Bank of America Annual Report 2008

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FY2008 Annual Report · Bank of America

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Bank of America 2008 Annual Report

Please recycle.

The front section of this annual report is printed on 100% post-consumer
waste (PCW) recycled paper that is manufactured with wind power.
The Financial Review is printed on 30% PCW recycled paper.

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About Bank of America Corporation

Bank of America Corporation (NYSE: BAC) is a publicly traded company headquartered in Charlotte, NC. As of December 31, 2008,
the Corporation operated throughout the United States and in more than 30 foreign countries. The Corporation provides a diverse range
of banking and nonbanking financial services and products domestically and internationally through three business segments:
Global Consumer & Small Business Banking, Global Corporate & Investment Banking and Global Wealth & Investment Management.
Bank of America is a member of the Dow Jones Industrial Average. The Corporation acquired Merrill Lynch & Co., Inc. on January 1, 2009.

Financial Highlights

(Dollars in millions, except per share information)

For the year

Revenue, net of interest expense*
Net income
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 diluted common shares issued
and outstanding (in millions)

2008

$73,976

4,008
0.56
0.55
2.24
0.22 %

1.80
56.14

4,612

2007

$68,582
14,982
3.35
3.30
2.40
0.94 %

11.08
54.71

4,480

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 (closing)
Common shares issued
and outstanding (in millions)

2008

2007

$1,817,943

931,446
882,997
177,052
27.77

$1,715,746
876,344
805,177
146,803
32.09

14.08

5,017

41.26

4,438

*Fully taxable-equivalent basis
**All Other consists primarily of equity investments, the residential mortgage portfolio associated with
asset and liability management activities, the residual impact of the cost allocation processes, merger and
restructuring charges, intersegment eliminations, and the results of certain consumer ﬁ nance, investment
management and commercial lending businesses that are being liquidated. All Other also includes the
offsetting securitization impact to present Card Services on a managed basis. Our view of Global Consumer
& Small Business Banking operations are also shown on a managed basis.

$58,344
79%

Revenue*
(in millions)

$13,440
18%

$7,785
11%

Global
Consumer
& Small
Business
Banking

Global
Corporate &
Investment
Banking

Global
Wealth &
Investment
Management

$(5,593)
(8)%

All Other**

$4,234
106%

Net Income
(in millions)

$1,416
35%

$(14)
(1)%

$(1,628)
(40)%

Global
Consumer
& Small
Business
Banking

Global
Corporate &
Investment
Banking

Global
Wealth &
Investment
Management

All Other**

Total Cumulative Shareholder Return***

5-Year Stock Performance

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

12/03

12/04

12/05

12/06

12/07

12/08

December 31
Bank of America Corporation
BAC
SPX
S & P 500 Index
S5CBNK S & P 500 CM Banks Index
KBW Bank Index
BKX

2007

2005

2004

2006

2003
2008
$100 $122 $125 $150 $122 $45
$100 $111 $116 $135 $142 $90
$100 $115 $117 $135 $104 $67
$100 $110 $114 $133 $104 $55

$60

$50

$40

$30

$20

$10

2004

2005

2006

2007

2008

High $47.44

$47.08

$54.90

$54.05

$45.03

Low 38.96

Close 46.99

41.57

46.15

43.09

53.39

41.10

41.26

11.25

14.08

***This graph compares the yearly change in the Corporation’s cumulative total shareholders’ return on its common stock with (i) Standard & Poor’s 500 Index, (ii) Standard & Poor’s 500
Commercial Banks Industry Index and (iii) the KBW Bank Index for the years ended December 31, 2004 through 2008. The graph assumes an initial investment of $100 at the end of 2003
and the reinvestment of all dividends during the years indicated. The KBW Bank Index has been added to better reﬂ ect the evolving ﬁ nancial sector and because it includes the stock price
performance of a broader range of larger diversiﬁ ed U.S. ﬁ nancial services companies.

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2008 Lines of Business

Global Consumer &
Small Business Banking

Global Consumer & Small Business Banking
has approximately 59 million consumer and
small business relationships. We serve
consumers through checking, savings,
credit and debit cards, home equity
lending, mortgages and insurance. We
serve mass-market small businesses with
capital, credit, deposit and payment services.

Businesses
Deposits & Student Lending
Card Services
Mortgage, Home Equity & Insurance Services

Global Corporate &
Investment Banking

Global Corporate & Investment Banking
provides comprehensive financial solutions
to clients ranging from companies with
$2.5 million in revenues to large multinational
corporations, governments, financial sponsors,
insti tutional investors and hedge funds.

Revenue*

(in millions)

$28,433

Net Income
(in millions)

$20,649

$9,262

Deposits
& Student
Lending

Card
Services

Mortgage,
Home Equity
& Insurance
Services

$6,210

$521

$(2,497)

Deposits
& Student
Lending

Card
Services

Mortgage,
Home Equity
& Insurance
Services

Revenue*

(in millions)

Net Income
(in millions)

$7,823

$7,784

Businesses
Business Lending
Capital Markets & Advisory Services
Treasury Services

Business
Lending

$(3,018)

Capital
Markets &
Advisory
Services

$1,722

$851

Treasury
Services

ALM†/Other

Business
Lending

$2,732

$(4,948)

Capital
Markets &
Advisory
Services

Treasury
Services

$480

ALM†/Other

Global Wealth &
Investment Management

Global Wealth & Investment Management
provides a wide offering of customized
banking and investment services for
individual and institutional clients.

Businesses
U.S. Trust, Bank of America Private
Wealth Management
Columbia Management
Premier Banking & Investments™

*Fully taxable-equivalent basis
†ALM=Asset and Liability Management

$2,650

Revenue*

(in millions)

$3,201

$1,543

Net Income
(in millions)

$391

Columbia
Management

Premier
Banking &
Investments

ALM†/Other

U.S. Trust,
Bank of
America
Private
Wealth
Management

$831

$584

Premier
Banking &
Investments

ALM†/Other

$460

U.S. Trust,
Bank of
America
Private
Wealth
Management

$(459)

Columbia
Management

Bank of America 2008 1

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Chairman’s Letter
Chairman’s Letter

To Our Shareholders

Our size, scale, revenue diversity and ability
to execute are never more crucial than during
a year of extraordinary challenges.

Kenneth D. Lewis
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND PRESIDENT

2008 was an extraordinarily difficult
year for our company.

The economy, which had struggled

for most of the year, hit a wall in the
fourth quarter, posting the largest quar-
terly decline in gross domestic product
since 1982. Credit costs, which had
been rising steadily all year, escalated
as unemployment and underemploy-
ment rose sharply. We expect credit
costs to continue to rise this year.

Trading results took a sharp turn for

the worse as credit spreads suddenly
widened in the fourth quarter. Trends
in the credit markets are difficult to
predict, but we are hopeful that a
move toward normalcy will allow our
capital markets operations to return
to profitability in 2009.

These developments resulted in our

first quarterly loss since 1991, and a
sharp drop in our profitability for the year.
In view of the challenging environ-
ment, we took a number of difficult
steps: We cut our dividend — which
had increased every year since
1977 — to $0.01. To lower our
expense base, we accelerated and
expanded our cost-cutting initiatives.
The board accepted my recommenda-
tion that no members of our Executive
Management Team should receive
any bonus or incentive compensation
for 2008. And, to help us close our
acquisition of Merrill Lynch, we

2 Bank of America 2008

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Total
Shareholders’
Equity

$177,052

$135,272

$146,803

’06

’07

’08

In millions, at year end

negotiated with the U.S. government
to invest another $20 billion in Bank of
America in the form of preferred stock.
I am very aware of the financial bur-
den our decisions have created for our
shareholders, but we felt it necessary
to maintain our capital strength and
stability in these uncertain times.

Despite a year with no shortage

of bad news, I maintain a positive
and optimistic outlook for our future.
Here’s why: For the full year, in
the midst of the worst recession in
generations, we earned more than
$4 billion, ranking us second among
all U.S. financial institutions. Two of
our three major lines of business made
money (Global Consumer & Small
Business Banking and Global Wealth &

Strong
Earnings
Potential

Despite unprecedented
economic challenges,
Bank of America
earned more than
$4 billion in 2008

Investment Management). And Global
Corporate & Investment Banking, which
has weathered so much of the capital
markets disruption this past year, came
very close to breaking even. The point is
that the potential earnings power of our
company is still huge, and still growing.
We made two key acquisitions.
Countrywide gives us an opportunity to

lead the mortgage market to a healthier
and more stable future. Merrill Lynch,
I believe, is a tremendous long-term
strategic fit for our company, notwith-
standing the large losses they reported
in the fourth quarter largely due to
sharp writedowns in various capital
markets instruments.

I discuss both of these transactions
in more detail in a separate section of
this letter.

Our top priority right now, as the
economy continues to weaken, must
be to build on our capital strength, so
we’ll be in a good position to continue
to support customers and clients.
Bank of America has been a strong and
stable presence in the world’s financial
system since this crisis started almost
two years ago. The actions we’ve taken
will help us maintain and build on that
strength so that we can continue to
play a leading role in the economic
recovery to come.

Much has changed and much will

continue to change in our industry.
Consolidation within and across sec-
tors of the financial services industry
has all but stopped with the financial
sector in turmoil, but will accelerate
when the market stabilizes and assets
become easier to price. Old competi-
tors have disappeared, while new ones
are emerging. Structural and regulatory
changes are slowing or reversing the

evolution of the global markets. We
are heading toward a simpler, more
transparent financial services environ-
ment. And a smaller and more humble
financial services industry.

Despite all this change — and, in

some ways, encouraged by it — we
remain committed to our core vision for
this company. We are working to build
a global financial services company
that offers our customers and clients
unmatched convenience and expertise,
high-quality service and a variety of
financial products and services deliv-
ered as a single relationship.

Unlike many of our competitors
in the financial services industry, we
are well-capitalized, deposit-funded
and extremely liquid. We have one of
the largest, broadest customer bases
in the industry. We have a diverse
collection of market-leading businesses
that help support one another through
economic cycles. Most important,
we have a long history of managing
successfully through economic and
business challenges. I am confident
we will do so again.

Financial Results
The deepening recession provides
the context for our financial results.

In 2008, Bank of America earned
$4.01 billion, down from $14.98 billion
in 2007. Earnings after preferred

Bank of America 2008 3

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Tier 1
Capital Ratio

8.64%

9.15%

6.87%

’06

’07

’08

At year end

dividends and available to common
shareholders were $2.56 billion, or
$0.55 per diluted share, down from
$14.80 billion, or $3.30 per diluted
share, a year earlier. Revenue (on a
fully taxable-equivalent basis) rose 8
percent to $73.98 billion from $68.58
billion in 2007, from organic growth

Strong
Deposit
Growth

Bank of America
holds $883 billion
in total deposits,
up 9.7% in 2008

and the addition of U.S. Trust, LaSalle
and Countrywide.

Return on average common share-

holders’ equity fell to 1.80 percent
from 11.08 percent. Our efficiency
ratio stayed well outside our target
range (under 50 percent), at 56.14
percent. Provision expense rose
$18.44 billion to $26.83 billion,
and nonperforming assets and net
charge-off ratios rose to 1.96 percent
and 1.79 percent, respectively.

There is no question that the reces-
sionary environment is hurting results
in all our businesses. And yet, the
news is not bad across the board. The
bulk of our losses in 2008 were the
result of severe market and economic
impacts in three of our businesses in
particular: Mortgage, Home Equity &

Insurance Services (MHEIS); Capital
Markets & Advisory Services (CMAS);
and Columbia Management. All of our
other businesses were able to gener-
ate a profit despite the harsh eco-
nomic environment, and two actually
increased net income in 2008.

Within Global Consumer & Small
Business Banking (GCSBB), Depos-
its and Student Lending net income
increased 9 percent to $6.21 billion,
and Card Services, which has been bat-
tered by rising credit costs, still man-
aged to post net income for the year
of $521 million. In Global Corporate &
Investment Banking (GCIB), Business
Lending posted net income of $1.72
billion (down 14 percent on higher
credit costs), and Treasury Services net
income increased 28 percent to $2.73
billion. In Global Wealth & Investment
Management (GWIM), U.S. Trust earned
$460 million (down just 2 percent)
and Premier Banking and Investments
earned $584 million (a 54 percent
decrease due to higher credit costs).
The ability of our associates in
these businesses to generate sub-
stantial profits in our current economic
environment is a testament to their
skill and determination, and to the
advantages of our broad franchise. The
profitability of these businesses also
demonstrates why we value revenue
diversity so highly in our business model.

In times of severe financial stress,

what financial institutions need more
than anything is capital. Bank of
America has, for years, been among
the most well-capitalized banks in the
world. But the fourth quarter of 2008
tested even our ability to maintain a
deep well of financial resources.

In early October, to shore up capital

levels as credit losses accelerated,
we raised nearly $10 billion through
the sale of common stock and cut our
dividend on common stock in half.
Then, in mid-October, the U.S. Treasury
Department decided to use funds from
the Troubled Asset Relief Program
(TARP) to inject capital directly into the
nation’s banks through purchases of
preferred stock.

At the outset of this program, we
accepted an investment of $15 billion.
We also agreed at that time to accept
Merrill Lynch’s initial share of the TARP
funds, $10 billion, in early January.
After discussions with federal govern-
ment officials, the government agreed
to provide an additional $20 billion in
January to enable the closing of our
acquisition of Merrill Lynch.

All three preferred stock invest-
ments will yield a dividend to the U.S.
Treasury and have repayment terms for
the full amount of the investment. We
paid our first dividend to the U.S. Trea-
sury Department on all three tranches

4 Bank of America 2008

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We are building a global ﬁ nancial

services company that offers our customers
and clients unmatched convenience and
expertise, high-quality service and a variety
of ﬁ nancial products and services delivered
as a single relationship.

of the TARP investment — a total of just
over $400 million — on February 17.

We believe that by accepting these
investments, we should have the capi-
tal and liquidity we need to absorb
Merrill’s balance sheet and main-
tain our capital strength through the
recession. The downside is that these
obligations create a significant drag
on earnings as we work to pay the
government’s investment back, which
we intend to do as soon as possible.

Countrywide and Merrill Lynch
We made two major acquisitions in
the past 12 months that we believe
will produce positive results for our
company over time.

We agreed to acquire Countrywide
in January of last year. We knew that
we were heading into a difficult eco-
nomic period in which home mortgages
would be at the center of an intense
economic storm. We also knew that
acquiring Countrywide would give us
the best mortgage technology platform
in the business; thousands of capable
and experienced associates; and a
leading market position in the United
States in home lending — the founda-
tional financial product for millions of
American families in the most prosper-
ous country in the world.

The mortgage market needs to be
reformed, and we are leading the effort

to build a more stable home lending
industry. We are leading the industry
by creating new programs to mitigate
foreclosures for homeowners under
financial stress. Our decision to
acquire Countrywide also has put us
in a great position to capitalize on the
surge in this business, as low inter-
est rates bring borrowers back into
the market for home purchases and
refinancings, and we are expanding our
capacity to process new applications.
All this activity is leading us toward

an anticipated Customer Day One in
late April, when we’ll begin rebranding
all Countrywide operations as Bank
of America Home Loans. In time, the
housing market will come back, and
I believe we will benefit greatly from
being a leading home loan provider
in the country when it does.

The businesses that came to us as
part of Merrill Lynch are fighting through
a very tough environment now. But we
can’t lose sight of their underlying power.
Merrill Lynch’s wealth management
business is the best in the world. It has
consistently outperformed its peers
in revenue per financial advisor and
assets managed per advisor. Combin-
ing Merrill’s productive capacity and
industry-leading practices with our
traditional banking capabilities and
distribution network will make us a
very strong competitor in this market.

We now serve more than 4 million

individual and institutional clients
all over the world, and manage more
than $1.8 trillion in total client assets
through more than 18,000 financial
advisors. We will work to expand
relationships on the wealth manage-
ment side by offering the convenience
and quality of our traditional banking
services. And we will offer our banking
customers the best wealth manage-
ment platform in the world. Nothing
that has happened in the past six
months diminishes this opportunity.
The investment banking business
is obviously under a lot of strain. And
it is likely that many of the markets
for complex structured asset-backed
products will not come back in the
foreseeable future. But we are focused
on serving the capital raising and invest-
ment banking needs of our commercial
and corporate clients, and we are
well-positioned to do so.

Our combined business serves
99 percent of the U.S. Fortune 500
and 83 percent of the Fortune Global
500. We now approach the market as
an undisputed global leader in whole-
sale financial services, providing
clients with lending, deposits, cash
management, group banking, wealth
management, debt and equity capital
raising, syndications, mergers &
acquisitions advisory services, risk

Bank of America 2008 5

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Total Deposits

$805,177

$882,997

$693,497

’06

’07

’08

In millions, at year end

management products, and securities
sales and trading.

We are already seeing business
activity levels beginning to pick up. We
now have leading positions in markets
all over the world, and our investment
banking team is among the most tal-
ented and experienced in the business.
On the far side of the storm we’re

in, I believe there is tremendous
opportunity in both of these acquisi-

Strong
Market
Share

Bank of America
serves one of every
two U.S. households
and 99% of the U.S.
Fortune 500

tions. And I am excited about working
with our new associates to seize it.

Managing risk and reward
We are in the business of taking risk —
lending to individuals and businesses
to fuel the economy. It is also our
business to manage that risk. Our
industry as a whole did a poor job on
that front in the lead-up to our current
crisis. The institutions that did the
worst job are no longer with us. Those
that did a better job have endured.
But no one I know of in this industry
is crowing. We all have learned — or
relearned — hard lessons.

The challenges created by the

economic and market environment do
not excuse Bank of America’s perfor-
mance. But they do help explain it.

One of the biggest issues we faced

over the course of the most recent
growth cycle was the speed and degree
of fundamental, structural changes that
were happening throughout the econ-
omy. New market participants were
emerging and growing rapidly, including
sovereign wealth funds, hedge funds
and other global investors. Structured
products, thanks to advancing technol-
ogy, grew more complex by the day.
The speed and volume of securities
creation and trading increased expo-
nentially. Markets and risks grew ever
more interconnected. And the sheer
volume of information in the system
that needed to be tracked, monitored,
analyzed and understood led to a grow-
ing opacity — the opposite of what you
want when you’re managing risk.

As we work our way through the

current cycle, we’re applying the
lessons we’ve learned the hard way.

One lesson is that we must not rely
too heavily on mathematical risk model-
ing in assessing risks. The models are
sophisticated, but they are only as good
as the assumptions of the people who
create them, and only as well-informed
as the data we feed into them. We
have to balance our risk modeling
abilities with what we know at any given

moment about our customers, clients
and portfolios; a commonsense under-
standing of economic fundamentals;
and our knowledge of business cycles.
And we must have the courage to test
the former against the latter when
economic facts and risk assessments
seem out of balance.

Another lesson is that we need
to return to the fundamentals in our
business. We are producing simpler
and more transparent products to
meet our customers’ current financial
needs, and developing those that will
help them when the cycle turns. We
also are recalibrating our assessments
of risk factors like customer credit-
worthiness, portfolio concentrations
and market trends to account for new
economic realities. And we are using
new tools to manage all these risks
more effectively.

Finally, we’ve concluded that, while
organizational structure can be impor-
tant in the way we manage risk, it is not
the primary determinant of success.
The most important factors are people
and culture. When we have the right
people in the right assignments —
people with not only intelligence and
insight, but also the courage to engage
teammates on thorny risk issues — and
when we have nurtured a risk culture
that welcomes and encourages debate,
we usually get to the right answer.

6 Bank of America 2008

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We are well-capitalized, deposit-funded
and extremely liquid. We have one of the largest,
broadest customer bases in the industry.

Many paths to growth
One of the most important ideas on
which we’ve built this company is that
diversity creates strength. Diversity of
businesses, revenue streams, risks,
ideas, perspectives and people brings
strength to an organization that is hard
to come by any other way. The same is
true about growth opportunities. The
more paths to growth we can pursue
simultaneously and in coordination with
one another, the more likely we’ll be to
reach our goals.

Earlier, I discussed our prospects
in home lending, wealth management
and corporate and investment banking.
We also are well-positioned to generate
growth in our other two main business
lines, Deposits & Student Lending and
Card Services.

We already serve half of all Ameri-
can households, and we’re benefitting
from a flight to safety, a powerful brand
and rising customer satisfaction. In
2008, average retail core deposits
(excluding Countrywide) grew by nearly
$54 billion or 11.2 percent. Custom-
ers opened nearly 5 million net new
checking and savings accounts. For
the year, average balances in CDs and
IRAs were up nearly 16 percent, and
balances in money market savings
accounts were up more than 18 percent.
In Card Services, we are facing
incredibly stiff headwinds in the form

of rising credit costs. The opportunity
we have in 2009 is to increase cus-
tomer loyalty for the future as we help
customers work through hard economic
times. In 2008, we modified nearly
850,000 credit card loans, whether
by lowering interest rates, reducing
monthly payments or eliminating fees.
We also continue to refer customers
to debt management programs. We
believe our approach to helping our
customers manage through hard times
will pay off in retention and growth
when the economy improves.

Last year, I wrote here for the first

time about our $20 billion environ-
mental initiative. We believe there
is tremendous growth potential for
companies that stake out a leadership
position in alternative energy produc-
tion and conservation. To that point,
we signed an agreement with a green-
technology company that is helping us
reduce our energy consumption in all
our banking centers across the country
by as much as 50 percent. And we’re
supporting ventures that we believe will
lead to abundant and renewable energy
sources in the future. For example,
we co-led an initial public offering for
Ocean Power Technologies, a company
that is engineering new technologies
that will enable utilities to harvest and
transport energy from ocean waves.

We also are continuing to support our

local communities through both commu-
nity development lending and investing,
and philanthropic programs like our
Neighborhood Excellence Initiative (NEI).
Through NEI, now in its sixth year, we
have provided support to hundreds of
neighborhood nonprofits, anchor institu-
tions and community leaders through
unrestricted operating grants and lead-
ership development programs.

Given the economic environment
and the impact that the recession is
having in neighborhoods across the
country, we are working more closely
than ever with community leaders to
identify the most critical needs and
gaps in local assistance programs and
ensure that resources are flowing to
individuals and families that have been
especially hard-hit. For example, in
2008 we announced a Neighborhood
Preservation Initiative offering grants
and low-interest loans to nonprofit
community organizations that will help
borrowers stay in their homes through
financial education programs and other
outreach activities.

Most important, we are not backing
down from the goals we put in place last
year to lend and invest $1.5 trillion over
10 years in low- and moderate-income
and minority neighborhoods, and to give
at least $2 billion over 10 years through
the Bank of America Charitable Founda-
tion. We believe it is critically important

Bank of America 2008 7

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Total
Assets

$1,716

$1,818

$1,460

’06

’07

’08

In billions, at year end

that we support the communities on
which our future prosperity depends.

Supporting the U.S. economy
Throughout 2008, we operated with a
strong belief that what is good for our
communities and our country is also
good for our company — and vice versa.
Although every headline is telling us
that banks aren’t lending, we extended
more than $600 billion in new credit
during 2008 to consumers, small
businesses and large corporations.
Obviously, lending volume is not what it
was at the height of the boom. And it
shouldn’t be. We’re in a recession, which
means that demand for credit is lower,
and credit standards are tighter. But that
doesn’t mean “banks aren’t lending.” In
fact, we’re out there in the marketplace
making every good loan we can, growing
our relationships with existing customers
and creating new ones.

We also have been a leader in fore-

closure mitigation and loan modifica-
tions, as we work to help individuals
and families stay in their homes. In
2008, Bank of America and Country-
wide modified approximately 230,000
home loans to avoid foreclosures,
representing approximately $44 billion
in mortgage financing. And we have
committed to offer loan modifications
for as many as 630,000 customers,
representing up to $100 billion in

financing. To help people keep their
savings secure, we’ve opened
millions of retirement accounts,
CDs and savings accounts.

All these activities are helping to
provide support to the economy as
we work our way toward recovery.
They also are helping Bank of America
increase our market share across all
our businesses, create relationships
with new customers, and strengthen
the loyalty of longtime customers.
We are taking action to grow our
business — and we are doing our
part to support our customers, ease
the credit crunch and stimulate the
economy at the same time.

How we got here — and
where we’re going
The financial services industry has
undergone transformative, wrenching
change over the past 18 months. In the
blink of an eye, we’ve seen the demise
of the independent investment banking
business model on Wall Street; the
failure or acquisition of many of the
largest thrifts and mortgage lenders
in the country; and, to a great extent,
the disappearance of some parts of
the securitization industry for what
has now been more than a year.

The industry that emerges from this

crisis will look much different. It will
have accelerated toward the “barbell”

we’ve been predicting for years: a
handful of very large, diversified, global
firms on one end, and thousands
of small, local community banks on
the other. Credit markets will feature
simpler, more transparent products.
We will be a smaller industry, with
fewer overall employees, and claiming
a smaller portion of national income
and gross national product. And regula-
tion and oversight of the industry will
be tighter and more conservative,
especially in sectors of the industry
that were lightly regulated before (e.g.,
mortgage lending, hedge funds, credit
markets, non-bank consumer finance).
The story of how we got here is the

story of every great economic bubble
in history. Every group of participants
in the economy — lenders, borrowers,
regulators, policy makers, appraisers,
rating agencies, investors, investment
bankers — had a motive to push
the cycle forward, and most did. The
institutions that gave in completely to
the frenzy around them, and engaged
in the worst lending practices, are no
longer with us. Those that balanced
the need to compete with the need to
maintain prudent lending standards
— like Bank of America — survive
today, and have provided a stabilizing
effect in an otherwise unstable
financial services industry.

One of the greatest challenges our

8 Bank of America 2008

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Total Loans
and Leases

$876,344

$931,446

$706,490

’06

’07

’08

In millions, at year end

industry now faces is helping consum-
ers deleverage their household balance
sheets. For an industry that became
too dependent on interest income
to produce profits, the prospect of
significantly lower consumer borrowing
levels can be sobering. The answer, in
my view, is for financial institutions to

Strong
Customer
Support

We modified about
230,000 home loans
during 2008 to help
avoid foreclosures

diversify their business models,
creating a balanced revenue stream
that includes both interest and non-
interest income from a wide range of
financial products and services that
enable customers not only to borrow,
but also to save and invest.

Bank of America’s diversified
business model should be a model
for the industry. Because we offer a
wide range of savings and investment
products as well as credit products,
we are not captive to an ever increas-
ing need for interest income. There’s
great credibility in being able to tell
customers you want to help them
achieve financial balance and finan-
cial health when you have the product
set to back it up.

Diversification also will be helpful

as the regulatory environment changes
in the wake of our current crisis. A
diversified revenue stream naturally
exerts a stabilizing influence on earn-
ings over time, which reassures those
charged with overseeing the strength
and stability of the industry. And
diversification also protects against
changes in the profitability of individual
financial sectors due to changing rules
and regulations.

The universal bank model has
come under a lot of fire over the past
year. But my firm belief is that, when
properly executed, the universal model
will grow in favor as the strongest
and most viable in the industry. The
successful universal bank will be one
that achieves leading positions in the
markets in which it competes; inte-
grates operations to create value for
customers; and creates a strong, bind-
ing culture across the enterprise that
supports the institutional mission.

This is the strategy we’ve followed

at Bank of America throughout my
tenure as CEO. I continue to believe it
is the strategy that will enable us to
outperform our competitors when the
economy finally strengthens.

Looking toward the future
Successfully executing our strategy,
and managing through one of the worst
economic environments in our nation’s

history, will require an extremely
capable, experienced and tight-knit
leadership team. To that point, I’d
like to review some of the leadership
changes we’ve had over the past year.
Barbara Desoer, a longtime Bank of

America leader, has moved to Calaba-
sas, California, where she is leading the
team that is hard at work reinventing
the home lending industry. Barbara’s
experience leading our Consumer
Products and Global Technology &
Operations divisions in recent years has
prepared her well for this challenge.
Bruce Hammonds, one of the
driving forces behind the evolution of
the card industry over the past three
decades, retired at the end of 2008.
Bruce successfully led our Card
Services business since our acquisi-
tion of MBNA in 2006. He has been
succeeded by Ric Struthers, who
helped create MBNA in 1982. Ric’s
deep knowledge and experience in the
card industry will be critical to our suc-
cess as we reposition that business in
a changing economic environment.

Brian Moynihan, who led our Global

Corporate & Investment Banking
business during 2008, has taken
responsibility for Global Banking &
Wealth Management, including
Commercial and Corporate Banking and
Global Product Solutions. Brian, who
led the rapid growth of our wealth

Bank of America 2008 9

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We already serve half of all American

households, and we’re beneﬁ tting from a
ﬂ ight to safety, a powerful brand and rising
customer satisfaction.

businesses, leading market positions,
diverse earnings power and talented
associates will see us through, and
that we will emerge as one of the
strongest and best financial institu-
tions in the world.

In conclusion, I would like to thank
every shareholder for your patience and
continued confidence in our team and
our company. Every associate at Bank
of America is working together toward
a common goal: restoring this company
to a position of financial and competi-
tive strength. I look forward to reporting
to you over the course of the year on
our progress. And, as always, I welcome
your thoughts and suggestions.

KENNETH D. LEWIS
CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
MARCH 9, 2009

management business for several
years, is now focused on pulling
together our teams from across Bank of
America and Merrill Lynch as we build a
leading presence in these businesses.
Tom Montag, who joined Merrill
Lynch in 2008 as head of Global Sales &
Trading, will lead our Global Markets
businesses. Before joining Merrill, Tom
spent 22 years in a number of senior
roles with Goldman Sachs. Tom’s expe-
rience in securities markets all over the
world makes him an ideal leader for our
team as we work to build this business.

We also have welcomed three
former members of the Merrill Lynch
board of directors to our board. Charles
O. Rossotti is a senior advisor at The
Carlyle Group and a former IRS com-
missioner. Virgis W. Colbert is a senior
advisor to the MillerCoors Company.
Retired Admiral Joseph Prueher is a
consulting professor at Stanford Univer-
sity’s Institute of International Studies,
and formerly served as U.S. ambassa-
dor to the People’s Republic of China.
I look forward to their leadership and
contributions to our company.

We will have one departure from our

board this year. Meredith R. Spangler,
a director since 1988, will retire at our
annual meeting. When Meredith joined
our board, we were a regional bank
called NCNB that operated in just a
handful of Southern states. Over the

past 20 years, she has helped guide
our growth through at least a half-dozen
transformative mergers and several
business cycles. As a member of our
Corporate Governance Committee, she
has been instrumental in guiding the
development of the standards and
protocols through which we govern the
company. And she has provided valued
advice and counsel to both Hugh
McColl, our former chairman and
CEO, and me in good times and bad.
In short, during her time on our
board, Meredith Spangler has been
a constant source of strength and
wisdom to this company and its
leaders. We are positioned to survive
this economic crisis and be a global
force in our industry in part because of
her leadership. Her presence will be
sorely missed, and we wish her only
the best in all her future endeavors.

2008 was one of the most challeng-

ing years in our company’s history.
2009 will be a great challenge as well.
But this is not the first time this
company has faced and successfully
managed through economic or business
crises. We have a 225-year history of
persevering during hard times, and
positioning ourselves to be even
stronger when economic growth returns.
Despite the severity of our current

challenges, I remain undeterred. I
believe that our combination of strong

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Industry-Leading Positions

Bank of America Today

In these challenging economic times, Bank of America remains committed to serving our customers and building
a diversified foundation for growth. With our acquisitions of Countrywide and Merrill Lynch, we now have lead-
ing positions in the four cornerstone products of a consumer relationship — deposits, credit and debit cards,
mortgages and investments — as well as industry-leading positions in commercial lending, treasury manage-
ment, capital raising, advisory services, and institutional sales and trading. As markets improve, we believe we
are uniquely positioned to deliver value, deepen customer relationships and generate profitable revenue growth.

Global
Consumer
& Small
Business
Banking

Global
Corporate
& Investment
Banking

Global
Wealth &
Investment
Management

National Distribution

Investment Banking*

Financial Advisors*

More than 6,100 banking centers and
nearly 18,700 ATMs, as well as leading
online and mobile banking platforms

No. 1 globally in total equity raised;
No. 2 globally in total debt raised;
Top 5 global M&A advisor by volume**

One of the world’s largest wealth
management ﬁ rms, with more than
18,000 ﬁ nancial advisors

Deposits

Commercial Lending

Client Relationships*

Leading U.S. depository bank, with
$393 billion in GCSBB deposits and
$883 billion in total consolidated deposits

A leading commercial lender, with
total corporate year-end committed
credit of $805 billion

Footprint covers more than 44% of
the country’s wealthy households

Mortgages

Treasury Services

Total Client Assets*

No. 1 mortgage originator and No. 1
mortgage servicer in the United States

Treasury Management relationships with
more than 90% of the U.S. Fortune 1,000
and 70% of the Fortune Global 500

More than $1.8 trillion in total
client assets

Credit Cards

Global Markets

Wealth Management*

Worldwide leader in card issuance, with
$182 billion in managed consumer
credit card loans outstanding

A leading market maker in equities and
ﬁ xed income products serving corpora-
tions and institutional investors globally

A leader in wealth management, invest-
ment and retirement services, with about
700 ofﬁ ces in more than 40 countries

Note: Data is for the year ended December 31, 2008, unless otherwise noted. Capital markets and investment banking services provided by Banc of America Securities LLC, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and certain other afﬁ liates of Bank of America Corporation.

*Denotes Bank of America and Merrill Lynch data, presented on a combined, pro forma basis as of December 31, 2008 (Bank of America acquired Merrill Lynch on January 1, 2009).
**Volume data per Dealogic. Equity and Debt volume credit apportioned equally among bookrunners, including self-issuance. M&A volume reﬂ ects full credit to eligible advisors, including
self-mandated transactions.

Bank of America 2008 11

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Questions & Answers

Answering
Shareholder
Questions

Bank of America regularly receives inquiries about our strategy,
results and financial position. Below are answers to frequent
shareholder questions.

Our Leadership

Q. Why should I continue to have
conﬁ dence in Bank of America?
A. If you’re a customer, the single
biggest reason you should continue to
have confidence in Bank of America is
our strength and resilience in the face
of adversity. In 2008, despite one of
the worst economic environments in
recent memory, Bank of America
earned more than $4 billion, making us
one of the top performing U.S. banks
for the year. We are very much “open
for business,” extending credit of more
than $115 billion in the fourth quarter
alone. Our ability to stand by our
customers and our determination to
help them through this time of crisis
sets us apart from the competition and
enables us to confidently say that we
will continue to deliver outstanding
value for our customers.

From a shareholder perspective, our
size and scale offer a distinct competi-

tive advantage. In addition to our
leading retail banking franchise, we
have market-leading positions in many
key products and a stable source of
funding through our highly liquid
deposit base. The breadth of our
businesses gives us a powerful and
diverse earnings stream that is a
consistent source of new capital.
For example, in 2008, in spite of all
the challenges, we generated almost
$31.3 billion in pre-tax income before
subtracting provision expense. All of
these factors, combined with our
strong management team and proven
track record of execution, give us
resilience and durability.

Q. What steps is Bank of America
taking to manage through the
current economic turmoil?
A. Our strategy is clear and straightfor-
ward — we will continue to focus

on delivering great value to our
customers. In times like these, it would
be easy to sit on the sidelines and wait
for better days. But we didn’t become a
premier financial services company by
letting others lead, and we have
no intention of doing so now.

Over the past few months, we have
taken a number of important steps to
strengthen our company and position
ourselves for growth. We’ve raised
capital and fortified our balance sheet
in order to continue to support the
millions of Americans who rely on us
for banking, credit and investment
services. We’ve made the hard choice
to reduce our common stock dividend
to $0.01 per share. We’ve taken a
conservative view of managing our
liquidity position, which we believe is
one of the strongest in our industry.
We’ve rigorously managed expenses
and announced significant reductions

12 Bank of America 2008

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Bank of America’s Executive Management Team includes, from left: TOM MONTAG, President, Global Markets; ANNE FINUCANE, Chief Marketing
Ofﬁ cer; GREG CURL, Vice Chairman of Corporate Development; AMY BRINKLEY, Chief Risk Ofﬁ cer; JOE PRICE, Chief Financial Ofﬁ cer; BARBARA
DESOER, President, Mortgage, Home Equity & Insurance Services; LIAM MCGEE, President, Consumer & Small Business Bank; BRIAN MOYNIHAN,
President, Global Banking & Wealth Management; STEELE ALPHIN, Chief Administrative Ofﬁ cer; RIC STRUTHERS, President, Global Card Services.

in employment levels.

These actions are the blueprint
for how we will navigate the current
economic crisis and be a stronger and
more vibrant competitor in the future.
By focusing on the customer, carefully
managing expenses and delivering
innovative products and services, we
intend to enhance our leading positions
and strengthen our ability to be a
responsible lender.

Q. What businesses performed
well in 2008?
A. Despite a year with unprecedented
challenges, two of our three business
units — Global Consumer & Small
Business Banking and Global Wealth
& Investment Management — were
profitable, and while Global Corporate
& Investment Banking lost money,
Treasury Services and Business
Lending were both profitable.

That says Bank of America’s earnings
engine is still quite strong.

Within Global Consumer & Small
Business Banking, Deposits & Student
Lending net income increased by
9 percent. In 2008, average retail
core deposit balances grew nearly
$54 billion, excluding Countrywide, or
11.2 percent. In addition, we added
more than 2 million net new checking
accounts and increased the number of
active mobile banking customers to
nearly 2 million. Also, despite a
challenging economic environment, we
saw customer delight in our banking
centers climb to an all-time high. Our
Card Services business increased
revenues 12 percent in 2008, and,
while net income was lower due
to a very difficult credit environment,
it remained profitable for the year.

Within Global Wealth & Investment
Management, U.S. Trust and Premier

Banking & Investments reported profits,
although they were impacted by higher
credit costs and weaker equity markets.
We continue to attract new clients to
our wealth management business.

Within Global Corporate & Invest-
ment Banking, Treasury Services net
income increased 28 percent as net
revenue grew 10 percent, driven by
higher volumes, deposit growth and
service charges. Business Lending net
revenue grew 29 percent on average
loan growth of more than $62 billion.
Business Lending profits totaled
$1.7 billion, as higher revenue was
offset by increased credit costs. In
addition to deposits, many of our
clients trusted us to manage more
of their business, citing the need for
a stable, dependable partner to help
with their full range of financial needs.
We’ll be working hard to deepen all
of these new relationships.

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Q. What actions have you taken to
improve results in underperforming
business units?
A. In Capital Markets & Advisory
Services, we reduced our exposures
in certain higher-risk securities as
markets allowed, and we have exited
some securities markets. These
actions reduced the amount of
capital at risk in the business.

Q. How do the recent acquisitions
of Countrywide and Merrill Lynch
ﬁ t into your strategy?
A. Our long-term strategy is to have
leading positions in the four corner-
stone products of a consumer relation-
ship — deposits, credit and debit
cards, mortgages and investments —
either through organic growth or
through acquisitions.

scale to better serve the millions of
affluent customers who already bank
with us, and to help attract new
customers with our comprehensive
banking and investment solutions. In
addition, Merrill Lynch’s global reach
and strong markets capabilities will
enhance what we can offer our
business clients and provide us
with greater geographic diversity.

We have taken a number of steps

We have long been one of the

to deal with rising loan losses.
While we continue to extend credit
across our businesses, we also have
tightened our underwriting require-
ments for higher-risk segments,
and we are using more judgmental
underwriting in determining credit-
worthiness of applicants. We are
also reaching out to customers who
appear to be struggling.

In the mortgage area, historically

low rates are generating customer
applications for mortgage financing
at more than double the levels that
existed before the government
announced its intention in November
to buy mortgage-backed securities.
The capabilities and capacity added
through Countrywide are helping us
respond to this high customer demand,
and we’re taking additional steps to
further expand our capacity in sales
and fulfillment as demand warrants.

leaders in deposits and, more recently,
credit cards. The acquisition of
Countrywide gives us mortgage
capabilities and scale that are critical
to our consumer relationships. We
were able to acquire the best mortgage
platform in the business, with state-
of-the-art technology systems, at an
attractive price, immediately becoming
the No. 1 provider of both mortgage
originations and servicing. As a
combined company, we believe
we will be recognized as a responsible
lender who is committed to helping our
customers be successful homeowners.

The acquisition of Merrill Lynch

makes us a leading U.S. wealth
management firm, with more than
18,000 financial advisors and more
than $1.8 trillion in total client assets.
As investment advice and expertise
continue to grow in importance to our
huge customer base, we now have the

Q. How does the ﬁ nancial crisis and
the changing competitive landscape
alter the bank’s revenue and earnings
opportunities?
A. Earnings are expected to be
pressured in the near term as we work
our way through the current recession.
There is no question that the entire
industry will be smaller, with simpler,
more transparent products. However,
in the longer term we believe we are
remarkably well-positioned to benefit
when the economic outlook improves.
For our retail customers, we offer
industry-leading products, convenience
and access. And we believe our
size and scale enable us to offer
consumers better value.

For our business clients, we provide

a complete range of banking and
investment banking products and
services. We can deliver the full power
of a combined commercial and

14 Bank of America 2008

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We will continue to grow our businesses

as conditions improve. While revenue pools
will be smaller, we believe we will be a stronger
player, with market-leading positions where we
choose to compete.

investment bank through account
managers who work with clients on
a local level and are knowledgeable
about the client, their industry and
their community. The addition of Merrill
Lynch enhances our capabilities and
gives us greater global reach in
investment banking.

We also will be competing in
a more rational marketplace, as the
elimination of many of our single-
product competitors will lead to more
realistic pricing. Consumers and
business clients will have lowered the
level of debt they carry and strength-
ened their individual financial situa-
tions, creating a healthier environment
for sustained levels of banking activity.
All of these factors should help us

continue to grow our businesses as
conditions improve. While revenue
pools will be smaller, we believe we
will be a stronger player, with market-
leading positions where we choose to
compete and a sustainable stream of
earnings based on our fundamental
business of serving the financial needs
of our customers and clients.

Q. How does your participation in the
Troubled Asset Relief Program (TARP)
impact the company?
A. The TARP was designed to help
banks maintain or improve their capital

positions so they could continue to
lend. It was also intended to signal to
the rest of the financial community that
they could safely do business with the
banks, which is essential to support
the U.S. and world economies.

We are well aware that our participa-
tion in the program carries a significant
cost to our shareholders. However, we
believe that the investment strength-
ens our ability to continue business
levels that both support the U.S.
economy and create future value for
shareholders. We will be able to
provide much-needed credit to thou-
sands of retail and business customers
across the country. We are committed
to making every good loan we can,
because that’s the business we are in
and it is one way we work to enhance
shareholder value. We believe it will
also help stabilize the economy and
get the country moving forward again.

Q. What is Bank of America doing
to support economic recovery and
what beneﬁ ts does this activity have
for shareholders and customers?
A. Banks reflect the economy in which
they operate. By supporting the econ-
omy, we stimulate further economic
and banking activity. That’s good for
America, and good for Bank of America.
Of the $115 billion in new credit we

extended in the fourth quarter, nearly
$45 billion was in mortgages helping
customers buy homes or save money
on the homes they already owned,
including $11 billion for low- and
moderate-income families. To help
struggling homeowners avoid
foreclosure, Bank of America and
Countrywide modified mortgages for
approximately 230,000 customers in
2008. Through our industry-leading
loan modification programs, Bank of
America has committed to offer loan
modifications to up to 630,000
customers, representing more than
$100 billion in mortgage financing.

In addition, this year we continued
our long-standing annual contribution
of approximately $30 million to
nonprofit credit-counseling agencies
that help people work their way out of
financial distress, and in 2008, we
modified nearly 850,000 credit card
loans. We work hand-in-hand with
these agencies to tailor customized
repayment programs to help people
get back on solid financial footing.

Small businesses remain a critical
driver of the U.S. economy, and Bank
of America will continue to serve this
important sector. In 2008, Bank of
America extended almost $4.8 billion
in new credit to nearly 250,000 small
business customers. During the fourth

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quarter alone, nearly $1 billion in new
credit was extended to more than
47,000 new small business customers.

those affected by the foreclosure crisis.
This initiative complements public
sector relief efforts.

Q. Will Bank of America continue
with its community support
initiatives?
A. Yes, we invest in the communities
we serve because it’s good business.
In good times, thriving communities
generate more banking activity.
In more difficult economic times,
responsible corporate support is
even more important as customers,
stakeholders and nonprofit partners
face increasing pressures. Our
community outreach and responsible
business practices are focused on
creating economic, social and cultural
vitality through philanthropic support
of nonprofits, community development
lending and investing, “green”
business opportunities, home reten-
tion efforts, associate volunteerism
and our corporate diversity practices.

To have the greatest possible
impact, we collaborate with local
leaders in the communities we serve
across the United States and in Europe
to ensure we are identifying the most
pressing needs. A great example is our
Neighborhood Preservation Initiative,
a $35 million package of grants, loans
and investments directed at helping

Beginning in 2009, we plan to deliver

$2 billion in charitable investments
to nonprofit organizations over the
next 10 years and lend and invest
$1.5 trillion to support community
development efforts in low- to
moderate-income and minority
neighborhoods over the same time
frame. Our funding continues to focus
on critical areas that are essential to
the long-term success of communities:
community development, arts and
culture, health and human services and
education. We believe that providing
relevant, meaningful support to our
communities is critical to our long-term
business goals.

Q. Given the current economy, will
you maintain your environmental
policies and commitments?
A. Making a successful transition
to an environmentally sustainable
economy will be critical for all of us.
At Bank of America, we want to play
a role in helping to lead the way into
this new era.

For more than two decades, we
have worked to make our operations
more energy efficient, saving millions
of dollars by dramatically reducing

emissions, consumption and waste.
We offer our retail customers a variety
of environmentally beneficial products
and services, such as the Brighter
Planet™ Visa®card and other affinity
partnerships, which reward customers
for preserving the environment, as
well as incentives to encourage
paper saving through online banking.
Through our active community
involvement, we have established
many partnerships with local govern-
ments and organizations to help make
neighborhoods more energy efficient
and environmentally responsible. And
in 2007, we committed to investing
$20 billion over 10 years to nurture
businesses that address global climate
change, lending to and investing in
pioneering companies that are develop-
ing renewable sources of energy,
creating new jobs and generating a
profitable return on investment.

The primary driver of our focus
on protecting the environment is
the potential we see for profit and
economic growth, but it is also the
right thing to do. And this work is part
of our larger commitment to supporting
the health and vitality of communities
across the country.

16 Bank of America 2008

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Bank of America
2008 Financial Review

Bank of America 2008 17

Financial Review Contents

2008 Economic Environment
Regulatory Initiatives
Recent Events
Recent Accounting Developments
Merger Overview
Performance Overview
Financial Highlights
Balance Sheet Analysis
Supplemental Financial Data
Business Segment Operations

Global Consumer and Small Business Banking
Global Corporate and Investment Banking
Global Wealth and Investment Management
All Other

Off- and On-Balance Sheet Arrangements
Obligations and Commitments
Fair Values of Level 3 Assets and Liabilities
Managing Risk
Strategic Risk Management
Liquidity Risk and Capital Management
Credit Risk Management

Consumer Portfolio Credit Risk Management
Commercial Portfolio Credit Risk Management
Foreign Portfolio
Provision for Credit Losses
Allowance for Credit Losses

Market Risk Management

Trading Risk Management
Interest Rate Risk Management for Nontrading Activities
Mortgage Banking Risk Management
Compliance and Operational Risk Management
ASF Framework
Complex Accounting Estimates
2007 Compared to 2006

Overview
Business Segment Operations

Statistical Tables
Glossary

Throughout the MD&A, we use certain acronyms and
abbreviations which are defined in the Glossary beginning on page 111.

Page

19
20
22
23
23
24
24
26
29
32
33
38
45
48
49
51
52
54
55
55
61
62
70
79
81
81
84
85
88
92
92
93
93
97
97
98
99
111

18 Bank of America 2008

Management’ s Discussion and Analysis of Financial
Condition and Results of Operations
Bank of America Corporation and Subsidiaries

This report may contain, and from time to time our management may make,
certain statements that constitute “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. 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. These
statements are not historical facts, but instead represent Bank of America
Corporation and its subsidiaries’
(the Corporation) current expectations,
plans or forecasts of the Corporation’s future results, integration plans and
cost savings, future loan modifications, effect of various legal proceedings
discussed in “Litigation and Regulatory Matters” in Note 13 – Commitments
and Contingencies to the Consolidated Financial Statements, growth oppor-
tunities, business outlook, loan and deposit growth, mortgage production,
credit losses, liquidity position and other similar matters. These statements
are not guarantees of future results or performance and involve certain
risks, uncertainties and assumptions that are difficult to predict and often
are beyond the Corporation’s control. Actual outcomes and results may dif-
fer materially from those expressed in, or implied by, the Corporation’s
forward-looking statements. You should not place undue reliance on any
forward-looking statement and should consider all uncertainties and risks
discussed in this report as well as those discussed under Item 1A. “Risk
Factors” of this Annual Report on Form 10-K, as well as those discussed in
any of the Corporation’s other subsequent SEC filings. Forward-looking
statements speak only as of the date they are made, and the Corporation
undertakes no obligation to update any forward-looking statement to reflect
the impact of circumstances or events that arise after the date the forward-
looking statement was made.

In addition to the other risk factors discussed under Item 1A. “Risk
Factors”, possible events or factors that could cause results or perform-
ance to differ materially from those expressed in our forward-looking
statements include the following: negative economic conditions that
adversely affect the general economy, housing prices, the job market,
consumer confidence and spending habits which may affect, among other
things, the credit quality of our loan portfolios (the degree of the impact of
which is dependent upon the duration and severity of these conditions);
the level and volatility of the capital markets, interest rates, currency
values and other market indices which affect among other things the
value of our assets and liabilities and, in turn, our trading and investment
portfolios; changes in consumer, investor and counterparty confidence in,
and the related impact on, financial markets and institutions; the Corpo-
ration’s credit ratings and the credit ratings of our securitizations, which
are important to the Corporation’s liquidity, borrowing costs and trading
revenues; estimates of fair value of certain of the Corporation’s assets
and liabilities, which could change in value significantly from period to
period; legislative and regulatory actions in the United States and interna-
tionally which may increase the Corporation’s costs and adversely affect
the Corporation’s businesses and economic conditions as a whole; the
impact of
including costs,
expenses, settlements and judgments; various monetary and fiscal poli-
cies and regulations of the U.S. and non-U.S. governments; changes in
accounting standards, rules and interpretations and the impact on the
Corporation’s financial statements; increased globalization of the finan-
cial services industry and competition with other U.S. and international
new
financial

litigation and regulatory

the Corporation’s

investigations,

institutions;

attract

ability

employees and retain and motivate existing employees; mergers and
acquisitions and their integration into the Corporation, including our ability
to realize the benefits and costs savings from and limit any unexpected
liabilities acquired as a result of the Merrill Lynch acquisition; the Corpo-
ration’s reputation; and decisions to downsize, sell or close units or
otherwise change the business mix of the Corporation.

The Corporation, headquartered in Charlotte, North Carolina operates
in 32 states, the District of Columbia and more than 30 foreign countries
as of December 31, 2008. The Corporation provides a diversified range
of banking and nonbanking financial services and products domestically
and internationally through three business segments: Global Consumer
and Small Business Banking (GCSBB), Global Corporate and Investment
Banking (GCIB), and Global Wealth and Investment Management (GWIM).
At December 31, 2008, the Corporation had $1.8 trillion in assets
and approximately 243,000 full-time equivalent employees. Notes to the
Consolidated Financial Statements referred to in the MD&A are
incorporated by reference into the MD&A. Certain prior period amounts
have been reclassified to conform to current period presentation.

2008 Economic Environment
2008 was a year in which the U.S. economy moved into an economic
recession that deepened late in the fourth quarter, triggered in part by the
intensifying financial crisis. Housing activity and prices declined through-
out the year. Consumer spending softened in the first half of 2008, and
then declined in the second half, weighed down by the spike in energy
prices that reduced real purchasing power, weaker trends in employment,
including underemployment, and personal income and the loss of house-
hold wealth resulting from declines in home prices and stock market
valuations. Sales of automobiles, household durables and consumer
discretionary items were hit the hardest.

In response to the weaker demand, businesses cut production and
employment, and postponed capital spending plans. As a result of the
financial crisis and the economic slowdown, federal government agencies
including the U.S. Treasury Department (U.S. Treasury) and the Federal
Reserve initiated several actions which changed the landscape of the
U.S. financial services industry. For more information related to these
actions, see the Regulatory Initiatives discussion to follow.

The alternative lending facilities provided by the U.S. Treasury, the FDIC
and the Federal Reserve along with aggressive interest rate cuts, failed to
stem the increasing disruptions in the financial markets. In particular, the
tax rebates provided by the Economic Stimulus Act of 2008 gave only a
temporary boost to consumer spending. U.S. export growth, which had
been the strongest sector of the economy in recent years, weakened with
softer global economic conditions. The financial crisis intensified in Sep-
tember 2008 following the collapse of several leading investment banks.
Declines in employment intensified significantly in every month in 2008
and real GDP contracted sharply in the fourth quarter. In addition, mort-
gage, corporate and the related counterparty credit spreads widened and
heightened concerns about the impact of monoline insurers (monolines),
auction rate securities (ARS), structured investment vehicles (SIVs) and
other financial instruments adversely impacted the financial markets.

The deteriorating economy continued to negatively impact the credit
quality of our loan portfolios with more rapid deterioration occurring in the
latter part of 2008. The stress consumers experienced from depreciating

Bank of America 2008 19

home prices, rising unemployment, underemployment and tighter credit
conditions resulted in a higher level of bankruptcy filings during the year as
well as higher levels of delinquencies and losses in our consumer and
small business portfolios. Housing value declines, a slowdown in consumer
spending and the turmoil in the global financial markets also impacted our
commercial portfolios where we experienced higher levels of losses, partic-
ularly in the homebuilder sector of our commercial real estate portfolio.
Commercial criticized utilized exposures have also increased due to
broader-based economic pressures. For more information on credit quality,
see the Credit Risk Management discussion beginning on page 61.

Market dislocations throughout 2008, including the severe volatility,
illiquidity and credit dislocations that were experienced in the debt and
equity markets in the fourth quarter of 2008, adversely impacted our
CDOs and related subprime exposure as well as our other Capital Mar-
kets and Advisory Services (CMAS) exposures. Further, we have also
incurred losses associated with investments in certain equity securities
(e.g., Fannie Mae and Freddie Mac) and have incurred losses on the
buyback of ARS from our clients as discussed in the Recent Events dis-
cussion beginning on page 22. For more information on CDOs, the related
ongoing exposure and the impacts of the continuing market dislocations
(e.g., leveraged finance and CMBS writedowns), see the CMAS discussion
beginning on page 40.

The market dislocations have continued to impact certain SIVs and
have recently begun to impact senior debt issued by financial services
companies. During 2008, we provided additional support to certain cash
funds managed within GWIM by utilizing existing capital commitments and
purchasing certain investments from these funds. For more information on
our cash funds support, see the GWIM discussion beginning on page 45.

Market conditions also impacted the ratings of certain monolines,
which has adversely affected the pricing of certain municipal securities
and the liquidity of the short-term public finance markets. We have direct
and indirect exposure to monolines and, in certain situations, recognized
losses related to some of
these exposures during 2008. For more
information related to our monoline exposure, see the Industry Concen-
trations discussion on page 76.

The above conditions, together with deterioration in the overall econo-
my, will continue to affect these and other global markets in which we do
business and will adversely impact our results in 2009. The degree of the
impact is dependent upon the duration and severity of such conditions.

Regulatory Initiatives
On February 27, 2009, the FDIC passed an interim rule that allows it to
charge banks a special assessment of 20 basis points (bps) on insured
deposits to replenish the deposit insurance fund. This special assess-
ment will be collected in the third quarter of 2009. Additionally, beginning
April 1, 2009, the FDIC will increase fees by approximately two bps on
insured deposits.

On October 3, 2008, the Emergency Economic Stabilization Act of
2008 (EESA) was signed into law. Pursuant to the EESA, the U.S. Treas-
ury created the Troubled Asset Relief Program (TARP) to, among other
things, invest in financial institutions through capital infusions and pur-
chase mortgages, mortgage-backed securities and certain other financial
instruments from financial
institutions, in an aggregate amount up to
$700 billion, for the purpose of stabilizing and providing liquidity to the
U.S. financial markets.

Also pursuant to the EESA, on February 10, 2009 the U.S. Treasury
announced the creation of the Financial Stability Plan. This plan outlined
five key initiatives; a new Capital Assistance Program (CAP) to help
ensure that banking institutions have sufficient capital; the creation of a
new Public-Private Investment Fund on an initial scale of up to $500 bil-
lion to accelerate the removal of certain legacy assets from the balance

20 Bank of America 2008

sheets of financial institutions; the expansion of the Term Asset-Backed
Securities Loan Facility (TALF) as discussed below; the extension of the
FDIC’s Temporary Liquidity Guarantee Program (TLGP) to October 31,
2009; and a new framework of governance and oversight related to the
use of funds of the Financial Stability Plan. As part of the CAP we will be
subject to stress testing. The objective of stress testing is an assess-
ment of losses that could occur under certain economic scenarios, includ-
ing economic conditions more severe than we currently anticipate. We
received the terms of the stress test on February 25, 2009 and are cur-
rently in the process of compiling the applicable information. The Federal
supervising agencies will conclude their stress testing as soon as possi-
ble but no later than April 30, 2009.

