or nine per-
cent, decrease in trading-related Net Interest Income. Despite the
growth in trading-related average earning assets during the year, a
flattening yield curve decreased the contribution to Net Interest
Income. Nontrading-related Net Interest Income increased $33 million,
or two percent, as the benefit of the $10.8 billion, or 16 percent,
increase in average Deposits was partially offset by the $2.4 billion,
or seven percent, decrease in average Loans and Leases. Average
Deposits increased despite the withdrawal of compensating balances
by the U.S. Treasury due to changes in our compensation agreements
with them.
Noninterest Income increased $882 million, or 22 percent.
Increases in Trading Account Profits, Investment Banking Income and
Service Charges drove the improvement. The following table presents
the detail of Investment Banking Income within the segment.
(Dollars in millions)
Securities underwriting
Syndications
Advisory services
Other
Total Investment Banking Income(1)
2004
$ 920
521
310
32
$ 1,783
2003
$ 962
407
229
38
$ 1,636
(1) Investment Banking Income recorded in other business units in 2004 and 2003 was $103
and $100.
Investment Banking Income increased $147 million, or nine percent,
due to market share increases in high-yield debt, mortgage-backed
securities and convertible debt. The continued strong momentum in
mergers and acquisitions, and syndicated loans drove the 35 percent
and 28 percent increases, respectively, in advisory services and
syndication fees.
Trading-related revenue, which includes Net Interest Income
from trading-related positions and Trading Account Profits in
Noninterest Income, is presented in the following table. Not included
are commissions from equity transactions which are recorded in
Noninterest Income as Investment and Brokerage Services Income.
Trading-related Revenue
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Trading account profits(1)
Total trading-related revenue(1)
Trading-related revenue by product
Fixed income
Interest rate (fully taxable-equivalent basis)
Foreign exchange
Equities(2)
Commodities
Market-based trading-related revenue
Credit portfolio hedges(3)
Total trading-related revenue(1)
2004
$ 2,039
1,028
$ 3,067
$ 1,547
667
757
195
45
3,211
(144)
$ 3,067
2003
$ 2,239
587
$ 2,826
$ 1,352
954
551
344
(45)
3,156
(330)
$ 2,826
(1) Trading Account Profits for the Corporation were $869 and $409 for 2004 and 2003. In 2004,
the difference relates to the impact of the valuation of the Certificates, which was partially off-
set by gains in Global Wealth and Investment Management and Latin America of $86 and $72,
respectively. In 2003, the difference relates primarily to the impact of the Certificates. See page
44 for more information on the Certificates. Total trading-related revenue for the Corporation
was $2,908 and $2,648 for 2004 and 2003, and was impacted in a similar manner as Trading
Account Profits.
(2) Does not include commissions from equity transactions which were $666 and $648 in 2004
and 2003.
(3) Includes credit default swaps and related products used for credit risk management.
Market-based trading-related revenue increased by $55 million, or
two percent. Fixed income continued to show strong results
increasing $195 million, or 14 percent, driven by growth in our com-
mercial mortgage-backed and structured finance activity. Foreign
exchange revenue increased $206 million, or 37 percent, due to
volatility of the dollar in the latter half of the year and increased
customer activity. Commodities revenue increased $90 million due
to the absence of the negative impact of the SARS outbreak, which
occurred during 2003.
BANK OF AMERICA 2004 47
Partially offsetting these increases were declines in interest rate
and equities revenues. Interest rate revenues declined by $287 million,
or 30 percent, largely due to reduced corporate customer activity and
lower trading-related profits as a result of FRB tightening, uncertainty
related to the election, declining volatility in the options market and
more subdued economic growth than anticipated during the year.
Trading-related equities revenues declined by $149 million, or 43 percent.
Including commissions on equity transactions, trading-related equities
revenues declined $131 million, or 13 percent. The overall decline in
trading-related equities revenue was driven by net losses on a single
retained stock position in 2004 combined with the absence of gains
on a single position that we recorded in 2003.
Total trading-related revenues also included the cost associated
with credit portfolio hedges of $144 million in 2004, an improvement
of $186 million. The improvement was primarily due to stable
spreads in the first half of the year versus spreads tightening
throughout 2003.
The Provision for Credit Losses decreased $762 million to a
negative $459 million due to notable improvements in credit quality
in the large corporate portfolio partially due to the high levels of
liquidity in the capital markets, which enabled us to distribute paper
more readily. Also contributing to the decrease in the Provision for
Credit Losses was the reduction in net charge-offs of $311 million, or
71 percent. Additionally, nonperforming assets declined $589 million,
or 58 percent, to $424 million at December 31, 2004. For more
information, see Credit Risk Management beginning on page 58.
Noninterest Expense increased $1.2 billion, or 23 percent. This
increase was due, in part, to an increase in litigation-related charges
of $460 million, including the reversal of legal expenses previously
recorded in All Other that were reclassified to this segment. Also
impacting Noninterest Expense were higher incentive compensation
for market-based activities of $279 million and the mutual fund
settlement of $143 million.
Global Wealth and Investment Management
This segment provides tailored investment services to individual and
institutional clients in various stages and economic cycles. Our
clients are served through five major businesses, Premier Banking,
Banc of America Investments (BAI), The Private Bank, Columbia
Management Group (CMG) and Other Services, each offering specific
products and services based on clients’ needs.
Premier Banking joins with BAI, our full-service retail brokerage
business, to bring together personalized banking and investment
expertise through priority service with client-dedicated teams. These
teams provide comprehensive advice, cash management strategies,
and customized investment and financial planning solutions for mass
affluent clients. Mass affluent clients have a personal wealth profile
that includes investable assets plus a mortgage that exceeds
$250,000 or they have at least $100,000 of investable assets.
BAI serves 1.3 million accounts through a network of over
2,100 financial advisors throughout the U.S.
The Private Bank provides integrated wealth management solu-
tions to high-net-worth individuals, mid-market institutions and chari-
table organizations with investable assets greater than $3 million.
Services include investment, trust, banking and lending services.
During the third quarter of 2004, we announced a new business
designed to serve the needs of ultra high-net-worth individuals and
families. The goal is for this new business to provide a higher level
of contact and tailored wealth management solutions to clients with
investable assets greater than $50 million. We expect this business
to be rolled out during the first quarter of 2005.
CMG is an asset management organization primarily serving the
needs of institutional customers. CMG provides asset management
services, liquidity strategies and separate accounts. CMG also provides
mutual funds offering a full range of investment styles across an array
of products including equities, fixed income (taxable and nontaxable)
and cash products. In addition to its service of institutional clients,
CMG distributes its products and services to individuals through
The Private Bank, BAI and nonproprietary channels including other
brokerage firms.
Other Services include the Investment Services Group, which
provides products and services from traditional capital markets
products to alternative investments and Banc of America Specialist, a
New York Stock Exchange market-maker. Other Services also included
U.S. Clearing which provides retail clearing services to broker/dealers
and other correspondent firms. U.S. Clearing was sold in the fourth
quarter of 2004.
Global Wealth and Investment Management
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Noninterest expense
Income before income taxes
Income tax expense
Net income
Shareholder value added
Net interest yield (fully taxable-equivalent basis)
Return on average equity
Efficiency ratio (fully taxable-equivalent basis)
Average:
Total loans and leases
Total assets
Total deposits
Common equity/Allocated equity
Year end:
Total loans and leases
Total assets
Total deposits
2004
$ 2,854
3,064
5,918
(20)
3,449
2,489
905
$ 1,584
782
$
3.35%
20.17
58.28
$ 44,049
91,443
83,049
7,854
49,776
121,974
111,107
2003
$ 1,952
2,078
4,030
11
2,101
1,918
684
$ 1,234
854
$
3.52%
33.94
52.11
$ 37,675
58,606
53,996
3,637
38,689
69,370
62,730
48 BANK OF AMERICA 2004
Total Revenue for Global Wealth and Investment Management
increased $1.9 billion, or 47 percent, for 2004. The Provision for
Credit Losses decreased $31 million to a negative $20 million. Total
Noninterest Expense increased $1.3 billion to $3.4 billion. Net Income
increased 28 percent to $1.6 billion. SVA decreased $72 million, or eight
percent, as the increase in cash basis earnings was more than offset
by the increase in the capital allocation that resulted from the Merger.
Net Interest Income increased 46 percent to $2.9 billion due to
growth in Deposits in both Premier Banking and The Private Bank,
loan growth in The Private Bank, and the addition of FleetBoston earn-
ing assets to the portfolio. Net results of ALM activities also drove
the increase. Average Deposits increased $29.1 billion, or 54 percent,
primarily due to migration of account balances from Consumer
Banking to Premier Banking, the impact of the Merger, as well as
increased deposit-taking in The Private Bank. Average Loans and
Leases increased $6.4 billion, or 17 percent, due to the inclusion of
the FleetBoston Loans and Leases and increased loan activity in The
Private Bank.
Client Assets
(Dollars in billions)
Assets under management
Client brokerage assets
Assets in custody
Total client assets
December 31
2004
$ 451.5
149.9
107.0
$ 708.4
2003
$ 296.7
88.8
49.9
$ 435.4
Assets under management generate fees based on a percentage of
their market value. They consist largely of mutual funds and separate
accounts, which are comprised of money market products, equities,
and taxable and nontaxable fixed income securities. Compared to
2003, assets under management increased $154.8 billion, or 52 per-
cent, due to the addition of $148.9 billion of FleetBoston assets under
management and increased market valuation partially offset by out-
flows primarily in money market products. Client brokerage assets, a
source of commission revenue, were up $61.1 billion, or 69 percent,
due to the addition of $55.4 billion FleetBoston client brokerage
assets. Client brokerage assets consist largely of investments in
annuities, money market mutual funds, bonds and equities. Assets in
custody increased $57.1 billion, or 114 percent, and represent trust
assets administered for customers. The addition of $54.5 billion of
assets in custody from FleetBoston drove the increase. Trust assets
encompass a broad range of asset types including real estate, private
company ownership interest, personal property and investments.
Noninterest Income consists primarily of Investment and
Brokerage Services, which represents fees earned on client assets,
as well as brokerage commissions and trailer fees. Investment and
Brokerage Services revenue increased $1.1 billion, or 71 percent, to
$2.7 billion. The increase in Investment and Brokerage Services
revenue was primarily due to growth in all client assets categories,
driven by the addition of FleetBoston. The impact of FleetBoston on
Investment and Brokerage Services was $974 million.
Noninterest Expense increased $1.3 billion, or 64 percent, due
to the $889 million increase in expenses related to the inclusion of
FleetBoston and this segment’s allocation of the mutual fund settle-
ment, which amounted to approximately $143 million pre-tax. Also
impacting Noninterest Expense was an increase in Personnel
Expense reflecting the addition of 637 client managers in Premier
Banking, additional financial advisors in BAI and increased incentives
in BAI due to increased sales and changes to payout schedules.
All Other
Included in All Other are our Latin America and Equity Investments
businesses, and Other.
Latin America includes our full-service Latin American operations
in Brazil, Argentina and Chile. These businesses provide a wide array
of products to indigenous and multinational corporations, as well as
consumers. These services include lending, deposit-taking, asset
management, private banking and treasury operations. The consumer
business focuses on the affluent and middle-market segments. Our
largest book of business is in Brazil, while Argentina has our largest
branch network, with 87 branches. Our Brazilian and Chilean opera-
tions have 65 branches and 43 branches, respectively. Beginning in
2005, Latin America will be re-aligned with the Global Business and
Financial Services segment. For more information on our Latin
American operations, see Foreign Portfolio beginning on page 64.
Equity Investments include Principal Investing and other corporate
investments. Principal Investing is comprised of a diversified portfolio
of investments in privately-held and publicly-traded companies at all
stages of their lifecycle from start-up to buyout.
Other
includes Noninterest Income and Expense amounts
associated with the ALM process, including Gains on Sales of Debt
Securities, the allowance for credit losses process, the residual
impact of methodology allocations, intersegment eliminations, and
the results of certain consumer finance and commercial lending busi-
nesses that are being liquidated.
All Other
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Merger and restructuring charges
Noninterest expense
Income before income taxes
Income tax expense
Net income
Shareholder value added
$
2004
636
428
1,064
148
2,016
618
594
1,720
492
$ 1,228
36
$
$
2003
634
112
746
389
942
–
597
702
97
$
605
$ (1,339)
BANK OF AMERICA 2004 49
Latin America
The results of Latin America are driven by the addition of the
FleetBoston operations in the region. For more information on our
Latin American operations, see Foreign Portfolio beginning on page
64. Prior to the Merger, our business in the region had been reduced
to very low levels. For 2004, Latin America reported Net Income of
$310 million compared to a Net Loss of $48 million in 2003. Total
Revenue increased $801 million from $33 million to $834 million.
The results reflect an improvement in credit quality including the dis-
position of problem assets, as well as improved economic conditions
in the region. Our increased presence in the region as a result of the
addition of the FleetBoston business also contributed to the results.
SVA increased by $227 million due to higher Net Income.
Net Interest Income increased $470 million from $24 million to
$494 million. The increase was driven by the $458 million impact of
the addition of the FleetBoston Latin America business.
Noninterest Income increased $331 million from $9 million to
$340 million in 2004. The increase was driven by increases in Service
Charges, Investment and Brokerage Services and Trading Account
Profits of $78 million, $77 million and $72 million, respectively, due
to the addition of FleetBoston.
The Provision for Credit Losses decreased $284 million from
$89 million in 2003 to a negative $195 million, due to continued
improvement in the credit quality of the portfolio. Driving this
decrease was a reduction in net charge-offs of $113 million and
improved credit quality.
Noninterest Expense increased $509 million from $19 million to
$528 million for 2004 due to the $497 million impact of the addition
of the FleetBoston business.
Equity Investments
Equity Investments reported Net Income of $192 million in 2004, a
$441 million improvement compared to a $249 million Net Loss in
2003. Total Revenue increased $696 million to $440 million. The
improvements were primarily due to higher gains in Principal Investing
driven by increasing liquidity in the private equity markets. SVA increased
by $364 million, or 77 percent, due to the improvement in the results.
The following table presents the Principal Investing equity port-
folio by major industry at December 31, 2004 and 2003:
Principal Investing Equity Portfolio
(Dollars in millions)
Consumer discretionary
Industrials
Information technology
Telecommunication services
Financials
Healthcare
Materials
Consumer staples
Real estate
Energy
Individual trusts,
nonprofits, government
Utilities
Total
December 31
FleetBoston
2004
$ 2,058
1,118
1,089
769
606
576
421
230
229
81
49
24
$ 7,250
2003
nnnnnn
April 1, 2004
$ 1,435
876
741
639
332
385
266
245
229
29
48
35
nnnnnn
$
834
527
391
271
146
211
188
88
113
67
162
6
$ 5,260
nnnnnn
$ 3,004
Noninterest Income within the Principal Investing portfolio primarily
consists of Equity Investment Gains (Losses), and increased $712
million to $594 million. While impairments were relatively unchanged
at $445 million, cash gains increased by $576 million to $849 million.
Also contributing to the improvement was an increase of $143 million
in fair value adjustment gains.
Other
Other recorded $726 million of Net Income in 2004, compared to
$902 million in 2003. Total Revenue decreased $1.2 billion to a
negative $210 million. The decrease was the result of a $440 million
decrease in Net Interest Income, from $771 million to $331 million,
primarily caused by a reduction of capital in Other, as more capital
has been deployed to the business segments, and by the continued
runoff of previously exited businesses. The revenue decrease was
also caused by the $739 million decline in Noninterest Income pri-
marily caused by the absence of whole mortgage loan sale gains dur-
ing 2004. Gains on Sales of Debt Securities increased $1.1 billion to
$2.0 billion as we continue to reposition the ALM portfolio in
response to interest rate fluctuations and to manage mortgage pre-
payment risk. Provision for Credit Losses increased $65 million
resulting from higher ALM whole loan mortgage portfolio levels,
changes to components of the formula and other factors, partially offset
by reduced credit costs associated with previously exited businesses.
Noninterest Expense increased $87 million to $555 million, and
included Merger and Restructuring Charges of $618 million offset by
costs allocated to the segments. For more information on Merger and
Restructuring Charges, see Note 2 of the Consolidated Financial
Statements.
50 BANK OF AMERICA 2004
Managing Risk
Overview
Our management governance structure enables us to manage all
major aspects of our business through an integrated planning and
review process that includes strategic, financial, associate and risk
planning. We derive much of our revenue from managing risk from
customer transactions for profit. Through our management gover-
nance structure, risk and return are evaluated with a goal of produc-
ing sustainable revenue, reducing earnings volatility and increasing
shareholder value. Our business exposes us to the following major
risks: strategic, liquidity, credit, market and operational.
Strategic risk is the risk that adverse business decisions,
ineffective or inappropriate business plans or failure to respond to
changes in the competitive environment, business cycles, customer
preferences, product obsolescence, execution and/or other intrinsic
risks of business will impact our ability to meet our objectives.
Liquidity risk is the inability to accommodate liability maturities and
deposit withdrawals, fund asset growth and meet contractual obliga-
tions through unconstrained access to funding at reasonable market
rates. Credit risk is the risk of loss arising from a borrower’s or coun-
terparty’s inability to meet its obligations. Market risk is the risk that
values of assets and liabilities or revenues will be adversely affected
by changes in market conditions, such as interest rate movements.
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or external events.
Risk Management Processes and Methods
We have established control processes and use various methods to align
risk-taking and risk management throughout our organization. These
control processes and methods are designed around “three lines of
defense”: lines of business; support units (including Risk Management,
Compliance, Finance, Personnel and Legal); and Corporate Audit.
Management is responsible for identifying, quantifying, mitigating
and managing all risks within their lines of business, while certain
enterprise-wide risks are managed centrally. For example, except for
trading-related business activities, interest rate risk associated with
our business activities is managed centrally in the Corporate Treasury
function. Line of business management makes and executes the busi-
ness plan and is closest to the changing nature of risks and, therefore,
we believe is best able to take actions to manage and mitigate those
risks. Our lines of business prepare quarterly self-assessment
reports to identify the status of risk issues, including mitigation
plans, if appropriate. These reports roll up to executive management
to ensure appropriate risk management and oversight, and to identify
enterprise-wide issues. Our management processes, structures and
policies aid us in complying with laws and regulations and provide
clear lines for decision-making and accountability. Wherever practical,
we attempt to house decision-making authority as close to the
customer as possible while retaining supervisory control functions
from both in and outside of the lines of business.
The Risk Management organization translates approved business
plans into approved limits, approves requests for changes to those lim-
its, approves transactions as appropriate, and works closely with lines of
business to establish and monitor risk parameters. Risk Management
has assigned a Risk Executive to each of the four lines of business who
is responsible for the oversight of all risks associated with that line of
business. In addition, Risk Management has assigned Risk Executives to
monitor enterprise-wide credit, market and operational risks.
Corporate Audit provides an independent assessment of our
management and internal control systems. Corporate Audit activities
are designed to provide reasonable assurance that resources are
adequately protected; significant financial, managerial and operating
information is materially complete, accurate and reliable; and employ-
ees’ actions are in compliance with corporate policies, standards,
procedures, and applicable laws and regulations.
We use various methods to manage risks at the line of business
levels and corporate-wide. Examples of these methods include plan-
ning and forecasting, risk committees and forums, limits, models,
and hedging strategies. Planning and forecasting facilitates analysis
of actual versus planned results and provides an indication of unan-
ticipated risk level. Generally, risk committees and forums are com-
prised of line of business, risk management, compliance, legal and
finance personnel, among others, who actively monitor performance
against plan, limits, potential issues, and introduction of new prod-
ucts. Limits, the amount of exposure that may be taken in a product,
relationship, region or industry, seek to align risk goals with those of
each line of business and are part of our overall risk management
process to help reduce the volatility of market, credit and operational
losses. Models are used to estimate market value and net interest
income sensitivity, and to estimate both expected and unexpected
losses for each product and line of business, where appropriate.
Hedging strategies are used to manage the risk of borrower or
counterparty concentration risk and to manage market risk in the
portfolio.
The formal processes used to manage risk represent only one
portion of our overall risk management process. Corporate culture
and the actions of our associates are also critical to effective risk
management. Through our Code of Ethics, we set a high standard for
our associates. The Code of Ethics provides a framework for all of our
associates to conduct themselves with the highest integrity in the
delivery of our products or services to our customers. We instill a
risk-conscious culture through communications, training, policies,
procedures, and organizational
responsibilities.
Additionally, we continue to strengthen the linkage between the asso-
ciate performance management process and individual compensation
to encourage associates to work toward corporate-wide risk goals.
roles and
BANK OF AMERICA 2004 51
Oversight
The Board evaluates risk through the Chief Executive Officer (CEO)
and three committees. The Finance Committee, a committee
appointed by the Board, establishes policies and strategies for man-
aging the strategic, liquidity, credit, market and operational risks to
corporate earnings and capital. The Asset Quality Committee, a
Board committee, reviews credit and selected market risks; and the
Audit Committee, a Board committee, provides direct oversight of
the corporate audit function and the independent registered public
accounting firm. Additionally, senior management oversight of our
risk-taking and risk management activities is conducted through three
senior management committees: the Risk and Capital Committee
(RCC), the Asset and Liability Committee (ALCO) and the Credit Risk
Committee (CRC). The RCC, a senior management committee,
reviews corporate strategies and corporate objectives, evaluates
business performance, and reviews business plans, including capital
allocation, for the Corporation and for major businesses. The ALCO,
a subcommittee of the Finance Committee, approves limits for trad-
ing activities, and was established to manage the risk of loss of value
and related Net Interest Income of our trading positions. ALCO also
provides oversight
for Corporate Treasury’s and Corporate
Investment’s process of managing interest rate risk, otherwise known
as the ALM process, and reviews hedging techniques. In addition,
ALCO provides oversight guidance over our credit hedging program.
The CRC, a subcommittee of the Finance Committee, establishes cor-
porate credit practices and limits, including industry and country con-
centration limits, approval requirements and exceptions. The CRC
also reviews business asset quality results versus plan, portfolio
management, and the adequacy of the allowance for credit losses.
Each committee and subcommittee has the ability to delegate author-
ity to officers of subcommittees to manage specific risks.
Management is in the process of finalizing its plans to address
the Basel Committee on Banking Supervision’s new risk-based capital
standards (Basel II). The Finance Committee and the Audit
Committee provide oversight of management’s plans including the
Corporation’s preparedness and compliance with Basel II. For additional
information, see Note 14 of the Consolidated Financial Statements.
In 2005, the Finance Committee chartered the Compliance and
Operational Risk Committee (CORC) as a subcommittee of the
Finance Committee. CORC provides oversight and consistent com-
munication of operational and compliance issues.
The following sections, Strategic Risk Management, Liquidity
Risk Management, Credit Risk Management beginning on page 58,
Market Risk Management beginning on page 72 and Operational
Risk Management on page 78, address in more detail the specific
procedures, measures and analyses of the major categories of risk
that we manage.
Strategic Risk Management
The Board provides oversight for strategic risk through the CEO and the
Finance Committee. We use an integrated business planning process to
help manage strategic risk. A key component of the planning process
aligns strategies, goals, tactics and resources. The process begins with
an assessment that creates a plan for the Corporation, setting the cor-
porate strategic direction. The planning process then cascades through
the business units, creating business unit plans that are aligned with the
Corporation’s direction. Tactics and metrics are monitored to ensure
adherence to the plans. As part of this monitoring, business units per-
form a quarterly self-assessment further described in the Operational
Risk Management section on page 78. This assessment looks at chang-
ing market and business conditions, and the overall risk in meeting objec-
tives. Corporate Audit in turn monitors, and independently reviews and
evaluates the plans and self-assessments.
One of the key tools for managing strategic risk is capital allo-
cation. Through allocating capital, we effectively manage each busi-
ness segment’s ability to take on risk. Review and approval of
business plans incorporates approval of capital allocation, and eco-
nomic capital usage is monitored through financial and risk reporting.
Liquidity Risk Management
Liquidity is the ongoing ability to accommodate liability maturities and
deposit withdrawals, fund asset growth and business operations, and
meet contractual obligations through unconstrained access to fund-
ing at reasonable market rates. Liquidity management involves fore-
casting funding requirements and maintaining sufficient capacity to
meet the needs and accommodate fluctuations in asset and liability
levels due to changes in our business operations or unanticipated
events. Sources of liquidity include deposits and other customer-
based funding, wholesale market-based funding, and liquidity pro-
vided by the sale or securitization of assets.
We manage liquidity at two levels. The first is the liquidity of the
parent company, which is the holding company that owns the banking
and nonbanking subsidiaries. The second is the liquidity of the banking
subsidiaries. The management of liquidity at both levels is essential
because the parent company and banking subsidiaries each have
different funding needs and sources, and each are subject to certain
regulatory guidelines and requirements. Through ALCO, the Finance
Committee is responsible for establishing our liquidity policy as well as
approving operating and contingency procedures, and monitoring liquidity
on an ongoing basis. Corporate Treasury is responsible for planning and
executing our funding activities and strategy.
In order to ensure adequate liquidity through the full range of
potential operating environments and market conditions, we conduct
our liquidity management and business activities in a manner that
will preserve and enhance funding stability, flexibility, and diversity.
Key components of this operating strategy include a strong focus on
customer-based funding, maintaining direct relationships with whole-
sale market funding providers, and maintaining the ability to liquefy
certain assets when, and if requirements warrant.
52 BANK OF AMERICA 2004
We develop and maintain contingency funding plans for both the
parent company and bank liquidity positions. These plans evaluate our
liquidity position under various operating circumstances and allow us
to ensure that we would be able to operate through a period of stress
when access to normal sources of funding is constrained. The plans
project funding requirements during a potential period of stress, specify
and quantify sources of liquidity, outline actions and procedures for
effectively managing through the problem period, and define roles and
responsibilities. They are reviewed and approved annually by ALCO.
Our borrowing costs and ability to raise funds are directly
impacted by our credit ratings. The credit ratings of Bank of America
Corporation and Bank of America, National Association (Bank of
America, N.A.) and Fleet National Bank are reflected in the table below.
Table 4 Credit Ratings
Moody’s
Standard & Poor’s
Fitch, Inc.
December 31, 2004
Bank of America Corporation
Bank of America, N.A.
Senior
Subordinated
Commercial Short-term Long-term
Debt Debt Paper
P-1
Aa2 Aa3
A-1
A
A+
F1+
A+
AA-
Borrowings
P-1
A-1+
F1+
Debt
Aa1
AA-
AA-
Fleet National Bank
Short-term Long-term
Debt
Borrowings
Aa1
P-1
AA-
A-1+
AA-
F1+
On February 1, 2005, Standard & Poor’s raised its credit ratings on
Bank of America Corporation and its subsidiaries to AA- on senior
debt, A+ on subordinated debt and A-1+ on commercial paper; Bank
of America, N.A. to AA on long-term debt; and Fleet National Bank to
AA on long-term debt.
Under normal business conditions, primary sources of funding
for the parent company include dividends received from its banking
and nonbanking subsidiaries, and proceeds from the issuance of sen-
ior and subordinated debt, as well as commercial paper and equity.
Primary uses of funds for the parent company include repayment of
maturing debt and commercial paper, share repurchases, dividends
paid to shareholders, and subsidiary funding through capital or debt.
The parent company maintains a cushion of excess liquidity that
would be sufficient to fully fund holding company and nonbank affiliate
operations for an extended period during which funding from normal
sources is disrupted. The primary measure used to assess the parent
company’s liquidity is the “Time to Required Funding” during such a
period of liquidity disruption. This measure assumes that the parent
company is unable to generate funds from debt or equity issuance,
receives no dividend income from subsidiaries, and no longer pays div-
idends to shareholders while continuing to meet nondiscretionary
uses needed to maintain bank operations and repayment of contrac-
tual principal and interest payments owed by the parent company and
affiliated companies. Under this scenario, the amount of time the par-
ent company and its nonbank subsidiaries can operate and meet all
obligations before the current liquid assets are exhausted is consid-
ered the “Time to Required Funding”. ALCO approves the target range
set for this metric, in months, and monitors adherence to the target.
Maintaining excess parent company cash that ensures that “Time to
Required Funding” remains in the target range is the primary driver of
the timing and amount of the Corporation’s debt issuances. As of
December 31, 2004 “Time to Required Funding” was 29 months.
Primary sources of funding for the banking subsidiaries include
customer deposits, wholesale market-based funding, and asset secu-
ritizations. Primary uses of funds for the banking subsidiaries include
repayment of maturing obligations, and growth in the ALM and core
asset portfolios, including loan demand.
ALCO determines prudent parameters for wholesale market-based
borrowing and regularly reviews the funding plan for the bank sub-
sidiaries to ensure compliance with these parameters. The contingency
funding plan for the banking subsidiaries evaluates liquidity over a
12-month period in a variety of business environment scenarios
assuming different levels of earnings performance and credit ratings
as well as public and investor relations factors. Funding exposure
related to our role as liquidity provider to certain off-balance sheet
financing entities is also measured under a stress scenario. In this
analysis, ratings are downgraded such that the off-balance sheet
financing entities are not able to issue commercial paper and backup
facilities that we provide are drawn upon. In addition, potential draws
on credit facilities to issuers with ratings below a certain level are
analyzed to assess potential funding exposure.
One ratio used to monitor the stability of our funding composition is
the “loan to domestic deposit” (LTD) ratio. This ratio reflects the percent
of Loans and Leases that are funded by domestic customer deposits, a
relatively stable funding source. A ratio below 100 percent indicates that
our loan portfolio is completely funded by domestic customer deposits.
The ratio was 93 percent for 2004 compared to 98 percent for 2003.
For further discussion, see Deposits and Other Funding Sources on
page 54.
We originate loans both for retention on our Balance Sheet and
for distribution. As part of our “originate to distribute” strategy,
commercial loan originations are distributed through syndication
structures, and residential mortgages originated by Consumer Real
BANK OF AMERICA 2004 53
Estate are frequently distributed in the secondary market. In connection
with our balance sheet management activities, we may retain mortgage
loans originated as well as purchase and sell loans based on our
assessment of market conditions.
Deposits and Other Funding Sources
Deposits are a key source of funding. Table I on page 84 provides
information on the average amounts of deposits and the rates paid
by deposit category. Average Deposits increased $145.3 billion to
$551.6 billion due to a $97.9 billion increase in average domestic
interest-bearing deposits, a $31.1 billion increase in average nonin-
terest-bearing deposits and a $16.3 billion increase in average
foreign interest-bearing deposits. These increases included the
$71.0 billion, $25.3 billion and $5.5 billion impact of the addition of
FleetBoston domestic interest-bearing deposits, noninterest-bearing
deposits and foreign interest-bearing deposits, respectively. We
categorize our deposits into either core or market-based deposits.
Core deposits, which are generally customer-based, are an important
stable, low-cost funding source and typically react more slowly to
interest rate changes than market-based deposits. Core deposits
exclude negotiable CDs, public funds, other domestic time deposits
and foreign interest-bearing deposits. Average core deposits
increased $130.7 billion to $494.1 billion, a 36 percent increase
from a year ago, which included $95.6 billion in average core
deposits from the addition of FleetBoston. The increase was distrib-
uted between NOW and money market deposits, noninterest-bearing
deposits, consumer CDs and IRAs, and savings. Average market-
based deposit funding increased $14.6 billion to $57.5 billion. The
increase was due to a $16.3 billion increase in foreign interest-bearing
deposits offset by a $1.7 billion decrease in negotiable CDs, public
funds and other domestic time deposits. These increases also
reflected the $6.2 billion impact to average market-based deposit
funding from the addition of FleetBoston market-based deposit fund-
ing. Deposits, on average, represented 53 percent and 54 percent of
total sources of funds in 2004 and 2003, respectively.
Table 5 summarizes average deposits by category.
Table 5 Average Deposits
(Dollars in millions)
Deposits by type
Domestic interest-bearing:
Savings
NOW and money market accounts
Consumer CDs and IRAs
Negotiable CDs and other time deposits
Total domestic interest-bearing
Foreign interest-bearing:
Banks located in foreign countries
Governments and official institutions
Time, savings and other
Total foreign interest-bearing
Total interest-bearing
Noninterest-bearing
Total deposits
Core and market-based deposits
Core deposits
Market-based deposits
Total deposits
2004
2003
$ 33,959
214,542
94,770
5,977
349,248
18,426
5,327
27,739
51,492
400,740
150,819
$ 551,559
$ 494,090
57,469
$ 551,559
$ 24,538
148,896
70,246
7,627
251,307
13,959
2,218
19,027
35,204
286,511
119,722
$ 406,233
$ 363,402
42,831
$ 406,233
Additional sources of funds include short-term borrowings, Long-term
Debt and Shareholders’ Equity. Average short-term borrowings, a
relatively low-cost source of funds, were up $87.1 billion to $227.6 billion
due to increases in securities sold under agreements to repurchase
of $59.4 billion, commercial paper of $18.2 billion, notes payable of
$8.6 billion and other short-term borrowings of $2.9 billion. These
funds were used to fund asset growth or facilitate trading activities
and were partially offset by a decrease of $2.0 billion in federal funds
purchased. The increases in average short-term borrowings included
the $4.0 billion, $274 million, $18 million, and $1.1 billion impact of
the addition of FleetBoston securities sold under agreements to
repurchase, commercial paper, notes payable and other short-term
borrowings, respectively. Issuances and repayments of Long-term
Debt were $21.3 billion and $16.9 billion, respectively, for 2004.
Table 6 Short–term Borrowings
(Dollars in millions)
Federal funds purchased
At December 31
Average during year
Maximum month-end balance during year
Securities sold under agreements to repurchase
At December 31
Average during year
Maximum month-end balance during year
Commercial paper
At December 31
Average during year
Maximum month-end balance during year
Other short-term borrowings
At December 31
Average during year
Maximum month-end balance during year
54 BANK OF AMERICA 2004
2004
2003
2002
Amount
Rate
Amount
Rate
Amount
Rate
$
3,108
3,724
7,852
116,633
161,494
191,899
25,379
21,178
26,486
53,219
41,162
53,756
2.32%
1.31
–
2.85
2.08
–
1.71
1.45
–
2.49
1.73
–
$ 2,356
5,736
7,877
75,690
102,074
124,746
7,605
2,976
9,136
27,375
29,672
46,635
0.84%
1.10
–
$ 5,167
5,470
9,663
1.12
1.15
–
1.09
1.29
–
1.98
2.02
–
59,912
67,751
99,313
114
1,025
1,946
16,599
24,231
33,549
1.15%
1.63
–
1.44
1.73
–
1.20
1.73
–
1.29
2.90
–
Obligations and Commitments
We have contractual obligations to make future payments on debt
and lease agreements. Additionally, in the normal course of busi-
ness, we enter into contractual arrangements whereby we commit to
future purchases of products or services from unaffiliated parties.
Obligations that are legally binding agreements whereby we agree to
purchase products or services with a specific minimum quantity
defined at a fixed, minimum or variable price over a specified period
of time are defined as purchase obligations. Included in purchase
obligations are vendor contracts of $4.9 billion, commitments to pur-
chase securities of $3.3 billion and commitments to purchase loans
of $3.8 billion. The most significant of our vendor contracts include
communication services, processing services and software contracts.
Other long-term liabilities include our obligations related to the
Qualified Pension Plans, Nonqualified Pension Plans and
Postretirement Health and Life Plans (the Plans). Obligations to the
Plans are based on the current and projected obligations of the Plans,
performance of the Plans’ assets and any participant contributions, if
applicable. During 2004 and 2003, we contributed $303 million and
$460 million, respectively, to the Plans, and we expect to make at
least $150 million of contributions during 2005. Management
believes the effect of the Plans on liquidity is not significant to our
overall financial condition. Debt and lease obligations are more fully
discussed in Note 11 of the Consolidated Financial Statements.
Table 7 presents total long-term debt and other obligations at December 31, 2004.
Table 7 Long–term Debt and Other Obligations
(Dollars in millions)
Long-term debt and capital leases(1)
Purchase obligations(2)
Operating lease obligations
Other long-term liabilities
Total
December 31, 2004
$
Due in
1 year
or less
9,511
7,970
1,373
151
$ 19,005
Due after
1 year
through
3 years
$ 22,498
1,551
2,136
–
$ 26,185
Due after
3 years
through
5 years
$ 17,298
1,303
1,543
–
$ 20,144
Due after
5 years
$ 48,771
1,186
3,384
–
$ 53,341
Total
$ 98,078
12,010
8,436
151
$ 118,675
(1) Includes principal payments only and capital lease obligations of $46.
(2) Obligations that are legally binding agreements whereby we agree to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period
of time are defined as purchase obligations.
Many of our lending relationships contain both funded and unfunded
elements. The funded portion is reflected on our Balance Sheet. The
unfunded component of these commitments is not recorded on our
Balance Sheet until a draw is made under the loan facility.
These commitments, as well as guarantees, are more fully
discussed in Note 12 of the Consolidated Financial Statements.
The following table summarizes the total unfunded, or off-balance
sheet, credit extension commitment amounts by expiration date. At
December 31, 2004, charge cards (nonrevolving card lines) to indi-
viduals and government entities guaranteed by the U.S. government
in the amount of $10.9 billion (related outstandings of $205 million)
were not included in credit card line commitments in the table below.
Table 8 Credit Extension Commitments
(Dollars in millions)
Loan commitments(1)
Home equity lines of credit
Standby letters of credit and financial guarantees
Commercial letters of credit
Legally binding commitments
Credit card lines
Total
December 31, 2004
Expires in
1 year
or less
$ 111,412
690
24,755
5,374
142,231
177,286
$ 319,517
Expires after
1 year
through
3 years
$ 63,528
1,599
10,472
52
75,651
8,175
$ 83,826
Expires after
3 years
through
5 years
$ 53,056
2,059
3,151
20
58,286
–
$ 58,286
Expires after
5 years
$ 19,098
55,780
4,472
207
79,557
–
$ 79,557
Total
$ 247,094
60,128
42,850
5,653
355,725
185,461
$ 541,186
(1) Equity commitments of $2,052, of which $838 were acquired from FleetBoston, related to obligations to fund existing equity investments were included in loan commitments at December 31, 2004.
BANK OF AMERICA 2004 55
In January 2003, the FASB issued FASB Interpretation No. 46,
“Consolidation of Variable Interest Entities, an interpretation of ARB
No. 51” (FIN 46), which provides a framework for identifying variable
interest entities (VIEs) and determining when a company should
include the assets, liabilities, noncontrolling interests and results of
activities of a VIE in its consolidated financial statements. We
adopted FIN 46 on July 1, 2003 and consolidated approximately
$12.2 billion of assets and liabilities related to certain of our multi-
seller asset-backed commercial paper (ABCP) conduits. On October
8, 2003, one of these entities, Ranger Funding Company (RFC) (for-
merly known as Receivables Capital Corporation), entered into a
Subordinated Note Purchase Agreement (the Note) with an unrelated
third party which reduced our exposure to this entity’s losses under
liquidity and credit agreements as these agreements are senior to
the Note. This Note was issued in the principal amount of $23 mil-
lion, an original maturity of five years and pays interest at 23 percent.
Proceeds from the issuance of the Note were deposited into a sepa-
rate account and may be used to cover losses incurred by RFC. Upon
RFC’s issuance of this Note, we evaluated whether the Corporation
continued to be the primary beneficiary of RFC and determined that
the unrelated party which purchased the Note absorbed over 50 per-
cent of the expected losses of RFC. We determined the amount of
expected loss through mathematical analysis utilizing a Monte Carlo
model that incorporates the cash flows from RFC’s assets and utilizes
independent loss information. The noteholder is therefore the primary
beneficiary of and is required to consolidate the entity. As a result of
the sale of the Note, we deconsolidated approximately $8.0 billion of
the previously consolidated assets and liabilities of the entity. The
impact of this transaction on the Consolidated Statement of Income
was the reduction in Interest Income of approximately $1 million and
the reclassification of approximately $37 million from Net Interest
Income to Noninterest Income for 2003. At December 31, 2004, this
entity had total assets of $10.0 billion. Our exposure to this entity is
included in the total amount of liquidity agreements and SBLCs noted
above. There was no material impact to Net Income or Tier 1 Capital
as a result of the adoption of FIN 46 or the subsequent deconsoli-
dation of this entity, and prior periods were not restated. In December
2003,
the FASB issued FASB Interpretation No. 46 (Revised
December 2003), “Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51” (FIN 46R), which is an update of FIN
46. We adopted FIN 46R as of March 31, 2004. As a result of the
adoption of FIN 46R, there was no material impact on our results of
operations or financial condition.
On- and Off-balance Sheet Financing Entities
Off-balance Sheet Commercial Paper Conduits
In addition to traditional lending, we also support our customers’
financing needs by facilitating their access to the commercial paper
markets. These markets provide an attractive, lower-cost financing
alternative for our customers. Our customers sell assets, such as
high-grade trade or other receivables or leases, to a commercial
paper financing entity, which in turn issues high-grade short-term
commercial paper that is collateralized by the assets sold.
Additionally, some customers receive the benefit of commercial paper
financing rates related to certain lease arrangements. We facilitate
these transactions and collect fees from the financing entity for the
services it provides including administration, trust services and
marketing the commercial paper.
We receive fees for providing combinations of liquidity, standby
letters of credit (SBLCs) or similar loss protection commitments, and
derivatives to the commercial paper financing entities. These forms
of asset support are senior to the first layer of asset support pro-
vided by customers through over-collateralization or by support pro-
vided by third parties. The rating agencies require that a certain
percentage of the commercial paper entity’s assets be supported by
both the seller’s over-collateralization and our SBLC in order to
receive their respective investment rating. The SBLC would be drawn
on only when the over-collateralization provided by the seller is not
sufficient to cover losses of the related asset. Liquidity commitments
made to the commercial paper entity are designed to fund scheduled
redemptions of commercial paper if there is a market disruption or
the new commercial paper cannot be issued to fund the redemption
of the maturing commercial paper. The liquidity facility has the same
legal priority as the commercial paper. We do not enter into any other
form of guarantee with these entities.
We manage our credit risk on these commitments by subjecting
them to our normal underwriting and risk management processes. At
December 31, 2004 and 2003, the Corporation had off-balance sheet
liquidity commitments and SBLCs to these entities of $23.8 billion
and $21.6 billion, respectively. Substantially all of these liquidity com-
mitments and SBLCs mature within one year. These amounts are
included in Table 8. Net revenues earned from fees associated with
these off-balance sheet financing entities were approximately $80 million
and $72 million for 2004 and 2003, respectively.
From time to time, we may purchase some of the commercial
paper issued by certain of these entities for our own account or acting
as a dealer on behalf of third parties. Derivative instruments related
to these entities are marked to market through the Consolidated
Statement of Income. SBLCs are initially recorded at fair value in
accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 45, “Guarantor’s Accounting and Disclosure
Requirements for Guarantees” (FIN 45). Liquidity commitments and
SBLCs subsequent to inception are accounted for pursuant to SFAS
No. 5, “Accounting for Contingencies” (SFAS 5), and are discussed
further in Note 12 of the Consolidated Financial Statements.
56 BANK OF AMERICA 2004
On-balance Sheet Commercial Paper Conduits
In addition to the off-balance sheet financing entities previously
described, we also utilize commercial paper conduits that have been
consolidated based on our determination that we are the primary
beneficiary of the entities in accordance with FIN 46R. At December
31, 2004 and 2003, the consolidated assets and liabilities of these
conduits were reflected in AFS Securities, Other Assets, and
Commercial Paper and Other Short-term Borrowings in the Global
Capital Markets and Investment Banking business segment. At
December 31, 2004 and 2003, we held $7.7 billion and $5.6 billion,
respectively, of assets of these entities while our maximum loss expo-
sure associated with these entities, including unfunded lending com-
mitments, was approximately $9.4 billion and $7.6 billion,
respectively.
Qualified Special Purpose Entities
In addition, to control our capital position, diversify funding sources and
provide customers with commercial paper investments, we will, from
time to time, sell assets to off-balance sheet commercial paper enti-
ties. The commercial paper entities are Qualified Special Purpose
Entities (QSPEs) that have been isolated beyond our reach or that of
our creditors, even in the event of bankruptcy or other receivership. The
accounting for these entities is governed by SFAS 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities – a replacement of FASB Statement No. 125” (SFAS 140),
which provides that QSPEs are not included in the consolidated finan-
cial statements of the seller. Assets sold to the entities consist of high-
grade corporate or municipal bonds, collateralized debt obligations and
asset-backed securities. These entities issue collateralized commercial
paper or notes with similar repricing characteristics to third party mar-
ket participants and passive derivative instruments to us. Assets sold
to the entities typically have an investment rating ranging from Aaa/AAA
to Aa/AA. We may provide liquidity, SBLCs or similar loss protection
commitments to the entity, or we may enter into derivatives with the
entity in which we assume certain risks. The liquidity facility and deriv-
atives have the same legal standing with the commercial paper.
The derivatives provide interest rate, currency and a pre-specified
amount of credit protection to the entity in exchange for the com-
mercial paper rate. These derivatives are provided for in the legal doc-
uments and help to alleviate any cash flow mismatches. In some
cases, if an asset’s rating declines below a certain investment qual-
ity as evidenced by its investment rating or defaults, we are no longer
exposed to the risk of loss. At that time, the commercial paper hold-
ers assume the risk of loss. In other cases, we agree to assume all
of the credit exposure related to the referenced asset. Legal docu-
ments for each entity specify asset quality levels that require the
entity to automatically dispose of the asset once the asset falls
below the specified quality rating. At the time the asset is disposed,
we are required to reimburse the entity for any credit-related losses
depending on the pre-specified level of protection provided.
We also receive fees for the services we provide to the entities,
and we manage any credit or market risk on commitments or deriva-
tives through normal underwriting and risk management processes.
Derivative activity related to these entities is included in Note 4 of the
Consolidated Financial Statements. At December 31, 2004 and
2003, the Corporation had off-balance sheet liquidity commitments,
SBLCs and other financial guarantees to the entities of $7.4 billion
and $7.3 billion, respectively. Substantially all of these liquidity com-
mitments, SBLCs and other financial guarantees mature within one
year. These amounts are included in Table 8. Net revenues earned
from fees associated with these entities were $61 million and $65
million in 2004 and 2003, respectively.
We generally do not purchase any of the commercial paper
issued by these types of financing entities other than during the
underwriting process when we act as issuing agent nor do we purchase
any of the commercial paper for our own account. Derivative instru-
ments related to these entities are marked to market through the
Consolidated Statement of Income. SBLCs are initially recorded at fair
value in accordance with FIN 45. Liquidity commitments and SBLCs
subsequent to inception are accounted for pursuant to SFAS 5 and are
discussed further in Note 12 of the Consolidated Financial Statements.
Credit and Liquidity Risks
Because we provide liquidity and credit support to the commercial
paper conduits and QSPEs described above, our credit ratings and
changes thereto will affect the borrowing cost and liquidity of these
entities. In addition, significant changes in counterparty asset valua-
tion and credit standing may also affect the liquidity of the commer-
cial paper issuance. Disruption in the commercial paper markets may
result in our having to fund under these commitments and SBLCs dis-
cussed above. We seek to manage these risks, along with all other
credit and liquidity risks, within our policies and practices. See Notes
1 and 8 of the Consolidated Financial Statements for additional dis-
cussion of off-balance sheet financing entities.