On October 14, 2008, in connection with the TARP Capital Purchase
Program, established as part of the EESA, the U.S. Treasury announced a
plan to invest up to $250 billion in certain eligible financial institutions in
the form of non-voting, senior preferred stock initially paying quarterly
dividends at a five percent annual rate. This amount was subsequently
increased to $350 billion. When the U.S. Treasury makes such preferred
investments in any company, it also receives 10-year warrants to acquire
common shares. In connection with the U.S. Treasury’s announcement,
we were identified as one of the nine financial institutions to participate
in the first $125 billion of U.S. Treasury investments.

As a result

in October 2008, we issued to the U.S. Treasury
600 thousand shares of Bank of America Corporation Fixed Rate Cumu-
lative Perpetual Preferred Stock, Series N (Series N Preferred Stock) with a
par value of $0.01 per share for $15.0 billion. Also, as part of the initial
$125 billion investment and in connection with the Merrill Lynch & Co., Inc.
(Merrill Lynch) acquisition, in January 2009 we issued to the U.S. Treasury
400 thousand shares of Bank of America Corporation Fixed Rate Cumu-
lative Perpetual Preferred Stock, Series Q (Series Q Preferred Stock) with a
par value of $0.01 per share for $10.0 billion. The Series N and Series Q
Preferred Stock initially pay quarterly dividends at a five percent annual rate
that increases to nine percent after five years and have a call feature after
three years. In connection with these investments, we also issued to the
U.S. Treasury 10-year warrants to purchase approximately 121.8 million
shares of Bank of America Corporation common stock at an exercise price
of $30.79 per share. In addition, as discussed in Recent Events, in January
2009 as part of the Merrill Lynch acquisition we issued to the U.S. Treasury
an additional 800 thousand shares of Bank of America Corporation Fixed
Rate Cumulative Perpetual Preferred Stock, Series R (Series R Preferred
Stock) with a par value of $0.01 per share for $20.0 billion. The Series R
Preferred Stock pays dividends at an eight percent annual rate and may
only be redeemed after the Series N and Series Q Preferred Stock have
been redeemed. In connection with this investment, the Corporation also
issued to the U.S. Treasury 10-year warrants to purchase approximately
150.4 million shares of Bank of America Corporation common stock at an
exercise price of $13.30 per share.

Under the TARP Capital Purchase Program, dividend payments on, and
repurchases of our outstanding preferred and common stock are subject
to certain restrictions. For more information on these restrictions, see
Note 14 – Shareholders’ Equity and Earnings Per Common Share to the
Consolidated Financial Statements.

On November 25, 2008 the U.S. Treasury, using its authority under the
EESA, announced a plan to allocate $20 billion of TARP funds to the
Federal Reserve Bank of New York as credit protection for the newly estab-
lished TALF. The TALF is intended to assist the credit markets in accom-
modating the credit needs of consumers and small businesses by
facilitating the issuance of asset-backed securities and improving the
asset-backed securities markets. Under the TALF, the Federal Reserve
Bank of New York will lend up to $200 billion on a nonrecourse basis to
holders of newly issued AAA-rated asset-backed securities for a term of one

year. The underlying credit exposures of eligible securities used for
collateral must be newly or recently originated auto loans, student loans,
credit card loans, small business loans guaranteed by the U.S. Small Busi-
ness Administration, or commercial mortgage-backed securities. Originators
of the credit exposures underlying the eligible asset-backed securities must
have agreed to comply with, or already be subject
the executive
compensation requirements of the EESA. As announced in connection with
the Financial Stability Plan, the TALF may be expanded to as much as $1.0
trillion and eligible asset classes may be expanded later to include other
assets such as non-agency residential mortgage- backed securities and
assets collateralized by corporate debt. The Corporation is currently evaluat-
ing the terms of this program.

to,

The U.S. Department of Education implemented initiatives to ensure
uninterrupted and timely access to federal student loans by taking steps
to maintain stability in student lending through both the Federal Family
Education Loan (FFEL) Program and the Direct Loan Program. As part of
these efforts, the U.S. Department of Education announced in November
2008 that it would provide liquidity support to one or more conforming
Asset-Backed Commercial Paper (ABCP) conduits. The conduits will pur-
chase FFEL Program loans, providing longer-term stability to the market-
place. The U.S. Department of Education in turn will serve as a potential
buyer of last resort or backstop to the conduits. As an additional meas-
ure, the U.S. Department of Education will purchase certain 2007-2008
academic year FFEL Program loans. This will be a short-term program
designed to act as a mechanism to minimize disruptions in the interim
until the conduits are operational, or until February 28, 2009, whichever
occurs first. The Corporation is evaluating the terms of this initiative and
participation in this program.

Due to liquidity issues in the short-term funding markets, the Federal
Reserve implemented a temporary Term Auction Facility (TAF) program in
which the Federal Reserve auctions term funds to depository institutions.
The TAF is a credit facility that allows a depository institution to place a
bid for an advance from its local Federal Reserve Bank at an interest rate
that is determined as the result of an auction. By allowing the Federal
Reserve to inject term funds through a broader range of counterparties
and against a broader range of collateral than open market operations,
this facility is aimed to help ensure that liquidity provisions can be dis-
seminated efficiently even when the unsecured interbank markets are
under stress. The TAF will typically auction term funds with 28-day or
84-day maturities and is available to all depository institutions that are
judged to be in generally sound financial condition by their local Federal
Reserve Bank. Additionally, all TAF credit must be fully collateralized. We
are currently utilizing the TAF and have pledged residential, commercial
mortgage and credit card loans as collateral.

In order to improve the ability of primary dealers to provide financing
to participants in the securitization markets in exchange for any tri-party-
eligible collateral the Federal Reserve created the Primary Dealer Credit
Facility (PDCF). The PDCF provides discount window loans to primary
dealers that will settle on the same business day and will mature on the
following business day. The rate paid on the loan will be the same as the
primary credit rate at the Federal Reserve Bank of New York. In addition,
primary dealers will be subject to a frequency-based fee after they exceed
45 days of use. The frequency-based fee will be based on an escalating
scale and communicated to the primary dealers in advance. The PDCF will
remain available to primary dealers until October 30, 2009 or longer if
conditions warrant. During 2008 we utilized this facility.

The Federal Reserve has also established the Term Securities Lending
Facility (TSLF), a weekly loan facility, to promote liquidity in U.S. Treasury
and other collateral markets and foster the functioning of financial mar-
kets. The program offers U.S. Treasury securities held by the System
Open Market Account (SOMA) for loan over a one-month term against

other program-eligible general collateral. Loans will be awarded to primary
dealers based on competitive bidding, subject to a minimum fee require-
ment. The Open Market Trading Desk of the Federal Reserve Bank of New
York will auction general U.S. Treasury collateral (treasury bills, notes,
bonds and inflation-indexed securities) held by SOMA for loan against all
collateral currently eligible for tri-party repurchase agreements arranged
by the Open Market Trading Desk and separately against collateral and
investment grade corporate securities, municipal securities, mortgage-
backed securities, and asset-backed securities. The Corporation has uti-
lized this facility and has pledged agency mortgage-backed securities and
private label mortgage-backed securities as collateral.

debt

(e.g.,

notes,

unsecured

promissory

The FDIC has implemented the TLGP to strengthen confidence and
encourage liquidity in the banking system. The TLGP is comprised of the
Debt Guarantee Program (DGP) and the Transaction Account Guarantee
Program (TAGP). Under the DGP, the FDIC will guarantee all newly issued
senior
unsubordinated
unsecured notes and commercial paper) up to prescribed limits issued by
participating entities beginning on October 14, 2008 and continuing
through October 31, 2009. For eligible debt issued by that date, the FDIC
will provide the guarantee coverage until the earlier of the maturity date of
the debt or June 30, 2012. Under the TAGP, the FDIC will guarantee
noninterest-bearing deposit accounts held at FDIC-insured depository
institutions. The unlimited deposit coverage will be voluntary for eligible
institutions and would be in addition to the $250,000 FDIC deposit
insurance per account that was included as part of the EESA. The TAGP
coverage became effective on October 14, 2008 and will continue for
participating institutions until December 31, 2009.

Initially, the DGP and TAGP were provided at no cost for the first 30
days and allowed for eligible institutions to opt out of such programs. An
entity that chose not to opt out of either or both programs became a par-
ticipating entity and will be assessed fees for participation. Participants in
the DGP will be charged an annualized fee between 50 and 100 bps,
multiplied by the debt issued, and calculated for the maturity period of
that debt, or through the term of the guarantee, whichever is earlier. Any
eligible entity that has not chosen to opt out of
the TAGP will be
assessed, on a quarterly basis, an annualized 10 bps fee on balances in
noninterest-bearing transaction accounts that exceed the existing deposit
insurance limit of $250,000. In December 2008, Bank of America, N.A.
issued $4.3 billion in long-term senior unsecured bank notes while the
parent company issued $15.6 billion in long-term senior notes under the
TLGP program. We have also issued short-term notes under this program.
In addition, we have participated in the TAGP program. For further dis-
cussion on our liquidity and capital, see Liquidity Risk and Capital Man-
agement beginning on page 55.
In addition to the TLGP,

the U.S. Treasury
implemented the Temporary Guarantee Program for Money Market Funds.
This is a voluntary and temporary program that is in effect through at
least April 30, 2009. The program provides for a guarantee with respect
to a fixed number of shares held by certain shareholders as of Sep-
tember 19, 2008, to receive $1.00 per share in the event that a partic-
ipating fund no longer has a $1.00 per share net asset value and
liquidates. With respect to such shares covered by the program, the
guarantee payment would be equal to any shortfall between the amount
received by a shareholder in a liquidation and $1.00 per share. The eligi-
ble money market mutual funds pay a fee to the U.S. Treasury to partic-
ipate in the program. Several money market funds managed within GWIM
currently participate in the program.

in September 2008,

In September and October 2008, the Federal Reserve announced the
creation of the Asset-Backed Commercial Paper Money Market Mutual
the Commercial Paper Funding Facility
Fund Liquidity Facility (AMLF),
(CPFF) as well as the Money Market Investor Funding Facility (MMIFF).
These facilities were created to provide liquidity to the U.S. short-term

Bank of America 2008 21

debt markets in an effort to increase the availability of credit. Under the
AMLF, nonrecourse loans are provided to U.S. financial institutions for the
purchase of U.S. dollar-denominated high-quality asset-backed commer-
cial paper from money market mutual funds under certain conditions. The
program is intended to assist money market funds that hold such paper
in meeting demands for redemptions by investors and to foster liquidity in
the asset-backed commercial paper market and money markets more
generally. Financial
institutions will bear no credit risk associated with
commercial paper purchased under the AMLF. Under the CPFF, registered
issuers will be allowed to sell commercial paper through a primary dealer
to the CPFF subject to certain fees. Pricing will be based on whether the
commercial paper is secured or unsecured. In addition, there are issuer-
based limits on the amount of commercial paper the facility will hold.
Upon implementation of the MMIFF, senior secured funding will be pro-
vided to a series of special purpose vehicles to finance the purchase of
U.S. dollar-denominated certificates of deposit and commercial paper with
a remaining maturity of 90 days or less issued by highly-rated financial
institutions and from qualifying investors including U.S. money market
mutual funds. We have participated in the AMLF and CPFF programs, and
continue to evaluate participation in the MMIFF program.

In July 2008 the Housing and Economic Recovery Act of 2008 was
signed into law. This Act has several provisions including the establish-
ment of a voluntary program that permits the Federal Housing Admin-
istration (FHA)
to refinance eligible mortgages for certain qualified
borrowers. Some of this Act’s other provisions include changes to the
FHA program, increases in the limits on the principal balances of mort-
gage loans that the FHA and government-sponsored enterprises (GSEs)
can purchase, creating a new regulator for the GSEs, and establishing a
registration system for loan originators.

In December 2008, federal bank regulators in the U.S. adopted final
rules under the Federal Trade Commission Act changing existing rules
regarding Unfair and Deceptive Acts or Practices (UDAP). The final rules
will change the way interest charges are handled in certain situations
including increases in the rate during the first year after opening and
increases in the rate charged on pre-existing credit card balances. In
addition, the final rules will increase the amount of time customers have
to make their credit card payments, change the use of payment alloca-
tions related to interest charges and limit certain fees. Further, federal
bank regulators plan to adopt final rules to amend the Truth in Lending
Act, requiring changes to the disclosures consumers receive in con-
nection with credit card accounts and other revolving credit plans. Both of
the above final rules addressing credit card accounts take effect on
July 1, 2010. As a result of the new regulations, we will likely make sig-
nificant changes to our credit card practices. Also in December 2008, the
federal bank regulators withdrew the UDAP proposal related to overdraft
services and fees on consumer deposit accounts. As an alternative, the
Federal Reserve, under
the Electronic Funds Transfer Act, proposed
amendments that would require banks to offer consumer deposit custom-
ers the opportunity to opt out of overdraft services and fees. If the
amendments are adopted as proposed, we would need to make sig-
nificant changes in the manner
in which we process transactions
that affect consumer deposit accounts.

Recent Events
On January 16, 2009, due to larger than expected 2008 fourth quarter
losses of Merrill Lynch and as part of its commitment to support the
financial markets stability, the U.S. government agreed to assist the
Corporation in the Merrill Lynch acquisition by agreeing to provide certain
guarantees and capital.

The U.S. Treasury, the FDIC and the Federal Reserve have agreed in
principle to provide protection against the possibility of unusually large

22 Bank of America 2008

losses on an asset pool of approximately $118.0 billion of financial
instruments comprised of $81.0 billion of derivative assets and $37.0
billion of other financial assets. The assets that would be protected under
this agreement are expected generally to be domestic, pre-market dis-
ruption (i.e., originated prior to September 30, 2007)
leveraged and
commercial real estate loans, CDOs,
financial guarantor counterparty
exposure, certain trading counterparty exposure and certain investment
securities. These protected assets would be expected to exclude certain
foreign assets and assets originated or issued on or after March 14,
2008. The majority of the protected assets were added by the Corpo-
ration as a result of its acquisition of Merrill Lynch. This guarantee is
expected to be in place for 10 years for residential assets and five years
for non-residential assets unless the guarantee is terminated by the
Corporation at an earlier date. It is expected that the Corporation will
absorb the first $10.0 billion of losses related to the assets while any
additional
losses will be shared between the Corporation (10 percent)
and U.S. government (90 percent). These assets would remain on our
balance sheet and we would continue to manage these assets in the
ordinary course of business as well as retain the associated income. The
assets that would be covered by this guarantee are expected to carry a
20 percent risk weighting for regulatory capital purposes. As a fee for this
arrangement, we expect to issue to the U.S. Treasury and FDIC a total of
$4.0 billion of a new class of preferred stock and to issue warrants to
acquire 30.1 million shares of Bank of America common stock.

In connection with this arrangement we would continue with our cur-
rent mortgage loan modification programs discussed below. Any increase
in the quarterly common stock dividend for the next three years would
require the consent of the U.S. government.

the residual

risk in the asset pool

If necessary, under this proposed agreement, the Federal Reserve will
provide liquidity for
through a
nonrecourse loan facility. As previously discussed, the Corporation would
be responsible for the first $10.0 billion in losses on the asset pool.
Once additional losses exceed this amount by $8.0 billion we would be
able to draw on this facility. This loan facility would terminate and any
related funded loans would mature on the termination dates of the U.S.
government’s guarantee. The Federal Reserve is expected to charge a fee
of 20 bps per annum on undrawn amounts and a floating interest rate of
the overnight index swap (OIS) rate plus 300 bps per annum on funded
amounts. Interest and fee payments would be with recourse to the Corpo-
ration.

Further, the U.S. Treasury invested an additional $20.0 billion in the
Corporation from the TARP. As a result, in January 2009, we issued to the
U.S. Treasury 800 thousand shares of Series R Preferred Stock with a par
value of $0.01 per share for $20.0 billion. The Series R Preferred Stock
pays dividends at an eight percent annual rate. In connection with this
investment, the Corporation also issued to the U.S. Treasury 10-year
warrants to purchase approximately 150.4 million shares of Bank of
America Corporation common stock at an exercise price of $13.30 per
share.

Combined, these actions strengthen the Corporation and allow us to
continue business levels that both support the U.S. economy and create
future value for shareholders. We would have the right to terminate the
guarantee at any time with the consent of the U.S. government, and we
would negotiate in good faith to an appropriate fee or rebate in con-
nection with any agreed upon termination. Additionally, under early termi-
nation we would prepay in full any related outstanding Federal Reserve
loan.

In January 2009, the Board of Directors (the Board) declared a regular
quarterly cash dividend on common stock of $0.01 per share, payable on
March 27, 2009 to common shareholders of record on March 6, 2009,
as compared to the quarterly cash dividend on common stock of $0.32
per share paid on December 26, 2008 to common shareholders of record

on December 5, 2008. In October 2008, we reduced our regular quarterly
cash dividend on common stock by 50 percent. In January 2009, we fur-
ther reduced our regular quarterly dividend to $0.01 per share. In addition
in January 2009, we declared aggregate dividends on preferred stock of
$909 million, including $145 million related to preferred stock exchanged
in connection with the Merrill Lynch acquisition, and in the fourth quarter
of 2008 recorded aggregate dividends on preferred stock of $423 million.
For further discussion on our liquidity and capital, see Liquidity Risk and
Capital Management beginning on page 55.

In October 2008, prior to the U.S. Treasury’s announcement of the
TARP Capital Purchase Program previously discussed in Regulatory Ini-
tiatives, we issued 455 million shares of common stock at $22.00 per
share resulting in proceeds of $9.9 billion, net of underwriting expenses.

During 2008 we initiated loan modification programs projected to offer
modifications for up to 630,000 borrowers, representing $100 billion in
mortgage financings. In April 2008, we announced that the combined
company would modify or workout at least $40.0 billion in troubled mort-
gage loans in the next two years and estimated that these efforts will
assist at least 265,000 customers. Under this program alone, by the end
of 2008 Bank of America and Countrywide Financial Corporation
(Countrywide) had achieved workout solutions for over 190,000 bor-
rowers.

In October 2008 in agreement with several state attorneys general,
the Corporation announced the Countrywide National Homeownership
Retention Program. Under the program, we will systematically identify and
seek to offer loan modifications for eligible Countrywide subprime and pay
option adjustable rate mortgage (ARM) borrowers whose loans are in
delinquency or scheduled for an interest rate or payment change. Only
customers who financed their primary residence with subprime or pay
option ARMs originated and serviced by Countrywide between January 1,
2004 and December 31, 2007 are eligible for this program. In some
cases, these programs overlap as loans modified under the first program
include subprime and pay option ARMs.

During 2008, to help borrowers avoid foreclosure, Bank of America

and Countrywide had completed over 230,000 modifications.

In addition to being committed to the loan modification programs, we
continued to focus on extending new credit by extending approximately
$115 billion of credit during the fourth quarter including $49 billion in
commercial non-real estate; $45 billion in mortgages; nearly $8 billion in
domestic card and unsecured consumer loans; nearly $7 billion in com-
mercial real estate; approximately $5 billion in home equity products; and
approximately $2 billion in Dealer Financial Services consumer credit.

In September 2008, we announced an agreement in principle with the
Massachusetts Securities Division under which we will offer to purchase
at par ARS held by certain customers. Further in October 2008, we
announced other agreements in principle with the SEC, the Office of the
New York State Attorney General (NYAG), and the North American Secu-
rities Administrators Association. These agreements are substantially
similar except that the agreement with the NYAG requires the payment of
a penalty. These agreements will cover approximately $5.3 billion in ARS
held by an estimated 5,600 of our customers. As of December 31, 2008,
we repurchased $4.7 billion of ARS from our customers, more than 80
percent of our outstanding buyback commitment. In addition, during 2008
we recorded losses of $493 million in other income related to the buy-
back of ARS from our clients and also recorded a penalty of $50 million in
other general operating expense.

Recent Accounting Developments
On September 15, 2008 the FASB released exposure drafts which would
amend SFAS 140 and FIN 46R. As written, the proposed amendments
would, among other things, eliminate the concept of a QSPE and change
the standards for consolidation of VIEs. The changes would be effective

(e.g.,

credit

for both existing and newly-created entities as of January 1, 2010. If
adopted as written, the amendments would likely result in the con-
solidation of certain QSPEs and VIEs that are not currently recorded on
card
the Corporation’s Consolidated Balance Sheet
securitization trusts). These consolidations may result in an increase in
outstanding loans and on-balance sheet funding, higher provision and
allowance for credit losses as well as changes in the timing of recognition
and classification in our income statement. In addition, regulatory capital
amounts and ratios may be negatively impacted based on the outcome of
the FASB and regulatory agencies’ decisions. However, the impact on the
Corporation cannot be determined until
the FASB issues the final
amendments to SFAS 140 and FIN 46R and the banking regulators pro-
vide guidance on how these amendments will impact regulatory capital.
See Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements for a further discussion of recently pro-
posed and issued accounting pronouncements.

Merger Overview
On January 1, 2009, we acquired Merrill Lynch through its merger with a
subsidiary of the Corporation in exchange for common and preferred
stock with a value of $29.1 billion, creating a premier financial services
investment
franchise with significantly enhanced wealth management,
banking and international capabilities. Under the terms of the merger
agreement, Merrill Lynch common shareholders received 0.8595 of a
share of Bank of America Corporation common stock in exchange for
each share of Merrill Lynch common stock. In addition, Merrill Lynch
non-convertible preferred shareholders received Bank of America Corpo-
ration preferred stock having substantially identical terms. Merrill Lynch
convertible preferred stock remains outstanding and is convertible into
Bank of America common stock at an equivalent exchange ratio. The
acquisition added Merrill Lynch’s approximately 16,000 financial advi-
sors, $1.2 trillion of client assets and its interest in BlackRock, Inc., a
publicly traded investment management company. In addition, the acquis-
ition adds strengths in debt and equity underwriting, sales and trading,
and merger and acquisition advice, creating significant opportunities to
deepen relationships with corporate and institutional clients around the
globe. At January 1, 2009, Merrill Lynch increased our total assets by
$651.6 billion and total liabilities by $627.9 billion.

On July 1, 2008, we acquired Countrywide through its merger with a
subsidiary of the Corporation in exchange for stock with a value of $4.2
billion. Under the terms of the agreement, Countrywide shareholders
received 0.1822 of a share of Bank of America Corporation common
stock in exchange for each share of Countrywide common stock. The
acquisition of Countrywide significantly improved our mortgage originating
and servicing capabilities, making us a leading mortgage originator and
servicer.

On October 1, 2007, we acquired all the outstanding shares of ABN
AMRO North America Holding Company, parent of LaSalle Bank Corpo-
ration (LaSalle), for $21.0 billion in cash. With this acquisition, we sig-
nificantly expanded our presence in metropolitan Chicago, Illinois and
Michigan, by adding LaSalle’s commercial banking clients, retail custom-
ers and banking centers.

On July 1, 2007, we acquired all the outstanding shares of U.S. Trust
Corporation for $3.3 billion in cash. U.S. Trust Corporation focuses
exclusively on managing wealth for high net-worth and ultra high net-worth
individuals and families. The acquisition significantly increased the size
and capabilities of our wealth management business and positioned us
as one of the largest financial services companies managing private
wealth in the U.S.

For more information related to these mergers, see Note 2 – Merger

and Restructuring Activity to the Consolidated Financial Statements.

Bank of America 2008 23

Performance Overview
Net income was $4.0 billion, or $0.55 per diluted common share in 2008, as compared to $15.0 billion, or $3.30 per diluted common share in 2007.

Table 1 Business Segment Total Revenue and Net Income

(Dollars in millions)

Global Consumer and Small Business Banking (2)
Global Corporate and Investment Banking
Global Wealth and Investment Management
All Other (2)

Total FTE basis

FTE adjustment

Total Consolidated

Total Revenue (1)

Net Income (Loss)

2008

$58,344
13,440
7,785
(5,593)

73,976
(1,194)

$72,782

2007

$47,855
13,651
7,553
(477)

68,582
(1,749)

2008

$ 4,234
(14)
1,416
(1,628)

4,008
–

2007

$ 9,362
510
1,960
3,150

14,982
–

$66,833

$ 4,008

$14,982

(1) Total revenue is net of interest expense, and is on a FTE basis for the business segments and All Other. For more information on a FTE basis, see Supplemental Financial Data beginning on page 29.
(2) GCSBB is presented on a managed basis with a corresponding offset recorded in All Other.

The table above presents total revenue and net income for the busi-
ness segments and All Other and the following discussion presents a
summary of the related results. For more information on these results,
see Business Segment Operations beginning on page 32.
Š GCSBB’s net income decreased as higher revenue was more than
losses and noninterest
offset by increased provision for credit
expense. Total
revenue increased from merger-related and organic
average loan and deposit growth, as well as higher mortgage banking
income and insurance premiums due to the acquisition of Countrywide.
Higher provision for credit losses resulted from the impacts of con-
tinued weakness in the housing markets and the slowing economy.
Noninterest expense increased primarily due to the addition of
Countrywide and LaSalle. For more information on GCSBB, see page
33.

Š GCIB reported a net loss due to significant writedowns and increased
credit costs, partially offset by reduced performance-based incentive
compensation. Revenue decreased as an increase in net interest
income, primarily market-based, and higher service charges and
investment banking income were more than offset by the market-based
disruptions which impacted our CMAS business. The higher provision
for credit losses was due to deterioration in the homebuilder, non-real
estate commercial and dealer-related portfolio. For more information on
GCIB, see page 38.

Š GWIM’s net income decreased as the increase in revenue was more
than offset by higher provision for credit losses and higher noninterest
expenses. Total revenue rose due to the full year impact of U.S. Trust
Corporation and LaSalle and organic loan and deposit growth, partially
offset by losses related to the support of certain cash funds and
weaker equity markets. The increase in provision for credit losses was
driven by deterioration in the housing markets and the slowing econo-
my. Noninterest expense increased due to the full year additions of
U.S. Trust Corporation and LaSalle. For more information on GWIM, see
page 45.

Š All Other reported a net loss due to losses in equity investment
income, higher credit costs primarily related to our ALM residential
mortgage portfolio, and an increase in merger and restructuring charg-
es. In addition All Other’s results were adversely impacted by the
absence of earnings after the sale of certain businesses and foreign
operations in 2007 including the $1.5 billion gain recorded on the sale
of Marsico Capital Management, LLC (Marsico). These items were
partially offset by an increase in gains on sales of debt securities. For
more information on All Other, see page 48.

Financial Highlights

Net Interest Income
Net interest income on a FTE basis increased $10.4 billion to $46.6 bil-
lion for 2008 compared to 2007. The increase was driven by strong loan
growth, as well as the acquisitions of Countrywide and LaSalle, and the
contribution from market-based net interest income related to our CMAS
business, which benefited from the steepening of the yield curve and
product mix. The net interest yield on a FTE basis increased 38 bps to
2.98 percent for 2008 compared to 2007, due to the improvement in
market-based yield, the beneficial impact of the current interest rate envi-
ronment and loan growth. Partially offsetting these increases were the
additions of
lower yielding assets from the Countrywide and LaSalle
acquisitions. For more information on net interest income on a FTE basis,
see Tables I and II beginning on page 99.

Noninterest Income

Table 2 Noninterest Income
(Dollars in millions)

Card income
Service charges
Investment and brokerage services
Investment banking income
Equity investment income
Trading account profits (losses)
Mortgage banking income
Insurance premiums
Gains on sales of debt securities
Other income (loss)

Total noninterest income

2008

$13,314
10,316
4,972
2,263
539
(5,911)
4,087
1,833
1,124
(5,115)

$27,422

2007

$14,077
8,908
5,147
2,345
4,064
(4,889)
902
761
180
897

$32,392

Noninterest income decreased $5.0 billion to $27.4 billion in 2008

compared to 2007.
Š Card income decreased $763 million primarily due to the negative
impact of higher credit costs on securitized credit card loans and the
related unfavorable change in value of the interest-only strip as well as
decreases in interchange income and late fees. Partially offsetting
these decreases was higher debit card income.

Š Service charges grew $1.4 billion resulting from growth in new deposit

accounts and the beneficial impact of the LaSalle acquisition.

Š Investment and brokerage services decreased $175 million primarily
due to the absence of fees related to Marsico which was sold in late
2007 and the impact of significantly lower valuations in the equity

24 Bank of America 2008

markets, partially offset by the full year impact of the U.S. Trust Corpo-
ration and LaSalle acquisitions.

Š Investment banking income decreased $82 million due to reduced

advisory fees related to the slowing economy.

Š Equity investment income decreased $3.5 billion due to a reduction in
gains from our Principal Investing portfolio attributable to the lack of
liquidity in the marketplace when compared to 2007 and other-than-
temporary impairments taken on certain AFS marketable equity secu-
rities.

Š Trading account losses were $5.9 billion in 2008 driven by losses
related to CDO exposure and the continuing impact of the market dis-
ruptions on various parts of the CMAS business. Contributing to these
losses were severe volatility, illiquidity and credit dislocations in the
debt and equity markets during the fourth quarter of 2008. For more
information, see the GCIB discussion beginning on page 38.

Š Mortgage banking income increased $3.2 billion in large part as a
result of the Countrywide acquisition which contributed significantly to
increases in servicing income of $1.7 billion and production income of
$1.5 billion.

Š Insurance premiums increased $1.1 billion primarily due to the acquis-

ition of Countrywide.

Š Gains on sales of debt securities increased $944 million driven by the
sales of mortgage-backed securities and collateralized mortgage obliga-
tions.

Š Other income decreased $6.0 billion due to CMAS related writedowns
(e.g., CDO exposure, leveraged finance loans and CMBS) of $5.3 bil-
lion and $1.1 billion of losses associated with the support provided to
certain cash funds managed within GWIM.
In addition, 2008 was
impacted by the absence of the $1.5 billion gain from the sale of
Marsico recognized in 2007. Partially offsetting these items was the
gain of $776 million related to the Visa IPO. For more information on
the CMAS related writedowns, see page 40.

Provision for Credit Losses
The provision for credit losses increased $18.4 billion to $26.8 billion for
2008 compared to 2007 due to higher net charge-offs and additions to
the reserve. The majority of the reserve additions were in consumer and
small business portfolios, reflective of continued weakness in the hous-
ing markets and the slowing economy. Reserves were also increased on
commercial portfolios for deterioration in the homebuilder and non-real
estate commercial portfolios within GCIB. For further discussion, see
Provision for Credit Losses on page 81.

Noninterest Expense

Table 3 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

2008

$18,371
3,626
1,655
2,368
1,592
1,834
2,546
1,106
7,496
935

$41,529

2007

$18,753
3,038
1,391
2,356
1,174
1,676
1,962
1,013
5,751
410

$37,524

Noninterest expense increased $4.0 billion to $41.5 billion for 2008
compared to 2007, primarily due to the acquisitions of Countrywide and
LaSalle, which increased various expense categories, partially offset by a
reduction in performance-based incentive compensation expense and the
impact of certain benefits associated with the Visa IPO transactions.

Income Tax Expense
Income tax expense was $420 million for 2008 compared to $5.9 billion
for 2007 resulting in effective tax rates of 9.5 percent and 28.4 percent.
The effective tax rate decrease is due to permanent tax preference
amounts (e.g., tax exempt income and tax credits) offsetting a higher
percentage of our pre-tax income. For more information on income tax
expense, see Note 18 – Income Taxes to the Consolidated Financial
Statements.

Impact of Countrywide Acquisition
Effective July 1, 2008, Countrywide’s results of operations are included in
the Corporation’s consolidated results. For 2008, the Countrywide acquis-
ition contributed approximately $1.3 billion to net interest income on a
FTE basis, $3.4 billion to noninterest income and $4.2 billion to non-
interest expense. In addition, we recorded $750 million in provision for
credit losses associated with deterioration in the SOP 03-3 loan portfolio
subsequent to acquisition of these loans, which were initially recorded at
fair value. At July 1, 2008, after consideration of purchase accounting
adjustments the Countrywide acquisition contributed $86.2 billion to total
loans and leases, $17.4 billion to securities, $17.2 billion to MSRs and
$63.0 billion to total deposits.

The majority of Countrywide’s ongoing operations are recorded in
Mortgage, Home Equity and Insurance Services (MHEIS). Countrywide’s
acquired first mortgage and discontinued real estate portfolios were
recorded in All Other and are managed as part of our overall ALM activ-
ities. For more information on Countrywide’s impact in MHEIS, see the
MHEIS discussion beginning on page 36. For more information related to
the Countrywide acquisition, see Note 2 – Merger and Restructuring Activ-
ity to the Consolidated Financial Statements.

Bank of America 2008 25

Balance Sheet Analysis

Table 4 Selected Balance Sheet Data

(Dollars in millions)

Assets

Federal funds sold and securities purchased under agreements to resell
Trading account assets
Debt securities
Loans and leases, net of allowance for loan and lease losses
All other assets

Total assets

Liabilities

Deposits
Federal funds purchased and securities sold under agreements to repurchase
Trading account liabilities
Commercial paper and other short-term borrowings
Long-term debt
All other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

At December 31, 2008, total assets were $1.8 trillion, an increase of
$102.2 billion, or six percent, from December 31, 2007. The increase in
total assets was primarily attributable to the acquisition of Countrywide,
which impacted various line items including loans and leases, debt secu-
rities, MSRs and other assets. In addition to Countrywide, debt securities
also increased due to net purchases of securities and the securitization
of residential mortgage loans into mortgage-backed securities which we
retained. Derivative assets, which are included in all other assets in the
table above, increased due to mark-to-market gains resulting from the
reduced interest rate environment and the strengthening of the U.S. dollar
versus certain foreign currencies. Partially offsetting these increases was
a decrease in federal funds sold and securities purchased under agree-
ments to resell primarily attributable to balance sheet efficiencies and the
sale of our equity prime brokerage business.

Average total assets in 2008 increased $241.9 billion, or 15 percent,
from 2007 primarily due to higher loans and leases and debt securities.
The increase in average loans and leases was attributable to organic
growth and the Countrywide and LaSalle acquisitions. The increase in
debt securities was driven by the same factors as noted above and the
LaSalle acquisition.

At December 31, 2008, total liabilities were $1.6 trillion, an increase
of $71.9 billion from December 31, 2007. The increase in total liabilities
was attributable to the acquisition of Countrywide which impacted various
line items including deposits and long-term debt. In addition to Country-
wide, deposits increased as we benefited from a consumer and business
flight-to-safety resulting from market instability. Long-term debt increased
due to the addition of Countrywide and participation in the TLGP. Partially
offsetting these increases was a decrease in commercial paper and other
short-term borrowings due in part to the sale of our equity prime broker-
age business.

Average total liabilities for 2008 increased $213.7 billion, or 15 per-
cent from 2007. The increase in average total liabilities was attributable
to higher deposits and long-term debt to support growth in overall assets
and the inclusion of
liabilities associated with the Countrywide and
LaSalle acquisitions.

26 Bank of America 2008

December 31

Average Balance

2008

2007

2008

2007

82,478
159,522
277,589
908,375
389,979

$1,817,943

$ 882,997
206,598
57,287
158,056
268,292
67,661

1,640,891
177,052

$1,817,943

$ 129,552
162,064
214,056
864,756
345,318

$1,715,746

$ 805,177
221,435
77,342
191,089
197,508
76,392

1,568,943
146,803

$ 128,053
193,631
250,551
893,353
378,391

$ 1,843,979

$ 831,144
272,981
75,270
182,729
231,235
85,789

1,679,148
164,831

$ 155,828
187,287
186,466
766,329
306,163

$1,602,073

$ 717,182
253,481
82,721
171,333
169,855
70,839

1,465,411
136,662

$1,715,746

$ 1,843,979

$1,602,073

Federal Funds Sold and Securities Purchased Under
Agreements to Resell and Trading Account Assets
Federal funds sold and securities purchased under agreements to resell
consist of excess reserves placed with other banks with a relatively short-
term maturity and securities that have been purchased subject to an
agreement to resell securities with substantially identical terms at a
specified date for a specified price. Trading account assets consist pri-
marily of fixed income securities (including government and corporate
debt), equity and convertible instruments. Period end and average federal
funds sold and securities purchased under agreements to resell, and
trading account assets decreased $49.6 billion and $21.4 billion in
2008, attributable to balance sheet efficiencies and the sale of our equity
prime brokerage business partially offset by an increase in the amount of
our securities used to hedge our MSRs. For additional information, see
Market Risk Management beginning on page 84.

Debt Securities
Debt securities include fixed income securities such as mortgage-backed
securities, foreign debt, ABS, municipal debt, U.S. government agencies
and corporate debt. We use the debt securities portfolio primarily to
manage interest rate and liquidity risk and to take advantage of market
conditions that create more economically attractive returns on these
investments. The period end and average balances in the debt securities
portfolio increased $63.5 billion and $64.1 billion from 2007 due to net
purchases of securities and the securitization of residential mortgage
loans into mortgage-backed securities which we retained. These
increases were also impacted by the addition of Countrywide. In addition,
average balances benefited from the full year impact of the LaSalle
acquisition. For additional information on our AFS debt securities portfo-
lio, see Market Risk Management – Securities on page 89 and Note 5 –
Securities to the Consolidated Financial Statements.

Loans and Leases, Net of Allowance for Loan and
Lease Losses
Period end and average loans and leases, net of allowance for loan and
lease losses increased $43.6 billion to $908.4 billion and $127.0 billion
to $893.4 billion in 2008 compared to 2007 due to consumer and
commercial organic growth and the addition of Countrywide. The average
consumer loan and lease portfolio increased $64.2 billion primarily due
to organic growth and the addition of Countrywide. The average commer-
loan and lease portfolio increased $70.5 billion primarily due to
cial
organic growth and the acquisition of LaSalle which occurred in the fourth
quarter of 2007. For a more detailed discussion of the loan portfolio and
the allowance for credit losses, see Credit Risk Management beginning
on page 61, Note 6 – Outstanding Loans and Leases and Note 7 – Allow-
ance for Credit Losses to the Consolidated Financial Statements.

All Other Assets
Period end all other assets increased $44.7 billion at December 31,
2008, an increase of 13 percent from December 31, 2007, driven primar-
ily by the acquisition of Countrywide, which impacted various line items,
including MSRs and LHFS. In addition, the increase was driven by higher
derivative assets due to mark-to-market gains resulting from the reduced
interest rate environment and the strengthening of the U.S. dollar versus
certain foreign currencies.

Deposits
Period end and average deposits increased $77.8 billion to $883.0 bil-
lion and $114.0 billion to $831.1 billion in 2008 compared to 2007. The
average increase was due to a $95.3 billion increase in average domestic
interest-bearing deposits and a $19.4 billion increase in average
noninterest-bearing deposits. We categorize our deposits as core or
market-based deposits. Core deposits are generally customer-based and
represent a stable, low-cost funding source that usually reacts more
slowly to interest rate changes than market-based deposits. Core depos-
its include savings, NOW and money market accounts, consumer CDs
and IRAs, and noninterest-bearing deposits. Core deposits exclude nego-
tiable CDs, public funds, other domestic time deposits and foreign
interest-bearing deposits. Average core deposits increased $103.0 billion
to $696.9 billion in 2008, a 17 percent increase from the prior year. The
increase was attributable to growth in our average NOW and money mar-
ket accounts, average consumer CDs and IRAs and noninterest-bearing
deposits due to the addition of Countrywide and the benefit we received
from a consumer and business flight-to-safety resulting from market
instability. Average market-based deposit funding increased $11.0 billion
to $134.3 billion in 2008 compared to 2007 due to an increase in nego-
tiable CDs, public funds and other time deposits related to the funding of
growth in core and market-based assets. The increase in average depos-
its was also impacted by the assumption of deposits, primarily money
market, consumer CDs, and other domestic time deposits associated
with the LaSalle merger.

Federal Funds Purchased and Securities Sold Under
Agreements to Repurchase and Trading Account
Liabilities
funds purchased and securities sold under agreements to
Federal
repurchase consist of deposits borrowed from other banks with a rela-

tively short-term maturity and securities that have been sold subject to an
agreement to repurchase securities with substantially identical terms at a
specified date for a specified price. Trading account liabilities consist
primarily of short positions in fixed income securities (including govern-
ment and corporate debt), equity and convertible instruments. Period end
federal
funds purchased and securities sold under agreements to
repurchase, and trading account liabilities decreased $34.9 billion primar-
ily due to the rebalancing of hedges for market movements and lower
customer demand, and by the sale of our equity prime brokerage busi-
ness. Average federal funds purchased and securities sold under agree-
ments to repurchase, and trading account liabilities increased $12.0
billion primarily due to the relative low cost and availability of short-term
funding.

Commercial Paper and Other Short-term Borrowings
Commercial paper and other short-term borrowings provide a funding
source to supplement deposits in our ALM strategy. Period end commer-
cial paper and other short-term borrowings decreased $33.0 billion to
$158.1 billion in 2008 compared to 2007 due in part to the sale of our
equity prime brokerage business. Average commercial paper and other
short-term borrowings increased $11.4 billion to $182.7 billion in 2008
due to an increase in short-term funding given the change in market con-
ditions, partially offset by the sale of our equity prime brokerage busi-
ness.

Long-term Debt
Period end and average long-term debt increased $70.8 billion to $268.3
billion and $61.4 billion to $231.2 billion in 2008 compared to 2007.
The increases were attributable to issuances to support growth in overall
assets and enhance our liquidity, and the inclusion of long-term debt
associated with the Countrywide acquisition. Period end balances also
benefited from our participation in the TLGP and average balances bene-
fited from the LaSalle acquisition. For additional information on the TLGP,
see Regulatory Initiatives on page 20. For additional information on long-
term debt, see Note 12 – Short-term Borrowings and Long-term Debt to
the Consolidated Financial Statements.

Shareholders’ Equity
Period end shareholders’ equity increased $30.2 billion due to the issu-
ance of preferred stock including $15.0 billion to the U.S. Treasury in
connection with the TARP Capital Purchase Program, a common stock
offering of $9.9 billion, $4.2 billion of common stock issued in con-
nection with the Countrywide acquisition, and net
income. These
increases were partially offset by a decrease in accumulated OCI and
higher preferred dividend payments. The decrease in accumulated OCI
was due to unrealized losses incurred on our debt and marketable equity
securities and the adverse impact of employee benefit plan adjustments
driven by the difference between the assumed and actual rate of return
on benefit plan assets during the year. For additional information on our
employee benefit plans, see Note 16 – Employee Benefit Plans to the
Consolidated
equity
increased $28.2 billion due to the same period end factors discussed
above, except accumulated OCI benefited from the fair value adjustment
related to our investment in China Construction Bank (CCB) which we
began to fair value in the fourth quarter of 2007.

Financial Statements. Average

shareholders’

Bank of America 2008 27

Table 5 Five Year Summary of Selected Financial Data
(Dollars in millions, except per share information)

2008

2007

2006

2005

2004

Income statement

Net interest income
Noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense, before merger and restructuring charges
Merger and restructuring charges
Income before income taxes
Income tax expense
Net income
Average common shares issued and outstanding (in thousands)
Average diluted common shares issued and outstanding (in

thousands)

Performance ratios

Return on average assets
Return on average common shareholders’ equity
Return on average tangible shareholders’ equity (1)
Total ending equity to total ending assets
Total average equity to total average assets
Dividend payout

Per common share data

Earnings
Diluted earnings
Dividends paid
Book value

Market price per share of common stock

Closing
High closing
Low closing

Market capitalization

Average balance sheet

Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity

Asset quality (2)

Allowance for credit losses (3)
Nonperforming assets (4)
Allowance for loan and lease losses as a percentage of total loans

and leases outstanding (5)

Allowance for loan and lease losses as a percentage of total

nonperforming loans and leases (5)

Net charge-offs
Net charge-offs as a percentage of average loans and leases

outstanding (5)

Nonperforming loans and leases as a percentage of total loans and

leases outstanding (5)

Nonperforming assets as a percentage of total loans, leases and

foreclosed properties (4, 5)

Ratio of the allowance for loan and lease losses at December 31 to

net charge-offs

Capital ratios (period end)
Risk-based capital:

Tier 1
Total
Tier 1 Leverage

45,360
27,422
72,782
26,825
40,594
935
4,428
420
4,008
4,592,085

34,441
32,392
66,833
8,385
37,114
410
20,924
5,942
14,982
4,423,579

34,594
38,182
72,776
5,010
34,988
805
31,973
10,840
21,133
4,526,637

30,737
26,438
57,175
4,014
28,269
412
24,480
8,015
16,465
4,008,688

27,960
22,729
50,689
2,769
26,394
618
20,908
6,961
13,947
3,758,507

4,612,491

4,480,254

4,595,896

4,068,140

3,823,943

0.22%
1.80
5.31
9.74
8.94
n/m

0.56
0.55
2.24
27.77

14.08
45.03
11.25

0.94%

1.44%

1.30%

1.34%

11.08
25.94
8.56
8.53
72.26

3.35
3.30
2.40
32.09

41.26
54.05
41.10

16.27
39.06
9.27
8.90
45.66

4.66
4.59
2.12
29.70

53.39
54.90
43.09

16.51
32.30
7.86
7.86
46.61

4.10
4.04
1.90
25.32

46.15
47.08
41.57

16.47
30.98
9.03
8.12
46.31

3.71
3.64
1.70
24.70

46.99
47.44
38.96

70,645

$ 183,107

$ 238,021

$ 184,586

$ 190,147

$ 910,878
1,843,979
831,144
231,235
141,638
164,831

23,492
18,232

2.49%

141
16,231

$ 776,154
1,602,073
717,182
169,855
133,555
136,662

12,106
5,948

1.33%

207
6,480

$ 652,417
1,466,681
672,995
130,124
129,773
130,463

9,413
1,856

1.28%

505
4,539

$ 537,218
1,269,892
632,432
97,709
99,590
99,861

8,440
1,603

1.40%

532
4,562

$ 472,617
1,044,631
551,559
92,303
84,584
84,815

9,028
2,315

1.65%

390
3,113

1.79%

0.84%

0.70%

0.85%

0.66%

1.77

1.96

1.42

9.15%

13.00
6.44

0.64

0.68

1.79

6.87%

11.02
5.04

0.25

0.26

1.99

8.64%

11.88
6.36

0.26

0.28

1.76

8.25%

11.08
5.91

0.42

0.44

2.77

8.20%

11.73
5.89

(1) Tangible shareholders’ equity is a non-GAAP measure. For additional information on ROTE and a corresponding reconciliation of tangible shareholders’ equity to a GAAP financial measure, see Supplemental Financial

Data beginning on page 29.

Includes the allowance for loan and lease losses and the reserve for unfunded lending commitments.

(2) We account for acquired impaired loans in accordance with SOP 03-3. For more information on the impact of SOP 03-3 on asset quality, see Consumer Portfolio Credit Risk Management beginning on page 62.
(3)
(4) Balances and ratios do not include nonperforming LHFS and nonperforming AFS debt securities.
(5) Balances and ratios do not include loans measured at fair value in accordance with SFAS 159.
n/m = not meaningful

28 Bank of America 2008

Supplemental Financial Data
Table 6 provides a reconciliation of the supplemental financial data men-
tioned below with financial measures defined by GAAP. Other companies
may define or calculate supplemental financial data differently.

Operating Basis Presentation
In managing our business, we may at times look at performance exclud-
ing certain nonrecurring items. For example, as an alternative to net
income, we view results on an operating basis, which represents net
income excluding merger and restructuring charges. The operating basis
of presentation is not defined by GAAP. We believe that the exclusion of
merger and restructuring charges, which represent events outside our
normal operations, provides a meaningful year-to-year comparison and is
more reflective of normalized operations.

Net Interest Income – FTE Basis
In addition, we view net interest income and related ratios and analysis
(i.e., efficiency ratio, net interest yield and operating leverage) on a FTE
basis. Although this is a non-GAAP measure, we believe managing the
business with net interest income on a FTE basis provides a more accu-
rate picture of the interest margin for comparative purposes. To derive the
FTE basis, net interest income is adjusted to reflect tax-exempt 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 taxable and tax-exempt sources.

Performance Measures
As previously mentioned, certain performance measures including the
efficiency ratio, net interest yield and operating leverage utilize net inter-
est income (and thus total revenue) on a FTE basis. The efficiency ratio
measures the costs expended to generate a dollar of revenue, and net
interest yield evaluates how many basis points we are earning over the
cost of funds. Operating leverage measures the total percentage revenue
growth minus the total percentage expense growth for the corresponding
period. During our annual planning process, we set operating leverage
and efficiency targets for the Corporation and each line of business. We
believe the use of these non-GAAP measures provides additional clarity in
assessing our results. Targets vary by year and by business, and are
based on a variety of factors including maturity of the business, invest-
ment appetite, competitive environment, market factors, and other items
(e.g.,
risk appetite). The aforementioned performance measures and
ratios, return on average assets and dividend payout ratio, as well as
those measures discussed more fully below, are presented in Table 6.

Return on Average Common Shareholders’ Equity
and Return on Average Tangible Shareholders’
Equity
We also evaluate our business based upon ROE and ROTE measures.
ROE and ROTE utilize non-GAAP allocation methodologies. ROE measures
the earnings contribution of a unit as a percentage of the shareholders’
equity allocated to that unit. ROTE measures our earnings contribution as
a percentage of shareholders’ equity reduced by goodwill and intangible
assets (excluding MSRs). These measures are used to evaluate our use
of equity (i.e., capital) at the individual unit level and are integral compo-
nents in the analytics for resource allocation. In addition, profitability,
relationship, and investment models all use ROE as key measures to
support our overall growth goal.

Bank of America 2008 29

Table 6 Supplemental Financial Data and Reconciliations to GAAP Financial Measures
(Dollars in millions)

2007

2008

2006

2005

2004

Operating basis

Operating earnings
Return on average assets
Return on average common shareholders’ equity
Return on average tangible shareholders’ equity
Operating efficiency ratio (FTE basis)
Dividend payout ratio
Operating leverage (FTE basis)

FTE basis data

Net interest income
Total revenue, net of interest expense
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 average shareholders’ equity to average tangible shareholders’

equity

Average shareholders’ equity
Average goodwill
Average intangible assets

Average tangible shareholders’ equity

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

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

Operating return on average common shareholders’ equity

Reconciliation of return on average tangible shareholders’ equity to operating

return on average tangible shareholders’ equity
Return on average tangible shareholders’ equity
Effect of merger and restructuring charges, net-of-tax

Operating return on average tangible shareholders’ equity

Reconciliation of efficiency ratio to operating efficiency ratio (FTE basis)

Efficiency ratio
Effect of merger and restructuring charges

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

Operating dividend payout ratio

Reconciliation of operating leverage to operating basis operating leverage (FTE

basis)

Operating leverage
Effect of merger and restructuring charges

Operating leverage

n/m = not meaningful
n/a = not applicable

$ 4,638

$ 15,240

$ 21,640

$ 16,740

$ 14,358

0.25%
2.25
6.14
54.88
n/m
(1.51)

$ 46,554
73,976

2.98%

56.14

$ 4,008
935
(305)

$ 4,638

0.95%

11.27
26.38
54.12
71.02
(13.40)

$ 36,190
68,582

2.60%

54.71

$ 14,982
410
(152)

$ 15,240

1.48%

1.32%

1.37%

16.66
40.00
47.28
44.59
3.80

$ 35,818
74,000

2.82%

48.37

$ 21,133
805
(298)

$ 21,640

16.79
32.84
48.73
45.84
5.74

$ 31,569
58,007

2.84%

49.44

$ 16,465
412
(137)

$ 16,740

16.96
31.89
51.35
44.98
n/a

$ 28,677
51,406

3.17%

52.55

$ 13,947
618
(207)

$ 14,358

$164,831
(79,827)
(9,502)

$ 75,502

$136,662
(69,333)
(9,566)

$ 57,763

$130,463
(66,040)
(10,324)

$ 54,099

$ 99,861
(45,331)
(3,548)

$ 50,982

$ 84,815
(36,612)
(3,184)

$ 45,019

0.22%
0.03

0.25%

1.80%
0.45

2.25%

5.31%
0.83

6.14%

56.14%
(1.26)

54.88%

n/m
n/m

n/m

0.94%
0.01

0.95%

11.08%
0.19

11.27%

25.94%
0.44

26.38%

54.71%
(0.59)

54.12%

72.26%
(1.24)

71.02%

(2.81)%
1.30

(1.51)%

(12.16)%
(1.24)

(13.40)%

1.44%
0.04

1.48%

16.27%
0.39

16.66%

39.06%
0.94

40.00%

48.37%
(1.09)

47.28%

45.66%
(1.07)

44.59%

2.77%
1.03

3.80%

1.30%
0.02

1.32%

16.51%
0.28

16.79%

32.30%
0.54

32.84%

49.44%
(0.71)

48.73%

46.61%
(0.77)

45.84%

6.67%
(0.93)

5.74%

1.34%
0.03

1.37%

16.47%
0.49

16.96%

30.98%
0.91

31.89%

52.55%
(1.20)

51.35%

46.31%
(1.33)

44.98%

n/a
n/a

n/a

30 Bank of America 2008

Core Net Interest Income – Managed Basis
We manage core net interest income – managed basis, which adjusts
reported net interest income on a FTE basis for the impact of market-
based activities and certain securitizations, net of retained securities. As
discussed in the GCIB business segment section beginning on page 38,
we evaluate our market-based results and strategies on a total market-
based revenue approach by combining net interest income and non-
interest income for CMAS. We also adjust for loans that we originated
and subsequently sold into certain securitizations. These securitizations
include off-balance sheet loans and leases, primarily credit card securiti-
zations. Noninterest income, rather than net interest income and provi-
sion 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 appro-
priate. We believe the use of this non-GAAP presentation provides addi-
tional clarity in managing our results. An analysis of core net interest
income – managed basis, core average earning assets – managed basis
and core net interest yield on earning assets – managed basis, which
adjusts for the impact of these two non-core items from reported net
interest income on a FTE basis, is shown below.

Core net interest income on a managed basis increased $8.1 billion
to $49.5 billion for 2008 compared to 2007. The increase was driven by

Table 7 Core Net Interest Income – Managed Basis

(Dollars in millions)
Net interest income (1)
As reported
Impact of market-based net interest income (2)

Core net interest income

Impact of securitizations (3)

Core net interest income – managed basis

Average earning assets
As reported
Impact of market-based earning assets (2)

Core average earning assets

Impact of securitizations (4)

Core average earning assets – managed basis

Net interest yield contribution (1)
As reported
Impact of market-based activities (2)

Core net interest yield on earning assets

Impact of securitizations

Core net interest yield on earning assets – managed basis

strong loan growth, as well as the acquisitions of Countrywide and
LaSalle. Core net interest income on a managed basis also benefited
from the reduced interest rate environment however this benefit was
partially offset by the spread dislocation between the Federal Funds rate
and LIBOR.

On a managed basis, core average earning assets increased $213.1
billion to $1.3 trillion for 2008 compared to 2007 due to higher average
managed loans and an increase in debt securities. The increase in
managed loans was driven by higher consumer managed loans resulting
from organic growth and the acquisition of Countrywide. In addition, aver-
age commercial loans increased primarily due to organic growth and the
acquisition of LaSalle which occurred in the fourth quarter of 2007. The
average balance in the debt securities portfolio increased from 2007 due
to net purchases of securities, the securitization of residential mortgage
loans into mortgage-backed securities which we retained and the LaSalle
and Countrywide acquisitions.

Core net interest yield on a managed basis remained flat at 3.82
impact of the current interest rate
percent for 2008, as the beneficial
environment and loan growth was offset by the addition of lower yielding
assets from the Countrywide and LaSalle acquisitions.

2008

2007

46,554
(6,011)

40,543
8,910

36,190
(2,718)

33,472
7,841

49,453

41,313

$1,562,729
(368,751)

1,193,978
100,145

$1,390,192
(412,587)

977,605
103,371

$1,294,123

$1,080,976

2.98%
0.42

3.40
0.42

3.82%

2.60%
0.82

3.42
0.40

3.82%

(1) FTE basis
(2) Represents the impact of market-based amounts included in the CMAS business within GCIB. For 2008 and 2007, the impact of market-based net interest income excludes $113 million and $70 million of net interest

income on loans for which the fair value option has been elected and is not considered market-based income.

(3) Represents the impact of securitizations utilizing actual bond costs. This is different from the business segment view which utilizes funds transfer pricing methodologies.
(4) Represents average securitized loans less accrued interest receivable and certain securitized bonds retained.

Bank of America 2008 31

Business Segment Operations

Segment Description
We report the results of our operations through three business segments:
GCSBB, GCIB and GWIM, with the remaining operations recorded in All
Other. Certain prior period amounts have been reclassified to conform to
current period presentation. For more information on our basis of pre-
sentation, selected financial information for the business segments and
reconciliations to consolidated total revenue, net income and period end
total assets, see Note 22 – Business Segment Information to the Con-
solidated Financial Statements.

Basis of Presentation
We prepare and evaluate segment results using certain non-GAAP method-
ologies and performance measures, many of which are discussed in
Supplemental Financial Data beginning on page 29. We begin by evaluat-
ing the operating results of the businesses which by definition exclude
merger and restructuring charges. The segment results also reflect cer-
tain revenue and expense methodologies which are utilized to determine
net income. The net interest income of the businesses includes the
results of a funds transfer pricing process that matches assets and
liabilities with similar interest rate sensitivity and maturity characteristics.
The management accounting reporting process derives segment and
business results by utilizing allocation methodologies for
revenue,
expense and capital. The net income derived for the businesses is
dependent upon revenue and cost allocations using an activity-based
funds transfer pricing, and other methodologies and
costing model,
assumptions management believes are appropriate to reflect the results
of the business.

Our ALM activities maintain an overall interest rate risk management
strategy that incorporates the use of interest rate contracts to manage
fluctuations in earnings that are caused by interest rate volatility. Our goal

is to manage interest rate sensitivity so that movements in interest rates
do not significantly adversely affect net interest income. The results of
the business segments will fluctuate based on the performance of corpo-
rate ALM activities. Some ALM activities are recorded in the businesses
(e.g., Deposits and Student Lending) such as external product pricing
decisions, including deposit pricing strategies, as well as the effects of
our internal funds transfer pricing process. The net effects of other ALM
activities are reported within the Deposits and Student Lending business
for GCSBB, and for GCIB and GWIM segments under ALM/Other. In addi-
tion, certain residual
impacts of the funds transfer pricing process are
retained in All Other.

Certain expenses not directly attributable to a specific business
segment are allocated to the segments based on pre-determined means.
The most significant of these expenses include data processing costs,
item processing costs and certain centralized or shared functions. Data
processing costs are allocated to the segments based on equipment
usage. Item processing costs are allocated to the segments based on the
items processed for each segment. The costs of certain
volume of
centralized or shared functions are allocated based on methodologies
which reflect utilization.

Equity is allocated to business segments and related businesses
using a risk-adjusted methodology incorporating each unit’s stand-alone
credit, market, interest rate and operational risk components. The nature
of these risks is discussed further beginning on page 54. The Corporation
benefits from the diversification of risk across these components, which
is reflected as a reduction to allocated equity for each segment. For
GCSBB, this benefit is reflected as a reduction to allocated equity pro-
portionately across the three consumer businesses, Deposits and Stu-
dent Lending, Card Services, and MHEIS. For
the GCIB and GWIM
segments, this benefit is recorded within ALM/Other. Average equity is
allocated to the business segments and the businesses, and is impacted
by the portion of goodwill that is specifically assigned to them.

32 Bank of America 2008

Global Consumer and Small Business Banking

(Dollars in millions)

Net interest income (2)
Noninterest income:
Card income
Service charges
Mortgage banking income
Insurance premiums
All other income

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses (3)
Noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (2)

Net income (loss)

Net interest yield (2)
Return on average equity (4)
Efficiency ratio (2)
Period end – total assets (5)

(Dollars in millions)

Net interest income (2)
Noninterest income:
Card income
Service charges
Mortgage banking income
Insurance premiums
All other income

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses (3)
Noninterest expense

Income before income taxes

Income tax expense (2)

Net income

Net interest yield (2)
Return on average equity (4)
Efficiency ratio (2)
Period end – total assets (5)

2008

Total (1)

$ 33,851

Deposits and
Student Lending

$ 11,395

Card
Services (1)

$ 19,184

Mortgage,
Home Equity and
Insurance Services

3,272

10,057
6,807
4,422
1,968
1,239

24,493

58,344

26,841
24,937

6,566
2,332

4,234

8.43%
5.78
42.74
$511,401

Total (1)

$ 28,712

10,194
6,007
1,332
912
698

19,143

47,855

12,920
20,349

14,586
5,224

$ 9,362

8.03%

14.81
42.52
$445,319

2,397
6,803
–
–
54

9,254

20,649

1,014
9,869

9,766
3,556

6,210

7,655
–
–
552
1,042

9,249

28,433

19,550
8,120

763
242

521

3.23%

28.37
47.79
$389,450

8.36%
1.25
28.56
$249,676

2007

5
4
4,422
1,416
143

5,990

9,262

6,277
6,948

(3,963)
(1,466)

$ (2,497)

2.52%
(25.79)
75.02
$205,386

Deposits and
Student Lending

$ 10,549

Card
Services (1)

$ 16,284

Mortgage,
Home Equity and
Insurance Services

1,879

2,156
6,003
–
–
143

8,302

18,851

601
9,411

8,839
3,126

8,032
–
–
565
434

9,031

25,315

11,305
8,358

5,652
2,062

$ 5,713

$ 3,590

6
4
1,332
347
121

1,810

3,689

1,014
2,580

95
36

3.19%

26.49
49.93
$380,934

7.80%
9.13
33.02
$254,356

2.35%
2.50
69.93
$100,992

(1) Presented on a managed basis, specifically Card Services.
(2) FTE basis
(3) Represents provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio.
(4) Average allocated equity for GCSBB was $73.3 billion and $63.2 billion in 2008 and 2007.
(5) Total assets include asset allocations to match liabilities (i.e., deposits).

Bank of America 2008 33

(Dollars in millions)

Total loans and leases
Total earning assets (1)
Total assets (1)
Total deposits

(1) Total earning assets and total assets include asset allocations to match liabilities (i.e., deposits).

The strategy for GCSBB is to attract, retain and deepen customer rela-
tionships. We execute this strategy through our ability to offer a wide
range of products and services through a franchise that stretches coast
to coast through 32 states and the District of Columbia. We also provide
credit card products to customers in Canada, Ireland, Spain and the
United Kingdom. In the U.S., we serve approximately 59 million consumer
and small business relationships utilizing our network of 6,139 banking
centers, 18,685 domestic branded ATMs, and telephone and Internet
channels. GCSBB is made up of three businesses: Deposits and Student
Lending, Card Services and MHEIS. GCSBB, specifically the Card Services
business,
is presented on a managed basis. For a reconciliation of
managed GCSBB to held GCSBB, see Note 22 – Business Segment
Information to the Consolidated Financial Statements.

Net income decreased $5.1 billion, or 55 percent, to $4.2 billion
compared to 2007 as growth in noninterest income and net interest
income was more than offset by higher provision for credit losses and an
increase in noninterest expense.

Net interest income increased $5.1 billion, or 18 percent, to $33.9
billion due to higher margin on ALM activities and the impact of the Coun-
trywide and LaSalle acquisitions. In addition, average loans and leases,
and average deposits increased $56.2 billion and $40.3 billion, or 19
percent and 12 percent. Noninterest income increased $5.4 billion, or 28
percent, due to increased mortgage banking income and insurance pre-
miums primarily as a result of the Countrywide acquisition, and higher
service charges. In addition, noninterest income benefited from the $388
million gain from the Visa IPO transactions and $283 million gain on the
sale of a card portfolio.

Provision for credit losses increased $13.9 billion to $26.8 billion
compared to $12.9 billion in 2007, driven by increases of $8.2 billion
and $5.3 billion in Card Services and MHEIS. For further discussion
related to Card Services and MHEIS, see their respective discussions
beginning on pages 35 and 36.

Noninterest expense increased $4.6 billion, or 23 percent, to $24.9

billion, primarily driven by the Countrywide and LaSalle acquisitions.

Deposits and Student Lending
Deposits and Student Lending includes the results of consumer deposits
activities which include a comprehensive range of products to consumers
In addition, Deposits and Student Lending
and small businesses.
includes our student lending and small business banking results, exclud-
ing business card, and the net effect of our ALM activities. Debit Card
results are also included in Deposits and Student Lending.

Our deposit products include traditional savings accounts, money
market savings accounts, CDs and IRAs, and noninterest- and interest-
bearing checking accounts. Deposit products provide a relatively stable
source of funding and liquidity. We earn net interest spread revenues
from investing this liquidity in earning assets through client-facing lending
and ALM activities. The revenue is allocated to the deposit products using

December 31

Average Balance

2008

$365,198
434,568
511,401
393,165

2007

$325,759
381,520
445,319
346,908

2008

$350,264
401,671
471,223
370,961

2007

$294,030
357,639
409,999
330,661

our funds transfer pricing process which takes into account the interest
rates and maturity characteristics of the deposits. Deposits also generate
fees such as account service fees, non-sufficient fund fees, overdraft
charges and ATM fees, while debit cards generate merchant interchange
fees based on purchase volume.

We added 2.2 million net new retail checking accounts in 2008.
These additions resulted from continued improvement in sales and serv-
ice results in the Banking Center Channel and Online, and the success of
new Affinity relationships and products such as Keep the ChangeTM. Dur-
ing 2008, our active online banking customer base grew to 28.9 million
subscribers, an increase of 5.1 million net subscribers from 2007. In
addition, our active bill pay users paid $309.7 billion worth of bills online
during 2008.

We continue to migrate qualifying affluent customers and their related
deposit balances to GWIM. In 2008 and 2007, a total of $20.5 billion
and $11.4 billion of deposits were migrated from Deposits and Student
Lending to Premier Banking and Investments (PB&I) within GWIM. The
increase was mainly due to the initial migration of
legacy LaSalle
accounts and the acceleration of moving qualified clients into PB&I as
part of our growth initiatives for our mass affluent and retirement custom-
ers. After migration, the associated net interest income, service charges
and noninterest expense are recorded in GWIM.

Net income increased $497 million, or nine percent, to $6.2 billion
compared to 2007 driven by higher noninterest income and net interest
income partially offset by increases in noninterest expense and provision
for credit losses.

Net interest income increased $846 million, or eight percent, driven
by a higher contribution from our ALM activities and growth in average
deposits partially offset by the impact of competitive deposit pricing.
Average deposits grew $34.2 billion, or 11 percent, due to organic
growth, including customers’ flight-to-safety, as well as the acquisitions of
Countrywide and LaSalle. Organic growth was partially offset by the migra-
tion of customer relationships and related deposit balances to GWIM.

Noninterest income increased $952 million, or 11 percent, to $9.3
billion driven by higher service charges of $800 million, or 13 percent,
primarily as a result of increased volume, new demand deposit account
growth and the addition of LaSalle. Additionally, debit card revenue growth
of $241 million, or 11 percent, was due to new account and card growth,
increased usage and the addition of LaSalle.

Provision for credit losses increased $413 million, or 69 percent, to
$1.0 billion principally driven by deterioration in the small business lend-
ing portfolio due to the impacts of a slowing economy and seasoning of
the portfolio reflective of growth.
In addition, the provision for credit
losses increased due to losses on overdraft accounts.

Noninterest expense increased $458 million, or five percent, to $9.9
billion compared to 2007, primarily due to the acquisitions of LaSalle and
Countrywide, combined with an increase in accounts and transaction
volumes.

34 Bank of America 2008

Card Services
Card Services, which excludes the results of Debit Card (included in
Deposits and Student Lending), provides a broad offering of products,
including U.S. Consumer and Business Card, Unsecured Lending, and
International Card. We offer a variety of co-branded and affinity credit card
products and are one of the leading issuers of credit cards through
endorsed marketing in the U.S. and Europe.

The Corporation reports its Card Services results on a managed basis,
which is consistent with the way that management evaluates the results
of Card Services. Managed basis assumes that securitized loans were
not sold and presents earnings on these loans in a manner similar to the
way loans that have not been sold (i.e., held loans) are presented. Loan
securitization is an alternative funding process that is used by the Corpo-
ration to diversify funding sources. Loan securitization removes loans
from the Consolidated Balance Sheet through the sale of loans to an
off-balance sheet QSPE which is excluded from the Corporation’s Con-
solidated Financial Statements in accordance with GAAP.

Securitized loans continue to be serviced by the business and are
subject to the same underwriting standards and ongoing monitoring as
held loans. In addition, excess servicing income is exposed to similar
credit risk and repricing of interest rates as held loans. The financial
market disruptions that began in 2007 continued to impact the economy
and financial services sector. Late in the third quarter and into the fourth
quarter of 2008, liquidity for asset-backed securities disappeared and
spreads rose to historic highs, negatively impacting our credit card securi-
tization programs. If these conditions persist, it could adversely affect our
ability to access these markets at favorable terms. For more information,
see the Liquidity Risk and Capital Management discussion on page 55.

Net income decreased $3.1 billion, or 85 percent, to $521 million
compared to 2007 as growth in net interest income and noninterest
income was more than offset by higher provision for credit losses of $8.2
billion.

Net interest income grew $2.9 billion, or 18 percent, to $19.2 billion
driven by higher managed average loans and leases of $21.3 billion, or
10 percent, combined with the beneficial impact of the decrease in short-
term interest rates on our funding costs.

Noninterest income increased $218 million, or two percent, to $9.2
billion as other income benefited from the $388 million gain related to
Card Services’ allocation of the Visa IPO as well as a $283 million gain
on the sale of a card portfolio. These increases were partially offset by
the decrease in card income of $377 million, or five percent, due to the
unfavorable change in the value of the interest-only strip and decreases in
interchange income driven by reduced retail volume and late fees.

Provision for credit losses increased $8.2 billion, or 73 percent, to
$19.6 billion compared to 2007 primarily driven by portfolio deterioration
and higher bankruptcies from impacts of the slowing economy, a lower
level of foreign securitizations and growth-related seasoning of the portfo-
lio. For further discussion, see Provision for Credit Losses on page 81.

Noninterest expense decreased $238 million, or three percent, to
$8.1 billion compared to 2007, as the impact of certain benefits asso-
ciated with the Visa IPO transactions and lower marketing expense were
partially offset by higher personnel and technology-related expenses from
increased customer assistance and collections infrastructure.

Key Statistics

(Dollars in millions)

Card Services
Average – total loans and leases:

Managed
Held

Period end – total loans and leases:

Managed
Held

Managed net losses (1):

Amount
Percent (3)
Credit Card (2)
Average – total loans and leases:

Managed
Held

Period end – total loans and leases:

Managed
Held

Managed net losses (1):

Amount
Percent (3)

2008

2007

$229,347
124,946

226,081
125,121

$208,094
104,810

225,889
122,922

15,321

6.68%

10,088

4.85%

$184,246
79,845

182,234
81,274

$171,376
70,242

183,691
80,724

11,382

6.18%

8,214

4.79%

(1) Represents net charge-offs on held loans combined with realized credit losses associated with the

(2)

securitized loan portfolio.
Includes U.S. consumer, foreign and U.S. government card. Does not include business card and
unsecured lending.

(3) Ratios are calculated as managed net losses divided by average outstanding managed loans and leases

during the year.

The table above and the following discussion presents select key

indicators for the Card Services and credit card portfolios.

Managed Card Services net losses increased $5.2 billion to $15.3
billion, or 6.68 percent of average outstandings, compared to $10.1 bil-
lion, or 4.85 percent in 2007. This increase was driven by portfolio
deterioration and higher bankruptcies reflecting the impacts of the slow-
ing economy. Additionally, portfolio deterioration during the second half of
2008 and growth-related seasoning of the unsecured lending portfolio
drove a portion of the increase.

Managed credit card net losses increased $3.2 billion to $11.4 bil-
lion, or 6.18 percent of average credit card outstandings, compared to
$8.2 billion, or 4.79 percent in 2007. The increase was driven by portfo-
lio deterioration and higher bankruptcies reflecting the impacts of a slow-
ing economy.

For more information on credit quality, see Consumer Portfolio Credit

Risk Management beginning on page 62.

Bank of America 2008 35

Mortgage, Home Equity and Insurance Services
MHEIS generates revenue by providing an extensive line of consumer real
estate products and services to customers nationwide. MHEIS products
are available to our customers through a retail network of personal bank-
ers located in 6,139 banking centers, mortgage loan officers in nearly
1,000 locations and through a sales force offering our customers direct
telephone and online access to our products. These products are also
offered through our correspondent and wholesale loan acquisition chan-
nels. MHEIS products include fixed and adjustable rate first-lien mortgage
loans for home purchase and refinancing needs, reverse mortgages,
home equity lines of credit and home equity loans. First mortgage prod-
ucts are either sold into the secondary mortgage market to investors,
while retaining MSRs and the Bank of America customer relationships, or
are held on our balance sheet for ALM purposes. MHEIS is not impacted
by the Corporation’s mortgage production retention decisions as MHEIS is
compensated for the decision on a management accounting basis with a
corresponding offset recorded in All Other.
In addition, MHEIS offers
property, casualty, life, disability and credit insurance.

Effective July 1, 2008, Countrywide’s results of operations are
included in the Corporation’s consolidated results. While the results of
deposit operations are included in Deposits and Student Lending the
majority of Countrywide’s ongoing operations are recorded in MHEIS.
Countrywide’s acquired first mortgage and discontinued real estate portfo-
lios were recorded in All Other and are managed as part of our overall
ALM activities. For more information related to the Countrywide acquis-
ition, see Note 2 – Merger and Restructuring Activity to the Consolidated
Financial Statements.

MHEIS’s net income decreased $2.6 billion to a net loss of $2.5 bil-
lion compared to 2007 as growth in noninterest income and net interest
income was more than offset by higher provision for credit losses and an
increase in noninterest expense.

Net interest income grew $1.4 billion, or 74 percent, driven primarily
by an increase in average home equity loans and LHFS. The growth in
average home equity loans of $32.3 billion, or 44 percent, and a $5.5
billion increase in LHFS were attributable to the Countrywide and LaSalle
acquisitions as well as increases in our home equity portfolio as a result
of slower prepayment speeds and organic growth.

Noninterest income increased $4.2 billion to $6.0 billion compared to
2007 driven by increases in mortgage banking income and insurance
premiums. Mortgage banking income grew $3.1 billion due primarily to
the acquisition of Countrywide combined with increases in the value of
MSR economic hedge instruments partially offset by a decrease in value
of MSRs. For more information, see the mortgage banking income dis-
cussion which follows. Insurance premiums increased $1.1 billion due to
the acquisition of Countrywide.

Provision for credit losses increased $5.3 billion to $6.3 billion com-
pared to 2007. This increase was driven primarily by higher losses
inherent in the home equity portfolio, reflective of deterioration in the
housing markets particularly in geographic areas that have experienced
higher levels of declines in home prices. In addition, most home equity
loans are secured by second lien positions significantly reducing and, in
some cases, resulting in no collateral value after consideration of the first
lien position. This drove more severe charge-offs as borrowers defaulted.
For further discussion, see Provision for Credit Losses on page 81.

Noninterest expense increased $4.4 billion to $6.9 billion primarily

driven by the Countrywide acquisition.

Mortgage Banking Income
We categorize MHEIS’s mortgage banking income into production and
servicing income. Production income is comprised of revenue from the
fair value gains and losses recognized on our IRLCs and LHFS, and the
related secondary market execution, and costs related to representations
and warranties given in the sales transactions and other obligations
incurred in the sales of mortgage loans. In addition, production income
includes revenue for transfers of mortgage loans from MHEIS to the ALM
portfolio related to the Corporation’s mortgage production retention deci-
sions which is eliminated in consolidation in All Other.

Servicing activities primarily include collecting cash for principal, inter-
est and escrow payments from borrowers, disbursing customer draws for
lines of credit and accounting for and remitting principal and interest
payments to investors and escrow payments to third parties. Our workout
efforts are also part of our servicing activities, along with responding to
customer
inquiries and supervising foreclosures and property dis-
positions. Servicing income includes ancillary income derived in con-
nection with these activities such as late fees and MSR valuation
adjustments, net of economic hedge activities.

The following table summarizes the components of mortgage banking

income:

Mortgage banking income

(Dollars in millions)

Production income
Servicing income:

Servicing fees and ancillary income
Impact of customer payments
Fair value changes of MSRs, net of economic

hedge results

Other servicing-related revenue

Total net servicing income

Total mortgage banking income

2008
$ 2,119

3,529
(3,313)

1,906
181
2,303
$ 4,422

2007

$ 733

903
(766)

462
–

599

$1,332

36 Bank of America 2008

Production income increased $1.4 billion in 2008 compared to 2007.
This increase was driven by the Countrywide acquisition which resulted in
higher volumes, and an improvement in margins.

Net servicing income increased $1.7 billion in 2008 compared to
2007 due primarily to increases in the value of the MSR economic hedge
instruments of $8.6 billion partially offset by changes in the fair value of
MSRs of $6.7 billion. Generally, when mortgage interest rates decline, as
occurred during the second half of 2008, there is an increase in the value
of instruments used to economically hedge MSRs and a corresponding
decrease in the value of MSRs. The decrease in the value of MSRs during
the second half of 2008 was tempered by the expectation that weakness
in the housing market would decrease the impact of market interest rates
on expected future prepayments. For further discussion on MSRs and the
related hedge instruments, see Mortgage Banking Risk Management on
page 92.

The following table presents select key indicators for MHEIS.

Mortgage, Home Equity and Insurance Services Key Statistics

(Dollars in millions, except as noted)

2008

2007

Loan production:

First mortgage
Home equity

Period end
Mortgage servicing portfolio (in billions) (1)
Mortgage loans serviced for investors (in

billions)

Mortgage servicing rights:

Balance
Capitalized mortgage servicing rights (%

of loans serviced)

$128,945
31,998

$93,304
69,226

2,057

1,654

12,733

517

259

3,053

77bps

118bps

(1) Servicing of residential mortgage loans, home equity lines of credit, home equity loans and discontinued

real estate mortgage loans.

First mortgage and home equity production were $128.9 billion and
$32.0 billion in 2008 compared to $93.3 billion and $69.2 billion in
2007. The increase of $35.6 billion in first mortgage production was due
to the acquisition of Countrywide partially offset by decreased activity in
the mortgage market. The decrease of $37.2 billion in home equity pro-
duction was primarily due to more stringent underwriting guidelines for
home equity lines of credit and loans, and lower consumer demand.

The servicing portfolio at December 31, 2008 was $2.1 trillion, $1.5
trillion higher than at December 31, 2007, driven by the acquisition of
Countrywide. Included in this amount was $1.7 trillion of residential first
mortgage, home equity lines of credit and home equity loans serviced for
others.

At December 31, 2008, the consumer MSR balance was $12.7 bil-
lion, which represented 77 bps of the related unpaid principal balance as
compared to $3.1 billion, or 118 bps of the related principal balance at
December 31, 2007. The increase in the consumer MSR balance was
driven by $17.2 billion of MSRs that we acquired from Countrywide which
was partially offset by the impact of mortgage rates falling substantially
during the fourth quarter of 2008. As a result of the decline in rates, the
value of the MSRs decreased driven by a significant increase in expected
prepayments which reduced the expected life of the consumer MSRs.
This resulted in the 41 bps decrease in the capitalized MSRs as a per-
centage of loans serviced. MSR economic hedge results were more than
sufficient to offset this decrease.

Bank of America 2008 37

Global Corporate and Investment Banking

(Dollars in millions)

Net interest income (2)
Noninterest income:
Service charges
Investment and brokerage services
Investment banking income
Trading account profits (losses)
All other income (loss)

Total noninterest income (loss)

Total revenue, net of interest expense

Provision for credit losses
Noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (2)

Net income (loss)

Net interest yield (2)
Return on average equity (3)
Efficiency ratio (2)
Period end – total assets (4)

(Dollars in millions)

Net interest income (2)
Noninterest income:
Service charges
Investment and brokerage services
Investment banking income
Trading account profits (losses)
All other income (loss)

Total noninterest income (loss)

Total revenue, net of interest expense

Provision for credit losses
Noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (2)

Net income (loss)

Net interest yield (2)
Return on average equity (3)
Efficiency ratio (2)
Period end – total assets (4)

2008

Capital
Markets
and
Advisory
Services (1)

6,124

134
810
2,708
(5,787)
(7,007)

(9,142)

(3,018)

5
4,722

(7,745)
(2,797)

Business
Lending

6,221

657
–
–
(251)
1,196

1,602

7,823

3,082
2,066

2,675
953

Treasury
Services

3,610

ALM/
Other

$ 583

2,553
40
–
74
1,507

4,174

7,784

47
3,459

4,278
1,546

–
–
–
8
260

268

851

(54)
134

771
291

1,722

$ (4,948)

2,732

$ 480

1.97%
7.38
26.40
$336,561

n/m
(24.32)%
n/m
$313,141

2.17%

33.21
44.43
$223,895

n/m
n/m
n/m
n/m

2007

Capital
Markets
and
Advisory
Services (1)

2,788

134
869
2,537
(4,811)
(968)

(2,239)

549

–
5,925

(5,376)
(1,991)

Business
Lending

$ 4,926

516
–
–
(180)
823

1,159

6,085

653
2,262

3,170
1,170

Treasury
Services

3,792

2,121
42
–
63
1,086

3,312

7,104

6
3,713

3,385
1,249

$ 2,000

$ (3,385)

$ 2,136

1.96%

12.36
37.19
$303,966

n/m
(25.52)%
n/m
$413,811

2.79%

27.18
52.27
$183,996

ALM/
Other

$(300)

(1)
2
–
7
205

213

(87)

(1)
298

(384)
(143)

$(241)

n/m
n/m
n/m
n/m

Total

$ 16,538

3,344
850
2,708
(5,956)
(4,044)

(3,098)

13,440

3,080
10,381

(21)
(7)

(14)

2.36%
(0.02)
77.24
$707,170

Total

$ 11,206

2,770
913
2,537
(4,921)
1,146

2,445

13,651

658
12,198

795
285

510

1.65%
1.12
89.36
$778,158

(1)

Includes $113 million and $70 million of net interest income on loans for which the fair value option has been elected and is not considered market-based income for 2008 and 2007. For more information, see the
market-based revenue discussion beginning on page 40.

(2) FTE basis
(3) Average allocated equity for GCIB was $62.4 billion and $45.3 billion for 2008 and 2007. The increase was attributable to goodwill associated with the LaSalle acquisition, portfolio growth, and higher trading and

operational risk.

(4) Total assets include asset allocations to match liabilities (i.e., deposits).
n/m = not meaningful

38 Bank of America 2008

(Dollars in millions)

Total loans and leases
Total trading-related assets
Total market-based earning assets (1)
Total earning assets (2)
Total assets (2)
Total deposits

December 31

Average Balance

2008

$340,692
247,552
244,914
589,431
707,170
251,798

2007

$326,042
308,316
360,276
675,407
778,158
246,242

2008

$337,352
341,544
368,751
699,708
816,832
239,097

2007

$274,725
362,195
412,587
677,215
771,219
219,891

(1) Total market-based earning assets represents earning assets included in CMAS but excludes loans that are accounted for at fair value in accordance with SFAS 159.
(2) Total earning assets and total assets include asset allocations to match liabilities (i.e., deposits).

GCIB provides a wide range of financial services to both our issuer
and investor clients that range from business banking clients to large
international corporate and institutional investor clients using a strategy
to deliver value-added financial products, transaction and advisory serv-
ices. GCIB’s products and services are delivered from three primary busi-
nesses: Business Lending, CMAS, and Treasury Services, and are
relationship
provided to our clients through a global
In addition, ALM/Other includes the
managers and product partners.
results of ALM activities and other GCIB activities. Our clients are sup-
ported through offices in 22 countries that are divided into four distinct
geographic regions: U.S. and Canada; Asia; Europe, Middle East, and
Africa; and Latin America. For more information on our foreign operations,
see Foreign Portfolio beginning on page 79.

team of client

On January 1, 2009, we acquired Merrill Lynch in exchange for com-
mon and preferred stock with a value of $29.1 billion, creating a premier
financial services franchise with significantly enhanced wealth manage-
ment, investment banking and international capabilities. In addition, the
acquisition adds strengths in debt and equity underwriting, sales and
trading, and global merger and acquisition advice, creating significant
opportunities to deepen relationships with corporate and institutional
clients around the globe. For more information related to the Merrill Lynch
acquisition, see Note 2 – Merger and Restructuring Activity to the Con-
solidated Financial Statements.

retail customers,

including individual

During 2008, we reached an agreement with the Massachusetts
Securities Division under which we offered to purchase at par ARS held by
our
investors, businesses, and
charitable organizations. Further in October 2008, we announced other
agreements in principle with the SEC, the Office of the NYAG, and the
North American Securities Administrators Association. These agreements
the agreement with the NYAG
that
are substantially similar except
requires the payment of a penalty. These agreements will cover approx-
imately $5.3 billion in ARS held by an estimated 5,600 of our customers.
We purchased approximately $4.7 billion of securities, $2.7 billion of
which were purchased by GWIM and $2.0 billion of which were purchased
by GCIB. During the year, we recognized mark-to-market losses of $181
million and $312 million in GWIM and GCIB on these securities and a
penalty of $50 million which was equally allocated to GWIM and GCIB. As
of December 31, 2008, our remaining commitment to purchase ARS was
$675 million of which $537 million related to GWIM and $138 million
related to GCIB.

Net income decreased $524 million to a net loss of $14 million and
total revenue decreased $211 million, or two percent, to $13.4 billion in
2008 compared to 2007. These decreases were driven by losses result-
ing from our CDO and other trading exposures. Additionally, we experi-
enced an increase in provision for credit losses which was partially offset
by higher net interest income and a decrease in noninterest expense.

Net interest income increased $5.3 billion, or 48 percent, driven
primarily by higher market-based net interest income which benefited from
the steepening of the yield curve and product mix. Additionally, net inter-
est income benefited from growth in average loans and leases of $62.6

billion, or 23 percent, combined with a higher margin on ALM activities.
These benefits were partially offset by the impact of competitive deposit
pricing and a shift in the deposit product mix as more customers moved
their deposits to higher yielding products. The growth in average loans
and deposits was due to the LaSalle merger as well as organic growth.

Noninterest income decreased $5.5 billion to a loss of $3.1 billion in
2008 compared to 2007, driven by declines in trading account profits
(losses) of $1.0 billion and other income of $5.2 billion. For more
information on the aforementioned decreases, see the CMAS discussion.
Additionally, noninterest income benefited from the favorable impact of
the Visa IPO transactions and an increase in service charge income.

The provision for credit losses increased $2.4 billion to $3.1 billion in
2008 compared to 2007 reflecting higher credit costs in Business Lend-
ing. For further information, see the Business Lending discussion.

Noninterest expense decreased $1.8 billion, or 15 percent, mainly
due to a reduction in performance-based incentive compensation in CMAS
and the impact of certain benefits associated with the Visa IPO trans-
actions, partially offset by the addition of LaSalle.

Business Lending
Business Lending provides a wide range of lending-related products and
services to our clients through client relationship teams along with vari-
ous product partners. Products include commercial and corporate bank
loans and commitment facilities which cover our business banking cli-
ents, middle-market commercial clients and our large multinational corpo-
rate clients. Real estate lending products are issued primarily to public
and private developers, homebuilders and commercial real estate firms.
Leasing and asset-based lending products offer our clients innovative
financing products. Products also include indirect consumer loans which
allow us to offer financing through automotive, marine, motorcycle and
recreational vehicle dealerships across the U.S. Business Lending also
contains the results for the economic hedging of our risk to certain
middle-market and real estate-related commercial credit counterparties
utilizing various risk mitigation tools.

Net income decreased $278 million, or 14 percent, to $1.7 billion in
2008 compared to 2007 as increases in net interest income and non-
interest income combined with a decrease in noninterest expense were
more than offset by increases in provision for credit losses.

Net interest income increased $1.3 billion, or 26 percent, driven by
average loan growth of 25 percent to $311.0 billion. The increase in
average loans and leases was attributable to the LaSalle acquisition and
organic growth primarily in commercial – domestic and real estate loans.

The increase in noninterest income of $443 million, or 38 percent,
was mainly driven by improved economic hedging results of our exposures
to certain commercial clients and an increase in service charges.

The provision for credit losses increased $2.4 billion to $3.1 billion in
2008 compared to 2007, reflecting reserve increases and higher charge-
offs primarily due to the continued weakness in the housing markets on
the homebuilder portfolio. Also contributing to this increase were higher
commercial – domestic and foreign net charge-offs which increased from

Bank of America 2008 39

very low prior year levels and higher net charge-offs and reserve increases
in the retail dealer-related loan portfolios due to deterioration and season-
ing of the portfolio reflective of growth.

Noninterest expense decreased $196 million, or nine percent, primar-
ily due to decreased incentive compensation partially offset by the
LaSalle merger.

Capital Markets and Advisory Services
CMAS provides financial products, advisory services and financing glob-
ally to our institutional investor clients in support of their investing and
trading activities. We also work with our commercial and corporate issuer
clients to provide debt and equity underwriting and distribution capa-
bilities, merger-related advisory services and risk management products
using interest rate, equity, credit, currency and commodity derivatives,
foreign exchange, fixed income and mortgage-related products. The busi-
ness may take positions in these products and participate in market-
making activities dealing in government securities, equity and equity-
linked securities, high-grade and high-yield corporate debt securities,
commercial paper, mortgage-backed securities and ABS. Underwriting
debt and equity, securities research and certain market-based activities
are executed through Banc of America Securities, LLC which is our pri-
mary dealer.

CMAS recognized a net loss of $4.9 billion in 2008 compared to a net
loss of $3.4 billion in 2007. Market-based revenue was a net loss of
$3.1 billion as compared to net
revenue of $479 million. These
decreases were driven by losses related to CDO exposure and the
continuing impact of the market disruptions on various parts of our busi-
ness including the severe volatility, illiquidity and credit dislocations that
were experienced in the debt and equity markets in the fourth quarter of
2008. Partially offsetting these declines were favorable results in our liq-
uid products and equity underwriting businesses. In addition, noninterest
expense declined $1.2 billion primarily due to lower performance-based
incentive compensation. For more information relating to our market-
based revenue, see the discussion below.

Market-based Revenue
CMAS evaluates its results using market-based revenue that is comprised
of net interest income and noninterest income. The following table pres-
ents further detail regarding market-based revenue. Sales and trading
revenue is segregated into fixed income from liquid products (primarily
interest rate and commodity derivatives and foreign exchange contracts),
credit products (primarily investment and noninvestment grade corporate
debt obligations, credit derivatives and public finance), structured prod-
ucts (primarily CMBS, residential mortgage-backed securities, structured
credit trading and CDOs), and equity income from equity-linked derivatives
and cash equity activity.

(Dollars in millions)

Investment banking income

Advisory fees
Debt underwriting
Equity underwriting

Total investment banking income

Sales and trading revenue

Fixed income:
Liquid products
Credit products
Structured products

Total fixed income

Equity income

Total sales and trading revenue

Total Capital Markets and Advisory Services
market-based revenue (1)

2008

2007

$ 287
1,797
624

2,708

3,608
(2,273)
(7,987)

(6,652)
813

(5,839)

443
1,775
319

2,537

2,155
(212)
(5,326)

(3,383)
1,325

(2,058)

$(3,131)

479

(1) Excludes $113 million and $70 million for 2008 and 2007 of net interest income on loans for which the

fair value option has been elected and is not considered market-based income.

Investment banking income increased $171 million to $2.7 billion as
compared to 2007 driven by increased equity underwriting fees partially
offset by lower advisory fees. Advisory fees were adversely impacted by
reduced activity due to the slowing economy. Equity underwriting income
was driven by fees earned on the Corporation’s stock issuances during
2008 for which CMAS was compensated on a management accounting
basis with a corresponding offset in All Other.

Sales and trading revenue declined $3.8 billion to a loss of $5.8 bil-
lion in 2008 compared to 2007. While structured products and credit
products reported losses for 2008, liquid products increased and equities
compared reasonably well with 2007 despite the continuing disruptive
market conditions.
Š Liquid products sales and trading revenue increased $1.5 billion in
2008 compared to 2007 as CMAS took advantage of trending volatility
in interest rate and foreign exchange markets which also drove favor-
able client flows.

Š Credit products sales and trading revenue declined $2.1 billion to a
loss of $2.3 billion in 2008 compared to 2007. During 2008, we
incurred losses of $1.1 billion, net of $286 million of fees, on lever-
aged loans and the forward leveraged finance commitments as investor
confidence faded and liquidity became largely non-existent. The few
institutions that were in a position to acquire additional loans, required
discount equivalent yields in excess of one-month LIBOR plus 1,000
bps in some instances, thus applying downward pressure to pricing
mechanisms, especially during the fourth quarter of 2008. Losses
incurred on our leveraged exposure were not concentrated in any one
type (senior secured or subordinated/senior unsecured) and were
generally due to wider new issuance credit spreads as compared to the
negotiated spreads. Credit products also incurred losses on ARS of
$898 million which included $312 million representing CMAS’s portion
of losses on the buyback from our customers. A significant portion of
these losses (i.e., $750 million) were concentrated in student loan
ARS. For further discussion on our ARS exposure, see Industry Concen-
trations beginning on page 76 and for a discussion on GWIM’s portion
of ARS losses on the buyback from our customers see page 45.

40 Bank of America 2008

At December 31, 2008, we had no forward leveraged finance com-
mitments and the carrying value of our leveraged funded positions held
for distribution was $2.8 billion. At December 31, 2007, the carrying
value of the Corporation’s forward leveraged finance commitments and
leveraged funded positions held for distribution were $11.9 billion and
$5.9 billion. The elimination of our forward leveraged finance commit-
ments was due to the funding of previously outstanding commitments,
approximately 66 percent of which were distributed through syndi-
cation, and client-terminated commitments. Pre-market disruption
exposure originated prior to September 30, 2007 had a carrying value
of $1.5 billion at December 31, 2008 as compared to $5.9 billion at
December 31, 2007. At December 31, 2008, 66 percent of the lever-
aged funded positions held for distribution were senior secured with an
approximate carrying value of $1.9 billion of which $1.4 billion were
originated prior to September 30, 2007.

Š Structured products sales and trading revenue was a loss of $8.0 bil-
lion, which represented a decline in revenue of $2.7 billion compared
to the prior year. The decrease was driven by $4.8 billion of losses
resulting from our CDO exposure, which includes our super senior,
warehouse, and sales and trading positions, and our hedging activities
including counterparty credit risk valuations. See the detailed CDO
exposure discussion to follow. Also, structured products was adversely
impacted by $944 million of losses (net of hedges) on CMBS funded
debt and the forward finance commitments for 2008, and $545 million
in losses associated with equity investments we made in acquisition-
related financing transactions.
In addition, 2008 included losses
related to other structured products including $738 million of losses
for counterparty credit risk valuations related to our structured credit
trading business. Other structured products,
including residential
mortgage-backed securities as well as other residual structured credit
positions were negatively impacted by spread widening and extreme
dislocations in basis correlations in both domestic and foreign markets
that occurred in the fourth quarter of 2008. The results of 2007 were
adversely impacted by the market disruptions that began during the
third quarter of 2007.

At December 31, 2008 and 2007, we held $6.9 billion and $13.6
billion of funded CMBS debt of which $6.0 billion and $8.9 billion were
primarily floating-rate acquisition-related financings to major, well-
known operating companies. In addition, at December 31, 2008 and
2007, we had forward finance commitments of $700 million and $2.2
billion. The decrease in funded CMBS debt was driven by securitiza-
tions and loan sales, while the decrease in forward finance commit-
ments was driven by the funding of outstanding commitments and the
business decision not to enter into any new floating-rate acquisition-
related financings. Forward finance commitments at December 31,
2008 were comprised primarily of fixed-rate conduit product financings.
The $944 million of losses recorded during 2008 associated with our
CMBS exposure were concentrated in the more difficult
to hedge
floating-rate debt.

Š Equity products sales and trading revenue decreased $512 million to
$813 million in 2008 compared to 2007 primarily due to lower trading
results in the institutional derivatives businesses and the sale of our
equity prime brokerage business that occurred in the third quarter of
2008.

Collateralized Debt Obligation Exposure at December 31, 2008
CDO vehicles hold diversified pools of
fixed income securities. CDO
vehicles issue multiple tranches of debt securities, including commercial
paper, mezzanine and equity securities.

Our CDO exposure can be divided into funded and unfunded super
senior liquidity commitment exposure, other super senior exposure (i.e.,
cash positions and derivative contracts), warehouse, and sales and trad-
ing positions. For more information on our CDO liquidity commitments,
to Collateralized Debt Obligation Vehicles as part of Off- and
refer
On-Balance Sheet Arrangements beginning on page 49. Super senior
exposure represents the most senior class of commercial paper or notes
that are issued by the CDO vehicles. These financial instruments benefit
from the subordination of all other securities issued by the CDO vehicles.
During 2008, we recorded CDO-related losses of $4.8 billion com-
pared to $5.6 billion in 2007 including losses on super senior exposure
of $3.6 billion and $4.0 billion. Also included in CDO-related losses in
2008 were $707 million of losses on purchased securities from liqui-
dated CDO vehicles. These securities were purchased from the vehicles
at auction and the losses were recorded subsequent to their purchase.
CDO-related losses reduced trading account profits (losses) by $1.6 bil-
lion and other income by $3.2 billion. Also included during 2008 were net
gains of $893 million related to our hedging activity, $315 million of
losses related to subprime sales and trading and CDO warehouse posi-
tions, and $1.1 billion of losses to cover counterparty risk on our CDO
and subprime-related exposure. The losses recorded in other income
noted above were other-than-temporary impairment charges related to
CDOs and purchased securities classified as AFS debt securities at
December 31, 2008. Also we had unrealized losses on uninsured other
super senior cash positions and purchased securities from liquidated
CDOs of $422 million (pre-tax) in accumulated OCI at December 31,
2008.

The CDO and related markets continued to deteriorate during 2008,
experiencing significant illiquidity impacting the availability and reliability
of transparent pricing. At December 31, 2008, we valued these CDO
structures consistent with how we valued them at December 31, 2007.
We assumed the CDO structures would terminate and looked through the
structures to the underlying net asset values of the securities. We were
able to obtain security values using either external pricing services or
offsetting trades for approximately 94 percent of the CDO exposure for
which we used the average of all prices obtained by security. The majority
of the remaining positions where no pricing quotes were available were
valued using matrix pricing by aligning the value to securities that had
similar vintage of underlying assets and ratings, using the lowest rating
between the rating services. The remaining securities were valued as
interest-only strips, based on estimated average life, exposure type and
vintage of the underlying assets. We assigned a zero value to the CDO
positions for which an event of default has been triggered and liquidation
notice has been issued. The value of cash held by the trustee for all CDO
structures was also incorporated into the resulting net asset value. In
addition, we were able to obtain security values using the same method-
ology as the CDO exposure for approximately 65 percent of the purchased
securities from liquidated CDOs. Similarly, the majority of the remaining
positions where no pricing quotes were available were valued using matrix
pricing and projected cash flows.

Bank of America 2008 41

As presented in the following table, during 2008, our super senior net
exposure, excluding purchased securities
from liquidated CDOs,
decreased $8.4 billion to $3.3 billion at December 31, 2008, driven by
paydowns, liquidations and writedowns. Including purchased securities,
our super senior net exposure decreased $6.3 billion to $5.3 billion at
December 31, 2008. In addition, during the year we reclassified $5.6 bil-
lion of super senior liquidity commitments to other super senior exposure.
This amount represents the net exposure, after insurance and write-

downs, at the time of reclassification of five CDO vehicles and a CDO
conduit to which we had an aggregate gross liquidity exposure of $11.5
billion at December 31, 2007. As described further within the Collateral-
ized Debt Obligation Vehicles section beginning on page 51, we no longer
have liquidity exposure to these vehicles. Instead, we now hold cash posi-
tions, including super senior securities issued by the CDOs.

The following table presents a rollforward of our super senior CDO

exposure for the year ended December 31, 2008.

Super Senior Collateralized Debt Obligation Exposure Rollforward

(Dollars in millions)

Super senior liquidity commitments

High grade
Mezzanine
CDO-squared

Total super senior liquidity

commitments

Other super senior exposure

High grade
Mezzanine
CDO-squared

Total other super senior

Total super senior

Purchased securities from liquidated CDOs

Total

December 31, 2007
Net Exposure

Reclassifications (1)

2008 Net
Writedowns /
Adjustments (2)

Paydowns /
Liquidations /
Other

December 31, 2008
Net Exposure

$ 5,166
358
2,227

7,751

2,125
795
959

3,879

$11,630

–

$11,630

$(3,917)
(337)
(1,318)

$ (486)
(21)
(548)

$ (287)
–
(361)

(5,572)

(1,055)

(648)

3,917
337
1,318

5,572

–

(1,328)
(606)
(1,023)

(2,957)

$(4,012)

(707)

$(4,719)

(2,207)
(229)
(1,254)

(3,690)

$(4,338)

2,737

$(1,601)

$ 476
–
–

476

2,507
297
–

2,804

$3,280

2,030

$5,310

(1) Represents CDO exposure that was reclassified from super senior liquidity commitments to other super senior exposure as the Corporation is no longer providing liquidity.
(2) Net of insurance and includes $422 million (pre-tax) of unrealized losses recorded in accumulated OCI.

The following table presents our super senior CDO exposure at December 31, 2008 and 2007.

Super Senior Collateralized Debt Obligation Exposure

Total CDO Exposure at December 31, 2008

Subprime Exposure (1)

Non-Subprime Exposure (2)

Total CDO Net Exposure

(Dollars in millions)

Gross

Insured (3)

Super senior liquidity commitments

Net of
Insured
Amount

Cumulative
Write-
downs (4,5)

Net
Exposure

Gross

Insured (3)

Net of
Insured
Amount

Cumulative
Write-
downs (4,5)

Net
Exposure

December 31
2008

December 31
2007

– $
–
–

– $ 542 $
–
–

–
–

– $ 542
–
–
–
–

$ (66)
–
–

$ 476
–
–

$ 5,166
358
2,227

–
–
–

–

– $
–
–

–

–
–
–

–

High grade
Mezzanine
CDO-squared

Total super senior liquidity

commitments

Other super senior exposure

High grade
Mezzanine
CDO-squared

Total other super senior

–

542

–

542

(66)

476

4,330
535
–

4,865

(2,519) 1,811
535
–

–
–

(2,519) 2,346

(1,127)
(238)
–

(1,365)

684
297
–

981

3,445
–
340

3,785

(728)
–
(340)

2,717
–
–

(1,068)

2,717

(894)
–
–

(894)

1,823
–
–

1,823

2,507
297
–

2,804

7,751

2,125
795
959

3,879

Total super senior

$4,865

$(2,519) $2,346

$(1,365) $ 981 $4,327 $(1,068) $3,259

$(960)

$2,299

$3,280

$11,630

Purchased securities from liquidated

CDOs

Total

2,737

–

2,737

(707)

2,030

–

2,030

–

$ 7,602

$ (2,519) $ 5,083

$ (2,072) $ 3,011 $ 4,327 $ (1,068) $ 3,259

$ (960)

$ 2,299

$ 5,310

$ 11,630

(1) Classified as subprime when subprime consumer real estate loans make up at least 35 percent of the ultimate underlying collateral’s original net exposure value.
(2)

Includes highly-rated collateralized loan obligations and commercial mortgage-backed securities super senior exposure.
Insured exposures are presented prior to $2.1 billion of cumulative writedowns.

(3)
(4) Net of insurance excluding losses taken on liquidated CDOs.
(5) Cumulative write-downs on subprime and non-subprime exposures include unrealized losses of $111 million and $311 million (pre-tax) and are recorded in accumulated OCI.

42 Bank of America 2008

At December 31, 2008, we held $2.5 billion of purchased insurance
on our subprime super senior CDO exposure of which 71 percent was
provided by monolines in the form of CDS, total-return-swaps (TRS) or
financial guarantees. In the case of default, we look to the underlying
securities and then to recovery on purchased insurance. At December 31,
2008, these contracts were valued at $1.9 billion by referencing the fair
value of the CDO which is valued in the same manner as the unhedged
portion. We have adjusted these values downward by a total of $1.1 bil-
lion to date to reflect the counterparty credit risk to the issuers of the
insurance. In addition, we held collateral in the form of cash and market-
able securities of $401 million related to our purchased insurance. The
underlying insured CDOs are collateralized with approximately 38 percent
of subprime assets of which approximately 53 percent are of higher qual-
ity vintages from 2005 and prior.

In addition, at December 31, 2008 we held $1.1 billion of purchased
insurance on our non-subprime super senior CDO exposure all of which
was provided by monolines in the form of CDS, TRS or financial guaran-
these contracts were valued at
tees. At December 31, 2008,
$146 million by referencing the fair value of the CDO which is valued in
the same manner as the unhedged portion. We have adjusted these
values downward by a total of $40 million to date to reflect counterparty
credit risk to the issuers of the insurance. For more information on our
credit exposure to monolines, see Industry Concentrations beginning on
page 76.

the carrying value of

At December 31, 2008,

the super senior
exposure in the form of cash positions,
liquidity commitments, and
derivative contracts consisted of net subprime super senior exposure of
$981 million and net non-subprime super senior exposure of $2.3 billion.
In addition, we had $2.0 billion of exposure in purchased securities from
liquidated CDOs. For more information on our super senior
liquidity
exposure, see the CDO discussion beginning on page 51.

The table below presents the carrying values of our subprime net
exposures including subprime collateral content and percentages of
recent vintages.

At December 31, 2008, the Corporation did not have any subprime
super senior liquidity commitments. Net other subprime super senior

exposure was $981 million at December 31, 2008. Other subprime super
senior exposure consists primarily of cash securities and CDS on CDO
positions. The collateral supporting the high grade exposure consisted of
about 45 percent subprime content, of which approximately 12 percent
was made up of 2006 and 2007 vintages while the remaining amount
was comprised of higher quality vintages from 2005 and prior. The collat-
eral supporting the mezzanine exposure consisted of approximately 35
percent subprime content, of which approximately 66 percent is com-
later vintages. We recorded losses associated with these
prised of
exposures of $3.0 billion in 2008.

In addition, at December 31, 2008, we had $2.0 billion of exposure in
purchased securities from liquidated CDOs. These purchased securities
were carried at approximately 34 percent of their original net exposure
amount and approximately 27 percent of the underlying assets are sub-
prime.

We also had net non-subprime super senior exposure of $2.3 billion
which primarily included CMBS super senior exposures and highly rated
CLO exposures. The net non-subprime super senior exposure is com-
prised of $476 million of high grade super senior liquidity commitment
exposure and $1.8 billion of high grade other super senior exposure. We
recorded losses of $592 million associated with these exposures in
2008. These losses were primarily driven by spread widening and
impairments of principal from the CMBS exposure in these super senior
CDOs. These non-subprime super senior exposures experienced addi-
tional
impairments of principal as credit conditions deteriorated in the
corporate debt and commercial mortgage markets during the second half
of 2008.

In addition to the super senior exposure including purchased secu-
rities at December 31, 2008, we also had exposure with a market value
of $563 million in our CDO sales and trading portfolio, of which approx-
imately $233 million was classified as subprime. This subprime exposure
is carried at approximately 22 percent of par value and includes $137
million of secondary trading positions and $96 million of positions in
legacy warehouses.

Subprime Super Senior Collateralized Debt Obligation Carrying Values (1)
December 31, 2008

(Dollars in millions)

Other super senior exposure

High grade
Mezzanine

Total other super senior

Purchased securities from liquidated CDOs

Total

Carrying
Value as
a Percent
of Original
Net Exposure

38%
56

Subprime
Net
Exposure

$ 684
297

$ 981

2,030

$3,011

Vintage of Subprime Collateral

Subprime
Content of
Collateral (2)

Percent in
2006/2007
Vintages

Percent in
2005/Prior
Vintages

45%
35

12%
66

88%
34

(1) Classified as subprime when subprime consumer real estate loans make up at least 35 percent of the ultimate underlying collateral’s original net exposure value.
(2) Based on current net exposure value.

Bank of America 2008 43

Treasury Services
Treasury Services provides integrated working capital management and
treasury solutions to clients worldwide through our network of proprietary
offices and special clearing arrangements. Our clients include multina-
tionals, middle-market companies, correspondent banks, commercial real
estate firms and governments. Our products and services include treasury
management, trade finance, foreign exchange, short-term credit facilities
and short-term investing options. Net interest income is derived from
interest-bearing and noninterest-bearing deposits, sweep investments,
and other liability management products. Deposit products provide a rela-
tively stable source of funding and liquidity. We earn net interest spread
revenues from investing this liquidity in earning assets through client-
facing lending activity and our ALM activities. The revenue is attributed to
the deposit products using our funds transfer pricing process which takes
into account the interest rates and maturity characteristics of the depos-
its. Noninterest income is generated from payment and receipt products,
merchant services, wholesale card products, and trade services and is
comprised largely of service charges which are net of market-based earn-
ings credit rates applied against noninterest-bearing deposits.

Net income increased $596 million, or 28 percent, in 2008 compared
to 2007 as an increase in noninterest income combined with a decrease
in noninterest expense was partially offset by lower net interest income.
Net interest income decreased $182 million, or five percent, due to
spread compression in spite of strong average deposit growth of $28.1
billion, or 18 percent, due to organic growth as well as the LaSalle acquis-
flight-to-safety,
ition. Deposit growth was accentuated by our clients’

notably seen in activity of our large corporate and hedge fund clients, and
contributed to overall total deposits growth during the latter part of 2008.
Noninterest income grew $862 million, or 26 percent, driven by increased
service charges of $432 million which was due to organic growth,
changes in our pricing structure, and the LaSalle acquisition. In addition,
noninterest
income benefited from the $388 million gain related to
Treasury Services’ allocation of the Visa IPO gain. Noninterest expense
decreased $254 million, or seven percent, due to the impact of certain
benefits associated with the Visa IPO transactions partially offset by the
acquisition of LaSalle.

ALM/Other
ALM/Other includes an allocation of a portion of the Corporation’s net
interest income from ALM activities as well as residual amounts related
to discontinued business activities.

Net income increased $721 million to $480 million in 2008 compared
to 2007 mainly due to an increase in net interest income of $883 million,
resulting from a higher contribution from the Corporation’s ALM activities,
which was due in part to investing the Corporation’s deposits at profitable
spreads. In addition, we sold our equity prime brokerage business to BNP
Paribas which resulted in a gain of $224 million which was recorded in all
other income. This increase was partially offset by the absence of a gain
from the sale of our commercial insurance business that was sold in the
fourth quarter of 2007. Noninterest expense decreased mainly due to the
absence of this commercial insurance business.

44 Bank of America 2008

Global Wealth and Investment Management

(Dollars in millions)

Net interest income (2)
Noninterest income:

Investment and brokerage services
All other income (loss)

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses
Noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (2)

Net income (loss)

Net interest yield (2)
Return on average equity (3)
Efficiency ratio (2)
Period end – total assets (4)

(Dollars in millions)

Net interest income (2)
Noninterest income:

Investment and brokerage services
All other income (loss)

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses
Noninterest expense

Income before income taxes

Income tax expense (2)

Net income

Net interest yield (2)
Return on average equity (3)
Efficiency ratio (2)
Period end – total assets (4)

Total

4,775

U.S.
Trust (1)

$ 1,237

2008

Columbia
Management

Premier
Banking and
Investments

ALM/
Other

2,141

$1,384

4,059
(1,049)

3,010

7,785

664
4,904

2,217
801

1,416

1,397
16

1,413

2,650

103
1,817

730
270

460

1,496
(1,118)

378

391

–
1,120

(729)
(270)

$ (459)

1,002
58

1,060

3,201

561
1,713

927
343

584

2.97%

12.11
62.99
$ 187,994

2.40%
9.87
68.54
$ 57,166

n/m
(63.35)%
n/m
$ 2,923

1.75%

30.41
53.51
$ 136,079

164
(5)

159

1,543

–
254

1,289
458

$ 831

n/m
n/m
n/m
n/m

Total

3,917

U.S.
Trust (1)

$ 1,033

2007

Columbia
Management

Premier
Banking and
Investments

ALM/
Other

2,654

$ 223

3,781
(145)

3,636

7,553

14
4,480

3,059
1,099

1,960

1,230
57

1,287

2,320

(14)
1,589

745
275

470

3.11%

19.83
59.31
$155,683

2.68%

17.36
68.49
$51,043

1,435
(366)

1,069

1,076

–
1,042

34
13

n/m
3.91%

96.85
$ 1,943

950
145

1,095

3,749

27
1,711

2,011
744

166
19

185

408

1
138

269
67

1,267

$ 202

2.70%

72.16
45.64
$113,365

n/m
n/m
n/m
n/m

(1)

In July 2007, the operations of the acquired U.S. Trust Corporation were combined with the former Private Bank creating U.S. Trust, Bank of America Private Wealth Management. The results of the combined business
were reported for periods beginning on July 1, 2007. Prior to July 1, 2007, the results solely reflect that of the former Private Bank.

(2) FTE basis
(3) Average allocated equity for GWIM was $11.7 billion and $9.9 billion in 2008 and 2007.
(4) Total assets include asset allocations to match liabilities (i.e., deposits).
n/m = not meaningful

Bank of America 2008 45

(Dollars in millions)

Total loans and leases
Total earning assets (1)
Total assets (1)
Total deposits

(1) Total earning assets and total assets include asset allocations to match liabilities (i.e., deposits).