Other Off-balance Sheet Financing Entities
To improve our capital position and diversify funding sources, we also
sell assets, primarily loans, to other off-balance sheet QSPEs that
obtain financing primarily by issuing term notes. We may retain a por-
tion of the investment grade notes issued by these entities, and we
may also retain subordinated interests in the entities which reduce
the credit risk of the senior investors. We may provide liquidity support
in the form of foreign exchange or interest rate swaps. We generally
do not provide other forms of credit support to these entities. In addi-
tion to the above, we had significant involvement with VIEs other than
the commercial paper conduits. These VIEs were not consolidated
because we will not absorb a majority of the expected losses or
expected residual returns and are therefore not the primary benefici-
ary of the VIEs. These entities are described more fully in Note 8 of the
Consolidated Financial Statements.
BANK OF AMERICA 2004 57
Capital Management
The final component of liquidity risk is capital management, which
focuses on the level of Shareholders’ Equity. Shareholders’ Equity
was $99.6 billion at December 31, 2004, an increase of $51.7 billion
from December 31, 2003. This increase was driven by stock issued
for the acquisition of FleetBoston of $46.8 billion, Net Income of
$14.1 billion and Common Stock Issued Under Employee Plans and
Related Tax Benefits of $3.9 billion, offset by dividends paid of $6.5
billion and common share repurchases of $6.3 billion. For additional
information on common share repurchases, see Note 13 of the
Consolidated Financial Statements. We will continue to repurchase
shares, from time to time, in the open market or in private transac-
tions through our previously approved repurchase plans.
During the second quarter of 2004, the Board approved a 2-for-1
stock split in the form of a common stock dividend and increased the
quarterly cash dividend 12.5 percent from $0.40 to $0.45 per post-
split share. The common stock dividend was effective August 27,
2004 to common shareholders of record on August 6, 2004 and the
cash dividend was effective September 24, 2004 to common share-
holders of record on September 3, 2004. All prior period common
share and related per common share information has been restated
to reflect the 2-for-1 stock split.
As part of the SVA calculation, equity is allocated to business
units based on an assessment of risk. The allocated amount of capital
varies according to the risk characteristics of the individual business
segments and the products they offer. Capital is allocated separately
based on the following types of risk: credit, market and operational.
Average common equity allocated to business units was $69.3 billion
and $31.4 billion in 2004 and 2003, respectively. The increase in aver-
age allocated common equity was primarily due to the Merger. Average
unallocated common equity (not allocated to business units) was
$14.7 billion and $17.7 billion in 2004 and 2003, respectively.
As a regulated financial services company, we are governed by
certain regulatory capital requirements. The regulatory Tier 1 Capital
ratio was 8.10 percent at December 31, 2004, an increase of 25 bps
from a year ago, reflecting higher Tier 1 Capital partially offset by
higher risk-weighted assets. The minimum Tier 1 Capital ratio
required is four percent. As of December 31, 2004, we were classified
as “well-capitalized” for regulatory purposes, the highest classifica-
tion. For additional information on the regulatory capital ratios along
with a description of the components of risk-based capital, capital
adequacy requirements and prompt corrective action provisions, see
Note 14 of the Consolidated Financial Statements.
The capital treatment of trust preferred securities (Trust
Securities) is currently under review by the FRB due to the issuing
trust companies being deconsolidated under FIN 46R. On May 6,
2004, the FRB proposed to allow Trust Securities to continue to qualify
as Tier 1 Capital with revised quantitative limits that would be effective
after a three-year transition period. As a result, we will continue to
report Trust Securities in Tier 1 Capital. In addition, the FRB is
proposing to revise the qualitative standards for capital instruments
included in regulatory capital. The proposed quantitative limits and
qualitative standards are not expected to have a material impact to
our current Trust Securities position included in regulatory capital.
On July 28, 2004, the FRB and other regulatory agencies issued
the Final Capital Rule for Consolidated Asset-backed Commercial
Paper Program Assets (the Final Rule). The Final Rule allows compa-
nies to exclude from risk-weighted assets, the assets of consolidated
ABCP conduits when calculating Tier 1 and Total Risk-based Capital
ratios. The Final Rule also requires that liquidity commitments pro-
vided by the Corporation to ABCP conduits, whether consolidated or
not, be included in the capital calculations. The Final Rule was effec-
tive September 30, 2004. There was no material impact to Tier 1 and
Risk-based Capital as a result of the adoption of this rule.
Credit Risk Management
Credit risk is the risk of loss arising from a borrower’s or counterparty’s
inability to meet its obligations. Credit risk exists in our outstanding
loans and leases, derivatives, trading account assets and unfunded
lending commitments that include loan commitments, letters of
credit and financial guarantees. We define the credit exposure to
a borrower or counterparty as the loss potential arising from all prod-
uct classifications, including loans and leases, standby letters of
credit and financial guarantees, derivative and trading account
assets, assets held-for-sale and commercial letters of credit. For deriv-
ative positions, we use the current mark-to-market value to represent
credit exposure without giving consideration to future mark-to-market
changes. Our consumer and commercial credit extension and review
procedures take into account credit exposures that are both funded
and unfunded. For additional information on derivatives and credit
extension commitments, see Notes 4 and 12 of the Consolidated
Financial Statements.
We manage credit risk based on the risk profile of the borrower
or counterparty, repayment sources, the nature of underlying collateral,
and other support given current events and conditions. We classify
our Loans and Leases as either consumer or commercial and moni-
tor their credit risk separately as discussed below.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial
underwriting and continues throughout a borrower’s credit cycle.
Statistical techniques are used to establish product pricing, risk
appetite, operating processes and metrics to balance risks and
rewards. Consumer exposure is grouped by product and other attrib-
utes for purposes of evaluating credit risk. Statistical models are
built using detailed behavioral information from external sources
such as credit bureaus as well as internal historical experience.
These models are essential to our consumer credit risk management
process and are used, where applicable, in the determination of
credit decisions, collections management procedures, portfolio man-
agement decisions, determination of the allowance for consumer
loan and lease losses, and economic capital allocation for credit risk.
58 BANK OF AMERICA 2004
Table 9 presents outstanding consumer loans and leases for each year in the five-year period ending at December 31, 2004.
Table 9 Outstanding Consumer Loans and Leases
(Dollars in millions)
Amount Percent
Amount Percent
Amount Percent
Amount Percent
Amount Percent
nnnnn
Amount Percent
2004
2003
December 31
2002
2001
2000
nnnnn
FleetBoston
April 1, 2004
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer(1)
Total consumer loans
and leases
$178,103
51,726
50,126
40,513
7,439
54.3% $140,513
34,814
15.8
23,859
15.3
33,415
12.3
7,558
2.3
58.5% $108,197
24,729
14.5
23,236
9.9
31,068
13.9
10,355
3.2
54.8% $ 78,203
19,884
12.5
22,107
11.8
30,317
15.7
14,744
5.2
47.3% $ 84,394
14,094
12.0
21,598
13.4
29,859
18.4
38,706
8.9
44.7% $ 34,571
6,848
13,799
6,113
1,272
7.5
11.5
15.8
20.5
nnnnn
55.2%
10.9
22.1
9.8
2.0
$327,907
100.0% $240,159
100.0% $197,585
100.0% $165,255
100.0% $188,651
100.0% $ 62,603
nnnnn
100.0%
(1) Includes consumer finance of $3,395, $3,905, $4,438, $5,331 and $25,799 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively; foreign consumer of $3,563, $1,969, $1,970, $2,092
and $2,308 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively; and consumer lease financing of $481, $1,684, $3,947, $7,321 and $10,599 at December 31, 2004, 2003, 2002,
2001 and 2000, respectively.
Concentrations of Consumer Credit Risk
Our consumer credit risk is diversified through our geographic span,
diversity of our franchise and our product offerings. In addition, credit
decisions are statistically based with tolerances set to decrease the
percentage of approvals as the risk profile increases.
We purchase credit protection on certain portions of our con-
sumer portfolio. Beginning in 2003, we entered into several transac-
tions to purchase credit protection on a portion of our residential
mortgage loan portfolio. These transactions are designed to enhance
our overall risk management strategy. In 2004, we entered into a sim-
ilar transaction for a portion of our indirect automobile loan portfolio.
At December 31, 2004 and 2003, approximately $88.7 billion and
$63.4 billion of residential mortgage and indirect automobile loans
were credit protected. Our regulatory risk-weighted assets were
reduced as a result of these transactions because we transferred a
portion of our credit risk to unaffiliated parties. These transactions
had the cumulative effect of reducing our risk-weighted assets by
$25.5 billion and $18.6 billion at December 31, 2004 and 2003,
respectively, and resulted in 26 bp increases in our Tier 1 Capital
ratio at both December 31, 2004 and 2003.
Consumer Portfolio Credit Quality Performance
Credit card charge-offs increased in 2004 as a result of organic card
portfolio growth, continued seasoning of accounts and the return of
previously securitized loans to the balance sheet. Consumer credit
quality remained strong in all other categories.
As presented in Table 10, nonperforming consumer loans and
leases increased $100 million to $738 million, and represented 0.23
percent of consumer loans and leases at December 31, 2004 com-
pared to $638 million, representing 0.27 percent of consumer loans
and leases at December 31, 2003. The increase in nonperforming
consumer loans and leases was driven by loan growth and the addi-
tion of $127 million of nonperforming consumer loans and leases on
April 1, 2004 related to FleetBoston, partially offset by consumer loan
sales of $95 million. Broad-based growth in the consumer portfolio
more than offset the increase in consumer nonperforming assets,
resulting in an improvement in the nonperforming ratios.
BANK OF AMERICA 2004 59
Table 10 Nonperforming Consumer Assets(1)
(Dollars in millions)
Nonperforming consumer loans and leases
Residential mortgage
Home equity lines
Direct/Indirect consumer
Other consumer
Total nonperforming consumer loans and leases
Consumer foreclosed properties
2004
2003
2002
2001
December 31
$ 554
66
33
85
738
69
$ 531
43
28
36
638
81
$ 612
66
30
25
733
99
$ 556
80
27
16
679
334
Total nonperforming consumer assets(2)
$ 807
$ 719
$ 832
$ 1,013
FleetBoston
2000
nnnn
April 1, 2004
$ 551
32
19
1,104
nnnn
1,706
182
nnnn
$ 1,888
nnnn
$
55
13
10
49
127
–
$ 127
Nonperforming consumer loans and leases as a percentage of
outstanding consumer loans and leases
Nonperforming consumer assets as a percentage of outstanding
0.23%
0.27%
0.37%
0.41%
0.90%
0.20%
consumer loans, leases and foreclosed properties
0.25
0.30
0.42
0.61
1.00
nnnn
0.20
(1) In 2004, $40 in Interest Income was estimated to be contractually due on nonperforming consumer loans and leases.
(2) Balances do not include $28, $16, $41, $646 and $0 of nonperforming consumer loans held-for-sale, included in Other Assets at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
Credit card loans are charged off at 180 days past due or 60 days
from notification of bankruptcy filing and are not classified as non-
performing. Unsecured consumer loans and deficiencies in non-real
estate secured loans and leases are charged off at 120 days past
due and not classified as nonperforming. Real estate secured con-
sumer loans are placed on nonaccrual and classified as nonperforming
at 90 days past due. The amount deemed uncollectible on real estate
secured loans is charged off at 180 days past due.
Table 11 presents the additions and reductions to nonperforming
assets in the consumer portfolio during 2004 and 2003.
Table 11 Nonperforming Consumer Assets Activity
(Dollars in millions)
Nonperforming loans and leases,
and foreclosed properties
Balance, January 1
Additions to nonperforming assets:
FleetBoston balance, April 1, 2004
New nonaccrual loans and leases,
and foreclosed properties
Transfers from assets held-for-sale(1)
Total additions
Reductions in nonperforming assets:
Paydowns and payoffs
Sales
Returns to performing status(2)
Charge-offs(3)
Total reductions
Total net additions to (reductions in)
nonperforming assets
Nonperforming consumer assets,
December 31
2004
2003
$
719
$ 832
127
1,476
1
1,604
(376)
(219)
(793)
(128)
(1,516)
–
1,583
5
1,588
(447)
(265)
(878)
(111)
(1,701)
88
(113)
On-balance sheet consumer loans and leases past due 90 days or
more and still accruing interest totaled $1.2 billion at December 31,
2004. This amount included $1.1 billion of credit card loans. When
the FleetBoston portfolio was acquired on April 1, 2004, it included
consumer loans and leases past due 90 days or more and still
accruing interest of $116 million including credit card loans of $98
million. At December 31, 2003, the comparable amount was $698
million, which included $616 million of credit card loans.
Nonperforming consumer asset sales in 2004 were $219 million,
comprised of $95 million of nonperforming consumer loans and
$124 million of consumer foreclosed properties. Nonperforming
consumer asset sales in 2003 totaled $265 million, comprised of
$141 million of nonperforming consumer loans and $124 million of
consumer foreclosed properties.
During the fourth quarter of 2004, we sold $1.1 billion of credit
card loans included in our held-for-sale portfolio that were acquired
as part of the FleetBoston acquisition.
Table 12 presents consumer net charge-offs and net charge-off
ratios for 2004 and 2003.
Table 12 Consumer Net Charge-offs and Net Charge-off Ratios(1)
(Dollars in millions)
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
2004
2003
Amount
36
$
2,305
15
208
193
$2,757
Percent
0.02%
5.31
0.04
0.55
2.51
0.93%
Amount
40
$
1,514
12
181
255
$ 2,002
Percent
0.03%
5.37
0.05
0.55
2.89
0.91%
$
807
$ 719
(1) Percentage amounts are calculated as net charge-offs divided by average outstanding loans and
(1) Includes assets held-for-sale that were foreclosed and transferred to foreclosed properties.
(2) Consumer loans are generally returned to performing status when principal or interest is less
than 90 days past due.
(3) Consumer credit card and consumer non-real estate loans and leases are not classified as
nonperforming; therefore, the charge-offs on these loans are not included above.
leases during the year for each loan category.
60 BANK OF AMERICA 2004
On-balance-sheet credit card net charge-offs increased $791 million
to $2.3 billion in 2004. The $6.8 billion of credit card loans acquired
from FleetBoston on April 1, 2004 accounted for $320 million in net
charge-offs. Other causes of the increase in credit card charge-offs
were organic growth, the continued seasoning of accounts, and the
return of $4.2 billion of previously securitized loan balances to the
balance sheet. Formerly securitized credit card loans are recorded on
the balance sheet after the revolving period of the securitization,
which has the effect of increasing loans on the balance sheet,
increasing Net Interest Income, Provision for Credit Losses and net
charge-offs, while reducing Noninterest Income.
Included in Other Assets were consumer loans held-for-sale of
$6.1 billion and $6.8 billion at December 31, 2004 and 2003,
respectively. Included in these balances were nonperforming con-
sumer loans held-for-sale of $28 million and $16 million at December
31, 2004 and 2003, respectively.
Commercial Portfolio Credit Risk Management
Credit risk management for the commercial portfolio begins with an
assessment of the credit risk profile of the borrower or counterparty
based on an analysis of the borrower’s or counterparty’s financial
position. As part of the overall credit risk assessment of a borrower
Table 13 Outstanding Commercial Loans and Leases
or counterparty, each commercial credit exposure or transaction is
assigned a risk rating and is subject to approval based on defined
credit approval standards. Subsequent to loan origination, risk rat-
ings are monitored on an ongoing basis. If necessary, they are
adjusted to reflect changes in the borrower’s or counterparty’s finan-
cial condition, cash flow or financial situation. We use risk rating
aggregations to measure and evaluate concentrations within portfo-
lios. Risk ratings are a factor in determining the level of assigned eco-
nomic capital and the allowance for credit losses. In making
decisions regarding credit, we consider risk rating, collateral, country,
industry and single name concentration limits while also balancing
the total borrower or counterparty relationship and SVA.
Our lines of business and Risk Management personnel use a
variety of tools to continuously monitor a borrower’s or counterparty’s
ability to perform under its obligations. Adjustments in credit expo-
sures are made as a result of this ongoing analysis and review.
Additionally, we utilize syndication of exposure to other entities, loan
sales and other risk mitigation techniques to manage the size and
risk profile of the loan portfolio.
Table 13 presents outstanding commercial loans and leases for
each year in the five-year period ending at December 31, 2004.
(Dollars in millions)
Amount Percent
Amount Percent
Amount Percent
Amount Percent
Amount Percent
nnnnn
Amount Percent
2004
2003
December 31
2002
2001
2000
nnnnn
FleetBoston
April 1, 2004
Commercial – domestic
Commercial real estate(1)
Commercial lease financing
Commercial – foreign
Total commercial loans
and leases
$122,095
32,319
21,115
18,401
62.9% $ 91,491
19,367
16.7
9,692
10.9
10,754
9.5
69.7% $ 99,151
20,205
14.7
10,386
7.4
15,428
8.2
68.3% $110,981
22,655
13.9
11,404
7.2
18,858
10.6
67.7% $138,367
26,436
13.8
11,888
7.0
26,851
11.5
$193,930
100.0% $131,304
100.0% $145,170
100.0% $163,898
100.0% $203,542
68.0% $ 31,796
9,982
13.0
10,720
5.8
9,160
13.2
nnnnn
51.6%
16.2
17.4
14.8
100.0% $ 61,658
nnnnn
100.0%
(1) Includes domestic commercial real estate loans of $31,879, $19,043, $19,910, $22,272 and $26,154 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively; and foreign commercial real
estate loans of $440, $324, $295, $383 and $282 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
BANK OF AMERICA 2004 61
Table 14 Commercial Utilized Credit Exposure by Industry
December 31
FleetBoston
(Dollars in millions)
Real estate(1)
Diversified financials
Banks
Retailing
Education and government
Individuals and trusts
Materials
Consumer durables and apparel
Leisure and sports,
hotels and restaurants
Transportation
Healthcare equipment
and services
Capital goods
Commercial services and supplies
Food, beverage and tobacco
Energy
Media
Insurance
Religious and social organizations
Utilities
Food and staples retailing
Technology hardware
and equipment
Software and services
Telecommunication services
Automobiles and components
Pharmaceuticals and biotechnology
Household and personal products
Other
2004
$ 36,672
25,932
25,265
23,149
17,429
16,110
14,123
13,427
13,331
13,234
12,643
12,633
11,944
11,687
7,579
6,232
5,851
5,710
5,615
3,610
3,398
3,292
3,030
1,894
994
371
3,132
2003
nnnnn
April 1, 2004
$ 22,228
20,427
25,088
15,152
13,919
14,307
8,860
8,313
10,099
9,355
7,064
8,244
7,206
9,134
4,348
4,701
3,638
4,272
5,012
1,837
1,941
1,655
2,526
1,326
466
302
1,474
nnnnn
$ 12,957
3,557
1,040
6,539
1,629
2,627
5,079
3,482
2,940
3,268
4,939
4,355
3,866
2,552
2,044
2,616
2,822
475
1,948
1,456
1,463
770
883
746
590
195
3,751
Total
$ 298,287
$ 212,894
nnnnn
$ 78,589
(1) Industries are viewed from a variety of perspectives to best isolate the perceived risks. For
purposes of this table, the real estate industry is defined based upon the borrowers’ or counter-
parties’ primary business activity using operating cash flow and primary source of repayment as
key factors.
Concentrations of Commercial Credit Risk
Portfolio credit risk is evaluated and managed with a goal that
concentrations of credit exposure do not result in undesirable levels
of risk. We review, measure, and manage concentrations of credit
exposure by industry, product, geography and customer relationship.
Distribution of Loans and Leases by loan size is an additional meas-
ure of the portfolio risk diversification. We also review, measure, and
manage commercial real estate loans by geographic location and prop-
erty type. In addition, within our international portfolio, we evaluate
borrowings by region and by country. Tables 14 through 19 summarize
these concentrations. These activities play an important role in man-
aging credit risk concentrations and for other risk mitigation purposes.
From the perspective of portfolio risk management, customer
concentration management is most relevant in Global Capital Markets
and Investment Banking. Within Global Capital Markets and
Investment Banking, concentrations continue to be addressed
through the underwriting and ongoing monitoring processes, the
established strategy of “originate to distribute” and partly through
the purchase of credit protection through credit derivatives. We utilize
various risk mitigation tools to economically hedge our risk to certain
credit counterparties. Credit derivatives are financial instruments
that we purchase for protection against the deterioration of credit
quality. At December 31, 2004, we had $13.1 billion of credit pro-
tection. The total cost of the premium of the credit derivatives port-
folio was $84 million and $68 million for 2004 and 2003,
respectively. Two widely used tools are credit default swaps and col-
lateralized loan obligations (CLOs) in which a layer of loss is sold to
third parties. Earnings volatility increases due to accounting asym-
metry as we mark to market the credit default swaps, as required by
SFAS 133, and CLOs through Trading Account Profits, while the loans
are recorded at historical cost less allowance for credit losses or, if
held-for-sale, the lower of cost or market. The cost of credit portfolio
hedges including the negative mark-to-market was $144 million and
$330 million for 2004 and 2003, respectively.
Table 14 shows commercial utilized credit exposure by industry
based on Standard & Poor’s industry classifications and includes
commercial loans and leases, SBLCs and financial guarantees, deriv-
atives, assets held-for-sale and commercial letters of credit. As
shown in the following table, commercial utilized credit exposure is
diversified across a range of industries.
62 BANK OF AMERICA 2004
Table 15 presents the non-real estate outstanding commercial loans
and leases by industry. As shown in the table, the non-real estate
commercial loan and lease portfolio is diversified across a range
of industries.
Table 15 Non–real Estate Outstanding Commercial
Loans and Leases by Industry
December 31
FleetBoston
(Dollars in millions)
Retailing
Diversified financials
Individuals and trusts
Transportation
Education and government
Capital goods
Materials
Commercial services and supplies
Food, beverage and tobacco
Leisure and sports, hotels
and restaurants
Healthcare equipment and services
Real estate(1)
Energy
Consumer durables and apparel
Media
Religious and social organizations
Utilities
Food and staples retailing
Technology hardware and equipment
Software and services
Telecommunication services
Banks
Automobiles and components
Insurance
Other(2)
2004
$ 16,908
12,454
12,357
11,135
10,134
9,673
9,547
9,362
9,344
8,987
7,972
6,140
4,627
4,564
4,468
3,951
3,274
2,701
2,482
2,430
2,382
2,044
1,643
1,478
1,554
2003
nnnnn
April 1, 2004
$
$ 11,474
6,469
10,510
7,715
7,874
5,729
5,704
5,701
6,942
4,287
2,135
2,681
2,806
1,155
4,073
4,191
2,876
2,326
2,488
3,460
3,608
1,740
2,269
2,566
431
1,431
1,349
1,142
713
812
454
570
492
1,621
7,477
4,052
4,413
2,516
2,161
2,821
2,975
2,635
1,364
1,260
948
1,967
1,199
1,029
840
6,162
Total
$ 161,611
$ 111,937
$ 51,676
nnnnn
nnnnn
(1) Commercial product loans and leases to borrowers in the real estate industry for which the
ultimate source of repayment is not dependent on the sale, lease, rental or refinancing of
real estate.
(2) Other includes loans and leases to the pharmaceutical, biotechnology, household and personal
products industries. Reduction in the Other category was primarily attributable to a revision in
the methodology for assigning industries to margin loan and commercial credit card exposure.
These exposures were previously assigned to Other.
Table 16 presents outstanding commercial real estate loans by
geographic region and by property type. The amounts outstanding
exclude commercial loans and leases secured by owner-occupied real
estate. Therefore, the amounts exclude outstanding loans and leases
that were made on the general creditworthiness of the borrower for
which real estate was obtained as security and for which the ultimate
repayment of the credit is not dependent on the sale, lease, rental or
refinancing of the real estate. As shown in the table, the commercial
real estate loan portfolio is diversified in terms of geographic region
and property type.
Table 16 Outstanding Commercial Real Estate Loans(1)
December 31
FleetBoston
(Dollars in millions)
By Geographic Region(2)
Northeast
California
Florida
Southeast
Southwest
Northwest
Midwest
Midsouth
Other states(3)
Geographically diversified
Non-U.S.
Total
By Property Type
Residential
Office buildings
Apartments
Shopping centers/retail
Land and land development
Industrial/warehouse
Hotels/motels
Multiple use
Resorts
Other
Total
2004
$ 6,700
6,293
3,562
3,448
3,265
2,038
1,860
1,379
1,184
2,150
440
$ 32,319
$ 5,992
5,434
4,940
4,490
2,388
2,263
909
744
252
4,907
$ 32,319
2003
nnnnn
April 1, 2004
$
683
4,705
2,663
2,642
2,725
1,976
1,431
1,139
448
631
324
$ 19,367
$ 3,631
3,431
3,411
2,295
1,494
1,790
548
560
261
1,946
$ 19,367
nnnnn
nnnnn
nnnnn
nnnnn
$ 3,732
567
215
387
389
68
347
152
3,234
769
122
$ 9,982
$
314
2,649
1,687
1,474
155
351
531
269
–
2,552
$ 9,982
(1) For purposes of this table, commercial real estate product reflects loans dependent on the sale,
lease or refinance of real estate as the final source of repayment.
(2) Distribution is based on geographic location of collateral. Geographic regions are in the U.S.
unless otherwise noted.
(3) The reduction in Other states subsequent to April 1, 2004 is the result of a more granular
distribution of the FleetBoston portfolio to other geographic regions including the Northeast.
BANK OF AMERICA 2004 63
Foreign Portfolio
Table 17 sets forth total foreign exposure broken out by region at
December 31, 2004 and 2003. Total foreign exposure is defined to
include credit exposure, net of local liabilities, plus securities and
other investments for all exposure with a country of risk other than
the United States.
Table 17 Regional Foreign Exposure(1)
December 31
(Dollars in millions)
Europe
Latin America(2,3)
Asia Pacific(2,4)
Middle East
Africa
Other(5)
Total
2004
$ 62,428
10,823
10,736
527
238
5,327
$ 90,079
nnnnn
2003
nnnnn
FleetBoston
April 1, 2004
$ 39,496
5,791
9,547
584
108
4,374
$ 59,900
nnnnn
nnnnn
$ 5,003
7,568
443
82
41
865
$14,002
(1) The balances above reflect the subtraction of local funding or liabilities from local exposures
as allowed by the Federal Financial Institutions Examination Council (FFIEC).
(2) Exposures for Latin America and Asia Pacific have been reduced by $196 and $14, respectively,
at December 31, 2004, and $173 and $13, respectively, at December 31, 2003. Such amounts
represent the fair value of U.S. Treasury securities held as collateral outside the country of exposure.
(3) Includes Bermuda and Cayman Islands.
(4) Includes Australia and New Zealand.
(5) Other includes Canada and supranational entities.
Our total foreign exposure was $90.1 billion at December 31, 2004,
an increase of $30.2 billion from December 31, 2003. Our foreign
exposure was concentrated in Europe, which accounted for $62.4 billion,
or 69 percent, of total foreign exposure. The increase in total foreign
exposure is due to growth in Europe and the addition of exposure
associated with FleetBoston. Growth of exposure in Europe during
2004 was mostly in Western Europe and was distributed across a
variety of industries with the largest concentration in the banking sec-
tor that accounted for approximately 53 percent of the growth. At
December 31, 2004 and 2003, the United Kingdom and Germany
were the only countries whose total cross-border outstandings
exceeded 0.75 percent of our total assets. Our second largest for-
eign exposure was in Latin America, which accounted for $10.8 bil-
lion, or 12 percent, of total foreign exposure. Growth of exposure in
Latin America during 2004 was due to the addition of operations
associated with FleetBoston. Latin America, including Brazil and
Argentina, may continue to experience economic, political and social
uncertainties, which may impact market, credit, and transfer risk of
this region. For more information on our Latin America exposure, see
the discussion of emerging markets below.
As shown in Table 18, at December 31, 2004 and 2003,
Germany had total cross-border exposure of $12.0 billion and $6.9
billion, respectively, representing 1.08 percent and 0.95 percent of
total assets, respectively. At December 31, 2004 and 2003, the
United Kingdom had total cross-border exposure of $11.9 billion and
$10.1 billion, respectively, representing 1.07 percent and 1.41 per-
cent of total assets, respectively. The largest concentration of the
exposure to both of these countries was with banks.
Table 18 Cross–border Exposure Exceeding One Percent of Total Assets(1,2)
(Dollars in millions)
Germany
United Kingdom
December 31
2004
2003
2002
2004
2003
2002
$
$
Public
Sector
659
441
334
74
143
167
Banks
$ 6,251
3,436
2,898
$ 3,239
3,426
2,492
Private
Sector
$ 5,081
2,978
2,534
$ 8,606
6,552
6,758
Cross-
border
Exposure
$11,991
6,855
5,766
$11,919
10,121
9,417
Exposure as
a Percentage
of Total Assets
1.08%
0.95
0.89
1.07%
1.41
1.46
(1) Exposure includes cross-border claims by our foreign offices as follows: loans, accrued interest receivable, acceptances, time deposits placed, trading account assets, securities, derivative assets,
other interest-earning investments and other monetary assets. Amounts also include unused commitments, SBLCs, commercial letters of credit and formal guarantees. Sector definitions are based on the
FFIEC instructions for preparing the Country Exposure Report.
(2) The total cross-border exposure for Germany and United Kingdom at December 31, 2004 includes derivatives exposure of $3,641 and $2,564, respectively, against which we hold collateral totaling $1,477
and $1,788, respectively.
As shown in Table 19, at December 31, 2004, foreign exposure to
borrowers or counterparties in emerging markets increased 42 per-
cent to $15.5 billion, or 17 percent, of total foreign exposure, from
$10.9 billion, or 18 percent of total exposure at the end of 2003. At
December 31, 2004, 58 percent, of the emerging markets exposure
was in Latin America compared to 42 percent at December 31, 2003.
The increase in Latin America was attributable to the addition of the
$6.7 billion FleetBoston portfolio on April 1, 2004. This growth was
partially offset by continued reductions in Loans and Leases, and
trading activity exposure in Argentina, Brazil and Chile. Our 24.9 percent
investment in Grupo Financiero Santander Serfin (GFSS) accounted
for $1.9 billion of reported exposure in Mexico.
The company’s largest exposure in Latin America was in Brazil.
Our exposure in Brazil at December 31, 2004 and 2003, included $1.4
billion and $331 million, respectively, of traditional cross-border credit
exposure (Loans and Leases, letters of credit, etc.), and $1.8 billion and
64 BANK OF AMERICA 2004
$193 million, respectively, of local country exposure net of local liabilities.
Nonperforming assets in Brazil were $38 million at December 31,
2004, compared to $39 million at December 31, 2003. For 2004 and
2003, net charge-offs totaled $59 million and $33 million, respectively.
We have risk mitigation instruments associated with certain
exposures for Brazil, including structured trade transactions intended
to mitigate transfer risk of $950 million and third party funding of
$286 million, resulting in our total foreign exposure net of risk mitigation
for Brazil of $2.2 billion.
Our exposure in Argentina at December 31, 2004 and 2003,
included $286 million and $135 million, respectively, of traditional cross-
border credit exposure (Loans and Leases, letters of credit, etc.), and
$16 million and $24 million, respectively, of local country exposure net of
local liabilities. Also included in Argentina’s December 31, 2004 balance
were $89 million of securities. At December 31, 2004, Argentina
nonperforming assets, including securities, were $350 million compared to
$107 million at December 31, 2003. For 2004, net recoveries for Argentina
totaled $3 million compared to net charge-offs of $82 million in 2003.
At December 31, 2004, 41 percent of the emerging markets
exposure was in Asia Pacific compared to 55 percent at December
31, 2003. Asia Pacific emerging markets exposure was largely
unchanged. Increases in Taiwan and Hong Kong were offset by
decreases in South Korea, Singapore and Other Asia Pacific. The
increase in Taiwan was attributable to higher short-term placements
with other financial institutions, and commercial loans and leases.
The increase in Hong Kong was due to higher swaps and derivatives
exposure to other financial institutions. Higher commercial loans and
leases also contributed to the increase in Hong Kong.
Table 19 sets forth regional foreign exposure to selected countries
defined as emerging markets.
Table 19 Selected Emerging Markets(1)
Loans
and Leases,
and Loan
Commitments
Other
Financing(2)
Derivative
Assets
Securities/
Other
Investments(3,4)
Total
Cross-
border
Exposure(5)
Local
Country
Exposure
Net of Local
Liabilities(6)
Total
Foreign
Exposure
Increase/
(Decrease)
from
December 31, December 31,
2003
2004
nnnnnnnnn
Fleet-
Boston
April 1,
2004
(Dollars in millions)
Region/Country
Latin America
Brazil
Mexico(7)
Chile
Argentina
Other Latin America(8)
Total Latin America
Asia Pacific
India
South Korea
Taiwan
Hong Kong
Singapore
Other Asia Pacific(8)
Central and
Eastern Europe(8)
Total
$ 1,179
578
215
181
311
2,464
311
290
214
225
200
81
$
268
148
122
105
180
823
268
477
114
57
23
80
7
30
$
19
136
1
–
144
300
140
89
82
307
70
58
746
31
$
122
2,004
3
89
248
2,466
225
213
42
129
47
278
934
173
$ 1,588
2,866
341
375
883
6,053
944
1,069
452
718
340
497
4,020
241
$ 1,837
–
839
16
192
2,884
548
314
875
401
–
157
2,295
–
$ 3,425
2,866
1,180
391
1,075
8,937
1,492
1,383
1,327
1,119
340
654
6,315
241
$ 2,754
83
1,049
80
358
4,324
nnnnnnnnn
nnnnnnnnn
$ 3,838
570
1,186
542
579
6,715
(73)
(235)
786
249
(227)
(222)
nnnnnnnnn
278
nnnnnnnnn
(29)
nnnnnnnnn
9
158
26
6
21
50
270
–
$ 3,792
$ 1,872
$ 1,077
$ 3,573
$10,314
$ 5,179
$ 15,493
$ 4,573
$ 6,985
nnnnnnnnn
Total Asia Pacific
1,321
1,019
(1) There is no generally accepted definition of emerging markets. The definition that we use includes all countries in Latin America excluding Cayman Islands and Bermuda; all countries in Asia Pacific
excluding Japan, Australia and New Zealand; and all countries in Central and Eastern Europe excluding Greece.
(2) Includes acceptances, SBLCs, commercial letters of credit and formal guarantees.
(3) Amounts outstanding for Other Latin America and Other Asia Pacific have been reduced by $196 and $14, respectively, at December 31, 2004 and $173 and $13, respectively, at December 31, 2003.
Such amounts represent the fair value of U.S. Treasury securities held as collateral outside the country of exposure.
(4) Cross-border resale agreements are presented based on the domicile of the counterparty because the counterparty has the legal obligation for repayment. For regulatory reporting under FFIEC guidelines,
cross-border resale agreements are presented based on the domicile of the issuer of the securities that are held as collateral.
(5) Cross-border exposure includes amounts payable to us by borrowers or counterparties with a country of residence other than the one in which the credit is booked, regardless of the currency in which the
claim is denominated, consistent with FFIEC reporting rules.
(6) Local country exposure includes amounts payable to us by borrowers with a country of residence in which the credit is booked, regardless of the currency in which the claim is denominated. Management
subtracts local funding or liabilities from local exposures as allowed by the FFIEC. Total amount of local country exposure funded by local liabilities at December 31, 2004 was $17,189 compared to
$5,336 at December 31, 2003. Local country exposure funded by local liabilities at December 31, 2004 in Latin America and Asia Pacific was $9,098 and $8,091, respectively, of which $4,240 was in
Brazil, $3,432 in Hong Kong, $2,596 in Singapore, $1,662 in Argentina, $1,210 in Chile and $1,092 in Mexico. There were no other countries with local country exposure funded by local liabilities greater
than $500.
(7) Includes $1,859 related to GFSS acquired in the first quarter of 2003.
(8) Other Latin America, Other Asia Pacific, and Central and Eastern Europe include countries each with total foreign exposure of less than $300.
BANK OF AMERICA 2004 65
Commercial Portfolio Credit Quality Performance
Overall commercial credit quality continued to improve in 2004 due
to an improving economy and high levels of liquidity in the capital
markets. All major commercial asset quality performance indicators
showed positive trends. Net charge-offs, nonperforming assets and
criticized exposure continued to decline. As presented in Table 20,
commercial criticized credit exposure decreased $2.4 billion, or 19
percent, to $10.2 billion at December 31, 2004. The net decrease was
driven by $16.8 billion of paydowns, payoffs, credit quality improve-
ments, loan sales and net charge-offs; partially offset by the addition
of $7.1 billion of FleetBoston commercial criticized exposure on April
Table 20 Commercial Criticized Exposure(1)
1, 2004 and $7.3 billion of newly criticized exposure. The decrease
in 2004 was centered in Global Capital Markets and Investment
Banking, Global Business and Financial Services and Latin America.
These businesses combined to reduce commercial criticized exposure
by $2.2 billion during 2004, despite the addition of the FleetBoston
commercial criticized exposure balance of $6.8 billion on April 1,
2004, related to these businesses. Reductions were concentrated in the
utilities, aerospace and defense, and telecommunications industries.
Table 20 presents commercial criticized exposure at December
31, 2004 and 2003.
(Dollars in millions)
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial criticized exposure
December 31
2004
2003
Amount
$ 6,340
1,028
1,347
1,534
$ 10,249
Percent(2)
3.38%
2.54
6.38
3.12
3.44%
Amount
$ 8,044
983
1,011
2,612
$12,650
FleetBoston
April 1, 2004
Amount
$ 4,830
406
768
1,057
$ 7,061
Percent(2)
9.86%
4.08
5.42
10.01
8.44%
nnnnnnnnnnnnn
Percent(2)
nnnnnnnnnnnnn
5.73%
3.89
10.43
6.97
nnnnnnnnnnnnn
5.94%
nnnnnnnnnnnnn
(1) Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories defined by regulatory authorities. Exposure amounts include loans and leases, SBLCs and financial
guarantees, derivative assets, assets held-for-sale and commercial letters of credit.
(2) Commercial criticized exposure is taken as a percentage of total commercial utilized exposure which includes loans and leases, SBLCs and financial guarantees, derivative assets, assets held-for-sale
and commercial letters of credit.
66 BANK OF AMERICA 2004
We routinely review the loan and lease portfolio to determine if any
credit exposure should be placed on nonperforming status. An asset
is placed on nonperforming status when it is determined that full col-
lection of principal and/or interest in accordance with its contractual
terms is not probable. As presented in Table 21, nonperforming com-
mercial assets decreased $654 million to $1.6 billion at December
31, 2004 due primarily to the $760 million decrease in the nonper-
forming commercial loans and leases despite the addition of the
$944 million FleetBoston nonperforming commercial loans and
leases at April 1, 2004. The decrease in 2004 was centered in Latin
America, Global Capital Markets and Investment Banking and Global
Business and Financial Services. These businesses combined to
reduce nonperforming commercial loans and leases by $566 million
during 2004, despite the addition of the FleetBoston commercial non-
performing loan and lease balance of $874 million on April 1, 2004,
related to these businesses. The decreases in total nonperforming
commercial loans and leases resulted from paydowns and payoffs of
$1.4 billion, charge-offs of $640 million, loan sales of $515 million
and returns to performing status of $348 million, partially offset by
new nonaccrual loan inflows of $1.3 billion and the addition of
nonperforming loans and leases from the FleetBoston portfolio.
Increased levels of paydowns and payoffs compared to 2003 resulted
from the improvement in credit quality experienced in 2004.
Nonperforming commercial – domestic loans decreased by
$533 million and represented 0.70 percent of commercial – domestic
loans at December 31, 2004 compared to 1.52 percent at December
31, 2003. Nonperforming commercial – foreign loans decreased $311
million and represented 1.45 percent of commercial – foreign loans at
December 31, 2004 compared to 5.37 percent at December 31, 2003.
The improvement in the percentage of nonperforming commercial –
domestic loans to the total commercial – domestic loans was driven
by the growth in commercial – domestic loans and the addition of the
FleetBoston portfolio.
Nonperforming commercial asset sales in 2004 were $601 million,
comprised of $515 million of nonperforming commercial loans, $74
million of commercial foreclosed properties and $12 million of
nonperforming securities. Nonperforming commercial asset sales in
2003 totaled $1.6 billion, comprised of $1.5 billion of nonperforming
commercial loans and $123 million of commercial foreclosed properties.
Table 21 presents nonperforming commercial assets for each year in the five-year period ending at December 31, 2004.
Table 21 Nonperforming Commercial Assets(1)
(Dollars in millions)
Nonperforming commercial loans and leases
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total nonperforming commercial loans and leases
Nonperforming securities(2)
Commercial foreclosed properties
2004
2003
2002
2001
December 31
FleetBoston
2000
nnnnn
April 1, 2004
$
855
87
266
267
1,475
140
33
$ 1,388
142
127
578
2,235
–
67
$ 2,621
164
160
1,359
4,304
–
126
$ 2,991
243
134
459
3,827
–
68
$ 2,715
239
65
482
3,501
–
67
$ 317
80
51
496
944
135
13
$ 1,092
nnnnn
nnnnn
nnnnn
Total nonperforming commercial assets(3)
$ 1,648
$ 2,302
$ 4,430
$ 3,895
$ 3,568
Nonperforming commercial loans and leases as a percentage of
outstanding commercial loans and leases
Nonperforming commercial assets as a percentage of
0.76%
1.70%
2.96%
2.33%
1.72%
1.53%
outstanding commercial loans, leases and foreclosed properties
0.85
1.75
3.05
2.38
1.75
nnnnn
1.77
(1) In 2004, $111 in Interest Income was estimated to be contractually due on nonperforming commercial loans and leases, and troubled debt restructured loans.
(2) Primarily related to international securities held in the AFS securities portfolio.
(3) Balances do not include $123, $186, $73, $289 and $84 of nonperforming commercial assets, primarily commercial loans held-for-sale included in Other Assets at December 31, 2004, 2003, 2002,
2001 and 2000, respectively.
BANK OF AMERICA 2004 67
Table 22 presents the additions and reductions to nonperforming
assets in the commercial portfolio during 2004 and 2003.
Table 23 presents commercial net charge-offs and net charge-off
ratios for 2004 and 2003.
Table 22 Nonperforming Commercial Assets Activity
Table 23 Commercial Net Charge-offs and Net Charge-off Ratios(1)
2004
2003
2004
2003
(Dollars in millions)
Nonperforming loans and leases,
and foreclosed properties
Balance, January 1
Additions to nonperforming assets:
FleetBoston balance, April 1, 2004
New nonaccrual
Advances
Total additions
Reductions in nonperforming assets:
Paydowns and payoffs
Sales
Returns to performing status(1)
Charge-offs(2)
Transfers to assets held-for-sale
Total reductions
Total net reductions in
nonperforming assets
Nonperforming securities(3)
Balance, January 1
Additions to nonperforming assets:
FleetBoston balance, April 1, 2004
New nonaccrual
Reductions in nonperforming assets:
Paydowns and payoffs
Sales
Total net securities additions to
nonperforming assets
Nonperforming commercial
assets, December 31
$ 2,302
$ 4,430
957
1,294
82
2,333
(1,405)
(589)
(348)
(640)
(145)
(3,127)
–
2,134
199
2,333
(1,221)
(1,583)
(197)
(1,352)
(108)
(4,461)
(794)
(2,128)
–
135
56
(39)
(12)
140
–
–
–
–
–
–
$ 1,648
$ 2,302
(Dollars in millions)
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Amount
$ 177
(3)
9
173
$ 356
Percent
0.15%
(0.01)
0.05
1.05
0.20%
Amount
$ 633
41
124
306
$1,104
Percent
0.68%
0.20
1.23
2.36
0.81%
(1) Percentage amounts are calculated as net charge-offs divided by average outstanding loans and
leases during the year for each loan category.
Commercial – domestic loan net charge-offs, as presented in Table 23,
decreased $456 million to $177 million in 2004, reflecting overall
improvement in the portfolio.
Commercial – foreign loan net charge-offs were $173 million in
2004 compared to $306 million in 2003. The decrease reflected
lower net charge-offs in Argentina, the United Kingdom and Italy. The
industry with the largest decrease in net charge-offs was utilities. The
country with the largest net charge-offs in 2004 was Italy.
At December 31, 2004 and 2003, our credit exposure related
to Parmalat Finanziaria S.p.A. and its related entities (Parmalat) was
less than $1 million and $274 million, respectively; the latter number
included $30 million of derivatives. Nonperforming loans related to
Parmalat were less than $1 million and $226 million at December
31, 2004 and 2003, respectively.
Included in Other Assets were commercial loans held-for-sale
and leveraged lease partnership interests of $1.3 billion and $198
million, respectively, at December 31, 2004 and $1.6 billion and
$332 million, respectively, at December 31, 2003. Included in these
balances were nonperforming loans held-for-sale and leveraged lease
partnership interests of $100 million and $23 million, respectively, at
December 31, 2004 and $183 million and $3 million, respectively, at
December 31, 2003.
(1) 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.
(2) Certain loan and lease products, including commercial credit card, are not classified as
nonperforming; therefore, the charge-offs on these loans are not included above.
(3) Primarily related to international securities held in the AFS securities portfolio.
Domestic commercial loans past due 90 days or more and still accruing
interest were $121 million at December 31, 2004 compared to $108
million at December 31, 2003. The increase was driven by the addition
of the FleetBoston past due portfolio of $28 million on April 1, 2004.
68 BANK OF AMERICA 2004
Provision for Credit Losses
The Provision for Credit Losses was $2.8 billion in 2004, a two percent
decline, despite the addition of the FleetBoston portfolio. The consumer
portion of the Provision for Credit Losses increased to $3.6 billion in
2004 driven by consumer net charge-offs of $2.8 billion. Organic
growth, overall seasoning of credit card accounts, the return of secu-
ritized loans to the balance sheet, and increases in minimum pay-
ment requirements drove higher consumer net charge-offs and
consumer provision. The commercial portion of the Provision for
Credit Losses was a negative $623 million in 2004 with commercial
net charge-offs of $356 million. The commercial provision decreased
due to continued commercial credit quality improvement. The
Provision for Credit Losses included a negative $70 million related to
changes in the general portion of the Allowance for Loan and Lease
Losses due to improved economic conditions. The Provision for Credit
Losses also included a negative $99 million related to changes in the
reserve for unfunded lending commitments due to continued com-
mercial credit quality improvement and improved economic conditions.
We expect that continued seasoning of credit card accounts, the
return of approximately $4.5 billion of securitized loans to the balance
sheet in 2005 and increased minimum payment requirements will
result in higher levels of consumer net charge-offs in 2005.
Commercial net charge-offs may return to more normalized levels dur-
ing 2005. These anticipated increases in net charge-offs, coupled with
less dramatic improvement in commercial credit quality than experi-
enced in 2004, are expected to result in increases in the consumer
and commercial portions of the Provision for Credit Losses in 2005.