GWIM provides a wide offering of customized banking, investment and
brokerage services tailored to meet the changing wealth management
needs of our individual and institutional customer base. Our clients have
access to a range of services offered through three primary businesses:
U.S. Trust, Bank of America Private Wealth Management (U.S. Trust);
Columbia Management (Columbia); and PB&I.
In addition, ALM/Other
primarily includes the results of ALM activities.

On January 1, 2009, we acquired Merrill Lynch in exchange for common
and preferred stock with a value of $29.1 billion. The acquisition added Mer-
rill Lynch’s approximately 16,000 financial advisors and its economic owner-
ship of approximately 50 percent (primarily preferred stock) in BlackRock,
Inc., a publicly traded investment management company. For more
information related to the Merrill Lynch acquisition, see Note 2 – Merger and
Restructuring Activity to the Consolidated Financial Statements.

In December 2007, we completed the sale of Marsico. Prior year
Marsico business results have been transferred from GWIM to All Other to
better facilitate year-over-year comparisons.

Net income decreased $544 million, or 28 percent, to $1.4 billion in
2008 as increases in net interest income and investment and brokerage
services income were more than offset by losses associated with the
support provided to certain cash funds managed within Columbia,
increases in provision for credit losses and noninterest expense as well
as losses related to the buyback of ARS.

Net interest income increased $858 million, or 22 percent, to $4.8
billion due to higher margin on ALM activities, the acquisitions of U.S.
Trust Corporation and LaSalle, and growth in average deposit and loan
balances partially offset by spread compression driven by deposit mix and
competitive deposit pricing. GWIM average deposit growth benefited from
the migration of customer
relationships and related balances from
GCSBB, organic growth and the U.S. Trust Corporation and LaSalle
acquisitions. A more detailed discussion regarding migrated customer
relationships and related balances is provided in the PB&I discussion on
page 47.

Noninterest income decreased $626 million, or 17 percent, to $3.0
billion driven by an additional $1.1 billion in losses during 2008 related
to the support provided to certain cash funds managed within Columbia
and losses of $181 million related to the buyback of ARS. These losses
were partially offset by an increase of $278 million in investment and
brokerage services resulting from the U.S. Trust Corporation acquisition
partially offset by the impact of significantly lower valuations in the equity
markets.

Provision for credit losses increased $650 million to $664 million as
a result of higher credit costs primarily in PB&I due to the deterioration in
the housing markets and the impacts of a slower economy.

Noninterest expense increased $424 million, or nine percent, to $4.9
billion due to the addition of U.S. Trust Corporation and LaSalle, and
higher initiative spending partially offset by lower discretionary incentive
compensation.

46 Bank of America 2008

December 31

Average Balance

2008

$ 89,400
178,240
187,994
175,107

2007

$ 84,600
145,056
155,683
144,865

2008

$ 87,591
160,699
169,986
159,525

2007

$ 73,473
126,014
134,032
124,871

Client Assets
The following table presents client assets which consist of AUM, client
brokerage assets and assets in custody.

Client Assets

(Dollars in millions)

Assets under management
Client brokerage assets
Assets in custody
Less: Client brokerage assets and assets in

December 31

2008

$523,159
172,106
133,726

2007

$643,531
222,661
167,575

custody included in assets under management

(78,487)

(87,071)

Total net client assets

$750,504

$946,696

AUM decreased $120.4 billion, or 19 percent, to $523.2 billion as of
December 31, 2008 compared to 2007. Client brokerage assets
decreased by $50.6 billion, or 23 percent, and assets in custody
decreased $33.8 billion, or 20 percent. These decreases were driven by
significant market declines.

U.S. Trust, Bank of America Private Wealth
Management
In July 2007, the acquisition of U.S. Trust Corporation was completed for
$3.3 billion in cash combining it with the Private Bank to form U.S. Trust.
The results of the combined business were reported for periods beginning
on July 1, 2007. Prior to July 1, 2007, the results solely reflect that of
the former Private Bank. U.S. Trust provides comprehensive wealth
management solutions to wealthy and ultra-wealthy clients with investable
assets of more than $3 million. In addition, U.S. Trust provides resources
and customized solutions to meet clients’ wealth structuring, investment
trust and banking needs as well as specialty asset
management,
management services (oil and gas, real estate, farm and ranch, timber-
land, private businesses and tax advisory). Clients also benefit from
access to resources available through the Corporation including capital
large and complex financing solutions, and its
markets products,
extensive banking platform.

Net income decreased $10 million, or two percent, to $460 million
compared to 2007, as higher net interest income and noninterest income
were more than offset by higher noninterest expenses and provision for
credit losses. Net interest income increased $204 million, or 20 percent,
due to the U.S. Trust Corporation and LaSalle acquisitions as well as
organic growth in average deposits and average loans and leases. This
growth was partially offset by spread compression, driven by deposit mix
and competitive deposit pricing. Noninterest income increased $126 mil-
lion, or 10 percent, driven by higher investment and brokerage services
income due to the acquisitions which was partially offset by the impact of
significantly lower valuations in the equity markets.
In addition, non-
interest income was impacted by $50 million in losses related to the
losses
buyback of ARS previously discussed. Provision for credit
increased $117 million to $103 million compared to the same period in

2007 primarily due to higher credit costs in our home equity and resi-
dential mortgage portfolios reflective of deterioration in the housing
markets and the impacts of a slowing economy. The absence of a prior
year reserve reduction of $54 million also contributed to the increase in
provision. Noninterest expense increased $228 million, or 14 percent
due primarily to the acquisitions of U.S. Trust Corporation and LaSalle.

Columbia Management
Columbia is an asset management business serving the needs of both
institutional clients and individual customers. Columbia provides asset
management products and services, including mutual funds and separate
accounts. Columbia mutual
fund offerings provide a broad array of
fixed income
investment strategies and products including equity,
(taxable and nontaxable) and money market (taxable and nontaxable)
funds. Columbia distributes its products and services to institutional cli-
ents and individuals directly through U.S. Trust, PB&I, GCIB and non-
proprietary channels including other brokerage firms.

In December 2007, we completed the sale of Marsico. Prior year
Marsico business results have been transferred from Columbia to All
Other to better facilitate year-over-year comparisons.

Net income decreased $480 million to a loss of $459 million due to
$1.1 billion in losses related to support provided to certain cash funds as
discussed below, compared to losses of $382 million in 2007. These
items were partially offset by an increase of $61 million in investment
and brokerage services income. The increase in investment and broker-
age services income was driven by the U.S. Trust Corporation acquisition
partially offset by the impact of significantly lower valuations in the equity
markets. In addition, noninterest expense increased $78 million driven by
the U.S. Trust Corporation acquisition.

Cash Funds Support
Beginning in the second half of 2007, we provided support to certain
cash funds managed within Columbia. The funds for which we provided
support typically invested in high quality, short-term securities with a port-
folio weighted average maturity of 90 days or less, including securities
issued by SIVs and senior debt holdings of financial service companies.
Due to market disruptions, certain investments in SIVs and the senior
debt securities were downgraded by the rating agencies and experienced
a decline in fair value. We entered into capital commitments under which
the Corporation provided cash to these funds in the event the net asset
value per unit of a fund declined below certain thresholds. The capital
commitments expire no later
than the third quarter of 2010. At
December 31, 2008 and 2007 we had gross (i.e., funded and unfunded)
capital commitments to the funds of $1.0 billion and $565 million. During
2008 and 2007, we incurred losses of $695 million and $382 million
related to these capital commitments. At December 31, 2008 and 2007,
the remaining loss exposure on capital commitments was $300 million
and $183 million.

Additionally, during 2008 we purchased $1.7 billion of investments
and recorded losses of $366 million related to these securities and $52
million of other-than-temporary impairment losses recorded subsequent to
purchase. During 2007, we purchased $585 million of certain invest-
ments from the funds and subsequently recorded other-than-temporary
impairment losses in All Other of $394 million. At December 31, 2008
and 2007, we held AFS debt securities with a fair value of $698 million
and $163 million of which $279 million and $163 million were classified
as nonperforming AFS securities. At December 31, 2008, $272 million of
unrealized losses on these investments were recorded in accumulated
OCI. The decline in value of these securities was driven by the lack of
market liquidity and the overall deterioration of the financial markets.
These unrealized losses are recorded in accumulated OCI as we expect to

recover the full principal amount of such investments. No such losses
were recorded in accumulated OCI at December 31, 2007. For additional
information on the valuation of our AFS securities, see Note 5 – Secu-
rities to the Consolidated Financial Statements.

We may from time to time, but are under no obligation to, provide
additional support to funds managed within Columbia. Future support, if
any, may take the form of additional capital commitments to the funds or
the purchase of assets from the funds.

We do not consolidate the cash funds managed within Columbia
because the subordinated support provided by the Corporation will not
absorb a majority of the variability created by the assets of the funds. In
reaching this conclusion, we considered both interest rate and credit risk.
The cash funds had total AUM of $185.9 billion and $189.5 billion at
December 31, 2008 and 2007.

During 2008, federal government agencies initiated several actions in
response to the current financial crisis and economic slowdown to pro-
vide liquidity in these markets. As of December 31, 2008 several money
market funds managed within Columbia participate in certain programs,
including the U.S. Treasury’s Temporary Guarantee Program for Money
Market Funds and the AMLF. For more information on these programs,
see Regulatory Initiatives on page 20.

Premier Banking and Investments
PB&I includes Banc of America Investments, our full-service retail broker-
age business and our Premier Banking channel. PB&I brings personalized
banking and investment expertise through priority service with client-
dedicated teams. PB&I provides a high-touch client experience through a
network of approximately 5,500 client facing associates to our affluent
customers with a personal wealth profile of at least $100,000 of invest-
able assets.

PB&I includes the impact of migrating qualifying affluent customers,
including their related deposit balances, from GCSBB to our PB&I model.
After migration, the associated net interest income, service charges and
noninterest expense is recorded in PB&I. The change reported in the
financial results of PB&I includes both the impact of migration, as well as
the impact of incremental organic growth from providing a broader array of
financial products and services to PB&I customers. For 2008 and 2007,
a total of $20.5 billion and $11.4 billion of deposits were migrated from
GCSBB to PB&I. The increase was driven by the initial migration of legacy
LaSalle accounts and the migration of qualified clients into PB&I as part
of our growth initiatives for our mass affluent and retirement customers.

Net income decreased $683 million, or 54 percent, to $584 million
compared to the same period in 2007 driven by an increase in provision
for credit losses, lower net interest income and $131 million in losses
related to the buyback of ARS. Net interest income declined $513 million,
or 19 percent, as spread compression, driven by deposit mix and com-
petitive deposit pricing, more than offset higher average deposit balan-
ces. Provision for credit losses increased $534 million primarily driven by
higher credit costs in the home equity portfolio reflective of deterioration
in the housing markets and the impacts of a slowing economy.

ALM/Other
ALM/Other primarily includes the results of ALM activities.

Net income increased $629 million to $831 million compared to
2007. These increases were driven by higher net interest income of $1.2
billion primarily due to the increased contribution from ALM activities,
which was due in part to investing the Corporation’s deposits at profitable
spreads. In addition, noninterest expense increased $116 million, or 84
percent, to $254 million compared to 2007 primarily driven by higher
expenses related to growth initiatives for our mass affluent and retire-
ment customers.

Bank of America 2008 47

All Other

(Dollars in millions)

Net interest income (3)
Noninterest income:
Card income
Equity investment income
Gains on sales of debt securities
All other income (loss)

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses
Merger and restructuring charges (4)
All other noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (3)

Net income (loss)

Reported
Basis (1)

$(8,610)

2,164
265
1,133
(545)

3,017

(5,593)

(3,760)
935
372

(3,140)

(1,512)

2008

Securitization
Offset (2)

$ 8,701

(2,250)
–
–
219

(2,031)

6,670

6,670
–
–

–

As
Adjusted

(86)
265
1,133
(326)

986

1,077

2,910
935
372

(3,140)

(1,512)

$(1,628)

Reported
Basis (1)

$(7,645)

2,817
3,745
180
426

7,168

(477)

(5,207)
410
87

4,233

1,083

2007

Securitization
Offset (2)

$ 8,027

(3,356)
–
–
288

(3,068)

4,959

4,959
–
–

–

As
Adjusted

$ 382

(539)
3,745
180
714

4,100

4,482

(248)
410
87

4,233

1,083

$3,150

$(1,628)

$ 3,150

(1) Provision for credit losses represents the provision for credit losses in All Other combined with the GCSBB securitization offset.
(2) The securitization offset on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses.
(3) FTE basis
(4) For more information on merger and restructuring charges, see Note 2 – Merger and Restructuring Activity to the Consolidated Financial Statements.

GCSBB is reported on a managed basis which includes a
“securitization impact” adjustment which has the effect of assuming that
loans that have been securitized were not sold and presenting these
loans in a manner similar to the way loans that have not been sold are
presented. All Other’s results include a corresponding “securitization
offset” which removes the impact of these securitized loans in order to
present the consolidated results on a GAAP basis (i.e., held basis). See
the GCSBB section beginning on page 33 for information on the GCSBB
managed results. The following All Other discussion focuses on the
results on an as adjusted basis excluding the securitization offset. For
additional information, see Note 22 – Business Segment Information to
the Consolidated Financial Statements.

In addition to the securitization offset discussed above, All Other

includes our Equity Investments businesses and Other.

Equity Investments includes Principal

Investing, Corporate Invest-
ments and Strategic Investments. Principal Investing is comprised of a
diversified portfolio of investments in privately-held and publicly-traded
companies at all stages of their life cycle from start-up to buyout. These
investments are made either directly in a company or held through a fund
and are accounted for at fair value. In addition, Principal Investing has
unfunded equity commitments related to some of these investments. For
more information on these commitments, see Note 13 – Commitments
and Contingencies to the Consolidated Financial Statements.

Corporate Investments primarily includes investments in publicly-
traded debt and equity securities and funds which are accounted for as
AFS marketable equity securities. Strategic Investments includes invest-
ments of $19.7 billion in CCB, $2.5 billion in Banco Itaú, $2.1 billion in
Grupo Financiero Santander, S.A. (Santander) and other investments. In
2008, under the terms of our purchase option we increased our owner-
ship in CCB by purchasing 25.6 billion common shares for approximately
$9.2 billion. These recently purchased shares are accounted for at cost
in other assets and are non-transferable until August 2011. In addition, in
January 2009, we sold 5.6 billion common shares of our initial invest-
ment in CCB for $2.8 billion, reducing our ownership to 16.7 percent and
resulting in a pre-tax gain of approximately $1.9 billion. The remaining
initial investment of 13.5 billion common shares is accounted for at fair

value and recorded as AFS marketable equity securities in other assets
with an offset, net-of-tax, to accumulated OCI. These shares became
transferable in October 2008. The restricted shares of Banco Itaú are
carried at fair value with an offset, net-of-tax, to accumulated OCI and are
accounted for as AFS marketable equity securities. Prior to the second
quarter of 2008, these shares were accounted for at cost. Our invest-
ment in Santander is accounted for under the equity method of account-
ing. Income associated with Equity Investments is recorded in equity
investment income.

Other includes the residential mortgage portfolio associated with ALM
activities, the residual
impact of the cost allocation processes, merger
and restructuring charges, intersegment eliminations, and the results of
certain businesses that are expected to be or have been sold or are in
the process of being liquidated. Other also includes certain amounts
associated with ALM activities, including the residual
impact of funds
transfer pricing allocation methodologies, amounts associated with the
change in the value of derivatives used as economic hedges of interest
rate and foreign exchange rate fluctuations that do not qualify for SFAS
133 hedge accounting treatment,
foreign exchange rate fluctuations
related to SFAS 52 revaluation of foreign denominated debt issuances,
certain gains (losses) on sales of whole mortgage loans, and gains
(losses) on sales of debt securities. Other also includes adjustments to
noninterest income and income tax expense to remove the FTE impact of
items (primarily low-income housing tax credits) that have been grossed
up within noninterest income to a FTE amount in the business segments.
Net income decreased $4.8 billion to a net loss of $1.6 billion due to
a decrease in total revenue combined with increases in provision for
credit losses and merger and restructuring charges.

Net interest income decreased $291 million resulting largely from the
reclassification to card income related to our funds transfer pricing for
Card Services’ securitizations. This reclassification is performed to pres-
ent our consolidated results on a held basis.

Noninterest income declined $3.1 billion to $986 million driven by
decreases in equity investment income of $3.5 billion and all other
income (loss) of $1.0 billion partially offset by increases in gains on sales
of debt securities of $953 million and card income of $453 million.

48 Bank of America 2008

The following table presents the components of All Other’s equity
investment income and a reconciliation to the total consolidated equity
investment income for 2008 and 2007.

Components of Equity Investment Income

(Dollars in millions)

Principal Investing
Corporate Investments
Strategic and other investments

Total equity investment income included in All Other
Total equity investment income included in the business

segments

Total consolidated equity investment income

2008

$ (84)
(520)
869

265

274

$ 539

2007

$2,217
445
1,083

3,745

319

$4,064

Equity investment income decreased $3.5 billion primarily due to
losses from our Principal Investing portfolio attributable to the lack of liq-
uidity in the marketplace. In addition, we incurred other-than-temporary
impairment losses on AFS marketable equity securities of $661 million
which included writedowns on Fannie Mae and Freddie Mac preferred
securities and a number of other equity securities where we did not
believe that the declines in value would be recoverable.

All other income (loss) decreased due to the absence of the $1.5 bil-
lion gain on the sale of our Marsico business during 2007 partially offset
by losses in 2007 of $394 million on securities after they were pur-
chased at fair value from certain cash funds managed within GWIM. In
2008, losses on securities purchased from cash funds were recorded
within GWIM. In addition, All Other’s results were adversely impacted by
the absence of earnings due to the sale of certain businesses and for-
eign operations in 2007. These decreases were partially offset by
increases in card income driven by the funds transfer pricing allocations
discussed in net interest income. Further, losses were partially offset by
increases in gains on sales of mortgage-backed securities and collateral-
ized mortgage obligations.

Provision for credit losses increased $3.2 billion to $2.9 billion primar-
ily due to higher credit costs related to our ALM residential mortgage port-
folio reflective of deterioration in the housing markets and the impacts of
a slowing economy. Additionally, deterioration in our Countrywide dis-
continued real estate portfolio subsequent to the July 1, 2008 acquisition

as well as the absence of 2007 reserve reductions also contributed to
the increase in provision.

Merger and restructuring charges increased $525 million to $935 mil-
lion due to the integration costs associated with the Countrywide and
LaSalle acquisitions. For additional information on merger and restructur-
ing charges, see Note 2 – Merger and Restructuring Activity to the Con-
solidated Financial Statements.

funding and liquidity needs.

Off- and On-Balance Sheet Arrangements
In the ordinary course of business, we support our customers’ financing
needs by facilitating their access to the commercial paper market. In
addition, we utilize certain financing arrangements to meet our balance
For additional
sheet management,
information on our liquidity risk, see Liquidity Risk and Capital Manage-
ment beginning on page 55. These activities utilize SPEs, typically in the
form of corporations, limited liability companies, or trusts, which raise
funds by issuing short-term commercial paper or similar instruments to
third party investors. These SPEs typically hold various types of financial
assets whose cash flows are the primary source of repayment for the
liabilities of the SPEs. Investors have recourse to the assets in the SPE
and often benefit
from other credit enhancements, such as over-
collateralization in the form of excess assets in the SPE, liquidity facili-
ties, and other arrangements. As a result, the SPEs can typically obtain a
favorable credit rating from the rating agencies, resulting in lower financ-
ing costs for our customers.

We have liquidity agreements, SBLCs or other arrangements with the
SPEs, as described below, under which we are obligated to provide fund-
ing in the event of a market disruption or other specified event or other-
wise provide credit support to the entities (hereinafter referred to as
liquidity exposure). We manage our credit risk and any market risk on
these arrangements by subjecting them to our normal underwriting and
risk management processes. Our credit ratings and changes thereto will
affect the borrowing cost and liquidity of these SPEs. In addition, sig-
nificant changes in counterparty asset valuation and credit standing may
also affect the ability of the SPEs to issue commercial paper. The con-
tractual or notional amount of these commitments as presented in Table
8, represents our maximum possible funding obligation and is not, in
management’s view,
funding
requirements.

representative of expected losses or

Bank of America 2008 49

Table 8 Special Purpose Entities Liquidity Exposure

(Dollars in millions)

Commercial paper conduits
Multi-seller conduits
Asset acquisition conduits
Other corporate conduits
Home equity securitizations (2)
Municipal bond trusts
Customer-sponsored conduits
Credit card securitizations
Collateralized debt obligation vehicles (3)

Total liquidity exposure

(Dollars in millions)

Commercial paper conduits
Multi-seller conduits
Asset acquisition conduits
Other corporate conduits

Municipal bond trusts
Customer-sponsored conduits
Collateralized debt obligation vehicles (3)

Total liquidity exposure

December 31, 2008

VIEs

QSPEs

Consolidated (1)

Unconsolidated

Total

$11,304
1,121
–
–
396
–
–
–

$12,821

$41,635
2,622
–
–
3,872
980
–
542

$49,651

–
–
1,578
13,064
2,921
–
946
–

$18,509

$ 52,939
3,743
1,578
13,064
7,189
980
946
542

$ 80,981

December 31, 2007

VIEs

QSPEs

Consolidated (1)

Unconsolidated

Total

$16,984
1,623
–
7,359
–
3,240

$29,206

$47,335
6,399
–
3,120
1,724
9,026

$67,604

–
–
4,263
2,988
–
–

$ 7,251

$ 64,319
8,022
4,263
13,467
1,724
12,266

$104,061

(1) We consolidate VIEs when we are the primary beneficiary and absorb the majority of the expected losses or expected residual returns of the VIEs or both.
(2) Home equity securitizations were added in connection with the Countrywide acquisition.
(3) For additional information on our CDO exposures at December 31, 2008 and 2007 and related writedowns, see the CDO discussion beginning on page 41.

The table above presents our liquidity exposure to these consolidated
and unconsolidated SPEs, which include VIEs and QSPEs. VIEs are SPEs
which lack sufficient equity at risk or whose equity investors do not have
a controlling financial
interest. QSPEs are SPEs whose activities are
strictly
limited to holding and servicing financial assets. Liquidity
commitments to Corporation-sponsored VIEs and other VIEs in which the
Corporation holds a variable interest are disclosed in Note 9 – Variable
Interest Entities to the Consolidated Financial Statements.

At December 31, 2008 the Corporation’s total liquidity exposure to
SPEs was $81.0 billion, a decrease of $23.1 billion from December 31,
2007. The decrease was attributable to lower liquidity exposure in all
categories, primarily CDOs and multi-seller conduits, partially offset by the
addition of Countrywide’s home equity securitizations.

four multi-seller conduits,

Multi-Seller Conduits
We administer
three of which are uncon-
solidated, which provide a low-cost funding alternative to our customers
by facilitating their access to the commercial paper market. These con-
duits are discussed in more detail in Note 9 – Variable Interest Entities to
the Consolidated Financial Statements.

commercial

paper during

Due to the market disruptions, the conduits experienced difficulties in
issuing
certain periods of 2008. At
December 31, 2008, we held $2 million of commercial paper issued by
the conduits, including $1 million issued by the unconsolidated conduits
in trading account assets. We did not hold any commercial paper issued
by the conduits at December 31, 2007.

ties. Repayment of the commercial paper and certificates is assured by
total return swap contracts between us and the conduits. With respect to
two of the conduits, which are unconsolidated, we are reimbursed through
total return swap contracts with our customers. These conduits are dis-
cussed in more detail in Note 9 – Variable Interest Entities to the Con-
solidated Financial Statements.

Due to the market disruptions, the conduits experienced difficulties in
issuing commercial paper during certain periods of 2008. The Corporation
held $1 million and $27 million of commercial paper and certificates
issued by the conduits in trading account assets at December 31, 2008
and 2007.

Other Corporate Conduits
We administer several other corporate conduits that hold primarily high-
grade, long-term municipal, corporate, and mortgage-backed securities.
These conduits obtain funding by issuing commercial paper to third party
investors. We have entered into derivative contracts which provide inter-
est rate, currency and a pre-specified amount of credit protection to the
entities in exchange for the commercial paper rate. These conduits are
in Note 9 – Variable Interest Entities to the
discussed in more detail
Consolidated Financial Statements.

Due to the market disruptions, these conduits experienced difficulties
in issuing commercial paper during certain periods of 2008 and at
December 31, 2008, we held $145 million of the commercial paper in
trading account assets. We did not hold any commercial paper issued by
the conduits at December 31, 2007.

Asset Acquisition Conduits
We administer three commercial paper conduits which acquire assets on
behalf of the Corporation or our customers and obtain funding through the
issuance of commercial paper and subordinated securities to third par-

Home Equity Securitizations
We evaluate all of our home equity securitizations for their potential to
experience a rapid amortization event by estimating the amount and tim-
ing of future losses on the underlying loans and the excess spread

50 Bank of America 2008

available to cover such losses and by evaluating any estimated shortfalls
in relation to contractually defined triggers. As of December 31, 2008,
$13.1 billion of outstanding principal balances of our home equity
securitization transactions were in rapid amortization. Another $2.8 billion
of outstanding principal balances in our home equity securitization trans-
actions are expected to enter rapid amortization.

The Corporation is responsible for funding additional borrower draws
on home equity lines of credit underlying our securitization transactions.
rapid amortization, principal collections on
When transactions enter
underlying loans are used to pay investor interests. This has the effect of
extending the time period for which the Corporation’s advances are out-
standing and we may not receive reimbursement for all of the funds
advanced to borrowers, as senior bondholders and monoline insurers
have priority for repayment. While the available credit line for home equity
securitization transactions in or expected to be in rapid amortization was
approximately $1.0 billion at December 31, 2008, a maximum funding
obligation attributable to rapid amortization cannot be calculated as the
borrower has the ability to pay down and redraw balances. The amount in
Table 8 equals the principal balance of the outstanding trust certificates
that are subject to rapid amortization or $13.1 billion at December 31,
2008. This amount is significantly higher than the amount we expect to
fund. The charges we will ultimately record as a result of the rapid amor-
tization events are dependent on the performance of the loans, the
amount of subsequent draws, and the timing of related cash flows. At
December 31, 2008, the reserve for losses on expected future draw obli-
gations on the home equity securitizations in or expected to be in rapid
amortization was $345 million. For additional information on home equity
securitizations, see Note 8 – Securitizations to the Consolidated Financial
Statements.

Municipal Bond Trusts
We administer municipal bond trusts that hold highly rated, long-term,
fixed-rate municipal bonds. The trusts obtain financing by issuing floating-
rate trust certificates that reprice on a weekly basis to third party invest-
ors. We serve as remarketing agent and liquidity provider for the trusts.
These trusts are discussed in more detail in Note 9 – Variable Interest
Entities to the Consolidated Financial Statements.

At December 31, 2008 and 2007, we held $688 million and $125
million of floating rate certificates issued by unconsolidated municipal
bond trusts in trading account assets. This increase is attributable to illi-
quidity in the marketplace that occurred during the second half of 2008.

Customer-Sponsored Conduits
We provide liquidity facilities to conduits that are sponsored by our cus-
tomers and which provide them with direct access to the commercial
paper market. We are typically one of several
liquidity providers for a
customer’s conduit. We do not provide SBLCs or other forms of credit
enhancement to these conduits. Assets of these conduits consist primar-
ily of auto loans, student loans and credit card receivables. The liquidity
commitments benefit from structural protections which vary depending
upon the program, but given these protections, the exposures are viewed
to be of investment grade quality.

These commitments are included in Note 13 – Commitments and
Contingencies to the Consolidated Financial Statements. As we typically
provide less than 20 percent of the total liquidity commitments to these
conduits and do not provide other forms of support, we have concluded
that we do not hold a significant variable interest in the conduits and they
are not included in our discussion of VIEs in Note 9 – Variable Interest
Entities to the Consolidated Financial Statements.

Credit Card Securitizations
During the second half of 2008, we entered into a liquidity support agree-
ment related to our commercial paper program that obtains financing by
issuing tranches of commercial paper backed by credit card receivables
to third party investors from a trust sponsored by the Corporation. If cer-
tain criteria are met, such as not being able to reissue the commercial
paper due to market illiquidity, the commercial paper maturity dates can
be extended to 390 days from the original issuance date. This extension
would cause the outstanding commercial paper to convert to an interest
bearing note and subsequent credit card receivable collections would be
applied to the outstanding note balance. If any of the investor notes are
still outstanding at the end of the extended maturity period, our liquidity
commitment obligates us to purchase maturity notes in order to retire the
investor notes. As a maturity note holder, we would be entitled to the
remaining cash flows from the collateralizing credit card receivables. At
December 31, 2008 there were no maturity notes outstanding and we
held $5.0 billion of investment grade securities in AFS debt securities
issued by the trust due to illiquidity in the marketplace. For more
information on how our credit card securitizations impact our liquidity, see
the Liquidity Risk and Capital Management discussion on page 55.

Collateralized Debt Obligation Vehicles
CDO vehicles hold diversified pools of fixed income securities which they
fund by issuing multiple tranches of debt securities, including commercial
paper, and equity securities. We provided liquidity support in the form of
written put options to several CDOs totaling $542 million and $10.0 bil-
lion at December 31, 2008 and 2007. In addition, we provided other liq-
uidity support to a CDO conduit of $2.3 billion at December 31, 2007.
These CDOs are discussed in more detail in Note 9 – Variable Interest
Entities to the Consolidated Financial Statements.

The decrease in liquidity support was primarily due to the termination
of $7.0 billion of put options for three CDOs and the termination of a
$2.3 billion liquidity commitment to the CDO conduit, all of which were
liquidated during 2008. Additionally, our liquidity support was reduced by
$2.2 billion as put options related to two CDOs were consolidated on our
balance sheet following a change in contractual arrangements and for
which we now hold all of the remaining outstanding commercial paper. At
December 31, 2008, we have effectively eliminated our liquidity support
for these CDOs.

At December 31, 2008, we held commercial paper of $323 million on
that was issued by one unconsolidated CDO. At
the balance sheet
December 31, 2007, we held commercial paper of $6.6 billion that was
issued by unconsolidated CDOs and the CDO conduit.

For more information on our super senior CDO exposure and related
writedowns, see our CDO exposure discussion beginning on page 41. As
noted in the Super Senior Collateralized Debt Obligation Exposure, on
page 42, we had net liquidity exposure of $476 million at December 31,
2008, which is net of cumulative writedowns of $66 million. At
December 31, 2007, we had net liquidity exposure of $7.8 billion. This
amount reflects gross exposure of $12.3 billion less insurance of $1.8
billion and cumulative writedowns of $2.7 billion.

Obligations and Commitments
We have contractual obligations to make future payments on debt and
lease agreements. Additionally, in the normal course of business, we
enter into contractual arrangements whereby we commit to future pur-
chases 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 in Table 9 are vendor con-

Bank of America 2008 51

tracts of $6.2 billion, commitments to purchase securities of $7.9 billion
and commitments to purchase loans of $14.3 billion. The most sig-
nificant of our vendor contracts include communication services, process-
ing services and software contracts. Other long-term liabilities include our
contractual funding 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 partic-
ipant contributions, if applicable. During 2008 and 2007, we contributed
$1.6 billion and $243 million to the Plans, and we expect to make at
least $229 million of contributions during 2009. The following table does
not include UTBs of $3.5 billion associated with FIN 48 and tax-related
interest and penalties of $677 million.

Debt, lease, equity and other obligations are more fully discussed in
Note 12 – Short-term Borrowings and Long-term Debt and Note 13 –
Commitments and Contingencies to the Consolidated Financial State-
ments. The Plans and UTBs are more fully discussed in Note 16 –
Employee Benefit Plans and Note 18 – Income Taxes to the Consolidated
Financial Statements.

Table 9 presents total

long-term debt and other obligations at

December 31, 2008.

Many of our lending relationships contain funded and unfunded ele-
ments. The funded portion is reflected on our balance sheet. For lending
relationships carried at historical cost, the unfunded component of these
commitments is not recorded on our balance sheet until a draw is made
under the credit facility; however, a reserve is established for probable
losses. For lending commitments for which we have elected to account
for under SFAS 159, the fair value of the commitment is recorded in
accrued expenses and other liabilities.

For more information on these commitments and guarantees, includ-
ing equity commitments, see Note 13 – Commitments and Contingencies
to the Consolidated Financial Statements. For more information on the
adoption of SFAS 159, see Note 19 – Fair Value Disclosures to the
Consolidated Financial Statements.

We enter into commitments to extend credit such as loan commit-
letters of credit to meet the financing
ments, SBLCs and commercial
needs of our customers. For a summary of
the total unfunded, or
off-balance sheet, credit extension commitment amounts by expiration
date, see the table in Note 13 – Commitments and Contingencies to the
Consolidated Financial Statements.

Other Commitments
We provided support to cash funds managed within GWIM by purchasing
certain assets at fair value and by committing to provide a limited amount
of capital to the funds. For more information, see Note 13 – Commit-
ments and Contingencies to the Consolidated Financial Statements.

Table 9 Long-term Debt and Other Obligations

(Dollars in millions)

Long-term debt and capital leases
Purchase obligations (1)
Operating lease obligations
Other long-term liabilities

Total long-term debt and other obligations

Fair Values of Level 3 Assets and Liabilities
Financial assets and liabilities whose values are based on prices or valu-
ation techniques that require inputs that are both unobservable and are
significant to the overall fair value measurement are classified as Level 3
under the fair value hierarchy established in SFAS 157. The Level 3 finan-
cial assets and liabilities include private equity investments, consumer
MSRs, ABS, highly structured, complex or long-dated derivative contracts
and certain CDOs, for which there is not an active market for identical
assets from which to determine fair value or where sufficient, current
market information about similar assets to use as observable, corrobo-
rated data for all significant inputs into a valuation model is not available.
In these cases, the fair values of these Level 3 financial assets and
liabilities are determined using pricing models, discounted cash flow
methodologies, a net asset value approach for certain structured secu-
rities, or similar techniques, for which the determination of fair value
requires significant management judgment or estimation.

Valuations of products using models or other techniques are sensitive
to assumptions used for the significant inputs. Where market data is
available, the inputs used for valuation reflect that information as of our
valuation date. Inputs to valuation models are considered unobservable if
they are supported by little or no market activity. In periods of extreme
volatility, lessened liquidity or in illiquid markets, there may be more
variability in market pricing or a lack of market data to use in the valu-
ation process. An illiquid market is one in which little or no observable
activity has occurred or one that lacks willing buyers or willing sellers. Fair
value adjustments include adjustments for counterparties’ credit risk as
well as our own credit risk and liquidity as appropriate, to determine a fair
value measurement. Judgment
is then applied in formulating those
inputs. Our valuation risk, however, is mitigated through valuation adjust-
ments for particular inputs, performance of stress testing of those inputs
to understand the impact that varying assumptions may have on the valu-
ation and other review processes performed to ensure appropriate valu-
ation.

For example, at December 31, 2008, classified within Level 3 are
$2.4 billion of AFS debt securities, $887 million of trading account
assets and $934 million of net derivative assets associated with our CDO
exposure. Substantially all of these AFS debt securities were acquired as
a result of our liquidity obligations to certain CDOs. For more information
regarding our CDO exposure,
the types of assets underlying these
exposures (e.g., percentage of subprime assets and vintages) and related
valuation techniques see our CDO exposure discussion on page 41.

Consumer MSRs are also included in Level 3 assets as valuing these
MSRs requires significant management judgment and estimation. The
Corporation uses an option-adjusted spread (OAS) valuation approach to
determine the fair value of MSRs which factors in prepayment risk. This
approach consists of projecting servicing cash flows under multiple inter-

December 31, 2008

Due after 1
year through
3 years

$76,433
7,743
3,829
779

$88,784

Due after 3
years through
5 years

$49,471
1,198
2,701
516

$53,886

Due in 1
year or less

$42,882
19,326
2,316
395

$64,919

Due after
5 years

$ 99,506
144
8,320
532

$108,502

Total

$268,292
28,411
17,166
2,222

$316,091

(1) 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.

52 Bank of America 2008

est rate scenarios and discounting these cash flows using risk-adjusted
discount rates. The key economic assumptions used in valuations of
MSRs include weighted average lives of the MSRs and the OAS levels.
For more information on Level 3 MSRs and their sensitivity to prepayment
rates and OAS levels, see Note 21 – Mortgage Servicing Rights to the
Consolidated Financial Statements.

For additional information on our Level 1, 2 and 3 fair value measure-
ments, including the valuation techniques utilized to determine their fair
values, see Note 1 – Summary of Significant Accounting Principles and
Note 19 – Fair Value Disclosures to the Consolidated Financial State-
ments and Complex Accounting Estimates on page 93.

the quality of

inputs; doubts about

Valuation-related issues confronted by credit market participants,
including the Corporation, in the current market include uncertainty result-
ing from a significant decline in market activity for certain credit products;
significant increase in dependence on model-related assumptions, and/or
unobservable model
the market
information used as inputs, often because it
is not clear whether
observable transactions are distressed sales; and significant downgrades
of structured products by ratings agencies. For example, valuations of
certain CDO securities and related written put options declined sig-
nificantly in response to market concerns. Additionally, liquidity issues in
the ARS sector impacted the value of such securities. It is possible that
the economic value of these securities could be different as the cash
flows from the underlying assets may ultimately be higher or lower than
the assumptions used in current valuation models. With the exception of
the changes discussed below, there have been no significant changes to
the valuation methodologies used to value Level 3 assets and liabilities
during the period.

The table below presents a reconciliation for all Level 3 assets and
liabilities measured at fair value on a recurring basis during 2008, includ-
ing realized and unrealized gains (losses) included in earnings and OCI.
Level 3 assets, before the impact of counterparty netting related to our
derivative positions, were $59.4 billion as of December 31, 2008 and
represented approximately 10 percent of assets measured at fair value
(or three percent of total assets). Level 3 liabilities, before the impact of
counterparty netting related to our derivative positions, were $8.0 billion
as of December 31, 2008 and represented approximately nine percent of
the liabilities measured at fair value (or less than one percent of total
liabilities). See Note 19 – Fair Value Disclosures to the Consolidated
Financial Statements for a table that presents the fair value of Level 1, 2
and 3 assets and liabilities at December 31, 2008.

Table 10 Level 3 – Fair Value Measurements

Countrywide Acquisition
The Countrywide acquisition on July 1, 2008 added consumer MSRs of
$17.2 billion, trading account assets of $1.4 billion, LHFS of $1.4 billion,
accrued expenses and other liabilities of $1.2 billion related to certain
secured financings and AFS debt securities of $528 million to our Level 3
assets and liabilities. Activity subsequent to July 1, 2008 has been
included in the reconciling items in the table below.

Included in Earnings and Other Comprehensive Income
During 2008, we recognized losses of $12.1 billion on Level 3 assets
and liabilities which were primarily related to losses on consumer MSRs,
trading account assets and AFS debt securities partially offset by gains
on net derivatives. The losses on consumer MSRs were due to declines
in mortgage rates which resulted in a significant increase in expected
prepayments causing large decreases in the value of our consumer
MSRs. These consumer MSR losses were more than offset by economic
hedge gains of which approximately $750 million were classified as Level
3. The losses in our trading account assets were due to widening credit
spreads on our trading account positions and losses related to CDOs and
ARS. The losses on AFS debt securities were primarily driven by other-
than-temporary impairment on CDO-related exposures and losses on cer-
tain investments we purchased from our GWIM cash funds. The gains in
net derivatives were driven by positive valuation adjustments on our
IRLCs, MSR hedge gains, and gains recognized on hedges of our Level 3
trading account assets. We also recorded unrealized losses of $1.7 bil-
lion (pre-tax) through OCI during 2008, due to widening credit spreads on
mortgage-backed securities collateralized by first liens on residential real
estate, as well as temporary impairments recognized on commercial
paper and term notes. These decreases were partially offset by the
unrealized gains on privately placed mortgage-backed securities that were
transferred into Level 3 during 2008.

Level 3 financial instruments, such as our consumer MSRs may be
economically hedged with derivatives not classified as Level 3; therefore,
gains or losses associated with Level 3 financial
instruments may be
offset by gains or losses associated with financial instruments classified
in other levels of the fair value hierarchy. The net losses recorded in earn-
ings and OCI did not have a significant impact on our liquidity or capital
resources.

(Dollars in millions)

Balance, January 1, 2008
Countrywide acquisition
Included in earnings
Included in OCI
Purchases, issuances, and settlements
Transfers into (out of) Level 3

Balance, December 31, 2008

Net
Derivatives(1)

$(1,203)
(185)
2,531
–
1,380
(253)

$ 2,270

Trading
Account
Assets

$ 4,027
1,407
(3,222)
–
(2,055)
7,161

$ 7,318

Year Ended December 31, 2008

Available-
for-Sale
Debt
Securities

$ 5,507
528
(2,509)
(1,688)
2,754
14,110

$18,702

Loans
and
Leases(2)

$4,590
–
(780)
–
1,603
–

$5,413

Mortgage
Servicing
Rights

$ 3,053
17,188
(7,115)
–
(393)
–

$12,733

Loans
Held-for-
Sale(2)

$ 1,334
1,425
(1,047)
–
(542)
2,212

Other
Assets(3)

$3,987
–
175
–
(550)
(40)

$ 3,382

$3,572

Accrued
Expenses
and Other
Liabilities(2)

$ (660)
(1,212)
(169)
–
101
–

$(1,940)

(1) Net derivatives at December 31, 2008 included derivative assets of $8.3 billion and derivative liabilities of $6.0 billion. Net derivatives acquired in connection with Countrywide included derivative assets of $107

million and derivative liabilities of $292 million as of July 1, 2008.

(2) Amounts represent items which are accounted for at fair value in accordance with SFAS 159 including commercial loan commitments and certain secured financings recorded in accrued expenses and other liabilities.
(3) Other assets include equity investments held by Principal Investing and certain retained interests in securitization vehicles, including interest-only strips.

Bank of America 2008 53

Purchases, Issuances and Settlements
During 2008, we had net purchases of $2.8 billion of Level 3 AFS debt
securities, net settlements of $2.1 billion of Level 3 trading account
assets, and net purchases of $1.4 billion in net derivatives. The net
purchases in Level 3 AFS debt securities were driven by the addition of
certain securities that were purchased from our GWIM cash funds, as well
as purchases of ARS, mortgage-backed securities and collateralized
mortgage obligations. These purchases were partially offset by settle-
ments of certain CDO-related exposures. The settlements for trading
account assets were primarily related to the liquidation of certain CDO
vehicles, partially offset by the purchase of ARS pursuant to our agree-
ments to purchase certain ARS from our customers. For more information
on our ARS agreements see Recent Events on page 22. The net settle-
ments of derivative liabilities were driven by the extinguishment of our
liquidity exposure to certain CDO vehicles.

Transfers into or out of Level 3
Transfers into or out of Level 3 are made if the inputs used in the finan-
cial models measuring the fair values of the assets and liabilities became
unobservable or observable, respectively,
in the current marketplace.
These transfers are effective as of the beginning of the quarter, therefore
Table 10 considers any gains or losses occurring on these assets and
liabilities during each quarter that they are classified as Level 3.

During 2008, several transfers were made into or out of Level 3. AFS
debt securities of $14.1 billion and trading account assets of $7.2 billion
were transferred into Level 3. Included in the $14.1 billion of AFS debt
securities were assets of certain consolidated multi-seller conduits and
securities in the form of commercial paper issued by CDOs. Included in
the $7.2 billion of transfers of trading account assets were student loan
ARS, certain bond positions, and asset-backed securities. These assets
were transferred due to a lack of liquidity in the marketplace. In light of
the illiquidity, we implemented a change to our valuation approach for
these instruments, basing the valuation on assumptions about
the
weighted average life of the security, estimated future coupons to be paid
and spreads observed in pricing of similar instruments.

Managing Risk

Overview
Our management governance structure enables us to manage all major
aspects of our business through our planning and review process that
includes strategic, financial, associate, customer and risk planning. We
derive much of our revenue from managing risk from customer trans-
actions for profit. In addition to qualitative factors, we utilize quantitative
measures to optimize risk and reward trade offs in order to achieve
growth targets and financial objectives while reducing the variability of
earnings and minimizing unexpected losses. Risk metrics that allow us to
measure performance include economic capital targets and corporate risk
limits. By allocating economic capital to a line of business, we effectively
manage the ability to take on risk. Review and approval of business plans
incorporate approval of economic capital allocation, and economic capital
usage is monitored through financial and risk reporting. Industry, country,
trading, asset allocation and other limits supplement the allocation of
economic capital. These limits are based on an analysis of risk and
reward in each line of business and management is responsible for track-
ing and reporting performance measurements as well as any exceptions
to guidelines or limits. Our risk management process continually eval-
uates risk and appropriate metrics needed to measure it.

Our business exposes us to the following major risks: strategic, liquid-
ity, credit, market, compliance and operational risk. Strategic risk is the
risk that adverse business decisions, ineffective or inappropriate busi-

54 Bank of America 2008

ness plans or failure to respond to changes in the competitive environ-
ment, 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 con-
tractual obligations through unconstrained access to funding at reason-
able market rates. Credit risk is the risk of loss arising from a borrower’s
or counterparty’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.
Compliance risk is the risk posed by the failure to manage regulatory,
legal and ethical issues that could result in monetary damages, losses or
harm to the bank’s reputation or image. Operational risk is the risk of
loss resulting from inadequate or failed internal processes, people and
systems or external events. The following sections, Strategic Risk Man-
agement on page 55, Liquidity Risk and Capital Management beginning
on page 55, Credit Risk Management beginning on page 61, Market Risk
Management beginning on page 84, and Compliance and Operational
Risk Management beginning on page 92, address in more detail the
specific procedures, measures and analyses of the major categories of
risk that we manage.

Risk Management Processes and Methods
We have established and continually enhance 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, enterprise functions and
Corporate Audit.

The lines of business are the first line of defense and are responsible
for identifying, quantifying, mitigating and monitoring all risks within their
lines of business, while certain enterprise-wide risks are managed cen-
trally. For example, except for trading-related business activities, interest
rate risk associated with our business activities is managed centrally as
part of our ALM activities. Line of business management makes and
executes the business 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 periodic self-
assessment reports to identify the status of risk issues, including miti-
gation 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 transaction as
possible while retaining supervisory control functions from both in and
outside of the lines of business.

The key elements of the second line of defense are our Risk Manage-
ment, Compliance, Finance and Treasury, Human Resources, and Legal
functions. These groups are independent of the lines of businesses and
are organized on both a line of business and enterprise-wide basis. For
example, for Risk Management, a senior risk executive is assigned to
each of the lines of business and is responsible for the oversight of all
the risks associated with that line of business. Enterprise-level
risk
executives have responsibility to develop and implement polices and
practices to assess and manage enterprise-wide credit, market and
operational risks.

Corporate Audit, the third line of defense, 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

employees’ 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 lev-
els and corporate-wide. Examples of these methods include planning 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 unanticipated risk levels.
Generally, risk committees and forums are composed of lines of busi-
ness, risk management, treasury, compliance, legal and finance person-
nel, among others, who actively monitor performance against plan, limits,
potential issues, and introduction of new products. Limits, the amount of
exposure that may be taken in a product, relationship, region or industry,
seek to align corporate-wide 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 esti-
mate expected and unexpected losses for each product and line of busi-
ness, 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 prod-
ucts or services to our customers. We instill a risk-conscious culture
through communications,
training, policies, procedures, and organiza-
tional roles and responsibilities. Additionally, we continue to strengthen
the linkage between the associate performance management process
and individual compensation to encourage associates to work toward
corporate-wide risk goals.

Oversight
The Board oversees the risk management of the Corporation through its
committees, management committees and the Chief Executive Officer.
The Board’s Audit Committee monitors (1)
the effectiveness of our
internal controls, (2) the integrity of our Consolidated Financial State-
ments and (3) compliance with legal and regulatory requirements. In addi-
tion, the Audit Committee oversees the internal audit function and the
registered public accountant. The Board’s Asset Quality
independent
Committee oversees credit and market risks and related topics that may
impact our assets and earnings. The Finance Committee, a management
committee, oversees the development and performance of the policies
and strategies for managing the strategic, credit, market, and operational
risks to our earnings and capital. The Asset Liability Committee (ALCO), a
subcommittee of the Finance Committee, oversees our policies and proc-
esses designed to assure sound market
risk and balance sheet
management. The Global Markets Risk Committee (GRC) has been des-
ignated by ALCO as the primary governance authority for Global Markets
Risk Management. The Compliance and Operational Risk Committee, a
subcommittee of the Finance Committee, oversees our policies and proc-
esses designed to assure sound operational and compliance risk
management. The Credit Risk Committee (CRC), a subcommittee of the
Finance Committee, oversees and approves our adherence to sound
credit risk management policies and practices. Certain CRC approvals are
subject to the oversight of the Board’s Asset Quality Committee. The
Executive Management Team (i.e., Chief Executive Officer and select
executives of the management team) reviews our corporate strategies
and objectives, evaluates business performance, and reviews business
plans including economic capital allocations to the Corporation and lines

of business. Management continues to direct corporate-wide efforts to
address the Basel Committee on Banking Supervision’s new risk-based
capital standards (Basel II). The Audit Committee and Finance Committee
II. For additional
oversee management’s plans to comply with Basel
information, see the Basel II discussion on page 59 and Note 15 – Regu-
latory Requirements and Restrictions to the Consolidated Financial
Statements.

Strategic Risk Management
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. We use our planning process to
help manage strategic risk. A key component of the planning process
aligns strategies, goals, tactics and resources throughout the enterprise.
The process begins with the creation of a corporate-wide business plan
which incorporates an assessment of the strategic risks. This business
plan establishes the corporate strategic direction. The planning process
then cascades through the lines of business, creating business line plans
that are aligned with the Corporation’s strategic direction. At each level,
tactics and metrics are identified to measure success in achieving goals
and assure adherence to the plans. As part of this process, the lines of
business continuously evaluate the impact of changing market and busi-
ness conditions, and the overall risk in meeting objectives. See the
Compliance and Operational Risk Management section on page 92 for a
further description of this process. Corporate Audit in turn monitors, and
independently reviews and evaluates, the plans and measurement proc-
esses.

One of the key tools we use to manage strategic risk is economic
capital allocation. Through the economic capital allocation process we
effectively manage each line of business’s ability to take on risk. Review
and approval of business plans incorporate approval of economic capital
allocation, and economic capital usage is monitored through financial and
risk reporting. Economic capital allocation plans for the lines of business
are incorporated into the Corporation’s operating plan that is approved by
the Board on an annual basis.

Liquidity Risk and Capital Management

Liquidity Risk
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 funding at
reasonable market rates. Liquidity management involves forecasting fund-
ing requirements and maintaining sufficient capacity to 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, and wholesale market-based funding.
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 sub-
sidiaries. The management of liquidity at both levels is essential because
funding
the parent company and banking subsidiaries have different
needs and sources, and 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 con-
tingency procedures, and monitoring liquidity on an ongoing basis. Corpo-
funding
rate Treasury is responsible for planning and executing our
activities and strategy.

Bank of America 2008 55

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 wholesale market funding providers,
and maintaining the ability to liquefy certain assets when, and if, require-
ments warrant. Credit markets substantially deteriorated over the past 18
months and access to non-guaranteed market-based funding has dimin-
ished for financial institutions. For these reasons we have utilized various
government institutions (e.g., Federal Reserve, U.S. Treasury and FDIC)
funding programs to enhance our liquidity position. Many of these facili-
ties are temporary in nature, but have provided significant market stability
and have allowed many banks to maintain a healthy liquidity profile.

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
and
roles
problem period,
responsibilities. They are reviewed and approved annually by ALCO.

through

define

and

the

Under normal business conditions, primary sources of funding for the
parent company include dividends received from its banking and non-
banking subsidiaries, and proceeds from the issuance of senior 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.

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, N.A. as of February 27, 2009 are reflected in the table
below.

The cost and availability of unsecured and secured financing are
impacted by changes in our credit ratings. A reduction in these ratings or
the ratings of other asset-backed securitizations could have an adverse
effect on our access to credit markets and the related cost of funds.
Some of the primary factors in maintaining our credit ratings include a
stable and diverse earnings stream, strong capital ratios, strong credit
quality and risk management controls, diverse funding sources and dis-
ciplined liquidity monitoring procedures.

If the Corporation’s long-term credit rating was incrementally down-
graded by one level by the rating agencies, we estimate the incremental
cost of funds and the potential lost funding would continue to be negli-
gible for senior and subordinated debt and short-term bank debt.
Additionally, we do not believe that funding requirements for VIEs and
other third party commitments would be significantly impacted. However,
if the Corporation’s short-term credit rating was downgraded by one level,

Table 11 Credit Ratings

Moody’s Investors Service
Standard & Poor’s
Fitch Ratings

56 Bank of America 2008

incremental

our
funding may
be material due to the negative impacts on our commercial paper pro-
grams.

funds and potential

cost of

lost

Since October 2008, Bank of America has had the ability to issue
long-term senior unsecured debt through the TLGP program. This program
gives us the ability to issue AAA-rated debt backed by the full faith and
credit of the U.S. government regardless of our current credit rating. For
further
information regarding this program, see Regulatory Initiatives
beginning on page 20.

The parent company maintains a cushion of excess liquidity that
would be sufficient to fully fund the holding company and nonbank affili-
ate 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. Since deposits are taken by the bank operat-
ing subsidiaries and not by the parent company, this measure is not
dependent on the bank operating subsidiaries’ stable deposit balances.
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 undeclared dividends to shareholders
while continuing to meet nondiscretionary uses needed to maintain oper-
ations and repayment of contractual principal and interest payments
owed by the parent company and affiliated companies. Under this scenar-
io, the amount of time the parent company and its nonbank subsidiaries
can operate and meet all obligations before the current liquid assets are
exhausted is considered 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 helps to facilitate
the target range of 21 to 27 months for “Time to Required Funding” and
is the primary driver of the timing and amount of the Corporation’s debt
issuances. After incorporating the impacts of the Corporation’s acquis-
ition of Merrill Lynch, including the $10.0 billion of Series Q Preferred
Stock issued in connection with the TARP Capital Purchase Program,
“Time to Required Funding” increased to 23 months at December 31,
2008, compared to 19 months at December 31, 2007. Excluding the
impacts of Merrill Lynch acquisition and Series Q Preferred Stock issu-
ance would result in a significantly higher “Time to Required Funding” as
we had taken certain liquidity actions prior to December 31, 2008 in
preparation for the Merrill Lynch acquisition. The bank operating sub-
sidiaries maintain sufficient funding capacity to address large increases
in funding requirements such as deposit outflows. This capacity is com-
prised of available wholesale market capacity, liquidity derived from a
reduction in asset levels and various secured funding sources.

The primary sources of funding for our banking subsidiaries include
customer deposits and wholesale market-based funding. Primary uses of
funds for the banking subsidiaries include growth in the core asset portfo-
lios, including loan demand, and in the ALM portfolio. We use the ALM
portfolio primarily to manage interest rate risk and liquidity risk.

Bank of America Corporation

Bank of America, N.A.

Senior Debt

Subordinated
Debt

Commercial
Paper

Short-term
Borrowings

Long-term
Debt

A1
A+
A+

A2
A
A

P-1
A-1
F1+

P-1
A-1+
F1+

Aa2
AA-
A+

One ratio that can be used to monitor the stability of our funding
composition and takes into account our deposit balances is the “loan to
domestic deposit” ratio. This ratio reflects the percent of loans and
leases that are funded by domestic core deposits, a relatively stable
funding source. A ratio below 100 percent indicates that our loan portfolio
is completely funded by domestic core deposits. The ratio was 118 per-
cent at December 31, 2008 compared to 127 percent at December 31,
2007.

ALCO determines prudent parameters for wholesale market-based
borrowing and regularly reviews the funding plan for the bank subsidiaries
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
financing entities are not able to issue
that
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.

the off-balance sheet

The financial market disruptions that began in 2007 continued to
impact the economy and financial services sector during 2008. The
unsecured funding markets remained stressed and experienced short-
term periods of illiquidity during the second half of the year as prime
money market fund managers remained focused on redemptions and
increased their portfolio composition to shorter and more liquid
government-sponsored assets. As a result of the disruptions, the Corpo-
ration shifted to issuing FDIC guaranteed TLGP debt in the fourth quarter
to generate material funding in the capital markets.

Our primary banking subsidiary, Bank of America, N.A., is maintaining
historically high levels of cash with the Federal Reserve each day as well
as ensuring an unused portion of high quality collateral
is available to
generate cash at all times. Further, Bank of America, N.A. maintains addi-
tional collateral that could utilize the Federal Reserve’s balance sheet
through the Discount Window in the event of a deep and prolonged shock
to funding markets.

The Corporation also utilizes overnight repo markets. During the most
severe liquidity disruptions in the overnight repo markets we did not expe-
rience liquidity issues. Nonetheless, we have recently reduced overnight
funding exposure at both the parent and banking subsidiary levels.

In addition, liquidity for ABS disappeared and issuance spreads rose
to historic highs, negatively impacting our credit card securitization pro-
grams. If these conditions persist it could adversely affect our ability to
access these markets at favorable terms in the future. Approximately
$20.7 billion of debt issued through our U.S. credit card securitizations
trust will mature in the upcoming 12 months. The U.S. credit card
securitization trust had approximately $88.6 billion and $84.8 billion in
outstanding securitized loans at December 31, 2008 and 2007 and the
trust excess spread was 5.64 percent and 6.64 percent. If the 3-month
average excess spread declines below 4.50 percent, the residual excess
cash flows that are typically returned to the Corporation will be held by a
trustee up to certain levels as additional credit enhancements to the
investors. If the excess spread were to decline to zero percent, the trust
would enter into early amortization, repayment of the debt issued through
our credit card securitizations would be accelerated and the Corporation
will have to fund all future credit card loan advances on-balance sheet.
This could adversely impact the Corporation’s liquidity and capital.

As specifically permitted by the terms of the transaction documents,
and in an effort to address the recent decline in the excess spread due to
the performance of the underlying credit card receivables in the U.S.

credit card securitization trust, an additional subordinated security total-
ing approximately $8.0 billion will be issued by the trust to the Corpo-
ration in the first quarter of 2009. This security will provide additional
credit enhancement to the trust and its investors. In addition, upon com-
pletion of requirements set forth in transaction documents, we plan to
allocate a percentage of new receivables into the trust that, when col-
lected, will be applied to finance charges, which is expected to increase
the yield in the trust. These actions are not expected to have a significant
impact on the Corporation’s results of operations. If these actions had
occurred on December 31, 2008, the impact would have increased our
Tier 1 risk-weighted assets by approximately $75 billion or six percent.

While market conditions have been challenging, we experienced a
significant increase in deposits as we benefited from a consumer and
business flight-to-safety in the second half of 2008. We have also taken
direct actions to enhance our liquidity position during 2008 including
receiving cash proceeds of $34.7 billion on the issuance of preferred
stock, $9.9 billion of common stock, net of underwriting expenses, $8.5
billion of senior notes, $1.0 billion of Eurodollar floating rate notes and
$15.6 billion of debt issued under the TLGP by the parent company.
Included in the $34.7 billion of cash proceeds on the issuance of pre-
ferred stock is $15.0 billion related to the Series N Preferred Stock that
was issued in connection with the TARP Capital Purchase Program, which
is discussed further below. Furthermore, in January 2009, the Corporation
issued Series Q Preferred Stock for an additional $10.0 billion of cash
proceeds in connection with the TARP Capital Purchase Program.

In addition, in January 2009, the U.S. government agreed to assist in
the Merrill Lynch acquisition by making a further investment in the Corpo-
ration of $20.0 billion in preferred stock. Further, the U.S. government
has agreed in principle to provide protection against the possibility of
unusually large losses on $118.0 billion in selected capital markets
exposure, primarily from the former Merrill Lynch portfolio. As a fee for
this arrangement, we expect to issue to the U.S. Treasury and FDIC a
total of $4.0 billion of a new class of preferred stock and to issue war-
rants to acquire 30.1 million shares of Bank of America common stock.
For more information, see the Recent Events section on page 22.

Lastly, Bank of America, N.A. issued $10.0 billion of senior unsecured
bank notes, of which $6.0 billion included an extendible feature, $4.3 bil-
lion of debt under the TLGP, and $43.1 billion in short term bank notes.
Also, several funding programs have been made available through the
Federal Reserve which are more fully described in Regulatory Initiatives
on page 20.

A majority of the long-term liquidity obtained by the Corporation under
the TLGP since the announcement of the Merrill Lynch acquisition was
completed in preparation for the funding needs of the combined orga-
nizations. We will continue to manage the liquidity position of the com-
bined company through our ALM activities. Merrill Lynch had long-term
debt outstanding with a fair value of $189.4 billion at acquisition. As the
organizations integrate,
the Corporation intends to utilize the capital
markets to maintain its “Time to Required Funding” within the approved
ALCO guidelines.

Regulatory Capital
At December 31, 2008, the Corporation operated its banking activities
primarily under three charters: Bank of America, N.A., FIA Card Services,
N.A., and Countrywide Bank, FSB. Effective October 17, 2008, LaSalle
Bank, N.A. merged with and into Bank of America, N.A., with Bank of
America, N.A. as the surviving entity. As a regulated financial services
company, we are governed by certain regulatory capital requirements. At
December 31, 2008 and 2007, the Corporation, Bank of America, N.A.,
and FIA Card Services, N.A., were classified as “well-capitalized” for regu-
latory purposes, the highest classification. Effective July 1, 2008, we

Bank of America 2008 57

acquired Countrywide Bank, FSB which is regulated by the Office of Thrift
Supervision (OTS) and is, therefore, subject to OTS capital requirements.
Countrywide Bank, FSB is required by OTS regulations to maintain a
tangible equity ratio of at least two percent to avoid being classified as
“critically undercapitalized.” At December 31, 2008, Countrywide Bank,
FSB’s tangible equity ratio was 6.64 percent and was classified as “well-
capitalized” for
the
Corporation, Bank of America, N.A., FIA Card Services, N.A. and Country-
wide Bank, FSB will remain “well-capitalized.”

regulatory purposes. Management believes that

Certain corporate sponsored trust companies which issue trust pre-
ferred securities (Trust Securities) are not consolidated pursuant to FIN
46R. In accordance with FRB guidance, the FRB allows Trust Securities to
qualify as Tier 1 Capital with revised quantitative limits that would be
effective on March 31, 2009. As a result, we include Trust Securities in
Tier 1 Capital.

Such limits restricted core capital elements to 15 percent for interna-
tionally active bank holding companies. In addition, the FRB revised the
qualitative standards for capital instruments included in regulatory capi-
tal. Internationally active bank holding companies are those with con-
solidated assets greater than $250 billion or on-balance sheet exposure
greater
the Corporation’s
restricted core capital elements comprised 14.7 percent of total core
capital elements. The Corporation expects to remain fully compliant with
the revised limits prior to the implementation date of March 31, 2009.

than $10 billion. At December 31, 2008,

Table 12 reconciles the Corporation’s total shareholders’ equity to
Tier 1 and Total Capital as defined by the regulations issued by the FRB,
the FDIC, the OCC and the OTS at December 31, 2008 and 2007.

At December 31, 2008, the Corporation’s Tier 1 Capital, Total Capital
and Tier 1 Leverage ratios were 9.15 percent, 13.00 percent, and 6.44
respectively. See Note 15 – Regulatory Requirements and
percent,
Restrictions to the Consolidated Financial Statements for more
information on the Corporation’s regulatory capital.

The Corporation calculates tangible common equity as common
shareholders’ equity less goodwill and intangible assets (excluding MSRs)
divided by total assets less goodwill and intangible assets (excluding
MSRs). Our tangible common equity ratio decreased to 2.83 percent at
December 31, 2008 as compared to 3.35 percent at December 31,
2007 as the favorable impact to common equity from the issuance of
common stock and net income during the year was more than offset by
dividend
accumulated
remains focused on balance sheet discipline and
OCI. Management

increased

payments

loss

and

reducing non-core business asset levels to improve this ratio in future
periods. Unlike the Tier 1 Capital ratio, the tangible common equity ratio
is subject to fluctuations in accumulated OCI, including unrealized losses
on AFS debt securities that we expect to return to par upon their maturity,
which adversely impacted this ratio at December 31, 2008.

On January 1, 2009, we completed the acquisition of Merrill Lynch
and subsequently issued an additional $10.0 billion of preferred stock in
connection with the TARP Capital Purchase Program. In addition, on Jan-
uary 16, 2009, the U.S. government agreed to assist in the Merrill Lynch
acquisition by making a further investment in the Corporation of $20.0
billion in preferred stock. Further, the U.S. government has agreed in
principle to provide protection against the possibility of unusually large
losses on $118.0 billion in selected capital markets exposure, primarily
from the former Merrill Lynch portfolio. As a fee for this arrangement, we
expect to issue to the U.S. Treasury and FDIC a total of $4.0 billion of a
new class of preferred stock. On a pro forma basis the net impact of the
additional capital actions and the acquisition of Merrill Lynch would result
in a Tier 1 Capital ratio of approximately 10.7 percent and tangible
common equity ratio of 2.6 percent at December 31, 2008.

Management continuously evaluates opportunities to build to the
Corporation’s capital position. During this heightened period of market
stress, there is limited ability to source meaningful private-sector capital.
Management therefore remains focused on managing asset-levels appro-
priately – ensuring we deploy TARP funds to core lending businesses and
trimming other assets in non-core businesses. The Merrill Lynch balance
sheet ended the year at approximately $650 billion; down from $875 bil-
lion at September 30, 2008. These reductions provided significant bene-
fit to capital, while not forgoing meaningful earnings to the Corporation.
Management is also focused on disciplined expense management to
further contribute to the Corporation’s capital position through earnings
generation. The government actions noted above ensures the Corporation
has adequate capital to manage through this earnings cycle, but we are
clearly focused on evaluating opportunities to repay the U. S. government
as soon as possible. Obviously the earnings environment and overall
health of markets will dictate the pace in which we are able to accomplish
these objectives. Further, management is engaged in holistic stress-
testing of
the Corporation’s earnings, capital, and liquidity position.
Management recognizes the interdependencies and the importance of
planning under a wide range of potential scenarios in light of the historic
volatility witnessed over the past 18 months.

Table 12 Reconciliation of Tier 1 and Total Capital

(Dollars in millions)

Tier 1 Capital

Total shareholders’ equity
Goodwill
Nonqualifying intangible assets (1)
Effect of net unrealized (gains) losses on AFS debt and marketable equity securities and net (gains) losses on derivatives recorded in

accumulated OCI, net-of-tax

Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax
Trust securities
Other

Total Tier 1 Capital

Long-term debt qualifying as Tier 2 Capital
Allowance for loan and lease losses
Reserve for unfunded lending commitments
Other (2)

Total Capital

(1) Nonqualifying intangible assets of the Corporation are comprised of certain core deposit intangibles, affinity relationships and other intangibles.
(2) At December 31, 2008 and 2007, includes 45 percent of the pre-tax fair value adjustment of $3.5 billion and $6.0 billion related to the Corporation’s stock investment in CCB.

58 Bank of America 2008

December 31

2008

2007

$177,052
(81,934)
(4,195)

$146,803
(77,530)
(5,239)

5,479
4,642
18,105
1,665

120,814

31,312
23,071
421
(3,957)

(2,149)
1,301
16,863
3,323

83,372

31,771
11,588
518
6,471

$171,661

$133,720

Basel II
In June 2004, the Basel II Accord was published with the intent of more
closely
underlying
risks. Similar to economic capital measures, Basel II seeks to address
credit risk, market risk, and operational risk.

requirements with

regulatory

aligning

capital

While economic capital is measured to cover unexpected losses, the
Corporation also maintains a certain threshold in terms of regulatory capi-
tal to adhere to legal standards of capital adequacy. These thresholds or
leverage ratios will continue to be utilized for the foreseeable future.

The Basel

II Final Rule (Basel

II Rules), which was published on
December 7, 2007, establish requirements for the U.S. implementation
and provide detailed capital requirements for credit and operational risk
under Pillar 1, supervisory requirements under Pillar 2 and disclosure
requirements under Pillar 3. We are still awaiting final rules for market
risk requirements under Basel II.

The Basel II Rules allowed U.S. financial institutions to begin parallel
reporting as early as 2008, upon successful development and approval of
a formal Implementation Plan, which was approved during the third quar-
the resulting capital calcu-
ter of 2008. During the parallel period,
lations under both the current (Basel
II Rules
should be reported to the financial institutions’ regulatory supervisors for
examination and compliance for at least four consecutive quarterly peri-
ods. Once the parallel period and subsequent three-year transition period
are successfully completed, the financial institution will utilize Basel II as
their means of capital adequacy assessment, measurement and reporting
and discontinue use of Basel I.

I) rules and the Basel

With the acquisition of Countrywide during 2008 and Merrill Lynch
effective January 1, 2009, the Corporation has 24 months from the date
of each acquisition to fully incorporate and transition all data necessary
to successfully complete the more robust Basel II calculations. We con-
tinue to work with the FRB, OCC, OTS and FDIC (collectively, the Agencies)
and with our transition team to meet these timelines and expect to meet
or exceed these requirements.

We continue execution efforts to ensure preparedness with all Basel II
requirements. The goal is to achieve full compliance by the end of the
three-year implementation period in 2011. Further, internationally Basel II
was implemented in several countries during 2008, while others will
begin implementation in 2009 and beyond.

Common Share Issuances and Repurchases
In January of 2009, the Corporation issued common stock in connection
with its acquisition of Merrill Lynch and warrants to purchase common
stock in connection with preferred stock issuances to the U.S. govern-
ment. For additional information regarding the Merrill Lynch acquisition,
see Note 2 – Merger and Restructuring Activity to the Consolidated Finan-
cial Statements. For additional
information regarding the issuance of
warrants to purchase common stock, see Note 25 – Subsequent Events
to the Consolidated Financial Statements.

Table 13 Common Stock Dividend Summary
Declaration Date

Record Date

January 16, 2009
October 6, 2008
July 23, 2008
April 23, 2008
January 23, 2008

March 6, 2009
December 5, 2008
September 5, 2008
June 6, 2008
March 7, 2008

We may repurchase shares, subject to certain restrictions including
those imposed by the U.S. government, from time to time, in the open
market or in private transactions through our approved repurchase pro-
grams. We did not repurchase any shares of the Corporation’s common
stock during 2008 and we issued 107 million shares in connection with
the Countrywide acquisition and 17.8 million shares under employee
stock plans. In addition, in October 2008, we issued 455 million shares
of common stock at $22.00 per share with proceeds of $9.9 billion, net
of underwriting expenses.

To replace the expiring stock repurchase program, in July 2008, the
Board authorized a stock repurchase program of up to 75 million shares
of the Corporation’s common stock at an aggregate cost not to exceed
$3.75 billion that is limited to a period of 12 to 18 months. This program
is also subject to the repurchase restrictions.

For more information on our common share issuances and
repurchases, see Note 14 – Shareholders’ Equity and Earnings Per
Common Share to the Consolidated Financial Statements.

Common Stock Dividends
The table below is a summary of our regular quarterly cash dividends on
common stock as of February 27, 2009. In October 2008, to position our
dividend to better match our earnings, we announced a 50 percent reduc-
tion in our regular quarterly cash dividend on common stock to $0.32 per
share. In January 2009, we further reduced our regular quarterly dividend
to $0.01 per share. The declaration of common stock dividends is sub-
ject to restrictions that are described in detail in Note 14 – Shareholders’
Equity and Earnings Per Common Share to the Consolidated Financial
Statements.

Preferred Stock Issuances
In October 2008, in connection with the TARP Capital Purchase Program,
created as part of
the EESA, we issued to the U.S. Treasury
600 thousand shares of Series N Preferred Stock with a par value of
$0.01 per share for $15.0 billion. In addition, in January of 2009 we
issued an additional $30.0 billion of preferred stock to the U.S. govern-
ment. Further, the U.S. government has agreed in principle to provide
protection against the possibility of unusually large losses on $118.0 bil-
lion in selected capital markets exposure, primarily from the former Merrill
Lynch portfolio. As a fee for this arrangement, we expect to issue to the
U.S. Treasury and FDIC a total of $4.0 billion of a new class of preferred
stock. For more information on the January 2009 issuances and the U.S.
government guarantee, see Recent Events beginning on page 22 and
Note 25 – Subsequent Events to the Consolidated Financial Statements.

Under the TARP Capital Purchase Program dividend payments on, and
repurchases of, our outstanding preferred stock are subject to certain
restrictions. For more information on these restrictions, see Note 14 –
Shareholders’ Equity and Earnings Per Common Share to the Con-
solidated Financial Statements.

Payment Date

March 27, 2009
December 26, 2008
September 26, 2008
June 27, 2008
March 28, 2008

Dividend per Share

$0.01
0.32
0.64
0.64
0.64

Bank of America 2008 59

In May and June 2008, we issued 117 thousand shares of Bank of
America Corporation 8.20% Non-Cumulative Preferred Stock, Series H
with a par value of $0.01 per share for $2.9 billion.

In April 2008, we issued 160 thousand shares of Bank of America
Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series
M with a par value of $0.01 per share for $4.0 billion. The fixed rate is
8.125 percent through May 14, 2018 and then adjusts to three-month
LIBOR plus 364 bps thereafter.

In January 2008, we issued 240 thousand shares of Bank of America
Corporation Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Ser-
ies K with a par value of $0.01 per share for $6.0 billion. The fixed rate is
8.00 percent through January 29, 2018 and then adjusts to three-month
LIBOR plus 363 bps thereafter. In addition, we issued 6.9 million shares
of Bank of America Corporation 7.25% Non-Cumulative Perpetual Con-
vertible Preferred Stock, Series L with a par value of $0.01 per share for
$6.9 billion.

For additional

information on the issuance of preferred stock, see
Note 14 – Shareholders’ Equity and Earnings Per Common Share to the
Consolidated Financial Statements.

Table 14 Preferred Stock Cash Dividend Summary

Preferred Stock Dividends
In 2008, we declared a total of $1.3 billion in cash dividends on our vari-
ous series of preferred stock, which does not include $130 million of
fourth quarter 2008 Series N cumulative preferred dividends not declared
as of year end. In addition, in January 2009, we declared aggregate divi-
dends on preferred stock of $909 million, including $145 million related
to preferred stock exchanged in connection with the Merrill Lynch acquis-
ition. We estimate that the potential aggregate cash dividends on various
series of our preferred stock in the first quarter of 2009, subject to the
Board’s future declaration and assuming no conversion of convertible
shares, will be $1.4 billion. For additional information on our preferred
stock, see Note 14 – Shareholders’ Equity and Earnings Per Common
Share to the Consolidated Financial Statements.

The following table is a summary of our cash dividends on preferred

stock as of February 27, 2009.

Preferred Stock

Series B

Notional
Amount
(in millions)
1

Series D (1)

825

Series E (1)

$ 2,025

Series H (1)

Series I (1)

$ 2,925

550

Series J (1)

$ 1,035

Series K (3, 4)

Series L

Series M (3, 4)

Series N

Series Q

Series R

$ 6,000

$ 6,900

$ 4,000
$15,000
$10,000
$20,000

Declaration Date

January 16, 2009
October 6, 2008
July 23, 2008
April 23, 2008
January 23, 2008

January 5, 2009
October 2, 2008
July 3, 2008
April 3, 2008
January 3, 2008

January 5, 2009
October 2, 2008

July 3, 2008(2)

January 5, 2009
October 2, 2008
July 3, 2008
April 3, 2008
January 3, 2008

January 5, 2009
October 2, 2008
July 3, 2008
April 3, 2008
January 3, 2008(2)

January 5, 2009

July 3, 2008(2)

December 16, 2008
September 16, 2008
June 13, 2008
March 14, 2008(2)
October 2, 2008(2)
January 5, 2009(2)
January 21, 2009(2)
January 21, 2009(2)

(1) Dividends per depositary share, each representing a 1/1000th interest in a share of preferred stock.
(2)

Initial dividends
Initially pays dividends semi-annually.

(3)
(4) Dividends per depository share, each representing a 1/25th interest in a share of preferred stock.

60 Bank of America 2008

Per Annum
Dividend Rate

Dividend
per Share

Record Date

April 10, 2009
January 9, 2009
October 8, 2008
July 9, 2008
April 11, 2008

February 27, 2009
November 28, 2008
August 29, 2008
May 30, 2008
February 29, 2008

January 30, 2009
October 31, 2008
July 31, 2008
April 30, 2008
January 31, 2008

January 15, 2009
October 15, 2008
July 15, 2008

March 15, 2009
December 15, 2008
September 15, 2008
June 15, 2008
March 15, 2008

January 15, 2009
October 15, 2008
July 15, 2008
April 15, 2008
January 15, 2008

January 15, 2009
July 15, 2008

January 1, 2009
October 1, 2008
July 1, 2008
April 1, 2008

Payment Date

April 24, 2009
January 23, 2009
October 24, 2008
July 25, 2008
April 25, 2008

March 16, 2009
December 15, 2008
September 15, 2008
June 16, 2008
March 14, 2008

February 17, 2009
November 17, 2008
August 15, 2008
May 15, 2008
February 15, 2008

February 2, 2009
November 3, 2008
August 1, 2008

April 1, 2009
December 31, 2008
October 1, 2008
July 1, 2008
April 1, 2008

February 2, 2009
November 3, 2008
August 1, 2008
May 1, 2008
February 1, 2008

January 30, 2009
July 30, 2008

January 30, 2009
October 30, 2008
July 30, 2008
April 30, 2008

7.00%
7.00
7.00
7.00
7.00

6.204%
6.204
6.204
6.204
6.204

Floating
Floating
Floating
Floating
Floating

8.20%
8.20
8.20

6.625%
6.625
6.625
6.625
6.625

7.25%
7.25
7.25
7.25
7.25

Fixed-to-Floating
Fixed-to-Floating

7.25%
7.25
7.25
7.25

October 31, 2008

November 17, 2008

Fixed-to-Floating

January 31, 2009

February 17, 2009

5.00%

8.00%

1.75
1.75
1.75
1.75
1.75

$0.38775
0.38775
0.38775
0.38775
0.38775

$0.25556
0.25556
0.25556
0.25
0.33342

$0.51250
0.51250
0.3929

$0.41406
0.41406
0.41406
0.41406
0.41406

$0.45312
0.45312
0.45312
0.45312
0.35750

40.00
40.00

$18.1250
18.1250
18.1250
18.3264

$44.0104

$ 371.53

125

$ 161.11

Credit Risk Management
The housing downturn and the financial market disruptions that began in
the second half of 2007 have continued to affect the economy and the
financial services sector in 2008. The housing downturn and the broader
economic slowdown accelerated during the second half of 2008 and
negatively impacted the credit quality of both our consumer and commer-
cial portfolios. The depth and breadth of the downturn as well as the
resulting impacts on the credit quality of our portfolios remain unclear.
turbulence and economic
However, we expect continued market
uncertainty to continue well
into 2009. This will result in higher credit
losses and provision for credit losses in future periods.

result

failures that

Credit risk is the risk of loss arising from the inability of a borrower or
counterparty to meet its obligations. Credit risk can also arise from opera-
in an erroneous advance, commitment or
tional
investment of funds. We define the credit exposure to a borrower or coun-
terparty as the loss potential arising from all product classifications
including loans and leases, deposit overdrafts, derivatives, assets
held-for-sale and unfunded lending commitments that include loan com-
mitments, letters of credit and financial guarantees. Derivative positions
are recorded at fair value and assets held-for-sale are recorded at fair
value or the lower of cost or fair value. Certain loans and unfunded com-
mitments are accounted for at fair value in accordance with SFAS 159.
Credit risk for these categories of assets is not accounted for as part of
the allowance for credit losses but as part of the fair value adjustment
recorded in earnings in the period incurred. For derivative positions, our
credit risk is measured as the net replacement cost in the event the
counterparties with contracts in a gain position to us fail to perform under
the terms of those contracts. We use the current mark-to-market value to
represent
credit exposure without giving consideration to future
mark-to-market changes. The credit risk amounts take into consideration
the effects of legally enforceable master netting agreements and cash
collateral. Our consumer and commercial credit extension and review
procedures take into account funded and unfunded credit exposures. For
additional information on derivatives and credit extension commitments,
see Note 4 – Derivatives and Note 13 – Commitments and Contingencies
to the Consolidated Financial Statements.

For credit risk purposes, we evaluate our consumer businesses on
both a held and managed basis. Managed basis assumes that credit card
loans that have been securitized were not sold and presents earnings on
these loans in a manner similar to the way loans that have not been sold
(i.e., held loans) are presented. We evaluate credit performance on a
managed basis as the credit card receivables that have been securitized
are subject to the same underwriting, servicing, ongoing monitoring and
collection standards as held loans. In addition to the discussion of credit
quality statistics of both held and managed credit card loans included in
this section, refer to the Card Services discussion on page 35. For addi-
tional information on our managed portfolio and securitizations, see Note
8 – Securitizations to 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, conditions and expectations. We
classify our portfolios as either consumer or commercial and monitor
credit risk in each as discussed below.

We continue to refine our credit standards to meet the changing
economic environment. We have adjusted our underwriting criteria, as
well as enhanced our line management and collection strategies across
the consumer businesses in an attempt to mitigate losses. We have
increased our collections and customer assistance infrastructure in order
to enhance customer support.

In our domestic consumer credit card business, we have implemented
a number of initiatives to mitigate losses including increased use of

judgmental lending, adjusted underwriting, account and line management
standards, particularly in higher-risk geographies, and increased collec-
tions staffing levels. In response to the significant deterioration in our
consumer real estate portfolio we have implemented initiatives including
underwriting changes on newly originated consumer real estate loans
which increased the minimum FICO score and reduced the maximum
loan-to-value (LTVs) and combined loan-to-values (CLTVs). Additional LTV
and CLTV reductions were implemented for higher risk geographies. In our
home equity portfolio, we have also reduced unfunded lines on deteriorat-
ing accounts with declining equity positions.

In response to weakness in our direct/indirect portfolio, we have
implemented several initiatives to mitigate losses. In our unsecured lend-
ing business we have increased the use of judgmental lending and tighter
underwriting and account management standards for higher risk custom-
ers and higher-risk geographies.
In our automotive and dealer-related
portfolios, we have tightened underwriting criteria and improved the risk-
based pricing for purchased loans.

To mitigate losses in the commercial businesses, we have increased
the frequency and intensity of portfolio monitoring, hedging activity and
our efforts in managing the exposure when we begin to see signs of dete-
rioration. As part of our underwriting process we have increased scrutiny
around stress analysis and required pricing and structure to reflect cur-
rent market dynamics. Given the volatility of the financial markets, we
increased the frequency of various tests designed to understand what the
volatility could mean to our underlying credit risk. Given the single name
risk associated with the problems in the financial markets, we used a
real-time counterparty event management process to monitor key
counterparties. A number of initiatives have also been implemented in our
small business commercial – domestic portfolio including changes to
underwriting thresholds, augmented by a granular decision making proc-
ess by experienced underwriters including increasing minimum FICO
line assignments. We have also decreased
scores and lowering initial
credit lines on higher risk customers in higher risk states and industries.

Further, we are increasing our customer assistance and collections
infrastructure and have instituted a number of other initiatives related to
our credit portfolios in an attempt to mitigate losses and enhance our
support for our customers. To help homeowners avoid foreclosure, Bank
of America and Countrywide modified approximately 230,000 home loans
during 2008. The majority of
these home retention solutions were
extended as part of a broader initiative to offer modifications for approx-
imately $100 billion in mortgage financing for up to 630,000 borrowers
over the next several years. In addition to being committed to the loan
modification programs the Corporation continued to focus on lending by
extending more than $115 billion of new credit during the fourth quarter.
For more information, see Recent Events on page 22.

On July 1, 2008, the Corporation acquired Countrywide creating one of
the largest mortgage originators and servicers. We will continue our prac-
tice of not originating subprime mortgages and certain nontraditional
mortgages, and as such will not offer products such as Countrywide’s
pay-option and payment advantage ARMs (pay option loans), which we
classify as discontinued real estate in the Consumer Portfolio Credit Risk
Management discussion. We have significantly curtailed the production of
other nontraditional mortgages, such as certain low-documentation loans.
In addition, we will continue to offer first-lien mortgages conforming to
the underwriting standards of GSEs and the government, including loans
supported by the FHA and the Department of Veterans Affairs and other
loans designed for low and moderate income borrowers (e.g., Community
Reinvestment Act
first-lien
non-conforming loans, interest-only fixed-rate and ARMs that are subject
to a 10-year minimum interest-only period, and fixed-period ARMs.

loans). We will also continue to offer

Bank of America 2008 61

On January 1, 2009, the Corporation acquired Merrill Lynch which
contributed to both our consumer and commercial
loans and commit-
ments. Acquired consumer loans consist of residential mortgages, home
equity loans and lines of credit and direct/indirect and other loans.
Commercial loans were comprised of both investment and non-investment
grade loans and include exposures to CMBS, monolines and leveraged
finance. Consistent with other acquisitions, we will
incorporate the
acquired assets into our overall credit risk management processes and
enhance disclosures where appropriate.

Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial
underwriting and continues throughout a borrower’s credit cycle. Stat-
istical techniques in conjunction with experiential judgment are used in all
aspects of portfolio management including underwriting, product pricing,
risk appetite, setting credit limits, operating processes and metrics to
quantify and balance risks and returns. Statistical models are built using
information from external sources such as credit
detailed behavioral
bureaus and/or
internal historical experience. These models are a
component of our consumer credit risk management process and are
used in part to help determine both new and existing credit decisions,
portfolio management strategies including authorizations and line man-
agement, collection practices and strategies, determination of the allow-
ance for loan and lease losses, and economic capital allocations for
credit risk.

For information on our accounting policies regarding delinquencies,
nonperforming status and charge-offs for the consumer portfolio, see
Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements.

Table 15 Consumer Loans and Leases

Management of Consumer Credit Risk
Concentrations
Consumer credit risk is evaluated and managed with a goal that credit
concentrations do not result in undesirable levels of risk. We review,
measure and manage credit exposure in numerous ways such as by
product and geography in order to achieve the desired mix. Additionally,
credit protection is purchased on certain portions of our portfolio to
enhance our overall risk management position.

The merger with Merrill Lynch will increase our concentrations to cer-
tain products and loan types. These increases are primarily in the resi-
dential mortgage, home equity and direct/indirect portfolios.

Consumer Credit Portfolio
Overall, consumer credit quality indicators deteriorated during 2008 as
our customers were negatively impacted by the slowing economy. Con-
tinued weakness in the housing markets,
rising unemployment and
underemployment, and tighter credit conditions resulted in rising credit
risk across all our consumer portfolios. The deterioration in the consumer
credit quality indicators accelerated during the fourth quarter.

Table 15 presents our consumer loans and leases and our managed
credit card portfolio, and related credit quality information. Loans that
were acquired from Countrywide that were considered impaired were writ-
ten down to fair value at acquisition in accordance with SOP 03-3. Refer
to the SOP 03-3 discussion beginning on page 65 for more information. In
addition to being included in the “Outstandings” column below, these
loans are also shown separately, net of purchase accounting adjust-
ments, for increased transparency in the “SOP 03-3 Portfolio” column.

(Dollars in millions)

Held basis

Residential mortgage
Home equity
Discontinued real estate (6)
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (7)
Other consumer (8)

Total held

Supplemental managed basis data

Credit card – domestic
Credit card – foreign

Total credit card – managed

December 31

Outstandings

Nonperforming (1, 2, 3)

Accruing Past Due 90
Days or More (3, 4)

2008

2007

2008

2007

2008

2007

$247,999
152,547
19,981
64,128
17,146
83,436
3,442

$588,679

$154,151
28,083

$182,234

$274,949
114,820
n/a
65,774
14,950
76,538
4,170

$551,201

$151,862
31,829

$183,691

$7,044
2,670
77
n/a
n/a
26
91

$9,908

n/a
n/a

n/a

$1,999
1,340
n/a
n/a
n/a
8
95

$3,442

n/a
n/a

n/a

$ 372
–
–
2,197
368
1,370
4

$4,311

$5,033
717

$5,750

$ 237
–
n/a
1,855
272
745
4

$3,113

$4,170
714

$4,884

SOP 03-3
Portfolio (5)

2008

$ 9,949
14,163
18,097
n/a
n/a
n/a
n/a

$42,209

n/a
n/a

n/a

(1) The definition of nonperforming does not include consumer credit card and consumer non-real estate loans and leases. These loans are charged off no later than the end of the month in which the account becomes

180 days past due.

(2) Nonperforming held consumer loans and leases as a percentage of outstanding consumer loans and leases were 1.68 percent (1.81 percent excluding the SOP 03-3 portfolio) and 0.62 percent at December 31, 2008

and 2007.

(3) Balances do not include loans accounted for in accordance with SOP 03-3 even though the customer may be contractually past due. Loans accounted for in accordance with SOP 03-3 were written down to fair value

upon acquisition and accrete interest income over the remaining life of the loan.

(4) Accruing held consumer loans and leases past due 90 days or more as a percentage of outstanding consumer loans and leases were 0.73 percent (0.79 percent excluding the SOP 03-3 portfolio) and 0.57 percent at

December 31, 2008 and 2007.

(5) Represents acquired loans from Countrywide that were considered impaired and written down to fair value at the acquisition date in accordance with SOP 03-3. These amounts are included in the Outstandings column

in this table.

(6) Discontinued real estate includes pay option loans and subprime loans obtained in connection with the acquisition of Countrywide. The Corporation no longer originates these products.
(7) Outstandings include foreign consumer loans of $1.8 billion and $3.4 billion at December 31, 2008 and 2007.
(8) Outstandings include consumer finance loans of $2.6 billion and $3.0 billion, and other foreign consumer loans of $618 million and $829 million at and December 31, 2008 and 2007.
n/a = not applicable

62 Bank of America 2008

Table 16 Consumer Net Charge-offs/Net Losses and Related Ratios

Net Charge-offs/Losses

Net Charge-off/Loss Ratios (1, 2)

(Dollars in millions)

Held basis

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total held

Supplemental managed basis data

Credit card – domestic
Credit card – foreign

Total credit card – managed

2007

2008

2007

2008

925
3,496
16
4,161
551
3,114
399

56
274
n/a
3,063
379
1,373
278

$12,662

$5,423

$10,054
1,328

$11,382

$6,960
1,254

$8,214

0.36%
2.59
0.15
6.57
3.34
3.77
10.46

2.21

6.60
4.17

6.18

0.02%
0.28
n/a
5.29
3.06
1.96
6.18

1.07

4.91
4.24

4.79

(1) Net charge-off/loss ratios are calculated as held net charge-offs or managed net losses divided by average outstanding held or managed loans and leases during the year for each loan and lease category.
(2) Net charge-off ratios excluding the SOP 03-3 portfolio were 2.73 percent for home equity, 1.33 percent for discontinued real estate and 2.29 percent for the total held portfolio for 2008. These are the only product

classifications materially impacted by SOP 03-3 for 2008. For these loan and lease categories the dollar amounts of the net charge-offs were unchanged.

n/a = not applicable

Table 16 presents net charge-offs and related ratios for our consumer
loans and leases and net losses and related ratios for our managed
credit card portfolio for 2008 and 2007. The reported net charge-off
ratios for residential mortgage, home equity and discontinued real estate
benefit from the addition of the Countrywide SOP 03-3 portfolio as the
initial fair value adjustments recorded on those loans at acquisition would
have already included the estimated credit losses. The reported net
charge-offs for
include the benefits of
amounts reimbursable under cash collateralized synthetic securitiza-
tions. Adjusting for the benefit of this credit protection, the residential
mortgage net charge-off ratio in 2008 would have been reduced by four
bps.

residential mortgage do not

the presentation of

In certain cases, the inclusion of the SOP 03-3 portfolio, which was
written down to fair value at acquisition, may impact portfolio credit sta-
tistics and trends. We believe that
information
adjusted to exclude the impacts of the SOP 03-3 portfolio is more repre-
sentative of the ongoing operations and credit quality of the business. As
a result, in the discussions below of the residential mortgage, home
equity and discontinued real estate portfolios, we supplement certain
reported statistics with information that
is adjusted to exclude the
impacts of the SOP 03-3 portfolio. In addition, beginning on page 65, we
separately disclose information on the SOP 03-3 portfolio.

Residential Mortgage
The residential mortgage portfolio, which excludes the discontinued real
estate portfolio acquired with Countrywide, makes up the largest percent-
age of our consumer loan portfolio at 42 percent of consumer loans and
leases (44 percent excluding the SOP 03-3 portfolio) at December 31,
2008. Approximately 14 percent of the residential portfolio is in GWIM
and represents residential mortgages that are originated for the home
purchase and refinancing needs of our affluent customers. The remaining
portion of the portfolio is mostly in All Other, and is comprised of both
purchased loans, including certain loans from the Countrywide portfolio,
as well as residential loans originated for our customers which are used
in our overall ALM activities.

loans

Outstanding

at
leases
December 31, 2008 compared to 2007 due to sales and conversions of
loans into retained mortgage backed securities totaling $56.8 billion as

decreased $27.0 billion

and

well as paydowns partially offset by new loan originations and the addition
of the Countrywide portfolio. The Countrywide acquisition added $26.8
billion of residential mortgage outstandings, of which $9.9 billion are
included in the SOP 03-3 portfolio. Nonperforming balances increased
$5.0 billion due to the impacts of weak housing and economic conditions
and the addition of the non SOP 03-3 Countrywide portfolio due to sub-
sequent credit deterioration after acquisition. At December 31, 2008 and
2007, loans past due 90 days or more and still accruing interest of $372
million and $237 million were related to repurchases pursuant to our
servicing agreements with Government National Mortgage Association
(GNMA) mortgage pools where repayments are insured by the FHA or
guaranteed by the Department of Veterans Affairs.

Net charge-offs increased $869 million to $925 million for 2008, or
0.36 percent of total average residential mortgage loans compared to
0.02 percent for 2007. The increase was reflective of the impacts of the
weak housing markets and the slowing economy. See page 65 for more
information on the SOP 03-3 residential mortgage portfolio.

We mitigate a portion of our credit risk through synthetic securitiza-
tions which are cash collateralized and provide mezzanine risk protection
which will reimburse us in the event that losses exceed 10 bps of the
original pool balance. As of December 31, 2008 and 2007, $109.3 bil-
lion and $140.5 billion of mortgage loans were protected by these
agreements. As of December 31, 2008, $146 million of credit and other
related costs recognized in 2008 were reimbursable under these struc-
tures. In addition, we have entered into credit protection agreements with
GSEs on $9.6 billion and $32.9 billion as of December 31, 2008 and
2007, providing full protection on conforming residential mortgage loans
that become severely delinquent. Combined these structures provided
risk mitigation for approximately 48 percent and 63 percent of our resi-
dential mortgage portfolio at December 31, 2008 and 2007. The reduc-
tion in the protection was driven by an increase in loan sales and
securitizations during the period, some of which were insured, and the
percentage of protection was also impacted by the addition of Country-
regulatory risk-
wide mortgages resulting from the acquisition. Our
these risk protection
weighted assets are reduced as a result of
transactions because we transferred a portion of our credit
risk to
unaffiliated parties. At December 31, 2008 and 2007, these transactions
risk-weighted assets by
had the cumulative effect of

reducing our

Bank of America 2008 63

Table 17 Residential Mortgage State Concentrations

(Dollars in millions)

California
Florida
New York
Texas
Virginia
Other U.S./Foreign

Total residential mortgage loans (excluding SOP 03-3 loans)

Total SOP 03-3 residential mortgage loans (1)

Total residential mortgage loans

December 31, 2008

Outstandings

Nonperforming

Percent of
Total

35.6%
6.6
6.5
4.5
4.1
42.7
100.0%

Amount

$2,028
1,012
255
315
229
3,205
$7,044

Percent of
Total

28.8%
14.4
3.6
4.5
3.2
45.5
100.0%

Amount

$ 84,847
15,787
15,539
10,804
9,696
101,377
$238,050
9,949
$247,999

Year Ended
December 31, 2008

Net Charge-offs

Amount

$411
154
5
20
32
303
$925

Percent of
Total

44.4%
16.6
0.5
2.2
3.5
32.8
100.0%

(1) Represents acquired loans from Countrywide that were considered impaired and written down to fair value at the acquisition date in accordance with SOP 03-3. See page 65 for the discussion of the characteristics of

the SOP 03-3 loans.

$34.0 billion and $49.0 billion, and strengthened our Tier 1 Capital ratio
at December 31, 2008 and 2007 by 24 bps and 27 bps.

net charge-offs. See page 65 for more information on the SOP 03-3 home
equity portfolio.

Excluding the SOP 03-3 portfolio, residential mortgage loans with
greater than 90 percent refreshed LTV represented 23 percent of the
portfolio and those loans with refreshed FICO lower than 620 represented
eight percent of the portfolio. In addition, residential mortgage loans to
borrowers in the state of California represented 36 percent and 32 per-
cent of total residential mortgage loans at December 31, 2008 and
2007. The Los Angeles-Long Beach-Santa Ana Metropolitan Statistical
Area (MSA) within California represented 13 percent and 11 percent of
the total residential mortgage portfolio at December 31, 2008 and 2007.
In addition, residential mortgage loans to borrowers in the state of Florida
represented seven percent and six percent of the total residential mort-
gage portfolio at December 31, 2008 and 2007. Additionally, 56 percent
and 40 percent of loans in California and Florida are in reference pools of
synthetic securitizations, as described above, which provide mezzanine
risk protection. Total credit risk on three percent of our mortgage loans in
Florida has been mitigated through the purchase of protection from gov-
ernment sponsored entities. The table above presents outstandings,
nonperforming loans and net charge-offs by certain state concentrations
for the residential mortgage portfolio.

The Community Reinvestment Act (CRA) encourages banks to meet
the credit needs of their communities for housing and other purposes,
particularly
in neighborhoods with low or moderate incomes. At
December 31, 2008, our CRA portfolio comprised seven percent of the
total ending residential mortgage loan balances but comprised 24 per-
cent of nonperforming residential mortgage loans. This portfolio also
comprised 27 percent of residential mortgage net charge-offs during
2008. While approximately 48 percent of our residential mortgage portfo-
lio carries risk mitigation protection, only a small portion of our CRA
portfolio is covered by this protection.

Home Equity
At December 31, 2008, approximately 79 percent of the home equity
portfolio was included in GCSBB, while the remainder of the portfolio was
primarily in GWIM. Outstanding home equity loans increased $37.7 bil-
lion, or 33 percent, at December 31, 2008 compared to December 31,
2007, primarily due to the Countrywide acquisition which added approx-
imately $29.0 billion in home equity loans of which $14.2 billion is
included in the SOP 03-3 portfolio. An additional $25.0 billion in organic
growth and draws on existing lines was partially offset by paydowns and

Home equity unused lines of credit

totaled $107.4 billion at
December 31, 2008 compared to $120.1 billion at December 31, 2007.
The $12.7 billion decrease was driven primarily by higher account uti-
lization due to draws on existing lines as well as line management ini-
tiatives on deteriorating accounts with declining equity positions partially
offset by the addition of the Countrywide portfolio which added $4.5 bil-
lion of unused lines related to the non SOP 03-3 portfolio. The home
equity utilization rate was 52 percent at December 31, 2008 compared to
44 percent at December 31, 2007. The increase was driven by the same
factors as previously discussed as well as the addition of the Countrywide
portfolio which had a higher utilization rate.

Nonperforming home equity loans increased $1.3 billion compared to
December 31, 2007 and net charge-offs increased $3.2 billion to $3.5
billion for 2008, or 2.59 percent (2.73 percent excluding the SOP 03-3
portfolio) of total average home equity loans compared to 0.28 percent in
2007. These increases were driven by continued weakness in the hous-
ing markets, the slowing economy and seasoning of vintages originated in
periods of higher growth. Additionally, the increase was driven by high
refreshed CLTV loans in geographic areas that have experienced the most
significant declines in home prices. Home price declines coupled with the
fact that most home equity loans are secured by second lien positions
have significantly reduced and in some cases resulted in no collateral
value after consideration of the first lien position. This drove more severe
charge-offs as borrowers defaulted.

Excluding the SOP 03-3 portfolio, home equity loans with greater than
90 percent refreshed CLTV comprised 37 percent of the home equity
portfolio at December 31, 2008, and represented 85 percent of net
charge-offs for 2008. In addition, loans with a refreshed FICO lower than
620 represented 10 percent of the home equity loans at December 31,
2008. The 2006 vintage loans, which represent $34.2 billion, or 25
percent of our home equity portfolio, continue to season and have a
higher refreshed CLTV and accounted for approximately 49 percent of net
charge-offs for 2008. The portfolio’s 2007 vintages, which represent 26
percent of the portfolio, are showing similar asset quality characteristics
as the 2006 vintages and accounted for 28 percent of net charge-offs in
2008. Additionally, legacy Bank of America discontinued the program of
purchasing non-franchise originated loans in the second quarter of 2007.
These purchased loans represented only three percent of the portfolio but
accounted for 17 percent of net charge-offs for 2008.

64 Bank of America 2008

Table 18 Home Equity State Concentrations

(Dollars in millions)

California
Florida
New Jersey
New York
Massachusetts
Other U.S./Foreign

Total home equity loans (excluding SOP 03-3 loans)

Total SOP 03-3 home equity loans (1)

Total home equity loans

December 31, 2008

Outstandings

Nonperforming

Percent of
Total

27.5%
12.9
6.5
6.2
4.3
42.6

100.0%

Amount

$ 857
597
126
176
48
866

$2,670

Percent of
Total

32.1%
22.4
4.7
6.6
1.8
32.4

100.0%

Amount

$ 38,015
17,893
8,929
8,602
6,008
58,937

$138,384

14,163

$152,547

Year Ended
December 31, 2008

Net Charge-offs

Amount

$1,464
788
96
96
56
996

$3,496

Percent of
Total

41.9%
22.6
2.7
2.7
1.6
28.5

100.0%

(1) Represents acquired loans from Countrywide that were considered impaired and written down to fair value at the acquisition date in accordance with SOP 03-3. See the SOP 03-3 Portfolio section below for the

discussion of the characteristics of the SOP 03-3 loans.

Excluding the SOP 03-3 portfolio, our home equity loan portfolio in the
states of California and Florida represented in aggregate 40 percent and
39 percent of outstanding home equity loans at December 31, 2008 and
2007. These states accounted for $1.5 billion, or 55 percent, of non-
performing home equity loans at December 31, 2008. In addition, these
states represented 65 percent of the home equity net charge-offs for
2008. In the New York area, the New York-Northern New Jersey-Long
Island MSA made up 11 percent of outstanding home equity loans at
December 31, 2008 but comprised only five percent of net charge offs for
2008. The Los Angeles-Long Beach-Santa Ana MSA within California
made up 11 percent of outstanding home equity loans at December 31,
2008 and 11 percent of net charge-offs for 2008. The table above pres-
ents outstandings, nonperforming loans and net charge-offs by certain
state concentrations for the home equity portfolio.

Discontinued Real Estate
The discontinued real estate portfolio,
totaling $20.0 billion at
December 31, 2008, consisted of pay-option and subprime loans
obtained in connection with the acquisition of Countrywide. At acquisition,
the majority of the discontinued real estate portfolio was considered
impaired and, in accordance with SOP 03-3, written down to fair value. At
December 31, 2008 the SOP 03-3 portfolio comprised $18.1 billion of
the $20.0 billion discontinued real estate portfolio. This portfolio is
included in All Other and is managed as part of our overall ALM activities.
See the SOP 03-3 portfolio discussion to follow for more information on
the discontinued real estate portfolio.

At December 31, 2008, the non SOP 03-3 discontinued real estate
portfolio was $1.9 billion. Loans with greater than 90 percent refreshed
LTVs and CLTVs comprised 13 percent of this portfolio and those with
refreshed FICO scores lower than 620 represented 17 percent of the
portfolio. California represented 31 percent of the portfolio and 22 per-
cent of the nonperforming loans while Florida represented 10 percent of
the portfolio and 17 percent of the nonperforming loans at December 31,
2008. The Los Angeles-Long Beach-Santa Ana MSA within California
made up 14 percent of outstanding discontinued real estate loans at
December 31, 2008.

SOP 03-3 Portfolio
Loans acquired with evidence of credit quality deterioration since origi-
nation and for which it is probable at purchase that we will be unable to
collect all contractually required payments are accounted for under SOP

03-3. Evidence of credit quality deterioration as of the purchase date may
include statistics such as past due status, refreshed borrower credit
scores, and refreshed LTVs, some of which were not immediately avail-
able as of the purchase date. SOP 03-3 addresses accounting for differ-
ences between contractual and expected cash flows to be collected from
the Corporation’s initial
investment in loans if those differences are
attributable, at least in part, to credit quality. SOP 03-3 requires that
acquired impaired loans be recorded at fair value and prohibits “carrying
over” or the creation of valuation allowances in the initial accounting for
loans acquired that are within the scope of this SOP. The SOP 03-3
portfolio associated with the acquisition of LaSalle did not materially
impact
results during 2008 and is excluded from the following dis-
cussion.

In accordance with SOP 03-3, certain acquired loans of Countrywide
that were considered impaired were written down to fair value at the
acquisition date. As a result, there were no reported net charge-offs in
2008 on these loans as the initial fair value at acquisition date would
have already considered the estimated credit losses on these loans. As
of December 31, 2008, the carrying value was $42.2 billion, excluding
the $750 million in incremental allowance, and the unpaid principal bal-
ance of these loans was $55.4 billion. SOP 03-3 does not apply to loans
Countrywide previously securitized as they are not held on the Corpo-
ration’s Balance Sheet. During 2008, had the acquired portfolios not
been subject to SOP 03-3, we would have recorded additional net charge-
offs of $3.6 billion, of which approximately 13 percent would have been
due to conforming accounting adjustments. Subsequent to the July 1,
2008 acquisition of Countrywide, the SOP 03-3 portfolio experienced fur-
ther credit deterioration due to weakness in the housing markets and the
impacts of a slowing economy. As such, we established a $750 million
allowance for loan loss through a charge to the provision for credit losses
comprised of $584 million for discontinued real estate loans and $166
million for home equity loans. For further information regarding loans
accounted for in accordance with SOP 03-3, see Note 6 – Outstanding
Loans and Leases to the Consolidated Financial Statements.

In the following paragraphs we provide additional information on the
residential mortgage, home equity and discontinued real estate loans that
were accounted for under SOP 03-3. Since these loans were written down
to fair value upon acquisition, we are reporting this information sepa-
rately. In certain cases, we supplement the reported statistics on these
SOP 03-3 portfolios with information that is presented as if the acquired
loans had not been subject to SOP 03-3.

Bank of America 2008 65

Table 19 SOP 03-3 Portfolio – Residential Mortgage State Concentrations

(Dollars in millions)

California
Florida
Virginia
Maryland
Texas
Other U.S. / Foreign

Total SOP 03-3 residential mortgage loans

(1) Represents additional net charge-offs for 2008 had the portfolio not been subject to SOP 03-3.

December 31, 2008

Year Ended December 31, 2008

Outstandings

SOP 03-3 Net Charge-offs (1)

Amount

$5,598
771
553
251
147
2,629
$9,949

Percent of
Total

56.3%
7.7
5.6
2.5
1.5
26.4
100.0%

Amount

Percent of Total

$177
103
14
6
5
133
$438

40.4%
23.5
3.2
1.4
1.1
30.4
100.0%

Residential Mortgage
The residential mortgage SOP 03-3 portfolio outstandings were $9.9 bil-
lion at December 31, 2008 and comprised 24 percent of the total SOP
03-3 portfolio. Those loans with a refreshed FICO score lower than 620
represented 26 percent of the residential mortgage SOP 03-3 portfolio at
December 31, 2008. Refreshed LTVs greater than 90 percent after con-
sideration of purchase accounting adjustments and refreshed LTVs
greater than 90 percent based on the unpaid principal balance repre-
sented 58 percent and 82 percent of the residential mortgage portfolio.

California represented approximately 56 percent of the outstanding
residential mortgage SOP 03-3 portfolio and Florida represented approx-
imately eight percent at December 31, 2008. Had the acquired portfolio
not been subject to SOP 03-3 the residential mortgage portfolio would
have recorded additional net charge-offs of $438 million. The table above
presents outstandings net of purchase accounting adjustments and net
charge-offs had the portfolio not been subject to SOP 03-3, by certain
state concentrations.

Home Equity
The home equity SOP 03-3 outstandings were $14.2 billion at
December 31, 2008 and comprised 34 percent of the total SOP 03-3
portfolio. Those loans with a refreshed FICO score lower than 620 repre-
sented 19 percent of
the home equity SOP 03-3 portfolio at
December 31, 2008. Refreshed CLTVs greater than 90 percent repre-

sented 80 percent of the home equity portfolio after consideration of
purchase accounting adjustments. Refreshed CLTVs greater
than 90
percent based on the unpaid principal balance represented 88 percent of
the home equity portfolio at December 31, 2008.

California represented approximately 36 percent of the outstanding
home equity SOP 03-3 portfolio and Florida represented approximately
seven percent at December 31, 2008. Had the acquired portfolio not
been subject to SOP 03-3 the home equity portfolio would have recorded
additional net charge-offs of $1.5 billion. The table below presents out-
standings net of purchase accounting adjustments and net charge-offs
had the portfolio not been subject to SOP 03-3, by certain state concen-
trations.

Discontinued Real Estate
The discontinued real estate SOP 03-3 portfolio outstandings were $18.1
billion at December 31, 2008 and comprised 42 percent of the total SOP
03-3 portfolio. Those loans with a refreshed FICO score lower than 620
represented 32 percent of the discontinued real estate SOP 03-3 portfo-
lio at December 31, 2008. Refreshed LTVs and CLTVs greater than 90
percent represented 40 percent of the discontinued real estate portfolio
after consideration of purchase accounting adjustments. Refreshed LTVs
and CLTVs greater than 90 percent based on the unpaid principal balance
represented 73 percent of
the discontinued real estate portfolio at
December 31, 2008.

Table 20 SOP 03-3 Portfolio – Home Equity State Concentrations

(Dollars in millions)

California
Florida
Arizona
Virginia
Colorado
Other U.S. / Foreign

Total SOP 03-3 home equity loans

(1) Represents additional net charge-offs for 2008 had the portfolio not been subject to SOP 03-3.

December 31, 2008

Year Ended December 31, 2008

Outstandings

SOP 03-3 Net Charge-offs (1)

Amount

$ 5,133
914
629
532
404
6,551
$14,163

Percent of
Total

36.2%
6.5
4.4
3.8
2.9
46.2
100.0%

Amount

$ 744
186
79
42
22
421
$1,494

Percent of Total

49.8%
12.4
5.3
2.8
1.5
28.2
100.0%

66 Bank of America 2008

Table 21 SOP 03-3 Portfolio – Discontinued Real Estate State Concentrations

(Dollars in millions)

California
Florida
Arizona
Virginia
Washington
Other U.S./ Foreign

Total SOP 03-3 discontinued real estate loans

(1) Represents additional net charge-offs for 2008 had the portfolio not been subject to SOP 03-3.

California represented approximately 55 percent of the outstanding
discontinued real estate SOP 03-3 portfolio and Florida represented
approximately 10 percent at December 31, 2008. Had the acquired port-
folio not been subject to SOP 03-3 the discontinued real estate portfolio
would have recorded additional net charge-offs of $1.7 billion. The table
above presents outstandings net of purchase accounting adjustments
and net charge-offs had the portfolio not been subject to SOP 03-3, by
certain state concentrations.

Pay option ARMs have interest rates that adjust monthly and minimum
required payments that adjust annually (subject to resetting of the loan if
minimum payments are made and deferred interest limits are reached).
Annual payment adjustments are subject to a 7.5 percent maximum
change. To ensure that contractual loan payments are adequate to repay
a loan, the fully amortizing loan payment amount is re-established after
the initial five or 10-year period and again every five years thereafter.
These payment adjustments are not subject to the 7.5 percent limit and
may be substantial due to changes in interest rates and the addition of
unpaid interest to the loans’ balance. Payment advantage ARMs have
interest rates that are fixed for an initial period of five years. Payments
are subject to reset if the minimum payments are made and deferred
interest limits are reached. If interest deferrals cause the loan’s principal
balance to reach a certain level within the first 10 years of the loans, the
payment is reset to the interest-only payment; then at the 10-year point,
the fully amortizing payment is required.

The difference between the frequency of changes in the loans’ inter-
est rates and payments along with a limitation on changes in the mini-
mum monthly payments to 7.5 percent per year can result in payments
that are not sufficient to pay all of the monthly interest charges (i.e.,
negative amortization). Unpaid interest charges are added to the loan
balance until the loan’s balance increases to a specified limit, which is
no more than 115 percent of the original loan amount, at which time a
new monthly payment amount adequate to repay the loan over its remain-
ing contractual life is established.

At December 31, 2008 the unpaid principal balance of pay option
loans was $23.2 billion, with a carrying amount of $18.2 billion, including
$16.8 billion of loans that were impaired at acquisition. The total unpaid
principal balance of pay option loans with accumulated negative amor-
tization was $21.2 billion and accumulated negative amortization from
the original loan balance was $1.3 billion. The percentage of borrowers
electing to make only the minimum payment on option arms was 57
percent at December 31, 2008. We continue to evaluate our exposure to
payment resets on the acquired negatively amortizing loans and have

December 31, 2008

Year Ended December 31, 2008

Outstandings

SOP 03-3 Net Charge-offs (1)

Amount

$ 9,987
1,831
666
580
492
4,541

$18,097

Percent of
Total

55.2%
10.1
3.7
3.2
2.7
25.1

100.0%

Amount

$1,010
275
61
48
8
297

$1,699

Percent of
Total

59.4%
16.2
3.6
2.8
0.5
17.5

100.0%

taken into consideration several assumptions regarding this evaluation
(e.g., prepayment rates). We also continue to evaluate the potential for
resets on the SOP 03-3 pay option portfolio. Based on our expectations,
four percent, 31 percent and 20 percent of the pay option loan portfolio is
expected to be reset in 2009, 2010, and 2011, respectively. Approx-
imately nine percent is expected to be reset thereafter, and approximately
36 percent are expected to repay prior to being reset.