Allowance for Credit Losses
Allowance for Loan and Lease Losses
The Allowance for Loan and Lease Losses is allocated based on three
components. We evaluate the adequacy of the Allowance for Loan and
Lease Losses based on the combined total of these three components.
The first component of the Allowance for Loan and Lease
Losses covers those commercial loans that are either nonperforming
or impaired. An allowance is allocated when the discounted cash
flows (or collateral value or observable market price) are lower than
the carrying value of that loan. For purposes of computing the spe-
cific loss component of the allowance, larger impaired loans are eval-
uated individually and smaller impaired loans are evaluated as a pool
using historical loss experience for the respective product type and
risk rating of the loans.
The second component of the Allowance for Loan and Lease
Losses covers performing commercial loans and leases, and consumer
loans. The allowance for commercial loans and leases is established
by product type after analyzing historical loss experience, by internal
risk rating, current economic conditions and performance trends
within each portfolio segment. The commercial historical loss experi-
ence is updated quarterly to incorporate the most recent data reflec-
tive of the current economic environment. As of December 31, 2004,
this resulted in an immaterial decrease to the commercial allowance
for loan losses from updating the historical loss experience. The
allowance for consumer loans is based on aggregated portfolio seg-
ment evaluations, generally by product type. Loss forecast models are
utilized for consumer products that consider a variety of factors includ-
ing, but not limited to, historical loss experience, estimated defaults or
foreclosures based on portfolio trends, delinquencies, economic trends
and credit scores. These consumer loss forecast models are updated
on a quarterly basis in order to incorporate information reflective of the
current economic environment. As of December 31, 2004, this resulted
in an immaterial increase to the allowance for consumer loan and lease
losses from updating the loss forecast models.
The third, or general component of the Allowance for Loan and
Lease Losses is maintained to cover uncertainties that affect our
estimate of probable losses. These uncertainties include the impre-
cision inherent in the forecasting methodologies, as well as domes-
tic and global economic uncertainty and large single name defaults
or event risk. We assess these components, and consider other cur-
rent events, like the Merger, and other conditions, to determine the
overall level of the third component. The relationship of the third com-
ponent to the total Allowance for Loan and Lease Losses may fluctu-
ate from period to period.
We monitor differences between estimated and actual incurred
loan and lease losses. This monitoring process includes periodic
assessments by senior management of loan and lease portfolios and
the models used to estimate incurred losses in those portfolios.
Additions to the Allowance for Loan and Lease Losses are made
by charges to the Provision for Credit Losses. Credit exposures
deemed to be uncollectible are charged against the Allowance for
Loan and Lease Losses. Recoveries of previously charged off
amounts are credited to the Allowance for Loan and Lease Losses.
The Allowance for Loan and Lease Losses for the consumer
portfolio as presented in Table 25 increased $1.3 billion to $3.8 billion
from December 31, 2003 due to the addition of $592 million on April
1, 2004 of FleetBoston allowance for consumer loan and lease
losses, and continued organic growth in consumer loans, primarily
credit card. The Allowance for Loan and Lease Losses on the credit
card portfolio increased $1.2 billion to $2.8 billion driven by the
$466 million addition related to the FleetBoston on-balance sheet
card portfolio on April 1, 2004, organic credit card portfolio growth,
the return of previously securitized credit card balances to the balance
sheet and increases in the minimum payment requirements.
BANK OF AMERICA 2004 69
The allowance for commercial loan and lease losses as presented
in Table 25 was $3.2 billion at December 31, 2004, a $726 million
increase from December 31, 2003. This increase was due to the
addition on April 1, 2004 of $1.7 billion of FleetBoston allowance for
commercial loans and leases to the portfolio partially offset by reduc-
tions resulting from improvement in the commercial loan portfolio.
Commercial credit quality continues to improve as reflected in the
continued declines in both commercial criticized exposure and com-
mercial nonperforming loans and leases. Specific reserves on com-
mercial impaired loans decreased $189 million, or 48 percent, in
2004, reflecting the decrease in our investment in specific loans con-
sidered impaired of $910 million to $1.2 billion at December 31,
2004. The net decrease of $910 million included the addition of
FleetBoston impaired loans on April 1, 2004 of $914 million offset
by net decreases of $1.8 billion in 2004. The decreased levels of crit-
icized, nonperforming and impaired loans, and the respective
reserves were driven by overall improvement in commercial credit
quality, including paydowns and payoffs, loan sales, net charge-offs
and returns to performing status.
The general portion of the Allowance for Loan and Lease Losses
increased $438 million during 2004. The addition of FleetBoston
general reserves on April 1, 2004 accounted for $508 million of the
increase. Although uncertainty regarding the depth and pace of the
economic recovery existed early in the year, the fourth quarter demon-
strated a strengthening of the economy, which led to a reduction in gen-
eral reserves of $70 million in 2004.
Reserve for Unfunded Lending Commitments
In addition to the Allowance for Loan and Lease Losses, we also estimate
probable losses related to unfunded lending commitments, such as
letters of credit and financial guarantees, and binding unfunded loan
commitments. Unfunded lending commitments are subject to individ-
ual 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, current
economic conditions and performance trends within specific portfolio
segments, and any other pertinent information result in the estima-
tion of the reserve for unfunded lending commitments. The reserve
for unfunded lending commitments is included in Accrued Expenses
and Other Liabilities on the Consolidated Balance Sheet.
We monitor differences between estimated and actual incurred
credit losses. This monitoring process includes periodic assess-
ments by senior management of credit portfolios and the models
used to estimate incurred losses in those portfolios.
Additions to the reserve for unfunded lending commitments are
made by charges to the Provision for Credit Losses. Credit exposures
(excluding derivatives) deemed to be uncollectible are charged
against the reserve.
The reserve for unfunded lending commitments decreased $14
million from December 31, 2003, primarily due to improved economic
conditions and improvement in the level of criticized letters of credit,
partially offset by the addition of $85 million of reserves on April 1,
2004 associated with FleetBoston unfunded lending commitments.
70 BANK OF AMERICA 2004
Table 24 presents a rollforward of the allowance for credit losses for five years ending December 31, 2004.
Table 24 Allowance for Credit Losses
(Dollars in millions)
Allowance for loan and lease losses, January 1
FleetBoston balance, April 1, 2004
Loans and leases charged off
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer(1)
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total loans and leases charged off
Recoveries of loans and leases previously charged off
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total recoveries of loans and leases previously charged off
Net charge-offs
Provision for loan and lease losses(2)
Transfers(3)
Allowance for loan and lease losses, December 31
Reserve for unfunded lending commitments, January 1
FleetBoston balance, April 1, 2004
Provision for unfunded lending commitments
Reserve for unfunded lending commitments, December 31
Total
Loans and leases outstanding at December 31
Allowance for loan and lease losses as a percentage of loans
and leases outstanding at December 31
Consumer allowance for loan and lease losses as a percentage
of consumer loans and leases outstanding at December 31
Commercial allowance for loan and lease losses as a percentage
of commercial loans and leases outstanding at December 31
Average loans and leases outstanding during the year
Net charge-offs as a percentage of average loans and leases
outstanding during the year
Allowance for loan and lease losses as a percentage of nonperforming
loans and leases at December 31
Ratio of the allowance for loan and lease losses at December 31
to net charge-offs
(1) Includes $635 related to the exit of the subprime real estate lending business in 2001.
(2) Includes $395 related to the exit of the subprime real estate lending business in 2001.
(3) Includes primarily transfers to loans held-for-sale.
$
2004
6,163
2,763
$
2003
6,358
–
$
2002
6,278
–
$
2001
6,365
–
$
2000
6,314
–
(62)
(2,536)
(38)
(344)
(295)
(3,275)
(504)
(12)
(39)
(262)
(817)
(4,092)
26
231
23
136
102
518
327
15
30
89
461
979
(3,113)
2,868
(55)
8,626
416
85
(99)
402
$
9,028
$521,837
(64)
(1,657)
(38)
(322)
(343)
(2,424)
(857)
(46)
(132)
(408)
(1,443)
(3,867)
24
143
26
141
88
422
224
5
8
102
339
761
(3,106)
2,916
(5)
6,163
493
–
(77)
416
$
6,579
$371,463
(56)
(1,210)
(40)
(355)
(395)
(2,056)
(1,625)
(45)
(168)
(566)
(2,404)
(4,460)
14
116
14
145
99
388
314
7
9
45
375
763
(3,697)
3,801
(24)
6,358
597
–
(104)
493
$
6,851
$342,755
(39)
(753)
(32)
(389)
(1,216)
(2,429)
(2,021)
(46)
(99)
(249)
(2,415)
(4,844)
13
81
13
139
135
381
167
7
4
41
219
600
(4,244)
4,163
(6)
6,278
473
–
124
597
$
6,875
$329,153
(36)
(392)
(29)
(395)
(582)
(1,434)
(1,396)
(31)
(17)
(117)
(1,561)
(2,995)
9
54
9
149
197
418
122
20
4
31
177
595
(2,400)
2,576
(125)
6,365
514
–
(41)
473
$
6,838
$392,193
1.65%
1.66%
1.85%
1.91%
1.62%
1.17
1.06
0.95
1.12
0.97
1.64
$472,645
1.87
$356,148
2.43
$336,819
2.16
$365,447
1.81
$392,622
0.66%
0.87%
1.10%
1.16%
0.61%
390
2.77
215
1.98
126
1.72
139
1.48
122
2.65
BANK OF AMERICA 2004 71
For reporting purposes, we allocate the allowance for credit losses across products. However, the allowance is available to absorb any credit
losses without restriction. Table 25 presents our allocation by product type.
Table 25 Allocation of the Allowance for Credit Losses by Product Type
(Dollars in millions)
Allowance for loan and
lease losses
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial(1)
General
Allowance for loan and
lease losses
Reserve for unfunded lending
commitments
Total
2004
2003
December 31
2002
2001
2000
nnnnnnnn
FleetBoston
April 1, 2004
Amount Percent
Amount Percent
Amount Percent
Amount Percent
Amount Percent
nnnnnnnn
Amount Percent
$ 199
2,757
92
405
382
3,835
1,382
505
365
926
3,178
1,613
2.3%
32.0
1.1
4.7
4.4
44.5
16.0
5.9
4.2
10.7
36.8
18.7
$ 149
1,602
61
340
384
2,536
1,257
413
207
575
2,452
1,175
2.4%
26.0
1.0
5.5
6.2
41.1
20.4
6.7
3.4
9.3
39.8
19.1
$ 108
1,031
49
361
332
1,881
2,231
439
n/a
855
3,525
952
1.7%
16.2
0.8
5.7
5.2
29.6
35.1
6.9
n/a
13.4
55.4
15.0
$ 145
821
83
367
443
1,859
1,901
905
n/a
730
3,536
883
2.3%
13.1
1.3
5.8
7.1
29.6
30.3
14.4
n/a
11.6
56.3
14.1
$ 151
549
77
320
733
1,830
1,926
980
n/a
778
3,684
851
$
2.4%
8.6
1.2
5.0
11.5
nnnnnnnn
28.7
nnnnnnnn
30.3
15.4
n/a
12.2
nnnnnnnn
40
466
17
43
26
592
704
264
84
611
57.9
nnnnnnnn
13.4
nnnnnnnn
1,663
508
1.4%
16.9
0.6
1.6
0.9
21.4
25.5
9.6
3.0
22.1
60.2
18.4
8,626
100.0%
6,163
100.0%
6,358
100.0%
6,278
100.0%
6,365
100.0%
nnnnnnnn
2,763
100.0%
402
$ 9,028
416
$ 6,579
493
$ 6,851
597
$ 6,875
473
$ 6,838
85
$ 2,848
nnnnnnnn
nnnnnnnn
(1) Includes allowance for loan and lease losses of commercial impaired loans of $202, $391, $919, $763 and $640 at December 31, 2004, 2003, 2002, 2001 and 2000, respectively.
n/a = Not available; included in commercial - domestic at December 31, 2002, 2001 and 2000.
Market Risk Management
Market risk is the risk that values of assets and liabilities or revenues
will be adversely affected by changes in market conditions such as
market movements. This risk is inherent in the financial instruments
associated with our operations and/or activities including loans,
deposits, securities, short-term borrowings, long-term debt, trading
account assets and liabilities, and derivatives. Market-sensitive
assets and liabilities are generated through loans and deposits
associated with our traditional banking business, our customer and
proprietary trading operations, our ALM process, credit risk mitigation
activities, and mortgage banking activities.
Problem Loan Management
Banc of America Strategic Solutions, Inc. (SSI) is a majority-owned
consolidated subsidiary of Bank of America, N.A., a wholly owned
subsidiary of the Corporation, which manages problem asset resolu-
tion and the coordination of exit strategies. This may include bulk
sales, collateralized debt obligations and other resolutions of domes-
tic commercial distressed assets and, beginning in 2004, certain
consumer distressed loans.
During 2004 and 2003, Bank of America, N.A. sold commercial
loans with a gross book balance of approximately $1.0 billion and
$3.0 billion, respectively, to SSI. In addition, in December of 2004,
Bank of America, N.A. and NationsCredit Financial Services
Corporation sold manufactured housing loans with a gross book bal-
ance of $2.9 billion, to SSI. For tax purposes, under the Code, the
sales were treated as a taxable exchange. The sales had no financial
statement impact on us because the sales were transfers among
entities under common control, and there was no change in the
individual loan resolution strategies.
72 BANK OF AMERICA 2004
Our traditional banking loan and deposit products are nontrading
positions and are reported at amortized cost for assets or the amount
owed for liabilities (historical cost). While the accounting rules require
a historical cost view of traditional banking assets and liabilities,
these positions are still subject to changes in economic value based
on varying market conditions. Interest rate risk is the effect of
changes in the economic value of our loans and deposits, as well as
our other interest rate sensitive instruments, and is reflected in the
levels of future income and expense produced by these positions ver-
sus levels that would be generated by current levels of interest rates.
We seek to mitigate interest rate risk as part of the ALM process.
We seek to mitigate trading risk within our prescribed risk
appetite using hedging techniques. Trading positions are reported at
estimated market value with changes reflected in income. Trading
positions are subject to various risk factors, which include exposures
to interest rates and foreign exchange rates, as well as mortgage,
equity market, commodity and issuer credit risk factors. We seek to
mitigate these risk exposures by utilizing a variety of financial instru-
ments. The following discusses the key risk components along with
respective risk mitigation techniques.
Interest Rate Risk
Interest rate risk represents exposures we have to instruments
whose values vary with the level of interest rates. These instruments
include, but are not limited to, loans, debt securities, certain trading-
related assets and liabilities, deposits, borrowings and derivative
instruments. We seek to mitigate risks associated with the expo-
sures in a variety of ways that typically involve taking offsetting posi-
tions in cash or derivative markets. The cash and derivative
instruments allow us to seek to mitigate risks by reducing the effect
of movements in the level of interest rates, changes in the shape of
the yield curve as well as changes in interest rate volatility. Hedging
instruments used to mitigate these risks include related derivatives
such as options, futures, forwards and swaps.
Foreign Exchange Risk
Foreign exchange risk represents exposures we have to changes in
the values of current holdings and future cash flows denominated in
other currencies. The types of instruments exposed to this risk
include investments in foreign subsidiaries, foreign currency-denomi-
nated loans, foreign currency-denominated securities, future cash
flows in foreign currencies arising from foreign exchange transac-
tions, and various foreign exchange derivative instruments whose val-
ues fluctuate with changes in currency exchange rates or foreign
interest rates. Instruments used to mitigate this risk are foreign
exchange options, currency swaps, futures, forwards and deposits.
These instruments help insulate us against losses that may arise
due to volatile movements in foreign exchange rates or interest rates.
Mortgage Risk
Our exposure to mortgage risk takes several forms. First, we trade
and engage in market-making activities in a variety of mortgage
securities, including whole loans, pass-through certificates, commer-
cial mortgages, and collateralized mortgage obligations. Second, we
originate a variety of asset-backed securities, which involves the
accumulation of mortgage-related loans in anticipation of eventual
securitization. Third, we may hold positions in mortgage securities
and residential mortgage loans as part of the ALM portfolio. Fourth,
we create MSRs as part of our mortgage activities. See Notes 1 and
8 of the Consolidated Financial Statements for additional information
on MSRs. These activities generate market risk since these instru-
ments are sensitive to changes in the level of market interest rates,
changes in mortgage prepayments and interest rate volatility.
Options, futures, forwards, swaps, swaptions, U.S. Treasury securi-
ties and mortgage-backed securities are used to hedge mortgage risk
by seeking to mitigate the effects of changes in interest rates.
Equity Market Risk
Equity market risk arises from exposure to securities that represent an
ownership interest in a corporation in the form of common stock or other
equity-linked instruments. The instruments held that would lead to this
exposure include, but are not limited to, the following: common stock,
listed equity options (puts and calls), over-the-counter equity options,
equity total return swaps, equity index futures and convertible bonds. We
seek to mitigate the risk associated with these securities via hedging on
a portfolio or name basis that focuses on reducing volatility from
changes in stock prices. Instruments used for risk mitigation include
options, futures, swaps, convertible bonds and cash positions.
Commodity Risk
Commodity risk represents exposures we have to products traded in the
petroleum, natural gas, metals and power markets. Our principal expo-
sure to these markets emanates from customer-driven transactions.
These transactions consist primarily of futures, forwards, swaps and
options. We seek to mitigate exposure to the commodity markets with
instruments including, but not limited to, options, futures and swaps in
the same or similar commodity product, as well as cash positions.
Issuer Credit Risk
Our portfolio is exposed to issuer credit risk where the value of an
asset may be adversely impacted for various reasons directly related
to the issuer, such as management performance, financial leverage
or reduced demand for the issuer’s goods or services. Perceived
changes in the creditworthiness of a particular debtor or sector can
have significant effects on the replacement costs of both cash and
derivative positions. We seek to mitigate the impact of credit
spreads, credit migration and default risks on the market value of the
trading portfolio with the use of credit default swaps, and credit fixed
income and similar securities.
BANK OF AMERICA 2004 73
Trading Risk Management
Trading-related revenues represent the amount earned from our trading
positions, which include trading account assets and liabilities, as well
as derivative positions and, prior to the conversion of the Certificates
into MSRs, market value adjustments to the Certificates and the
MSRs. Trading positions are taken in a diverse range of financial
instruments and markets. Trading account assets and liabilities, and
derivative positions are reported at fair value. MSRs are reported at
lower of cost or market. For more information on fair value, see
Complex Accounting Estimates beginning on page 78. For additional
information on MSRs, see Notes 1 and 8 of the Consolidated
Financial Statements. Trading Account Profits represent the net
amount earned from our trading positions and, as reported in the
Consolidated Statement of Income, do not include the Net Interest
Income recognized on trading positions, or the related funding charge
or benefit. Trading Account Profits can be volatile and are largely
driven by general market conditions and customer demand. Trading
Account Profits are dependent on the volume and type of transactions,
the level of risk assumed, and the volatility of price and rate movements
at any given time within the ever-changing market environment.
The histogram of daily revenue or loss below is a graphic
depiction of trading volatility and illustrates the level of trading-
related revenue for 2004. Trading-related revenue encompasses both
proprietary trading and customer-related activities. In 2004, positive
trading-related revenue was recorded for 87 percent of trading days.
Furthermore, only five percent of the total trading days had losses
greater than $10 million, and the largest loss was $27 million. This
can be compared to 2003 and 2002 as follows:
• In 2003, positive trading-related revenue was recorded for 88
percent of trading days and only four percent of total trading
days had losses greater than $10 million, and the largest loss
was $41 million.
• In 2002, positive trading-related revenue was recorded for 86
percent of trading days and only five percent of total trading
days had losses greater than $10 million, and the largest loss
was $32 million.
Histogram of Daily Trading-related Revenue
Twelve Months Ended December 31, 2004
s
y
a
D
f
o
r
e
b
m
u
N
80
70
60
50
40
30
20
10
0
< -50
-50 to -40
-40 to -30
-30 to -20
-20 to -10
-10 to 0
0 to 10
10 to 20
20 to 30
30 to 40
40 to 50
> 50
Revenue
(Dollars in millions)
The above histogram does not include two losses greater than
$50 million associated with MSRs as the losses were related to
model changes rather than market changes in the portfolio. For
additional information on MSRs, see Notes 1 and 8 of the
Consolidated Financial Statements.
To evaluate risk in our trading activities, we focus on the actual
and potential volatility of individual positions as well as portfolios. At
a portfolio and corporate level, we use Value-at-Risk (VAR) modeling
and stress testing. VAR is a key statistic used to measure and man-
age market risk. Trading limits and VAR are used to manage day-to-
day risks and are subject to testing where we compare expected
performance to actual performance. This testing provides us a view
of our models’ predictive accuracy. All limit excesses are communicated
to senior management for review.
A VAR model estimates a range of hypothetical scenarios within
which the next day’s profit or loss is expected. These estimates are
impacted by the nature of the positions in the portfolio and the cor-
relation within the portfolio. Within any VAR model, there are signifi-
cant and numerous assumptions that will differ from company to
company. Our VAR model assumes a 99 percent confidence level.
Statistically this means that losses will exceed VAR, on average, one
out of 100 trading days, or two to three times each year.
In addition to reviewing our underlying model assumptions with
senior management, we seek to mitigate the uncertainties related to
these assumptions and estimates through close monitoring and by
updating the assumptions and estimates on an ongoing basis. If the
results of our analysis indicate higher than expected levels of risk,
proactive measures are taken to adjust risk levels.
74 BANK OF AMERICA 2004
The following graph shows actual losses did not exceed VAR in 2004. Actual losses exceeded VAR twice during 2003.
Trading Risk and Return
Daily VAR and Trading-related Revenue
100
80
60
40
20
0
-20
-40
-60
-80
-100
)
s
n
o
i
l
l
i
m
n
i
s
r
a
l
l
o
D
(
Daily Trading-
related Revenue
VAR
12/31/03
3/31/04
6/30/04
9/30/04
12/31/04
Table 26 presents average, high and low daily VAR for 2004 and 2003.
Table 26 Trading Activities Market Risk
(Dollars in millions)
Foreign exchange
Interest rate
Credit(2)
Real estate/mortgage(3)
Equities
Commodities
Portfolio diversification
Total trading portfolio
Total market-based trading portfolio(4)
Twelve Months Ended December 31
Average
VAR
$ 3.6
26.2
35.7
10.5
21.8
6.5
(56.3)
$ 48.0
$ 44.1
2004
High
VAR(1)
$ 8.1
51.5
61.4
26.0
51.5
10.2
–
$ 78.5
$ 79.0
Low
VAR(1)
$ 1.4
10.7
21.9
4.6
7.9
3.8
–
$ 29.4
$ 23.7
Average
VAR
$ 4.1
27.0
20.7
14.1
19.9
8.7
(60.9)
$ 33.6
$ 33.2
2003
High
VAR(1)
$ 7.8
65.2
32.6
41.4
53.8
19.3
–
$ 91.0
$ 82.0
Low
VAR(1)
$ 2.1
15.1
14.9
3.6
6.6
4.1
–
$ 11.2
$ 11.8
(1) The high and low for the total portfolio may not equal the sum of the individual components as the highs or lows of the individual portfolios may have occurred on different trading days.
(2) Credit includes credit fixed income and credit default swaps used for credit risk management. Average VAR for credit default swaps was $23.5 and $20.9 in 2004 and 2003, respectively.
(3) Real estate/mortgage includes capital market real estate and the Certificates. Effective June 1, 2004, Real estate/mortgage no longer includes the Certificates. For additional information on the
Certificates, see Note 1 of the Consolidated Financial Statements.
(4) Total market-based trading portfolio excludes credit default swaps used for credit risk management, net of the effect of diversification.
Approximately $4 million of the increase in average VAR for 2004 was
attributable to the addition of FleetBoston in the second quarter of
2004. The remaining increase in average VAR for 2004 was primarily
due to increases in the average risk taken in credit and equities. The
increase in equities was mainly due to the increased economic risk
from customer-facilitated transactions that were held in inventory dur-
ing portions of 2004. The increase in credit was mainly due to an
increase in credit protection purchased to hedge the credit risk in our
commercial credit portfolio.
Stress Testing
Because the very nature of a VAR model suggests results can exceed
our estimates, we “stress test” our portfolio. Stress testing estimates
the value change in our trading portfolio due to abnormal market
movements. Various stress scenarios are run regularly against the
trading portfolio to verify that, even under extreme market moves, we
will preserve our capital; to determine the effects of significant his-
torical events; and to determine the effects of specific, extreme hypo-
thetical, but plausible events. The results of the stress scenarios are
calculated daily and reported to senior management as part of the
regular reporting process. The results of certain specific, extreme
hypothetical scenarios are presented to ALCO.
BANK OF AMERICA 2004 75
Securities
The securities portfolio is integral to our ALM process. The decision
to purchase or sell securities is based upon the current assessment
of economic and financial conditions, including the interest rate envi-
ronment, liquidity and regulatory requirements, and the relative mix of
our cash and derivative positions. During 2004 and 2003, we pur-
chased securities of $232.6 billion and $195.9 billion, respectively,
sold $105.0 billion and $171.5 billion, respectively, and received pay-
downs of $31.8 billion and $27.2 billion, respectively. Not included in
the purchases above were $46.7 billion of forward purchase con-
tracts of both mortgage-backed securities and mortgage loans at
December 31, 2004 settling from January 2005 to February 2005
with an average yield of 5.26 percent, and $65.2 billion of forward
purchase contracts of both mortgage-backed securities and mort-
gage loans at December 31, 2003 that settled from January 2004 to
February 2004 with an average yield of 5.79 percent. There were also
$25.8 billion of forward sale contracts of mortgage-backed securities
at December 31, 2004 settling from January 2005 to February 2005
with an average yield of 5.47 percent compared to $8.0 billion at
December 31, 2003 that settled in February 2004 with an average
yield of 6.14 percent. These forward purchase and sale contracts
were accounted for as derivatives and designated as cash flow
hedges with their net-of-tax unrealized gains and losses included in
Accumulated Other Comprehensive Income (OCI). For additional infor-
mation on derivatives designated as cash flow hedges, see Note 4 of
the Consolidated Financial Statements. The forward purchase and
sale contracts at December 31, 2004 and 2003 were also included in
Table IV on pages 88 and 89. During the year, we continuously moni-
tored the interest rate risk position of the portfolio and repositioned
the securities portfolio in order to manage prepayment risk and to take
advantage of interest rate fluctuations. Through sales in the securities
portfolio, we realized $2.1 billion and $941 million in Gains on Sales
of Debt Securities in 2004 and 2003, respectively.
Interest Rate Risk Management
Interest rate risk represents the most significant market risk exposure
to our nontrading financial instruments. Our overall goal is to manage
interest rate sensitivity so that movements in interest rates do not
adversely affect Net Interest Income. Interest rate risk is measured
as the potential volatility in our Net Interest Income caused by
changes in market interest rates. Client facing activities, primarily
lending and deposit-taking, create interest rate sensitive positions on
our Balance Sheet. Interest rate risk from these activities as well as
the impact of ever-changing market conditions, is mitigated using the
ALM process.
Sensitivity simulations are used to estimate the impact on Net
Interest Income of numerous interest rate scenarios, balance sheet
trends and strategies. These simulations estimate levels of short-
term financial instruments, debt securities, loans, deposits, borrow-
these simulations
ings and derivative instruments. In addition,
incorporate assumptions about balance sheet dynamics such as loan
and deposit growth and pricing, changes in funding mix, and asset
and liability repricing and maturity characteristics. In addition to Net
Interest Income sensitivity simulations, market value sensitivity
measures are also utilized.
The Balance Sheet Management group maintains a Net Interest
Income forecast utilizing different rate scenarios, with the base case
utilizing the forward market curve. The Balance Sheet Management
group constantly updates the Net Interest Income forecast for chang-
ing assumptions and differing outlooks based on economic trends
and market conditions.
The Balance Sheet Management group reviews the impact on
Net Interest Income of parallel and nonparallel shifts in the yield curve
over different time horizons. The overall interest rate risk position and
strategies are reviewed on an ongoing basis with ALCO. At December
31, 2004, we remain positioned for future rising interest rates and
curve flattening to the extent implied by the forward market curve.
The estimated impact to Net Interest Income over the subse-
quent year from December 31, 2004, resulting from a 100 bp grad-
ual (over 12 months) parallel increase or decrease in interest rates
from the forward market curve calculated as of December 31, 2004
was (1.5) percent and 0.5 percent, respectively. The estimated
impact to Net Interest Income over the subsequent year from
December 31, 2003, resulting from a 100 bp gradual (over 12
months) parallel increase or decrease in interest rates from the for-
ward market curve calculated as of December 31, 2003, was (1.1)
percent and 1.2 percent, respectively.
As part of the ALM process, we use securities, residential
mortgages, and interest rate and foreign exchange derivatives in
managing interest rate sensitivity.
76 BANK OF AMERICA 2004
Mortgage Banking Risk Management
We manage changes in the value of MSRs by entering into derivative
financial instruments and by purchasing and selling securities. MSRs
are assets created when the underlying mortgage loan is sold to
investors and we retain the right to service the loan. As of December
31, 2004, the MSR balance was $2.5 billion, or 10 percent lower
than December 31, 2003.
We designate certain derivatives such as purchased options
and interest rate swaps as fair value hedges of specified MSRs under
SFAS 133. At December 31, 2004, the amount of MSRs identified as
being hedged by derivatives in accordance with SFAS 133 was
approximately $1.8 billion. The notional amount of the derivative con-
tracts designated as SFAS 133 hedges of MSRs at December 31,
2004 was $18.5 billion. The changes in the fair values of the deriv-
ative contracts are substantially offset by changes in the fair values
of the MSRs that are hedged by these derivative contracts. During
2004, derivative hedge gains of $228 million were offset by a
decrease in the value of the MSRs of $210 million resulting in $18
million of hedge ineffectiveness.
From time to time, we hold additional derivatives and certain
securities (i.e. mortgage-backed securities) as economic hedges of
MSRs, which are not designated as SFAS 133 accounting hedges.
During 2004, Gains on Sales of Debt Securities of $117 million and
$65 million of Interest Income from Securities used as an economic
hedge of MSRs were realized. At December 31, 2004, the amount of
MSRs covered by such economic hedges was $564 million. The car-
rying value of AFS securities held as economic hedges of MSRs was
$1.9 billion at December 31, 2004. The related net-of-tax unrealized
gain on these AFS securities, which is recorded in Accumulated OCI,
was $13 million at December 31, 2004.
See Notes 1 and 8 of the Consolidated Financial Statements for
additional information.
Residential Mortgage Portfolio
In 2004 and 2003, we purchased $65.9 billion and $92.8 billion,
respectively, of residential mortgages for our ALM portfolio and inter-
est rate risk management. Not included in the purchases above were
$3.3 billion of forward purchase commitments of mortgage loans at
December 31, 2004 settling from January 2005 to February 2005
and $4.6 billion at December 31, 2003 that settled in January 2004.
These commitments, included in Table IV on pages 88 and 89, were
accounted for as derivatives and designated as cash flow hedges,
and their net-of-tax unrealized gains and losses were included in
Accumulated OCI. During 2004, there were no sales of whole mort-
gage loans. In 2003, we sold $27.5 billion of whole mortgage loans
and recognized $772 million in gains on the sales included in Other
Noninterest Income. Additionally, during the same periods, we
received paydowns of $44.4 billion and $62.8 billion, respectively.
Interest Rate and Foreign Exchange Derivative Contracts
Interest rate and foreign exchange derivative contracts are utilized in
our ALM process and serve as an efficient, low-cost tool to mitigate
our risk. We use derivatives to hedge or offset the changes in cash
flows or market values of our Balance Sheet. See Note 4 of the
Consolidated Financial Statements for additional information on our
hedging activities.
Our interest rate contracts are generally nonleveraged generic
interest rate and basis swaps, options, futures, and forwards. In addi-
tion, we use foreign currency contracts to mitigate the foreign
exchange risk associated with foreign currency-denominated assets
and liabilities, as well as our equity investments in foreign sub-
sidiaries. Table IV, on pages 88 and 89, reflects the notional
amounts, fair value, weighted average receive fixed and pay fixed
rates, expected maturity, and estimated duration of our ALM deriva-
tives at December 31, 2004 and 2003.
Consistent with our strategy of managing interest rate sensitiv-
ity to mitigate changes in value of other financial instruments, the
notional amount of our net received fixed interest rate swap position
decreased $11.7 billion to $9.5 billion at December 31, 2004 com-
pared to December 31, 2003. The net option position increased
$238.9 billion to $323.8 billion at December 31, 2004 compared to
December 31, 2003 to offset interest rate risk in other portfolios.
The changes in our swap and option positions were part of our interest
sensitivity management.
BANK OF AMERICA 2004 77
Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems, including system conver-
sions and integration, and external events. Successful operational
risk management is particularly important to a diversified financial
services company like ours because of the very nature, volume and
complexity of our various businesses.
In keeping with our management governance structure, the lines
of business are responsible for all the risks within the business
including operational risks. Such risks are managed through corpo-
rate-wide or line of business specific policies and procedures, con-
trols, and monitoring tools. Examples of these include personnel
management practices, data reconciliation processes, fraud man-
agement units, transaction processing monitoring and analysis, busi-
ness recovery planning, and new product introduction processes.
We approach operational risk from two perspectives, enterprise-
wide and line of business-specific. The Compliance and Operational
Risk Committee (CORC), chartered in 2005 as a subcommittee of the
Finance Committee, provides consistent communication and over-
sight of significant operational and compliance issues and oversees
the adoption of best practices. Two groups within Risk Management,
Compliance Risk Management and Enterprise Operational Risk, facil-
itate the consistency of effective policies, industry best practices,
controls and monitoring tools for managing and assessing opera-
tional risks across the Corporation. These groups also work with the
line of business executives and their risk counterparts to implement
appropriate policies, processes and assessments at the line of busi-
ness level and support groups. Compliance and operational risk
awareness is also driven across the Corporation through training and
strategic communication efforts. For selected risks, we establish spe-
cialized support groups, for example, Information Security and Supply
Chain Management. These specialized groups develop corporate-
wide risk management practices, such as an information security pro-
gram and a supplier program to ensure suppliers adopt appropriate
policies and procedures when performing work on behalf of the
Corporation. These specialized groups also assist the lines of busi-
ness in the development and implementation of risk management
practices specific to the needs of the individual businesses.
At the line of business level,
the Line of Business Risk
Executives are responsible for adherence to corporate practices and
oversight of all operational risks in the line of business they support.
Operational and compliance risk management, working in conjunction
with senior line of business executives, have developed key tools to
help manage, monitor and summarize operational risk. One tool the
businesses and executive management utilize is a corporate-wide
self-assessment process, which helps to identify and evaluate the
status of risk issues, including mitigation plans, if appropriate. Its
goal is to continuously assess changing market and business condi-
tions and evaluate all operational risks impacting the line of busi-
ness. The self-assessment process assists in identifying emerging
operational risk issues and determining at the line of business or cor-
porate level how they should be managed. In addition to information
gathered from the self-assessment process, key operational risk indi-
cators have been developed and are used to help identify trends and
issues on both a corporate and a line of business level.
More generally, we mitigate operational risk through a broad-
based approach to process management and process improvement.
Improvement efforts are focused on reduction of variation in outputs.
We have a dedicated Quality and Productivity team to manage and
certify the process management and improvement efforts.
Recent Accounting and Reporting Developments
See Note 1 of the Consolidated Financial Statements for a discussion
of recent accounting and reporting developments.
Complex Accounting Estimates
Our significant accounting principles as described in Note 1 of the
Consolidated Financial Statements are essential in understanding
Management’s Discussion and Analysis of Results of Operations and
Financial Condition. Many of our significant accounting principles require
complex judgments to estimate values of assets and liabilities. We have
procedures and processes to facilitate making these judgments.
The more judgmental estimates are summarized below. We have
identified and described the development of the variables most
important in the estimation process that, with the exception of
accrued taxes, involves mathematical models to derive the esti-
mates. In many cases, there are numerous alternative judgments
that could be used in the process of determining the inputs to the
model. Where alternatives exist, we have used the factors that we
believe represent the most reasonable value in developing the
inputs. Actual performance that differs from our estimates of the key
variables could impact Net Income. Separate from the possible future
impact to Net Income from input and model variables, the value of
our lending portfolio and market sensitive assets and liabilities may
change subsequent to the balance sheet measurement, often signif-
icantly, due to the nature and magnitude of future credit and market
conditions. Such credit and market conditions may change quickly
and in unforeseen ways and the resulting volatility could have a sig-
nificant, negative effect on future operating results. These fluctuations
would not be indicative of deficiencies in our models or inputs.
78 BANK OF AMERICA 2004
Allowance for Credit Losses
The allowance for credit losses is our estimate of probable losses in
the loans and leases portfolio and within our unfunded lending
commitments. Changes to the allowance for credit losses are
reported in the Consolidated Statement of Income in the Provision for
Credit Losses. Our process for determining the allowance for credit
losses is discussed in the Credit Risk Management section beginning
on page 58 and Note 1 of the Consolidated Financial Statements.
Due to the variability in the drivers of the assumptions made in this
process, estimates of the portfolio’s inherent risks and overall col-
lectibility change with changes in the economy, individual industries,
countries and individual borrowers’ or counterparties’ ability and will-
ingness to repay their obligations. The degree to which any particular
assumption affects the allowance for credit losses depends on the
severity of the change and its relationship to the other assumptions.
Key judgments used in determining the allowance for credit losses
include: (i) risk ratings for pools of commercial loans and leases,
(ii) market and collateral values and discount rates for individually
evaluated loans, (iii) product type classifications for both consumer and
commercial loans and leases, (iv) loss rates used for both consumer
and commercial loans and leases, (v) adjustments made to assess
current events and conditions, (vi) considerations regarding domestic
and global economic uncertainty, and (vii) overall credit conditions.
Our Allowance for Loan and Lease Losses is sensitive to the
risk rating assigned to commercial loans and leases and to the loss
rates used for both the consumer and commercial portfolios.
Assuming a downgrade of one level in the internal risk rating for com-
mercial loans and leases, except loans already risk rated Doubtful as
defined by regulatory authorities, the Allowance for Loan and Lease
Losses for the commercial portfolio would increase by approximately
$1.6 billion at December 31, 2004. The Allowance for Loan and
Lease Losses as a percentage of loan and lease outstandings at
December 31, 2004 was 1.65 percent and this hypothetical increase
in the allowance would raise the ratio to approximately 2.0 percent.
A 10 percent increase in the loss rates used on both the consumer
and commercial loan and lease portfolios would increase the
Allowance for Loan and Lease Losses at December 31, 2004 by
approximately $370 million, of which $250 million would relate to
consumer and $120 million to commercial.
These sensitivity analyses do not represent management’s
expectations of the deterioration in risk ratings or the increases in
loss rates but are provided as hypothetical scenarios to assess the
sensitivity of the Allowance for Loan and Lease Losses to changes in
key inputs. We believe the risk ratings and loss severities currently in
use are appropriate and that the probability of a downgrade of one
level of the internal credit ratings for commercial loans and leases
within a short period of time is remote.
The process of determining the level of the allowance for credit
losses requires a high degree of judgment. It is possible that others,
given the same information, may at any point in time reach different
reasonable conclusions.
Fair Value of Financial Instruments
Trading Account Assets and Liabilities are recorded at fair value,
which is primarily based on actively traded markets where prices are
based on either direct market quotes or observed transactions.
Liquidity is a significant factor in the determination of the fair value
of Trading Account Assets or Liabilities. Market price quotes may not
be readily available for some positions, or positions within a market
sector where trading activity has slowed significantly or ceased.
Situations of illiquidity generally are triggered by the market’s per-
ception of credit uncertainty regarding a single company or a specific
market sector. In these instances, fair value is determined based on
limited available market information and other factors, principally
from reviewing the issuer’s financial statements and changes in
credit ratings made by one or more rating agencies. At December 31,
2004, $4.4 billion of Trading Account Assets were fair valued using
these alternative approaches, representing five percent of total
Trading Account Assets at December 31, 2004. An immaterial
amount of Trading Account Liabilities were fair valued using these
alternative approaches at December 31, 2004.
Trading Account Profits, which represent the net amount earned
from our trading positions, can be volatile and are largely driven by
general market conditions and customer demand. Trading Account
Profits are dependent on the volume and type of transactions, the
level of risk assumed, and the volatility of price and rate movements
at any given time. To evaluate risk in our trading activities, we focus
on the actual and potential volatility of individual positions as well as
portfolios. At a portfolio and corporate level, we use trading limits,
stress testing and tools such as VAR modeling, which estimates a
range within which the next day's profit or loss is expected, to measure
and manage market risk. At December 31, 2004, the amount of our
VAR was $47 million based on a 99 percent confidence interval. For
more information on VAR, see pages 74 and 75.
The fair values of Derivative Assets and Liabilities traded in the
over-the-counter market are determined using quantitative models
that require the use of multiple market inputs including interest
rates, prices and indices to generate continuous yield or pricing
curves and volatility factors, which are used to value the position. The
predominance of market inputs are actively quoted and can be vali-
dated through external sources, including brokers, market transac-
tions and third-party pricing services. Estimation risk is greater for
derivative asset and liability positions that are either option-based or
have longer maturity dates where observable market inputs are less
readily available or are unobservable, in which case quantitative-
based extrapolations of rate, price or index scenarios are used in
determining fair values.
BANK OF AMERICA 2004 79
The fair values of Derivative Assets and Liabilities include
adjustments for market liquidity, counterparty credit quality, future
servicing costs and other deal specific factors, where appropriate. To
ensure the prudent application of estimates and management judg-
ment in determining the fair value of Derivative Assets and Liabilities,
various processes and controls have been adopted, which include: a
Model Validation Policy that requires a review and approval of quanti-
tative models used for deal pricing, financial statement fair value
determination and risk quantification; a Trading Product Valuation
Policy that requires verification of all traded product valuations; and
a periodic review and substantiation of daily profit and loss reporting
for all traded products. These processes and controls are performed
independently within the business segment. At December 31, 2004,
the fair values of Derivative Assets and Liabilities determined by
these quantitative models were $10.3 billion and $7.3 billion, respec-
tively. These amounts reflect the full fair value of the derivatives and
do not isolate the discrete value associated with the subjective valu-
ation variable. Further, they represent five percent and four percent of
Derivative Assets and Liabilities, respectively, before the impact of
legally enforceable master netting agreements. For the period ended
December 31, 2004, there were no changes to the quantitative mod-
els, or uses of such models, that resulted in a material adjustment
to the Consolidated Statement of Income.
AFS Securities are recorded at fair value, which is generally
based on direct market quotes from actively traded markets.
Principal Investing
Principal Investing is included within Equity Investments and is dis-
cussed in more detail in Business Segment Operations on page 50.
Principal Investing is comprised of a diversified portfolio of invest-
ments in privately-held and publicly-traded companies at all stages,
from start-up to buyout. These investments are made either directly
in a company or held through a fund. Some of these companies may
need access to additional cash to support their long-term business
models. Market conditions and company performance may impact
whether funding is available from private investors or the capital
markets.
Investments with active market quotes are carried at estimated
fair value; however, the majority of our investments do not have
publicly available price quotations. At December 31, 2004, we had
nonpublic investments of $7.0 billion, or approximately 96 percent of
the total portfolio. Valuation of these investments requires significant
management judgment. Management determines values of the
underlying investments based on multiple methodologies including
in-depth semi-annual reviews of the investee’s financial statements
and financial condition, discounted cash flows, the prospects of the
investee’s industry, and current overall market conditions for similar
investments. In addition, on a quarterly basis as events occur or
information comes to the attention of management that indicates a
change in the value of an investment is warranted, investments are
adjusted from their original invested amount to estimated fair values
at the balance sheet date with changes being recorded in Equity
Investment Gains (Losses) in the Consolidated Statement of Income.
Investments are not adjusted above the original amount invested
unless there is clear evidence of a fair value in excess of the original
invested amount. This evidence is often in the form of a recent trans-
action in the investment. As part of the valuation process, senior
management reviews the portfolio and determines when an impair-
ment needs to be recorded. The Principal Investing portfolio is not
material to our Consolidated Balance Sheet, but the impact of the
valuation adjustments may be material to our operating results for
any particular quarter.
Accrued Income Taxes
As more fully described in Notes 1 and 17 of the Consolidated
Financial Statements, we account for income taxes in accordance
with SFAS No. 109, “Accounting for Income Taxes” (SFAS 109).
Accrued income taxes,
reported as a component of Accrued
Expenses and Other Liabilities on our Consolidated Balance Sheet,
represents the net amount of current income taxes we expect to pay
to or receive from various taxing jurisdictions attributable to our oper-
ations to date. We currently file income tax returns in more than 100
jurisdictions and consider many factors—including statutory, judicial
and regulatory guidance—in estimating the appropriate accrued
income taxes for each jurisdiction.
In applying the principles of SFAS 109, we monitor the state of
relevant tax authorities and change our estimate of accrued income
taxes due to changes in income tax laws and their interpretation by
the courts and regulatory authorities. These revisions of our estimate
of accrued income taxes, which also may result from our own income
tax planning and from the resolution of income tax controversies, can
materially affect our operating results for any given quarter.
80 BANK OF AMERICA 2004
Goodwill
The nature of and accounting for Goodwill is discussed in detail in
Notes 1 and 9 of the Consolidated Financial Statements. Goodwill is
reviewed for potential impairment at the reporting unit level on an
annual basis, or in interim periods if events or circumstances indicate
a potential impairment. The reporting units utilized for this test were
those that are one level below the business segments identified on
page 40. The impairment test is performed in two phases. The first
step of the Goodwill impairment test compares the fair value of the
reporting unit with its carrying amount, including Goodwill. If the fair
value of the reporting unit exceeds its carrying amount, Goodwill of
the reporting unit is considered not impaired; however, if the carrying
amount of the reporting unit exceeds its fair value, an additional pro-
cedure must be performed. That additional procedure compares the
implied fair value of the reporting unit’s Goodwill (as defined in SFAS
142) with the carrying amount of that Goodwill. An impairment loss
is recorded to the extent that the carrying amount of Goodwill
exceeds its implied fair value.
The fair values of the reporting units were determined using a
combination of valuation techniques consistent with the income
approach and the market approach. For purposes of the income
approach, discounted cash flows were calculated by taking the net
present value of estimated cash flows using a combination of histor-
ical results, estimated future cash flows and an appropriate price to
earnings multiple. We use our internal forecasts to estimate future
cash flows and actual results may differ from forecasted results.
However, these differences have not been material and we believe
that this methodology provides a reasonable means to determine fair
values. Cash flows were discounted using a discount rate based on
expected equity return rates, which was 11 percent for 2004.
Expected rates of equity returns were estimated based on historical
market returns and risk/return rates for similar industries of the
reporting unit. For purposes of the market approach, valuations of
reporting units were based on actual comparable market transac-
tions and market earnings multiples for similar industries of the
reporting unit.
Our evaluations for the year ended December 31, 2004 indicated
there was no impairment of our Goodwill.