We manage these SOP 03-3 portfolios, including consideration for the
home retention programs to modify troubled mortgages, consistent with
our other consumer real estate practices. These programs are in line with
the Corporation’s original expectations upon acquisition and will not
impact the Corporation’s purchase accounting adjustments. For more
information, see Recent Events beginning on page 22.

Credit Card – Domestic
The consumer domestic credit card portfolio is managed in Card Services.
Outstandings in the held domestic credit card loan portfolio decreased
$1.6 billion at December 31, 2008 compared to December 31, 2007 due
to higher securitized balances and risk mitigation initiatives partially off-
set by lower payment rates. Held domestic loans past due 90 days or
increased $342 million from
more and still accruing
December 31, 2007.

interest

Net charge-offs for the held domestic portfolio increased $1.1 billion
to $4.2 billion for 2008, or 6.57 percent of total average held credit card
– domestic loans compared to 5.29 percent for 2007. The increase was
reflective of the slowing economy including rising unemployment, under-
employment and higher bankruptcies particularly in geographic areas that
have experienced the most significant home price declines.

Managed domestic credit card outstandings increased $2.3 billion to
$154.2 billion at December 31, 2008 compared to December 31, 2007
due in part to lower payment rates partially offset by risk mitigation ini-
tiatives. Managed net losses increased $3.1 billion to $10.1 billion for
2008, or 6.60 percent of total average managed domestic loans com-
pared to 4.91 percent in 2007. The increase in managed net losses was
driven by the same factors as described in the held discussion above.

Our managed credit card – domestic loan portfolio in the states of
California and Florida represented in aggregate 24 percent of credit card
– domestic outstandings at December 31, 2008. These states repre-
sented 31 percent of the credit card – domestic net losses for 2008.
Table 22 presents asset quality indicators by certain state concentrations
for the managed credit card – domestic portfolio.

Bank of America 2008 67

Table 22 Credit Card – Domestic State Concentrations – Managed Basis

(Dollars in millions)

California
Florida
Texas
New York
New Jersey
Other U.S.

Total credit card – domestic loans

December 31, 2008

Outstandings

Accruing Past Due 90
Days or More

Year Ended
December 31, 2008

Net Losses

Amount

$ 24,191
13,210
10,262
9,368
6,113
91,007

$154,151

Percent of
Total

15.7%
8.6
6.7
6.1
4.0
58.9

100.0%

Amount

$ 997
642
293
263
172
2,666

$5,033

Percent of
Total

19.8%
12.8
5.8
5.2
3.4
53.0

100.0%

Amount

$ 1,916
1,223
634
531
316
5,434

$10,054

Percent of
Total

19.1%
12.2
6.3
5.3
3.1
54.0

100.0%

Managed consumer credit card unused lines of credit, for both domes-
tic and foreign credit card, totaled $789.1 billion at December 31, 2008
compared to $846.0 billion at December 31, 2007. The $56.9 billion
decrease was driven primarily by account management initiatives on
higher risk customers in higher risk states and inactive accounts.

Credit Card – Foreign
The consumer foreign credit card portfolio is managed in Card Services.
Outstandings in the held foreign credit card loan portfolio increased $2.2
billion to $17.1 billion at December 31, 2008 compared to December 31,
2007 primarily due to a lower level of securitizations partially offset by
the strengthening of the U.S. dollar against certain foreign currencies,
particularly the British Pound. Net charge-offs for the held foreign portfolio
increased $172 million to $551 million for 2008, or 3.34 percent of total
average held credit card – foreign loans compared to 3.06 percent in
2007. The increase was driven primarily by lower levels of securitizations
in 2008 as well as deterioration which primarily impacted the latter half
of 2008.

Managed foreign credit card outstandings decreased $3.7 billion to
$28.1 billion at December 31, 2008 compared to December 31, 2007
due primarily to the strengthening of the U.S. dollar against certain for-
eign currencies, particularly the British Pound. Net losses for the man-
aged foreign portfolio increased $74 million to $1.3 billion for 2008, or
4.17 percent of total average managed credit card – foreign loans com-
pared to 4.24 percent in 2007.

Direct/Indirect Consumer
At December 31, 2008, approximately 49 percent of the direct/indirect
portfolio was included in Business Lending (automotive, marine, motor-

Table 23 Direct/Indirect State Concentrations

cycle and recreational vehicle loans), 46 percent was included in GCSBB
loans, student and other non-real estate secured)
(unsecured personal
and the remainder was included in GWIM (principally other non-real estate
secured and unsecured personal loans).

Outstanding loans and leases increased $6.9 billion at December 31,
2008 compared to December 31, 2007 due to purchases of automobile
loan portfolios, student loan disbursements and growth in the Card Serv-
ices unsecured lending product partially offset by the securitization of
automobile loans and the strengthening of the U.S. dollar against certain
foreign currencies. Loans past due 90 days or more and still accruing
interest increased $625 million. Net charge-offs increased $1.7 billion to
$3.1 billion for 2008, or 3.77 percent of total average direct/indirect
loans compared to 1.96 percent
for 2007. The increase was con-
centrated in the Card Services unsecured lending portfolio, driven by port-
folio deterioration reflecting the effects of a slowing economy particularly
in states most impacted by the slowdown in housing, notably California
and Florida as well as seasoning of vintages originated in periods of
higher growth. Additionally, the slowing economy and declining collateral
values resulted in higher charge-offs in the dealer financial services
portfolio.

total direct/indirect consumer

Direct/Indirect consumer loans to borrowers in the state of California
represented 13 percent of
loans at
December 31, 2008. In addition, direct/indirect consumer loans to bor-
rowers in the state of Florida represented nine percent of the total direct/
indirect consumer portfolio at December 31, 2008. In aggregate, Cal-
ifornia and Florida represented 30 percent of the net charge-offs for
2008. The table below presents asset quality indicators by certain state
concentrations for the direct/indirect consumer loan portfolio.

December 31, 2008

Outstandings

Accruing Past Due 90
Days or More

Year Ended
December 31, 2008

Net Charge-offs

Amount

$10,555
7,738
7,376
4,938
3,212
49,617

$83,436

Percent of
Total

12.7%
9.3
8.8
5.9
3.8
59.5

100.0%

Amount

$ 247
88
145
69
48
773

$1,370

Percent of
Total

18.0%
6.4
10.6
5.0
3.5
56.5

100.0%

Amount

$ 601
222
334
162
115
1,680

$3,114

Percent of
Total

19.3%
7.1
10.7
5.2
3.7
54.0

100.0%

(Dollars in millions)

California
Texas
Florida
New York
Georgia
Other U.S./Foreign

Total direct/indirect loans

68 Bank of America 2008

Other Consumer
At December 31, 2008, approximately 76 percent of the other consumer
portfolio was associated with portfolios from certain consumer finance
businesses that we have previously exited and is included in All Other.
The remainder consisted of the foreign consumer loan portfolio which is
mostly included in Card Services and deposit overdrafts. Net charge-offs
increased $121 million for 2008 from 2007 driven by deposit overdraft
net charge-offs reflecting higher average balances per account and
account growth.

Nonperforming Consumer Assets Activity
Table 24 presents nonperforming consumer assets activity during 2008
and 2007. Total net additions to nonperforming loans and leases in
2008 were $6.5 billion compared to $2.4 billion in 2007. The increase in
2008 was driven by the residential mortgage and home equity portfolios
reflective of the weakening housing markets, the slowing economy and
seasoning of vintages originated in periods of higher growth. In addition
for 2008 the increase was impacted by the CRA portfolio, which repre-
sented approximately 19 percent of the net increase in nonperforming
loans and the non SOP 03-3 Countrywide portfolio which added 15 per-
cent. The increase in foreclosed properties of $1.2 billion was driven
primarily by the addition of Countrywide. Nonperforming loans do not
include acquired loans that were considered impaired and written down to
fair value at the acquisition date in accordance with SOP 03-3 as these
loans accrete interest.

Nonperforming loans also include loans that have been modified in
troubled debt restructurings (TDRs) where concessions to borrowers who
experienced financial difficulties have been granted. TDRs typically result
from the Corporation’s loss mitigation activities and could include rate
reductions, payment extensions and principal forgiveness. TDRs generally
exclude loans that were written down to fair value at acquisition within the
scope of SOP 03-3. At December 31, 2008 we had $529 million of resi-
dential mortgages, $303 million of home equity and $71 million of dis-
continued real estate loans that were restructured in TDRs. These loans
were also classified as impaired loans at December 31, 2008 and are
disclosed as such in Note 6 – Outstanding Loans and Leases to the
Consolidated Financial Statements. Certain TDRs are classified as non-
performing at the time of restructure and are not returned to performing
status until six consecutive, on-time payments have been made by the
customer. Included in the TDR balances are loans that were classified as
performing and are therefore excluded from the table below. At
December 31, 2008, the balances of performing TDRs were $320 million
of residential mortgages, $1 million of home equity, and $66 million of
discontinued real estate.

In addition, we work with customers that are experiencing financial
difficulty through renegotiating credit card and direct/indirect consumer
loans, while ensuring that we remain within FFIEC guidelines. These
renegotiated loans are excluded from the table below as we do not
classify non-real estate unsecured loans as nonperforming. For more
information refer to Note 6 – Outstanding Loans and Leases to the Con-
solidated Financial Statements.

Table 24 Nonperforming Consumer Assets Activity (1)

(Dollars in millions)

Nonperforming loans and leases
Balance, January 1

Additions to nonperforming loans and leases:

New nonaccrual loans and leases

Reductions in nonperforming loans and leases:

Paydowns and payoffs
Returns to performing status (2)
Charge-offs (3)
Transfers to foreclosed properties
Transfers to loans held-for-sale

Total net additions to nonperforming loans and leases
Total nonperforming loans and leases, December 31 (4)

Foreclosed properties
Balance, January 1

Additions to foreclosed properties:

LaSalle balance, October 1, 2007
Countrywide balance, July 1, 2008
New foreclosed properties (5)
Reductions in foreclosed properties:

Sales
Writedowns

Total net additions to foreclosed properties

Total foreclosed properties, December 31

Nonperforming consumer assets, December 31

Nonperforming consumer loans and leases as a percentage of outstanding consumer loans and leases
Nonperforming consumer assets as a percentage of outstanding consumer loans, leases and foreclosed properties

2008

2007

$ 3,442

$1,030

13,625

4,093

(704)
(1,522)
(4,032)
(895)
(6)

6,466

9,908

276

–
952
1,578

(1,077)
(223)

1,230

1,506

(366)
(855)
(300)
(152)
(8)

2,412

3,442

70
–
246

(82)
(17)

217

276

$11,414

$3,718

1.68%
1.93

0.62%
0.67

(1) Balances do not include nonperforming LHFS of $436 million and $95 million in 2008 and 2007.
(2) Consumer 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.

(3) Our policy is not to classify consumer credit card and consumer non-real estate loans and leases as nonperforming; therefore, the charge-offs on these loans have no impact on nonperforming activity.
(4) Approximately half of the 2008 nonperforming loans and leases are greater than 180 days past due and have been written down through charge-offs to approximately 71 percent of original cost.
(5) Our policy is to record any losses in the value of foreclosed properties as a reduction in the allowance for credit losses during the first 90 days after transfer of a loan into foreclosed properties. Thereafter, all losses in

value are recorded as noninterest expense. New foreclosed properties in the table above are net of $436 million and $75 million of charge-offs in 2008 and 2007 taken during the first 90 days after transfer.

Bank of America 2008 69

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 their financial position. As part of the overall
credit
risk assessment of a borrower or counterparty, most of our
commercial credit exposures are assigned a risk rating and are subject to
approval based on defined credit approval standards. Subsequent to loan
origination, risk ratings are monitored on an ongoing basis. If necessary,
risk ratings are adjusted to reflect changes in the financial condition,
cash flow or financial situation of a borrower or counterparty. We use risk
rating aggregations to measure and evaluate concentrations within portfo-
lios. Risk ratings are a factor
in determining the level of assigned
economic capital and the allowance for credit losses. In making credit
decisions, we consider risk rating, collateral, country, industry and single
name concentration limits while also balancing the total borrower or coun-
terparty relationship. Our lines of business and risk management person-
nel use a variety of tools to continuously monitor the ability of a borrower
or counterparty to perform under its obligations.

For information on our accounting policies regarding delinquencies,
nonperforming status and charge-offs for the commercial portfolio, see
Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements.

Management of Commercial Credit Risk
Concentrations
Commercial credit risk is evaluated and managed with a goal that concen-
trations 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 measure of portfolio risk
diversification. We also review, measure, and manage commercial real
estate loans by geographic location and property type. In addition, within
our international portfolio, we evaluate borrowings by region and by coun-
try. Tables 28, 30, 34, 35 and 36 summarize our concentrations. Addi-
tionally, we utilize syndication of exposure to third parties, loan sales,
hedging and other risk mitigation techniques to manage the size and risk
profile of the loan portfolio.

From the perspective of portfolio risk management, customer concen-
tration management is most relevant in GCIB. Within that segment’s
Business Lending and CMAS businesses, we facilitate bridge financing
(high grade debt, high yield debt, CMBS and equity) to fund acquisitions,
recapitalizations and other short-term needs as well as provide syndi-
cated financing for our clients. These concentrations are managed in part

tranches and/or equity.

through our established “originate to distribute” strategy. These client
transactions are sometimes large and leveraged. They can also have a
higher degree of risk as we are providing offers or commitments for vari-
ous components of the clients’ capital structures, including lower rated
unsecured and subordinated debt
In normal
markets, many of these offers to finance will not be accepted, and if
accepted, these conditional commitments are often retired prior to or
shortly following funding via the placement of securities, syndication or
the client’s decision to terminate. However, as we began to experience in
the latter half of 2007, where we have a binding commitment and there is
a market disruption or other unexpected event, these commitments are
more likely to be funded and are more difficult to distribute. As a con-
sequence there is heightened exposure in the portfolios and a higher
potential for writedown or loss. For more information regarding the Corpo-
ration’s leveraged finance and CMBS exposures, see the CMAS dis-
cussion beginning on page 40.

We account for certain large corporate loans and loan commitments
(including issued but unfunded letters of credit which are considered uti-
lized for credit risk management purposes), which exceed our single
name credit risk concentration guidelines at fair value in accordance with
SFAS 159. Any fair value adjustment upon origination and subsequent
changes in the fair value of these loans and unfunded commitments are
recorded in other income. By including the credit risk of the borrower in
the fair value adjustments, any credit deterioration or improvement is
recorded immediately as part of the fair value adjustment. As a result, the
allowance for loan and lease losses and the reserve for unfunded lending
commitments are not used to capture credit losses inherent in these
nonperforming or
impaired loans and unfunded commitments. The
Commercial Credit Portfolio tables exclude loans and unfunded commit-
ments that are carried at fair value to adjust related ratios. See the
Commercial Loans Measured at Fair Value section on page 74 for more
information on the performance of these loans and loan commitments
and see Note 19 – Fair Value Disclosures to the Consolidated Financial
Statements for additional information on our SFAS 159 elections.

The merger with Merrill Lynch will increase our concentrations to cer-
tain industries, countries and customers. These increases are primarily
with diversified financial institutions active in the capital markets. There
are also increased concentrations within the high-grade commercial
portfolio, monoline insurers, certain leveraged finance exposures, and
several large CMBS positions.

70 Bank of America 2008

Commercial Credit Portfolio
Housing value declines, a slowdown in consumer spending and the tur-
moil in the global financial markets impacted our commercial portfolios
where we experienced higher levels of losses, particularly in the home-
builder sector of our commercial real estate portfolio. Broader-based
economic pressures have also impacted other commercial credit quality
indicators. The nonperforming loan and commercial utilized reservable
criticized exposure ratios were 1.93 percent and 8.90 percent at
December 31, 2008 compared to 0.67 percent and 4.46 percent at
December 31, 2007. Nonperforming loan increases were largely driven by
deterioration in the homebuilder portfolio. Utilized reservable criticized
increases were broad based across lines of business, products and
industries. The loans and leases net charge-off ratio increased to 1.07

percent in 2008 from 0.40 percent a year ago. Higher net charge-offs in
our small business portfolios within GCSBB reflected deterioration from
the impacts of a slowing economy particularly in geographic areas that
have experienced the most significant home price declines. Excluding
small business commercial – domestic the total net charge-off ratio was
0.52 percent compared to 0.07 percent in 2007. The increase was
mainly driven by higher net charge-offs in commercial real estate, princi-
pally the homebuilder loan portfolio, as well as commercial domestic and
foreign net charge-offs which were diverse in terms of both borrowers and
industries. The deterioration in the market accelerated during the later
stages of the fourth quarter.

Table 25 presents our commercial loans and leases and related credit

quality information for 2008 and 2007.

Table 25 Commercial Loans and Leases

(Dollars in millions)

Commercial loans and leases

Commercial – domestic (4)
Commercial real estate
Commercial lease financing
Commercial – foreign

Small business commercial –
domestic (5)

Total commercial loans and
leases excluding loans
measured at fair value

Total measured at fair value (6)

Total commercial loans

and leases

December 31

Year Ended December 31

Outstandings

Nonperforming (1)

Accruing Past Due
90 Days or More (2)

Net Charge-offs

Net Charge-off
Ratios (3)

2008

2007

2008

2007

2008

2007

2008

2007

2008

2007

$200,088
64,701
22,400
31,020

$189,011
61,298
22,582
28,376

318,209

301,267

$2,040
3,906
56
290

6,292

$ 852
1,099
33
19

2,003

19,145

19,286

205

152

$ 381
52
23
7

463

640

$119
36
25
16

196

$ 519
887
60
173

1,639

427

1,930

$ 127
47
2
1

177

880

0.26%
1.41
0.27
0.55

0.52

0.08%
0.11
0.01
–

0.07

9.80

5.13

337,354
5,413

320,553
4,590

6,497
–

2,155
–

1,103
–

623
–

3,569
n/a

1,057
n/a

1.07
n/a

0.40
n/a

$342,767

$325,143

$6,497

$2,155

$1,103

$623

$3,569

$1,057

1.07

0.40

(1) Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases excluding loans measured at fair value were 1.93 percent and 0.67 percent at December 31, 2008 and 2007.
(2) Accruing commercial loans and leases past due 90 days or more as a percentage of outstanding commercial loans and leases excluding loans measured at fair value were 0.33 percent and 0.19 percent at

December 31, 2008 and 2007.

(3) Net charge-off ratios are calculated as net charge-offs divided by average outstanding loans and leases excluding loans measured at fair value during the year for each loan and lease category.
(4) Excludes small business commercial – domestic loans.
(5) Small business commercial – domestic is primarily card related.
(6) Certain commercial loans are measured at fair value in accordance with SFAS 159 and include commercial – domestic loans of $3.5 billion at both December 31, 2008 and 2007, commercial – foreign loans of $1.7

billion and $790 million and commercial real estate loans of $203 million and $304 million at December 31, 2008 and 2007.

n/a = not applicable

Bank of America 2008 71

Table 26 Commercial Credit Exposure by Type

(Dollars in millions)

Loans and leases
Standby letters of credit and financial guarantees
Derivative assets (5)
Assets held-for-sale (6)
Commercial letters of credit
Bankers’ acceptances
Foreclosed properties

Total commercial credit exposure

December 31

Commercial Utilized (1, 2)

Commercial Unfunded (3, 4)

2008

$342,767
72,840
62,252
14,206
2,974
3,389
321

$498,749

2007

$325,143
58,747
34,662
26,475
4,413
2,411
75

$451,926

2008

$300,856
4,740
–
183
791
13
–

$306,583

2007

$329,396
4,049
–
1,489
140
2
–

$335,076

Total Commercial
Committed

2008

$643,623
77,580
62,252
14,389
3,765
3,402
321

$805,332

2007

$654,539
62,796
34,662
27,964
4,553
2,413
75

$787,002

(1) Exposure includes standby letters of credit, financial guarantees, commercial letters of credit and bankers’ acceptances for which the bank is legally bound to advance funds under prescribed conditions, during a

specified period. Although funds have not been advanced, these exposure types are considered utilized for credit risk management purposes.

(2) Total commercial utilized exposure at December 31, 2008 and 2007 includes loans and issued letters of credit measured at fair value in accordance with SFAS 159 and is comprised of loans outstanding of $5.4

billion and $4.6 billion and letters of credit at notional value of $1.4 billion and $1.1 billion.

(3) Total commercial unfunded exposure at December 31, 2008 and 2007 includes loan commitments measured at fair value in accordance with SFAS 159 with a notional value of $15.5 billion and $19.8 billion.
(4) Excludes unused business card lines which are not legally binding.
(5) Derivative assets are reported on a mark-to-market basis, reflect the effects of legally enforceable master netting agreements, and have been reduced by cash collateral of $34.8 billion and $12.8 billion at
December 31, 2008 and 2007. In addition to cash collateral, derivative assets are also collateralized by $7.7 billion and $8.5 billion of primarily other marketable securities at December 31, 2008 and 2007 for which
credit risk has not been reduced.

(6) Total commercial committed asset held-for-sale exposure consists of $12.1 billion and $23.9 billion of commercial LHFS exposure (e.g., commercial mortgage and leveraged finance) and $2.3 billion and $4.1 billion of

investments held-for-sale exposure at December 31, 2008 and 2007.

Table 26 presents commercial credit exposure by type for utilized,
unfunded and total binding committed credit exposure. The increase in
standby letters of credit and financial guarantees of $14.8 billion was
concentrated in the government, healthcare providers and education
sectors. The increase in derivative assets of $27.6 billion was centered
in interest rate swaps, foreign exchange contracts and credit derivatives,
and was driven by interest rate shifts, especially during the latter part of
the year, the strengthening of the U.S. dollar against certain foreign cur-
rencies, and widening credit spreads. The decrease of $13.6 billion in
assets held-for-sale was driven primarily by distributions and sales, com-
pleted securitizations, reduced underwriting activity, and mark-to-market
writedowns. For more information on our credit derivatives, see Industry
Concentrations beginning on page 76 and for more information on our
funded leveraged finance and CMBS exposures refer to Management of
Commercial Credit Risk Concentrations on page 70.

Table 27 presents commercial utilized reservable criticized exposure
by product type. Total commercial utilized reservable criticized exposure
increased $19.8 billion from December 31, 2007, primarily due to
increases in commercial – domestic reflecting deterioration across vari-
ous lines of business and industries, and commercial
real estate
impacted by the housing markets weakness on the homebuilder sector of

the portfolio and the effect of the slowing economy on other property
types. The table below excludes utilized criticized exposure related to
assets held-for-sale of $4.2 billion and $2.9 billion, other utilized criti-
cized exposure measured at fair value in accordance with SFAS 159 of
$1.3 billion and $1.1 billion, and other utilized non-reservable criticized
exposure of $4.8 billion and $368 million at December 31, 2008 and
2007. See Commercial Loans Measured at Fair Value on page 74 for a
discussion of the fair value portfolio. Criticized assets in the held-for-sale
portfolio, are carried at fair value or the lower of cost or market, including
bridge exposure of $1.5 billion and $2.3 billion at December 31, 2008
and 2007 which are funded in the normal course of our Business Lending
and CMAS businesses and are managed in part through our “originate to
distribute” strategy (see Management of Commercial Credit Risk Concen-
trations on page 70 for more information on bridge financing). The
increase in other utilized non-reservable criticized exposure was driven by
a combination of an increase in the positive mark-to-market on certain
credit derivative assets, primarily related to monoline wraps, and down-
grades on such positions. For more information regarding counterparty
credit risk on our derivative positions, see the Industry Concentrations
discussion beginning on page 76.

Table 27 Commercial Utilized Reservable Criticized Exposure (1)

(Dollars in millions)

Commercial – domestic (3)
Commercial real estate
Commercial lease financing
Commercial – foreign

Small business commercial – domestic

Total commercial utilized reservable criticized exposure (4)

December 31

2008

Percent (2)

7.20%

19.73
6.03
3.65

8.99
6.94

8.90

Amount

$18,963
13,830
1,352
1,459

35,604
1,333

$36,937

2007

Percent (2)

3.55%

10.25
2.63
1.23

4.47
4.37

4.46

Amount

$ 8,537
6,750
594
449

16,330
846

$17,176

(1) Criticized exposure corresponds to the Special Mention, Substandard and Doubtful asset categories defined by regulatory authorities.
(2) Percentages are calculated as commercial utilized reservable criticized exposure divided by total commercial utilized reservable exposure for each exposure category.
(3) Excludes small business commercial – domestic exposure.
(4)

In addition to reservable loans and leases, exposure includes standby letters of credit, financial guarantees, commercial letters of credit and bankers’ acceptances for which the bank is legally bound to advance funds
under prescribed conditions, during a specified period. Although funds have not been advanced, these exposure types are considered utilized for credit risk management purposes.

72 Bank of America 2008

Commercial – Domestic
At December 31, 2008, approximately 92 percent of the commercial –
domestic portfolio, excluding small business, was included in GCIB, pri-
marily in Business Lending (business banking, middle-market and large
multinational corporate loans and leases) and CMAS (acquisition, bridge
financing and institutional investor services). The remaining eight percent
was mostly in GWIM (business-purpose loans for wealthy individuals).
Outstanding commercial – domestic loans increased $11.1 billion to
$200.1 billion at December 31, 2008 compared to 2007 driven primarily
by Business Lending and GWIM partially offset by CMAS due to the sale
of the equity prime brokerage business. Nonperforming commercial –
domestic loans increased by $1.2 billion to $2.0 billion. Net charge-offs
were up $392 million from 2007. These increases were broad-based in
terms of borrowers and industries and were up from very low loss levels
in 2007. Utilized reservable criticized commercial – domestic exposure,
increased $10.4 billion to $19.0 billion primarily driven by deterioration
across various portfolios within GCIB. Additionally, commercial – domestic
drove the increase in other utilized non-reservable criticized exposure,
primarily mark-to-market derivative assets.

Commercial Real Estate
The commercial real estate portfolio is mostly managed in Business
Lending and consists of loans issued primarily to public and private
developers, homebuilders and commercial real estate firms. Outstanding
loans and leases increased $3.4 billion to $64.7 billion at December 31,
2008 compared to 2007. The increase was primarily driven by growth in
the California, Southwest and Southeast regions. The portfolio remains
diversified across property types with the largest increases in multiple
use, office buildings, hotels/motels and shopping centers/retail. At

Table 28 Outstanding Commercial Real Estate Loans (1)

December 31, 2008, we had committed homebuilder-related exposure of
$15.7 billion of which $11.0 billion were funded loans, primarily con-
struction and land development, most of which was collateralized.
Non-homebuilder construction and land development comprised $22.1
billion or 34 percent of the commercial real estate loans outstanding at
December 31, 2008.

Nonperforming commercial real estate loans increased $2.8 billion to
$3.9 billion and utilized reservable criticized exposure increased $7.1 bil-
lion to $13.8 billion attributable to the continuing impact of the housing
slowdown on the homebuilder sector, most of which is included in resi-
dential
in Table 28, and on other property types, particularly shopping
centers/retail and land and land development. Nonperforming assets and
utilized reservable criticized exposure in the homebuilder sector were
$3.0 billion and $7.6 billion, respectively, at December 31, 2008 com-
pared to $829 million and $5.4 billion at December 31, 2007. Non-
performing assets and utilized reservable criticized exposure for
the
non-homebuilder construction and land development sector increased to
$786 million and $3.2 billion. The nonperforming assets ratio and the
utilized criticized ratio for the homebuilder sector was 27.07 percent and
66.33 percent at December 31, 2008 compared to 6.11 percent and
39.31 percent at December 31, 2007. Net charge-offs were up $840
million from 2007 principally related to the homebuilder sector of the
portfolio. Assets held-for-sale associated with commercial real estate
decreased approximately $7.0 billion to $6.9 billion at December 31,
2008 compared to 2007, driven by distributions and sales, completed
securitizations and writedowns.

Table 28 presents outstanding commercial real estate loans by geo-

graphic region and property type.

(Dollars in millions)
By Geographic Region (2)

California
Northeast
Midwest
Southeast
Southwest
Illinois
Florida
Midsouth
Northwest
Other (3)
Geographically diversified (4)
Non-U.S.

Total outstanding commercial real estate loans (5)

By Property Type

Office buildings
Shopping centers/retail
Residential
Apartments
Land and land development
Industrial/warehouse
Multiple use
Hotels/motels
Other (6)

Total outstanding commercial real estate loans (5)

December 31

2008

2007

$11,270
9,747
7,447
7,365
6,698
5,451
5,146
3,475
3,022
1,741
2,563
979

$64,904

$10,388
9,293
8,534
8,177
6,309
6,070
3,444
2,513
10,176

$64,904

$ 9,683
8,978
8,005
6,490
5,610
6,835
4,908
2,912
2,644
2,190
2,282
1,065

$61,602

$ 8,745
8,440
10,478
7,615
6,286
5,419
1,689
1,535
11,395

$61,602

(1) Primarily includes commercial loans and leases secured by non owner-occupied real estate which are dependent on the sale or lease of the real estate as the primary source of repayment.
(2) Distribution is based on geographic location of collateral. Geographic regions are in the U.S. unless otherwise noted.
(3) Primarily includes properties in the states of Colorado, Utah, Hawaii, Wyoming and Montana which are not defined by other property regions presented.
(4) The geographically diversified category is comprised primarily of unsecured outstandings to real estate investment trusts and national home builders whose portfolios of properties span multiple geographic regions.
(5)
Includes commercial real estate loans measured at fair value in accordance with SFAS 159 of $203 million and $304 million at December 31, 2008 and 2007.
(6) Represents loans to borrowers whose primary business is commercial real estate, but the exposure is not secured by the listed property types or is unsecured.

Bank of America 2008 73

Commercial – Foreign
The commercial – foreign portfolio is managed primarily in Business Lend-
ing and CMAS. Outstanding loans increased $2.6 billion to $31.0 billion
at December 31, 2008 compared to 2007 driven by organic growth parti-
ally offset by strengthening of the U.S. dollar against foreign currencies.
Utilized reservable criticized exposure increased $1.0 billion to $1.5 bil-
lion. Net charge-offs increased $172 million from $1 million largely con-
centrated in a few financial services borrowers, the majority of which were
Icelandic banks. The remaining net charge-offs were diverse in terms of
industries and countries. For additional information on the commercial –
foreign portfolio, refer to the Foreign Portfolio discussion beginning on
page 79.

–

loans

business

domestic

commercial

outstanding

Small Business Commercial – Domestic
The small business commercial – domestic portfolio (business card and
small business loans) is managed in GCSBB. Outstanding small business
commercial – domestic loans decreased $141 million to $19.1 billion at
December 31, 2008 compared to 2007. Approximately 60 percent of the
small
at
December 31, 2008 were credit card related products. Nonperforming
small business commercial – domestic loans increased $53 million to
$205 million, loans past due 90 days or more and still accruing interest
increased $213 million to $640 million and utilized reservable criticized
exposure increased $487 million, to $1.3 billion at December 31, 2008
compared to 2007. Net charge-offs were up $1.1 billion, to $1.9 billion,
or 9.80 percent of total average small business commercial – domestic
loans. Approximately 75 percent of the small business commercial –
domestic net charge-offs in 2008 were credit card related products
compared to 70 percent in 2007. The increases were primarily driven by
the impacts of a slowing economy, particularly in geographic areas that
have experienced the most significant home price declines and seasoning
of vintages originated in periods of higher growth.

Commercial Loans Measured at Fair Value
The portfolio of commercial loans measured at fair value is managed in
CMAS. Outstanding commercial loans measured at fair value increased
$823 million to an aggregate fair value of $5.4 billion at December 31,
2008 compared to 2007 and were comprised of commercial – domestic
loans, excluding small business, of $3.5 billion, commercial – foreign
loans of $1.7 billion and commercial real estate loans of $203 million.
The aggregate increase of $823 million was driven primarily by increased
draws on existing and new lines of credit. We recorded net losses in other
income of $775 million resulting from changes in the fair value of the
loan portfolio during 2008 compared to losses of $139 million for 2007.
These losses were primarily attributable to changes in instrument-specific
credit risk and were predominately offset by gains from hedging activities.
At December 31, 2008 none of these loans were 90 days or more past
due and still accruing interest or had been placed on nonaccrual status.
Utilized criticized exposure in the fair value portfolio was $1.3 billion and
$1.1 billion at December 31, 2008 and 2007.

In addition, unfunded lending commitments and letters of credit had
an aggregate fair value of $1.1 billion and $660 million at December 31,
2008 and 2007 and were recorded in accrued expenses and other
liabilities. The associated aggregate notional amount of unfunded lending
commitments and letters of credit subject to fair value treatment was
$16.9 billion and $20.9 billion at December 31, 2008 and 2007. Net
losses resulting from changes in fair value of commitments and letters of
credit of $473 million were recorded in other income during the year
ended December 31, 2008 compared to losses of $274 million in 2007.
These losses were primarily attributable to changes in instrument-specific
credit risk and were predominately offset by gains from hedging activities.

74 Bank of America 2008

Nonperforming Commercial Assets Activity
Table 29 presents the additions and reductions to nonperforming assets
in the commercial portfolio during 2008 and 2007. The increase in non-
accrual loans and leases for 2008 was primarily attributable to continued

weakness in the homebuilder sector but also included smaller increases
in other property types including commercial land development, retail and
apartments.

Table 29 Nonperforming Commercial Assets Activity (1, 2, 3)

(Dollars in millions)

Nonperforming loans and leases
Balance, January 1

Additions to nonperforming loans and leases:

New nonaccrual loans and leases
Advances

Reductions in nonperforming loans and leases:

Paydowns and payoffs
Sales
Returns to performing status (4)
Charge-offs (5)
Transfers to foreclosed properties
Transfers to loans held-for-sale

Total net additions to nonperforming loans and leases

Total nonperforming loans and leases, December 31

Foreclosed properties
Balance, January 1

Additions to foreclosed properties:
New foreclosed properties
Reductions in foreclosed properties:

Sales
Writedowns

Total net additions to foreclosed properties

Total foreclosed properties, December 31

Nonperforming commercial assets, December 31

Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (6)
Nonperforming commercial assets as a percentage of outstanding commercial loans and leases and foreclosed properties (6)

2008

2007

$ 2,155

$ 757

8,110
154

(1,467)
(45)
(125)
(1,900)
(372)
(13)

4,342

6,497

372

(110)
(16)

246

321

2,880
85

(781)
(82)
(239)
(370)
(75)
(20)

1,398

2,155

(22)
(4)

$ 6,818

$2,230

1.93%
2.02

0.67%
0.70

(1) Balances do not include nonperforming LHFS of $852 million and $93 million at December 31, 2008 and 2007. Balances do not include nonperforming AFS debt securities of $291 million and $180 million at

December 31, 2008 and 2007.

(2) Balances do not include nonperforming derivative assets of $512 million at December 31, 2008.
(3)
(4) 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

Includes small business commercial – domestic activity.

otherwise becomes well-secured and is in the process of collection.

(5) Certain loan and lease products, including business card, are not classified as nonperforming; therefore, the charge-offs on these loans have no impact on nonperforming activity.
(6) Outstanding commercial loans and leases exclude loans measured at fair value in accordance with SFAS 159.

Bank of America 2008 75

Industry Concentrations
Table 30 presents commercial committed and commercial utilized credit
exposure by industry and the total net credit default protection purchased
to cover the funded and the unfunded portion of certain credit exposure.
Our commercial credit exposure is diversified across a broad range of
industries.

Industry limits are used internally to manage industry concentrations
and are based on committed exposure and capital usage that are allo-
cated on an industry-by-industry basis. A risk management framework is
in place to set and approve industry limits, as well as to provide ongoing
monitoring. The CRC oversees industry limits governance.

Total commercial committed credit exposure increased by $18.3 billion,
or two percent, at December 31, 2008 compared to 2007 largely driven by
diversified financials partially offset by a decline in commercial real estate.
Total commercial utilized credit exposure increased by $46.8 billion, or 10
percent, at December 31, 2008 compared to 2007. The overall commercial
credit utilization rate increased year over year, increasing from 57 percent to
62 percent due to increases in diversified financials, government and public
education, and healthcare and equipment services.

Real estate remains our largest industry concentration, accounting for
13 percent of total commercial committed exposure, of which 15 percent
is homebuilder exposure. A decrease of $7.9 billion, or seven percent,
was driven primarily by a decline in CMBS assets held-for-sale as a result
of sales and distributions, completed securitizations and writedowns.

Diversified financials grew by $17.2 billion, or 20 percent reflecting
increases in capital markets exposure and consumer finance commit-
ments. Part of the increase was driven by a $3.7 billion fully committed
secured credit facility as well as a $4.0 billion FDIC guaranteed facility,
both of which were with Merrill Lynch. These facilities were terminated
following the completion of the acquisition. The increase in consumer
finance commitments was driven primarily by liquidity support associated
with the financing of credit card and auto finance related assets within
the Corporation’s multi-seller unconsolidated asset backed commercial
paper conduits.

Healthcare equipment and services increased $5.8 billion or 14 per-
cent due to loan growth primarily to not-for-profit healthcare providers.
This was driven primarily by increased demand for liquidity and credit
instruments to support variable rate demand notes (VRDNs) caused by
dislocations in the ARS markets. Consumer services increased $5.3 bil-
lion, or 14 percent driven primarily by growth in the education (private
colleges and universities) sector also resulting from the ARS dislocation.
Food, beverage and tobacco increased $2.8 billion, or 11 percent due to
growth in food products and a large underwritten transaction. Banks
decreased by $8.8 billion or 25 percent, reflecting the termination of a
$5.0 billion commitment to Countrywide.

Government and public education utilizations increased $7.6 billion
due to new refinancings of ARS into letter-of-credit backed VRDNs and the
restructuring of monoline insured VRDNs into uninsured VRDNs. Total
committed exposure increased by $1.2 billion, as the increases in the
utilized balance were partially offset by a reduction in certain unutilized
credit lines.

Monoline exposure is reported in the insurance industry and managed
under insurance portfolio industry limits. Direct loan exposure to mono-
revolvers in the amount of $126 million at
lines consisted of
December 31, 2008 and $203 million at December 31, 2007.
Mark-to-market counterparty derivative credit exposure was $2.6 billion at
December 31, 2008 compared to $420 million at December 31, 2007.
The increase in the mark-to-market exposure was due to credit deterio-
ration related to underlying counterparties and spread widening in both
wrapped CDO and structured finance related exposures. At December 31,

76 Bank of America 2008

reduced

exposure was $1.0 billion, which

2008, the counterparty credit valuation adjustment related to monoline
derivative
net
mark-to-market exposure to $1.6 billion. We do not hold collateral against
these derivative exposures. During the first quarter of 2009, one mono-
line counterparty restructured its business and had its credit rating down-
graded. We are currently evaluating the impact this restructuring and
downgrade will have on Merrill Lynch as well as our related counterparty
credit valuation adjustment and the combined company’s 2009 financial
results.

our

We have indirect exposure to monolines primarily in the form of guar-
antees supporting our loans, investment portfolios, securitizations, credit
enhanced securities as part of our public finance business and other
selected products. Such indirect exposure exists when we purchase
credit protection from monolines to hedge all or a portion of the credit
risk on certain credit exposures including loans and CDOs. We underwrite
our public finance exposure by evaluating the underlying securities. In the
case of default we first look to the underlying securities and then to
recovery on the purchased insurance. See page 41 for discussion on our
CDO exposure and related credit protection.

We also have indirect exposure as we invest in securities where the
issuers have purchased wraps (i.e., insurance). For example, municipal-
ities and corporations purchase protection in order to enhance their pric-
ing power which has the effect of reducing their cost of borrowings. If the
rating agencies downgrade the monolines, the credit rating of the bond
may fall and may have an adverse impact on the market value of the
security.

We have further monoline related exposure in our public finance busi-
ness where we are the lead manager or remarketing agent for trans-
actions that are wrapped including ARS (healthcare providers and
consumer services), tender option municipal bonds (TOBs), and VRDNs.
Continuing concerns about monoline downgrades or
insolvency have
caused disruptions in each of these markets as investor concerns have
impacted overall market liquidity and bond prices. For more information
on ARS, see Recent Events beginning on page 22. We no longer serve as
the lead manager on municipal or student
loan ARS where a high
percentage of the programs are wrapped by either monolines or other
financial guarantors. We are the remarketing agent on TOBs and VRDN
transactions and also provide commitments on approximately $13.6 bil-
lion of VRDNs, which increased approximately $2.2 billion during the year,
driven by the conversion by clients of ARS to VRDN structures, including
those issued by municipalities and other organizations. These commit-
ments obligate us to purchase the VRDNs in the event that they can not
be remarketed or otherwise provide funding to the issuer, and are primar-
ily held and reported in government and education related industry portfo-
lios and managed under respective industry limits.

In addition, at December 31, 2008, we also held approximately $1.3
billion in ARS, $1.5 billion in VRDNs and $3.0 billion in TOBs acquired in
connection with these activities which are included in trading account
assets. During 2008, we recorded losses of $1.1 billion on the ARS,
primarily related to student loan-backed securities, including our commit-
ment to repurchase ARS from certain clients as part of a settlement
agreement with regulatory agencies. We did not record any losses on the
VRDNs and only minimal losses on the TOBs during the year. We continue
to have liquidity exposure to these markets and instruments. As market
conditions continue to evolve, these conditions may impact our results.
For additional
information on our liquidity exposure to TOBs, see the
Municipal Bond Trusts discussion within the Off- and On-Balance Sheet
Arrangements discussion beginning on page 49 and Note 9 – Variable
Interest Entities to the Consolidated Financial Statements.

Table 30 Commercial Credit Exposure by Industry (1, 2)

(Dollars in millions)

Real estate (3)
Diversified financials
Government and public education
Capital goods
Retailing
Healthcare equipment and services
Consumer services
Materials
Commercial services and supplies
Individuals and trusts
Food, beverage and tobacco
Banks
Energy
Media
Utilities
Transportation
Insurance
Religious and social organizations
Consumer durables and apparel
Technology hardware and equipment
Pharmaceuticals and biotechnology
Software and services
Telecommunication services
Food and staples retailing
Automobiles and components
Household and personal products
Semiconductors and semiconductor equipment
Other

Total commercial credit exposure by industry
Net credit default protection purchased on total commitments (4)

December 31

Commercial Utilized

Total Commercial Committed

2008

$ 79,766
50,327
39,386
27,588
30,736
31,280
28,715
22,825
24,095
22,752
17,257
22,134
11,885
8,939
8,230
13,050
11,223
9,539
6,219
3,971
3,721
4,093
3,681
4,282
3,093
1,137
1,105
7,720

$498,749

2007

$ 81,260
37,872
31,743
25,908
32,401
24,337
23,382
22,176
21,175
22,323
13,919
21,261
12,772
7,901
6,438
12,803
7,162
8,208
5,802
4,615
4,349
4,739
3,475
3,611
2,648
889
1,140
7,617

$451,926

2008

$103,889
103,306
58,608
52,522
50,102
46,785
43,948
38,105
34,867
33,045
28,521
26,493
22,732
19,301
19,272
18,561
17,855
12,576
10,862
10,371
10,111
9,590
8,036
7,012
6,081
2,817
1,822
8,142

2007

$111,742
86,118
57,437
52,356
54,037
40,962
38,650
38,717
31,858
32,425
25,701
35,323
23,510
19,343
19,281
18,824
16,014
10,982
10,907
10,239
8,563
10,128
8,235
6,465
6,960
2,776
1,734
7,715

$805,332
$ (9,654)

$787,002
$ (7,146)

(1) Total commercial utilized and total commercial committed exposure includes loans and letters of credit measured at fair value in accordance with SFAS 159 and are comprised of loans outstanding of $5.4 billion and
$4.6 billion and issued letters of credit at notional value of $1.4 billion and $1.1 billion at December 31, 2008 and 2007. In addition, total commercial committed exposure includes unfunded loan commitments at
notional value of $15.5 billion and $19.8 billion at December 31, 2008 and 2007.
Includes small business commercial – domestic exposure.
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 counterparties’ primary business
activity using operating cash flow and primary source of repayment as key factors.

(3)

(2)

(4) Represents net notional credit protection purchased.

Credit protection is purchased to cover the funded portion as well as
the unfunded portion of certain credit exposure. To lessen the cost of
obtaining our desired credit protection levels, credit exposure may be
added within an industry, borrower or counterparty group by selling pro-
tection.

At December 31, 2008 and 2007, we had net notional credit default
protection purchased in our credit derivatives portfolio to cover the funded
and unfunded portion of certain credit exposures of $9.7 billion and $7.1
billion. The mark-to-market
including the cost of net credit
default protection, hedging our exposure, resulted in net gains of $993
million in 2008 compared to net gains of $160 million in 2007. The

impacts,

average VAR for these credit derivative hedges was $24 million and $18
million for 2008 and 2007. The increase in VAR was driven by an
increase in the average amount of credit protection outstanding during
the year. There is a diversification effect between the net credit default
protection hedging our credit exposure and the related credit exposure
such that their combined average VAR was $22 million for 2008. Refer to
the Trading Risk Management discussion beginning on page 85 for a
description of our VAR calculation for the market-based trading portfolio.

Tables 31 and 32 present

the maturity profiles and the credit
exposure debt ratings of the net credit default protection portfolio at
December 31, 2008 and 2007.

Table 31 Net Credit Default Protection by Maturity Profile (1)

Less than or equal to one year
Greater than one year and less than or equal to five years
Greater than five years

Total net credit default protection

December 31

2008

2007

92
7

67
31

100%

(1)

In order to mitigate the cost of purchasing credit protection, credit exposure can be added by selling credit protection. The distribution of maturities for net credit default protection purchased is shown as positive
percentages and the distribution of maturities for net credit protection sold as negative percentages.

Bank of America 2008 77

Table 32 Net Credit Default Protection by Credit Exposure Debt Rating (1)

(Dollars in millions)

Ratings (2)

AAA
AA
A
BBB
BB
B
CCC and below
NR (3)

December 31

2008

2007

Net Notional

Percent

Net Notional

Percent

30
(103)
(2,800)
(4,856)
(1,948)
(579)
(278)
880

(0.3)%
1.1
29.0
50.2
20.2
6.0
2.9
(9.1)

(13)
(92)
(2,408)
(3,328)
(1,524)
(180)
(75)
474

0.2%
1.3
33.7
46.6
21.3
2.5
1.0
(6.6)

Total net credit default protection

$(9,654)

100.0%

$(7,146)

100.0%

(1)

In order to mitigate the cost of purchasing credit protection, credit exposure can be added by selling credit protection. The distribution of debt rating for net notional credit default protection purchased is shown as a
negative and the net notional credit protection sold is shown as a positive amount.

(2) The Corporation considers ratings of BBB- or higher to meet the definition of investment grade.
(3)

In addition to names which have not been rated, “NR” includes $948 million and $550 million in net credit default swaps index positions at December 31, 2008 and 2007. While index positions are principally
investment grade, credit default swaps indices include names in and across each of the ratings categories.

international

In addition to our net notional credit default protection purchased to
cover the funded and unfunded portion of certain credit exposures, credit
derivatives are used for market-making activities for clients and establish-
ing proprietary positions intended to profit from directional or relative
value changes. We execute the majority of our credit derivative positions
in the over-the-counter market with large,
financial
institutions, including broker/dealers and to a lesser degree with a variety
of other
investors. Because these transactions are executed in the
over-the-counter market, we are subject to settlement risk. We are also
subject to credit risk in the event that these counterparties fail to perform
under the terms of these contracts. In most cases, credit derivative
transactions are executed on a daily margin basis. Therefore, events such
as a credit downgrade (depending on the ultimate rating level) or a breach
of credit covenants would typically require an increase in the amount of
collateral required of the counterparty (where applicable), and/or allow us
to take additional protective measures such as early termination of all
trades. Further, we enter into legally enforceable master netting agree-
ments which reduce risk by permitting the closeout and netting of trans-
actions with the same counterparty upon the occurrence of certain
events.

giving

The notional amounts presented in Table 33 represent the total con-
tract/notional amount of credit derivatives outstanding and includes both
purchased and written protection. The credit risk amounts are measured
as the net replacement cost in the event the counterparties with con-
tracts in a gain position to us fail to perform under the terms of those
contracts. We use the current mark-to-market value to represent credit
exposure without
future mark-to-market
consideration
changes. The credit risk amounts take into consideration the effects of
legally enforceable master netting agreements, and on an aggregate
basis have been reduced by cash collateral applied against derivative
assets. The significant increase in credit spreads across nearly all major
credit indices during 2008 drove the increase in counterparty credit risk
for purchased protection. The $1.0 trillion decrease in the contract/
notional value of credit derivatives was driven by our continued efforts to
reduce aggregate positions to minimize market and operational risk. For
information on the performance risk of our written protection credit
derivatives, see Note 4 – Derivatives to the Consolidated Financial
Statements.

Table 33 Credit Derivatives

(Dollars in millions)

Credit derivatives

Purchased protection:

Credit default swaps
Total return swaps

Total purchased protection

Written protection:

Credit default swaps
Total return swaps

Total written protection

Total credit derivatives

December 31

2008

2007

Contract/Notional

Credit Risk(1)

Contract/Notional

Credit Risk(1)

$1,025,876
6,575

1,032,451

1,000,034
6,203

1,006,237

$11,772
1,678

13,450

–
–

–

$2,038,688

$13,450

$1,490,641
13,551

1,504,192

1,517,305
24,884

1,542,189

$3,046,381

$6,822
671

7,493

–
–

–

$7,493

(1) Does not reflect any potential benefit from offsetting exposure to non-credit derivative products with the same counterparties that may be netted upon the occurrence of certain events, thereby reducing the

Corporation’s overall exposure.

78 Bank of America 2008

Counterparty Credit Risk Valuation Adjustments
We record a counterparty credit risk valuation adjustment on our expected
exposure related to derivative assets and liabilities, including our credit
default protection purchased, in order to properly reflect the credit quality
of the counterparty in accordance with SFAS 157. In determining the
expected exposure, we consider collateral held and legally enforceable
master netting agreements that mitigate our credit exposure to each
counterparty. The amount of counterparty credit risk valuation adjust-
ments at any point of time is dependent on the value of the derivative
contract, collateral, and credit worthiness of the counterparty.

During 2008, valuation adjustments related to derivative assets of
$3.2 billion were recognized as trading account losses for counterparty
credit risk, including $1.1 billion of losses related to insured super senior
CDOs and $537 million of losses related to our structured credit trading
business. The losses were driven by increases in the value of
the
derivative contracts resulting primarily from spread widening, market vola-
tility and credit deterioration related to the underlying counterparties. At
December 31, 2008, the cumulative counterparty credit risk valuation
adjustment that was netted against the derivative asset balance was
$4.0 billion. For information on our monoline counterparty credit risk see
the discussion on page 76, CDO-related counterparty credit risk see the
CMAS discussion on page 40 and for more information on the VAR
related to our counterparty credit risk see the Trading Risk Management
discussion on page 85.

In addition, the fair value of our derivative liabilities is adjusted to
reflect the impact of the Corporation’s credit quality. During 2008, valu-
ation adjustments of $364 million were recognized as trading account
profits for changes in the Corporation’s credit risk driven by credit spread
widening. At December 31, 2008, the Corporation’s cumulative credit risk
valuation adjustment that was netted against the derivative liabilities
balance was $573 million.

In light of recent market events, banking regulators have been working
with the industry to organize a central clearinghouse for credit derivative
trading, similar to existing clearinghouses for interest rate derivatives. It
is expected that a central clearinghouse for credit derivatives would
reduce the risk of counterparty default, similar to the reduction achieved
through the interest rate derivative clearinghouse, primarily through the
guaranteeing of trades in the event that a member fails. We continue to
participate in these industry initiatives.

Table 34 Regional Foreign Exposure (1, 2, 3)

(Dollars in millions)

Europe
Asia Pacific
Latin America
Middle East and Africa
Other

Total regional foreign exposure

Foreign Portfolio
Our foreign credit and trading portfolio is subject to country risk. We
define country risk as the risk of loss from unfavorable economic and
political conditions, currency fluctuations, social instability and changes
in government policies. A risk management framework is in place to
measure, monitor and manage foreign risk and exposures. Management
oversight of country risk including cross-border risk is provided by the
Country Risk Committee, a subcommittee of the CRC.

Table 34 sets forth total foreign exposure broken out by region at
December 31, 2008 and 2007. Foreign exposure includes credit
exposure net of local liabilities, securities, and other investments domi-
ciled in countries other than the U.S. Total foreign exposure can be
adjusted for externally guaranteed outstandings and certain collateral
types. Exposures which are assigned external guarantees are reported
under the country of the guarantor. Exposures with tangible collateral are
reflected in the country where the collateral
is held. For securities
received, other than cross-border resale agreements, outstandings are
assigned to the domicile of the issuer of the securities. Resale agree-
ments are generally presented based on the domicile of the counterparty
consistent with FFIEC reporting requirements.

Our total foreign exposure was $131.1 billion at December 31, 2008,
a decrease of $7.0 billion from December 31, 2007. Our
foreign
exposure remained concentrated in Europe, which accounted for $66.5
billion, or 51 percent, of total foreign exposure. The European exposure
was mostly in Western Europe and was distributed across a variety of
industries with approximately 58 percent concentrated in the commercial
sector and approximately 17 percent in the banking sector. The decline of
$8.3 billion in Europe was driven by lower cross-border derivatives
assets, and securities and other investment exposures.

Asia Pacific was our second largest foreign exposure at $39.8 billion,
or 30 percent. The decline in Asia Pacific was primarily driven by lower
cross-border exposures in Japan and Australia offset in part by the net
$3.3 billion increased equity investment in CCB and higher exposure in
India. Latin America accounted for $11.4 billion, or nine percent, of total
foreign exposure. For more information on our Asia Pacific and Latin
America exposures, see the discussion on the foreign exposure to
selected countries defined as emerging markets on page 80.

December 31

2008

$ 66,472
39,774
11,378
2,456
10,988

$131,068

2007

$ 74,725
42,081
10,944
1,951
8,361

$138,062

(1) The balances above exclude local funding or liabilities which are subtracted from local exposures as allowed by the FFIEC.
(2) Exposures have been reduced by $19.6 billion and $6.3 billion at December 31, 2008 and 2007. Such amounts represent the cash applied as collateral to derivative assets.
(3) Generally, resale agreements are presented based on the domicile of the counterparty consistent with FFIEC reporting requirements. Cross-border resale agreements where the underlying securities are U.S. Treasury

securities, in which case the domicile is the U.S., are excluded from this presentation.

Bank of America 2008 79

As shown in Table 35, at December 31, 2008 and 2007, China had
total cross-border exposure of $20.7 billion and $17.0 billion, represent-
ing 1.14 percent and 0.99 percent of total assets. China was the only
country where the total cross-border exceeded one percent of our total

assets at December 31, 2008 and 0.75 percent of total assets at
December 31, 2007. At December 31, 2008 and 2007, the largest
concentration of the cross-border exposure to China was in the banking
sector, primarily our equity investment in CCB.

Table 35 Total Cross-border Exposure Exceeding One Percent of Total Assets (1)

(Dollars in millions)

China

December 31

Public Sector

Banks

Private Sector

2008
2007
2006

$ 44
58
127

$ 20,091
16,558
3,174

$524
424
264

Cross-border
Exposure

$ 20,659
17,040
3,565

Exposure as a
Percentage of Total
Assets

1.14%
0.99
0.24

(1) Exposure includes cross-border claims by our foreign offices as follows: loans, 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 consistent with FFIEC reporting requirements for preparing the Country
Exposure Report.

As presented in Table 36, foreign exposure to borrowers or counter-
parties in emerging markets increased $5.4 billion to $45.8 billion at
December 31, 2008, compared to $40.4 billion at December 31, 2007.
The increase was primarily due to our increased equity investment in CCB

as well as higher exposures in India and Bahrain. Foreign exposure to
borrowers or counterparties in emerging markets represented 35 percent
and 29 percent of total foreign exposure at December 31, 2008 and
2007.

Table 36 Selected Emerging Markets (1)

(Dollars in millions)

Region/Country
Asia Pacific
China
South Korea
India
Singapore
Taiwan
Hong Kong
Other Asia Pacific (7)

Total Asia Pacific

Latin America
Mexico
Brazil
Chile
Other Latin America (7)

Total Latin America

Middle East and Africa

Bahrain
Other Middle East and Africa (7)

Total Middle East and Africa

Central and Eastern Europe (7)

Loans and
Leases, and
Loan
Commitments

Other
Financing (2)

Derivative
Assets (3)

Securities/
Other
Investments (4)

Total Cross-
border
Exposure (5)

Local
Country
Exposure
Net of Local
Liabilities (6)

Total
Emerging
Market
Exposure at
December 31,
2008

Increase
(Decrease)
From
December 31,
2007

$ 285
665
1,521
347
304
429
187

3,738

1,335
350
294
150

2,129

269
661

930

48
871
689
73
26
28
97

1,832

301
407
241
273

1,222

7
131

138

114

$ 499
1,635
1,045
813
60
143
40

4,235

132
50
30
2

214

59
367

426

262

$19,827
1,505
1,179
336
29
81
281

23,238

2,264
2,544
11
67

4,886

854
107

961

188

$20,659
4,676
4,434
1,569
419
681
605

33,043

4,032
3,351
576
492

8,451

1,189
1,266

2,455

629

46
–
–
–
423
–
–

469

125
518
3
155

801

–
–

–

$20,705
4,676
4,434
1,569
842
681
605

33,512

4,157
3,869
579
647

9,252

1,189
1,266

2,455

629

$3,665
274
1,142
277
(225)
(114)
(82)

4,937

(281)
182
(140)
–

(239)

1,042
(528)

514

205

Total emerging market exposure

$6,862

$3,306

$5,137

$29,273

$44,578

$1,270

$45,848

$5,417

(1) There is no generally accepted definition of emerging markets. The definition that we use includes all countries in Asia Pacific excluding Japan, Australia and New Zealand; all countries in Latin America excluding
Cayman Islands and Bermuda; all countries in Middle East and Africa; and all countries in Central and Eastern Europe excluding Greece. There was no emerging market exposure included in the portfolio measured at
fair value in accordance with SFAS 159 at December 31, 2008 and 2007.
Includes acceptances, standby letters of credit, commercial letters of credit and formal guarantees.

(2)
(3) Derivative assets are reported on a mark-to-market basis and have been reduced by the amount of cash collateral applied of $152 million and $57 million at December 31, 2008 and 2007. At December 31, 2008 and

2007 there were $531 million and $2 million of other marketable securities collateralizing derivative assets for which credit risk has not been reduced.

(4) Generally, cross-border resale agreements are presented based on the domicile of the counterparty, consistent with FFIEC reporting requirements. Cross-border resale agreements where the underlying securities are

U.S. Treasury securities, in which case the domicile is the U.S., are excluded from this presentation.

(5) Cross-border exposure includes amounts payable to the Corporation 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 requirements.

(6) Local country exposure includes amounts payable to the Corporation by borrowers with a country of residence in which the credit is booked, regardless of the currency in which the claim is denominated. Local funding or
liabilities are subtracted from local exposures consistent with FFIEC reporting requirements. Total amount of available local liabilities funding local country exposure at December 31, 2008 was $12.6 billion compared
to $21.6 billion at December 31, 2007. Local liabilities at December 31, 2008 in Asia Pacific and Latin America were $12.1 billion and $538 million, of which $4.9 billion were in Singapore, $2.2 billion were in Hong
Kong, $1.7 billion were in South Korea, $1.0 billion were in India, and $882 million were in China. There were no other countries with available local liabilities funding local country exposure greater than $500 million.

(7) No country included in Other Asia Pacific, Other Latin America, Other Middle East and Africa, and Central and Eastern Europe had total foreign exposure of more than $500 million.

80 Bank of America 2008

At December 31, 2008 and 2007, 73 percent and 71 percent of the
emerging markets exposure was in Asia Pacific. Emerging markets
exposure in Asia Pacific increased by $4.9 billion driven by higher cross-
border exposure in China and India. Our exposure in China was primarily
related to our equity investment in CCB which accounted for $19.7 billion
and $16.4 billion at December 31, 2008 and 2007. In 2008, under the
terms of our purchase option we increased our ownership in CCB by pur-
chasing 25.6 billion common shares for approximately $9.2 billion. These
recently purchased shares are accounted for at cost in other assets and
are non-transferable until August 2011. In addition in January 2009, we
sold 5.6 billion common shares of our initial investment in CCB for $2.8
billion, reducing our ownership to 16.7 percent and resulting in a pre-tax
gain of approximately $1.9 billion. The remaining initial
investment of
13.5 billion common shares is accounted for at fair value and recorded
as AFS marketable equity securities in other assets with an offset,
net-of-tax, to accumulated OCI. These shares became transferable in
October 2008.

At December 31, 2008, 20 percent of the emerging markets exposure
was in Latin America compared to 23 percent at December 31, 2007.
Latin America emerging markets exposure decreased by $239 million
driven by lower cross-border exposures in Mexico and Chile. The decline
in Mexico is primarily driven by the decline in value of our equity invest-
ment in Santander due to the strengthening of the U.S. dollar. Our 24.9
percent investment in Santander, which is classified as securities and
other investments in the preceding table, accounted for $2.1 billion and
$2.6 billion of exposure in Mexico at December 31, 2008 and
December 31, 2007. Our exposure in Brazil was primarily related to the
carrying value of our investment in Banco Itaú, which accounted for $2.5
billion and $2.6 billion of exposure in Brazil at December 31, 2008 and
December 31, 2007. Our equity investment in Banco Itaú represents
eight percent and seven percent of its outstanding voting and non-voting
shares at December 31, 2008 and 2007.

At both December 31, 2008 and 2007, five percent of the emerging
markets exposure was in Middle East and Africa. Middle East and Africa
emerging markets exposure increased by $514 million, driven by
increased cross-border securities and other investments exposures in
Bahrain which were primarily collateralized by mortgage-backed securities
issued by U.S. government sponsored entities.

Provision for Credit Losses
The provision for credit losses increased $18.4 billion to $26.8 billion in
2008 compared to 2007.

The consumer portion of the provision for credit losses increased
$15.2 billion to $21.8 billion compared to 2007. The higher provision
expense was largely driven by higher net charge-offs and reserve
increases in our home equity and residential mortgage portfolios
reflective of deterioration in the housing markets particularly in geo-
graphic areas that have experienced the most significant declines in
home prices as well as deterioration in our Countrywide SOP 03-3 portfo-
lio subsequent to the July 1, 2008 acquisition. Furthermore, the slowing
economy and portfolio deterioration resulted in higher credit costs in the
unsecured lending and domestic credit card portfolios.

The commercial portion of the provision for credit losses increased
$3.2 billion to $5.0 billion compared to 2007. The increase was driven by
higher net charge-offs in our small business portfolios within GCSBB
reflecting deterioration from the impacts of a slowing economy particularly
in geographic areas that have experienced the most significant home
price declines. Higher net charge-offs were also experienced in commer-
cial real estate, primarily the homebuilder loan portfolio, as well as
commercial domestic and foreign net charge-offs, which were broad-
based in terms of both borrowers and industries and up from very low

levels in 2007. Reserves were increased for deterioration in the home-
builder and non real estate commercial portfolios within GCIB as well as
in the small business portfolio within GCSBB. In addition, the absence of
2007 reserve reductions in All Other also contributed to the increase in
provision.

Allowance for Credit Losses
The allowance for loan and lease losses excludes loans measured at fair
value in accordance with SFAS 159 as subsequent mark-to-market
adjustments related to loans measured at fair value include a credit risk
component. The allowance for loan and lease losses is allocated based
on two components. We evaluate the adequacy of the allowance for loan
and lease losses based on the combined total of these two components.
The first component of the allowance for loan and lease losses covers
those commercial loans excluding loans measured at fair value 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
specific 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 consumer and commercial loans and leases excluding
loans measured at fair value. The allowance for commercial
loan and
lease losses is established by product type after analyzing historical loss
experience by internal risk rating, current economic conditions, industry
performance trends, geographic or obligor concentrations within each
portfolio segment, and any other pertinent information. The commercial
loss experience is updated quarterly to incorporate the most
historical
recent data reflective of
the current economic environment. As of
December 31, 2008 quarterly updating of historical loss experience did
not have a material impact on the allowance for loan and lease losses.
The allowance for consumer and certain homogeneous commercial loan
and lease products is based on aggregated portfolio segment evalua-
tions, generally by product type. Loss forecast models are utilized that
consider a variety of factors including, but not limited to, historical loss
experience, estimated defaults or foreclosures based on portfolio trends,
delinquencies, economic trends and credit scores. These loss forecast
models are updated on a quarterly basis in order
to incorporate
the current economic environment. As of
information reflective of
December 31, 2008 quarterly updating of the loss forecast models
resulted in increases in the allowance for loan and lease losses driven by
higher losses primarily in the home equity portfolio, reflective of deterio-
ration in the housing markets, portfolio deterioration on the consumer
card and unsecured lending portfolios and deterioration and reduced col-
lateral values in the retail dealer-related loan portfolios.

We monitor differences between estimated and actual incurred loan
and lease losses. This monitoring process includes periodic assess-
ments 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 loss-
es. 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 38 was $16.7 billion at December 31, 2008, an
increase of $9.9 billion from December 31, 2007. This increase was
primarily driven by reserve increases related to higher losses in our home
equity, unsecured lending, consumer card, and residential mortgage port-

Bank of America 2008 81

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 excluding
commitments measured at fair value, such as letters of credit and finan-
cial guarantees, and binding unfunded loan commitments. Unfunded lend-
ing commitments are subject to the same assessment as funded loans,
except utilization assumptions are considered. The reserve for unfunded
lending commitments is included in accrued expenses and other liabilities
on the Consolidated Balance Sheet with changes to the reserve generally
made through the provision for credit losses.

The reserve for unfunded lending commitments at December 31,
2008 was $421 million compared to $518 million at December 31,
2007. Our reserve for unfunded commitments decreased as a result of
lower exposures.

folios, and the addition of the Countrywide portfolio. In addition, reserves
were increased by $750 million associated with a reduction in the princi-
pal cash flows expected to be collected on the Countrywide SOP 03-3
portfolio, mainly the discontinued real estate portfolio.

The allowance for commercial loan and lease losses was $6.4 billion
at December 31, 2008, a $1.6 billion increase from December 31, 2007.
The increase in allowance levels was driven by higher losses in the small
business portfolio within GCSBB and reserve increases on the home-
builder loan portfolio within GCIB. For further discussion, see Provision for
Credit Losses on page 81.

The allowance for loan and lease losses as a percentage of total
loans and leases outstanding was 2.49 percent at December 31, 2008,
compared to 1.33 percent at December 31, 2007. The increase in the
ratio was primarily driven by reserve increases for higher losses in the
home equity and residential mortgage portfolios, reflective of continued
weakness in the housing markets and a slowing economy. The higher
ratio was also due to reserve increases in the Card Services’ unsecured
lending, domestic credit card, and small business portfolios. These
reserve increases were a result of the slowing economy, particularly in
geographic areas that have experienced the most significant housing
declines, and with respect to several portfolios, seasoning of vintages
originated in periods of higher growth. In addition, the 2008 ratio also
includes the impact of SOP 03-3 portfolio. As this portfolio was initially
recorded at fair value upon acquisition, the reserve related to these loans
is significantly lower than other portfolios.

82 Bank of America 2008

Table 37 presents a rollforward of the allowance for credit losses for 2008 and 2007.

Table 37 Allowance for Credit Losses
(Dollars in millions)

Allowance for loan and lease losses, January 1
Adjustment due to the adoption of SFAS 159
Loans and leases charged off
Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer charge-offs

Commercial – domestic (1)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial charge-offs

Total loans and leases charged off

Recoveries of loans and leases previously charged off

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer recoveries

Commercial – domestic (2)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial recoveries

Total recoveries of loans and leases previously charged off

Net charge-offs

Provision for loan and lease losses
Other (3)

Allowance for loan and lease losses, December 31

Reserve for unfunded lending commitments, January 1

Adjustment due to the adoption of SFAS 159
Provision for unfunded lending commitments
Other (4)

Reserve for unfunded lending commitments, December 31

Allowance for credit losses, December 31

Loans and leases outstanding at December 31 (5)
Allowance for loan and lease losses as a percentage of total loans and leases outstanding at December 31 (5, 6)
Consumer allowance for loan and lease losses as a percentage of total consumer loans and leases outstanding at December 31 (6)
Commercial allowance for loan and lease losses as a percentage of total commercial loans and leases outstanding at December 31 (5)
Average loans and leases outstanding at December 31 (5, 6)
Net charge-offs as a percentage of average loans and leases outstanding at December 31 (5, 6)
Allowance for loan and lease losses as a percentage of total nonperforming loans and leases at December 31 (5, 6)
Ratio of the allowance for loan and lease losses at December 31 to net charge-offs (6)

2008

$ 11,588
–

(964)
(3,597)
(19)
(4,469)
(639)
(3,777)
(461)

(13,926)

(2,567)
(895)
(79)
(199)

(3,740)

(17,666)

39
101
3
308
88
663
62

2007

9,016
(32)

(78)
(286)
n/a
(3,410)
(453)
(1,885)
(346)

(6,458)

(1,135)
(54)
(55)
(28)

(1,272)

(7,730)

22
12
n/a
347
74
512
68

1,264

1,035

118
8
19
26

171

1,435

(16,231)

26,922
792

23,071

518
–
(97)
–

421

128
7
53
27

215

1,250

(6,480)

8,357
727

11,588

397
(28)
28
121

518

$ 23,492

$ 12,106

$926,033

2.49%
2.83
1.90
$905,944

1.79%
141
1.42

$871,754

1.33%
1.23
1.51
$773,142

0.84%
207
1.79

(1)

Includes small business commercial – domestic charge-offs of $2.0 billion and $931 million in 2008 and 2007.
Includes small business commercial – domestic recoveries of $39 million and $51 million in 2008 and 2007.

(2)
(3) The 2008 amount includes the $1.2 billion addition of the Countrywide allowance for loan losses as of July 1, 2008. The 2007 amount includes the $725 million and $25 million additions of the LaSalle and U.S. Trust

Corporation allowance for loan losses as of October 1, 2007 and July 1, 2007.

(4) The 2007 amount includes the $124 million addition of the LaSalle reserve for unfunded lending commitments as of October 1, 2007.
(5) Outstanding loan and lease balances and ratios do not include loans measured at fair value in accordance with SFAS 159 at and for the year ended December 31, 2008 and 2007. Loans measured at fair value were

$5.4 billion and $4.6 billion at December 31, 2008 and 2007. Average loans measured at fair value were $4.9 billion and $3.0 billion for 2008 and 2007.

(6) We account for acquired impaired loans in accordance with SOP 03-3. For more information on the impact of SOP 03-3 on asset quality, see Consumer Portfolio Credit Risk Management beginning on page 62.
n/a = not applicable

Bank of America 2008 83

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 38 presents our allocation by product type.

Table 38 Allocation of the Allowance for Credit Losses by Product Type (1)

(Dollars in millions)

Allowance for loan and lease losses

Residential mortgage (3)
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer

Commercial – domestic (4)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial (5)

Allowance for loan and lease losses
Reserve for unfunded lending commitments

Allowance for credit losses

December 31

2008

Percent
of Total

5.99%

23.34
2.85
17.11
3.22
18.81
0.88

72.20

18.81
6.35
0.97
1.67

27.80

Percent of
Loans and
Leases
Outstanding (2)

0.56%
3.53
3.29
6.16
4.33
5.20
5.87

2.83

1.98
2.26
1.00
1.25

1.90

100.00%

2.49%

Amount

207
963
n/a
2,919
441
2,077
151

6,758

3,194
1,083
218
335

4,830

11,588
518

$12,106

Amount

$ 1,382
5,385
658
3,947
742
4,341
203

16,658

4,339
1,465
223
386

6,413

23,071
421

$23,492

2007

Percent
of Total

1.79%
8.31
n/a
25.19
3.81
17.92
1.30

58.32

27.56
9.35
1.88
2.89

41.68

Percent of
Loans and
Leases
Outstanding (2)

0.08%
0.84
n/a
4.44
2.95
2.71
3.61

1.23

1.53
1.77
0.97
1.18

1.51

100.00%

1.33%

(1) We account for acquired impaired loans in accordance with SOP 03-3. For more information on the impact of SOP 03-3 on asset quality, see Consumer Portfolio Credit Risk beginning on page 62.
(2) Ratios are calculated as allowance for loan and lease losses as a percentage of loans and leases outstanding excluding loans measured in accordance with SFAS 159 for each loan and lease category. Loans
measured at fair value include commercial – domestic loans of $3.5 billion and $3.5 billion, commercial-foreign loans of $1.7 billion and $790 million, and commercial real estate loans of $203 million and $304
million at December 31, 2008 and 2007.

(3) Allowance for loan and leases losses at December 31, 2008 includes the benefit of amounts expected to be reimbursable under cash collateralized synthetic securitizations. Excluding these benefits the allowance to

ending loans would be 0.69 percent. See Residential Mortgage beginning on page 63 for more information.
Includes allowance for small business commercial – domestic loans of $2.4 billion and $1.4 billion at December 31, 2008 and 2007.
Includes allowance for loan and lease losses for impaired commercial loans of $691 million and $123 million at December 31, 2008 and 2007.

(4)

(5)

n/a = not applicable

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,
trading account assets and
short-term borrowings,
liabilities, and derivatives. Market-sensitive assets and liabilities are
generated through loans and deposits associated with our traditional
banking business, customer and proprietary trading operations, ALM
process, credit risk mitigation activities and mortgage banking activities.
In the event of market volatility, factors such as underlying market move-
ments and liquidity have an impact on the results of the Corporation.

long-term debt,

Our traditional banking loan and deposit products are nontrading posi-
tions and are reported at amortized cost for assets or the amount owed
for liabilities (historical cost). GAAP requires a historical cost view of tradi-
tional banking assets and liabilities. However, these positions are still
subject to changes in economic value based on varying market con-
ditions, primarily changes in the levels of interest rates. The risk of
adverse changes in the economic value of our nontrading positions is
managed through our ALM activities. We have elected to fair value certain
loan and deposit products in accordance with SFAS 159. For further
information on fair value of certain financial assets and liabilities, see
Note 19 – Fair Value Disclosures to the Consolidated Financial State-
ments.

Our trading positions are reported at fair value with changes currently
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, commodity, issuer and market liquidity risk
factors. We seek to mitigate these risk exposures by using techniques
that encompass a variety of financial instruments in both the cash and
derivatives markets. The following discusses the key risk components
along with respective risk mitigation techniques.

Interest Rate Risk
Interest rate risk represents exposures to instruments whose values vary
with the level or volatility 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. 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 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 for-
foreign currency-denominated loans and securities,
eign subsidiaries,
future cash flows in foreign currencies arising from foreign exchange
transactions,
foreign currency-denominated debt and various foreign
exchange derivative instruments whose values fluctuate with changes in
the level or volatility of currency exchange rates or foreign interest rates.
Hedging instruments used to mitigate this risk include foreign exchange
options, currency swaps, futures, forwards, foreign currency denominated
debt and deposits.

84 Bank of America 2008

financial

Trading Risk Management
Trading-related revenues represent the amount earned from trading posi-
tions, including market-based net interest income, which are taken in a
instruments and markets. Trading account
diverse range of
assets and liabilities and derivative positions are reported at fair value.
For more information on fair value, see Note 19 – Fair Value Disclosures
to the Consolidated Financial Statements and Complex Accounting Esti-
mates beginning on page 93. Trading-related revenues can be volatile and
are largely driven by general market conditions and customer demand.
Trading-related revenues are dependent on the volume and type of trans-
actions, the level of risk assumed, and the volatility of price and rate
movements at any given time within the ever-changing market environ-
ment.

The GRC, chaired by the Global Markets Risk Executive, has been
designated by ALCO as the primary governance authority for Global Mar-
kets Risk Management including trading risk management. The GRC’s
focus is to take a forward-looking view of the primary credit and market
risks impacting CMAS and prioritize those that need a proactive risk miti-
gation strategy.

At the GRC meetings, the committee considers significant daily rev-
enues and losses by business along with an explanation of the primary
driver of the revenue or loss. Thresholds are established for each of our
businesses in order to determine if the revenue or loss is considered to
be significant for that business. If any of the thresholds are exceeded, an
explanation of the variance is made to the GRC. The thresholds are
developed in coordination with the respective risk managers to highlight
those revenues or losses which exceed what is considered to be normal
daily income statement volatility.

The following histogram is a graphic depiction of trading volatility and
illustrates the daily level of trading-related revenue for the 12 months
ended December 31, 2008 as compared with the 12 months ended
December 31, 2007. During the 12 months ended December 31, 2008,
positive trading-related revenue was recorded for 66 percent of the trad-
ing days of which 17 percent were daily trading gains of over $50 million,
25 percent of the trading days had losses greater than $10 million, and
the largest loss was $173 million. This can be compared to the 12
months ended December 31, 2007, where excluding any discrete write-
downs on CDOs positive trading-related revenue was recorded for 71
percent of the trading days of which five percent were daily trading gains
of over $50 million, 21 percent of the trading days had losses greater
than $10 million, and the largest loss was $159 million. The increase in
daily trading gains of over $50 million and losses of over $10 million in
2008 compared to 2007 was driven by the increased volatility that was
experienced in the markets during the full year of 2008 while 2007
experienced increased volatility only during the second half of the year.

Mortgage Risk
Mortgage risk represents exposures to changes in the value of mortgage-
related instruments. The values of these instruments are sensitive to
prepayment rates, mortgage rates, agency debt ratings, default, market
liquidity, other interest rates and interest rate volatility. Our exposure to
these instruments takes several forms. First, we trade and engage in
market-making activities in a variety of mortgage securities including
whole loans, pass-through certificates, commercial mortgages, and
collateralized mortgage obligations including CDOs using mortgages as
underlying collateral. Second, we originate a variety of mortgage-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 origination
activities. See Note 1 – Summary of Significant Accounting Principles and
Note 21 – Mortgage Servicing Rights to the Consolidated Financial
information on MSRs. Hedging instruments
Statements for additional
forwards, swaps,
futures,
used to mitigate this risk include options,
swaptions and securities.

Equity Market Risk
Equity market risk represents exposures to securities that represent an
ownership interest in a corporation in the form of domestic and foreign
common stock or other equity-linked instruments. Instruments that would
lead to this exposure include, but are not limited to, the following: com-
mon stock, exchange traded funds, American Depositary Receipts (ADRs),
convertible bonds, listed equity options (puts and calls), over-the-counter
equity options, equity total return swaps, equity index futures and other
equity derivative products. Hedging instruments used to mitigate this risk
include options, futures, swaps, convertible bonds and cash positions.

Commodity Risk
Commodity risk represents exposures to instruments traded in the petro-
leum, natural gas, power, and metals markets. These instruments consist
primarily of futures, forwards, swaps and options. Hedging instruments
used to mitigate this risk include options, futures and swaps in the same
or similar commodity product, as well as cash positions.

Issuer Credit Risk
Issuer credit risk represents exposures to changes in the creditworthi-
ness of individual issuers or groups of issuers. Our portfolio is exposed to
issuer credit risk where the value of an asset may be adversely impacted
by changes in the levels of credit spreads, by credit migration, or by
defaults. Hedging instruments used to mitigate this risk include bonds,
CDS and other credit fixed income instruments.

Market Liquidity Risk
Market liquidity risk represents the risk that expected market activity
changes dramatically and in certain cases may even cease to exist. This
exposes us to the risk that we will not be able to transact in an orderly
manner and may impact our
results. This impact could further be
exacerbated if expected hedging or pricing correlations are impacted by
the disproportionate demand or lack of demand for certain instruments.
We utilize various risk mitigating techniques as discussed in more detail
in Trading Risk Management.

Bank of America 2008 85

Histogram of Daily Trading-Related Revenue
Twelve Months Ended December 31, 2008 versus
Twelve Months Ended December 31, 2007

s
y
a
D

f
o

r
e
b
m
u
N

< -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)

Twe lve Months Ende d De ce mbe r 31, 2008

Twe lve Months Ende d De ce mbe r 31, 2007

To evaluate risk in our trading activities, we focus on the actual and
potential volatility of individual positions as well as portfolios. VAR is a
key statistic used to measure market risk. In order to manage day-to-day
risks, VAR is subject to trading limits both for our overall trading portfolio
and within individual businesses. All limit excesses are communicated to
management for review.

A VAR model simulates the value of a portfolio under a range of hypo-
thetical scenarios in order to generate a distribution of potential gains
and losses. The VAR represents the worst loss the portfolio is expected
to experience based on historical trends with a given level of confidence.
VAR depends on the volatility of the positions in the portfolio and on how
strongly their risks are correlated. Within any VAR model, there are sig-
nificant and numerous assumptions that will differ from company to
company. In addition, the accuracy of a VAR model depends on the avail-
ability and quality of historical data for each of the positions in the portfo-
lio. A VAR model may require additional modeling assumptions for new
products which do not have extensive historical price data, or for illiquid
positions for which accurate daily prices are not consistently available.
Our VAR model uses a historical simulation approach based on three
years of historical data and assumes a 99 percent confidence level. Stat-
istically, this means that losses will exceed VAR, on average, one out of
100 trading days, or two to three times each year.

A VAR model

is an effective tool

in estimating ranges of potential
gains and losses on our trading portfolios. There are however many limi-
tations inherent in a VAR model as it utilizes historical results over a
defined time period to estimate future performance. Historical results
may not always be indicative of future results and changes in market
conditions or in the composition of the underlying portfolio could have a
material impact on the accuracy of the VAR model. This became partic-
ularly relevant during the second half of 2007 and continued throughout
2008, when markets experienced periods of extreme illiquidity resulting
in losses that were far outside of the normal loss forecasts by VAR mod-
els. As such, from time to time, we update the assumptions and histor-
ical data underlying our VAR model. During the first quarter of 2008, we

increased the frequency with which we update the historical data to a
weekly basis. Previously, this was updated on a quarterly basis.

Due to the limitations previously mentioned, we have historically used
the VAR model as only one of the components in managing our trading
risk and also use other techniques such as stress testing and desk level
limits. Periods of extreme market stress influence the reliability of these
techniques to various degrees. See discussion on stress testing below.

On a quarterly basis, the accuracy of the VAR methodology is reviewed
by backtesting (i.e., comparing actual
results against expectations
derived from historical data) the VAR results against the daily profit and
loss. Graphic representation of the backtesting results with additional
explanation of backtesting excesses are reported to the GRC. Backtesting
excesses occur when trading losses exceed the VAR. Senior management
reviews and evaluates the results of these tests.

The following graph shows daily trading-related revenue and VAR for
the 12 months ended December 31, 2008. Actual losses exceeded daily
trading VAR two times in the 12 months ended December 31, 2008 and
excluding any discrete writedowns on CDOs losses exceeded daily trading
VAR 14 times in the 12 months ended December 31, 2007. During the
12 months ended December 31, 2008, we continued to take writedowns
on our CDO exposure, but revalued these positions on a more regular
basis, and therefore no CDO-related losses were excluded from the follow-
ing graph. Our increase in total trading VAR during the fourth quarter
resulted from sharply increased volatility in the markets and widening
credit spreads across all rating categories, despite establishing a lower
risk profile, as discussed in stress testing below. Our VAR methodology
for credit products produces VAR measures that increase in proportion to
the level of credit spreads. The large widening in credit spreads during
the fourth quarter produced commensurately large increases and fluctua-
tions in VAR. As a result, the majority of the highs for VAR in 2008
occurred during the fourth quarter. In periods of market stress, the GRC
members communicate daily to discuss losses and VAR limit excesses.
As a result of this process, the lines of business may selectively reduce
risk. Where economically feasible, positions are sold or macro economic
hedges are executed to reduce the exposure.

86 Bank of America 2008

250

200

150

100

-50

-100

-150

-200

-250

)
s
n
o
i
l
l
i

m
n
i

s
r
a
l
l
o
D

(

-300
12/31/2007

Trading Risk and Return
Daily Trading-related Revenue and VAR

Daily
Trading-
related
Revenue

VAR

3/31/2008

6/30/2008

9/30/2008

12/31/2008

Table 39 Trading Activities Market Risk VAR

(Dollars in millions)

Foreign exchange
Interest rate
Credit
Real estate/mortgage
Equities
Commodities
Portfolio diversification

Total market-based trading portfolio (3)

12 Months Ended December 31

2008

VAR

High (2)

$ 11.7
68.3
185.2
43.1
63.9
17.7
–

$255.7

Average

$ 7.7
28.9
84.6
22.7
28.0
8.2
(69.4)

$110.7

Low (2)

$ 5.0
12.4
44.1
12.8
15.5
2.4
–

$64.1

2007

VAR (1)

High (2)

$25.3
31.9
69.9
23.5
45.8
10.7
–

$91.5

Average

$ 7.2
13.9
39.5
14.1
24.6
7.2
(53.9)

$ 52.6

Low (2)

$ 3.8
6.6
23.4
5.7
9.6
3.7
–

$32.9

(1) Excludes our discrete writedowns on super senior CDO exposure.
(2) 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.
(3) The table above does not include credit protection purchased to manage our counterparty credit risk.

Table 39 presents average, high and low daily trading VAR for the 12

months ended December 31, 2008 and 2007.

The increases in average VAR during 2008 as compared to 2007 were
due to the rise in market volatility that started during the second half of
2007 and accelerated into the fourth quarter of 2008. As previously dis-
cussed, we updated our VAR model during the first quarter of 2008 and
as the increased market volatility was incorporated into the historical
price data, the level of VAR increased substantially.

Counterparty credit risk is an adjustment to the mark-to-market value
of our derivative exposures reflecting the impact of the credit quality of
counterparties on our derivative assets. Since counterparty credit
exposure is not included in the VAR component of the regulatory capital
allocation, we do not include it in our trading VAR, and it is therefore not
included in the daily trading-related revenue illustrated in our histogram
and used for backtesting. At December 31, 2008 and 2007, the VAR for
counterparty credit risk, together with associated hedges that are marked
to market, was $86 million and $13 million.

Stress Testing
Because the very nature of a VAR model suggests results can exceed our
estimates, we also “stress test” our portfolio. Stress testing estimates

the value change in our trading portfolio that may result from abnormal
market movements. Various types of stress tests are run regularly
against the overall trading portfolio and individual businesses. Historical
scenarios simulate the impact of price changes which occurred during a
set of extended historical market events. The results of these scenarios
are reported daily to management. During the 12 months ended
December 31, 2008, the largest daily losses among the historical scenar-
ios ranged from $21 million to $999 million. This can be compared with
losses from $9 million to $529 million for the historical scenarios during
the 12 months ended December 31, 2007. The increase in historical
stress values are primarily associated with the introduction of a new
scenario to reflect the ongoing credit crisis related to the credit market
disruptions that occurred during the past 12-15 months. Hypothetical
scenarios simulate the anticipated shocks from predefined market stress
events. These stress events include shocks to underlying market risk
variables which may be well beyond the shocks found in the historical
data used to calculate the VAR. In addition to the value afforded by the
results themselves this information provides senior management with a
clear picture of the trend of risk being taken given the relatively static
nature of the shocks applied. During the 12 months ended December 31,
2008, the largest losses among the hypothetical scenarios ranged from

Bank of America 2008 87

$47 million to $1.1 billion. This is down from $459 million to $1.5 billion
for the hypothetical scenarios for the 12 months ended December 31,
2007. The results of these stress tests point to a decrease in risk taken
during the 12 months ended December 31, 2008.

The acquisition of Merrill Lynch on January 1, 2009 increased our
trading-related activities and exposure. As such, during 2009 we will con-
tinue to refine the VAR calculations and develop a set of stress scenarios
that will be regularly produced across the combined company for pur-
poses of managing our overall risk profile. As of January 1, 2009, we
estimate that the VAR of the combined organizations would have been
$274 million as compared to $138 million for the Corporation. The
combination of VAR measurements is not additive as there are both corre-
lation and diversification effects that impact the results. For stress test-
ing, Merrill Lynch used similar shocks for hypothetical scenarios and as
of January 1, 2009, we estimate that the combined largest loss among
the hypothetical scenarios would have been $774 million. Among the
historical scenarios, comparable shocks were used to reflect the ongoing
credit crisis related to the credit market disruptions, which had previously
exhibited
at
among
the Corporation. As of January 1, 2009, we estimate that the combined
loss from the historical credit crisis scenario would have been $1.1 bil-
lion. For the Corporation, the loss from the historical credit crisis scenario
would have been $579 million.

scenarios

historical

largest

loss

the

all

Interest Rate Risk Management for Nontrading
Activities
Interest rate risk represents the most significant market risk exposure to
our nontrading exposures. Our overall goal is to manage interest rate risk
so that movements in interest rates do not adversely affect core net
interest income – managed basis. Interest rate risk is measured as the
potential volatility in our core net interest income – managed basis
caused by changes in market interest rates. Client facing activities, pri-
marily 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 changing market conditions, is managed through our ALM
activities.

Simulations are used to estimate the impact on core net interest
income – managed basis using numerous interest rate scenarios, bal-
ance sheet trends and strategies. These simulations evaluate how these
scenarios impact core net interest income – managed basis on short-term
instruments, debt securities, loans, deposits, borrowings, and
financial
derivative instruments.
these simulations incorporate
assumptions about balance sheet dynamics such as loan and deposit
growth and pricing, changes in funding mix, and asset and liability repric-
ing and maturity characteristics. These simulations do not include the
impact of hedge ineffectiveness.

In addition,

Management analyzes core net interest income – managed basis
forecasts utilizing different rate scenarios, with the base case utilizing the
forward interest rates. Management frequently updates the core net inter-
est income – managed basis forecast for changing assumptions and dif-
fering outlooks based on economic trends and market conditions. Thus,
we continually monitor our balance sheet position in an effort to maintain
an acceptable level of exposure to interest rate changes.

We prepare forward-looking forecasts of core net interest income –
managed basis. These baseline forecasts take into consideration
expected future business growth, ALM positioning, and the direction of
interest rate movements as implied by forward interest rates. We then
measure and evaluate the impact that alternative interest rate scenarios
have to these static baseline forecasts in order to assess interest rate
sensitivity under varied conditions. The spot and 12-month forward
monthly rates used in our respective baseline forecasts at December 31,
2008 and 2007 are shown in Table 40.

At December 31, 2008, the spread between the three-month LIBOR
rate and the Federal Funds target rate had significantly widened since
December 31, 2007. We are typically asset sensitive to Federal Funds
and Prime rates, and liability sensitive to LIBOR. As the Federal Funds
and LIBOR dislocation widens, the benefit to net interest income from
lower rates is limited. Subsequent to December 31, 2008, the spread
between the three-month LIBOR rate and the Federal Funds target rate
has narrowed.

Table 40 Forward Rates

Spot rates
12-month forward rates

Federal
Funds

0.25%
0.75

2008

Three-Month
LIBOR

1.43%
1.41

December 31

10-Year
Swap

2.56%
2.80

Federal
Funds

4.25%
3.13

2007

Three-Month
LIBOR

4.70%
3.36

10-Year
Swap

4.67%
4.79

88 Bank of America 2008

Table 41 Estimated Core Net Interest Income – Managed Basis at Risk

(Dollars in millions)

Curve Change

+100 bps Parallel shift
-100 bps Parallel shift
Flatteners

Short end
Long end

Steepeners

Short end
Long end

Short Rate (bps)

Long Rate (bps)

+100
-100

+100
–

-100
–

+100
-100

–
-100

–
+100

December 31

2008

$ 144
(186)

(545)
(638)

453
698

2007

$ (952)
865

(1,127)
(386)

1,255
181

The table above reflects the pre-tax dollar impact to forecasted core
net interest income – managed basis over the next 12 months from
December 31, 2008 and 2007, resulting from a 100 bp gradual parallel
increase, a 100 bp gradual parallel decrease, a 100 bp gradual curve
flattening (increase in short-term rates or decrease in long-term rates)
and a 100 bp gradual curve steepening (decrease in short-term rates or
increase in long-term rates) from the forward market curve. For further
discussion of core net interest income – managed basis see page 31.

The sensitivity analysis above assumes that we take no action in
response to these rate shifts over the indicated years. The estimated
exposure is reported on a managed basis and reflects impacts that may
be realized primarily in net interest income and card income on the Con-
solidated Statement of Income. This sensitivity analysis excludes any
impact that could occur in the valuation of retained interests in the Corpo-
ration’s securitizations due to changes in interest rate levels. For addi-
tional information on securitizations, see Note 8 – Securitizations to the
Consolidated Financial Statements.

Our core net interest income – managed basis was asset sensitive at
December 31, 2008 and liability sensitive at December 31, 2007, with
the shift being driven by the lower level of rates. Over a 12-month horizon,
we would benefit from rising rates or a steepening of the yield curve
beyond what is already implied in the forward market curve.

As part of our ALM activities, we use securities, residential mort-
gages, and interest rate and foreign exchange derivatives in managing
interest rate sensitivity.

The acquisition of Merrill Lynch on January 1, 2009 made our core net
interest income – managed basis more asset sensitive to a parallel move
in interest rates. In addition, at January 1, 2009 we estimate that we
would continue to benefit from rising rates or a steepening of the yield
curve over a 12-month horizon, beyond what is already implied in the
forward market curve.

Securities
The securities portfolio is an integral part of our ALM position and is
primarily comprised of debt securities and includes mortgage-backed
securities and to a lesser extent corporate, municipal and other invest-
ment grade debt securities. At December 31, 2008, AFS debt securities
were $276.9 billion compared to $213.3 billion at December 31, 2007.
This increase was due to the repositioning of our ALM portfolio due to
market liquidity and funding conditions as we increased the level of
mortgage-backed securities relative to loans and the acquisition of Coun-
trywide. During 2008 and 2007, we purchased AFS debt securities of
$184.2 billion and $28.0 billion, sold $119.8 billion and $27.9 billion,
and had maturities and received paydowns of $26.1 billion and $19.2
billion. We realized $1.1 billion and $180 million in gains on sales of
debt securities during 2008 and 2007. In addition, we securitized $26.1
billion and $5.5 billion of residential mortgage loans into mortgage-

backed securities which we retained during 2008 and 2007. We also
converted $4.9 billion of automobile loans into ABS which we retained
during 2008.

The amount of pre-tax accumulated OCI loss related to AFS debt secu-
rities increased by $6.4 billion during 2008 to $9.3 billion, driven by a
decrease in value of certain mortgage-backed securities attributable to
changes in market yields. For those securities that are in an unrealized
loss position, we have the intent and ability to hold these securities to
recovery.

losses at
includes $2.0 billion in after-tax
Accumulated OCI
December 31, 2008,
including $5.9 billion of net unrealized losses
related to AFS debt securities and $3.9 billion of net unrealized gains
related to AFS marketable equity securities. Total market value of the AFS
debt securities was $276.9 billion at December 31, 2008 with a
weighted average duration of 2.7 years and primarily relates to our
mortgage-backed securities portfolio.

Prospective changes to the accumulated OCI amounts for the AFS
securities portfolio will be driven by further interest rate, credit or price
fluctuations (including market value fluctuations associated with our CCB
and Banco Itaú investments), the collection of cash flows including pre-
payment and maturity activity, and the passage of time. A portion of the
Corporation’s strategic investment in CCB and all of its investment in
Banco Itaú are carried at fair value. The carrying values of CCB and Banco
Itaú were $19.7 billion and $2.5 billion at December 31, 2008. Unreal-
ized gains (losses) on these investments of $4.8 billion and $(77) mil-
lion, net-of-tax, are subject to currency and price fluctuations, and are
recorded in accumulated OCI. During 2008, under the terms of our pur-
chase option, we increased our ownership to approximately 19 percent by
purchasing approximately $9.2 billion of the common shares of CCB.
These shares are restricted through August 2011 and are carried at cost.
In January 2009, we sold 5.6 billion common shares of our initial invest-
ment in CCB for approximately $2.8 billion resulting in a pre-tax gain of
approximately $1.9 billion and our ownership was reduced to 16.7 per-
cent.

We recognized $3.5 billion of other-than-temporary impairment losses
on AFS debt securities during 2008. These losses were primarily com-
prised of $3.2 billion of CDO-related writedowns. We also recognized
$661 million of other-than-temporary impairment losses on AFS market-
able equity securities during 2008. No such losses were recognized on
AFS marketable equity securities during 2007.

The impairment of AFS debt and marketable equity securities is based
on a variety of factors, including the length of time and extent to which
the market value has been less than cost; the financial condition of the
issuer of the security and its ability to recover market value; and the
Corporation’s intent and ability to hold the security to recovery. Based on
the Corporation’s evaluation of the above and other relevant factors, and
after consideration of the losses described in the paragraph above, we do

Bank of America 2008 89

not believe that the AFS debt and marketable equity securities that are in
an unrealized loss position at December 31, 2008 are other-than-
temporarily impaired.

rate and foreign exchange components. For additional information on our
hedging activities, see Note 4 – Derivatives to the Consolidated Financial
Statements.

Residential Mortgage Portfolio
At December 31, 2008, residential mortgages were $248.0 billion com-
pared to $274.9 billion at December 31, 2007. This decrease was attrib-
utable to the repositioning of our ALM portfolio, driven by market liquidity,
as we increased the level of mortgage-backed securities relative to loans,
partially offset by the acquisition of Countrywide which added $26.8 bil-
lion of residential mortgages. We securitized $26.1 billion and $5.5 bil-
lion of residential mortgage loans into mortgage-backed securities which
we retained during 2008 and 2007. During 2008, we purchased $405
million of residential mortgages related to ALM activities compared to
purchases of $22.5 billion during 2007. We also added $27.3 billion and
$66.3 billion of originated residential mortgages and we sold $30.7 bil-
lion and $34.0 billion of residential mortgages during 2008 and 2007. Of
these sales, $22.9 billion and $23.7 billion were originated residential
mortgages, resulting in gains of $392 million and $187 million. The
remaining $7.8 billion and $10.4 billion were related to service by others
loan sales, resulting in gains of $104 million and $84 million. We
received paydowns of $26.3 billion and $28.2 billion in 2008 and 2007.

In addition to the residential mortgage portfolio we incorporated the
discontinued real estate portfolio that was acquired in connection with
the Countrywide acquisition into our ALM activities. This portfolio’s bal-
ance was $20.0 billion at December 31, 2008.

Interest Rate and Foreign Exchange Derivative
Contracts
Interest rate and foreign exchange derivative contracts are utilized in our
ALM activities and serve as an efficient tool to mitigate our interest rate
and foreign exchange risk. We use derivatives to hedge the variability in
cash flows or changes in fair value on our balance sheet due to interest

Our interest rate contracts are generally non-leveraged generic interest
rate and foreign exchange basis swaps, options, futures and forwards. In
addition, we use foreign exchange contracts,
including cross-currency
interest rate swaps and foreign currency forward contracts, to mitigate the
foreign exchange risk associated with foreign currency-denominated
assets and liabilities. Table 42 reflects the notional amounts, fair value,
weighted average receive fixed and pay fixed rates, expected maturity,
and estimated duration of our open ALM derivatives at December 31,
2008 and 2007. These amounts do not include our derivative hedges on
our net investments in consolidated foreign operations.

Changes to the composition of our derivatives portfolio during 2008
reflect actions taken for interest rate and foreign exchange rate risk
management. The decisions to reposition our derivative portfolio are
based upon the current assessment of economic and financial conditions
including the interest rate environment, balance sheet composition and
trends, and the relative mix of our cash and derivative positions. The
notional amount of our option positions decreased from $140.1 billion at
December 31, 2007 to $5.0 billion at December 31, 2008. Changes in
the levels of the option positions was driven by maturities of $115.1 bil-
lion in purchased caps along with the termination of $20.0 billion in sold
floors. Our interest rate swap positions (including foreign exchange con-
tracts) were a net receive fixed position of $50.3 billion at December 31,
2008 compared to a net receive fixed position of $101.9 billion on
December 31, 2007. Changes in the notional levels of our interest rate
swap position were driven by the net termination and maturity of $54.8
billion in U.S. dollar-denominated receive fixed swaps, the termination of
$11.3 billion in pay fixed swaps, and the net termination of $8.1 billion in
foreign denominated receive fixed swaps. The notional amount of our
foreign exchange basis swaps was $54.6 billion and $54.5 billion at
December 31, 2008 and 2007.

90 Bank of America 2008

Table 42 Asset and Liability Management Interest Rate and Foreign Exchange Contracts

December 31, 2008

(Dollars in millions, average estimated duration in years)

Receive fixed interest rate swaps (1, 2)

Notional amount
Weighted average fixed rate

Pay fixed interest rate swaps (1)
Notional amount
Weighted average fixed rate

Foreign exchange basis swaps (2, 3, 4)

Notional amount

Option products (5)

Notional amount
Foreign exchange contracts (2, 4, 6)
Notional amount (7)
Futures and forward rate contracts
Notional amount (7)

Net ALM contracts

December 31, 2007

(Dollars in millions, average estimated duration in years)

Receive fixed interest rate swaps (1, 2)

Notional amount
Weighted average fixed rate

Pay fixed interest rate swaps (1)
Notional amount
Weighted average fixed rate

Foreign exchange basis swaps (2, 3, 4)

Notional amount

Option products (5)

Notional amount
Foreign exchange contracts (2, 4, 6)
Notional amount (7)
Futures and forward rate contracts
Notional amount (7)

Net ALM contracts

Expected Maturity

Total

2009

2010

2011

2012

2013

Thereafter

Fair
Value

$2,103

$ 27,166

4.08%

–

–
–%

17
7.35%

$ 4,002

1.89%

–
–%

$9,258

$ 773

$13,116

3.31%

4.53%

5.27%

–
–%

Average Estimated
Duration

4.93

–

3,196

–

1,070

$6,427

Fair
Value

$ 992

(429)

6,164

(155)

(499)

(3)

$6,070

$ 54,569

4,578

$ 6,192

$3,986

$8,916

$4,819

$26,078

5,025

5,000

–

23,063

2,313

4,021

1,116

1,535

486

13,592

(8,793)

–

Expected Maturity

Total

2008

2009

2010

2011

2012

Thereafter

$ 81,965

4,869

$48,908

$3,252

$1,630

$2,508

$20,798

4.34%

4.03%

3.91%

4.35%

4.50%

4.88%

5.34%

$ 11,340

5.04%

–
–%

$1,000

$10,340

5.45%

5.00%

$ 54,531

2,537

$ 4,463

$5,839

$4,294

$8,695

$28,703

140,114

130,000

10,000

–

31,054

1,438

2,047

4,171

1,235

3,150

19,013

752

–

Average Estimated
Duration

3.70

5.37

(1) At December 31, 2008 there were no forward starting pay or receive fixed swap positions. At December 31, 2007, the receive fixed interest rate swap notional that represented forward starting swaps and will not be

effective until their respective contractual start dates was $45.0 billion. There were no forward starting pay fixed swap positions at December 31, 2007.

(2) Does not include basis adjustments on fixed rate debt issued by the Corporation and hedged under fair value hedge relationships pursuant to SFAS 133 that substantially offset the fair values of these derivatives.
(3) Foreign exchange basis swaps consist of cross-currency variable interest rate swaps used separately or in conjunction with receive fixed interest rate swaps.
(4) Does not include foreign currency translation adjustments on certain foreign debt issued by the Corporation which substantially offset the fair values of these derivatives.
(5) Option products of $5.0 billion at December 31, 2008 are comprised completely of purchased caps. Option products of $140.1 billion at December 31, 2007 were comprised of $120.1 billion in purchased caps and

$20.0 billion in sold floors.

(6) Foreign exchange contracts include foreign-denominated and cross-currency receive fixed interest rate swaps as well as foreign currency forward rate contracts. Total notional was comprised of $23.1 billion in foreign-
denominated and cross-currency receive fixed swaps and $78 million in foreign currency forward rate contracts at December 31, 2008, and $31.3 billion in foreign-denominated and cross-currency receive fixed swaps
and $211 million in foreign currency forward rate contracts at December 31, 2007.

(7) Reflects the net of long and short positions.

The table above includes derivatives utilized in our ALM activities,
including those designated as SFAS 133 accounting hedges and
economic hedges. The fair value of net ALM contracts increased $357
million from a gain of $6.1 billion at December 31, 2007 to a gain of
$6.4 billion at December 31, 2008. The increase was primarily attribut-
able to changes in the value of foreign exchange contracts of $1.6 billion
and U.S. dollar-denominated receive fixed interest rate swaps of $1.1 bil-
lion, as well as changes related to the termination of pay fixed interest
rate swaps of $429 million and the termination of option products of
$155 million. The increase was partially offset by losses from changes in
the value of foreign exchange basis swaps of $3.0 billion. The decrease
in the value of foreign exchange basis swaps was mostly attributable to
the strengthening of the U.S. dollar against most foreign currencies dur-
ing 2008.

The Corporation uses interest rate derivative instruments to hedge the
variability in the cash flows of its assets and liabilities, and other fore-
casted transactions (cash flow hedges). From time to time, the Corpo-

ration also utilizes equity-indexed derivatives accounted for as SFAS 133
cash flow hedges to minimize exposure to price fluctuations on the fore-
casted purchase or sale of certain equity investments. The net losses
on both open and terminated derivative instruments recorded in accumu-
lated OCI, net-of-tax, was $3.5 billion at December 31, 2008. These net
losses are expected to be reclassified into earnings in the same period
when the hedged cash flows affect earnings and will decrease income or
increase expense on the respective hedged cash flows. Assuming no
change in open cash flow derivative hedge positions and no changes to
prices or interest rates beyond what is implied in forward yield curves at
December 31, 2008,
losses are expected to be
reclassified into earnings as follows: $1.2 billion, or 23 percent within the
next year, 66 percent within five years, and 89 percent within 10 years,
with the remaining 11 percent
thereafter. For more information on
derivatives designated as cash flow hedges, see Note 4 – Derivatives to
the Consolidated Financial Statements.

the pre-tax net

Bank of America 2008 91

The amounts included in accumulated OCI for terminated derivative
contracts were losses of $3.4 billion and $3.8 billion, net-of-tax, at
December 31, 2008 and 2007. Losses on these terminated derivative
contracts are reclassified into earnings in the same period or periods
during which the hedged forecasted transaction affects earnings.

In addition to the derivatives disclosed in Table 42, we hedge our net
investment in consolidated foreign operations determined to have func-
tional currencies other
than the U.S. dollar using forward foreign
exchange contracts that typically settle in 90 days as well as by issuing
foreign-denominated debt. The Corporation recorded net derivative gains
of $2.8 billion in accumulated OCI associated with net investment hedges
for 2008 as compared to net derivative losses of $516 million for 2007.
The gains for 2008 were driven by the strengthening of the U.S. dollar
against certain foreign currencies including the British Pound, Canadian
Dollar and the Euro. These gains were more than offset by losses from
the changes in the value of our net investments in consolidated foreign
entities resulting in $1.0 billion in unrealized losses, net-of-tax, that were
recorded in accumulated OCI for 2008.

Mortgage Banking Risk Management
We originate, fund and service mortgage loans, which subject us to credit,
liquidity and interest rate risks, among others. We determine whether
loans will be held for investment or held for sale at the time of commit-
ment and manage credit and liquidity risks by selling or securitizing a
portion of the loans we originate.

Interest rate and market risk can be substantial in the mortgage busi-
ness. Fluctuations in interest rates drive consumer demand for new mort-
gages and the level of refinancing activity, which in turn affects total
origination and service fee income. Typically, a decline in mortgage inter-
est rates will lead to an increase in mortgage originations and fees and a
decrease in the value of the MSRs driven by higher prepayment expect-
ations. Hedging the various sources of interest rate risk in mortgage
banking is a complex process that
requires complex modeling and
ongoing monitoring. IRLCs and the related residential first mortgage LHFS
are subject to interest rate risk between the date of the IRLC and the
date the loans are sold to the secondary market. To hedge interest rate
risk, we utilize forward loan sale commitments and other derivative
instruments including purchased options. These instruments are used as
economic hedges of
first mortgage LHFS. At
December 31, 2008 and December 31, 2007, the notional amount of
derivatives economically hedging the IRLCs and residential first mortgage
LHFS was $97.2 billion and $18.6 billion. On January 1, 2008, we
adopted SAB 109 which generally has resulted in higher fair values being
recorded upon initial recognition of derivative IRLCs. For more information
on the adoption of SAB 109, see Note 1 – Summary of Significant
Accounting Principles to the Consolidated Financial Statements.

IRLCs and residential

MSRs are a nonfinancial asset created when the underlying mortgage
loan is sold to investors and we retain the right to service the loan. We
use certain derivatives such as interest rate options, interest rate swaps,
forward settlement contracts, euro dollar futures, mortgage-backed and
U.S. Treasury securities as economic hedges of MSRs. The notional
amounts of the derivative contracts and other securities designated as
economic hedges of MSRs at December 31, 2008 were $1.0 trillion and
$87.5 billion, for a total notional amount of $1.1 trillion. At December 31,
2007 the notional amount of economic hedges of MSRs was $69.0 bil-
lion, all of which were derivatives. At December 31, 2008, we recorded
gains in mortgage banking income of $8.6 billion related to the change in
fair value of these economic hedges as compared to gains of $303 mil-
lion for the same period in 2007. For additional information on MSRs,
see Note 21 – Mortgage Servicing Rights to the Consolidated Financial

92 Bank of America 2008

Statements and for more information on mortgage banking income, see
the GCSBB discussion on page 33.

Compliance and Operational Risk
Management
Compliance risk is the risk posed by the failure to manage regulatory, legal
and ethical issues that could result in monetary damages, losses or harm
to the bank’s reputation or image. The Seven Elements of a Compliance
Program® provides the framework for the compliance programs that are
consistently applied across the enterprise to manage compliance risk.

Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people, systems or external events. Operational risk
also encompasses the failure to implement strategic objectives and ini-
tiatives in a successful, timely, and cost-effective manner. Successful
operational risk management is particularly important to diversified finan-
cial services companies because of the nature, volume and complexity of
the financial services business.

We approach compliance and operational risk management from two
perspectives: corporate-wide and line of business-specific. The Compliance
and Operational Risk Committee provides oversight of significant
corporate-wide compliance and operational risk issues. Within Global Risk
Management, Global Compliance and Operational Risk Management
develops and guides the strategies, policies, practices, controls and mon-
itoring tools for assessing and managing compliance and operational risks
across the Corporation. Through training and communication efforts, com-
pliance and operational risk awareness is driven across the Corporation.

We also mitigate compliance and operational risk through a broad-
based approach to process management and process improvement. For
selected risks, we use specialized support groups, such as Enterprise
Information Management and Supply Chain Management,
to develop
corporate-wide risk management practices, such as an information secu-
rity program and a supplier program to ensure that suppliers adopt appro-
priate policies and procedures when performing work on behalf of the
Corporation. These specialized groups also assist the lines of business in
the development and implementation of risk management practices spe-
cific to the needs of the individual businesses. These groups also work
with line of business executives and risk executives to develop and guide
appropriate strategies, policies, practices, controls and monitoring tools
for each line of business.

The lines of business are responsible for all the risks within the busi-
ness line, including compliance and operational risks. Compliance and
Operational Risk executives, working in conjunction with senior line of
business executives, have developed key tools to help identify, measure,
mitigate and monitor risk in each business line. Examples of these
include processes to ensure compliance with laws and regulations, per-
sonnel management practices, data reconciliation processes,
fraud
management units, transaction processing monitoring and analysis, busi-
ness recovery planning and new product introduction processes. In addi-
tion, the lines of business are responsible for monitoring adherence to
corporate practices. Line of business management uses a self-
assessment process, which helps to identify and evaluate the status of
risk and control
issues, including mitigation plans, as appropriate. The
goal of the self-assessment process is to periodically assess changing
market and business conditions, to evaluate key risks impacting each
line of business and assess the controls in place to mitigate the risks. In
addition to information gathered from the self-assessment process, key
compliance and operational risk indicators have been developed and are
used to help identify trends and issues on both a corporate and a line of
business level.

ASF Framework
In December 2007, the American Securitization Forum (ASF) issued the
Streamlined Foreclosure and Loss Avoidance Framework for Securitized
Adjustable Rate Mortgage Loans (the ASF Framework). The ASF Frame-
work was developed to address large numbers of subprime loans that are
at risk of default when the loans reset from their initial fixed interest rates
to variable rates. The objective of the framework is to provide uniform
guidelines for evaluating large numbers of loans for refinancing in an effi-
tax regulations and
cient manner while complying with the relevant
off-balance sheet accounting standards for loan securitizations. The ASF
Framework targets loans that were originated between January 1, 2005
and July 31, 2007 and have an initial fixed interest rate period of 36
months or less, which are scheduled for their first interest rate reset
between January 1, 2008 and July 31, 2010.