2003 Compared to 2002
The following discussion and analysis provides a comparison of our
results of operations for 2003 and 2002. This discussion should be
read in conjunction with the Consolidated Financial Statements and
related Notes on pages 96 through 150. In addition, Tables 1 and 2
contain financial data to supplement this discussion.
Overview
Net Income
Net Income totaled $10.8 billion, or $3.57 per diluted common
share, in 2003 compared to $9.2 billion, or $2.95 per diluted com-
mon share, in 2002. The return on average common shareholders’
equity was 21.99 percent in 2003 compared to 19.44 percent in
2002. These earnings provided sufficient cash flow to allow us to
return $9.8 billion and $8.5 billion in 2003 and 2002, respectively,
in capital to shareholders in the form of dividends and share
repurchases, net of employee stock options exercised.
Net Interest Income
Net Interest Income on a FTE basis increased $596 million to $22.1
billion in 2003. This increase was driven by higher ALM portfolio lev-
els (consisting of securities, whole loan mortgages and derivatives),
higher consumer loan levels, larger trading-related contributions,
higher mortgage warehouse and higher core deposit funding levels.
Partially offsetting these increases was the impact of lower interest
rates and reductions in the large corporate, foreign and exited con-
sumer loan businesses portfolios. The net interest yield on a FTE
basis declined 37 bps to 3.40 percent in 2003 due to the negative
impact of increases in lower-yielding trading-related assets and declin-
ing rates offset partially by our ALM portfolio repositioning.
Noninterest Income
Noninterest Income increased $2.9 billion to $16.5 billion in 2003,
due to increases in Mortgage Banking Income of $1.2 billion, Equity
Investment Gains of $495 million, Other Noninterest Income of $484
million, Card Income of $432 million, and Service Charges of $342
million. The increase in Mortgage Banking Income was driven by
gains from higher volumes of mortgage loans sold into the secondary
market and improved profit margins. Other Noninterest Income of
$1.1 billion included gains of $772 million, an increase of $272 million
over 2002, as we sold whole loan mortgages to manage prepayment
risk due to the longer than anticipated low interest rate environment.
Additionally, Other Noninterest Income included the equity in the
earnings of our investment in GFSS of $122 million.
BANK OF AMERICA 2004 81
Gains on Sales of Debt Securities
Gains on Sales of Debt Securities in 2003 and 2002, were $941 million
and $630 million, respectively, as we continued to reposition the ALM
portfolio in response to interest rate fluctuations.
Provision for Credit Losses
The Provision for Credit Losses declined $858 million to $2.8 billion in
2003 due to an improvement in the commercial portfolio partially off-
set by a stable but growing consumer portfolio. This improvement was
driven by reduced levels of inflows to nonperforming assets in Global
Capital Markets and Investment Banking, together with loan sales and
payoffs facilitated by high levels of liquidity in the capital markets.
Noninterest Expense
Noninterest Expense increased $1.7 billion in 2003 from 2002,
driven by higher personnel costs, increased Professional Fees includ-
ing legal expense and increased Marketing Expense. Higher person-
nel costs resulted from increased costs of employee benefits of
$504 million and revenue-related incentives of $435 million.
Employee benefits expense increased due to stock option expense of
$120 million in 2003 and the impacts of a change in the expected
long-term rates of return on plan assets to 8.5 percent for 2003 from
9.5 percent in 2002 and a change in the discount rate to 6.75 per-
cent in 2003 from 7.25 percent in 2002 for the Bank of America
Pension Plan. The increase in Professional Fees of $319 million was
driven by an increase in litigation accruals of $220 million associated
with pending litigation principally related to securities matters.
Marketing Expense increased by $232 million due to higher advertis-
ing costs, as well as marketing investments in direct marketing for
the credit card business. In addition, recorded in other expense dur-
ing 2003 was a $100 million charge related to issues surrounding
our mutual fund practices.
Income Tax Expense
Income Tax Expense was $5.1 billion, reflecting an effective tax rate
of 31.8 percent, in 2003 compared to $3.7 billion and 28.8 percent,
respectively, in 2002. The 2002 effective tax rate was impacted by a
$488 million reduction in Income Tax Expense resulting from a set-
tlement with the IRS generally covering tax years ranging from 1984
to 1999 but including tax returns as far back as 1971.
Business Segment Operations
Global Consumer and Small Business Banking
Total Revenue increased $2.6 billion, or 14 percent, in 2003 compared
to 2002. Overall deposit and loan growth contributed to the $703 million,
or six percent, increase in Net Interest Income. This increase was off-
set by the compression of deposit interest margins and the results of
ALM activities. Increases in Mortgage Banking Income of 118 percent,
Service Charges of 14 percent and Card Income of 17 percent drove
the $1.9 billion, or 28 percent, increase in Noninterest Income.
These increases were offset by a decrease in Trading Account Profits.
Net Income rose $965 million, or 20 percent, due to the increases in
Net Interest Income and Noninterest Income discussed above, offset
by an increase in the Provision for Credit Losses. Higher provision in
the credit card loan portfolio, offset by a decline in provision for other
consumer loans resulted in a $157 million, or 10 percent, increase
in the Provision for Credit Losses.
Global Business and Financial Services
Total Revenue increased $108 million, or two percent, in 2003
compared to 2002. Net Interest Income decreased $77 million, or
two percent. Increases in Other Noninterest Income of 58 percent,
Service Charges of seven percent and Investment Banking Income of
seven percent drove the $185 million, or 15 percent, increase in
Noninterest Income. These increases were offset by a decrease in
Trading Account Profits. Provision for Credit Losses remained rela-
tively flat. Net Income rose $102 million, or seven percent, due to the
increase in Noninterest Income discussed above, offset by the
decrease in Net Interest Income.
82 BANK OF AMERICA 2004
All Other
In 2003 compared to 2002, Total Revenue in Latin America
decreased $10 million, or 24 percent. Net Interest Income decreased
$11 million, or 31 percent, due to lower Loan and Lease balances.
Noninterest Income remained relatively unchanged at $9 million.
Provision for Credit Losses decreased $155 million, or 64 percent,
due to continued improvement in credit quality and Noninterest
Expense increased $12 million. As a result, Net Loss in Latin America
improved $100 million or 68 percent. Total Revenue in Equity
Investments increased $190 million, or 43 percent, in 2003 com-
pared to 2002 due to an improvement in Equity Investment Gains.
Equity Investments had a Net Loss of $249 million in 2003 compared
to a Net Loss of $330 million in 2002. In 2003, Principal Investing
recorded cash gains of $273 million and fair value adjustment gains
of $47 million, offset by impairment charges of $438 million.
Noninterest Income primarily consists of Equity Investment Gains
(Losses). Total Revenue in Other increased $38 million, or four per-
cent, in 2003 compared to 2002. Net Income decreased $147 mil-
lion, or 14 percent. Net Interest Income remained relatively flat.
Noninterest Income increased $35 million resulting from increases in
gains on whole mortgage loan sales. Gains on Sales of Debt
Securities increased $235 million to $942 million in 2003, as we
continued to reposition the ALM portfolio in response to changes in
interest rates. Noninterest Expense increased $132 million, or 39
percent.
Global Capital Markets and Investment Banking
Total Revenue increased $133 million, or two percent, in 2003
compared to 2002 driven by an increase in Noninterest Income. Net
Interest Income remained relatively flat at $4.3 billion as average
Loans and Leases declined $12.0 billion, or 25 percent and average
Deposits increased $1.4 billion, or two percent. Noninterest Income
increased $189 million, or five percent, resulting from increases in
Investment Banking Income, Service Charges,
Investment and
Brokerage Services, and Equity Investment Gains offset by declines
in Trading Account Profits. In 2003, Net Income increased $192 million,
or 12 percent, due to the increase in Noninterest Income and lower
Provision for Credit Losses offset by an increase in Noninterest
Expense. Provision for Credit Losses declined $465 million to $303
million due to continued improvements in credit quality. Noninterest
Expense increased by $402 million, or eight percent, driven by costs
associated with downsizing operations in South America and Asia
and restructuring locations outside the U.S., higher market-based
compensation, increases in litigation expenses and reserves, and the
allocation of the charge related to issues surrounding our mutual
fund practices.
Global Wealth and Investment Management
Total Revenue increased $401 million, or 11 percent, in 2003. Net
Interest Income remained relatively flat as growth in Deposits and
increased loan spreads were offset by the net results of ALM activi-
ties. Noninterest Income increased $372 million, or 22 percent, an
increase in Equity Investment Gains of $198 million related to gains
from securities sold that were received in satisfaction of debt that
had been restructured and charged off in prior periods, and higher
asset management fees. Net Income increased $351 million, or 40
percent. This increase was due to the increase in Noninterest Income
and lower Provision for Credit Losses. Provision for Credit Losses
decreased $309 million, driven by one large charge-off recorded in
2002. The allocation of the charge related to issues surrounding our
mutual fund practices and increased expenses associated with the
addition of financial advisors were the drivers of the $182 million, or
nine percent, increase in Noninterest Expense.
BANK OF AMERICA 2004 83
Statistical Financial Information
Bank of America Corporation and Subsidiaries
Table I Average Balances and Interest Rates – Fully Taxable-equivalent Basis
(Dollars in millions)
Earning assets
Time deposits placed and other short-term investments
Federal funds sold and securities purchased under agreements to resell
Trading account assets
Securities
Loans and leases(1):
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer(2)
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total loans and leases
Other earning assets
Total earning assets(3)
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(4):
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(3)
Noninterest-bearing sources:
Noninterest-bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest spread
Impact of noninterest-bearing sources
2004
Interest
Income/
Expense
$
362
2,043
4,092
7,326
9,074
4,653
1,835
2,093
594
18,249
7,126
1,263
819
849
10,057
28,306
1,814
43,943
$
119
1,921
2,533
290
4,863
1,040
97
275
1,412
6,275
4,434
1,317
2,404
14,430
Average
Balance
$
14,254
128,981
104,616
150,171
167,298
43,435
39,400
38,078
7,717
295,928
114,644
28,085
17,483
16,505
176,717
472,645
34,635
905,302
28,511
110,847
$ 1,044,660
$
33,959
214,542
94,770
5,977
349,248
18,426
5,327
27,739
51,492
400,740
227,558
35,326
93,330
756,954
150,819
52,704
84,183
$ 1,044,660
Net interest income/yield on earning assets
$ 29,513
Yield/
Rate
2.54%
1.58
3.91
4.88
5.42
10.71
4.66
5.50
7.70
6.17
6.22
4.50
4.68
5.15
5.69
5.99
5.24
4.85
0.35%
0.90
2.67
4.85
1.39
5.64
1.82
0.99
2.74
1.57
1.95
3.73
2.58
1.91
2.94
0.32
3.26%
(1) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis.
(2) Includes consumer finance of $3,735, $4,137 and $5,031 in 2004, 2003 and 2002, respectively; foreign consumer of $3,020, $1,977 and $2,021 in 2004, 2003 and 2002, respectively; and
consumer lease financing of $962, $2,751 and $5,502 in 2004, 2003 and 2002, respectively.
(3) Interest income includes the impact of interest rate risk management contracts, which increased interest income on the underlying assets $2,400, $2,972 and $1,983 in 2004, 2003 and 2002,
respectively. These amounts were substantially offset by corresponding decreases in the income earned on the underlying assets. Interest expense includes the impact of interest rate risk management
contracts, which increased interest expense on the underlying liabilities $888, $305 and $141 in 2004, 2003 and 2002, respectively. These amounts were substantially offset by corresponding
decreases in the interest paid on the underlying liabilities. For further information on interest rate contracts, see “Interest Rate Risk Management” beginning on page 76.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
84 BANK OF AMERICA 2004
Average
Balance
$
9,056
78,857
97,222
70,666
127,059
28,210
22,890
32,593
8,865
219,617
93,458
20,042
10,061
12,970
136,531
356,148
37,599
649,548
22,637
76,871
$749,056
$ 24,538
148,896
70,246
7,627
251,307
13,959
2,218
19,027
35,204
286,511
140,458
37,176
68,432
532,577
119,722
47,553
49,204
$749,056
2003
Interest
Income/
Expense
$
172
1,373
4,005
3,131
6,872
2,886
1,040
1,964
588
13,350
6,729
862
395
460
8,446
21,796
1,729
32,206
$
108
1,236
2,784
130
4,258
403
31
216
650
4,908
1,871
1,286
2,034
10,099
$22,107
Yield/
Rate
1.90%
1.74
4.12
4.43
5.41
10.23
4.55
6.03
6.63
6.08
7.20
4.30
3.92
3.54
6.19
6.12
4.60
4.96
0.44%
0.83
3.96
1.70
1.69
2.89
1.40
1.14
1.85
1.71
1.33
3.46
2.97
1.90
3.06
0.34
3.40%
Average
Balance
$ 10,038
45,640
79,562
73,715
97,204
21,410
22,807
30,264
12,554
184,239
102,835
21,569
11,227
16,949
152,580
336,819
24,756
570,530
21,166
62,078
$653,774
$ 21,691
131,841
67,695
4,237
225,464
15,464
2,316
18,769
36,549
262,013
98,477
31,600
66,045
458,135
109,466
38,560
47,613
$653,774
2002
Interest
Income/
Expense
$
243
870
3,806
4,006
6,423
2,195
1,213
2,145
930
12,906
7,011
1,060
505
678
9,254
22,160
1,557
32,642
$
138
1,369
2,968
128
4,603
442
43
346
831
5,434
1,982
1,260
2,455
11,131
$21,511
Yield/
Rate
2.42%
1.91
4.78
5.43
6.61
10.25
5.32
7.09
7.41
7.01
6.82
4.91
4.49
4.00
6.06
6.58
6.29
5.72
0.64%
1.04
4.39
3.03
2.04
2.86
1.86
1.84
2.27
2.07
2.01
3.99
3.72
2.43
3.29
0.48
3.77%
BANK OF AMERICA 2004 85
Table II Analysis of Changes in Net Interest Income – Fully Taxable-equivalent Basis
From 2003 to 2004
From 2002 to 2003
(Dollars in millions)
Increase (decrease) in interest income
Time deposits placed and other short-term investments
Federal funds sold and securities purchased under agreements to resell
Trading account assets
Securities
Loans and leases:
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total loans and leases
Other earning assets
Total interest income
Increase (decrease) in interest expense
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 expense
Net increase in net interest income
Due to Change in(1)
Volume
Rate
$
$
99
871
305
3,522
2,179
1,557
753
332
(76)
1,525
346
290
124
91
(201)
(218)
673
23
210
42
(203)
82
(1,128)
55
134
265
(136)
221
$
41
545
969
(28)
130
44
100
$
(30)
140
(1,220)
188
507
22
(41)
1,156
(64)
738
1,407
95
(368)
Net
Change
$
190
670
87
4,195
2,202
1,767
795
129
6
4,899
397
401
424
389
1,611
6,510
85
$11,737
$
11
685
(251)
160
605
637
66
59
762
1,367
2,563
31
370
4,331
$ 7,406
Due to Change in(1)
Volume
Rate
$
(24)
636
841
(169)
1,976
697
5
166
(273)
(637)
(76)
(53)
(159)
$
(47)
(133)
(642)
(706)
(1,527)
(6)
(178)
(347)
(69)
355
(122)
(57)
(59)
808
(636)
Net
Change
$
(71)
503
199
(875)
449
691
(173)
(181)
(342)
444
(282)
(198)
(110)
(218)
(808)
(364)
172
$ (436)
$
19
180
116
103
$
(49)
(313)
(300)
(101)
$
(30)
(133)
(184)
2
(345)
(39)
(12)
(130)
(181)
(526)
(111)
26
(421)
(1,032)
596
$
(43)
(2)
4
841
223
91
4
(10)
(134)
(952)
(197)
(512)
(1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume or rate for that category. The unallocated change in rate or
volume variance has been allocated between the rate and volume variances.
86 BANK OF AMERICA 2004
Table III Selected Loan Maturity Data(1)
(Dollars in millions)
Commercial – domestic
Commercial real estate – domestic
Foreign(2)
Total selected loans
Percent of total
Sensitivity of loans to changes in interest rates for loans due after one year:
Fixed interest rates
Floating or adjustable interest rates
Total
(1) Loan maturities are based on the remaining maturities under contractual terms.
(2) Loan maturities include other consumer, commercial – foreign and commercial real estate loans.
December 31, 2004
Due in
1 Year
or Less
$ 45,238
11,564
16,088
$ 72,890
Due After
1 Year
Through
5 Years
$ 50,037
17,312
4,855
$ 72,204
Due After
5 Years
$ 26,820
3,003
1,461
$ 31,284
Total
$122,095
31,879
22,404
$176,378
41.4%
40.9%
17.7%
100.0%
$
7,975
64,229
$ 72,204
$ 12,672
18,612
$ 31,284
BANK OF AMERICA 2004 87
Table IV Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2004
(Dollars in millions, average estimated duration in years)
Cash flow hedges
Receive fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Pay fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Basis swaps
Notional amount
Option products(2)
Notional amount(3)
Foreign exchange contracts
Notional amount
Futures and forward rate contracts(4)
Notional amount(3)
Total net cash flow positions
Fair value hedges
Receive fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Foreign exchange contracts
Notional amount
Total net fair value positions
Closed interest rate contracts(5)
Total ALM contracts
Fair
Value
$ (1,413)
(2,248)
(4)
3,492
9
287
123
534
$
$
2,739
$ 3,273
1,328
$ 4,724
Total
2005
2006
2007
2008
2009
Thereafter
Expected Maturity
$ 122,274
$
3.68%
–
–%
$
2,927
$ 21,098
$ 44,223
$ 22,237
$ 31,789
3.46%
2.94%
3.47%
3.73%
4.43%
$ 157,837
$
4.24%
39
5.01%
$
6,320
$ 62,584
$ 16,136
$ 10,289
$ 62,469
3.54%
3.58%
3.91%
3.85%
5.13%
$
6,700
$
500
$
4,400
$
–
$
–
$
323,835
145,200
90,000
17,500
58,404
16
–
–
(10,889)
10,111
(21,000)
–
–
16
–
–
–
–
–
$ 1,800
12,731
–
–
$ 45,050
$
2,580
$
4,363
$ 2,500
$ 2,694
$ 3,364
$ 29,549
5.02%
4.78%
5.23%
4.53%
3.47%
4.44%
5.25%
$ 13,590
$
71
$
1,529
$
55
$ 1,571
$ 2,091
$ 8,273
Average
Estimated
Duration
4.16
4.77
5.14
(1) At December 31, 2004, $39.9 billion of the receive fixed interest rate swap notional and $75.9 billion of the pay fixed interest swap notional represented forward starting swaps that will not be
effective until their respective contractual start dates. At December 31, 2003, $14.2 billion of the receive fixed interest rate swap notional and $114.5 billion of the pay fixed interest rate swap notional
represented forward starting swaps that will not be effective until their respective contractual start dates.
(2) Option products include caps, floors, swaptions and exchange-traded options on index futures contracts. These strategies may include option collars or spread strategies, which involve the buying and
selling of options on the same underlying security or interest rate index.
(3) Reflects the net of long and short positions.
(4) Futures and forward rate contracts include Eurodollar futures, U.S. Treasury futures, and forward purchase and sale contracts. Included are $50.0 billion of forward purchase contracts, and $25.6 billion
of forward sale contracts of mortgage-backed securities and mortgage loans, at December 31, 2004, as discussed on page 76 and 77. At December 31, 2003, the forward purchase and sale contracts
of mortgage-backed securities and mortgage loans amounted to $69.8 billion and $8.0 billion, respectively.
(5) Represents the unamortized net realized deferred gains associated with closed contracts. As a result, no notional amount is reflected for expected maturity. The $1.3 billion and $839 million deferred
gains as of December 31, 2004 and 2003, respectively, on closed interest rate contracts primarily consisted of gains on closed ALM swaps and forward contracts. Of the $1.3 billion unamortized net
realized deferred gains, a gain of $836 million was included in Accumulated OCI, a gain of $514 million was included as a basis adjustment of Long-term Debt, and a loss of $22 million was primarily
included as a basis adjustment to mortgage loans, AFS Securities and Long-term Debt at December 31, 2004. As of December 31, 2003, a gain of $238 million was included in Accumulated OCI, a gain
of $631 million was primarily included as a basis adjustment of long-term debt, and a loss of $30 million was included as a basis adjustment to mortgage loans.
88 BANK OF AMERICA 2004
Table IV Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2003
(Dollars in millions, average estimated duration in years)
Cash flow hedges
Receive fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Pay fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Basis swaps
Notional amount
Option products(2)
Notional amount(3)
Futures and forward rate contracts(4)
Notional amount(3)
Fair
Value
$ (2,184)
(2,101)
38
1,582
1,911
Total net cash flow positions
$ (754)
Total
2004
2005
2006
2007
2008
Thereafter
Expected Maturity
$122,547 $
3.46%
– $
–%
2,000
$
2.10%
–
–%
$ 33,848
$ 33,561
$53,138
3.08%
2.97%
4.06%
$134,654 $
4.00%
– $
–%
3,641
$ 14,501
$ 39,142
$ 13,501
$63,869
2.09%
2.92%
3.33%
3.77%
4.81%
$ 16,356 $
9,000 $
500
$ 4,400
$
45
$
590
$ 1,821
84,965
1,267
50,000
3,000
106,760
86,760
20,000
–
–
–
30,000
–
698
–
$
980
$ 34,225 $
4.96%
– $
–%
2,580
$ 4,363
$ 2,500
$ 2,638
$22,144
4.78%
5.22%
4.53%
3.46%
5.16%
(2)
$
924 $
6.00%
81 $
6.04%
47
4.84%
$
7,364 $
100 $
488
$
$
$
80
4.54%
$
112
7.61%
149
4.77%
$
455
6.38%
468
$
(379)
$ 1,560
$ 5,127
Fair value hedges
Receive fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Pay fixed interest rate swaps(1)
Notional amount
Weighted average fixed rate
Foreign exchange contracts
Notional amount
Futures and forward rate contracts(4)
Notional amount(3)
Total net fair value positions
Closed interest rate contracts(5)
Total ALM contracts
See footnotes on page 88.
1,129
(3)
$ 2,104
839
$ 2,189
Average
Estimated
Duration
5.22
5.51
6.12
3.70
(604)
(604)
–
–
–
–
–
BANK OF AMERICA 2004 89
Table V Non-exchange Traded Commodity Contracts
(Dollars in millions)
Net fair value of contracts outstanding, January 1, 2004
Effects of legally enforceable master netting agreements
Gross fair value of contracts outstanding, January 1, 2004
Contracts realized or otherwise settled
Fair value of new contracts(1)
Other changes in fair value
Gross fair value of contracts outstanding, December 31, 2004
Effects of legally enforceable master netting agreements
Net fair value of contracts outstanding, December 31, 2004
(1) Includes the fair value of $0 of asset and $4 of liability positions of new contracts assumed in the Merger.
Table VI Non-exchange Traded Commodity Contract Maturities
(Dollars in millions)
Maturity of less than 1 year
Maturity of 1 - 3 years
Maturity of 4 - 5 years
Maturity in excess of 5 years
Gross fair value of contracts
Effects of legally enforceable master netting agreements
Net fair value of contracts outstanding
Asset
Positions
$ 1,724
3,344
5,068
(2,196)
2,129
1,643
6,644
(4,449)
$ 2,195
Liability
Positions
$ 1,473
3,344
4,817
(2,347)
1,991
1,440
5,901
(4,449)
$ 1,452
December 31, 2004
Asset
Positions
$ 1,741
3,946
862
95
6,644
(4,449)
$ 2,195
Liability
Positions
$ 1,688
3,353
751
109
5,901
(4,449)
$ 1,452
90 BANK OF AMERICA 2004
Table VII Selected Quarterly Financial Data
(Dollars in millions,
except per share information)
Income statement
Net interest income
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Noninterest expense
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
Total equity to total assets
(period end)
Total average equity to
total average assets
Dividend payout
Per common share data
Earnings
Diluted earnings
Dividends paid
Book value
Average balance sheet
Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity
Capital ratios (period end)
Risk-based capital:
Tier 1
Total
Leverage
Market price per
share of common stock
Closing
High closing
Low closing
2004 Quarters
2003 Quarters
Fourth
Third
Second
First
Fourth
Third
Second
First
7,750
5,964
13,714
706
101
7,334
5,775
1,926
3,849
$
7,665
4,922
12,587
650
732
7,021
5,648
1,884
3,764
$
7,581
5,481
13,062
789
795
7,242
5,826
1,977
3,849
$
5,801
3,730
9,531
624
495
5,430
3,972
1,291
2,681
$
5,586
4,049
9,635
583
139
5,288
3,903
1,177
2,726
$
5,304
4,446
9,750
651
233
5,077
4,255
1,333
2,922
$
5,365
4,262
9,627
772
296
5,065
4,086
1,348
2,738
$
5,209
3,693
8,902
833
273
4,725
3,617
1,193
2,424
4,032,979
4,052,304
4,062,384
2,880,306
2,926,494
2,980,206
2,988,187
2,998,811
4,106,040
4,121,375
4,131,290
2,933,402
2,978,962
3,039,282
3,046,612
3,052,576
1.33%
1.37%
1.41%
1.29%
1.42%
1.50%
1.44%
1.40%
15.63
8.97
8.51
47.45
0.95
0.94
0.45
24.56
$
15.56
9.14
8.79
48.75
0.93
0.91
0.45
24.14
$
16.63
9.35
8.52
42.60
0.95
0.93
0.40
23.51
22.16
6.10
5.84
43.21
0.93
0.91
0.40
16.85
$
22.42
6.67
6.32
42.70
0.93
0.92
0.40
16.63
$
23.74
6.98
6.34
40.85
0.98
0.96
0.40
16.92
$
21.86
6.78
6.62
35.06
0.92
0.90
0.32
17.03
$
19.92
7.51
7.06
39.64
0.81
0.79
0.32
16.69
$
$
$
$ 515,463
1,152,551
609,936
99,588
97,828
98,100
$ 503,078
1,096,683
587,878
98,361
96,120
96,392
$ 497,158
1,094,459
582,305
96,395
92,943
93,266
$ 374,077
833,192
425,075
78,852
48,632
48,686
$ 371,071
764,186
418,840
70,596
48,238
48,293
$ 357,288
771,255
414,569
66,788
48,816
48,871
$ 350,279
759,906
405,307
68,927
50,212
50,269
$ 345,662
699,926
385,760
67,399
49,343
49,400
8.10%
11.63
5.82
8.08%
11.71
5.92
8.20%
11.97
5.83
7.73%
11.46
5.43
7.85%
11.87
5.73
8.25%
12.17
5.95
8.08%
11.95
5.92
8.20%
12.29
6.24
$
$
46.99
47.44
43.62
$
43.33
44.98
41.81
42.31
42.72
38.96
$
40.49
41.38
39.15
$
40.22
41.25
36.43
$
39.02
41.77
37.44
$
39.52
39.95
34.00
$
33.42
36.24
32.82
BANK OF AMERICA 2004 91
Table VIII Quarterly Average Balances and Interest Rates – Fully Taxable-equivalent Basis
Fourth Quarter 2004
Third Quarter 2004
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Average
Balance
Interest
Income/
Expense
Yield/
Rate
$
15,620
$
128
3.24%
$
14,726
$
127
3.45%
A
$
(Dollars in millions)
Earning assets
Time deposits placed and other short-term investments
Federal funds sold and securities
purchased under agreements to resell
Trading account assets
Securities
Loans and leases(1):
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer(2)
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total loans and leases
Other earning assets
Total earning assets(3)
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(4):
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(3)
Noninterest-bearing sources:
Noninterest-bearing deposits
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest spread
Impact of noninterest-bearing sources
149,226
110,585
171,173
178,879
49,366
48,336
39,526
7,557
323,664
121,412
31,355
20,204
18,828
191,799
515,463
35,937
998,004
31,028
123,519
$ 1,152,551
36,927
234,596
109,243
7,563
388,329
17,953
5,843
30,459
54,255
442,584
252,384
37,387
99,588
831,943
167,352
55,156
98,100
$ 1,152,551
712
1,067
2,083
2,459
1,351
609
551
153
5,123
1,917
392
254
272
2,835
7,958
456
12,404
$
36
589
711
81
1,417
275
33
104
412
1,829
1,543
352
724
4,448
1.90
3.85
4.87
5.49
10.88
5.01
5.55
8.07
6.31
6.28
4.98
5.01
5.76
5.88
6.15
5.08
4.96
0.39%
1.00
2.59
4.27
1.45
6.11
2.21
1.36
3.02
1.64
2.43
3.74
2.91
2.13
2.83
0.35
3.18%
128,339
98,459
169,515
175,046
45,818
44,309
38,951
7,693
311,817
122,093
30,792
20,125
18,251
191,261
503,078
34,266
948,383
29,469
118,831
$1,096,683
$
36,823
233,602
101,250
5,654
377,329
17,864
5,021
29,513
52,398
429,727
226,025
37,706
98,361
791,819
158,151
50,321
96,392
$1,096,683
484
975
2,095
2,371
1,265
514
538
152
4,840
1,855
344
233
245
2,677
7,517
460
11,658
$
35
523
668
69
1,295
307
22
87
416
1,711
1,152
333
626
3,822
$ 7,836
1.50
3.96
4.94
5.41
10.98
4.62
5.49
7.91
6.19
6.04
4.44
4.64
5.34
5.57
5.95
5.33
4.90
0.38%
0.89
2.63
4.85
1.37
6.83
1.80
1.17
3.16
1.58
2.03
3.51
2.54
1.92
2.98
0.32
3.30%
$
$
$
$
Net interest income/yield on earning assets
$ 7,956
(1) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis.
(2) Includes consumer finance of $3,473, $3,644, $3,828 and $3,999 in the fourth, third, second and first quarters of 2004, and $3,938 in the fourth quarter of 2003, respectively; foreign consumer of
$3,523, $3,304, $3,256 and $1,989 in the fourth, third, second and first quarters of 2004, and $1,939 in the fourth quarter of 2003, respectively; and consumer lease financing of $561, $745, $1,058
and $1,491 in the fourth, third, second and first quarters of 2004 and $1,860 in the fourth quarter of 2003, respectively.
(3) Interest income includes the impact of interest rate risk management contracts, which increased interest income on the underlying assets $496, $531, $658 and $715 in the fourth, third, second and
first quarters of 2004 and $884 in the fourth quarter of 2003, respectively. These amounts were substantially offset by corresponding decreases in the income earned on the underlying assets. Interest
expense includes the impact of interest rate risk management contracts, which increased interest expense on the underlying liabilities $155, $217, $333 and $183 in the fourth, third, second and first
quarters of 2004 and $90 in the fourth quarter of 2003, respectively. These amounts were substantially offset by corresponding decreases in the interest paid on the underlying liabilities. For further
information on interest rate contracts, see “Interest Rate Risk Management” beginning on page 76.
(4) Primarily consists of time deposits in denominations of $100,000 or more.
92 BANK OF AMERICA 2004
Second Quarter 2004
Average
Balance
Interest
Income/
Expense
Yield/
Rate
First Quarter 2004
Average
Balance
Interest
Income/
Expense
Yield/
Rate
Fourth Quarter 2003
Average
Balance
Interest
Income/
Expense
Yield/
Rate
$
14,384
$
59
1.65%
$ 12,268
$
48
1.57%
$ 11,231
$
49
1.71%
124,383
104,391
159,797
173,158
43,160
40,424
39,763
8,142
304,647
123,970
30,311
20,086
18,144
192,511
497,158
38,407
938,520
30,320
125,619
$1,094,459
$
35,864
233,702
93,017
4,737
367,320
18,945
5,739
29,882
54,566
421,886
235,701
31,620
96,395
785,602
160,419
55,172
93,266
$1,094,459
413
1,025
1,925
2,284
1,167
450
540
169
4,610
1,843
317
237
237
2,634
7,244
494
11,160
$
31
488
587
66
1,172
287
23
47
357
1,529
1,019
298
563
3,409
$ 7,751
1.33
3.94
4.82
5.29
10.88
4.48
5.44
8.32
6.07
5.98
4.20
4.72
5.24
5.50
5.85
5.17
4.77
0.34%
0.84
2.54
5.60
1.28
6.10
1.58
0.64
2.63
1.46
1.74
3.78
2.34
1.74
3.03
0.28
3.31%
113,761
105,033
99,755
141,898
35,303
24,379
34,045
7,479
243,104
90,946
19,815
9,459
10,753
130,973
374,077
29,914
734,808
23,187
75,197
$ 833,192
$ 26,159
155,835
75,341
5,939
263,274
18,954
4,701
21,054
44,709
307,983
195,866
34,543
78,852
617,244
117,092
50,170
48,686
$ 833,192
434
1,025
1,223
1,960
870
262
464
120
3,676
1,511
210
95
95
1,911
5,587
404
8,721
$
17
321
567
74
979
171
19
37
227
1,206
720
334
491
2,751
$5,970
1.53
3.91
4.91
5.53
9.92
4.31
5.49
6.42
6.07
6.68
4.26
4.00
3.57
5.87
6.00
5.42
4.76
0.27%
0.83
3.03
5.01
1.50
3.62
1.63
0.71
2.04
1.57
1.48
3.90
2.49
1.79
2.97
0.29
3.26%
96,713
94,630
59,197
142,482
32,734
23,206
33,422
7,737
239,581
90,309
19,616
9,971
11,594
131,490
371,071
33,938
666,780
22,975
74,431
$ 764,186
$ 25,494
155,369
73,246
6,195
260,304
13,225
2,654
20,019
35,898
296,202
144,082
38,298
70,596
549,178
122,638
44,077
48,293
$ 764,186
506
926
742
1,931
810
255
478
124
3,598
1,612
211
93
101
2,017
5,615
367
8,205
$
19
400
476
44
939
177
11
51
239
1,178
515
317
450
2,460
$5,745
2.08
3.91
5.01
5.41
9.83
4.36
5.67
6.37
5.98
7.08
4.27
3.71
3.45
6.09
6.02
4.32
4.90
0.30%
1.02
2.58
2.81
1.43
5.34
1.58
1.02
2.65
1.58
1.42
3.28
2.55
1.78
3.12
0.31
3.43%
BANK OF AMERICA 2004 93
Report of Management on Internal Control Over Financial Reporting
Bank of America Corporation and Subsidiaries
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 trans-
actions 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, 2004,
based on the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework. Based on that assessment, management
concluded that, as of December 31, 2004, the Corporation’s internal
control over financial reporting is effective based on the criteria
established in Internal Control – Integrated Framework.
Management’s assessment of the effectiveness of the
Corporation’s internal control over financial reporting as of
December 31, 2004, has been audited by PricewaterhouseCoopers,
LLP, an independent registered public accounting firm, as stated in
their report appearing on page 95, which expresses unqualified
opinions on management’s assessment and on the effectiveness
of the Corporation’s internal control over financial reporting as of
December 31, 2004.
Kenneth D. Lewis
Chairman, President and Chief Executive Officer
Marc D. Oken
Chief Financial Officer
94 BANK OF AMERICA 2004
Report of Independent Registered Public Accounting Firm
Bank of America Corporation and Subsidiaries
To the Board of Directors and
Shareholders of Bank of America Corporation:
We have completed an integrated audit of Bank of America
Corporation’s 2004 Consolidated Financial Statements and of its
internal control over financial reporting as of December 31, 2004 and
audits of its 2003 and 2002 Consolidated Financial Statements 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 Sheets and the
related Consolidated Statements of Income, Consolidated Statements
of Changes in Shareholders’ Equity and Consolidated Statements of
Cash Flows present fairly, in all material respects, the financial position
of Bank of America Corporation and its subsidiaries at December 31,
2004 and 2003, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
2004 in conformity with accounting principles generally accepted in
the United States of America. These Consolidated Financial Statements
are the responsibility of the Corporation’s management. Our respon-
sibility is to express an opinion on these Consolidated Financial
Statements based on our 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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit of financial statements
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
Internal Control Over Financial Reporting
Also, in our opinion, management’s assessment, included in the
Report of Management on Internal Control Over Financial Reporting
appearing on page 94 of the Annual Report, that the Corporation
maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal 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, effec-
tive internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control – Integrated
Framework issued by the COSO. The Corporation’s management is
responsible for maintaining effective internal control over financial
reporting 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.
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 exter-
nal purposes in accordance with generally accepted accounting princi-
ples. 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 25, 2005
BANK OF AMERICA 2004 95
Consolidated Statement of Income
Bank of America Corporation and Subsidiaries
(Dollars in millions, except per share information)
Interest income
Interest and fees on loans and leases
Interest and dividends on securities
Federal funds sold and securities purchased under agreements to resell
Trading account assets
Other interest income
Total interest income
Interest expense
Deposits
Short-term borrowings
Trading account liabilities
Long-term debt
Total interest expense
Net interest income
Noninterest income
Service charges
Investment and brokerage services
Mortgage banking income
Investment banking income
Equity investment gains (losses)
Card income
Trading account profits
Other income
Total noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Noninterest expense
Personnel
Occupancy
Equipment
Marketing
Professional fees
Amortization of intangibles
Data processing
Telecommunications
Other general operating
Merger and restructuring charges
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Net income available to common shareholders
Per common share information
Earnings
Diluted earnings
Dividends paid
Average common shares issued and outstanding (in thousands)
Average diluted common shares issued and outstanding (in thousands)
See accompanying Notes to Consolidated Financial Statements.
96 BANK OF AMERICA 2004
Year Ended December 31
2004
2003
2002
$ 28,216
7,265
2,043
4,016
1,687
43,227
6,275
4,434
1,317
2,404
14,430
28,797
6,989
3,627
414
1,886
861
4,588
869
863
20,097
48,894
2,769
2,123
13,473
2,379
1,214
1,349
836
664
1,325
730
4,439
618
27,027
21,221
7,078
$ 14,143
$ 14,127
$
$
$
3.76
3.69
1.70
3,758,507
3,823,943
$21,668
3,068
1,373
3,947
1,507
31,563
4,908
1,871
1,286
2,034
10,099
21,464
5,618
2,371
1,922
1,736
215
3,052
409
1,127
16,450
37,914
2,839
941
10,446
2,006
1,052
985
844
217
1,104
571
2,930
–
20,155
15,861
5,051
$10,810
$10,806
$
$
$
3.63
3.57
1.44
2,973,407
3,030,356
$22,030
3,941
870
3,757
1,456
32,054
5,434
1,982
1,260
2,455
11,131
20,923
5,276
2,237
761
1,545
(280)
2,620
778
643
13,580
34,503
3,697
630
9,682
1,780
1,124
753
525
218
1,017
481
2,865
–
18,445
12,991
3,742
$ 9,249
$ 9,244
$
$
$
3.04
2.95
1.22
3,040,085
3,130,935
Consolidated Balance Sheet
Bank of America Corporation and Subsidiaries
(Dollars in millions)
Assets
Cash and cash equivalents
Time deposits placed and other short-term investments
Federal funds sold and securities purchased under agreements to resell
(includes $91,243 and $76,446 pledged as collateral)
Trading account assets (includes $38,929 and $18,722 pledged as collateral)
Derivative assets
Securities:
Available-for-sale (includes $45,127 and $20,858 pledged as collateral)
Held-to-maturity, at cost (market value – $329 and $254)
Total securities
Loans and leases
Allowance for loan and lease losses
Loans and leases, net of allowance
Premises and equipment, net
Mortgage servicing rights
Goodwill
Core deposit intangibles and other intangibles
Other assets
Total assets
Liabilities
Deposits in domestic offices:
Noninterest-bearing
Interest-bearing
Deposits in foreign offices:
Noninterest-bearing
Interest-bearing
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Trading account liabilities
Derivative liabilities
Commercial paper and other short-term borrowings
Accrued expenses and other liabilities
(includes $402 and $416 of reserve for unfunded lending commitments)
Long-term debt
Total liabilities
Commitments and contingencies (Notes 8 and 12)
Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and
outstanding – 1,090,189 and 2,539,200 shares
Common stock and additional paid-in capital, $0.01 par value; authorized – 7,500,000,000 and
5,000,000,000 shares; issued and outstanding – 4,046,546,212 and 2,882,287,572 shares
Retained earnings
Accumulated other comprehensive income (loss)
Other
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying Notes to Consolidated Financial Statements.
December 31
2004
2003
$
28,936
12,361
91,360
93,587
30,235
194,743
330
195,073
521,837
(8,626)
513,211
7,517
2,482
45,262
3,887
86,546
$ 1,110,457
$
27,084
8,051
76,492
68,547
29,009
66,382
247
66,629
371,463
(6,163)
365,300
6,036
2,762
11,455
908
57,210
$ 719,483
$ 163,833
396,645
$ 118,495
262,032
6,066
52,026
618,570
119,741
36,654
17,928
78,598
41,243
98,078
1,010,812
3,035
30,551
414,113
78,046
26,844
15,062
34,980
27,115
75,343
671,503
271
54
44,236
58,006
(2,587)
(281)
99,645
$ 1,110,457
29
50,198
(2,148)
(153)
47,980
$ 719,483
BANK OF AMERICA 2004 97
Consolidated Statement of Changes in Shareholders’ Equity
Bank of America Corporation and Subsidiaries
(Dollars in millions, shares in thousands)
Balance, December 31, 2001
Net income
Net unrealized gains on available-for-sale debt
and marketable equity securities
Net unrealized gains on foreign currency
translation adjustments
Net unrealized losses on derivatives
Cash dividends paid:
Common
Preferred
Common stock issued under employee
plans and related tax benefits
Common stock repurchased
Conversion of preferred stock
Other
Balance, December 31, 2002
Net income
Net unrealized losses on available-for-sale debt
and marketable equity securities
Net unrealized gains on foreign currency
translation adjustments
Net unrealized losses on derivatives
Cash dividends paid:
Common
Preferred
Common stock issued under employee
plans and related tax benefits
Common stock repurchased
Conversion of preferred stock
Other
Balance, December 31, 2003
Net income
Net unrealized losses on available-for-sale debt
and marketable equity securities
Net unrealized gains on foreign currency
translation adjustments
Net unrealized losses on derivatives
Cash dividends paid:
Common
Preferred
Common stock issued under employee
plans and related tax benefits
Stocks issued in acquisition(2)
Common stock repurchased
Conversion of preferred stock
Other
Balance, December 31, 2004
Common Stock and
Additional
Paid-in Capital
Shares
3,118,594
Amount
$ 5,076
Preferred
Stock
$ 65
Accumulated
Other
Comprehensive
Income (Loss)(1)
$
437
Total
Share-
holders’
Other
Equity
$ (38) $48,520
9,249
Retained
Earnings
$ 42,980
9,249
Comprehensive
Income
$ 9,249
100,008
(217,800)
530
50
3,001,382
(7)
58
2,611
(7,466)
7
268
496
139,298
(258,686)
294
(4)
54
2,882,288
4,372
(4,936)
4
93
29
(3,704)
(5)
(3)
48,517
10,810
(4,277)
(4)
(4,830)
(18)
50,198
14,143
(6,452)
(16)
121,149
1,186,728
(147,859)
4,240
271
(54)
$271
4,046,546
4,066
46,480
(6,375)
54
(18)
$44,236
89
44
$ 58,006
974
3
(93)
(89)
10,044
10,810
(564)
2
(2,803)
(15)
7,430
14,143
(126)
13
(294)
974
3
(93)
(89)
1,232
(564)
2
(2,803)
(15)
(2,148)
(126)
13
(294)
974
3
(93)
(3,704)
(5)
2,632
(7,466)
209
50,319
10,810
(564)
2
(2,803)
(4,277)
(4)
4,249
(9,766)
14
47,980
14,143
(126)
13
(294)
(6,452)
(16)
3,939
46,751
(6,286)
21
33
16
(123)
(46)
(153)
(127)
(32)
$ (2,587)
(1)
$ (281)
(7)
$ 99,645
(32)
$ 13,704
(1) At December 31, 2004, 2003 and 2002, Accumulated Other Comprehensive Income (Loss) includes Net Unrealized Gains (Losses) on Available-for-sale (AFS) Debt and Marketable Equity Securities of
$(196), $(70) and $494, respectively; Net Unrealized Losses on Foreign Currency Translation Adjustments of $153, $166 and $168, respectively; and Net Unrealized Gains (Losses) on Derivatives of
$(2,102), $(1,808) and $995, respectively.
(2) Includes adjustment for the fair value of outstanding FleetBoston Financial Corporation (FleetBoston) stock options of $862.
See accompanying Notes to Consolidated Financial Statements.
98 BANK OF AMERICA 2004
Consolidated Statement of Cash Flows
Bank of America Corporation and Subsidiaries
(Dollars in millions)
Operating activities
Net income
Reconciliation of net income to net cash provided by (used in) operating activities:
Provision for credit losses
Gains on sales of debt securities
Depreciation and premises improvements amortization
Amortization of intangibles
Deferred income tax benefit
Net increase in trading and hedging instruments
Net (increase) decrease in other assets
Net increase (decrease) in accrued expenses and other liabilities
Other operating activities, net
Net cash provided by (used in) operating activities
Investing activities
Net increase in time deposits placed and other short-term investments
Net increase in federal funds sold and securities purchased under agreements to resell
Proceeds from sales of available-for-sale securities
Proceeds from maturities of available-for-sale securities
Purchases of available-for-sale securities
Proceeds from maturities of held-to-maturity securities
Proceeds from sales of loans and leases
Other changes in loans and leases, net
Originations and purchases of mortgage servicing rights
Net purchases of premises and equipment
Proceeds from sales of foreclosed properties
Investment in unconsolidated subsidiary
Cash equivalents acquired net of purchase acquisitions
Other investing activities, net
Net cash used in investing activities
Financing activities
Net increase in deposits
Net increase in federal funds purchased and securities sold under agreements to repurchase
Net increase (decrease) in commercial paper and other short-term borrowings
Proceeds from issuance of long-term debt
Retirement of long-term debt
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid
Other financing activities, net
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
Supplemental cash flow disclosures
Cash paid for interest
Cash paid for income taxes
Year Ended December 31
2004
2003
2002
$ 14,143
$ 10,810
$
9,249
2,769
(2,123)
972
664
(402)
(13,180)
(11,928)
4,583
547
(3,955)
(1,147)
(3,880)
107,107
26,973
(232,609)
153
4,416
(32,344)
(1,075)
(863)
198
–
4,953
986
(127,132)
64,423
35,752
37,437
21,289
(16,904)
3,723
(6,286)
(6,468)
(91)
132,875
64
1,852
27,084
$ 28,936
2,839
(941)
890
217
(263)
(13,153)
10,647
12,067
37
23,150
(1,238)
(31,614)
171,711
26,953
(195,852)
779
32,672
(74,202)
(1,690)
(209)
247
(1,600)
(140)
898
(73,285)
27,655
12,967
13,917
16,963
(9,282)
3,970
(9,766)
(4,281)
(72)
52,071
175
2,111
24,973
$ 27,084
3,697
(630)
886
218
(444)
(13,133)
(2,345)
(11,019)
2,837
(10,684)
(881)
(16,770)
137,702
26,777
(145,962)
43
28,068
(37,184)
(900)
(939)
142
–
(110)
2,676
(7,338)
12,963
17,352
(790)
10,850
(15,364)
2,373
(7,466)
(3,709)
(66)
16,143
15
(1,864)
26,837
$ 24,973
$ 13,765
5,754
$ 10,214
3,870
$ 11,253
3,999
Assets and liabilities of a certain multi-seller asset-backed commercial paper conduit that was consolidated amounted to $4,350 in 2003.
Net transfers of Loans and Leases from loans held-for-sale (included in Other Assets) to the loan portfolio for Asset and Liability Management (ALM) purposes amounted to $1,106, $9,683 and $8,468 in
2004, 2003 and 2002, respectively.
The fair values of noncash assets acquired and liabilities assumed in the merger with FleetBoston were $224,492 and $182,862, respectively.
Approximately 1.2 billion shares of common stock, valued at approximately $45,622, were issued in connection with the merger with FleetBoston.
See accompanying Notes to Consolidated Financial Statements.
BANK OF AMERICA 2004 99
Notes to Consolidated Financial Statements
Bank of America Corporation and Subsidiaries
Bank of America Corporation and its subsidiaries (the Corporation)
through its banking and nonbanking subsidiaries, provide a diverse
range of financial services and products throughout the United States
and in selected international markets. At December 31, 2004, the
Corporation operated its banking activities primarily under three
charters: Bank of America, National Association (Bank of America, N.A.),
Bank of America, N.A. (USA) and Fleet National Bank.
On April 1, 2004, the Corporation acquired all of the outstand-
ing stock of FleetBoston (the Merger). FleetBoston’s results of oper-
ations were included in the Corporation’s results beginning on April 1,
2004. The Merger was accounted for as a purchase. For informa-
tional and comparative purposes, certain tables have been expanded
to include a column entitled FleetBoston, April 1, 2004. This column
represents balances acquired from FleetBoston as of April 1, 2004,
including purchase accounting adjustments.
In order to more closely align with the scope of its businesses,
the Corporation has renamed each of its business segments.
Consumer and Small Business Banking has been renamed Global
Consumer and Small Business Banking, Commercial Banking is now
called Global Business and Financial Services, Global Corporate and
Investment Banking is now called Global Capital Markets and
Investment Banking and Wealth and Investment Management has
been renamed Global Wealth and Investment Management.
Note 1 Summary of Significant Accounting Principles
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 benefici-
ary. All significant intercompany accounts and transactions have been
eliminated. Results of operations of companies purchased are
included from the dates of acquisition. Certain prior period amounts
have been reclassified to conform to current period presentation.
Assets held in an agency or fiduciary capacity are not included in the
Consolidated Financial Statements. The Corporation accounts for
investments in companies in which it owns a voting interest of 20 per-
cent to 50 percent and for which it may have significant influence
over operating and financing decisions using the equity method of
accounting. These investments are included in Other Assets and the
Corporation’s proportionate share of income or loss is included in
Other Income.
The preparation of the Consolidated Financial Statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect reported amounts and disclosures. Actual
results could differ from those estimates and assumptions.
During the second quarter of 2004, the Corporation’s Board of
Directors (the Board) approved a 2-for-1 stock split in the form of a
common stock dividend effective August 27, 2004, to common share-
holders of record on August 6, 2004. All prior period common share
and related per common share information has been restated to
reflect the 2-for-1 stock split.
Recently Issued Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 46, “Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51” (FIN 46), which provides a
framework for identifying VIEs and determining when a company
should include the assets, liabilities, noncontrolling interests and
results of activities of a VIE in its consolidated financial statements.
The Corporation adopted FIN 46 on July 1, 2003, and consolidated
approximately $12.2 billion of assets and liabilities related to certain
of our multi-seller asset-backed commercial paper (ABCP) conduits.
On October 8, 2003, one of these entities, Ranger Funding Company
(RFC) (formerly known as Receivables Capital Corporation), entered
into a Subordinated Note Purchase Agreement (the Note) with an
unrelated third party which reduced our exposure to this entity’s
losses under liquidity and credit agreements as these agreements
are senior to the Note. This Note was issued in the principal amount
of $23 million, an original maturity of five years and pays interest at
23 percent. Proceeds from the issuance of the Note were deposited
into a separate account and may be used to cover losses incurred by
RFC. Upon RFC’s issuance of this Note, the Corporation evaluated
whether the Corporation continued to be the primary beneficiary of
RFC and determined that the unrelated party which purchased the
Note absorbed over 50 percent of the expected losses of RFC. We
determined the amount of expected loss through mathematical analy-
sis utilizing a Monte Carlo model that incorporates the cash flows
from RFC’s assets and utilizes independent loss information. The
noteholder is therefore the primary beneficiary of and is required to
consolidate the entity. As a result of the sale of the Note, we decon-
solidated approximately $8.0 billion of the previously consolidated
assets and liabilities of the entity. The impact of this transaction on
the Consolidated Statement of Income was the reduction in Interest
Income of approximately $1 million and the reclassification of approx-
imately $37 million from Net Interest Income to Noninterest Income
for 2003. At December 31, 2004, this entity had total assets of
100 BANK OF AMERICA 2004
$10.0 billion. There was no material impact to Net Income or Tier 1
Capital as a result of the adoption of FIN 46 or the subsequent
deconsolidation of this entity, and prior periods were not restated. In
December 2003,
the FASB issued FASB Interpretation No. 46
(Revised December 2003), “Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51” (FIN 46R), which is an
update of FIN 46. The Corporation adopted FIN 46R as of March 31,
2004. Adoption of this rule did not have a material impact on the
Corporation’s results of operations or financial condition. For addi-
tional information on VIEs, see Note 8 of the Consolidated Financial
Statements.
On December 12, 2003, the American Institute of Certified
Public Accountants issued Statement of Position No. 03-3,
“Accounting for Certain Loans or Debt Securities Acquired in a
Transfer” (SOP 03-3). SOP 03-3 requires acquired impaired loans for
which it is probable that the investor will be unable to collect all
contractually required payments receivable to be recorded at the
present value of amounts expected to be received and prohibits
carrying over or creation of valuation allowances in the initial
accounting for these loans. SOP 03-3 is effective for loans acquired
in fiscal years beginning after December 31, 2004. SOP 03-3 is not
expected to have a material impact on the Corporation’s results of
operations or financial condition.
On March 9, 2004, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 105, “Application of
Accounting Principles to Loan Commitments” (SAB 105), which spec-
ifies that servicing assets embedded in commitments for loans to be
held-for-sale should be recognized only when the servicing asset has
been contractually separated from the associated loans by sale or
securitization. The adoption of SAB 105 is effective for commitments
entered into after March 31, 2004. The adoption of SAB 105 had no
material impact on the Corporation’s results of operations or financial
condition.
On March 18, 2004, the Emerging Issues Task Force (EITF)
issued EITF 03-1, “The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments” (EITF 03-1). EITF 03-1
provides recognition and measurement guidance regarding when
impairments of equity and debt securities are considered other-than-
temporary thereby requiring a charge to earnings, and also requires
additional annual disclosures for investments in unrealized loss posi-
tions. The additional annual disclosure requirements were previously
issued by the EITF in November 2003 and were effective for the
Corporation for the year ended December 31, 2003. In September
2004, the FASB issued FASB Staff Position (FSP) EITF 03-1-1, which
delays the recognition and measurement provisions of EITF 03-1
pending the issuance of further implementation guidance. We are
currently evaluating the effect of the recognition and measurement
provisions of EITF 03-1.
In the third quarter of 2004, the Corporation adopted FSP No.
FAS 106-2, “Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003” (FSP No. 106-2), which superseded FSP No. FAS 106-1. FSP
No. 106-2 provides authoritative guidance on accounting for the fed-
eral subsidy and other provisions of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Medicare Act). The
effects of these provisions were recognized prospectively from July 1,
2004. A remeasurement on that date resulted in a reduction of $53
million in the Corporation’s accumulated postretirement benefit obli-
gation. In addition, the Corporation’s net periodic benefit cost for
other postretirement benefits has decreased by $15 million for 2004
as a result of the remeasurement.
On December 16, 2004, the FASB issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised 2004) “Share-based
Payment” (SFAS 123R) which eliminates the ability to account for
share-based compensation transactions using Accounting Principles
Board (APB) Opinion No. 25, “Accounting for Stock Issued to
Employees,” (APB 25) and generally requires that such transactions
be accounted for using a fair value-based method with the resulting
compensation cost recognized over the period that the employee is
required to provide service in order to receive their compensation.
SFAS 123R also amends SFAS No. 95, “Statement of Cash Flows,”
requiring the benefits of tax deductions in excess of recognized com-
pensation cost to be reported as a financing cash flow, rather than
as an operating cash flow as currently required. The Corporation
plans to adopt SFAS 123R beginning July 1, 2005, using the modi-
fied-prospective method. The Corporation adopted the fair value-
based method of accounting for stock-based employee compensation
prospectively as of January 1, 2003, and as a result, adoption of
SFAS 123R is not expected to have a material impact on the
Corporation’s results of operations or financial condition.
On December 21, 2004, the FASB issued FSP No. 109-2,
“Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of
2004” (FSP No. 109-2). FSP No. 109-2 provides accounting and
disclosure guidance for the foreign earnings repatriation provision
within the American Jobs Creation Act of 2004 (the Act). The Act,
signed into law on October 22, 2004, provided 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. Much of the detailed guidance
about how this special deduction will operate has yet to be issued
by the U.S. Department of the Treasury and the Internal Revenue
BANK OF AMERICA 2004 101
Service (IRS). Management is currently evaluating its opportunity to
make this election for 2005 and expects to complete its evaluation
after the release of detailed guidance, expected to occur by the third
quarter of 2005. In accordance with FSP No. 109-2, the special
deduction elective provision of the Act has not been considered in
determining the provision for deferred U.S. income taxes on unremit-
ted earnings of foreign subsidiaries. The range of unremitted earn-
ings that management is considering for the special deduction
election is $0 to $899 million, and the range of income tax effects
that could result from remitting earnings from certain foreign sub-
sidiaries that have been assumed to be permanently reinvested is
approximately $0 to $30 million.
Stock-based Compensation
SFAS No. 148, “Accounting for Stock-Based Compensation –
Transition and Disclosure – an amendment of FASB Statement
No. 123,” (SFAS 148) was adopted prospectively by the Corporation
on January 1, 2003. SFAS 148 provides alternative methods of tran-
sition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. All stock
options granted under plans before the adoption date will continue to
be accounted for under APB 25 unless these stock options are mod-
ified or settled subsequent to adoption. SFAS 148 was effective for
all stock option awards granted in 2003 and thereafter. Under APB
25, the Corporation accounted for stock options using the intrinsic
value method and no compensation expense was recognized, as the
grant price was equal to the strike price. Under the fair value method,
stock option compensation expense is measured on the date of grant
using an option-pricing model. The option-pricing model is based on
certain assumptions and changes to those assumptions may result
in different fair value estimates.
In accordance with SFAS 148, the Corporation provides disclo-
sures as if it had adopted the fair value-based method of measuring
all outstanding employee stock options during 2004, 2003 and 2002.
The following table presents the effect on Net Income and Earnings
per Common Share had the fair value-based method been applied to
all outstanding and unvested awards for 2004, 2003 and 2002.
(Dollars in millions,
except per share data)
Net income (as reported)
Stock-based employee
compensation expense
recognized during the year,
net of related tax effects
Stock-based employee
compensation expense
determined under fair
value-based method,
net of related tax effects(1)
Pro forma net income
As reported
Earnings per common share
Diluted earnings per
common share
Pro forma
Earnings per common share
Diluted earnings per
common share
Year Ended December 31
2004
$ 14,143
2003
$ 10,810
2002
$ 9,249
161
78
–
(198)
$ 14,106
(225)
$ 10,663
(413)
$ 8,836
$
3.76
$
3.63
$
3.04
3.69
3.75
3.69
3.57
3.59
3.52
2.95
2.90
2.82
(1) Includes all awards granted, modified or settled for which the fair value was required to be
measured under SFAS 123, except restricted stock. Restricted stock expense, included in Net
Income for 2004, 2003 and 2002 was $288, $276 and $250, respectively.
In determining the pro forma disclosures in the previous table, the
fair value of options granted was estimated on the date of grant using
the Black-Scholes option-pricing model and assumptions appropriate
to each plan. The Black-Scholes model was developed to estimate
the fair value of traded options, which have different characteristics
than employee stock options, and changes to the subjective assump-
tions used in the model can result in materially different fair value
estimates. The weighted average grant date fair values of the options
granted during 2004, 2003 and 2002 were based on the assump-
tions below. See Note 16 of the Consolidated Financial Statements
for further discussion.
Shareholder approved plans
Broad-based plans(1)
Shareholder approved plans
Broad-based plans(1)
(1) There were no options granted under broad-based plans in 2004 or 2003.
n/a = not applicable
Risk-free Interest Rate
Dividend Yield
2004
3.36%
n/a
2003
3.82%
n/a
2002
5.00%
4.14
2004
4.56%
n/a
2003
4.40%
n/a
2002
4.76%
4.37
Expected Lives (Years)
2004
5
n/a
2003
7
n/a
2002
7
4
2004
22.12%
n/a
Volatility
2003
26.57%
n/a
2002
26.86%
31.02
102 BANK OF AMERICA 2004
Compensation expense under the fair value-based method is recog-
nized over the vesting period of the related stock options.
Accordingly, the pro forma results of applying SFAS 123 in 2004,
2003 and 2002 may not be indicative of future amounts.
Cash and Cash Equivalents
Cash on hand, cash items in the process of collection, and amounts
due from correspondent banks and the Federal Reserve Bank are
included in Cash and Cash Equivalents.
Securities Purchased under Agreements to Resell and
Securities Sold under Agreements to Repurchase
Securities Purchased under Agreements to Resell and Securities
Sold under Agreements to Repurchase are treated as collateralized
financing transactions and are recorded at the amounts at which the
securities were acquired or sold plus accrued interest. The
Corporation’s policy is to obtain the use of Securities Purchased
under Agreements to Resell. The market value of the underlying secu-
rities, which collateralize the related receivable on agreements to
resell, is monitored, including accrued interest. The Corporation may
require counterparties to deposit additional collateral or return col-
lateral pledged, when appropriate.
Collateral
The Corporation has accepted collateral that it is permitted by con-
tract or custom to sell or repledge. At December 31, 2004, the fair
value of this collateral was approximately $152.5 billion of which
$117.5 billion was sold or repledged. At December 31, 2003, the fair
value of this collateral was approximately $86.9 billion of which
$62.8 billion was sold or repledged. The primary source of this col-
lateral is reverse repurchase agreements. The Corporation pledges
securities as collateral in transactions that consist of 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 depend-
ing 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 con-
tained in legal netting agreements, the Corporation has netted cash
collateral against the applicable derivative mark-to-market expo-
sures. Accordingly, the Corporation offsets its obligation to return or
its right to reclaim cash collateral against the fair value of the deriv-
atives being collateralized.
Trading Instruments
Financial instruments utilized in trading activities are stated at fair
value. Fair value is generally based on quoted market prices. If quoted
market prices are not available, fair values are estimated based on
dealer quotes, pricing models or quoted prices for instruments with
similar characteristics. Realized and unrealized gains and losses are
recognized in Trading Account Profits.
Derivatives and Hedging Activities
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 posi-
tive 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 con-
tracts, fair value is based on dealer quotes, pricing models or quoted
prices for instruments with similar characteristics. The Corporation
designates at inception whether the derivative contract is considered
hedging or non-hedging for SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) accounting purposes.
Non-hedging derivatives held for trading purposes are included in the
Corporation’s trading portfolio with changes in fair value reflected in
Trading Account Profits. Other non-hedging derivatives for accounting
purposes that are considered economic hedges are also included in
the trading portfolio with changes in fair value generally recorded in
Trading Account Profits. Most credit derivatives used by the
Corporation do not qualify for hedge accounting under SFAS 133 and
despite being effective economic hedges, changes in the fair value of
these derivatives are included in Trading Account Profits. Changes in
the fair value of derivatives that serve as economic hedges of MSRs
are recorded in Mortgage Banking Income.
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
quarterly thereafter, to assess whether the derivative used in its
hedging transaction is expected to be or has been highly effective in
offsetting changes in the fair value or cash flows of the hedged items.
The Corporation discontinues hedge accounting when it is deter-
mined 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 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 man-
ages interest rate and foreign currency exchange rate sensitivity pre-
dominantly through the use of derivatives. Fair value hedges are used
to limit the Corporation’s exposure to total changes in the fair value of
its fixed interest-earning assets or interest-bearing liabilities that are
due to interest rate or foreign exchange volatility. Cash flow hedges
are used to minimize the variability in cash flows of interest-earning
BANK OF AMERICA 2004 103
assets or interest-bearing liabilities or forecasted transactions caused
by interest rate or foreign exchange fluctuation. Changes in the fair
value of derivatives designated for hedging activities that are highly
effective as hedges are recorded in earnings or Accumulated Other
Comprehensive Income (OCI), depending on whether the hedging rela-
tionship satisfies the criteria for a fair value or cash flow hedge,
respectively. 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 that
is used to record hedge effectiveness. SFAS 133 retains certain con-
cepts under 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 as a component of
Accumulated OCI.
The Corporation, from time to time, purchases or issues finan-
cial instruments containing embedded derivatives. The embedded
derivative is separated from the host contract and carried at fair
value if the economic characteristics of the derivative are not clearly
and closely related to the economic characteristics of the host con-
tract. To the extent that the Corporation cannot reliably identify and
measure the embedded derivative, the entire contract is carried at
fair value on the Consolidated Balance Sheet with changes in fair
value reflected in earnings.
If a derivative instrument in a fair value hedge is terminated or
the hedge designation removed, the previous adjustments of the car-
rying amount of the hedged asset or liability are subsequently
accounted for in the same manner as other components of the car-
rying amount of that asset or liability. For interest-earning assets and
interest-bearing liabilities, such adjustments are amortized to earn-
ings 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 OCI are
reclassified into earnings in the same period or periods during which
the hedged forecasted transaction affects earnings.
Interest Rate Lock Commitments
The Corporation enters into interest rate lock commitments (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 con-
sidered derivative instruments under Statement of Financial
Accounting Standards No. 149, “Amendment of Statement 133 on
Derivative Instruments and Hedging Activities”. As such, these IRLCs
are recognized at fair value with changes in fair value recorded in the
Consolidated Statement of Income.
Consistent with SAB 105, the Corporation does 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 initial value
of the loan commitment derivative is based on the consideration
exchanged, if any, for entering into the commitment. In estimating the
subsequent 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. This probability is commonly
referred to as the pull through assumption. The fair value of the
commitments is derived from the fair value of related mortgage loans,
which is based on a highly liquid, readily observable market. Changes
to the fair value of IRLCs are recognized based on interest rate
changes, changes in the probability that the commitment will be exer-
cised 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.
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 due to increases in
mortgage interest rates. To protect against this risk, the Corporation
utilizes forward loan sales commitments and other derivatives
instruments, including options, to economically hedge the risk of
potential changes in the value of the loans that would result from
the commitments. The Corporation expects that the changes in the
fair value of these derivative instruments will offset changes in the
fair value of the IRLCs.
Securities
Debt securities are classified based on management’s intention on
the date of purchase and recorded on the Consolidated Balance Sheet
as Securities as of the trade date. Debt securities which management
has the intent and ability to hold to maturity are classified as held-to-
maturity and reported at amortized cost. Debt securities that are
bought and held principally for the purpose of resale in the near term
are classified as trading instruments and are stated at fair value with
unrealized gains and losses included in Trading Account Profits. All
other debt securities are classified as available-for-sale (AFS) and
carried at fair value with net unrealized gains and losses included in
Accumulated OCI on an after-tax basis.
Interest on debt securities, including amortization of premiums
and accretion of discounts, are included in Interest Income. Realized
gains and losses from the sales of debt securities, which are
included in Gains on Sales of Debt Securities, are determined using
the specific identification method.
Marketable equity securities are classified based on manage-
ment’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 instruments and are
stated at fair value with unrealized gains and losses included in
Trading Account Profits. Other marketable equity securities are clas-
sified as AFS and either recorded as AFS Securities if they are a com-
ponent of the ALM portfolio, or otherwise recorded as Other Assets.
All AFS marketable equity securities are carried at fair value with net
unrealized gains and losses included in Shareholders’ Equity on an
after-tax basis. Dividend income on AFS marketable equity securities
is included in Interest Income. Dividend income on marketable equity
securities recorded in Other Assets is included in Noninterest
Income. Realized gains and losses on the sale of all AFS marketable
equity securities, which are recorded in Equity Investment Gains, are
104 BANK OF AMERICA 2004
determined using the weighted average method.
Venture capital investments for which there are active market
quotes are carried at estimated fair value based on market prices
and recorded as Other Assets. Nonpublic and other venture capital
investments for which representative market quotes are not readily
available are initially valued at cost. Subsequently, these investments
are reviewed semi-annually and on a quarterly basis, where appropri-
ate, and adjusted to reflect changes in value as a result of initial pub-
lic offerings, market liquidity, the investees’ financial results, sales
restrictions, or other than temporary declines in value. Gains and
losses on all venture capital investments, both unrealized and real-
ized, are recorded in Equity Investment Gains.
Loans and Leases
Loans 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
income using methods that approximate the interest method.
The Corporation provides equipment financing to its customers
through a variety of lease arrangements. Direct financing leases are
carried at the aggregate of lease payments receivable plus estimated
less unearned income.
residual value of the leased property,
Leveraged leases, which are a form of financing lease, are carried net
of nonrecourse debt. Unearned income on leveraged and direct
financing leases is amortized over the lease terms by methods that
approximate the interest method.
Allowance for Credit Losses
The allowance for credit losses which includes the Allowance for Loan
and Lease Losses, and the reserve for unfunded lending commit-
ments represents management’s estimate of probable losses inher-
ent in our lending activities. The Allowance for Loan and Lease
Losses represents our estimated probable credit losses in our
funded consumer, and commercial loans and leases while our
reserve for unfunded lending commitments, including standby letters
of credit and binding unfunded loan commitments, represents esti-
mated probable credit losses in these off-balance sheet credit instru-
ments based on utilization assumptions. Credit exposures, excluding
Derivative Assets and Trading Account Assets, deemed to be uncol-
lectible are charged against these accounts. Cash recovered on pre-
viously charged off amounts are credited 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, which generally consist of consumer
loans, is based on aggregated portfolio segment evaluations gener-
ally by product type. Loss forecast models are utilized for these seg-
ments 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 consumer loss forecast models are updated on
a quarterly basis in order to incorporate information reflective of the
current economic environment. The remaining commercial portfolios
are reviewed on an individual loan basis. Loans subject to individual
reviews are analyzed and segregated by risk according to the
Corporation’s internal risk rating scale. These risk classifications, in
conjunction with an analysis of historical loss experience, current eco-
nomic conditions and performance trends within specific portfolio seg-
ments, 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 Allowance for Loan and Lease Losses is
established for individual impaired commercial loans. A loan is con-
sidered 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 individ-
ually 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 estab-
lished as a component of the Allowance for Loan and Lease Losses.
Three components of the Allowance for Loan and Lease Losses
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 that are either nonperforming or impaired. The sec-
ond component of the allocated allowance covers consumer loans
and leases, and performing commercial loans and leases. The third
or general component of the Allowance for Loan and Lease Losses,
determined separately from the procedures outlined above, is main-
tained to cover uncertainties that affect our estimate of probable
losses. These uncertainties include the imprecision inherent in the
forecasting methodologies, as well as domestic and global economic
uncertainty and large single name defaults or event risk.
Management assesses each of these components to determine the
overall level of the third component. The relationship of the general
component to the total Allowance for Loan and Lease Losses may
fluctuate from period to period. Management evaluates the adequacy
of the Allowance for Loan and Lease Losses based on the combined
total of these three components.
In addition to the Allowance for Loan and Lease Losses, the
Corporation also estimates probable losses related to unfunded
lending commitments, such as letters of credit and financial guar-
antees, and binding unfunded loan commitments. Unfunded lending
commitments are subject to individual reviews and are analyzed
and segregated by risk according to the Corporation’s internal risk rat-
BANK OF AMERICA 2004 105
ing scale. These risk classifications, in conjunction with an analysis
of historical loss experience, current economic conditions, perform-
ance trends within specific portfolio segments and any other perti-
nent information, result in the estimation of the reserve for unfunded
lending commitments.
The allowance for credit losses related to the loan and lease
portfolio, and the reserve for unfunded lending commitments are
reported on the Consolidated Balance Sheet in the Allowance for
Loan and Lease Losses, and Accrued Expenses and Other Liabilities,
respectively. Provision for Credit Losses related to the loans and
leases portfolio, and unfunded lending commitments are both
reported in the Consolidated Statement of Income in the Provision for
Credit Losses.
Nonperforming Loans and Leases
Credit card loans are charged off at 180 days past due or 60 days
from notification of bankruptcy filing and are not classified as non-
performing. Unsecured consumer loans and deficiencies in non-real
estate secured loans and leases are charged off at 120 days past
due and not classified as nonperforming. Real estate secured con-
sumer loans are placed on nonaccrual status and classified as non-
performing at 90 days past due. The amount deemed uncollectible on
real estate secured loans is charged off at 180 days past due.
Consumer loans are generally returned to performing status when
principal or interest is less than 90 days past due.
Commercial loans and leases 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 compensa-
tion on restructured loans, are classified as nonperforming until the
loan is performing for an adequate period of time under the restruc-
tured 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 cred-
ited to income when received. Commercial loans and leases may be
restored to performing status when all principal and interest is cur-
rent 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.
Loans Held-for-Sale
Loans held-for-sale include residential 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 value. Loans held-for-sale are included in Other Assets.
Premises and Equipment
Premises and Equipment are stated at cost less accumulated depre-
ciation and amortization. Depreciation and amortization are recog-
nized 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
Pursuant to agreements between the Corporation and its counterpar-
ties, $2.2 billion of Excess Spread Certificates (the Certificates) were
converted into Mortgage Servicing Rights (MSRs) on June 1, 2004.
Prior to the conversion of the Certificates into MSRs, the Certificates
were accounted for on a mark-to-market basis (i.e. fair value) and
changes in the value were recognized as Trading Account Profits. On
the date of the conversion, the Corporation recorded these MSRs at
the Certificates’ fair market value, and that value became their new
cost basis. Subsequent to the conversion, the Corporation accounts
for the MSRs at the lower of cost or market with impairment recog-
nized as a reduction of Mortgage Banking Income. Except for Note 8
of the Consolidated Financial Statements, what are now referred to
as MSRs include the Certificates for periods prior to the conversion.
During the second quarter of 2004, the Corporation entered
into discussions with the Securities and Exchange Commission Staff
(the Staff) regarding the accounting treatment for the Certificates and
MSRs. The Corporation has concluded its discussions with the Staff
regarding the prior accounting for the Certificates. Following discus-
sions with the Staff, the conclusion was reached that the Certificates
lacked sufficient separation from the MSRs to be accounted for as
described above (i.e. fair value). Accordingly, the Corporation should
have continued to account for the Certificates as MSRs (i.e. lower
of cost or market). The effect on our previously filed Consolidated
Financial Statements of following lower of cost or market accounting
for the Certificates compared to fair value accounting (i.e. the prior
accounting) is not material. Consequently, no revisions were made to
previously filed Consolidated Financial Statements.
When applying SFAS 133 hedge accounting for derivative finan-
cial instruments that have been designated to hedge MSRs, loans
underlying the MSRs being hedged are stratified into pools that pos-
sess similar interest rate and prepayment risk exposures. The
Corporation has designated the hedged risk as the change in the
overall fair value of these stratified pools within a daily hedge period.
The Corporation performs both prospective and retrospective hedge
effectiveness evaluations, using regression analyses. A prospective
test is performed to determine whether the hedge is expected to be
highly effective at the inception of the hedge. A retrospective test is
performed at the end of the hedge period to determine whether the
hedge was actually effective during the hedge period.
Other 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. Securities are also used as economic hedges of MSRs, but
106 BANK OF AMERICA 2004
do not qualify as hedges under SFAS 133 and, therefore, are
accounted for as AFS Securities with realized gains recorded in Gains
on Sales of Debt Securities and unrealized gains or losses recorded
in Accumulated OCI.
Goodwill and Other Intangibles
Net assets of companies acquired in purchase transactions are
recorded at fair value at the date of acquisition, as such, the histori-
cal cost basis of individual assets and liabilities are adjusted to
reflect their fair value. Identified intangibles are amortized on an
accelerated or straight-line basis over the period benefited. Goodwill
is not amortized but is reviewed for potential impairment on an
annual basis, or if events or circumstances indicate a potential
impairment, at the reporting unit level. The impairment test is per-
formed in two phases. The first step of the Goodwill impairment test
compares the fair value of the reporting unit with its carrying amount,
including Goodwill. If the fair value of the reporting unit exceeds its
carrying amount, Goodwill of the reporting unit is considered not
impaired; however,
if the carrying amount of the reporting unit
exceeds its fair value, an additional procedure must be performed.
That additional procedure compares the implied fair value of the
reporting unit’s Goodwill (as defined in SFAS No. 142, “Goodwill and
Other Intangible Assets” (SFAS 142)) with the carrying amount of that
Goodwill. An impairment loss is recorded to the extent that the car-
rying amount of Goodwill exceeds its implied fair value. In 2004,
2003 and 2002, Goodwill was tested for impairment and no impair-
ment charges were recorded.
Other intangible assets subject to amortization are evaluated
for impairment in accordance with SFAS No. 144 “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS 144). An impair-
ment loss will be recognized if the carrying amount of the intangible
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, 2004, intangible assets included on the
Consolidated Balance Sheet consist of core deposit intangibles,
purchased credit card relationship intangibles and other customer-
related intangibles that are amortized on an accelerated basis using
an estimated range of anticipated lives of 6 to 10 years.
Special Purpose Financing Entities
In the ordinary course of business, the Corporation supports its cus-
tomers’ financing needs by facilitating the customers’ access to dif-
ferent funding sources, assets and risks. In addition, the Corporation
utilizes certain financing arrangements to meet its balance sheet man-
agement, 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 securitiza-
tion vehicles for mortgages or other types of loans which are generally
funded through term-amortizing debt structures. Other special pur-
pose entities finance their activities by issuing short-term commercial
paper. Both types of vehicles are designed to be paid off from the
underlying cash flows of the assets held in the vehicle.
Securitizations
The Corporation securitizes, sells and services interests in residential
mortgage loans, and from time to time, consumer finance, commercial
and credit card loans. The accounting for these activities are governed
by SFAS 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities – a replacement of FASB
Statement No. 125” (SFAS 140). The securitization vehicles are
Qualified Special Purpose Entities (QSPEs) which, in accordance with
SFAS 140, are legally isolated, bankruptcy remote and beyond the con-
trol of the seller. QSPEs are not included in the consolidated financial
statements of the seller. When the Corporation securitizes assets, it
may retain interest-only strips, one or more subordinated tranches and,
in some cases, a cash reserve account 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 depend, in part, on the Corporation’s allocation of
the previous carrying amount of the assets to the retained interests.
Previous carrying amounts are allocated in proportion to the relative fair
values of the assets sold and interests retained.
Quoted market prices are used to obtain fair values of senior
retained interests. Generally, quoted market prices for retained resid-
ual 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 yield curves, discount rates and
other factors that impact the value of retained interests. See Note 8
of the Consolidated Financial Statements for further discussion.
The excess cash flows expected to be received over the amor-
tized cost of the retained interest is recognized as Interest Income
using the effective yield method. If the fair value of the retained inter-
est 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 corre-
sponding adjustment to earnings.
Other Special Purpose Financing Entities
Other special purpose financing entities 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 instru-
ments 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 liq-
uidity 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
BANK OF AMERICA 2004 107
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 FIN 46R, the
primary beneficiary is the party that consolidates a VIE based on its
assessment that it will absorb a majority of the expected losses or
expected residual returns of the entity, or both. For additional infor-
mation on other special purpose financing entities, see Note 8 of the
Consolidated Financial Statements.
realized upon sale of the securities. Other-than-temporary impairment
charges are reclassified to Net Income at the time of the charge.
Translation gains or losses on foreign currency translation adjust-
ments are reclassified to Net Income upon the sale or liquidation of
investments in foreign operations. Gains or losses on derivatives
accounted for as hedges are reclassified to Net Income in the same
caption of the Consolidated Statement of Income that was affected
by the hedged item.
Income Taxes
The Corporation accounts for income taxes in accordance with SFAS
No. 109, “Accounting for Income Taxes” (SFAS 109), resulting in two
components of 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 liabili-
ties as measured by tax laws and their bases as reported in the finan-
cial statements.
Deferred tax assets have also been recognized for net operating
loss carryforwards and tax credit carryforwards. Valuation allowances
are then recorded to reduce deferred tax assets to the amounts man-
agement concludes are more likely than not to be realized.
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 con-
sists 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 supple-
mental benefit plans and supplemental executive retirement plans for
selected officers of the Corporation and its subsidiaries that provide
benefits that cannot be paid from a qualified retirement plan due to
Internal Revenue Code restrictions. 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 postretire-
ment healthcare and life insurance benefit plans.
Other Comprehensive Income
The Corporation records unrealized gains and losses on AFS
Securities, foreign currency translation adjustments, related hedges
of net investments in foreign operations, and gains and losses on
cash flow hedges in Accumulated OCI. Gains and losses on AFS
Securities are reclassified to Net Income as the gains or losses are
Earnings Per Common Share
Earnings per Common Share is computed by dividing Net Income
Available to Common Shareholders by the weighted average common
shares issued and outstanding. For Diluted Earnings per Common
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 Income is divided
by the weighted average number of common shares issued and out-
standing for each period plus amounts representing the dilutive
effect of stock options outstanding, 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 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 sub-
sidiaries 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 opera-
tions are translated, for consolidation purposes, at current exchange
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 Accumulated OCI on an after-tax basis. When the for-
eign entity is not a free-standing operation or is in a hyperinflation-
ary economy, the functional currency used to measure the financial
statements of a foreign entity is the U.S. dollar. In these instances,
the resulting realized gains or losses are included in income.
Co-Branding Credit Card Arrangements
The Corporation has co-brand arrangements that entitle a cardholder
to receive benefits based on purchases made with the card. These
arrangements have remaining terms generally not exceeding five
years. The Corporation may pay one-time fees which would be
deferred ratably over the term of the arrangement. The Corporation
makes monthly payments to the co-brand partners based on the vol-
ume of cardholders’ purchases and on the number of points awarded
to cardholders. Such payments are expensed as incurred and are
recorded as contra-revenue.
108 BANK OF AMERICA 2004
Note 2 Merger and Restructuring Activity
FleetBoston
Pursuant to the Agreement and Plan of Merger, dated October 27,
2003, by and between the Corporation and FleetBoston (the Merger
Agreement), the Corporation acquired 100 percent of the outstanding
stock of FleetBoston on April 1, 2004, in a tax-free merger, in order
to expand the Corporation’s presence in the Northeast. FleetBoston’s
results of operations were included in the Corporation’s results begin-
ning April 1, 2004.
As provided by the Merger Agreement, approximately 1.069 bil-
lion shares of FleetBoston common stock were exchanged for approx-
imately 1.187 billion shares of the Corporation’s common stock, as
adjusted for the stock split. At the date of the Merger, this represented
approximately 29 percent of the Corporation’s outstanding common
stock. FleetBoston shareholders also received cash of $4 million in
lieu of any fractional shares of the Corporation’s common stock that
would have otherwise been issued on April 1, 2004. Holders of
FleetBoston preferred stock received 1.1 million shares of the
Corporation’s preferred stock. The Corporation’s preferred stock that
was exchanged was valued using the book value of FleetBoston pre-
ferred stock. The depositary shares underlying the FleetBoston pre-
ferred stock, each representing a one-fifth interest in the FleetBoston
preferred stock prior to the Merger, now represent a one-fifth interest
in a share of the Corporation’s preferred stock. The purchase price
was adjusted to reflect the effect of the 15.7 million shares of
FleetBoston common stock that the Corporation already owned.
The Merger was accounted for under the purchase method of
accounting
in accordance with SFAS No. 141, “Business
Combinations” (SFAS 141). Accordingly, the purchase price was allo-
cated to the assets acquired and the liabilities assumed based on
their estimated fair values at the Merger date as summarized below.
(Dollars in millions)
Purchase price
FleetBoston common stock exchanged (in thousands)
Exchange ratio (as adjusted for the stock split)
Total shares of the Corporation’s common stock exchanged (in thousands)
Purchase price per share of the Corporation’s common stock(1)
Total value of the Corporation’s common stock exchanged
FleetBoston preferred stock converted to the Corporation’s preferred stock
Fair value of outstanding stock options, direct acquisition costs and
the effect of FleetBoston shares already owned by the Corporation
Total purchase price
Allocation of the purchase price
FleetBoston stockholders’ equity
FleetBoston goodwill and other intangible assets
Adjustments to reflect assets acquired and liabilities assumed at fair value:
Securities
Loans and leases
Premises and equipment
Identified intangibles
Other assets and deferred income tax
Deposits
Other liabilities
Exit and termination liabilities
Long-term debt
Fair value of net assets acquired
Estimated goodwill resulting from the Merger
1,068,635
1.1106
1,186,826
$ 38.44
$ 45,622
271
1,360
$ 47,253
$ 19,329
(4,709)
(84)
(770)
(738)
3,243
243
(313)
(286)
(658)
(1,182)
14,075
$ 33,178
(1) The value of the shares of common stock exchanged with FleetBoston 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, October 27, 2003, the date of the Merger Agreement, as adjusted for the stock split.
BANK OF AMERICA 2004 109
Merger and Restructuring Charges
Merger and Restructuring Charges are recorded in the Consolidated
Statement of Income, and include incremental costs to integrate
Bank of America’s and FleetBoston’s operations. These charges rep-
resent costs associated with merger activities and do not represent
on-going costs of the fully integrated combined organization. Systems
integrations and related charges, and other, as shown in the table
below, are expensed as incurred.
In addition, Merger and Restructuring Charges include costs
related to an infrastructure initiative undertaken in the third quarter
of 2004 to simplify the Corporation’s business model. In 2004, man-
agement engaged in a thorough review of major business units and
supporting functions to ensure the Corporation is operating in a cost
efficient manner. As a result of this review and additional opportuni-
ties the Corporation has identified to operate more efficiently through
the Merger, the Corporation announced that it will reduce its work-
force by approximately 2.5 percent, or 4,500 positions resulting in
total severance costs of $149 million. Included in Merger and
Restructuring Charges are $102 million incurred for this initiative. An
additional $47 million of severance liabilities were recorded related
to this initiative for legacy FleetBoston associates resulting in an
increase in Goodwill. See analysis of exit costs and restructuring
reserves below. The Corporation expects to incur additional sever-
ance costs related to this initiative of less than $5 million in 2005.
(Dollars in millions)
Severance and employee-related charges:
Merger-related
Infrastructure initiative
Systems integrations and related charges
Other
Total merger and restructuring charges
2004
$ 138
102
249
129
$ 618
Exit Costs and Restructuring Reserves
On April 1, 2004, $680 million of liabilities for FleetBoston’s exit and
termination costs as a result of the Merger were recorded as pur-
chase accounting adjustments resulting in an increase in Goodwill.
Included in the $680 million were $507 million for severance, relo-
cation and other employee-related costs, $168 million for contract
terminations, and $5 million for other charges. As previously men-
tioned, during 2004, $47 million of additional liabilities was recorded
related to severance costs for legacy FleetBoston associates in
connection with the infrastructure initiative. In addition, during 2004,
reductions in the exit costs reserve were recorded, due to revised
estimates of $50 million for contract terminations and $19 million for
severance costs. During 2004, cash payments of $276 million have
been charged against this liability including $244 million of sever-
ance, relocation and other employee-related costs, and $32 million of
contract terminations.
Restructuring charges through December 31, 2004 include the
establishment of a reserve for legacy Bank of America associate sev-
erance and other employee-related charges of $240 million. Of this
amount, $102 million was related to the infrastructure initiative.
During 2004, cash payments of $74 million have been charged
against this reserve.
Payments under these reserves are expected to be substantially
completed by the end of 2005.
Exit Costs and Restructuring Reserves
(Dollars in millions)
Balance, January 1, 2004
FleetBoston exit costs
Restructuring charges
Infrastructure initiative
Cash payments
Balance, December 31, 2004
Exit Costs
Reserves(1)
Restructuring
Reserves(2)
$
–
658
–
–
(276)
$ 382
$
–
–
138
102
(74)
$ 166
(1) Exit costs reserves were established in purchase accounting resulting in an increase in
Goodwill.
(2) Restructuring reserves were established by a charge to income.
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial
information presents the results of operations of the Corporation had
the Merger taken place at the beginning of each period.
(Dollars in millions, except per common share information)
Net interest income
Noninterest income
Provision for credit losses
Gains on sales of debt securities
Merger and restructuring charges
Other noninterest expense
Income before income taxes
Net income
Per common share information
Earnings
Diluted earnings
Average common shares issued and
outstanding (in thousands)
Average diluted common shares issued
and outstanding (in thousands)
2004
$ 30,584
21,615
2,769
2,172
618
28,522
22,462
14,903
2003
$28,208
21,877
3,864
1,069
–
27,319
19,971
13,298
$
3.67
3.61
$
3.21
3.17
4,054,322
4,138,139
4,124,671
4,201,053
National Processing, Inc.
On October 15, 2004, the Corporation acquired all outstanding
shares of National Processing, Inc. (NPC) for $1.4 billion in cash.
NPC is a merchant acquirer of card transactions. As a part of the pre-
liminary purchase price allocation, the Corporation allocated $482
million to other intangible assets and $625 million to Goodwill.
110 BANK OF AMERICA 2004
Note 3 Trading Account Assets and Liabilities
Note 4 Derivatives
The Corporation engages in a variety of trading-related activities that
are either for clients or its own account.
The following table presents the fair values of the components
of Trading Account Assets and Liabilities at December 31, 2004
and 2003.
(Dollars in millions)
Trading account assets
U.S. government and
agency securities
Corporate securities,
trading loans and other
Equity securities
Mortgage trading loans and
asset-backed securities
Foreign sovereign debt
Total
Trading account liabilities
U.S. government and
agency securities
Equity securities
Corporate securities,
trading loans and other
Foreign sovereign debt
Mortgage trading loans and
asset-backed securities
Total
December 31
2004
FleetBoston
April 1, 2004
2003
nnnnnnnnn
$ 20,462
$ 16,073
$ 561
35,227
19,504
9,625
8,769
25,647
11,445
8,221
7,161
nnnnnnnnn
$ 93,587
$ 68,547
nnnnnnnnn
353
2
2,199
94
$ 3,209
$ 14,332
8,952
$ 7,304
8,863
$
8,538
4,793
39
$ 36,654
5,379
5,276
22
nnnnnnnnn
$ 26,844
nnnnnnnnn
64
–
356
–
355
$ 775
The Corporation designates a derivative as held for trading or hedg-
ing purposes when it enters into the derivative contract. The desig-
nation 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 exchange cash flows based on specified underlying
notional amounts, assets and/or indices. Financial futures and for-
ward settlement contracts are agreements to buy or sell a quantity of
a financial instrument, index, currency or commodity at a predeter-
mined future date, and rate or price. An option contract is an agree-
ment 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 deriva-
tives to customers who wish to increase or decrease credit expo-
sures. In addition, the Corporation utilizes credit derivatives to
manage the credit risk associated with the loan portfolio.
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 institu-
tions 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 lev-
els 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 $26.9 billion of collateral on deriv-
ative positions, of which $16.8 billion could be applied against
credit risk at December 31, 2004.
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.
BANK OF AMERICA 2004 111
The following table presents the contract/notional and credit
risk amounts at December 31, 2004 and 2003 of the Corporation’s
derivative positions held for trading and hedging purposes. These
derivative positions are primarily executed in the over-the-counter mar-
ket. 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 held against
Derivative Assets. At December 31, 2004 and 2003, the cash collat-
eral held against Derivative Assets on the Consolidated Balance
Sheet was $9.4 billion and $7.5 billion, respectively. In addition, at
December 31, 2004 and 2003, the cash collateral placed against
Derivative Liabilities was $6.0 billion and $9.5 billion, respectively.
Derivatives(1)
(Dollars in millions)
Interest rate contracts
Swaps
Futures and forwards
Written options
Purchased options
Foreign exchange contracts
Swaps
Spot, futures and forwards
Written options
Purchased options
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
Commodity contracts
Swaps
Futures and forwards
Written options
Purchased options
Credit derivatives
Credit risk before cash collateral
Less: Cash collateral held
Total derivative assets
(1) Includes both long and short derivative positions.
December 31
2004
2003
Contract/
Notional
Credit
Risk
Contract/
Notional
nnnnnnnnnnn
Credit
Risk
nnnnnnnnnnn
$ 11,597,813
1,833,216
988,253
1,243,809
$ 12,705
332
–
4,840
$8,873,600
2,437,907
1,174,014
1,132,486
$ 14,893
633
–
3,471
305,999
956,995
167,225
163,243
34,130
4,078
37,080
32,893
10,480
6,307
9,270
5,535
499,741
7,859
3,593
–
679
1,039
–
–
5,741
2,099
6
–
301
430
39,624
9,389
$ 30,235
260,210
775,105
138,474
133,512
30,850
3,234
25,794
24,119
15,491
5,726
11,695
7,223
136,788
4,473
4,202
–
669
364
–
–
5,370
1,554
–
–
294
584
nnnnnnnnnnn
36,507
7,498
nnnnnnnnnnn
$ 29,009
nnnnnnnnnnn
nnnnnnnnnnn
FleetBoston
April 1, 2004
Contract/
Notional
$105,366
18,383
104,118
159,408
9,928
33,941
2,854
2,776
1,026
–
779
811
–
275
–
–
29,763
Credit
Risk
$ 1,671
2
–
91
307
403
–
58
127
–
–
55
–
–
–
–
75
2,789
96
$ 2,693
112 BANK OF AMERICA 2004
Fair Value and Cash Flow Hedges
The Corporation uses various types of interest rate and foreign cur-
rency exchange rate derivative contracts to protect against changes
in the fair value of its fixed-rate assets and liabilities due to fluctua-
tions in interest rates and exchange rates. The Corporation also uses
these contracts to protect against changes in the cash flows of its
variable-rate assets and liabilities, and other forecasted transactions.
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 deriv-
ative instruments included in Accumulated OCI, of approximately $136
million (pre-tax) are expected to be reclassified into earnings. These
net gains reclassified into earnings are expected to increase income
or decrease expense on the respective hedged items.
The following table summarizes certain information related to
the Corporation’s hedging activities for 2004 and 2003.
(Dollars in millions)
Fair value hedges
Hedge ineffectiveness recognized in earnings(1)
Net loss excluded from assessment of effectiveness(2)
Cash flow hedges
Hedge ineffectiveness recognized in earnings(3)
Net gain excluded from assessment of effectiveness
Net investment hedges
Gains (losses) included in foreign currency
translation adjustments within accumulated
other comprehensive income
2004
2003
$ 10
(6)
104
–
$
–
(101)
53
26
(157)
(194)
(1) Included $(8) recorded in Net Interest Income and $18 recorded in Mortgage Banking Income in
the Consolidated Statement of Income in 2004.
(2) Included $(5) and $(101), respectively, recorded in Net Interest Income related to the excluded
time value of certain hedges and $(1) and $0, respectively, recorded in Mortgage Banking
Income in the Consolidated Statement of Income in 2004 and 2003.
(3) Included $117 and $38, respectively, recorded in Mortgage Banking Income in the Consolidated
Statement of Income for 2004 and 2003, and $(13) and $15 recorded in Net Interest Income
from other various cash flow hedges in 2004 and 2003, respectively.
The average fair value of Derivative Assets for 2004 and 2003 was
$28.0 billion and $27.8 billion, respectively. The average fair value
of Derivative Liabilities for 2004 and 2003 was $15.7 billion and
$15.9 billion, respectively. Included in the average fair value of
Derivative Assets and Derivative Liabilities in 2004 was $1.5 billion
and $920 million, respectively, from the addition of derivatives
acquired from FleetBoston.
ALM Process
Interest rate contracts and foreign exchange contracts are utilized in
the Corporation’s ALM process. The Corporation maintains an overall
interest rate risk management strategy that incorporates the use of
interest rate contracts to minimize significant unplanned fluctuations
in earnings that are caused by interest rate volatility. The
Corporation’s goal is to manage interest rate sensitivity so that move-
ments in interest rates do not significantly adversely affect 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 sub-
stantially offset this unrealized appreciation or depreciation. Interest
Income and Interest Expense on hedged variable-rate assets and
liabilities, respectively, 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 sub-
stantially 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 pay-
ments based on the contractual underlying notional amounts, where
both the pay rate and the receive rate are floating rates based on dif-
ferent indices. Option products primarily consist of caps, floors, swap-
tions and options on index futures contracts. Futures contracts used
for the ALM process are primarily index futures providing for cash pay-
ments 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-denom-
inated assets and liabilities, as well as the Corporation’s equity
investments in foreign subsidiaries. Foreign exchange contracts,
which include spot, futures and forward contracts, represent agree-
ments to exchange the currency of one country for the currency of
another country at an agreed-upon price on an agreed-upon settle-
ment date. Foreign exchange option contracts are similar to interest
rate option contracts except that they are based on currencies rather
than interest rates. Exposure to loss on these contracts will increase
or decrease over their respective lives as currency exchange and
interest rates fluctuate.
BANK OF AMERICA 2004 113
Note 5 Securities
The amortized cost, gross unrealized gains and losses, and fair value of AFS debt and marketable equity securities, and Held-to-maturity
Securities at December 31, 2004, 2003 and 2002 were:
(Dollars in millions)
Available-for-sale securities
2004
U.S. Treasury securities and agency debentures
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities
Total available-for-sale securities
Available-for-sale marketable equity securities(1)
2003
U.S. Treasury securities and agency debentures
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities
Total available-for-sale securities
Available-for-sale marketable equity securities(1)
2002
U.S. Treasury securities and agency debentures
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities
Total available-for-sale securities
Available-for-sale marketable equity securities(1)
Held-to-maturity securities
2004
Taxable securities
Tax-exempt securities
Total held-to-maturity securities
2003
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities
Total held-to-maturity securities
2002
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities
Total held-to-maturity securities
Amortized
Cost
$
826
173,697
7,437
9,493
191,453
3,662
$195,115
3,571
$
$
710
56,403
2,816
4,765
64,694
2,167
$ 66,861
$ 2,803
$
691
58,813
2,235
1,095
62,834
2,824
$ 65,658
$ 2,761
$
$
$
$
41
289
330
1
49
46
96
151
247
$
3
788
45
836
190
$ 1,026
Gross
Unrealized
Gains
Gross
Unrealized
Losses
$
–
174
36
–
210
87
$ 297
32
$
$
5
63
23
36
127
79
$ 206
$ 394
$
20
847
30
25
922
96
$ 1,018
19
$
$
$
$
$
$
$
4
–
4
–
–
3
3
7
10
–
10
4
14
10
24
$
1
624
26
13
664
5
$ 669
2
$
$
2
575
38
69
684
1
$ 685
31
$
$
–
5
103
38
146
4
$ 150
$ 127
$
$
$
$
$
$
4
1
5
–
3
–
3
–
3
–
49
–
49
–
49
Fair
Value
$
825
173,247
7,447
9,480
190,999
3,744
$194,743
3,601
$
$
713
55,891
2,801
4,732
64,137
2,245
$ 66,382
$ 3,166
$
711
59,655
2,162
1,082
63,610
2,916
$ 66,526
$ 2,653
$
$
$
$
41
288
329
1
46
49
96
158
254
$
3
749
49
801
200
$ 1,001
(1) Represents those AFS marketable equity securities that are recorded in Other Assets on the Consolidated Balance Sheet.
At December 31, 2004, accumulated net unrealized losses on AFS
debt and marketable equity securities included in Shareholders’
Equity were $196 million, net of the related income tax benefit of
$146 million. At December 31, 2003, accumulated net unrealized
losses on these securities were $70 million, net of the related
income tax benefit of $46 million.
The following table presents the current fair value and the
associated unrealized losses only on investments in securities with
unrealized losses at December 31, 2004. Unrealized losses on
114 BANK OF AMERICA 2004
marketable equity securities at December 31, 2004 were not con-
sidered material. The table also discloses whether these securities
have had unrealized losses for less than 12 months, or for 12
months or longer.
(Dollars in millions)
Available-for-sale securities
U.S. Treasury securities and agency debentures(1)
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities(1)
Total temporarily-impaired available-for-sale securities
Temporarily-impaired marketable equity securities
Held-to-maturity securities
Taxable securities
Tax-exempt securities
Total temporarily-impaired held-to-maturity securities
Total temporarily-impaired securities
(1) Unrealized losses less than $500,000 are shown as zero.
Less than 12 months
12 months or longer
Total
Fair Value Unrealized Losses
Fair Value Unrealized Losses
Fair Value Unrealized Losses
$
381
52,687
4,964
1,130
59,162
1,088
60,250
83
41
288
329
$ 60,662
$
(1)
(297)
(11)
(9)
(318)
(5)
(323)
(2)
(4)
(1)
(5)
$ (330)
$
22
17,426
99
37
17,584
21
17,605
–
–
–
–
$ 17,605
$
–
(327)
(15)
(4)
(346)
–
(346)
–
–
–
–
$ (346)
$
403
70,113
5,063
1,167
76,746
1,109
77,855
83
41
288
329
$ 78,267
$
(1)
(624)
(26)
(13)
(664)
(5)
(669)
(2)
(4)
(1)
(5)
$ (676)
The unrealized losses associated with U.S. Treasury securities and
agency debentures, mortgage-backed securities, certain foreign sov-
ereign securities, other taxable securities and tax-exempt securities
are not considered to be other-than-temporary because their unreal-
ized losses are related to changes in interest rates and do not affect
the expected cash flows of the underlying collateral or issuer. The
Corporation also has unrealized losses associated with other foreign
sovereign securities; however, these losses are not considered other-
than-temporary because the principal of these securities is guaran-
teed by the U. S. government.
The Corporation had investments in Securities from the Federal
National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (Freddie Mac) that exceeded 10 percent of con-
solidated Shareholders’ Equity as of December 31, 2004 and 2003.
Those investments had market values of $133.6 billion and $35.8
billion, respectively, at December 31, 2004 and $36.6 billion and
$5.9 billion, respectively, as of December 31, 2003. In addition,
these investments had total amortized costs of $132.9 billion and
$35.9 billion, respectively, as of December 31, 2004 and $37.1 bil-
lion and $6.0 billion, respectively, as of December 31, 2003.
Securities are pledged or assigned to secure borrowed funds,
government and trust deposits, and for other purposes. The carrying
value of pledged Securities was $45.1 billion and $20.9 billion at
December 31, 2004 and 2003, respectively.
The contractual maturity distribution and yields of the
Corporation’s securities portfolio at December 31, 2004 are
summarized in the following table. Actual maturities may differ
from the contractual or expected maturities shown below since
borrowers may have the right to prepay obligations with or without
prepayment penalties.
(Dollars in millions)
Fair value of available-for-sale securities
U.S. Treasury securities and agency debentures
Mortgage-backed securities
Foreign sovereign securities
Other taxable securities
Total taxable
Tax-exempt securities(3)
Total available-for-sale securities
Amortized cost of available-for-sale securities
Amortized cost of held-to-maturity securities
Taxable securities
Tax-exempt securities(3)
Total held-to-maturity securities
Fair value of held-to-maturity securities
$
$
$
$
$
$
Due in 1 year
or less
Due after 1
year through 5
years
Due after 5
years through
10 years
Due after
10 years (1)
Total
Amount
Yield(2)
Amount
Yield(2)
Amount
Yield(2)
Amount
Yield(2)
Amount
Yield(2)
101
4
757
140
1.94% $
2.15
4.90
2.90
1,002
924
4.31
2.55
576
91,665
1,377
2,614
96,232
181
3.04% $
5.08
2.46
3.56
4.99
4.52
131
65,622
1,799
2,877
70,429
1,554
3.86% $
5.31
3.04
4.98
5.23
6.11
17
15,956
3,514
3,849
23,336
1,085
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
5.40% $
5.51
3.98
5.56
5.29
6.54
825
173,247
7,447
9,480
nnnnnnnnnnnnnn
3.09%
5.21
3.56
4.81
190,999
3,744
nnnnnnnnnnnnnn
5.11
5.28
1,926
1,926
3.47% $ 96,413
$ 96,439
4.99% $ 71,983
$ 72,010
5.25% $ 24,421
$ 24,740
5.34% $ 194,743
$ 195,115
5.12%
41
258
2.30% $
1.72
–
26
–% $
2.70
–
4
–% $
4.37
–
1
–% $
0.26
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
nnnnnnnnnnnnnnnnnnn
299
298
1.80% $
$
26
26
2.70% $
$
4
4
4.37% $
$
1
1
0.26% $
$
2.30%
1.85
1.90%
41
289
nnnnnnnnnnnnnn
330
329
(1) Includes securities with no stated maturity.
(2) Yields are calculated based on the amortized cost of the securities.
(3) Yield of tax-exempt securities calculated on a fully taxable-equivalent basis.
BANK OF AMERICA 2004 115
The components of realized gains and losses on sales of debt secu-
rities for 2004, 2003 and 2002 were:
(Dollars in millions)
Gross gains
Gross losses
Net gains on sales
of debt securities
2004
$ 2,270
(147)
2003
$ 1,246
(305)
2002
$ 1,035
(405)
$ 2,123
$ 941
$ 630
The Income Tax Expense attributable to realized net gains on debt
securities sales was $788 million, $329 million and $220 million in
2004, 2003 and 2002, respectively.
Note 6 Outstanding Loans and Leases
Outstanding loans and leases at December 31, 2004 and 2003 were:
(Dollars in millions)
Consumer
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer(1)
Total consumer
Commercial
Commercial – domestic
Commercial real estate(2)
Commercial lease financing
Commercial – foreign
Total commercial
Total
December 31
2004
FleetBoston
April 1, 2004
2003
nnnnnnnnn
$178,103
51,726
50,126
40,513
7,439
327,907
122,095
32,319
21,115
18,401
193,930
$521,837
$140,513
34,814
23,859
33,415
7,558
nnnnnnnnn
240,159
nnnnnnnnn
91,491
19,367
9,692
10,754
nnnnnnnnn
131,304
nnnnnnnnn
$371,463
nnnnnnnnn
$ 34,571
6,848
13,799
6,113
1,272
62,603
31,796
9,982
10,720
9,160
61,658
$124,261
(1) Includes consumer finance, foreign consumer and consumer lease financing of $3,395,
$3,563 and $481 at December 31, 2004, respectively, and $3,905, $1,969 and $1,684 at
December 31, 2003, respectively.
(2) Includes domestic and foreign commercial real estate loans of $31,879 and $440 at
December 31, 2004, respectively, and $19,043 and $324 at December 31, 2003, respectively.
The Corporation sold whole mortgage loans and recognized gains
(losses) in Other Income on the Consolidated Statement of Income
of $(2) million, $772 million and $500 million for 2004, 2003 and
2002, respectively.
The following table presents the gross recorded investment in spe-
cific loans, without consideration to the specific component of the
Allowance for Loan and Lease Losses, that were considered individu-
ally impaired in accordance with SFAS 114 at December 31, 2004
and 2003. SFAS 114 impairment includes performing troubled debt
restructurings, and excludes all commercial leases.
December 31
FleetBoston
April 1, 2004
2003
nnnnnnnnn
$ 1,404
153
581
nnnnnnnnn
$ 2,138
nnnnnnnnn
$ 349
85
480
$ 914
(Dollars in millions)
Commercial – domestic
Commercial real estate
Commercial – foreign
Total impaired loans
2004
$ 868
87
273
$ 1,228
116 BANK OF AMERICA 2004
The average recorded investment in certain impaired loans for 2004,
2003 and 2002 was approximately $1.6 billion, $3.0 billion and $3.9
billion, respectively. At December 31, 2004 and 2003, the recorded
investment in impaired loans requiring an Allowance for Loan and
Lease Losses based on individual analysis per SFAS 114 guidelines
was $926 million and $2.0 billion, and the related Allowance for Loan
and Lease Losses was $202 million and $391 million, respectively.
For 2004, 2003 and 2002, Interest Income recognized on impaired
loans totaled $21 million, $105 million and $156 million, respec-
tively, all of which was recognized on a cash basis.
At December 31, 2004 and 2003, nonperforming loans and
leases, including impaired loans and nonaccrual consumer loans,
totaled $2.2 billion and $2.9 billion, respectively. Nonperforming
securities, which are primarily related to international securities
held in the AFS securities portfolio, were obtained through troubled
debt restructurings,
largely acquired through FleetBoston, and
amounted to $140 million at December 31, 2004. In addition,
included in Other Assets were nonperforming loans held-for-sale and
leveraged lease partnership interests of $151 million and $202 mil-
lion at December 31, 2004 and 2003, respectively.
Foreclosed properties amounted to $102 million and $148 mil-
lion at December 31, 2004 and 2003, respectively, and are included
in Other Assets on the Consolidated Balance Sheet. The cost of
carrying foreclosed properties in 2004, 2003 and 2002 amounted to
$3 million, $3 million and $7 million, respectively.
Note 7 Allowance for Credit Losses
The following table summarizes the changes in the allowance for
credit losses for 2004, 2003 and 2002:
(Dollars in millions)
Allowance for loan and
lease losses, January 1
FleetBoston balance, April 1, 2004
Loans and leases charged off
Recoveries of loans and leases
previously charged off
Net charge-offs
Provision for loan and lease losses
Transfers (1)
Allowance for loan and
2004
2003
2002
$ 6,163
2,763
(4,092)
$ 6,358
–
(3,867)
$ 6,278
–
(4,460)
979
(3,113)
2,868
(55)
761
(3,106)
2,916
(5)
763
(3,697)
3,801
(24)
lease losses, December 31
8,626
6,163
6,358
Reserve for unfunded lending
commitments, January 1
FleetBoston balance, April 1, 2004
Provision for unfunded
lending commitments
Reserve for unfunded lending
416
85
(99)
493
–
(77)
597
–
(104)
commitments, December 31
Total
402
$ 9,028
416
$ 6,579
493
$ 6,851
(1) Includes primarily transfers to loans held-for-sale.
Note 8 Special Purpose Financing Entities
The Corporation securitizes assets and may retain a portion or all of
the securities, subordinated tranches, interest-only strips and, in
some cases, a cash reserve account, all of which are considered
retained interests in the securitized assets. Those assets may be
serviced by the Corporation or by third parties. The Corporation
also uses other special purpose financing entities to access the
commercial paper market and for other lending, leasing and real
estate activities. See Note 1 of the Consolidated Financial
Statements for a more detailed discussion of securitizations and
other special purpose financing entities.
Mortgage-related Securitizations
The Corporation securitizes the majority of its residential mortgage
loan originations in conjunction with or shortly after loan closing. In
addition, the Corporation may, from time to time, securitize commer-
cial mortgages and first residential mortgages that it originates or
purchases from other entities. In 2004 and 2003, the Corporation
converted a total of $96.9 billion (including $18.0 billion originated
by other entities) and $121.1 billion (including $13.0 billion originated
by other entities), respectively, of residential first mortgages and com-
mercial mortgages into mortgage-backed securities issued through
Fannie Mae, Freddie Mac, Government National Mortgage Association
(Ginnie Mae), Bank of America, N.A. and Banc of America Mortgage
Securities. At December 31, 2004 and 2003, the Corporation retained
$9.2 billion (including $1.2 billion issued prior to 2004) and $1.7 bil-
lion of securities, respectively. At December 31, 2004, these retained
interests were valued using quoted market prices.
For 2004, the Corporation reported $952 million in gains on
loans converted into securities and sold, of which $886 million was
from loans originated by the Corporation and $66 million was from
loans originated by other entities. For 2003, the Corporation reported
$2.4 billion in gains on loans converted into securities and sold, of
which $2.0 billion was from loans originated by the Corporation
and $381 million was from loans originated by other entities. At
December 31, 2004, the Corporation had recourse obligations of
$558 million with varying terms up to seven years on loans that had
been securitized and sold.
In addition to the retained interests in the securities, the
Corporation has retained MSRs from the sale or securitization of res-
idential mortgage loans. Servicing fee and ancillary fee income on all
loans serviced, including securitizations, was $568 million and $314
million in 2004 and 2003, respectively. The activity in MSRs for 2004
and 2003 is as follows:
(Dollars in millions)
Balance, January 1
Additions(1)
Amortization
Change in value attributed to SFAS 133 hedged MSRs(2)
Impairment, net of recoveries
Balance, December 31(3,4)
2004
$ 479
3,036
(360)
(210)
(463)
$ 2,482
2003
$ 499
201
(145)
–
(76)
$ 479
(1) Includes $2.2 billion of Certificates converted to MSRs on June 1, 2004.
(2) Excludes $228 of offsetting derivative hedge gains recognized in Mortgage Banking Income
for 2004.
(3) Net of impairment allowance of $361 for 2004.
(4) 2003 does not include $2.3 billion of Certificates.
The estimated fair value of MSRs was $2.5 billion and $479 mil-
lion at December 31, 2004 and 2003, respectively. The additions
during 2004 included $2.2 billion of MSRs as a result of the con-
version of Certificates discussed in Note 1 of the Consolidated
Financial Statements.
The key economic assumptions used in valuations of MSRs
include modeled prepayment rates and resultant expected weighted
average lives of the MSRs and the option adjusted spread (OAS) levels.
An OAS model runs multiple interest rate scenarios and projects pre-
payments specific to each one of those interest rate scenarios.
As of December 31, 2004, the modeled weighted average lives
of MSRs related to fixed and adjustable rate loans (including hybrid
ARMs) were 4.65 years and 3.02 years, respectively. A decrease of
10 and 20 percent in modeled prepayments would extend the
expected weighted average lives for MSRs related to fixed rate loans
to 5.01 years and 5.40 years, respectively, and would extend the
expected weighted average lives for MSRs related to adjustable rate
loans to 3.32 years and 3.68 years, respectively. The expected exten-
sion of weighted average lives would increase the value of MSRs by
a range of $143 million to $295 million. An increase of 10 and 20
percent in modeled prepayments would reduce the expected
weighted average lives for MSRs related to fixed rate loans to 4.38
years and 4.11 years, respectively, and would reduce the expected
weighted average lives for MSRs related to adjustable rate loans to
2.78 years and 2.57 years, respectively. The expected reduction of
weighted average lives would decrease the value of MSRs by a range
of $112 million to $219 million. A decrease of 100 and 200 basis
points (bps) in the OAS level would result in an increase in the value
of MSRs ranging from $89 million to $185 million, and an increase
of 100 and 200 bps in the OAS level would result in a decrease in
the value of MSRs ranging from $83 million to $160 million.
For purposes of evaluating and measuring impairment, the
Corporation stratifies the portfolio based on the predominant risk
characteristics of loan type and note rate. Indicated impairment, by
risk stratification, is recognized as a reduction in Mortgage Banking
Income, through a valuation allowance, for any excess of adjusted car-
rying value over estimated fair value. Impairment, net of recoveries of
MSRs totaled $463 million for 2004. For 2003, changes in the value
of the Certificates and MSRs were recognized as Trading Account
Profits. Impairment charges in 2004 included changes to valuation
assumptions and prepayment adjustments related to expectations
regarding future prepayment speeds and other assumptions totaling
$261 million. Additional impairment reflects decreases in the value of
MSRs primarily due to increased probability of prepayments driven by
decreases in market interest rates during the second half of 2004.
Other Securitizations
As a result of the Merger, the Corporation acquired an interest in sev-
eral credit card, home equity loan and commercial loan securitization
vehicles, which had aggregate debt securities outstanding of $10.3
billion as of December 31, 2004. During 2004, the Corporation secu-
ritized $2.0 billion of automobile loans and retained $1.7 billion of
the AAA securities, which are held in the AFS securities portfolio.
BANK OF AMERICA 2004 117
At December 31, 2004 and 2003, investment grade securities
of $2.9 billion and $2.1 billion, respectively, which are valued using
quoted market prices remained in the AFS securities portfolio. At
December 31, 2004 there were no recognized servicing assets
associated with these 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 life of the contract, which is approximately one year.
Key economic assumptions used in measuring the fair value of
certain residual interests (included in Other Assets) in securitizations
and the sensitivity of the current fair value of residual cash flows to
changes in those assumptions are as follows:
Credit Card
(Dollars in millions)
Carrying amount of residual interests (at fair value)(2)
Balance of unamortized securitized loans
Weighted average life to call (in years)(3)
Revolving structures – annual payment rate
Amortizing structures – annual constant prepayment rate:
$
2004
349
6,903
1.2
13.7%
Fixed rate loans
Adjustable rate loans
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
Expected credit losses(5)
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
Residual cash flows discount rate (annual rate)
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
$
1
2
(1)
(2)
5.3 - 9.7%
$
18
47
(15)
(27)
6.0 - 12.0%
$
–
–
–
–
$
$
$
$
2003
76
1,782
1.4
14.9%
–
–
–
–
5.3%
2
5
(2)
(5)
6.0%
–
–
–
–
Subprime Consumer
Finance(1)
Automobile
Loans(2)
$
2004
313
5,886
1.3
2003
$ 328
9,409
1.6
$
2004
34
1,644
1.4
7.5 - 32.7%
7.8 - 32.6%
$
27.0 - 40.8
1
11
(9)
(17)
5.1 - 12.3%
$
$
27.0 - 42.4
4
11
(11)
(15)
4.6 - 11.0%
$
27
71
(27)
(68)
37
100
(37)
(82)
15.0 - 30.0% 15.0 - 30.0%
$
6
12
(6)
(12)
$
8
16
(8)
(15)
$
$
$
24.9%
–
–
–
–
(1)
1.6%
3
6
(2)
(6)
20.0%
1
1
(1)
(1)
Home
Equity
Lines
2004
17
630
1.3
45.0%
–
1
–
(1)
0.2%
–
–
–
–
12.0%
–
–
–
–
$
$
$
$
Commercial
Loans
$
$
$
$
2004
130
3,337
n/a
4.5%(4)
2
2
(1)
(1)
0.4%
1
2
(1)
(2)
12.3%
1
2
(1)
(2)
(1) Subprime consumer finance includes subprime real estate loan and manufactured housing loan securitizations, which are all serviced by third parties.
(2) Residual interests include interest-only strips, one or more subordinated tranches, accrued interest receivable, and in some cases, a cash reserve account.
(3) Before any optional clean-up calls are executed, economic analyses will be performed.
(4) Monthly average net pay rate (pay rate less draw rate).
(5) Annual rates of expected credit losses are presented for credit card, home equity lines and commercial securitizations. Cumulative lifetime rates of expected credit losses (incurred plus projected) are
presented for subprime consumer finance securitizations and the auto loan securitizations.
n/a = not applicable
The sensitivities in the preceding table 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 par-
ticular assumption on the fair value of the retained interest is cal-
culated 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 retained interests. Static pool net credit losses include
actual losses incurred plus projected credit losses divided by the orig-
inal balance of each securitization pool. Expected static pool net
credit losses at December 31, 2004 for the 2004 auto loan securiti-
zation were 1.63 percent. For the subprime consumer finance secu-
ritizations, weighted average static pool net credit losses for 2001,
1999, 1998, 1997 and 1995 were 5.93 percent, 11.67 percent,
9.20 percent, 4.92 percent and 12.25 percent, respectively at
December 31, 2004, and 5.83 percent, 9.91 percent, 8.22 percent,
4.92 percent and 10.83 percent, respectively, at December 31, 2003.
Proceeds from collections reinvested in revolving credit card
securitizations were $6.8 billion and $3.8 billion in 2004 and 2003,
respectively. Credit card servicing fee income totaled $134 million
and $51 million in 2004 and 2003, respectively. Other cash flows
received on retained interests, such as cash flows from interest-only
strips, were $345 million and $279 million in 2004 and 2003,
respectively,
for credit card securitizations. Proceeds from
collections reinvested in revolving commercial loan securitizations
were $1.1 billion in 2004. Servicing fees and other cash flows
118 BANK OF AMERICA 2004
received on retained interests, such as cash flows from interest-only
strips, were $4 million and $11 million, respectively, in 2004 for
commercial loan securitizations.
The Corporation reviews its loans and leases portfolio on a man-
aged basis. Managed loans and leases are defined as on-balance
sheet Loans and Leases as well as loans in revolving securitizations,
which include credit cards, home equity lines and commercial loans.
New advances under previously securitized accounts will be recorded
on the Corporation’s Consolidated Balance Sheet after the revolving
period of the securitization, which has the effect of increasing Loans
and Leases on the Corporation’s Consolidated Balance Sheet and
increasing Net Interest Income and charge-offs, with a corresponding
reduction in Noninterest Income. Portfolio balances, delinquency and
historical loss amounts of the managed loans and leases portfolio
for 2004 and 2003 were as follows:
(Dollars in millions)
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total managed loans and leases
Loans in revolving securitizations
Total held loans and leases
(Dollars in millions)
Residential mortgage
Credit card
Home equity lines
Direct/Indirect consumer
Other consumer
Total consumer
Commercial – domestic
Commercial real estate
Commercial lease financing
Commercial – foreign
Total commercial
Total managed loans and leases
Loans in revolving securitizations
Total held loans and leases
December 31, 2004
December 31, 2003
Principal
Amount of
Accruing Loans
and Leases
Past Due 90
Days or More(1)
$
–
1,223
3
58
23
1,307
121
1
14
2
138
$ 1,445
Principal
Amount of
Nonperforming
Loans and
Leases
$ 554
–
66
33
85
738
855
87
266
267
1,475
$ 2,213
Total
Principal
Amount of
Loans and
Leases
$ 178,103
58,629
50,756
40,513
7,439
335,440
125,432
32,319
21,115
18,401
197,267
532,707
(10,870)
$ 521,837
Principal
Amount of
Accruing Loans
and Leases
Past Due 90
Days or More(1)
$
–
647
–
47
35
729
108
23
2
29
162
$ 891
Principal
Amount of
Nonperforming
Loans and
Leases
$ 531
–
43
28
36
638
1,388
141
127
578
2,234
$ 2,872
Total
Principal
Amount of
Loans and
Leases
$140,513
36,596
23,859
33,415
7,558
241,941
91,491
19,367
9,692
10,754
131,304
373,245
(1,782)
$371,463
Year Ended December 31, 2004
Year Ended December 31, 2003
Average
Loans and
Leases
Outstanding
$ 167,298
50,296
39,942
38,078
7,717
303,331
117,422
28,085
17,483
16,505
179,495
482,826
(10,181)
$ 472,645
Loans and
Leases Net
Losses
Net Loss
Ratio(2)
$
36
2,829
15
208
193
3,281
184
(3)
9
173
363
$ 3,644
0.02%
5.62
0.04
0.55
2.50
1.08
0.16
(0.01)
0.05
1.05
0.20
0.75%
Average
Loans and
Leases
Outstanding
$127,059
31,552
22,890
32,593
8,865
222,959
93,458
20,042
10,061
12,970
136,531
359,490
(3,342)
$356,148
Loans and
Leases Net
Losses
Net Loss
Ratio(2)
$
40
1,691
11
181
256
2,179
633
41
124
306
1,104
$ 3,283
0.03%
5.36
0.05
0.55
2.89
0.98
0.68
0.20
1.23
2.36
0.81
0.91%
(1) Excludes consumer real estate loans, which are placed on nonperforming status at 90 days past due.
(2) The net loss ratio is calculated by dividing managed loans and leases net losses by average managed loans and leases outstanding for each loan and lease category.
Variable Interest Entities
At December 31, 2004, the assets and liabilities of ABCP conduits
that have been consolidated in accordance with FIN 46 were reflected
in AFS Securities, Other Assets, and Commercial Paper and Other
Short-term Borrowings in the Global Capital Markets and Investment
Banking business segment. As of December 31, 2004 and 2003, the
Corporation held $7.7 billion and $5.6 billion of assets in these enti-
ties, respectively, while the Corporation’s maximum loss exposure
associated with these entities including unfunded lending commit-
ments was approximately $9.4 billion and $7.6 billion, respectively.
The Corporation also had contractual relationships with other con-
BANK OF AMERICA 2004 119
solidated VIEs that engage in leasing or lending activities or real
estate joint ventures. As of December 31, 2004 and 2003, the
amount of assets of these entities was $560 million and $382 mil-
lion, respectively, and the Corporation’s maximum possible loss expo-
sure was $132 million and $131 million, respectively.
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, or both.
These entities typically support the financing needs of the
Corporation’s customers by facilitating their access to the commer-
cial 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 serv-
ices to other special purpose vehicles that engage in lending, invest-
ing, or real estate activities. Total assets of these entities at
December 31, 2004 and 2003 were approximately $32.9 billion and
$28.0 billion, respectively; revenues associated with administration,
liquidity, letters of credit and other services were approximately $154
million in 2004 and $94 million in 2003. At December 31, 2004 and
2003, the Corporation’s maximum loss exposure associated with
these VIEs was approximately $25.0 billion and $21.7 billion, respec-
tively, which is net of amounts syndicated.
Management does not believe losses resulting from its involve-
ment 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 9 Goodwill and Other Intangibles
The following table presents allocated Goodwill at December 31,
2004 and 2003 for each business segment. The increases from
December 31, 2003 were primarily due to the Merger and the acqui-
sition of NPC, which added approximately $33.2 billion and $625 mil-
lion, respectively, of Goodwill.
December 31
(Dollars in millions)
Global Consumer and Small Business Banking
Global Business and Financial Services
Global Capital Markets and Investment Banking
Global Wealth and Investment Management
All Other
Total
2004
$ 22,501
13,269
4,500
4,727
265
$ 45,262
2003
$ 6,000
1,144
1,953
2,223
135
$11,455
The gross carrying value and accumulated amortization related to
core deposit intangibles and other intangibles at December 31, 2004
and 2003 are presented below:
December 31
2004
2003
Gross
Carrying
Value
$ 3,668
2,256
$ 5,924
Accumulated
Amortization
$ 1,354
683
$ 2,037
Gross
Carrying
Value
$ 1,495
787
$ 2,282
Accumulated
Amortization
$ 886
488
$ 1,374
(Dollars in millions)
Core deposit intangibles
Other intangibles
Total
As a result of the Merger, the Corporation recorded $2.2 billion of
core deposit intangibles, $660 million of purchased credit card rela-
tionship intangibles and $409 million of other customer relationship
intangibles. As of December 31, 2004, the weighted average amorti-
zation period for the core deposit intangibles as well as the other
intangibles was approximately 9 years. As a result of the acquisition
of NPC, the Corporation preliminarily allocated $482 million to other
intangibles with a weighted average amortization period of approxi-
mately 10 years as of December 31, 2004. Included in this number
is $84 million related to trade names, to which we have assigned an
indefinite life.
Amortization expense on core deposit intangibles and other
intangibles was $664 million, $217 million and $218 million for
2004, 2003 and 2002, respectively. The Corporation estimates that
aggregate amortization expense will be $809 million, $745 million,
$602 million, $499 million and $393 million for 2005, 2006, 2007,
2008 and 2009, respectively.
Note 10 Deposits
The Corporation had domestic certificates of deposit of $100 thou-
sand or more totaling $56.2 billion and $32.8 billion at December
31, 2004 and 2003, respectively. The Corporation had other domes-
tic time deposits of $100 thousand or more totaling $1.1 billion and
$1.0 billion at December 31, 2004 and 2003, respectively. Foreign
certificates of deposit and other foreign time deposits of $100 thou-
sand or more totaled $28.6 billion and $15.4 billion at December 31,
2004 and 2003, respectively.
The following table presents the maturities of domestic certifi-
cates of deposit of $100 thousand or more and of other domestic
time deposits of $100 thousand or more at December 31, 2004.
(Dollars in millions)
Certificates of deposit of $100 thousand or more
Other time deposits of $100 thousand or more
Three
months
or less
$ 20,253
154
Over
three months
to six months
$ 11,588
117
Over
six months to
twelve months
$ 17,904
96
Thereafter
$ 6,410
758
Total
$ 56,155
1,125
120 BANK OF AMERICA 2004
At December 31, 2004, the scheduled maturities for total time
deposits were as follows:
Long-term Debt
The following table presents Long-term Debt at December 31, 2004
and 2003:
(Dollars in millions)
Due in 2005
Due in 2006
Due in 2007
Due in 2008
Due in 2009
Thereafter
Total
$152,317
9,206
6,810
2,033
2,828
1,334
$ 174,528
Note 11 Short-term Borrowings and Long-term Debt
Short-term Borrowings
Bank of America Corporation and certain other subsidiaries issue
commercial paper in order to meet short-term funding needs.
Commercial paper outstanding at December 31, 2004 was $25.4 bil-
lion compared to $7.6 billion at December 31, 2003.
Bank of America, N.A. maintains a domestic program to offer up
to a maximum of $60.0 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 $9.6 billion at December 31, 2004 compared to $3.3 billion
at December 31, 2003. These short-term bank notes, along with
Treasury tax and loan notes, term federal funds purchased and com-
mercial paper, are reflected in Commercial Paper and Other Short-
term Borrowings on the Consolidated Balance Sheet.
(Dollars in millions)
Notes issued by
Bank of America Corporation(1,2)
Senior notes:
Fixed, ranging from 1.62% to 7.25%,
due 2005 to 2028
Floating, ranging from 0.20% to 8.33%,
due 2005 to 2043
Subordinated notes:
Fixed, ranging from 3.95% to 8.63%,
due 2005 to 2029
Floating, ranging from 1.63% to 5.25%,
due 2005 to 2037
Junior subordinated notes
(related to trust preferred securities):
Fixed, ranging from 6.00% to 11.45%,
due 2026 to 2033
Floating, ranging from 2.07% to 3.56%,
due 2026 to 2034
Total notes issued by
December 31
2004
2003
$ 4,102
$ 8,219
46,641
28,669
2,866
2,299
19,683
16,742
2,498
7,079
2,127
3,344
Bank of America Corporation
82,869
61,400
Notes issued by Bank of America, N.A.
and other subsidiaries(1,2)
Senior notes:
Fixed, ranging from 0% to 8.50%,
due 2005 to 2073
Floating, ranging from 0% to 3.51%,
due 2005 to 2051
Subordinated notes:
Fixed, ranging from 5.75% to 8.63%,
due 2005 to 2009
Floating, 2.56%, due 2019
Total notes issued by Bank of America, N.A.
and other subsidiaries
Notes issued by NB Holdings Corporation(1,2)
Junior subordinated notes
(related to trust preferred securities):
Fixed
Floating, ranging from 2.40% to 3.19%
due 2026 to 2027
Total notes issued by
NB Holdings Corporation
Other debt
Advances from the
Federal Home Loan Bank – Georgia
Advances from the
Federal Home Loan Bank – Oregon
Advances from the
Federal Home Loan Bank – Massachusetts
Other
Total other debt
Total
406
606
6,090
3,491
2,186
8
8,690
–
773
773
300
8
4,405
515
258
773
2,750
2,081
868
47
5,746
$ 98,078
2,750
5,989
–
26
8,765
$75,343
(1) Certain fixed-rate and floating-rate classifications as well as interest rates include the effect of
interest rate swap contracts.
(2) Rates and maturity dates reflect outstanding debt at December 31, 2004.
BANK OF AMERICA 2004 121
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 subordi-
nated notes. The notes may be denominated in U.S. dollars or foreign
currencies. Foreign currency contracts are used to convert certain
foreign currency-denominated debt into U.S. dollars.
At December 31, 2004 and 2003, Bank of America Corporation
was authorized to issue approximately $37.1 billion and $26.0 bil-
lion, respectively, of additional corporate debt and other securities
under its existing shelf registration statements. At December 31,
2004 and 2003, Bank of America, N.A. was authorized to issue
approximately $27.2 billion and $25.9 billion, respectively, of bank
notes and Euro medium-term notes.
Including the effects of interest rate contracts for certain long-
term debt issuances, the weighted average effective interest rates for
total long-term debt, total fixed-rate debt and total floating-rate debt
(based on the rates in effect at December 31, 2004) were 3.19 per-
cent, 6.36 percent and 2.67 percent, respectively, at December 31,
2004 and (based on the rates in effect at December 31, 2003) were
2.36 percent, 6.01 percent and 1.41 percent,
respectively, at
December 31, 2003. These obligations were denominated primarily
in U.S. dollars.
Aggregate annual maturities of long-term debt obligations
(based on final maturity dates) at December 31, 2004 are as follows:
(Dollars in millions)
Bank of America Corporation
Bank of America, N.A.
NB Holdings Corporation
Other
Total
2005
2006
2007
2008
2009
Thereafter
Total
$ 5,867
1,760
–
1,884
$ 9,511
$ 8,326
1,437
–
2,739
$ 12,502
$ 8,286
1,145
–
565
$ 9,996
$ 6,191
2,429
–
104
$ 8,724
$ 8,153
400
–
21
$ 8,574
$46,046
1,519
773
433
$ 48,771
$82,869
8,690
773
5,746
$ 98,078
Trust Preferred Securities
Trust preferred securities (Trust Securities) are issued by the trust
companies (the Trusts) that were deconsolidated by the Corporation
as a result of the adoption of FIN 46. These securities are mandato-
rily 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
owned finance subsidiaries of the Corporation. Obligations associ-
ated with these securities are included in junior subordinated notes
related to Trust Securities in the Long-term Debt table on page 121.
See Note 14 of the Consolidated Financial Statements for a discus-
sion regarding the potential change in treatment for regulatory capi-
tal purposes of the Trust Securities.
At December 31, 2004, the Corporation had 30 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 subordinated basis, by the Corporation of payments
due on the Trust Securities.
122 BANK OF AMERICA 2004
122 BANK OF AMERICA 2004
The following table is a summary of the outstanding Trust Securities and the Notes at December 31, 2004 as originated by Bank of
America Corporation and the predecessor banks.
Aggregate
Principal
Amount of
Trust
Securities
Aggregate
Principal
Amount of
the Notes
Stated
Maturity of
the Notes
Per
Annum
Interest
Rate of
the Notes
Issuance
Date
Interest
Payment
Dates
Redemption
Period
December 1996
$
365
$
376
December 2026
7.83%
6/15, 12/15
(Dollars in millions)
Issuer
NationsBank
Capital Trust II
Capital Trust III
Capital Trust IV
BankAmerica
Institutional Capital A
February 1997
April 1997
November 1996
Institutional Capital B
November 1996
Capital II
Capital III
Barnett
Capital I
Capital II
Capital III
Bank of America
Capital Trust I
Capital Trust II
Capital Trust III
Capital Trust IV
Capital Trust V
Fleet
Capital Trust II
Capital Trust V
Capital Trust VI
December 1996
January 1997
November 1996
December 1996
January 1997
December 2001
January 2002
August 2002
April 2003
November 2004
December 1996
December 1998
June 2000
Capital Trust VII
September 2001
Capital Trust VIII
Capital Trust IX
BankBoston
Capital Trust I
Capital Trust II
Capital Trust III
Capital Trust IV
March 2002
July 2003
November 1996
December 1996
June 1997
June 1998
494
498
450
300
450
400
300
200
250
575
900
500
375
518
250
250
300
500
534
175
250
250
250
250
509
513
464
309
464
412
309
206
258
593
928
516
387
534
258
258
309
515
551
180
258
258
258
258
January 2027
April 2027
3-mo. LIBOR
+55 bps
8.25
1/15, 4/15,
7/15, 10/15
4/15, 10/15
December 2026
8.07
6/30, 12/31
December 2026
7.70
6/30, 12/31
December 2026
8.00
6/15, 12/15
January 2027
3-mo. LIBOR
+57 bps
1/15, 4/15,
7/15, 10/15
December 2026
December 2026
February 2027
December 2031
February 2032
August 2032
May 2033
November 2034
8.06
7.95
3-mo. LIBOR
+62.5 bps
7.00
7.00
7.00
5.88
6.00
6/1, 12/1
6/1, 12/1
2/1, 5/1,
8/1, 11/1
3/15, 6/15,
9/15, 12/15
2/1, 5/1,
8/1, 11/1
2/15, 5/15,
8/15, 11/15
2/1, 5/1,
8/1, 11/1
2/3, 5/3,
8/3, 11/3
December 2026
7.92
6/15, 12/15
December 2028
June 2030
December 2031
March 2032
August 2033
3-mo. LIBOR
+100 bps
8.80
7.20
7.20
6.00
3/18, 6/18,
9/18, 12/18
3/31, 6/30,
9/30, 12/31
3/15, 6/15,
9/15, 12/15
3/15, 6/15,
9/15, 12/15
2/1, 5/1,
8/1, 11/1
December 2026
8.25
6/15, 12/15
December 2026
7.75
6/15, 12/15
June 2027
June 2028
3-mo. LIBOR
+75 bps
3-mo. LIBOR
+60 bps
3/15, 6/15,
9/15, 12/15
3/8, 6/8,
9/8, 12/8
On or after
12/15/06(1,3)
On or after
1/15/07(1)
On or after
4/15/07(1,4)
On or after
12/31/06(2,5)
On or after
12/31/06(2,6)
On or after
12/15/06(2,7)
On or after
1/15/02(2)
On or after
12/01/06(1,8)
On or after
12/01/06(1,9)
On or after
2/01/07(1)
On or after
12/15/06(10)
On or after
2/01/07(11)
On or after
8/15/07(12)
On or after
5/01/08(13)
On or after
11/03/09(14)
On or after
12/15/06(2,15)
On or after
12/18/03(2)
On or after
6/30/05(2)
On or after
9/17/06(2)
On or after
3/08/07(2,16)
On or after
7/31/08(1)
On or after
12/15/06(2,17)
On or after
12/15/06(2,18)
On or after
6/15/07(2)
On or after
6/08/03(2)
BANK OF AMERICA 2004 123
(Dollars in millions)
Issuer
Summit
Capital Trust I
Progress
Capital Trust I
Capital Trust II
Capital Trust III
Capital Trust IV
Total
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
Issuance
Date
March 1997
$
150
$
155
March 2027
8.40%
3/15, 9/15
June 1997
July 2000
November 2002
December 2002
9
6
10
5
9
6
10
5
June 2027
10.50
6/1, 12/1
July 2030
11.45
1/19, 7/19
November 2032
January 2033
3-mo. LIBOR
+33.5 bps
3-mo. LIBOR
+33.5 bps
5/15, 11/15
1/7, 4/7,
7/7, 10/7
$ 9,764
$10,066
Redemption
Period
On or after
3/15/07(2,19)
On or after
6/01/07(2,20)
On or after
7/19/10(2,21)
On or after
11/15/07(2)
On or after
1/07/08(1)
(1) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence of certain events relating to tax treatment of the related Trust or the Notes, relating to capital
treatment of the Trust Securities or relating to a change in the treatment of the related Trust under the Investment Company Act of 1940, as amended, at a redemption price at least equal to the
principal amount of the Notes.
(2) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence of certain events relating to tax treatment of the related Trust or the Notes or relating to capital
treatment of the Trust Securities at a redemption price at least equal to the principal amount of the Notes.
(3) The Notes may be redeemed on or after December 15, 2006 and prior to December 15, 2007 at 103.915 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 15, 2016 and thereafter.
(4) The Notes may be redeemed on or after April 15, 2007 and prior to April 15, 2008 at 103.85 percent of the principal amount, and thereafter, at prices declining to 100 percent on
April 15, 2017 and thereafter.
(5) The Notes may be redeemed on or after December 31, 2006 and prior to December 31, 2007 at 104.035 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 31, 2016 and thereafter.
(6) The Notes may be redeemed on or after December 31, 2006 and prior to December 31, 2007 at 103.7785 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 31, 2016 and thereafter.
(7) The Notes may be redeemed on or after December 15, 2006 and prior to December 15, 2007 at 103.969 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 15, 2016 and thereafter.
(8) The Notes may be redeemed on or after December 1, 2006 and prior to December 1, 2007 at 104.03 percent of the principal amount, and thereafter, at prices declining to 100 percent on December 1,
2016 and thereafter.
(9) The Notes may be redeemed on or after December 1, 2006 and prior to December 1, 2007 at 103.975 percent of the principal amount, and thereafter, at prices declining to 100 percent on December 1,
2016 and thereafter.
(10) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence and continuation of a tax event, an investment company event or a capital treatment event.
The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than December 15, 2050.
(11) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence and continuation of a tax event, an investment company event or a capital treatment event.
The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than February 1, 2051.
(12) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence and continuation of a tax event, an investment company event or a capital treatment event.
The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than April 15, 2051.
(13) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence and continuation of a tax event, an investment company event or a capital treatment event.
The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than May 3, 2052.
(14) The Corporation may redeem the Notes prior to the indicated redemption period upon the occurrence and continuation of a tax event, an investment company event or a capital treatment event.
The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than November 3, 2053.
(15) The Notes may be redeemed on or after December 15, 2006 and prior to December 15, 2007 at 103.908 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 15, 2016 and thereafter.
(16) The Corporation may extend the stated maturity date of the junior subordinated notes to a date no later than March 15, 2051.
(17) The Notes may be redeemed on or after December 15, 2006 and prior to December 15, 2007 at 104.125 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 15, 2016 and thereafter.
(18) The Notes may be redeemed on or after December 15, 2006 and prior to December 15, 2007 at 103.875 percent of the principal amount, and thereafter, at prices declining to 100 percent on
December 15, 2016 and thereafter.
(19) The Notes may be redeemed on or after March 15, 2007 and prior to March 15, 2008 at 104.20 percent of the principal amount, and thereafter, at prices declining to 100 percent on March 15, 2017
and thereafter.
(20) The Notes may be redeemed on or after June 1, 2007 and prior to June 1, 2008 at 105.25 percent of the principal amount, and thereafter, at prices declining to 100 percent on June 1, 2017
and thereafter.
(21) The Notes may be redeemed on or after July 19, 2010 and prior to July 19, 2011 at 102.861 percent of the principal amount, and thereafter, at prices declining to 100 percent on July 19, 2015
and thereafter.
Note 12 Commitments and Contingencies
In the normal course of business, the Corporation enters into a num-
ber 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 recorded on the Corporation’s Consolidated Balance Sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan
commitments, standby letters of credit (SBLCs) and commercial letters
of credit to meet the financing needs of its customers. The outstand-
ing unfunded lending commitments shown in the following table have
been reduced by amounts participated to other financial institutions of
$23.4 billion and $12.5 billion at December 31, 2004 and 2003,
124 BANK OF AMERICA 2004
respectively. The carrying amount for these commitments, which repre-
sents the liability recorded related to these instruments, at December
31, 2004 and 2003 was $520 million and $418 million, respectively.
(Dollars in millions)
Loan commitments(1)
Home equity lines of credit
Standby letters of credit and
financial guarantees
Commercial letters of credit
Legally binding commitments
Credit card lines
Total
2004
$247,094
60,128
42,850
5,653
355,725
185,461
$541,186
December 31
2003
nnnnnnnnn
$180,078
31,703
31,150
3,260
nnnnnnnnn
246,191
93,771
nnnnnnnnn
FleetBoston
April 1, 2004
$ 61,012
13,891
12,914
1,689
89,506
77,997
$339,962
nnnnnnnnn
$167,503
(1) Equity commitments of $2,052 and $1,678 related to obligations to fund existing equity
investments were included in loan commitments at December 31, 2004 and 2003, respectively.
Included in loan commitments at December 31, 2004, were $838 of equity commitments
related to obligations to fund existing equity investments acquired from FleetBoston.
Legally binding commitments to extend credit generally have speci-
fied 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.
The Corporation issues SBLCs and financial guarantees to sup-
port the obligations of its customers to beneficiaries. Additionally, in
many cases, the Corporation holds collateral in various forms against
the
these SBLCs. As part of its risk management activities,
Corporation continuously monitors the creditworthiness of the cus-
tomer as well as SBLC exposure; however, if the customer fails to per-
form the specified obligation to the beneficiary, the beneficiary may
draw upon the SBLC by presenting documents that are in compliance
with the letter of credit terms. In that event, the Corporation either
repays the money borrowed or advanced, makes payment on account
of the indebtedness of the customer or makes payment on account
of the default by the customer in the performance of an obligation to
the beneficiary up to the full notional amount of the SBLC. The cus-
tomer is obligated to reimburse the Corporation for any such pay-
ment. If the customer fails to pay, the Corporation would, as
contractually permitted, liquidate collateral and/or set off accounts.
Commercial letters of credit, issued primarily to facilitate cus-
tomer trade finance activities, are usually collateralized by the under-
lying 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 annu-
ally, and upon evaluation of the customers’ creditworthiness, the
Corporation has the right to terminate or change certain terms of the
credit card lines.
The Corporation uses various techniques to manage risk
associated with these types of instruments that include collateral
and/or adjusting commitment amounts based on the borrower’s
financial condition; therefore, the total commitment amount
does not necessarily represent the actual risk of loss or future
cash requirements. For each of these types of instruments, the
Corporation’s exposure to credit loss is represented by the
contractual amount of these instruments.
Other Commitments
At December 31, 2004 and 2003, charge cards (nonrevolving card
lines) to individuals and government entities guaranteed by the U.S.
government in the amount of $10.9 billion and $13.7 billion, respec-
tively, were not included in credit card line commitments in the previ-
ous table. The outstandings related to these charge cards were $205
million and $233 million, respectively.
At December 31, 2004, the Corporation had whole mortgage
loan purchase commitments of $3.3 billion, of which $2.9 billion will
settle in January 2005, and $430 million will settle in February 2005.
At December 31, 2003, the Corporation had whole mortgage loan
purchase commitments of $4.6 billion, all of which were settled in
January and February 2004. At December 31, 2004 and 2003, the
Corporation had no forward whole mortgage loan sale commitments.
The Corporation has entered into operating leases for certain of
its premises and equipment. Commitments under these leases
approximate $1.4 billion in 2005, $1.1 billion in 2006, $995 million
in 2007, $854 million in 2008, $689 million in 2009 and $3.4 bil-
lion for all years thereafter.
Other Guarantees
The Corporation sells products that offer book value protection pri-
marily to plan sponsors of Employee Retirement Income Security Act
of 1974 (ERISA)-governed pension plans such as 401(k) plans, 457
plans, etc. 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 partici-
pants 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 coupon bonds with the proceeds of the
liquidated assets to assure the return of principal. To hedge its expo-
sure, 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 parame-
ters 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, 2004 and 2003, the notional
amount of these guarantees totaled $26.3 billion and $24.9 billion,
respectively, with estimated maturity dates between 2006 and 2034.
As of December 31, 2004 and 2003, the Corporation has not made
a payment under these products, and management believes that the
probability of payments under these guarantees is remote.
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 expo-
sure, 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
BANK OF AMERICA 2004 125
and invested in zero-coupon 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, 2004 and 2003, the notional amount of these guar-
antees totaled $8.1 billion and $6.7 billion, respectively; however, at
December 31, 2004 and 2003, the Corporation had not made a pay-
ment under these products, and management believes that the prob-
ability of payments under these guarantees is remote. These
guarantees have various maturities ranging from 2006 to 2016.
The Corporation has also written puts 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 mar-
ket disruption in the short-term funding market. These agreements have
various maturities ranging from two to seven years, and the pre-deter-
mined 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 $653 million and $666 million at December 31,
2004 and 2003, respectively. 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 indem-
nifications, 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 con-
tained in standard contract language and the timing of the early ter-
mination 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 agree-
ments, including lease end obligation agreements, partial credit guar-
antees 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 $2.1 billion and $1.3 billion at December 31, 2004 and
2003, respectively. The estimated maturity dates of these obligations
are between 2005 and 2033. At December 31, 2004 and 2003, the
Corporation had made no material payments under these products.
The Corporation provides credit and debit card processing serv-
ices to various merchants, processing credit and debit card transac-
tions 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 card-
holder. 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 2004 and 2003, the
Corporation processed $143.1 billion and $71.8 billion, respectively,
of transactions and recorded losses as a result of these chargebacks
of $6 million in both years.
At December 31, 2004 and 2003, the Corporation held as col-
lateral approximately $203 million and $182 million, respectively, of
merchant escrow deposits which the Corporation has the right to set
off 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. Management 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 card-
holder, plus any outstanding delayed-delivery transactions. As of
December 31, 2004 and 2003, the maximum potential exposure
totaled approximately $93.4 billion and $25.0 billion, respectively.
Within the Corporation’s brokerage business, the Corporation
has contracted with third parties to provide clearing services that
include underwriting margin loans to the Corporation’s clients. These
contracts stipulate that the Corporation will indemnify the third par-
ties for any margin loan losses that occur in their issuing margin to
the Corporation’s clients. The maximum potential future payment
under these indemnifications was $1.2 billion and $486 million at
December 31, 2004 and 2003, respectively. Historically, any pay-
ments made under these indemnifications have not been material.
As these margin loans are highly collateralized by the securities held
by the brokerage clients, the Corporation has assessed the probabil-
ity of making such payments in the future as remote. These indem-
nifications would end with the termination of the clearing contracts.
For additional information on recourse obligations related to res-
idential mortgage loans sold and other guarantees related to securi-
tizations, see Note 8 of 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. In certain of these actions and proceed-
ings, claims for substantial monetary damages are asserted against
the Corporation and its subsidiaries, and certain of these actions and
proceedings are based on alleged violations of consumer protection,
securities, environmental, banking, employment and other laws.
In view of the inherent difficulty of predicting the outcome of such
matters, particularly where the claimants seek very large or indeter-
minate damages or where the cases 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. Based on current knowledge, management does not
believe that liabilities, if any, arising from pending litigation or regula-
tory matters, including the litigation and regulatory matters described
126 BANK OF AMERICA 2004
below, will have a material adverse effect on the consolidated finan-
cial position or liquidity of the Corporation, but may be material to the
Corporation’s operating results for any particular reporting period.
Adelphia Communications Corporation (Adelphia)
Bank of America, N.A. and Banc of America Securities LLC (BAS) are
defendants, among other defendants, in a putative class action and
other civil actions relating to Adelphia. The first of these actions was
filed in June 2002; these actions have been consolidated for pre-trial
purposes in the U.S. District Court for the Southern District of New
York. BAS was a member of seven underwriting syndicates of securi-
ties issued by Adelphia, and Bank of America, N.A. was an agent
and/or lender in connection with five credit facilities in which
Adelphia subsidiaries were borrowers. Fleet National Bank and Fleet
Securities, Inc. (FSI) are also named as defendants in certain of the
actions. FSI was a member of three underwriting syndicates of secu-
rities issued by Adelphia, and Fleet National Bank was a lender in
connection with four credit facilities in which Adelphia subsidiaries
were borrowers. The complaints allege claims under the Securities
Act of 1933, the Securities Exchange Act of 1934 and various state
law theories. The complaints seek damages of unspecified amounts.
Bank of America, N.A., BAS, Fleet National Bank and FSI have moved
to dismiss all claims asserted against them, with the exception of
certain claims brought under Sections 11 and 12 of the Securities
Act of 1933. That motion is pending.
Bank of America, N.A., BAS, Fleet National Bank and FSI are also
defendants in an adversary proceeding pending in the U.S. Bankruptcy
Court for the Southern District of New York. The proceeding is brought
by the Official Committee of Unsecured Creditors on behalf of Adelphia;
however,
the bankruptcy court has not yet given the Creditors’
Committee authority to bring this lawsuit. The lawsuit names over 400
defendants and asserts over 50 claims under federal statutes, includ-
ing the Bank Holding Company Act, state common law and various
provisions of the Bankruptcy Code. The Creditors’ Committee seeks
avoidance and recovery of payments, equitable subordination, dis-
allowance and recharacterization of claims and recovery of damages
in an unspecified amount. The Official Committee of Equity Security
Holders has filed a motion seeking to intervene in the adversary
proceeding and to file its own complaint. The proposed complaint is
similar to the Creditors’ Committee complaint, and also asserts
claims under RICO and additional state law theories. Bank of America,
N.A., BAS and FSI have filed objections to the standing of the
Creditors’ and Equity Committees to bring such claims, and have also
filed motions to dismiss. Those motions are pending.
American Express
On November 15, 2004, American Express Travel Related Services
Company (American Express) brought suit in the U.S. District Court for
the Southern District of New York against the Visa and MasterCard
associations, as well as several banks, including Bank of America,
N.A. (USA) and the Corporation. American Express alleges that it has
incurred damages in an unspecified amount by reason of certain
MasterCard and Visa rules that allegedly restricted their member
banks from issuing American Express-branded debit and credit cards.
Motions to dismiss are pending. Enforcement of the MasterCard and
Visa rules was enjoined by the court in United States v. Visa USA, et al.,
in which none of the Corporation or its subsidiaries was a defendant.
Argentine Re-Dollarization
In December 2001, the Argentine Government issued a decree
imposing limitations on the ability of FleetBoston bank customers in
Argentina to withdraw funds from their accounts in Argentine banks
(the corralito). Since the corralito was issued, a large number of cus-
tomers of the FleetBoston Argentine operations (BankBoston
Argentina) have filed complaints in a number of Argentine federal and
provincial courts against BankBoston Argentina seeking to invalidate
the corralito on constitutional grounds and withdraw their funds.
Since 2002, Argentine courts have ordered many of these deposits
to be paid out at original dollar value.
Enron Corporation (Enron)
The Corporation was named as a defendant, along with a number
of other parties, in a putative consolidated class action pending in
the U.S. District Court for the Southern District of Texas filed on
April 8, 2002 entitled Newby v. Enron. The amended complaint
alleges claims against the Corporation and BAS under Sections 11,
12 and 15 of the Securities Act of 1933 related to the role of BAS
as an underwriter of two public offerings of Enron debt and as an
initial purchaser in a private placement of debt issued by an Enron-
affiliated company.
On July 2, 2004, the Corporation reached an agreement to
settle the above litigation. Under the terms of the settlement, which
is subject to court approval, the Corporation will make a payment
of approximately $69 million to the settlement class in Newby v.
Enron. The class consists of all persons who purchased or other-
wise acquired securities issued by Enron during the period from
October 19, 1998 to November 27, 2001. On January 18, 2005,
the lead plaintiff filed a motion seeking preliminary approval of the
settlement, and on February 4, 2005, the court granted preliminary
approval of the settlement and set a hearing date of April 11, 2005
for final approval.
In addition, the Corporation and certain of its affiliates have
been named as defendants or third-party defendants in various indi-
vidual and putative class actions relating to Enron. These actions
were either filed in or have been transferred to the U.S. District Court
of the Southern District of Texas and consolidated or coordinated with
Newby v. Enron. The complaints assert claims under federal securi-
ties laws, state securities laws and/or state common law or statutes,
or for contribution. In nine cases, plaintiffs seek damages or contri-
bution for damages ranging from at least $15,000 to $472 million
from all defendants, including financial institutions, accounting firms,
law firms and numerous individuals. In the remaining cases, the
plaintiffs seek damages in unspecified amounts.
Fleet Specialist
On March 30, 2004, Fleet Specialist and certain other specialist
firms entered into agreements with the SEC and the New York Stock
Exchange (the NYSE) to settle charges that the firms violated certain
federal securities laws and NYSE rules in the course of their spe-
cialist trading activity. The settlement, which involves no admission
BANK OF AMERICA 2004 127
or denial of wrongdoing, includes disgorgement and civil penalties
for Fleet Specialist totaling approximately $59.1 million, a censure,
cease and desist order, and certain undertakings, including the
retention of an independent consultant to review compliance sys-
tems, policies and procedures. Separately, putative class action
complaints seeking unspecified damages have been filed in the U.S.
District Court for the Southern District of New York against Fleet
Specialist, FleetBoston, the Corporation, and other specialist firms
(and their parent companies) on behalf of investors who traded
stock on the NYSE between 1998 and 2003, and were allegedly dis-
advantaged by the improper practices of the specialist firms. These
federal court actions have been consolidated. A multi-defendant
motion to dismiss has been filed. The settlement with the SEC and
NYSE does not resolve the putative class actions, although a portion
of the payment is expected to be allocated to restitution for allegedly
disadvantaged customers.
Foreign Currency
Bank of America, N.A. (USA) and the Corporation, together with Visa
and MasterCard associations and several other banks, are defendants
in a consolidated class action lawsuit pending in U.S. District Court for
the Southern District of New York entitled In re Currency Conversion
Fee Antitrust Litigation. The plaintiff cardholders allege that Visa and
MasterCard, together with their member banks, conspired to set the
price of foreign currency conversion services on credit card transac-
tions and that each bank failed to disclose the applicable price in com-
pliance with the Truth in Lending Act resulting in damages to the class
of an unspecified amount. By decision dated July 3, 2003, the court
granted the motion of the Corporation and Bank of America, N.A. (USA)
to compel arbitration of the claims asserted by Bank of America, N.A.
(USA) cardholders. However, the court denied a motion brought by all
defendants to dismiss the antitrust claims, so Bank of America, N.A.
(USA) and the Corporation remain as defendants with respect to
antitrust claims alleged on behalf of certain co-defendants’ card-
holders. By order dated October 15, 2004, the court granted plaintiffs’
motion to certify a class of cardholders of the defendant banks who
used MasterCard or Visa-branded credit cards for one or more trans-
actions denominated in foreign currency.
In re Initial Public Offering Securities
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 purported class action lawsuits alleging violations of
federal securities laws in connection with the underwriting of initial
public offerings (IPOs) and seeking unspecified damages. Robertson
Stephens, Inc. and BAS were named in certain of the 309 purported
class actions that have been consolidated in the U.S. District Court for
the Southern District of New York as In re Initial Public Offering
Securities Litig. The plaintiffs contend that the defendants failed to
make certain required disclosures, manipulated prices of IPO securi-
ties through, among other things, alleged agreements with institutional
investors receiving allocations to purchase additional shares in the
aftermarket, and false and misleading analyst reports. On October 13,
2004, the court granted in part and denied in part plaintiffs’ motions
to certify as class actions six of 309 cases filed. The underwriter
defendants are currently seeking a discretionary appeal of that
decision in the U.S. Court of Appeals for the Second Circuit. Discovery
is proceeding in the underlying actions.
In addition, the plaintiffs have reached a settlement with 298 of
the issuer defendants in which the issuer defendants guaranteed
that the plaintiffs will receive at least $1 billion in the settled actions
and assigned to the plaintiffs the issuers’ interest in all claims
against the underwriters for “excess compensation.” On February 15,
2005, the court conditionally approved the settlement, with a fair-
ness hearing still to be scheduled. The plaintiffs have not reached a
settlement with any of the underwriter defendants,
including
Robertson Stephens, Inc. and BAS.
Robertson Stephens, Inc. and other underwriters also have
been named as defendants in class action lawsuits filed in the U.S.
District Court for the Southern District of New York under the
antitrust laws alleging that the underwriters conspired to manipulate
the aftermarkets for IPO securities and to extract anticompetitive
fees in connection with IPOs. Those antitrust lawsuits have been
dismissed. Plaintiffs have appealed that decision to the Court of
Appeals for the Second Circuit.
Miller
On August 13, 1998, Bank of America, N.A.’s predecessor was
named as a defendant in a class action filed in Superior Court of
California, County of San Francisco entitled Paul J. Miller v. Bank of
America, 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 fraud, negligent mis-
representation and violations of certain California laws. 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 Bank of America, N.A. 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 February 15, 2004, the jury found that Bank of America, N.A.
violated certain California laws and imposed damages of approxi-
mately $75 million and awarded the class representative $275,000
in emotional distress damages. The jury also assessed a $1,000
penalty as to those members of the class suffering substantial eco-
nomic or emotional harm as a result of the practice but did not deter-
mine which or how many class members are entitled to the penalty.
On December 30, 2004, the trial court issued a final ruling on
claims tried to the court at the conclusion of the February 2004 jury
trial. The ruling awards the plaintiff class restitution in the amount of
$284 million, plus attorneys’ fees. The ruling also concludes that any
class members whose account was wrongfully debited and suffered
substantial emotional or economic harm is entitled to an additional
$1,000 penalty, but did not determine which or how many class
members are entitled to the penalty, and includes injunctive relief,
which is temporarily stayed.
Once the jury verdict and final decision are entered as a
judgment, Bank of America, N.A. will appeal to the California Court
of Appeal, First Appellate District and move to stay the injunction
pending appeal.
128 BANK OF AMERICA 2004
Mutual Fund Operations Matters
On March 15, 2004, the Corporation announced agreements in prin-
ciple with the New York Attorney General (the NYAG) and the SEC to
settle matters related to late trading and market timing of mutual
funds. The Corporation agreed, without admitting or denying wrong-
doing, to (1) pay $250 million in disgorgement and $125 million in
civil penalties; (2) the issuance of an order against three subsidiaries
of the Corporation, Banc of America Capital Management, LLC
(BACAP), BACAP Distributors, LLC (BACAP Distributors), and BAS to
cease and desist from violations of the federal securities laws, as
well as the implementation of enhanced governance and compliance
procedures; (3) retain an independent consultant to review BACAP’s,
BACAP Distributor’s and BAS applicable compliance, control and
other policies and procedures; and (4) exit the unaffiliated introduc-
ing broker/dealer clearing business. In addition, the agreement with
the NYAG provides for reduction of mutual fund management fees of
the Nations Funds by $80 million over five years. These settlements
were finalized with the NYAG and the SEC on February 9, 2005.
On February 24, 2004, the SEC filed a civil action in the U.S.
District Court for the District of Massachusetts against two
FleetBoston subsidiaries, Columbia Management Advisors, Inc. and
Columbia Funds Distributor, Inc. (the Columbia Subsidiaries), alleging
that the Columbia Subsidiaries allowed certain customers to engage
in short-term or excessive trading without disclosing this fact in the
relevant fund prospectuses. The complaint alleged violations of fed-
eral securities laws in relation to at least nine trading arrangements
pertaining to these customers during the period 1998-2003, and
requested injunctive and monetary relief. A similar action was filed
the same day in a state court in New York by the NYAG, claiming relief
under New York state statutes. On March 15, 2004, FleetBoston and
its subsidiaries announced agreements in principle with the NYAG
and the SEC, agreeing, without admitting or denying wrongdoing, to
(1) pay $70 million in disgorgement and $70 million in civil penalties;
(2) the issuance of an order requiring the Columbia Subsidiaries to
cease and desist from violations of the federal securities laws, as
well as the implementation of enhanced governance and compliance
procedures; and (3) retain an independent consultant to review the
Columbia Subsidiaries’ applicable compliance, control and other poli-
cies and procedures. In addition, the agreement with the NYAG pro-
vides for reduction of mutual fund management fees of the Columbia
funds by $80 million over five years. These settlements were finalized
with the NYAG and the SEC on February 9, 2005.
On February 9, 2005, the Corporation entered an agreement
with the Federal Reserve Bank of Richmond, and Bank of America,
N.A. entered an agreement with the Office of the Comptroller of the
Currency (OCC). Under the agreements, the Corporation and Bank of
America, N.A. agreed to continue with existing plans to implement
remedial actions. The federal banking regulators did not impose any
monetary penalties or fines under the agreements.
The Corporation is continuing to respond to inquiries from fed-
eral and state regulatory and law enforcement agencies concerning
mutual fund related matters.
Private lawsuits seeking unspecified damages concerning
mutual fund trading against the Corporation and its pre-FleetBoston-
merger subsidiaries include putative class actions purportedly
brought on behalf of shareholders in Nations Funds mutual funds,
derivative actions brought on behalf of one or more Nations Funds
mutual funds by Nations Funds shareholders, putative ERISA class
actions brought on behalf of participants in the Corporation’s 401(k)
plan, derivative actions brought against the Corporation’s directors on
behalf of the Corporation by shareholders in the Corporation, class
actions and derivative actions brought by shareholders in third-party
mutual funds alleging that the Corporation or its subsidiaries facili-
tated improper trading in those funds, and a private attorney general
action brought under California law. The lawsuits filed to date with
respect to FleetBoston and its subsidiaries include putative class
actions purportedly brought on behalf of shareholders in Columbia
mutual funds, derivative actions brought on behalf of one or more
Columbia mutual funds or trusts by Columbia mutual fund share-
holders, and an individual shareholder action.
On February 20, 2004,
the Judicial Panel on Multidistrict
Litigation (MDL Panel) ordered that all lawsuits pending in federal
court with respect to alleged late trading or market timing in mutual
funds be transferred to the U.S. District Court for the District of
Maryland for coordinated pretrial proceedings. The private lawsuits
have been transferred to the court with the exception of one case
that was remanded to a state court in Illinois and two cases where
motions to remand to state court remain pending. On September 29,
2004, plaintiffs filed consolidated amended complaints in the U.S.
District Court for the District of Maryland. Motions to dismiss the con-
solidated amended complaints are to be filed on February 25, 2005.
Parmalat Finanziaria S.p.A.
On December 24, 2003, Parmalat Finanziaria S.p.A. was admitted
into insolvency proceedings in Italy, known as “extraordinary admin-
istration.” The Corporation, through certain of its subsidiaries, includ-
ing Bank of America, N.A., 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 a restructuring plan, as amended, for the Parmalat group
companies that are included in the Italian extraordinary administra-
tion proceeding. This plan will be voted on by creditors whose claims
the Court of Parma recognizes as valid. Voting is expected to take
place by June 30, 2005. In August 2004,
the Extraordinary
Commissioner filed objections to certain claims with the Court of
Parma, Italy. In that filing, the Extraordinary Commissioner rejected all
the Corporation’s claims on various grounds. On September 18,
2004, the Corporation filed its responses to the filing with the Court
of Parma and on December 16, 2004, the court admitted and
accepted the majority of the Corporation’s claims. The Corporation
will appeal the court’s decision regarding the portion of its claims
which were not admitted.
BANK OF AMERICA 2004 129
On January 8, 2004, The Public Prosecutor’s Office for the Court
of Milan, Italy identified Luca Sala, a former employee, as a subject
of its investigation into the Parmalat matter. On March 2, 2004, the
Public Prosecutor further advised the Corporation that the activities
of the Corporation and two additional employees in Milan, Italy, Luis
Moncada and Antonio Luzi, were also under investigation. These
employees concurrently submitted letters of resignation.
On May 26, 2004, the Public Prosecutor’s Office filed criminal
charges against the Corporation’s former employees, Antonio Luzi, Luis
Moncada, and Luca Sala, alleging market manipulation in connection
with 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 regarding the administrative charge
against the Corporation and the criminal charges against the former
employees have been held in the Court of Milan, Italy, the first of
which took place on October 5, 2004. At this and subsequent hear-
ings, a number of persons filed requests to participate in the pro-
ceedings as damaged civil parties under Italian law. Various
preliminary hearings and pre-trial proceedings are on-going.
On March 5, 2004, a First Amended Complaint was filed in a
putative securities class action pending in the U.S. District Court for
the Southern District of New York entitled Southern Alaska Carpenters
Pension Fund et al. v. Bonlat Financing Corporation et al., which names
the Corporation as a defendant. The First Amended Complaint
alleges causes of action against the Corporation for violations of the
federal securities laws based upon the Corporation’s alleged role in
the alleged Parmalat accounting fraud. This action was consolidated
with several other class actions filed against multiple defendants,
and on October 18, 2004, an Amended Consolidated Complaint was
filed. Unspecified damages are being sought. The Corporation filed a
motion to dismiss the Amended Consolidated Complaint. The motion
to dismiss is pending.
On October 7, 2004, Enrico Bondi filed an action in the U.S.
District Court for the Western District of North Carolina against the
Corporation and various related entities, entitled Dr. Enrico Bondi,
Extraordinary Commissioner of Parmalat Finanziaria, S.p.A., et al v.
Bank of America Corporation, et al (the Bondi Action). The complaint
alleges federal and state RICO claims and various state law claims,
including fraud. The plaintiff seeks $10 billion in damages. A motion
to dismiss is pending.
The Corporation has requested that the MDL Panel consolidate
and/or coordinate pre-trial proceedings in the Bondi Action with other
lawsuits filed by Enrico Bondi against non-Bank of America defen-
dants. On December 14, 2004, the Corporation requested that the
Bondi Action be transferred to the federal court in New York for pre-
trial purposes. That request is pending before the MDL Panel.
Pension Plan Matters
The Corporation is a defendant in a putative class action, entitled
Anita Pothier, et al. v. Bank of America Corp., et al., which was filed
in June 2004 in the U.S. District Court for the Southern District of
Illinois. The action is brought on behalf of all participants in or ben-
eficiaries of any cash balance defined benefit plan maintained by
130 BANK OF AMERICA 2004
the Corporation or its predecessors. The complaint names as
defendants the Corporation, Bank of America, N.A., The Bank of
America Pension Plan (formerly known as the NationsBank Cash
Balance Plan) and its predecessor plans, The Bank of America
401(k) Plan (formerly known as the NationsBank 401(k) Plan) and
its predecessor plans, the Bank of America Corporation Corporate
Benefits Committee and various members thereof, various current
and former directors of the Corporation and certain of its prede-
cessors, and PricewaterhouseCoopers LLP. The named plaintiffs are
alleged to be current or former participants in one or more
employee benefit pension plans sponsored or participated in by the
Corporation or its predecessors.
The complaint alleges the defendants violated various provi-
sions of ERISA, including that the cash balance formula of The Bank
of America Pension Plan and a predecessor plan, the BankAmerica
Pension Plan, violated ERISA’s defined benefit pension plan stan-
dards. In addition, the complaint alleges age discrimination in the
design and operation of the cash balance plans at issue, improper
benefit to the Corporation and its predecessors, interference with the
attainment of pension rights, and various prohibited transactions and
fiduciary breaches. The complaint further alleges that certain volun-
tary transfers of assets by participants in The Bank of America
401(k) Plan and certain predecessor plans to The Bank of America
Pension Plan violated ERISA.
The complaint alleges that the 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 February 9, 2005, the defendants in the Pothier action
moved to transfer the venue of the Pothier action to the U.S. District
Court for the Western District of North Carolina and to dismiss the
complaint. These motions are pending. On February 8, 2005, plain-
tiffs informed the court that they intend to file a motion for partial
summary judgment with respect to their claim relating to the calcula-
tion of lump sum benefits under the NationsBank Cash Balance Plan
and/or The Bank of America Pension Plan. On February 18, 2005,
one of the named plaintiffs moved to certify a class with respect to
that claim. The motion for class certification is pending.
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. By let-
ter dated December 10, 2004, the IRS advised the Corporation that
the IRS has tentatively concluded that the voluntary transfers of par-
ticipant accounts from The Bank of America 401(k) Plan to The Bank
of America Pension Plan violated the anti-cutback rule of Section
411(d)(6) of the Internal Revenue Code. The Corporation is entitled to
a conference of right to discuss this tentative conclusion before the
IRS reaches a final decision, and the Corporation intends to exercise
this right. The Corporation believes that it could be approximately one
to two years before these IRS audit issues are resolved.
On September 29, 2004, a separate putative class action,
entitled Donna C. Richards vs. FleetBoston Financial Corp. and the
FleetBoston Financial Pension Plan (Fleet Pension Plan), was filed
in the U.S. District Court for the District of Connecticut on behalf
of any and all persons who are former or 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 alleges that FleetBoston or its predecessor vio-
lated ERISA by amending the Fleet Financial Group, Inc. Pension Plan
(a predecessor to the Fleet Pension Plan) to add a cash balance ben-
efit formula without notifying participants that the amendment signif-
icantly reduced their plan benefits, by conditioning the amount of
benefits payable under the Fleet Pension Plan upon the form of ben-
efit 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 alleges that
the Fleet Pension Plan violates the “anti-backloading” rule of ERISA.
The complaint seeks equitable and remedial relief, including
a declaration that the cash balance amendment to the Fleet Pension
Plan was ineffective, additional unspecified benefit payments,
attorneys’ fees and interest.
On December 28, 2004, plaintiff filed a motion for class certifi-
cation. On January 25, 2005, the defendants in the Richards case
moved to dismiss the action. These motions are pending.
WorldCom, Inc. (WorldCom)
BAS, Banc of America Securities Limited (BASL), FSI, other under-
writers of WorldCom bonds issued in 2000 and 2001, and other
parties have been named as defendants in a class action lawsuit
filed in the U.S. District Court for the Southern District of New York
entitled WorldCom Securities Litigation. The complaint alleges claims
against BAS and Fleet under Sections 11 and 12 of the Securities
Act of 1933 in connection with 2000 (BAS) and 2001 (BAS and Fleet)
public bond offerings and is brought on behalf of purchasers and
acquirers of bonds issued in or traceable to these offerings. On
October 24, 2003, the court certified a class consisting of “all
persons and entities who purchased or otherwise acquired publicly-
traded securities of WorldCom during the period beginning April 29,
1999 through and including June 25, 2002 and who were injured
thereby.” Plaintiffs seek damages up to the amount of the public bond
offerings underwritten by BAS and FSI, allegedly totaling approxi-
mately $1.5 billion. The court granted BASL’s motion to dismiss all
claims against BASL. On December 15, 2004, the court issued a rul-
ing, which granted in part and denied in part the underwriters’ sum-
mary judgment motion and the lead plaintiff’s summary judgment
motion. On December 30, 2004, the underwriters filed a motion for
reconsideration on the issue of plaintiff standing and a motion seek-
ing resolution of certain issues not decided by the summary judg-
ment ruling. These motions are pending. A trial date has been
scheduled for March 17, 2005.
In addition, the Corporation, BAS, BASL, Fleet and Robertson
Stephens International Limited (RSIL), along with other persons and
entities, have been named as defendants in numerous individual
actions that were filed in either federal or state courts arising out of
alleged accounting irregularities of the books and records of
WorldCom. Plaintiffs in these actions are typically institutional
investors, including state pension funds, who allegedly purchased
debt securities issued by WorldCom pursuant to public offerings in
1997, 1998, 2000 or 2001 and a private offering in December 2000.
The majority of the complaints assert claims under Section 11 of the
Securities Act of 1933, and some complaints include additional
claims under the Securities Act of 1933 and/or claims under the
Securities Exchange Act of 1934, state securities laws, other state
statutes and common law theories. The complaints seek damages of
unspecified amounts. Most of these cases were filed in state court,
subsequently removed by defendants to federal courts and then
transferred by the MDL Panel to the court where they were consoli-
dated with WorldCom Securities Litigation for pre-trial purposes.
Certain plaintiffs in these actions appealed the court’s decision deny-
ing their requests that the court remand their actions to the state
courts in which they were originally filed. The Court of Appeals for the
Second Circuit affirmed the court in May 2004. Certain plaintiffs peti-
tioned the U.S. Supreme Court for a writ of certiorari, which the U.S.
Supreme Court denied on January 10, 2005.
Three other such actions, one in Illinois state court, another
in Tennessee state court, and another in Alabama state court
remain pending.
Other Regulatory Matters
In the course of its business, the Corporation is subject to regulatory
examinations, information gathering requests, inquiries and investi-
gations. BAS and Banc of America Investment Services, Inc. (BAI) are
registered broker/dealers and are subject to regulation by the SEC,
the National Association of Securities Dealers, the New York Stock
Exchange and state securities regulators. In connection with several
formal and informal inquiries by those agencies, BAS and BAI have
received numerous requests, subpoenas and orders for documents,
testimony and information in connection with various aspects of their
regulated activities.
The SEC is currently conducting a formal investigation with
respect to certain trading and research-related activities of BAS dur-
ing the period 1999 through 2001. The investigation is continuing,
and the SEC staff has recently indicated informally that it is consid-
ering whether to recommend enforcement action against BAS with
respect to certain of the matters under investigation.
Note 13 Shareholders’ Equity and Earnings Per Common Share
During the second quarter of 2004, the Board approved a 2-for-1 stock
split in the form of a common stock dividend and increased the quar-
terly cash dividends 12.5 percent from $0.40 to $0.45 per post-split
share. The common stock dividend was effective August 27, 2004 to
common shareholders of record on August 6, 2004 and the cash div-
idend was effective September 24, 2004 to common shareholders of
record on September 3, 2004. All prior period common share and
related per common share information has been restated to reflect
the 2-for-1 stock split.
BANK OF AMERICA 2004 131
The following table presents the monthly share repurchase activity for the three months and years ended December 31, 2004, 2003 and
2002, including total common shares repurchased under announced programs, weighted average per share price and the remaining buyback
authority under announced programs.
(Dollars in millions, except per share
information; shares in thousands)
Three months ended March 31, 2004
Three months ended June 30, 2004
Three months ended September 30, 2004
October 1-31, 2004
November 1-30, 2004
December 1-31, 2004
Three months ended December 31, 2004
Year ended December 31, 2004
(Dollars in millions, except per share
information; shares in thousands)
Three months ended March 31, 2003
Three months ended June 30, 2003
Three months ended September 30, 2003
October 1-31, 2003
November 1-30, 2003
December 1-31, 2003
Three months ended December 31, 2003
Year ended December 31, 2003
(Dollars in millions, except per share
information; shares in thousands)
Three months ended March 31, 2002
Three months ended June 30, 2002
Three months ended September 30, 2002
October 1-31, 2002
November 1-30, 2002
December 1-31, 2002
Three months ended December 31, 2002
Year ended December 31, 2002
Number of Common
Shares Repurchased under
Announced Programs(1)
Weighted Average
Per Share Price(1)
nnnnnnnnnn
24,306
49,060
40,430
16,102
11,673
6,288
34,063
147,859
nnnnnnnnnn
$ 40.03
41.07
43.56
44.24
45.84
46.32
45.17
42.52
Remaining Buyback Authority
under Announced Programs(2)
Dollars
$ 12,378
7,978
6,217
5,505
4,969
4,678
Shares
204,178
155,118
114,688
98,586
86,913
80,625
Number of Common
Shares Repurchased under
Announced Programs(3)
Weighted Average
Per Share Price(3)
nnnnnnnnnn
36,800
60,600
50,230
13,800
64,212
33,044
111,056
258,686
nnnnnnnnnn
$ 34.24
37.62
40.32
40.28
37.68
38.10
38.13
37.88
Number of Common
Shares Repurchased under
Announced Programs(5)
Weighted Average
Per Share Price(5)
nnnnnnnnnn
62,414
102,430
33,556
15,200
4,200
–
19,400
217,800
nnnnnnnnnn
$ 31.33
36.36
33.31
34.29
35.02
–
34.45
34.28
Remaining Buyback Authority
under Announced Programs(4)
Dollars
$13,930
10,610
8,585
8,029
5,610
4,351
Shares
270,370
209,770
159,540
145,740
81,528
48,484
Remaining Buyback Authority
under Announced Programs(6)
Dollars
$ 8,200
4,476
3,359
2,837
2,690
2,690
Shares
202,556
100,126
66,570
51,370
47,170
47,170
(1) Reduced Shareholders’ Equity by $6.3 billion and increased diluted earnings per common share by $0.06 in 2004. These repurchases were partially offset by the issuance of approximately 121 million
shares of common stock under employee plans, which increased Shareholders’ Equity by $3.9 billion, net of $127 of deferred compensation related to restricted stock awards, and decreased diluted
earnings per common share by $0.06 in 2004.
(2) On January 22, 2003, the Board authorized a stock repurchase program of up to 260 million shares of the Corporation’s common stock at an aggregate cost of $12.5 billion. This repurchase plan was
completed during the second quarter of 2004. On January 28, 2004, the Board authorized a stock repurchase program of up to 180 million shares of the Corporation’s common stock at an aggregate
cost not to exceed $9.0 billion and to be completed within a period of 18 months.
(3) Reduced Shareholders’ Equity by $9.8 billion and increased diluted earnings per common share by $0.11 in 2003. These repurchases were partially offset by the issuance of approximately 139 million
shares of common stock under employee plans, which increased Shareholders’ Equity by $4.2 billion, net of $123 of deferred compensation related to restricted stock awards, and decreased diluted
earnings per common share by $0.08 in 2003.
(4) On December 11, 2001, the Board authorized a stock repurchase program of up to 260 million shares of the Corporation’s common stock at an aggregate cost of up to $10.0 billion. This repurchase
plan was completed during the second quarter of 2003. On January 22, 2003, the Board authorized a stock repurchase program of up to 260 million shares of the Corporation’s common stock at an
aggregate cost of $12.5 billion. This repurchase plan was completed during the second quarter of 2004.
(5) Reduced Shareholders’ Equity by $7.5 billion and increased diluted earnings per common share by $0.11 in 2002. These repurchases were partially offset by the issuance of approximately 100 million
shares of common stock under employee plans, which increased Shareholders’ by $2.6 billion and decreased diluted earnings per common share by $0.06 in 2002.
(6) On July 26, 2000, the Board authorized a stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost of up to $7.5 billion. This repurchase plan was
completed during the first quarter of 2002. On December 11, 2001, the Board authorized a stock repurchase program of up to 260 million shares of the Corporation’s common stock at an aggregate
cost of up to $10.0 billion. This repurchase plan was completed during the second quarter of 2003.
132 BANK OF AMERICA 2004
We will continue to repurchase shares, from time to time, in the open
market or in private transactions through our previously approved
repurchase plans.
At December 31, 2004, the Corporation had no shares issued
and outstanding of ESOP Convertible Preferred Stock, Series C (ESOP
Preferred Stock). ESOP Preferred Stock in the amounts of $54 mil-
lion, $4 million and $7 million for 2004, 2003 and 2002, respec-
tively, was converted into the Corporation’s common stock at a ratio
of 3.36 shares of the Corporation’s common stock.
At December 31, 2004, the Corporation had 690,000 shares
authorized and 382,450 shares, or $95 million, outstanding of Bank
of America 6.75% Perpetual Preferred Stock with a stated value of
$250 per share. Ownership is held in the form of depositary shares
paying dividends quarterly at an annual rate of 6.75 percent. On or
after April 15, 2006, the Corporation may redeem Bank of America
6.75% Perpetual Preferred Stock, in whole or in part, at its option, at
$250 per share, plus accrued and unpaid dividends.
The Corporation also had 805,000 shares authorized and
700,000 shares, or $175 million, outstanding of Bank of America
Fixed/Adjustable Rate Cumulative Preferred Stock with a stated value
of $250 per share. Ownership is held in the form of depositary
shares paying dividends quarterly at an annual rate of 6.60 percent
through April 1, 2006. After April 1, 2006, the rate will adjust based
on a U.S. Treasury security plus 50 bps. On or after April 1, 2006, the
Corporation may redeem Bank of America Fixed/Adjustable Rate
Cumulative Preferred Stock, in whole or in part, at its option, at $250
per share, plus accrued and unpaid dividends.
In addition to the preferred stock described above,
the
Corporation had 35,045 shares authorized and 7,739 shares, or
$1 million, outstanding of the Series B Preferred Stock with a stated
value of $100 per share paying dividends quarterly at an annual rate
of 7.00 percent. The Corporation may redeem the Series B Preferred
Stock, in whole or in part, at its option, at $100 per share, plus
accrued and unpaid dividends.
All preferred stock outstanding has preference over our common
stock with respect to the payment of dividends and distribution of our
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 Accumulated OCI for 2004 and 2003.
(Dollars in millions)
Balance, January 1
Net unrealized gains (losses)(1)
Less: Net realized gains recorded to net income
Balance, December 31
2004
Income Tax
Expense
(Benefit)
$ (1,094)
547
930
$ (1,477)
Pre-tax
Amount
$ (3,242)
1,691
2,513
$ (4,064)
After-tax
Amount
$ (2,148)
1,144
1,583
$ (2,587)
2003
Income Tax
Expense
(Benefit)
$
712
(1,314)
492
$ (1,094)
Pre-tax
Amount
$ 1,944
(3,774)
1,412
$ (3,242)
After-tax
Amount
$ 1,232
(2,460)
920
$ (2,148)
(1) Net unrealized gains (losses) include the valuation changes of AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and other.
BANK OF AMERICA 2004 133
The calculation of earnings per common share and diluted earnings
per common share for 2004, 2003 and 2002 is presented below.
See Note 1 of the Consolidated Financial Statements for a discus-
sion on the calculation of earnings per common share.
(Dollars in millions,
except per share information;
shares in thousands)
Earnings per common share
Net income
Preferred stock dividends
Net income available to
common shareholders
Average common shares
issued and outstanding
Earnings per common share
Diluted earnings per
common share
Net income available to
common shareholders
Convertible preferred
stock dividends
Net income available to
common shareholders and
assumed conversions
Average common shares
issued and outstanding
Dilutive potential
common shares(1,2)
Total diluted average common
shares issued and outstanding
Diluted earnings per
common share
2004
2003
2002
$ 14,143
(16)
$ 10,810
(4)
$ 9,249
(5)
$ 14,127
$ 10,806
$ 9,244
3,758,507
3.76
$
2,973,407
3.63
$
3,040,085
3.04
$
$ 14,127
$ 10,806
$ 9,244
2
4
5
$ 14,129
$ 10,810
$ 9,249
3,758,507
2,973,407
3,040,085
65,436
56,949
90,850
3,823,943
3,030,356
3,130,935
$
3.69
$
3.57
$
2.95
(1) For 2004, 2003 and 2002, average options to purchase 10 million, 19 million and 45 million
shares, respectively, were outstanding but not included in the computation of earnings per
common share because they were antidilutive.
(2) Includes incremental shares from assumed conversions of convertible preferred stock,
restricted stock units, restricted stock shares and stock options.
Note 14 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 bal-
ances required by the FRB were $6.9 billion and $4.1 billion for 2004
and 2003, respectively. 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 Federal Reserve Bank amounted to $70 million
and $317 million for 2004 and 2003, respectively.
The primary source of funds for cash distributions by the
Corporation to its shareholders is dividends received from its bank-
ing subsidiaries. Bank of America, N.A. and Fleet National Bank
declared and paid dividends of $5.9 billion and $1.3 billion, respec-
tively, for 2004 to the parent. In 2005, Bank of America, N.A. and
Fleet National Bank can declare and pay dividends to the parent of
$4.7 billion and $790 million plus an additional amount equal to their
net profits for 2005, as defined by statute, up to the date of any such
dividend declaration. The other subsidiary national banks can initiate
aggregate dividend payments in 2005 of $2.6 billion plus an addi-
tional amount equal to their net profits for 2005, 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 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, 2004 and
2003, the Corporation and Bank of America, N.A. were classified as
well-capitalized under this regulatory framework. At December 31,
2004, Fleet National Bank was classified as well-capitalized under
this regulatory framework. There have been no conditions or events
since December 31, 2004 that management believes have changed
the Corporation’s, Bank of America, N.A.’s or Fleet National Bank’s
capital classifications.
134 BANK OF AMERICA 2004
The regulatory capital guidelines measure capital in relation to
the credit and market risks of both on- and off-balance sheet items
using various risk weights. Under the regulatory capital guidelines,
Total Capital consists of three tiers of capital. Tier 1 Capital includes
Common Shareholders’ Equity, Trust 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, 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 pay-
ment 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,
2004 and 2003, the Corporation had no subordinated debt that qual-
ified as Tier 3 Capital.
The capital treatment of Trust Securities is currently under
review by the FRB due to the issuing trust companies being decon-
solidated under FIN 46R. On May 6, 2004, the FRB proposed to allow
Trust Securities to continue to qualify as Tier 1 Capital with revised
quantitative limits that would be effective after a three-year transition
period. As a result, the Corporation will continue to report Trust
Securities in Tier 1 Capital. In addition, the FRB is proposing to revise
the qualitative standards for capital instruments included in regula-
tory capital. The proposed quantitative limits and qualitative stan-
dards are not expected to have a material impact to the Corporation’s
current Trust Securities position included in regulatory capital.
On July 28, 2004, the FRB and other regulatory agencies issued
the Final Capital Rule for Consolidated Asset-backed Commercial
Paper Program Assets (the Final Rule). The Final Rule allows compa-
nies to exclude from risk-weighted assets, the assets of consolidated
ABCP conduits when calculating Tier 1 and Total Risk-based Capital
ratios. The Final Rule also requires that liquidity commitments pro-
vided by the Corporation to ABCP conduits, whether consolidated or
not, be included in the capital calculations. The Final Rule was effec-
tive September 30, 2004. There was no material impact to Tier 1 and
Total Risk-based Capital as a result of the adoption of this rule.
To meet minimum, adequately-capitalized regulatory require-
ments, 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, after certain
adjustments. The leverage ratio guidelines establish a minimum of
three percent. Banking organizations must maintain a leverage capital
ratio of at least five percent to be classified as well-capitalized. As of
December 31, 2004, the Corporation was classified as well-capitalized
for regulatory purposes, the highest classification.
Net Unrealized Gains (Losses) on AFS Debt Securities, Net
Unrealized Gains on AFS Marketable Equity Securities and the Net
Unrealized Gains (Losses) on Derivatives included in Shareholders’
Equity at December 31, 2004 and 2003, are excluded from the cal-
culations of Tier 1 Capital and leverage ratios. The Total Capital ratio
excludes all of the above with the exception of up to 45 percent of
Net Unrealized Gains on AFS Marketable Equity Securities.
Regulatory Capital Developments
On June 26, 2004, the Basel Committee on Banking Supervision,
consisting of an international consortium of central banks and bank
supervisors, published the framework for a new set of risk-based cap-
ital standards (Basel II). Anticipating this event, in August 2003, the
U.S. banking regulators had already issued an advance notice of pro-
posed rulemaking to address issues in advance of publishing their
proposed rules incorporating the new Basel II standards. Since then,
the regulatory agencies have issued extensive supervisory guidance
on the proposed standards. A notice of proposed rule-making cover-
ing possible revisions to risk-based capital regulations relating to
the framework is expected in mid-2005; and final rules are expected
by mid-2006. The Corporation and other large internationally active
U.S. banks and bank holding companies will be expected to imple-
ment the framework’s “advanced approaches” – the advanced inter-
nal ratings-based approach for measuring credit risk and the
advanced measurement approaches for operational risk – by year-end
2007. The Corporation is in the process of finalizing its plans to
address Basel II.
BANK OF AMERICA 2004 135
The following table presents the regulatory risk-based capital ratios, actual capital amounts and minimum required capital amounts for
the Corporation, Bank of America, N.A. and Bank of America, N.A. (USA) at December 31, 2004 and 2003, and for Fleet National Bank at
December 31, 2004:
December 31
2004
Actual
Ratio
Amount
Minimum
Required(1)
2003
Actual
Ratio
Amount
Minimum
Required(1)
8.10%
8.29
10.10
8.54
$64,281
46,891
14,741
3,879
11.63
10.33
13.32
11.93
5.82
6.27
8.15
9.19
92,266
58,424
19,430
5,418
64,281
46,891
14,741
3,879
$31,741
22,614
5,837
1,817
63,482
45,228
11,673
3,634
33,142
22,445
5,427
1,266
7.85%
8.73
–
8.41
$44,050
42,030
–
3,079
11.87
11.31
–
12.29
5.73
6.88
–
9.17
66,651
54,408
–
4,502
44,050
42,030
–
3,079
22,452
19,247
–
1,465
44,904
38,494
–
2,930
23,055
18,319
–
1,008
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.
As a result of the Merger, the Corporation assumed the obliga-
tions related to the plans of former FleetBoston. These plans are
substantially similar to the legacy Bank of America plans discussed
above, however, the FleetBoston Financial Pension Plan does not
allow participants to select various earnings measures, rather the
earnings rate is based on a benchmark rate. The tables within this
Note include the information related to these plans beginning on
April 1, 2004.
Reflected in these results are key changes to the Postretirement
Health and Life Plans and the Nonqualified Pension Plans. On
December 8, 2003, the President signed the Medicare Act into law. The
Medicare Act introduces a voluntary prescription drug benefit under
Medicare as well as a federal subsidy to sponsors of retiree health care
plans that provide at least an actuarially equivalent benefit. In the third
quarter of 2004, the Corporation adopted FSP No. 106-2, which resulted
in a reduction of $53 million in the Corporation’s accumulated post-
retirement benefit obligation. In addition, the Corporation’s net periodic
benefit cost for other postretirement benefits has decreased by $15 mil-
lion for 2004 as a result of the remeasurement. Additionally, in 2002, a
one-time curtailment charge resulted from freezing benefits for supple-
mental executive retirement agreements.
(Dollars in millions)
Risk-based capital
Tier 1
Bank of America Corporation
Bank of America, N.A.
Fleet National Bank
Bank of America, N.A. (USA)
Total
Bank of America Corporation
Bank of America, N.A.
Fleet National Bank
Bank of America, N.A. (USA)
Leverage
Bank of America Corporation
Bank of America, N.A.
Fleet National Bank
Bank of America, N.A. (USA)
(1) Dollar amount required to meet guidelines for adequately capitalized institutions.
Note 15 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, based on age
and years of service. 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 indi-
vidual 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. The benefits become
vested upon completion of five years of service. It is the policy of the
Corporation to fund not less than the minimum funding amount
required by ERISA.
The Pension Plan has a balance guarantee feature, applied at
the time a benefit payment is made from the plan, that protects par-
ticipant balances transferred and certain compensation credits from
future market downturns. The Corporation is responsible for funding
any shortfall on the guarantee feature.
The Corporation sponsors a number of noncontributory, non-
qualified pension plans. These plans, which are unfunded, provide
defined pension benefits to certain employees.
136 BANK OF AMERICA 2004
The following table 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, 2004 and 2003. Prepaid and accrued benefit costs
are reflected in Other Assets, and Accrued Expenses and Other
Liabilities, respectively, on the Consolidated Balance Sheet. The dis-
count rate assumption is based on the internal rate of return for a
portfolio of high quality bonds (Moody’s Aa Corporate bonds) with
maturities that are consistent with projected future cash flows. For
the Pension Plan and the FleetBoston Pension Plan (the Qualified
Pension Plans), as well as the Postretirement Health and Life Plans,
the discount rate at December 31, 2004, was 5.75 percent. For both
the Qualified Pension Plans and the Postretirement Health and Life
Plans, the expected long-term return on plan assets will be 8.50 per-
cent for 2005. 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 recog-
nizes 60 percent of the market gains or losses in the first year, with
the remaining 40 percent spread equally over the next four years.
(Dollars in millions)
Change in fair value of plan assets
(Primarily listed stocks, fixed income and real estate)
Fair value, January 1
FleetBoston balance, April 1, 2004
Actual return on plan assets
Company contributions(2)
Plan participant contributions
Benefits paid
Fair value, December 31
Change in projected benefit obligation
Projected benefit obligation, January 1
FleetBoston balance, April 1, 2004
Service cost
Interest cost
Plan participant contributions
Plan amendments
Actuarial loss
Benefits paid
Projected benefit obligation, December 31
Funded status, December 31
Accumulated benefit obligation (ABO)
Overfunded (unfunded) status of ABO
Provision for future salaries
Projected benefit obligation (PBO)
Overfunded (unfunded) status of PBO
Unrecognized net actuarial loss
Unrecognized transition obligation
Unrecognized prior service cost
Prepaid (accrued) benefit cost
Weighted average assumptions, December 31
Discount rate(3)
Expected return on plan assets
Rate of compensation increase
Qualified
Pension Plans(1)
Nonqualified
Pension Plans(1)
2004
2003
2004
2003
Postretirement
Health and Life Plans(1)
2003
2004
$ 8,975
2,277
1,447
200
–
(746)
$12,153
$ 8,428
2,045
257
623
–
19
835
(746)
$11,461
$11,025
1,128
436
11,461
692
2,364
–
328
$ 3,384
$
$ 7,518
–
1,671
400
–
(614)
$ 8,975
$ 7,627
–
187
514
–
–
714
(614)
$ 8,428
$ 8,028
947
400
8,428
547
2,153
–
364
$ 3,064
$
$
$
–
1
–
63
–
(63)
1
$
712
377
27
62
–
(74)
53
(63)
$ 1,094
$ 1,080
(1,079)
14
1,094
$ (1,093)
234
–
(59)
$ (918)
$
$
$
$
–
–
–
47
–
(47)
–
652
–
25
45
–
–
37
(47)
712
$
628
(628)
84
712
$ (712)
195
–
18
$ (499)
$
$
156
45
25
40
82
(182)
166
$ 1,127
196
9
76
82
(12)
56
(182)
$ 1,352
n/a
n/a
n/a
$ 1,352
$ (1,186)
112
252
–
$ (822)
$
$
181
–
25
13
62
(125)
156
$ 1,058
–
9
68
62
(36)
91
(125)
$ 1,127
n/a
n/a
n/a
$ 1,127
$ (971)
139
291
6
$ (535)
5.75%
8.50
4.00
6.25%
8.50
4.00
5.75%
n/a
4.00
6.25%
n/a
4.00
5.75%
8.50
n/a
6.25%
8.50
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 2005 is $0, $114 and $37,
respectively.
(3) In connection with the Merger, the plans of former FleetBoston were remeasured on April 1, 2004, using a discount rate of 6 percent.
n/a = not applicable
BANK OF AMERICA 2004 137
Amounts recognized in the Consolidated Financial Statements at December 31, 2004 and 2003 are as follows:
(Dollars in millions)
Prepaid benefit cost
Accrued benefit cost
Additional minimum liability
Intangible asset
Accumulated other comprehensive income
Net amount recognized at December 31
Qualified
Pension Plans
Nonqualified
Pension Plans
2004
$ 3,384
–
–
–
–
$ 3,384
2003
$ 3,064
–
–
–
–
$ 3,064
$
2004
–
(918)
(161)
1
160
$ (918)
$
2003
–
(499)
(129)
18
111
$ (499)
Net periodic pension benefit cost for 2004, 2003 and 2002 included the following components:
$
$
Postretirement
Health and Life Plans
2003
–
(535)
–
–
–
$ (535)
2004
–
(822)
–
–
–
$ (822)
(Dollars in millions)
Components of net periodic pension benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of transition asset
Amortization of prior service cost
Recognized net actuarial loss
Recognized loss due to settlements and curtailments
Net periodic pension benefit cost
Weighted average assumptions used to
determine net cost for years ended December 31
Discount rate(1)
Expected return on plan assets
Rate of compensation increase
Qualified Pension Plans
Nonqualified Pension Plans
2004
2003
2002
2004
2003
2002
$ 257
623
(915)
–
55
92
–
$ 112
$ 187
514
(735)
–
55
47
–
$ 68
$ 199
540
(746)
–
55
–
–
$ 48
$ 27
62
–
–
3
14
–
$ 106
$ 25
45
–
–
3
11
–
$ 84
$ 27
44
–
–
10
11
26
$ 118
6.25%
8.50
4.00
6.75%
8.50
4.00
7.25%
8.50
4.00
6.25%
n/a
4.00
6.75%
n/a
4.00
7.25%
n/a
4.00
(1) In connection with the Merger, the plans of former FleetBoston were remeasured on April 1, 2004, using a discount rate of 6 percent.
n/a = not applicable
For 2004, 2003 and 2002, net periodic postretirement benefit cost
included the following components:
(Dollars in millions)
Components of net periodic
postretirement benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of transition obligation
Amortization of prior service cost
Recognized net actuarial loss
Net periodic
postretirement benefit cost
Weighted average assumptions
used to determine net cost for
years ended December 31
Discount rate(2)
Expected return on plan assets
2004(1)
2003
2002
$
9
76
(16)
32
1
74
$
9
68
(15)
32
4
89
$ 11
67
(17)
32
6
40
$176
$187
$139
6.25%
8.50
6.75%
8.50
7.25%
8.50
(1) Includes the effect of the adoption of FSP No. 106-2, which reduced net periodic postretirement
benefit cost by $15.
(2) In connection with the Merger, the plans of former FleetBoston were remeasured on April 1,
2004, using a discount rate of 6 percent.
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 applica-
ble 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 10 percent for 2005, reducing in steps to 5
percent in 2008 and later years. A one-percentage-point increase in
assumed health care cost trend rates would have increased the serv-
ice and interest costs and the benefit obligation by $4 million and
138 BANK OF AMERICA 2004
$56 million, respectively, in 2004, $4 million and $52 million, respec-
tively, in 2003, and $5 million and $61 million, respectively, in 2002.
A one-percentage-point decrease in assumed health care cost trend
rates would have lowered the service and interest costs and the ben-
efit obligation by $3 million and $48 million, respectively, in 2004, $3
million and $48 million, respectively, in 2003, and $4 million and $52
million, respectively, in 2002.
Plan Assets
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 subsequent applicable regulations and laws. The
investment strategy utilizes asset allocation as a principal determi-
nant for establishing the risk/reward profile of the assets. Asset allo-
cation 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 meas-
ures. For example, the common stock of the Corporation held in the
trust is maintained as an offset to the exposure related to partici-
pants who selected to receive an earnings measure based on the
return performance of common stock of the Corporation.
The Expected Return on Asset Assumption (EROA assumption)
was developed through analysis of historical market returns, histori-
cal 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 assump-
tion 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 cal-
endar year. In a simplistic analysis of the EROA assumption, the build-
ing blocks used to arrive at the long-term return assumption would
include an implied return from equity securities of 9 percent, debt
securities of 6 percent, and real estate of 9 percent for all pension
plans and postretirement health and life plans.
The Qualified Pension Plans’ asset allocation at December 31,
2004 and 2003 and target allocation for 2005 by asset category are
as follows:
Asset Category
Equity securities
Debt securities
Real estate
Total
2005 Target
Allocation
65 - 80%
20 - 35%
0 - 3%
Percentage of Plan Assets
at December 31
2004
75%
23
2
100%
2003
71%
28
1
100%
Equity securities include common stock of the Corporation in the
amounts of $871 million (7.17 percent of total plan assets) and
$809 million (9.02 percent of total plan assets) at December 31,
2004 and 2003, respectively.
The Postretirement Health and Life Plans’ asset allocation at
December 31, 2004 and 2003 and target allocation for 2005 by
asset category are as follows:
Asset Category
Equity securities
Debt securities
Real estate
Total
2005 Target
Allocation
60 - 75%
22 - 40%
0 - 3%
Percentage of Plan Assets
at December 31
2004
75%
24
1
100%
2003
69%
31
–
100%
The Bank of America Postretirement Health and Life Plans had no
investment in the common stock of the Corporation at December 31,
2004 or 2003. The FleetBoston Postretirement Health and Life Plans
included common stock of the Corporation in the amount of $0.3 mil-
lion (0.20 percent of total plan assets) at December 31, 2004.
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:
(Dollars in millions)
2005
2006
2007
2008
2009
2010 - 2014
Qualified
Pension
Nonqualified
Pension
Plans(1)
Plans(2)
$ 806
831
856
881
908
4,803
$ 114
89
81
93
92
519
Postretirement
Health and Life Plans
Net
Payments(3)
$ 109
109
107
104
101
457
Medicare
Subsidy
–
$
(6)
(6)
(6)
(6)
(26)
(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.
BANK OF AMERICA 2004 139
Defined Contribution Plans
The Corporation maintains qualified defined contribution retirement
plans and nonqualified defined contribution retirement plans. As a
result of the Merger, beginning on April 1, 2004, the Corporation
maintains the defined contribution plans of former FleetBoston.
There are two components of the qualified defined contribution plans,
the Bank of America 401(k) Plan and the FleetBoston Financial
Savings Plan (the 401(k) Plans), and an employee stock ownership
plan (ESOP) and a profit-sharing plan. See Note 13 of the
Consolidated Financial Statements for additional information on the
ESOP provisions.
The Corporation contributed approximately $267 million, $204
million and $200 million for 2004, 2003 and 2002, respectively, in
cash and stock. Contributions in 2003 and 2002 were utilized prima-
rily to purchase the Corporation’s common stock under the terms of
the Bank of America 401(k) Plan. At December 31, 2004 and 2003,
an aggregate of 113 million shares and 45 million shares, respec-
tively, 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) Plan to common stock so
that there were no outstanding shares at December 31, 2004 in the
401(k) Plans. At December 31, 2003, one million shares of ESOP
Preferred Stock were held by the Bank of America 401(k) Plan.
Under the terms of the ESOP Preferred Stock provision, pay-
ments to the plan for dividends on the ESOP Preferred Stock were $4
million for 2004, $4 million for 2003 and $5 million for 2002.
Payments to the plan for dividends on the ESOP Common Stock were
$181 million, $128 million and $106 million during the same periods.
In addition, certain non-U.S. employees within the Corporation
are covered under defined contribution pension plans that are sepa-
rately administered in accordance with local laws.
Note 16 Stock-based Compensation Plans
At December 31, 2004, the Corporation had certain stock-based
compensation plans that are described below. For all stock-based
compensation awards issued prior to January 1, 2003,
the
Corporation applied the provisions of APB 25 in accounting for its
stock option and award plans. Stock-based compensation plans
enacted after December 31, 2002, are accounted for under the pro-
visions of SFAS 123. For additional information on the accounting for
stock-based compensation plans and pro forma disclosures, see
Note 1 of the Consolidated Financial Statements.
The following table presents information on equity compensa-
tion plans at December 31, 2004:
Plans approved by shareholders
Plans not approved by shareholders
Total
Number of Shares to be
Issued Upon Exercise of
Outstanding Options(1,4)
Weighted Average
Exercise Price of
Outstanding Options(2)
228,770,883
38,264,137
267,035,020
$ 33.69
29.61
$ 33.09
Number of Shares
Remaining for
Future Issuance
Under Equity
Compensation Plans(3)
210,238,781
–
210,238,781
(1) Includes 7,422,369 unvested restricted stock units.
(2) Does not take into account unvested restricted stock units.
(3) Excludes shares to be issued upon exercise of outstanding options.
(4) In addition to the securities presented in the table above, there were outstanding options to purchase 77,938,908 shares of the Corporation’s common stock and 2,597,920 unvested restricted stock
units granted to employees of predecessor companies assumed in mergers. The weighted average option price of the assumed options was $32.39 at December 31, 2004.
140 BANK OF AMERICA 2004
The Corporation has certain stock-based compensation plans that
were approved by its shareholders. These plans are the Key
Employee Stock Plan and the Key Associate Stock Plan. Descriptions
of the material features of these plans follow.
The Corporation has certain stock-based compensation plans
that were not approved by its shareholders. These broad-based plans
are the 2002 Associates Stock Option Plan and Take Ownership!.
Descriptions of the material features of these plans follow.
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, ten-year
options to purchase approximately 260 million shares of common
stock were granted through December 31, 2002, to certain employ-
ees at the closing market price on the respective grant dates.
Options granted under the plan generally vest in three or four equal
annual installments. At December 31, 2004, approximately 111 mil-
lion options were outstanding under this 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
Merger, the shareholders authorized an additional 102 million shares
for grant under the Key Associate Stock Plan. At December 31, 2004,
approximately 110 million options were outstanding under this plan.
Approximately 10 million shares of restricted stock and restricted
stock units were granted during 2004. 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 $288 million, $276 million and $250 million in 2004,
2003 and 2002, respectively.
2002 Associates Stock Option Plan
The Bank of America Corporation 2002 Associates Stock Option
Plan covered all employees below a specified executive grade level.
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. During 2003, the first option vesting trigger was
achieved. During 2004, the second option vesting trigger was
the options continue to be exercisable
achieved. In addition,
following termination of employment under certain circumstances.
At December 31, 2004, approximately 33 million options were out-
standing under this plan. The options expire on January 31, 2007.
No further awards may be granted.
Take Ownership!
The Bank of America Global Associate Stock Option Program (Take
Ownership!) covered all employees below a specified executive
grade level. Under the plan, eligible employees received an award of
a predetermined number of stock options entitling them to purchase
shares of the Corporation’s common stock at the fair market value
on the grant date. All options are nonqualified. At January 2, 2004,
all options issued under this plan were fully vested. These options
expire five years after the grant date. In addition, the options con-
tinue to be exercisable following termination of employment under
certain circumstances. At December 31, 2004, approximately 6 mil-
lion options were outstanding under this plan. No further awards
may be granted.
Additional stock option plans assumed in connection with vari-
ous acquisitions remain outstanding and are included in the following
tables. No further awards may be granted under these plans.
BANK OF AMERICA 2004 141
The following tables present the status of all plans at December 31, 2004, 2003 and 2002, and changes during the years then ended:
Employee stock options
Outstanding at January 1
Options assumed through acquisition
Granted
Exercised
Forfeited
Outstanding at December 31
Options exercisable at December 31
Weighted average fair value of
options granted during the year
Restricted stock/unit awards
Outstanding unvested grants at January 1
Share obligations assumed through acquisition
Granted
Vested
Canceled
Outstanding unvested grants at December 31
2004
2003
2002
Shares
320,331,380
78,761,708
63,472,170
(111,958,135)
(13,055,564)
337,551,559
243,735,846
Weighted
Average
Exercise
Price
$30.66
28.68
40.80
27.77
34.15
32.93
30.73
$ 5.59
Shares
411,447,300
–
61,336,790
(132,491,842)
(19,960,868)
320,331,380
167,786,372
Weighted
Average
Exercise
Price
$29.10
–
35.03
27.72
31.41
30.66
30.02
$ 6.77
Shares
369,100,032
–
171,671,430
(98,116,356)
(31,207,806)
411,447,300
179,151,940
2004
2003
2002
Weighted
Average
Grant
Price
$31.64
31.62
41.03
29.43
38.10
$37.12
Shares
16,170,546
7,720,476
10,338,327
(12,031,945)
(1,747,839)
20,449,565
Weighted
Average
Grant
Price
$30.37
–
34.69
32.47
32.85
$31.64
Shares
15,679,946
–
8,893,718
(7,697,576)
(705,542)
16,170,546
Shares
13,183,492
–
9,532,754
(6,763,746)
(272,554)
15,679,946
Weighted
Average
Exercise
Price
$27.60
–
30.73
26.20
29.37
29.10
29.51
$ 6.21
Weighted
Average
Grant
Price
$29.21
–
30.57
28.44
29.48
$30.37
The following table summarizes information about stock options outstanding at December 31, 2004:
Range of Exercise Prices
$05.00 - $15.00
$15.01 - $23.25
$23.26 - $32.75
$32.76 - $49.50
Total
Outstanding Options
Options Exercisable
Number
Outstanding at
December 31,
2004
1,262,953
10,692,931
168,421,939
157,173,736
337,551,559
Weighted
Average
Remaining
Term
0.4 years
5.1 years
4.8 years
7.1 years
5.9 years
Weighted
Average
Exercise
Price
$12.23
18.94
28.93
38.34
$32.93
Number
Exercisable at
December 31,
2004
1,262,953
10,692,931
168,068,284
63,711,678
243,735,846
Weighted
Average
Exercise
Price
$12.23
18.94
28.92
37.86
$30.73
142 BANK OF AMERICA 2004
Note 17 Income Taxes
The components of Income Tax Expense for 2004, 2003 and 2002
were as follows:
(Dollars in millions)
Current income tax expense
Federal
State
Foreign
Total current expense
Deferred income tax
(benefit) expense
Federal
State
Foreign
Total deferred benefit
Total income tax expense(1)
2004
2003
2002
$ 6,392
683
405
7,480
(407)
(11)
16
(402)
$ 7,078
$ 4,642
412
260
5,314
(222)
(45)
4
(263)
$ 5,051
$ 3,386
451
349
4,186
(270)
(200)
26
(444)
$ 3,742
(1) Does not reflect the deferred tax effects of Unrealized Gains and Losses on AFS Debt and
Marketable Equity Securities, Foreign Currency Translation Adjustments and Derivatives that are
included in Shareholders’ Equity. As a result of these tax effects, Shareholders’ Equity increased
(decreased) by $383, $1,806 and $(1,090) in 2004, 2003 and 2002, respectively. Also, does
not reflect tax benefits associated with the Corporation’s employee stock plans which increased
Shareholders’ Equity by $401, $443 and $251 in 2004, 2003 and 2002, respectively. Goodwill
has been reduced by $101, reflecting the tax benefits attributable to 2004 exercises of employee
stock options issued by FleetBoston which had vested prior to the merger date.
Income Tax Expense for 2004, 2003 and 2002 varied from the
amount computed by applying the statutory income tax rate to
Income before 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 Expense and resulting
effective tax rate for 2004, 2003 and 2002 follows:
(Dollars in millions)
Expected federal income tax expense
Increase (decrease) in taxes resulting from:
Tax-exempt income, including dividends
State tax expense, net of federal benefit
Goodwill amortization
IRS tax settlement
Low income housing credits/other credits
Foreign tax differential
Other
Total income tax expense
2004
2003
2002
Amount
$ 7,427
(526)
437
–
–
(352)
(78)
170
$ 7,078
Percent
35.0%
(2.5)
2.1
–
–
(1.6)
(0.4)
0.8
33.4%
Amount
$5,551
(325)
239
12
(84)
(212)
(50)
(80)
$5,051
Percent
35.0%
(2.1)
1.5
0.1
(0.5)
(1.3)
(0.3)
(0.6)
31.8%
Amount
$4,547
(297)
210
–
(488)
(222)
(58)
50
$3,742
Percent
35.0%
(2.3)
1.6
–
(3.8)
(1.7)
(0.4)
0.4
28.8%
During 2002, the Corporation reached a tax settlement agreement
with the IRS. This agreement resolved issues for numerous tax
returns of the Corporation and various predecessor companies and
finalized all federal income tax liabilities, excluding those relating to
FleetBoston, through 1999. As a result of the settlement, reductions
in Income Tax Expense of $84 million in 2003 and $488 million in
2002 were recorded representing refunds received and reductions in
previously accrued taxes.
The IRS is currently examining the Corporation’s federal income
tax returns for the years 2000 through 2002, as well as the tax
returns of FleetBoston and certain other subsidiaries for years rang-
ing from 1997 to 2000. The Corporation’s current estimate of the
resolution of these various examinations is reflected in accrued
income taxes; however, final settlement of the examinations or
changes in the Corporation’s estimate may result in future income tax
expense or benefit.
BANK OF AMERICA 2004 143
Significant components of the Corporation’s net deferred tax
liability at December 31, 2004 and 2003 are presented in the
following table.
(Dollars in millions)
Deferred tax liabilities
Equipment lease financing
Investments
Intangibles
Deferred gains and losses
State income taxes
Fixed assets
Employee compensation and
retirement benefits
Other
Gross deferred tax liabilities
Deferred tax assets
Allowance for credit losses
Security valuations
Accrued expenses
Foreign tax credit carryforward
Available-for-sale securities
Loan fees and expenses
Net operating loss carryforwards
Other
Gross deferred tax assets
Valuation allowance(1)
Total deferred tax assets,
net of valuation allowance
Net deferred tax liabilities(2)
December 31
2004
2003
$ 6,192
1,088
803
251
192
47
13
435
9,021
3,668
2,326
533
467
146
241
91
1,150
8,622
(155)
$ 5,321
905
955
189
281
246
17
560
8,474
2,421
1,876
421
–
46
85
129
280
5,258
(120)
8,467
$ 554
5,138
$ 3,336
(1) At December 31, 2004, $70 of the valuation allowance related to gross deferred tax assets
was attributable to the Merger. Future recognition of the tax attributes associated with these
gross deferred tax assets would result in tax benefits being allocated to reduce Goodwill.
(2) The Corporation’s net deferred tax liability was adjusted on April 1, 2004, to include a net
deferred tax asset of $2.0 billion attributable to the Merger.
The valuation allowance recorded by the Corporation at December 31,
2004 and 2003 represents net operating loss carryforwards gener-
ated by foreign subsidiaries and certain state deferred tax assets,
where, in each case, it is more likely than not that realization will not
occur. These net operating loss carryforwards begin to expire after
2005 and could fully expire after 2010.
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 2009 and could fully expire after 2014.
At December 31, 2004 and 2003, federal income taxes had not
been provided on $1.1 billion and $871 million, respectively, of undis-
tributed 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 $221 million and $185
million of tax expense, net of credits for foreign taxes paid on such
earnings and for the related foreign withholding taxes, would result in
2004 and 2003, respectively.
On December 21, 2004, the FASB issued FSP No. 109-2 that
provides accounting and disclosure guidance for the foreign earn-
ings repatriation provision within the Act. For additional information
on FSP No. 109-2 and the Act, see Note 1 of the Consolidated
Financial Statements.
Note 18 Fair Value of Financial Instruments
SFAS No. 107, “Disclosures About Fair Value of Financial
Instruments” (SFAS 107), requires the disclosure of the estimated
fair value of financial instruments. The fair value of a financial instru-
ment 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 instru-
ments, the fair values of such instruments have been derived based
on management’s assumptions, the estimated amount and timing of
future cash flows and estimated discount rates. The estimation meth-
ods for individual classifications of financial instruments are
described more fully below. Different assumptions could significantly
affect these estimates. Accordingly, the net realizable values could
be materially different from the estimates presented below. In addi-
tion, the estimates are only indicative of the value of individual finan-
cial 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 instru-
ments, including intangible assets such as goodwill, franchise, and
credit card and trust relationships.
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 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.
Financial Instruments Traded in the Secondary Market
Held-to-maturity securities, AFS debt and marketable equity securities,
trading account instruments and long-term debt traded actively in the
secondary market have been valued using quoted market prices. The
fair values of trading account instruments and securities are reported
in Notes 3 and 5 of the Consolidated Financial Statements.
Derivative Financial Instruments
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
144 BANK OF AMERICA 2004
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 pre-
sented in Note 4 of the Consolidated Financial Statements.
Loans
Fair values were estimated for groups of similar loans based upon
type of loan and maturity. The fair value of 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.
Substantially all of the foreign loans reprice within relatively
short timeframes. Accordingly, for foreign loans, the net carrying val-
ues were assumed to approximate their fair values.
Deposits
The fair value for 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 matu-
rities, 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.
The book and fair values of certain financial instruments at
December 31, 2004 and 2003 were as follows:
December 31
2004
2003
Book
Value
Fair
Value
Book
Value
Fair
Value
$491,615
$496,873 $353,924 $357,770
618,570
98,078
618,409
102,439
414,113
75,343
414,379
79,442
(Dollars in millions)
Financial assets
Loans
Financial liabilities
Deposits
Long-term debt
Note 19 Business Segment Information
In connection with the Merger, the Corporation realigned its business
segment reporting to reflect the new business model of the combined
company. The Corporation reports the results of its operations
through four business segments: Global Consumer and Small
Business Banking, Global Business and Financial Services, Global
Capital Markets and Investment Banking, and Global Wealth and
Investment Management. Certain operating segments have been
aggregated into a single business segment. The Corporation may
periodically reclassify business segment results based on modifica-
tions to its management reporting and profitability measurement
methodologies, and changes in organizational alignment.
Global Consumer and Small Business Banking provides a diver-
sified range of products and services to individuals and small busi-
nesses through multiple delivery channels. Global Business and
Financial Services primarily provides commercial lending and treasury
management services to middle-market companies. Global Capital
Markets and Investment Banking provides capital-raising solutions,
advisory services, derivatives capabilities, equity and debt sales and
trading for the Corporation’s clients as well as traditional bank
deposit and loan products, treasury management and payment
services to large corporations and institutional clients. Global Wealth
and Investment Management offers investment, fiduciary and com-
prehensive banking and credit expertise, asset management
services to institutional clients, high-net-worth individuals and retail
customers, investment, securities and financial planning services to
affluent and high-net-worth individuals, and retail clearing services
for broker/dealers.
All Other consists primarily of Latin America, Equity Investments,
Noninterest Income and Expense amounts associated with the ALM
process, including Gains on Sales of Debt Securities, the allowance
for credit losses process, the residual impact of methodology alloca-
tions, intersegment eliminations, and the results of certain consumer
finance and commercial lending businesses that are being liquidated.
Latin America includes the Corporation’s full-service Latin American
operations in Brazil, Argentina and Chile.
Total Revenue includes Net Interest Income on a fully taxable-
equivalent basis and Noninterest Income. The adjustment of Net
Interest Income to a fully taxable-equivalent basis results in a corre-
sponding increase in Income Tax Expense. The Net Interest Income
of the business segments includes the results of a funds transfer
pricing process that matches assets and liabilities with similar inter-
est rate sensitivity and maturity characteristics. Net Interest Income
also reflects an allocation of Net Interest Income generated by
assets and liabilities used in the Corporation’s ALM process.
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 pro-
cessing costs, item processing costs and certain centralized or
shared functions. Data processing costs are allocated to the seg-
ments based on equipment usage. Item processing costs are allo-
cated 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.
BANK OF AMERICA 2004 145
The following table presents Total Revenue and Net Income for 2004, 2003 and 2002, and Total Assets at December 31, 2004 and 2003
for each business segment, as well as All Other.
Business Segments
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Amortization of intangibles
Other noninterest expense
Income before income taxes
Income tax expense
Net income
Period-end total assets
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Losses on sales of debt securities
Amortization of intangibles
Other noninterest expense
Income before income taxes
Income tax expense
Net income
Period-end total assets
(Dollars in millions)
Net interest income (fully taxable-equivalent basis)
Noninterest income
Total revenue
Provision for credit losses
Gains on sales of debt securities
Amortization of intangibles
Other noninterest expense
Income before income taxes
Income tax expense (benefit)
Net income
Period-end total assets
(1) There were no material intersegment revenues among the segments.
146 BANK OF AMERICA 2004
At and for the Year Ended December 31
Total Corporation
$
2004
29,513
20,097
49,610
2,769
2,123
664
26,363
21,937
7,794
14,143
$
$ 1,110,457
$
2003
22,107
16,450
38,557
2,839
941
217
19,938
16,504
5,694
10,810
$
$ 719,483
2002
21,511
13,580
35,091
3,697
630
218
18,227
13,579
4,330
9,249
$
$
Global Business and
Financial Services(1)
$
2004
4,593
2,129
6,722
(241)
–
82
2,394
4,487
1,654
$
2,833
$ 178,093
$
2003
3,118
1,399
4,517
458
–
21
1,776
2,262
791
$
1,471
$ 107,791
$
$
Global Wealth and
Investment Management(1)
$
2004
2,854
3,064
5,918
(20)
–
62
3,387
2,489
905
$
1,584
$ 121,974
$
$
$
2003
1,952
2,078
4,030
11
–
20
2,081
1,918
684
1,234
69,370
$
$
2002
3,195
1,214
4,409
453
–
21
1,810
2,125
756
1,369
2002
1,923
1,706
3,629
320
–
20
1,899
1,390
507
883
Global Consumer and
Small Business Banking(1)
$
2004
17,308
9,549
26,857
3,341
117
463
12,871
10,299
3,751
6,548
$
$ 378,359
$
2003
12,114
8,816
20,930
1,678
13
147
10,186
8,932
3,226
5,706
$
$ 264,578
2002
11,411
6,911
18,322
1,521
20
143
9,168
7,510
2,769
4,741
$
$
Global Capital Markets and
Investment Banking(1)
$
2004
4,122
4,927
9,049
(459)
(10)
44
6,512
2,942
992
$
1,950
$ 307,451
$
2003
4,289
4,045
8,334
303
(14)
24
5,303
2,690
896
$
1,794
$ 225,839
$
2004
636
428
1,064
148
2,016
13
1,199
1,720
492
$
1,228
$ 124,580
All Other
2003
634
112
746
389
942
5
592
702
97
605
51,905
$
$
$
$
$
$
$
2002
4,345
3,856
8,201
768
(92)
29
4,896
2,416
814
1,602
2002
637
(107)
530
635
702
5
454
138
(516)
654
The following table presents reconciliations of the four business segments’ Total Revenue, Net Income and Total Assets to consolidated totals.
The adjustments presented in the table below include consolidated income and expense amounts not specifically allocated to individual
business segments.
(Dollars in millions)
Segments’ revenue
Adjustments:
Revenue associated with unassigned capital
ALM activities(1)
Latin America
Equity investments
Liquidating businesses
Fully taxable-equivalent basis adjustment
Other
Consolidated revenue
Segments’ net income
Adjustments, net of taxes:
Earnings associated with unassigned capital
ALM activities(1,2)
Latin America
Equity investments
Liquidating businesses
Merger and restructuring charges
Litigation expense
Tax settlement
Severance charge
Other
Consolidated net income
Segments’ total assets
Adjustments:
ALM activities
Securities portfolio
Latin America
Equity investments
Liquidating businesses
Elimination of excess earning asset allocations
Other, net
Consolidated total assets
(1) Includes pre-tax whole mortgage loan sale gains/(losses) of $(2), $772 and $500 for 2004, 2003 and 2002, respectively.
(2) Includes pre-tax Gains on Sales of Debt Securities of $2,011, $938 and $701 for 2004, 2003 and 2002, respectively.
Year Ended December 31
2004
2003
2002
$
48,546
$
37,811
$
34,561
560
294
43
(445)
539
(588)
(461)
34,503
8,595
399
523
(148)
(330)
58
–
–
488
(86)
(250)
9,249
$
$
$
318
(74)
834
440
282
(716)
(736)
48,894
12,915
212
1,117
310
192
79
(411)
66
–
–
(337)
14,143
$
$
$
674
500
33
(256)
324
(643)
(529)
37,914
10,205
459
870
(48)
(249)
(19)
–
(150)
–
–
(258)
10,810
$
$
$
December 31
2004
2003
$ 985,877
$ 667,578
131,751
177,803
12,402
8,064
4,390
(254,225)
44,395
$ 1,110,457
103,313
59,333
515
6,250
6,528
(177,303)
53,269
$ 719,483
BANK OF AMERICA 2004 147
Note 20 Bank of America Corporation (Parent Company Only)
The following tables present the Parent Company Only financial information:
Condensed Statement of Income
(Dollars in millions)
Income
Dividends from subsidiaries:
Bank subsidiaries
Other subsidiaries
Interest from subsidiaries
Other income
Total income
Expense
Interest on borrowed funds
Noninterest expense
Total expense
Income before income taxes and equity in undistributed earnings of subsidiaries
Income tax (expense) benefit
Income before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings of subsidiaries:
Bank subsidiaries
Other subsidiaries
Total equity in undistributed earnings (losses) of subsidiaries
Net income
Net income available to common shareholders
Condensed Balance Sheet
(Dollars in millions)
Assets
Cash held at bank subsidiaries
Securities
Receivables from subsidiaries:
Bank subsidiaries
Other subsidiaries
Investments in subsidiaries:
Bank subsidiaries
Other subsidiaries
Other assets
Total assets
Liabilities and shareholders’ equity
Commercial paper and other short-term borrowings
Accrued expenses and other liabilities
Payables to subsidiaries:
Bank subsidiaries
Other subsidiaries
Long-term debt
Shareholders’ equity
Total liabilities and shareholders’ equity
148 BANK OF AMERICA 2004
Year Ended December 31
2004
2003
2002
$ 11,100
10
775
1,138
13,023
1,700
1,361
3,061
9,962
1,154
11,116
(1,607)
(260)
(1,867)
9,249
9,244
$
$
$
8,100
133
1,085
1,351
10,669
1,861
1,797
3,658
7,011
(122)
6,889
6,680
574
7,254
$ 14,143
$ 14,127
$
8,950
34
610
2,140
11,734
1,391
2,181
3,572
8,162
461
8,623
2,093
94
2,187
$ 10,810
$ 10,806
December 31
2004
2003
$ 47,138
2,694
10,546
19,897
114,868
1,499
13,859
$ 210,501
$ 20,774
7,124
76
13
82,869
99,645
$ 210,501
$ 20,436
1,441
10,042
15,103
59,085
818
13,459
$120,384
$
3,333
7,469
173
29
61,400
47,980
$120,384
Condensed Statement of Cash Flows
(Dollars in millions)
Operating activities
Net income
Reconciliation of net income to net cash provided by operating activities:
Equity in undistributed earnings (losses) of subsidiaries
Other operating activities, net
Net cash provided by operating activities
Investing activities
Net purchases of securities
Net payments from (to) subsidiaries
Other investing activities, net
Net cash provided by (used in) investing activities
Financing activities
Net increase (decrease) in commercial paper and other short-term borrowings
Proceeds from issuance of long-term debt
Retirement of long-term debt
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid
Other financing activities, net
Net cash provided by (used in) financing activities
Net increase (decrease) in cash held at bank subsidiaries
Cash held at bank subsidiaries at January 1
Cash held at bank subsidiaries at December 31
Year Ended December 31
2004
2003
2002
$ 14,143
$ 10,810
$
9,249
(7,254)
(1,168)
5,721
(1,348)
821
3,348
2,821
16,332
19,965
(9,220)
3,939
(6,286)
(6,468)
(102)
18,160
26,702
20,436
$ 47,138
(2,187)
40
8,663
(59)
(1,160)
(1,597)
(2,816)
2,482
14,713
(5,928)
4,249
(9,766)
(4,281)
276
1,745
7,592
12,844
$ 20,436
1,867
(2,537)
8,579
(428)
(2,025)
(158)
(2,611)
(7,505)
8,753
(1,464)
2,632
(7,466)
(3,709)
(338)
(9,097)
(3,129)
15,973
$ 12,844
BANK OF AMERICA 2004 149
Note 21 Performance by Geographic Area
Since the Corporation’s operations are highly integrated, certain asset, liability, income and expense amounts must be allocated to arrive at
Total Assets, Total Revenue, Income (Loss) Before Income Taxes and Net Income (Loss) 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.
At December 31
Year Ended December 31
(Dollars in millions)
Domestic(3)
Asia
Europe, Middle East and Africa
Latin America and the Caribbean
Total Foreign
Total Consolidated
Year
2004
2003
2002
2004
2003
2002
2004
2003
2002
2004
2003
2002
2004
2003
2002
2004
2003
2002
Total
Assets(1)
$ 1,046,639
672,834
21,658
20,016
27,536
23,858
14,624
2,775
63,818
46,649
$ 1,110,457
719,483
$
$
Total
Revenue(2)
46,156
36,541
32,884
708
414
639
1,136
847
838
894
112
142
2,738
1,373
1,619
48,894
37,914
34,503
Income (Loss)
Before
Income Taxes
$
20,072
15,955
13,537
Net
Income
(Loss)
13,384
10,843
9,548
$
330
82
218
353
(14)
(367)
466
(162)
(397)
1,149
(94)
(546)
21,221
15,861
12,991
$
237
71
157
234
(1)
(210)
288
(103)
(246)
759
(33)
(299)
$
14,143
10,810
9,249
(1) Total Assets includes long-lived assets, which are primarily located in the U.S.
(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 Total Assets of $4,849 and $2,799 at December 31, 2004 and 2003, respectively; Total Revenue of $88, $96 and $96; Income before
Income Taxes of $49, $60 and $111; and Net Income of $41, $12 and $83 for the years ended December 31, 2004, 2003 and 2002, respectively.
150 BANK OF AMERICA 2004
Executive Officers and Directors
Bank of America Corporation and Subsidiaries
Executive Officers
Kenneth D. Lewis
Chairman, President and
Chief Executive Officer
Amy Woods Brinkley
Global Risk Executive
Alvaro G. de Molina
President, Global Capital Markets and
Investment Banking
Barbara J. Desoer
Global Technology, Service and
Fulfillment Executive
Liam E. McGee
President, Global Consumer and
Small Business Banking
Brian T. Moynihan
President, Global Wealth and
Investment Management
Marc D. Oken
Chief Financial Officer
H. Jay Sarles
Vice Chairman and
Special Advisor to the CEO
R. Eugene Taylor
President, Global Business and
Financial Services
Board of Directors
William Barnet, III
Chairman, President and
Chief Executive Officer
The Barnet Company, Inc.
Real estate investing
Spartanburg, SC
Charles W. Coker
Chairman
Sonoco Products Company
Paper and plastics products manufacturing
Hartsville, SC
John T. Collins
Chief Executive Officer
The Collins Group, Inc.
Venture capital, private equity
investments and management
Boston, MA
Gary L. Countryman
Chairman Emeritus
Liberty Mutual Holding Company, Inc.
Financial services
Boston, MA
Paul Fulton
Chairman
Bassett Furniture Industries, Inc.
Furniture manufacturing
Winston-Salem, NC
Charles K. Gifford
Retired Chairman
Bank of America Corporation
Financial services
Charlotte, NC
Donald E. Guinn
Chairman Emeritus
Pacific Telesis Group
Telecommunications
Bend, OR
Kenneth D. Lewis
Chairman, President and
Chief Executive Officer
Bank of America Corporation
Financial services
Charlotte, NC
Walter E. Massey
President
Morehouse College
Education
Atlanta, GA
Thomas J. May
Chairman, President and
Chief Executive Officer
NSTAR
Energy utility
Boston, MA
Patricia E. Mitchell
President and Chief Executive Officer
Public Broadcasting Service
Noncommercial broadcasting
Alexandria, VA
Edward L. Romero
Former Ambassador to Spain
Albuquerque, NM
Thomas M. Ryan
Chairman, President and
Chief Executive Officer
CVS Corporation
Retail pharmacies
Woonsocket, RI
O. Temple Sloan, Jr.
Chairman and Chief Executive Officer
International Group, Inc.
Automotive replacement parts
distributing holding company
Raleigh, NC
Meredith R. Spangler
Trustee and Board Member
C.D. Spangler Construction
Construction
Charlotte, NC
Jackie M. Ward
Outside Managing Director
Intec Telecom Systems PLC
Telecommunications software
Atlanta, GA
BANK OF AMERICA 2004 151
Corporate Information
Bank of America Corporation and Subsidiaries
Headquarters
The principal executive offices of Bank of America Corporation
are located in the Bank of America Corporate Center, Charlotte,
NC 28255.
Shareholders
The Corporation’s common stock is listed on the New York Stock
Exchange and the Pacific Stock Exchange under the symbol BAC.
The Corporation’s common stock is also listed on the London
Stock Exchange, and certain shares are listed on the Tokyo Stock
Exchange. The stock is typically listed as BankAm in newspapers.
As of February 23, 2005, there were 278,722 record holders
of the Corporation’s common stock.
The Corporation’s annual meeting of shareholders will be held at
10 a.m. local time on April 27, 2005, in the Belk Theater of the
North Carolina Blumenthal Performing Arts Center, 130 North Tryon
Street, Charlotte, North Carolina.
For general shareholder information, call Jane Smith, shareholder
relations manager, at 1.800.521.3984. For inquiries concerning
dividend checks, the SharesDirect dividend reinvestment plan,
electronic deposit of dividends, tax information, transferring
ownership, address changes or lost or stolen stock certificates,
contact EquiServe Trust Company, P. O. Box 43095, Providence,
RI 02940-3095; call Bank of America Shareholder Services
at 1.800.642.9855; or use online access at
www.bankofamerica.com/shareholder.
Analysts, portfolio managers and other investors seeking additional
information should contact Kevin Stitt, investor relations executive,
at 1.704.386.5667 or Lee McEntire, investor communications
manager, at 1.704.388.6780.
Visit the Investor Relations area of the Bank of America Web site
at www.bankofamerica.com/investor. Under the Shareholders
section are stock and dividend information, financial news
releases, links to Bank of America SEC filings and other material
of interest to the Corporation’s shareholders.
Annual Report on Form 10-K
The Corporation’s 2004 Annual Report on Form 10-K is available
at www.bankofamerica.com. The Corporation also will provide a
copy of the 2004 Annual Report on Form 10-K (without exhibits)
upon written request addressed to:
Bank of America Corporation
Shareholder Relations Department
NC1-007-23-02
100 North Tryon Street
Charlotte, NC 28255
Customers
For assistance with Bank of America products and services,
call 1.800.900.9000, or visit the Bank of America Web site at
www.bankofamerica.com.
News Media
News media seeking information should visit the Newsroom
area of the Bank of America Web site for news releases,
speeches and other material relating to the Corporation,
including a complete list of the corporation’s media relations
specialists grouped by business specialty or geography.
To do so, go to www.bankofamerica.com, and choose the
About Bank of America tab. Under the Bank of America News
section, select Newsroom.
NYSE and SEC Certifications
The Corporation filed with the New York Stock Exchange (“NYSE”)
on June 22, 2004, the Annual CEO Certification as required by the
NYSE corporate governance listing standards. The Corporation has
also filed as exhibits to its 2004 Annual Report on Form 10-K
the CEO and CFO certifications as required by Section 302 of the
Sarbanes-Oxley Act.
152 BANK OF AMERICA 2004
©2005 Bank of America Corporation
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