The ASF Framework categorizes the targeted loans into three seg-
ments. Segment 1 includes loans where the borrower is likely to be able
to refinance into any available mortgage product. Segment 2 includes
loans where the borrower is current but is unlikely to be able to refinance
into any readily available mortgage product. Segment 3 includes loans
where the borrower is not current. If certain criteria are met, ASF Frame-
work loans in Segment 2 are eligible for fast-track modification under
which the interest rate will be kept at the existing initial rate, generally for
rate reset date. Upon evaluation,
five years following the interest
if targeted loans do not meet specific criteria to be eligible for one of the
three segments, they are categorized as other loans, as shown in the
table below. These criteria include the occupancy status of the borrower,
structure and other terms of the loan. In January 2008, the SEC’s Office
of the Chief Accountant issued a letter addressing the accounting issues
relating to the ASF Framework. The letter concluded that the SEC would
not object
for
Segment 2 loans modified pursuant to the ASF Framework.

to continuing off-balance sheet accounting treatment

For those current loans that are accounted for off-balance sheet that
are modified, but not as part of the ASF Framework, the servicer must
perform on an individual basis, an analysis of the borrower and the loan
to demonstrate it is probable that the borrower will not meet the repay-
ment obligation in the near term. Such analysis shall provide sufficient
evidence to demonstrate that the loan is in imminent or reasonably fore-
seeable default. The SEC’s Office of the Chief Accountant issued a letter
in July 2007 stating that it would not object to continuing off-balance
sheet accounting treatment for these loans.

Prior to the acquisition of Countrywide on July 1, 2008, Countrywide
began making fast-track loan modifications under Segment 2 of the ASF
Framework in June 2008 and the off-balance sheet accounting treatment

of QSPEs that hold those loans was not affected. In addition, other work-
out activities relating to subprime ARMs including modifications (e.g.,
interest rate reductions and capitalization of interest) and repayment
plans were also made. These initiatives have continued subsequent to
the acquisition in an effort to work with all of our customers that are eligi-
ble and affected by loans that meet the requisite criteria. These fore-
closure prevention efforts will reduce foreclosures and the related losses
providing a solution for customers and protecting investors.

As of December 31, 2008, the principal balance of beneficial inter-
ests issued by the QSPEs that hold subprime ARMs totaled $56.5 billion
and the fair value of beneficial interests related to those QSPEs held by
the Corporation totaled $14 million. The table below presents a summary
of loans in QSPEs that hold subprime ARMs as of December 31, 2008 as
well as workout and payoff activity for the subprime loans by ASF catego-
rization for the six months ended December 31, 2008. Prior to the acquis-
ition of Countrywide on July 1, 2008, we did not originate or service
significant subprime residential mortgage loans, nor did we hold a sig-
interest in QSPEs of subprime residential
nificant amount of beneficial
mortgage loans.

In October 2008 in agreement with several state attorneys general, we
announced the Countrywide National Homeownership Retention Program.
Under the program, we will systematically identify and seek to offer loan
modifications for eligible Countrywide subprime and pay option ARM bor-
rowers whose loans are in delinquency or scheduled for an interest rate or
payment change. For more information on our loan modification programs,
see Recent Events on page 22.

Complex Accounting Estimates
Our significant accounting principles, as described in Note 1 – Summary
of Significant Accounting Principles to the Consolidated Financial State-
ments, are essential in understanding the MD&A. 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 iden-
tified and described the development of the variables most important in
the estimation process that, with the exception of accrued taxes, involve
mathematical models to derive the estimates. 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

Table 43 QSPE Loans Subject to ASF Framework Evaluation (1)

(Dollars in millions)

Segment 1
Segment 2
Segment 3

Total Subprime ARMs

Other loans
Foreclosed properties

Total

December 31, 2008

Activity During the Six Months Ended December 31, 2008

Balance

$ 2,568
9,135
11,176

22,879
30,781
2,794

$56,454

Percent

4.5%

16.2
19.8

40.5
54.5
5.0

Payoffs

$ 807
267
62

1,136
n/a
n/a

100.0%

$1,136

Fast-track
Modifications

–
1,428
–

1,428
n/a
n/a

$1,428

Other
Workout
Activities

$1,396
1,636
1,802

4,834
n/a
n/a

$4,834

Foreclosures

–
108
929

1,037
n/a
n/a

$1,037

(1) Represents loans that were acquired with the acquisition of Countrywide on July 1, 2008 that meet the requirements of the ASF Framework.
n/a = not applicable

Bank of America 2008 93

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
to the balance sheet measurement, often sig-
change subsequent
nificantly, 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 significant,
negative effect on future operating results. These fluctuations would not
be indicative of deficiencies in our models or inputs.

Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for loan
and lease losses and the reserve for unfunded lending commitments,
represents management’s estimate of probable losses inherent in the
Corporation’s lending activities excluding those measured at fair value in
accordance with SFAS 159. 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
61 and Note 1 – Summary of Significant Accounting Principles to the
Consolidated Financial Statements. Due to the variability in the drivers of
the assumptions made in this process, estimates of
the portfolio’s
risks and overall collectability change with changes in the
inherent
economy,
industries, countries and individual borrowers’ or
individual
counterparties’ ability and willingness 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.

(i)

risk ratings for pools of commercial

Key judgments used in determining the allowance for credit losses
include:
loans and leases,
(ii) market and collateral values and discount rates for individually eval-
uated loans, (iii) product type classifications for consumer and commer-
cial loans and leases, (iv) loss rates used for 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. Assuming a downgrade of one
level in the internal risk rating for commercial loans and leases and rated
under the internal risk rating scale, except loans and leases already risk
rated Doubtful as defined by regulatory authorities, the allowance for loan
and lease losses would increase by approximately $2.7 billion at
December 31, 2008. The allowance for loan and lease losses as a per-
centage of total loans and leases at December 31, 2008 was 2.49 per-
cent and this hypothetical increase in the allowance would raise the ratio
to approximately 2.78 percent. Our allowance for loan and lease losses is
also sensitive to the loss rates used for the consumer and commercial
portfolios. A 10 percent increase in the loss rates used on the consumer
and commercial loan and lease portfolios covered by the allowance would
increase the allowance for loan and lease losses at December 31, 2008
by approximately $2.0 billion, of which $1.6 billion would relate to con-
sumer and $440 million to commercial.

SOP 03-3 requires acquired impaired loans to be recorded at fair
value and prohibits “carrying over” or the creation of valuation allowances
in the initial accounting of loans acquired in a transfer that are within the
scope of this SOP. However, subsequent decreases to the expected prin-
cipal cash flows from the date of acquisition will result in a charge to
provision for credit losses and a corresponding increase to allowance for
loan and lease losses. Our SOP 03-3 portfolio is also subjected to stress
scenarios to evaluate the potential
impact given certain events. A one
percent decrease in the expected principal cash flows could result in an

94 Bank of America 2008

impairment of the portfolio of approximately $400 million, of which approx-
imately $250 million would be related to our discontinued real estate
portfolio.

These sensitivity analyses do not represent management’s expect-
ations 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 risk 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.

Mortgage Servicing Rights
MSRs are nonfinancial assets that are created when the underlying mort-
gage loan is sold and we retain the right to service the loan. We account
for consumer MSRs at fair value with changes in fair value recorded in the
Income in mortgage banking income.
Consolidated Statement of
Commercial-related
are
accounted for using the amortization method (i.e., lower of cost or mar-
ket) with impairment recognized as a reduction to mortgage banking
income. At December 31, 2008, our total MSR balance was $13.1 bil-
lion.

reverse mortgage MSRs

residential

and

We determine the fair value of our consumer MSRs using a valuation
model that calculates the present value of estimated future net servicing
income. The model
incorporates key economic assumptions including
estimates of prepayment rates and resultant weighted average lives of
the MSRs and the option adjusted spread (OAS) levels. These variables
can, and generally do, change from quarter to quarter as market con-
ditions and projected interest rates change. These assumptions are sub-
jective in nature and changes in these assumptions could materially
impact our net income. For example, decreasing the prepayment rate
assumption used in the valuation of our consumer MSR by 10 percent
while keeping all other assumptions unchanged could have resulted in an
estimated increase of $786 million in mortgage banking income at
December 31, 2008.

We manage potential changes in the fair value of MSRs through a
comprehensive risk management program. The intent is to mitigate the
effects of changes in MSRs fair value through the use of risk manage-
ment instruments. To reduce the sensitivity of earnings to interest rate
and market value fluctuations, certain derivatives such as options, secu-
rities and interest rate swaps may be 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 bank-
ing income. The impact provided above does not reflect any hedge strat-
egies that may be undertaken to mitigate such risk.

For additional

information on MSRs,

including the sensitivity of
weighted average lives and the fair value of MSRs to changes in modeled
assumptions, see Note 21 – Mortgage Servicing Rights to the Con-
solidated Financial Statements.

Fair Value of Financial Instruments
We determine the fair market values of financial instruments based on
the fair value hierarchy established in SFAS 157 which requires an entity
to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value. We carry
certain corporate loans and loan commitments, LHFS, structured reverse
repurchase agreements, and long-term deposits at fair value in accord-
ance with SFAS 159. We also carry trading account assets and liabilities,

derivative assets and liabilities, AFS debt and marketable equity secu-
rities, MSRs, and certain other assets at fair value. For more information,
see Note 19 – Fair Value Disclosures to the Consolidated Financial
Statements.

The values of assets and liabilities recorded at fair value include
adjustments for market liquidity, credit quality and other deal specific
factors, where appropriate. To ensure the prudent application of esti-
mates and management judgment in determining the fair value of these
assets and liabilities, various processes and controls have been adopted,
which include: a model validation policy that requires a review and appro-
val of quantitative 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. Primarily through validation controls, we utilize both
broker and pricing service inputs, which can and do include both market
observable and internally modeled values and/or value inputs. Our reli-
ance on the receipt of this information is tempered by the knowledge of
how the broker and/or pricing service develops its data, with a higher
reliance being applied to those that are more directly observable and
lesser
reliance being applied on those developed through their own
internal modeling. Similarly, broker quotes that are executable are given a
higher level of reliance than indicative broker quotes, which are not
executable. These processes and controls are performed independently
of the business.

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 sig-
nificant 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 perception of credit uncertainty regarding a sin-
gle company or a specific market sector. In these instances, fair value is
determined based on limited available market information and other fac-
tors, principally from reviewing the issuer’s financial statements and
changes in credit ratings made by one or more rating agencies. At
December 31, 2008, $7.3 billion, or five percent, of trading account
assets were classified as Level 3 fair value assets. No trading account
liabilities were classified as Level 3 liabilities at December 31, 2008.

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 majority of market
inputs are actively quoted and can be validated through external sources,
including brokers, market transactions 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. The Corporation does incorporate,
consistent with the requirements of SFAS 157, within its fair value meas-
urements of over-the-counter derivatives the net credit differential
between the counterparty credit risk and our own credit risk. The value of
the credit differential is determined by reference to existing direct market
reference costs of credit, or where direct references are not available, a
proxy is applied consistent with direct references for other counterparties
that are similar in credit risk. An estimate of severity of loss is also used
within the determination of fair value, primarily based on historical experi-
ence, adjusted for any more recent name specific expectations.

the full

At December 31, 2008, the Level 3 fair values of derivative assets
and liabilities determined by these quantitative models were $8.3 billion
and $6.0 billion. These amounts reflect
the
derivatives and do not isolate the discrete value associated with the
subjective valuation variable. Further, they both represented less than
one percent of derivative assets and liabilities, before the impact of
legally enforceable master netting agreements. In 2008, there were no
changes to the quantitative models, or uses of such models,
that
to the Consolidated Statement of
resulted in a material adjustment
Income.

fair value of

Trading account profits (losses), 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 (losses) 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. To eval-
uate 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 potential daily loss which is not
expected to be exceeded with a specified confidence level, to measure
and manage market risk. At December 31, 2008, the amount of our VAR
was $138 million based on a 99 percent confidence level. For more
information on VAR, see Trading Risk Management beginning on page 85.
AFS debt and marketable equity securities are recorded at fair value,
which is generally based on quoted market prices, market prices for sim-
ilar assets, cash flow analysis or pricing services.

Principal Investing
Principal Investing is included within Equity Investments in All Other and
is discussed in more detail beginning on page 48. Principal Investing is
comprised of a diversified portfolio of investments in privately-held and
publicly-traded companies at all stages of their life cycle, from start-up to
buyout. These investments are made either directly in a company or held
through a fund. 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 pri-
vate investors or the capital markets. For more information, see Note 1 –
Summary of Significant Accounting Principles and Note 19 – Fair Value
Disclosures to the Consolidated Financial Statements.

Investments with active market quotes are carried at estimated fair
value; however, the majority of our investments do not have publicly avail-
able price quotations and, therefore, the fair value is unobservable. At
December 31, 2008, we had nonpublic investments of $3.5 billion, or
approximately 91 percent of the total portfolio. Valuation of these invest-
ments requires significant management judgment. We value such invest-
ments initially at transaction price and adjust valuations when evidence is
available to support such adjustments. Such evidence includes trans-
actions in similar instruments, market comparables, completed or pend-
ing third-party transactions in the underlying investment or comparable
entities, subsequent
recapitalizations and other
transactions across the capital structure, and changes in financial ratios
or cash flows. Investments are adjusted to estimated fair values at the
balance sheet date with changes being recorded in equity investment
income in the Consolidated Statement of Income.

rounds of

financing,

Accrued Income Taxes
As more fully described in Note 1 – Summary of Significant Accounting
Principles and Note 18 – Income Taxes to the Consolidated Financial
Statements, we account for income taxes in accordance with SFAS 109
as interpreted by FIN 48. Accrued income taxes, reported as a component

Bank of America 2008 95

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 relevant tax author-
ities 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, may be material to our operating
results for any given period.

is reviewed for potential

Goodwill and Intangible Assets
The nature of and accounting for goodwill and intangible assets is dis-
cussed in detail in Note 1 – Summary of Significant Accounting Principles
and Note 10 – Goodwill and Intangible Assets to the Consolidated Finan-
cial Statements. Goodwill
impairment at the
reporting unit level on an annual basis, which for the Corporation is per-
formed at June 30 or in interim periods if events or circumstances
indicate a potential impairment. As reporting units are determined after
an acquisition or evolve with changes in business strategy, goodwill
is
assigned and it no longer retains its association with a particular acquis-
ition. All of the revenue streams and related activities of a reporting unit,
whether acquired or organic, are available to support the value of the
goodwill. The reporting units utilized for this test were those that are one
level below the business segments identified on page 32 (e.g., Card Serv-
ices, MHEIS, CMAS and Columbia).

Under applicable accounting standards, goodwill impairment analysis is
a two-step test. The first step of the goodwill impairment test compares
the fair value of the reporting unit with its carrying amount, including good-
will. 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, the second
step must be performed. The second step involves calculating an implied
for each reporting unit for which the first step
fair value of goodwill
indicated possible impairment. The implied fair value of goodwill
is
determined in the same manner as the amount of goodwill recognized in a
business combination, which is the excess of the fair value of the reporting
unit, as determined in the first step, over the aggregate fair values of the
individual assets, liabilities and identifiable intangibles as if the reporting
unit was being acquired in a business combination. The adjustments to
measure the assets, liabilities and intangibles at fair value are for the
purpose of measuring the implied fair value of goodwill and such adjust-
ments are not reflected in the Consolidated Balance Sheet. If the implied
fair value of goodwill exceeds the goodwill assigned to the reporting unit,
there is no impairment. If the goodwill assigned to a reporting unit exceeds
the implied fair value of the goodwill, an impairment charge is recorded for
the excess. An impairment loss recognized cannot exceed the amount of
goodwill assigned to a reporting unit, and the loss establishes a new basis
in the goodwill. Subsequent reversal of goodwill impairment losses is not
permitted under applicable accounting standards.

For intangible assets subject to amortization, impairment exists when
the carrying amount of the intangible asset exceeds its fair value. An
impairment loss will be recognized only if the carrying amount of the
intangible asset is not recoverable and exceeds its fair value. The carrying
amount of the intangible asset is not recoverable if it exceeds the sum of
the undiscounted cash flows expected to result from it. An intangible
asset subject to amortization shall be tested for recoverability whenever

96 Bank of America 2008

events or changes in circumstances, such as a significant or adverse
change in the business climate that could affect
the
intangible asset, indicate that its carrying amount may not be recover-
able. An impairment loss is recorded to the extent the carrying amount of
the intangible asset exceeds its fair value.

the value of

Estimating the fair value of reporting units is a subjective process that
involves the use of estimates and judgments, particularly related to cash
flows, the appropriate discount rates and an applicable control premium.
The fair values of the reporting units were determined using a combina-
tion of valuation techniques consistent with the income approach and the
market approach and included the use of independent valuations. The fair
values of
the intangible assets were determined using the income
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 historical results, estimated future cash flows and
an appropriate price to earnings multiple. Our discounted cash flow
employs a capital asset pricing model
in estimating the discount rate
(i.e., cost of equity financing) for each reporting unit. The inputs to this
model
include: risk-free rate of return; beta, a measure of the level of
non-diversifiable risk associated with comparable companies for each
specific reporting unit; market equity risk premium; and in certain cases
an unsystematic (company-specific) risk factor. The unsystematic risk
factor is the input that specifically addresses uncertainty related to our
projections of earnings and growth, including the uncertainty related to
loss expectations. We use our internal forecasts to estimate future cash
flows and actual results may differ from forecasted results. Cash flows
were discounted using a discount rate based on expected equity return
rates, which was 11 percent for 2008. We utilized discount rates that we
believe adequately reflected the risk and uncertainty in the financial
markets generally and specifically in our internally developed forecasts.
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 transactions and market earn-
ings multiples for similar industries of the reporting unit.

The annual

impairment test as of June 30, 2008 indicated some
stress in certain reporting units. Given the significant decline in our stock
price and current market conditions in the financial services industry, we
concluded that circumstances warranted an additional impairment analy-
sis in the fourth quarter of 2008. We evaluated the fair value of our
reporting units using a combination of the market and income approach.
Due to the volatility and uncertainties in the current market environment
we used a range of valuations to determine the fair value of each report-
ing unit. In performing our updated goodwill impairment analysis, which
excludes the current increase in mortgage refinancings that we have
benefited from, our MHEIS business failed the first step analysis (i.e.,
carrying value exceeded its fair value) and therefore we performed the
second step analysis. In addition, given the rise in the implied control
premium and the range in valuations, we believe the assumptions used in
inefficient market driven by
our analysis were tied to an overall
uncertainty. As such, although not required, to further substantiate the
value of our goodwill balance we also performed the second step analysis
described above for our Card Services’ business as this reporting unit
has experienced stress due to the current economic environment. As a
result of our tests, no goodwill
impairment losses were recognized for
2008. If current economic conditions continue to deteriorate or other
events adversely impact the business models and the related assump-
tions used to value these reporting units, there could be a change in the
valuation of our goodwill and intangible assets when we conduct impair-
ment tests in future periods and may possibly result in the recognition of
impairment losses.

Consolidation and Accounting for Variable Interest
Entities
Under the provisions of FIN 46R, a VIE is consolidated by the entity that
will absorb a majority of the variability created by the assets of the VIE.
The calculation of variability is based on an analysis of projected
probability-weighted cash flows based on the design of the particular VIE.
Scenarios in which expected cash flows are less than or greater than the
expected outcomes create expected losses or expected residual returns.
The entity that will absorb a majority of expected variability (the sum of
the absolute values of
the expected losses and expected residual
returns) consolidates the VIE and is referred to as the primary beneficiary.
A variety of qualitative and quantitative assumptions are used to
estimate projected cash flows and the relative probability of each poten-
tial outcome, and to determine which parties will absorb expected losses
and expected residual returns. Critical assumptions, which may include
projected credit losses and interest rates, are independently verified
against market observable data where possible. Where market
observable data is not available, the results of the analysis become more
subjective.

As certain events occur, we reevaluate which parties will absorb varia-
bility and whether we have become or are no longer the primary benefi-
ciary. Reconsideration events may occur when VIEs acquire additional
assets, issue new variable interests or enter into new or modified con-
tractual arrangements. A reconsideration event may also occur when we
acquire new or additional interests in a VIE.

In the unlikely event we were required to consolidate our uncon-
their consolidation would increase our assets and
solidated VIEs,
liabilities and could have an adverse impact on our Tier 1 Capital, Total
Capital and Tier 1 Leverage Capital ratios under current GAAP. On Sep-
tember 15, 2008 the FASB released exposure drafts which would amend
SFAS 140 and FIN 46R. For additional
information on this proposed
amendment, see Recent Accounting Developments on page 23.

For more information, see Note 9 – Variable Interest Entities to the

Consolidated Financial Statements.

2007 Compared to 2006
The following discussion and analysis provides a comparison of our
results of operations for 2007 and 2006. This discussion should be read
in conjunction with the Consolidated Financial Statements and related
Notes. Tables 5 and 6 contain financial data to supplement this dis-
cussion.

Overview

Net Income
Net income totaled $15.0 billion, or $3.30 per diluted common share in
2007 compared to $21.1 billion or $4.59 per diluted common share in
2006. The return on average common shareholders’ equity was 11.08
percent in 2007 compared to 16.27 percent in 2006. These earnings
provided sufficient cash flow to allow us to return $13.6 billion and $21.2
billion in 2007 and 2006, in capital to shareholders in the form of divi-
dends and share repurchases, net of employee stock options exercised.

Net Interest Income
Net interest income on a FTE basis increased $372 million to $36.2 bil-
lion in 2007 compared to 2006. The increase was driven by the con-
tribution from market-based net interest income related to our CMAS
business, higher levels of consumer and commercial loans, the impact of
the LaSalle acquisition, and a one-time tax benefit from restructuring our
leasing business. These
existing non-U.S. based commercial aircraft

increases were partially offset by spread compression, increased hedge
costs and the impact of divestitures of certain foreign operations in late
2006 and the beginning of 2007. The net interest yield on a FTE basis
decreased 22 bps to 2.60 percent for 2007 compared to 2006, and was
driven by spread compression and the impact of the funding of the
LaSalle merger, partially offset by an improvement in market-based yield
related to our CMAS business.

Noninterest Income
Noninterest income decreased $5.8 billion to $32.4 billion in 2007
compared to 2006 due primarily to decreases in trading account profits
(losses) of $8.2 billion and other
income of $916 million. These
decreases were partially offset by increases in equity investment income
of $875 million, investment and brokerage services of $691 million, serv-
ice charges of $684 million, an increase in gains (losses) on sales of
debt securities of $623 million and mortgage banking income of $361
million. Trading account profits (losses) were driven by losses of $4.9 bil-
lion associated with CDO exposure and the impact of the market dis-
ruptions on various parts of our CMAS businesses in the second half of
the year. The decrease in other income was driven by losses of $752
million associated with CDO exposure, losses of $776 million associated
with the support provided to certain cash funds managed within GWIM
and writedowns related to certain SIV investments that were purchased
from the funds, and the absence of a $720 million gain on the sale of our
Brazilian operations recognized in 2006. These losses were partially off-
set by a $1.5 billion gain from the sale of Marsico that was recorded in
other income. The increase in equity investment income was driven by the
$600 million gain on the sale of private equity funds to Conversus Capi-
tal. Investment and brokerage services increased due primarily to organic
growth in AUM, brokerage activity and the U.S. Trust Corporation acquis-
ition. Service charges grew resulting from new account growth in deposit
accounts and the beneficial impact of the LaSalle merger. The increase in
gains (losses) on sales of debt securities was driven largely by losses in
the prior year. Mortgage banking income increased due to the favorable
performance of the MSRs partially offset by the impact of widening credit
spreads on income from mortgage production.

Provision for Credit Losses
The provision for credit losses increased $3.4 billion to $8.4 billion in
2007 compared to 2006 due to higher net charge-offs, reserve additions
reserve releases. Higher net
and the absence of 2006 commercial
charge-offs of $1.9 billion were primarily driven by seasoning of the con-
sumer portfolios, seasoning and deterioration in the small business and
home equity portfolios as well as lower commercial recoveries. Reserves
were increased in the home equity and homebuilder loan portfolios on
continued weakness in the housing market. Reserves were also added for
small business portfolio seasoning and deterioration as well as growth in
the consumer portfolios. These increases were partially offset by reduc-
tions in reserves from the sale of the Argentina portfolio in the first quar-
ter of 2007.

Noninterest Expense
Noninterest expense increased $1.7 billion to $37.5 billion in 2007
compared to 2006, primarily due to increases in other general operating
expense of $975 million and personnel expense of $542 million, partially
offset by a decrease in merger and restructuring charges of $395 million.
The increase in other general operating expense was impacted by our
acquisitions and various other items including litigation related costs.
Personnel expense increased due to the acquisitions of LaSalle and U.S.
Trust Corporation partially offset by a reduction in performance-based

Bank of America 2008 97

incentive compensation within GCIB. Merger and restructuring charges
decreased mainly due to the declining integration costs associated with
the MBNA acquisition partially offset by costs associated with the
integration of U.S. Trust Corporation and LaSalle.

Income Tax Expense
Income tax expense was $5.9 billion in 2007 compared to $10.8 billion
in 2006, resulting in effective tax rates of 28.4 percent in 2007 and 33.9
percent in 2006. The decrease in the effective tax rate was primarily due
to lower pre-tax income, a one-time tax benefit from restructuring our
existing non-U.S. based commercial aircraft leasing business and an
increase in the relative percentage of our earnings taxed solely outside of
the U.S.

Business Segment Operations

Global Consumer and Small Business Banking
Net income decreased $2.1 billion, or 18 percent, to $9.4 billion com-
pared to 2006 as increases in noninterest income and net interest
income were more than offset by increases in provision for credit losses
and noninterest expense. Net interest income increased $653 million, or
two percent, to $28.7 billion due to the impacts of organic growth and the
LaSalle acquisition on average loans and leases, and deposits compared
to 2006. Noninterest income increased $2.4 billion, or 14 percent, to
$19.1 billion compared to the same period in 2006, mainly due to
increases in card income of $823 million, service charges of $663 mil-
lion and mortgage banking income of $413 million. Provision for credit
losses increased $4.4 billion, or 52 percent, to $12.9 billion compared to
2006 primarily driven by higher Card Services managed net losses from
portfolio seasoning and increases from unusually low loss levels experi-
enced in 2006 post bankruptcy reform. In addition the increase was
driven by higher losses inherent in the home equity portfolio reflective of
portfolio seasoning and the impacts of the weak housing market, partic-
ularly in geographic areas which have experienced the most significant
home price declines driving a reduction in collateral value. Noninterest
expense increased $2.2 billion, or 12 percent, to $20.3 billion largely
due to increases in personnel-related expenses, certain Visa-related
costs, equally allocated to Card Services and Treasury Services on a
management accounting basis, and technology-related costs.

Global Corporate and Investment Banking
Net income decreased $5.5 billion, or 91 percent, to $510 million and
total revenue decreased $7.7 billion, or 36 percent, to $13.7 billion
compared to 2006. These decreases were driven by $5.6 billion of
losses resulting from our CDO exposure and other trading losses. Addi-
tionally, we experienced increases in provision for credit losses and non-
interest expense, which were partially offset by an increase in net interest
income. Net interest income increased $1.3 billion, or 13 percent, to
$11.2 billion due to higher market-based net interest income and the FTE
impact of a one-time tax benefit from restructuring our existing non-U.S.
based commercial aircraft
income
decreased $9.0 billion, or 79 percent, to $2.4 billion compared to 2006,
driven by the losses from our CDO exposure and other trading losses.
Provision for credit losses was $658 million in 2007 compared to $6 mil-

leasing business. Noninterest

lion in 2006. The increase was driven by the absence of 2006 releases
of reserves, higher net charge-offs and an increase in reserves during
2007 reflecting the impact of the weak housing market particularly on the
homebuilder loan portfolio. Noninterest expense increased $321 million,
or three percent, to $12.2 billion compared to 2006 mainly due to the
addition of LaSalle and certain Visa-related costs, equally allocated to
Treasury Services and Card Services on a management accounting basis,
partially offset by a reduction in performance-based incentive compensa-
tion in CMAS.

Global Wealth and Investment Management
Net income decreased $182 million, or eight percent, to $2.0 billion
compared to 2006, due mainly to losses associated with the support
provided to certain cash funds managed within Columbia and an increase
in noninterest expense. Net interest income increased $163 million, or
four percent, to $3.9 billion driven by the impact of the U.S. Trust Corpo-
ration acquisition and organic growth in average deposit and loan balan-
ces. Noninterest income increased $306 million, or nine percent, to $3.6
billion driven by an increase in investment and brokerage services primar-
ily due to higher AUM attributable to the impact of the U.S. Trust Corpo-
ration acquisition, net client inflows and favorable market conditions
combined with an increase in brokerage activity. Partially offsetting this
increase was a decrease in all other income due to losses associated
with support provided to certain cash funds. Noninterest expense
increased $756 million, or 20 percent, to $4.5 billion driven by the addi-
tion of U.S. Trust Corporation, higher revenue related expenses and
increased marketing costs.

All Other
Net income increased $1.6 billion, or 101 percent, to $3.2 billion com-
pared to 2006. Excluding the securitization offset this increase was due
to higher noninterest income combined with decreases in all other non-
interest expense, merger and restructuring charges and provision for
credit losses partially offset by a decrease in net interest income. Net
interest income decreased $1.3 billion, or 77 percent, to $382 million
compared to 2006 resulting largely from the absence of net interest
income due to the sale of the Latin American operations and Hong Kong-
based retail and commercial banking business which were included in our
2006 results. Noninterest income increased $1.7 billion, or 70 percent,
to $4.1 billion driven by the $1.5 billion gain from the sale of Marsico. In
addition, noninterest income increased due to higher equity investment
income and the absence of a loss on the sale of mortgage backed debt
securities which occurred in the prior year. The provision for credit losses
decreased $135 million to negative $248 million mainly due to reserve
reductions from the sale of our Argentina portfolio during the first quarter
of 2007. Merger and restructuring charges decreased $395 million, or 49
percent, to $410 million due to declining integration costs associated
with the integration of the MBNA acquisition partially offset by costs
associated with U.S. Trust Corporation and LaSalle. The decrease in
other noninterest expense of $1.1 billion was driven by the absence of
operating costs after the sale of the Latin American operations and Hong
Kong-based retail and commercial banking business which were included
in our 2006 results.

98 Bank of America 2008

Statistical Tables

Table I Year-to-date Average Balances and Interest Rates – FTE 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
Debt securities (2)
Loans and leases (3):

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (4)
Other consumer (5)
Total consumer
Commercial – domestic
Commercial real estate (6)
Commercial lease financing
Commercial – foreign
Total commercial
Total loans and leases

Other earning assets

Total earning assets (7)

Cash and cash equivalents
Other assets, less allowance for loan and lease losses

Total assets
Interest-bearing liabilities
Domestic interest-bearing deposits:

Savings
NOW and money market deposit accounts
Consumer CDs and IRAs
Negotiable CDs, public funds and other time deposits

Total domestic interest-bearing deposits

Foreign interest-bearing deposits:

Banks located in foreign countries
Governments and official institutions
Time, savings and other

Total foreign interest-bearing deposits
Total interest-bearing deposits

Federal funds purchased, securities sold under agreements to

repurchase and other short-term borrowings

Trading account liabilities
Long-term debt

Total interest-bearing liabilities (7)

Noninterest-bearing sources:

Noninterest-bearing deposits
Other liabilities
Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest spread
Impact of noninterest-bearing sources

Net interest income/yield on earning assets

2008

2007

2006 (1)

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Average
Balance

Interest
Income/
Expense

Yield/
Rate

10,696 $

440

4.11% $

13,152 $

627

4.77% $

15,611 $

646

4.14%

128,053
193,631
250,551

3,313
9,259
13,383

2.59
4.78
5.34

155,828
187,287
186,466

7,722
9,747
10,020

4.96
5.20
5.37

175,334
145,321
225,219

7,823
7,552
11,845

4.46
5.20
5.26

14,671
7,592
858

5.64
5.62
7.87
6,843 10.81
2,042 12.36
8.40
6,934
8.41
321
6.86
39,261
5.31
11,702
4.84
3,057
3.58
799
4.63
1,503
5.04
17,061
6.18
56,322
6.04
4,161
5.56
86,878

260,213
135,091
10,898
63,318
16,527
82,516
3,816
572,379
220,561
63,208
22,290
32,440
338,499
910,878
68,920
1,562,729
45,354
235,896
$1,843,979

264,650
98,765
n/a
57,883
12,359
70,009
4,510
508,176
180,102
42,950
20,435
24,491
267,978
776,154
71,305
1,390,192
33,091
178,790
$1,602,073

15,112
7,385
n/a

5.71
7.48
n/a
7,225 12.48
1,502 12.15
8.57
6,002
8.64
389
7.40
37,615
7.15
12,884
7.32
3,145
5.93
1,212
5.93
1,452
6.98
18,693
7.25
56,308
6.49
4,629
6.41
89,053

207,879
78,318
n/a
63,838
9,141
53,172
7,516
419,864
151,231
36,939
20,862
23,521
232,553
652,417
55,242
1,269,144
34,052
163,485
$1,466,681

11,608
5,772
n/a

5.58
7.37
n/a
8,638 13.53
1,147 12.55
7.87
4,185
789 10.50
7.65
7.21
7.42
4.77
7.12
7.01
7.43
6.33
6.29

32,139
10,897
2,740
995
1,674
16,306
48,445
3,498
79,809

32,204 $

32,316 $

34,608 $

230
3,781
7,404
1,076
12,491

0.71% $
1.41
3.63
3.33
2.33

188
4,361
7,817
974
13,340

0.58% $
1.98
4.66
4.74
3.03

267,818
203,887
32,264
536,173

37,657
13,004
51,363
102,024
638,197

455,710
75,270
231,235
1,400,412

192,947
85,789
164,831
$1,843,979

1,063
311
1,385
2,759
15,250

12,362
2,774
9,938
40,324

2.82
2.39
2.70
2.70
2.39

2.71
3.69
4.30
2.88

2,174
812
1,767
4,753
18,093

21,967
3,444
9,359
52,863

5.08
4.91
4.07
4.63
3.33

5.17
4.16
5.51
4.33

220,207
167,801
20,557
440,881

42,788
16,523
43,443
102,754
543,635

424,814
82,721
169,855
1,221,025

173,547
70,839
136,662
$1,602,073

269
3,923
6,022
483
10,697

1,982
586
1,215
3,783
14,480

19,837
2,640
7,034
43,991

0.78%
1.80
4.16
3.97
2.61

5.67
4.63
3.15
4.39
2.92

4.83
4.08
5.41
3.99

218,077
144,738
12,195
409,618

34,985
12,674
38,544
86,203
495,821

411,132
64,689
130,124
1,101,766

177,174
57,278
130,463
$1,466,681

2.68%
0.30
2.98%

$46,554

2.08%
0.52
2.60%

$36,190

2.30%
0.52
2.82%

$35,818

(1)

Interest income (FTE basis) in 2006 does not include the cumulative tax charge resulting from a change in tax legislation relating to extraterritorial tax income and foreign sales corporation regimes. The FTE impact to
net interest income and net interest yield on earning assets of this retroactive tax adjustment was a reduction of $270 million and two bps in 2006. Management has excluded this one-time impact to provide a more
comparative basis of presentation for net interest income and net interest yield on earning assets on a FTE basis. The impact on any given future period is not expected to be material.

(2) Yields on AFS debt securities are calculated based on fair value rather than historical cost balances. The use of fair value does not have a material impact on net interest yield.
(3) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. We account for acquired impaired loans in accordance with SOP 03-3.

(4)
(5)

(6)
(7)

Loans accounted for in accordance with SOP 03-3 were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.
Includes foreign consumer loans of $2.7 billion, $3.8 billion and $3.4 billion in 2008, 2007 and 2006, respectively.
Includes consumer finance loans of $2.8 billion, $3.2 billion and $2.9 billion in 2008, 2007 and 2006, respectively; and other foreign consumer loans of $774 million, $1.1 billion and $4.4 billion in 2008, 2007 and
2006, respectively.
Includes domestic commercial real estate loans of $62.1 billion, $42.1 billion and $36.2 billion in 2008, 2007 and 2006, respectively.
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on the underlying assets $260 million, $542 million and $372 million in 2008, 2007 and 2006,
respectively. Interest expense includes the impact of interest rate risk management contracts, which increased interest expense on the underlying liabilities $409 million, $813 million and $106 million in 2008, 2007
and 2006, respectively. For further information on interest rate contracts, see Interest Rate Risk Management for Nontrading Activities beginning on page 88.

n/a = not applicable

Bank of America 2008 99

Table II Analysis of Changes in Net Interest Income – FTE Basis

(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
Debt securities
Loans and leases:

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
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 (2)

From 2007 to 2008

From 2006 to 2007

Due to Change in (1)

Volume

Rate

Net
Change

Due to Change in (1)

Volume

Rate

Net
Change

$ (117) $

(70) $

(1,371)
322
3,435

(254)
2,720
n/a
677
506
1,070
(59)

2,886
1,482
110
472

(3,038)
(810)
(72)

(187)
(2,513)
n/a
(1,059)
34
(138)
(9)

(4,068)
(1,570)
(523)
(421)

(156)

(312)

(187)
(4,409)
(488)
3,363

(441)
207
858
(382)
540
932
(68)

1,646

(1,182)
(88)
(413)
51

(1,632)

(468)

$ (102) $
(873)
2,187
(2,037)

83
772
8
212

(19)
(101)
2,195
(1,825)

3,159
1,507
n/a
(806)
404
1,325
(315)

2,088
447
(20)
70

345
106
n/a
(607)
(49)
492
(85)

(101)
(42)
237
(292)

1,016

115

3,504
1,613
n/a
(1,413)
355
1,817
(400)

5,476

1,987
405
217
(222)

2,387

7,863

1,131

$ (2,175)

$ 9,244

(1) $

942
1,684
555

43
(1,522)
(2,097)
(453)

(261)
(174)
323

(850)
(327)
(705)

1,593
(313)
3,382

(11,198)
(357)
(2,803)

42
(580)
(413)
102

(849)

(1,111)
(501)
(382)

(1,994)

(2,843)

(9,605)
(670)
579

(12,539)

$ 10,364

(17) $ (64) $
41
959
333

397
836
158

(81)
438
1,795
491

444
179
153

(252)
47
399

682
735
2,155

1,448
69
170

2,643

192
226
552

970

3,613

2,130
804
2,325

8,872

372

(1) The changes for each category of interest income and expense are divided between the portion of change attributable to the variance in volume and the portion of change attributable to the variance in rate for that

(2)

category. The unallocated change in rate or volume variance has been allocated between the rate and volume variances.
Interest income (FTE basis) in 2006 does not include the cumulative tax charge resulting from a change in tax legislation relating to extraterritorial tax income and foreign sales corporation regimes. The FTE impact to
net interest income of this retroactive tax adjustment is a reduction of $270 million from 2006 to 2007. Management has excluded this one-time impact to provide a more comparative basis of presentation for net
interest income and net interest yield on earning assets on a FTE basis. The impact on any given future period is not expected to be material.

n/a = not applicable

100 Bank of America 2008

Table III Outstanding Loans and Leases

(Dollars in millions)

Consumer

Residential mortgage
Home equity
Discontinued real estate (1)
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (2)
Other consumer (3)

Total consumer

Commercial

Commercial – domestic (4)
Commercial real estate (5)
Commercial lease financing
Commercial – foreign

Total commercial loans

Commercial loans measured at fair value (6)

Total commercial

Total loans and leases

2008

2007

2006

2005

2004

December 31

$247,999
152,547
19,981
64,128
17,146
83,436
3,442

588,679

219,233
64,701
22,400
31,020

337,354
5,413

342,767

$274,949
114,820
n/a
65,774
14,950
76,538
4,170

551,201

208,297
61,298
22,582
28,376

320,553
4,590

325,143

$241,181
87,893
n/a
61,195
10,999
59,206
5,231

465,705

161,982
36,258
21,864
20,681

240,785
n/a

240,785

$182,596
70,229
n/a
58,548
–
37,265
6,819

355,457

140,533
35,766
20,705
21,330

218,334
n/a

218,334

$178,079
57,439
n/a
51,726
–
33,113
7,526

327,883

122,095
32,319
21,115
18,401

193,930
n/a

193,930

$931,446

$876,344

$706,490

$573,791

$521,813

(1) At December 31, 2008, includes $18.2 billion of pay option loans and $1.8 billion of subprime loans obtained as part of the acquisition of Countrywide. The Corporation no longer originates these products.
(2)

Includes foreign consumer loans of $1.8 billion, $3.4 billion, $3.9 billion, $48 million, and $57 million at December 31, 2008, 2007, 2006, 2005, and 2004, respectively.
Includes consumer finance loans of $2.6 billion, $3.0 billion, $2.8 billion, $2.8 billion, and $3.4 billion at December 31, 2008, 2007, 2006, 2005, and 2004, respectively; other foreign consumer loans of $618
million, $829 million, $2.3 billion, $3.8 billion, and $3.5 billion at December 31, 2008, 2007, 2006, 2005, and 2004, respectively; and consumer lease financing of $481 million at December 31, 2004.
Includes small business commercial – domestic loans, primarily card related, of $19.1 billion, $19.3 billion, $15.2 billion, $7.2 billion and $5.4 billion at December 31, 2008, 2007, 2006, 2005 and 2004,
respectively.
Includes domestic commercial real estate loans of $63.7 billion, $60.2 billion, $35.7 billion, $35.2 billion, and $31.9 billion at December 31, 2008, 2007, 2006, 2005, and 2004, respectively; and foreign
commercial real estate loans of $979 million, $1.1 billion, $578 million, $585 million, and $440 million at December 31, 2008, 2007, 2006, 2005, and 2004, respectively.

(3)

(4)

(5)

(6) Certain commercial loans are measured at fair value in accordance with SFAS 159 and include commercial – domestic loans of $3.5 billion and $3.5 billion, commercial – foreign loans of $1.7 billion and $790 million,
and commercial real estate loans of $203 million and $304 million at December 31, 2008 and 2007. See Note 19 – Fair Value Disclosures to the Consolidated Financial Statements for additional discussion of fair
value for certain financial instruments.

n/a = not applicable

Bank of America 2008 101

Table IV Nonperforming Assets (1, 2)

(Dollars in millions)

Consumer

Residential mortgage
Home equity
Discontinued real estate
Direct/Indirect consumer
Other consumer

Total consumer (3)

Commercial

Commercial – domestic (4)
Commercial real estate
Commercial lease financing
Commercial – foreign

Small business commercial – domestic

Total commercial (5)
Total nonperforming loans and leases

Foreclosed properties

Total nonperforming assets

2008

2007

2006

2005

2004

December 31

$ 7,044
2,670
77
26
91

9,908

2,040
3,906
56
290

6,292
205

6,497

16,405

1,827

$18,232

$1,999
1,340
n/a
8
95

3,442

852
1,099
33
19

2,003
152

2,155

5,597

351

$5,948

$ 660
289
n/a
4
77

1,030

494
118
42
13

667
90

757

$ 570
151
n/a
3
61

785

550
49
62
34

695
31

726

1,787

$1,856

1,511

$1,603

$ 554
94
n/a
5
85

738

847
87
266
267

1,467
8

1,475

2,213

102

$2,315

(1) At December 31, 2008, balances did not include nonperforming derivatives of $512 million. At December 31, 2008 and 2007 balances did not include nonperforming AFS debt securities of $291 million and $180
million. At December 31, 2004, balances did not include $140 million of nonperforming securities primarily associated with the Fleet acquisition. In addition, balances did not include nonperforming LHFS of $1.3
billion, $188 million, $80 million, $69 million, and $151 million at December 31, 2008, 2007, 2006, 2005, and 2004, respectively.

(2) Balances do not include loans accounted for in accordance with SOP 03-3 even though the customer may be contractually past due. Loans accounted for in accordance with SOP 03-3 were written down to fair value

(3)

upon acquisition and accrete interest income over the remaining life of the loan.
In 2008, $512 million in interest income was estimated to be contractually due on nonperforming consumer loans and leases classified as nonperforming at December 31, 2008 provided that these loans and leases
had been paid according to their terms and conditions, including troubled debt restructured loans of which $387 million were performing at December 31, 2008 and not included in the table above. Approximately $124
million of the estimated $512 million in contractual interest was received and included in net income for 2008.

(4) Excludes small business commercial – domestic loans.
(5)

In 2008, $260 million in interest income was estimated to be contractually due on nonperforming commercial loans and leases classified as nonperforming at December 31, 2008, including troubled debt restructured
loans of which $13 million were performing at December 31, 2008 and not included in the table above. Approximately $84 million of the estimated $260 million in contractual interest was received and included in net
income for 2008.
n/a = not applicable

102 Bank of America 2008

Table V Accruing Loans and Leases Past Due 90 Days or More (1)

(Dollars in millions)

Consumer

Residential mortgage (2)
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer

Commercial

Commercial – domestic (3)
Commercial real estate
Commercial lease financing
Commercial – foreign

Small business commercial – domestic

Total commercial

Total accruing loans and leases past due 90 days or more (4)

2008

2007

2006

2005

2004

December 31

$ 372
2,197
368
1,370
4

4,311

381
52
23
7

463
640

1,103

$5,414

$ 237
1,855
272
745
4

3,113

119
36
25
16

196
427

623

$ 118
1,991
184
378
7

2,678

66
78
26
9

179
199

378

–
1,197
–
75
15

1,287

79
4
15
32

130
38

168

–
1,075
–
58
23

1,156

82
1
14
2

99
39

138

$3,736

$3,056

$1,455

$1,294

(1) Accruing loans past due 90 days or more do not include acquired loans accounted for in accordance with SOP 03-3 that were considered impaired and written down to fair value upon acquisition and accrete interest

income over the remaining life of the loan.

(2) Balances are related to repurchases pursuant to our servicing agreements with GNMA mortgage pools where repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veteran

Affairs.

(3) Excludes small business commercial – domestic loans.
(4) Balances do not include loans measured at fair value in accordance with SFAS 159. At December 31, 2008 and 2007, there were no accruing loans or leases past due 90 days or more measured under fair value in

accordance with SFAS 159.

Bank of America 2008 103

Table VI Allowance for Credit Losses

(Dollars in millions)

Total consumer charge-offs

Commercial – domestic (1)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial charge-offs

Total loans and leases charged off

Recoveries of loans and leases previously charged off

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer recoveries

Commercial – domestic (2)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial recoveries

Total recoveries of loans and leases previously charged off

Net charge-offs

Provision for loan and lease losses
Other (3)

Allowance for loan and lease losses, December 31

Reserve for unfunded lending commitments, January 1

Adjustment due to the adoption of SFAS 159
Provision for unfunded lending commitments
Other (4)

Reserve for unfunded lending commitments, December 31
Allowance for credit losses, December 31

Loans and leases outstanding at December 31 (5)
Allowance for loan and lease losses as a percentage of total loans and leases

outstanding at December 31 (5, 6)

Consumer allowance for loan and lease losses as a percentage of total consumer

loans and leases outstanding at December 31(6)

Commercial allowance for loan and lease losses as a percentage of total

commercial loans and leases outstanding at December 31 (5)

Average loans and leases outstanding at December 31 (5, 6)
Net charge-offs as a percentage of average loans and leases outstanding at

December 31 (5, 6)

Allowance for loan and lease losses as a percentage of total nonperforming loans

and leases at December 31 (5, 6)

Ratio of the allowance for loan and lease losses at December 31 to

net charge-offs (6)

2008

$ 11,588
–

2007

$ 9,016
(32)

2006

$ 8,045
–

2005

8,626
–

2004

6,163
–

(964)
(3,597)
(19)
(4,469)
(639)
(3,777)
(461)

(13,926)

(2,567)
(895)
(79)
(199)

(3,740)

(17,666)

39
101
3
308
88
663
62

(78)
(286)
n/a
(3,410)
(453)
(1,885)
(346)

(6,458)

(1,135)
(54)
(55)
(28)

(1,272)

(7,730)

22
12
n/a
347
74
512
68

1,264

1,035

118
8
19
26

171

1,435

(16,231)

26,922
792

23,071

518
–
(97)
–

421

128
7
53
27

215

1,250

(6,480)

8,357
727

11,588

397
(28)
28
121

518

(74)
(67)
n/a
(3,546)
(292)
(857)
(327)

(5,163)

(597)
(7)
(28)
(86)

(718)

(58)
(46)
n/a
(4,018)
–
(380)
(376)

(4,878)

(535)
(5)
(315)
(61)

(916)

(62)
(38)
n/a
(2,536)
–
(344)
(295)

(3,275)

(504)
(12)
(39)
(262)

(817)

(5,881)

(5,794)

(4,092)

35
16
n/a
452
67
247
110

927

261
4
56
94

415

1,342

(4,539)

5,001
509

9,016

395
–
9
(7)

397

31
15
n/a
366
–
132
101

645

365
5
84
133

587

1,232

(4,562)

4,021
(40)

8,045

402
–
(7)
–

395

26
23
n/a
231
–
136
102

518

327
15
30
89

461

979

(3,113)

2,868
2,708

8,626

416
–
(99)
85

402

$ 23,492

$926,033

$ 12,106

$871,754

$ 9,413

$706,490

8,440

$573,791

9,028

$521,813

2.49%

2.83

1.33%

1.23

1.28%

1.19

1.40%

1.27

1.65%

1.34

1.90
$905,944

1.51
$773,142

1.44
$652,417

1.62
$537,218

2.19
$472,617

1.79%

0.84%

0.70%

0.85%

0.66%

141

1.42

207

1.79

505

1.99

532

1.76

390

2.77

(1)

(2)

Includes small business commercial – domestic charge-offs of $2.0 billion, $931 million and $424 million in 2008, 2007 and 2006, respectively. Small business commercial – domestic charge offs were not material
in 2005 and 2004.
Includes small business commercial – domestic recoveries of $39 million, $51 million and $54 million in 2008, 2007 and 2006, respectively. Small business commercial – domestic recoveries were not material in
2005 and 2004.

(3) The 2008 amount includes the $1.2 billion addition of the Countrywide allowance for loan losses as of July 1, 2008. The 2007 amount includes the $725 million and $25 million additions of the LaSalle and U.S. Trust
Corporation allowance for loan losses as of October 1, 2007 and July 1, 2007. The 2006 amount includes the $577 billion addition of the MBNA allowance for loan losses as of January 1, 2006. The 2004 amount
includes the $2.8 billion addition of the FleetBoston allowance for loan losses as of April 1, 2004.

(4) The 2007 amount includes the $124 million addition of the LaSalle reserve for unfunded lending commitments as of October 1, 2007. The 2004 amount includes the $85 million addition of the FleetBoston reserve for

unfunded lending commitments as of April 1, 2004.

(5) Outstanding loan and lease balances and ratios do not include loans measured at fair value in accordance with SFAS 159 at and for the year ended December 31, 2008 and 2007. Loans measured at fair value were

$5.4 billion and $4.6 billion at December 31, 2008 and 2007. Average loans measured at fair value were $4.9 billion and $3.0 billion for 2008 and 2007.

104 Bank of America 2008

Table VII Allocation of the Allowance for Credit Losses by Product Type (1)

2008

2007

December 31

2006

2005

2004

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

Amount

Percent
of Total

(Dollars in millions)

Allowance for loan and lease losses

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer
Other consumer

Total consumer

Commercial – domestic (2)
Commercial real estate
Commercial lease financing
Commercial – foreign

Total commercial (3)

Amount

$ 1,382
5,385
658
3,947
742
4,341
203

16,658

4,339
1,465
223
386

6,413

5.99% $

23.34
2.85
17.11
3.22
18.81
0.88

72.20

18.81
6.35
0.97
1.67

27.80

207
963
n/a
2,919
441
2,077
151

6,758

3,194
1,083
218
335

4,830

Allowance for loan and lease losses

23,071

100.00%

11,588

100.00%

Reserve for unfunded lending commitments

Allowance for credit losses

421

$23,492

518

$12,106

1.79% $ 248
133
8.31
n/a
n/a
3,176
25.19
336
3.81
1,378
17.92
289
1.30

58.32

27.56
9.35
1.88
2.89

41.68

5,560

2,162
588
217
489

3,456

9,016

397

2.75% $ 277
136
1.48
n/a
n/a
3,301
35.23
3.73
–
421
15.28
380
3.20

61.67

23.98
6.52
2.41
5.42

38.33

100.00%

4,515

2,100
609
232
589

3,530

8,045

395

3.44% $ 240
115
1.69
n/a
n/a
3,148
41.03
–
–
375
5.23
500
4.73

56.12

26.10
7.57
2.89
7.32

43.88

100.00%

4,378

2,101
644
442
1,061

4,248

8,626

402

2.78%
1.33
n/a
36.49
–
4.35
5.80

50.75

24.36
7.47
5.12
12.30

49.25

100.00%

$9,413

$8,440

$9,028

(1) We account for acquired impaired loans in accordance with SOP 03-3. For more information on the impact of SOP 03-3 on asset quality, see Consumer Portfolio Credit Risk Management beginning on page 62.
(2)

Includes allowance for small business commercial – domestic loans of $2.4 billion, $1.4 billion and $578 million at December 31, 2008, 2007 and 2006, respectively. The allowance for small business commercial –
domestic loans was not material in 2005 and 2004.
Includes allowance for loan and lease losses for impaired commercial loans of $691 million, $123 million, $43 million, $55 million and $202 million at December 31, 2008, 2007, 2006, 2005 and 2004, respectively.

(3)

n/a = not applicable

Bank of America 2008 105

Table VIII Selected Loan Maturity Data (1, 2)

(Dollars in millions)

Commercial – domestic
Commercial real estate – domestic
Foreign and other (3)

Total selected loans

Percent of total

Sensitivity of selected 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)
(3) Loan maturities include direct/indirect consumer, other consumer, commercial real estate and commercial – foreign loans.

Includes loans measured at fair value in accordance with SFAS 159.

December 31, 2008

Due After
One Year
Through
Five Years

$101,998
30,298
10,581

$142,877

Due After
Five
Years

$41,431
4,527
273

$46,231

Due in
One Year
or Less

$ 79,299
29,100
25,268

$133,667

Total

$222,728
63,925
36,122

$322,775

41.4%

44.3%

14.3%

100.0%

$ 11,978
130,899

$142,877

$23,888
22,343

$46,231

Table IX 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

2008

2007

2006

Amount

Rate

Amount

Rate

Amount

Rate

$ 14,432
8,969
18,788

0.11%
1.67
–

$ 14,187
7,595
14,187

4.15%
4.84
–

$ 12,232
5,292
12,232

5.35%
5.11
–

192,166
264,012
295,537

37,986
57,337
65,399

120,070
125,392
160,150

0.84
2.54
–

1.80
3.09
–

2.07
2.99
–

207,248
245,886
277,196

55,596
57,712
69,367

135,493
113,621
142,047

4.63
5.21
–

4.85
5.03
–

4.95
5.18
–

205,295
281,611
312,955

41,223
33,942
42,511

100,077
90,287
104,555

4.94
4.66
–

5.34
5.15
–

5.43
5.21
–

106 Bank of America 2008

Table X Non-exchange Traded Commodity Contracts

(Dollars in millions)

Net fair value of contracts outstanding, January 1, 2008
Effects of legally enforceable master netting agreements

Gross fair value of contracts outstanding, January 1, 2008

Contracts realized or otherwise settled
Fair value of new contracts
Other changes in fair value

Gross fair value of contracts outstanding, December 31, 2008

Effects of legally enforceable master netting agreements

Net fair value of contracts outstanding, December 31, 2008

Table XI 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 outstanding

Effects of legally enforceable master netting agreements

Net fair value of contracts outstanding

Asset
Positions

$ 1,148
3,573

4,721
(1,674)
2,435
(1,442)

4,040
(2,869)

Liability
Positions

$ 1,226
3,573

4,799
(1,605)
2,413
(1,484)

4,123
(2,869)

$ 1,171

$ 1,254

December 31, 2008

Asset
Positions

$ 1,623
2,134
208
75

4,040
(2,869)

Liability
Positions

$ 1,503
2,331
202
87

4,123
(2,869)

$ 1,171

$ 1,254

Bank of America 2008 107

Table XII Selected Quarterly Financial Data

(Dollars in millions, except per share information)
Income statement

Net interest income
Noninterest income
Total revenue, net of interest expense
Provision for credit losses
Noninterest expense, before merger

and restructuring charges

Merger and restructuring charges
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Average common shares issued and

outstanding (in thousands)

Average diluted common shares issued

and outstanding (in thousands)

Performance ratios

Return on average assets
Return on average common

shareholders’ equity
Return on average tangible
shareholders’ equity (1)

Total ending equity to total ending assets
Total average equity to total average

assets

Dividend payout
Per common share data
Earnings (loss)
Diluted earnings (loss)
Dividends paid
Book value

Market price per share of common stock

Closing
High closing
Low closing
Market capitalization
Average balance sheet

Total loans and leases
Total assets
Total deposits
Long-term debt
Common shareholders’ equity
Total shareholders’ equity

Asset quality (2)

Allowance for credit losses (3)
Nonperforming assets (4)
Allowance for loan and lease losses as

a percentage of total loans and
leases outstanding (5)

Allowance for loan and lease losses as
a percentage of total nonperforming
loans and leases (5)

Net charge-offs
Annualized net charge-offs as a

percentage of average loans and
leases outstanding (5)

Nonperforming loans and leases as a
percentage of total loans and leases
outstanding (5)

Nonperforming assets as a percentage
of total loans, leases and foreclosed
properties (4, 5)

Ratio of the allowance for loan and
lease losses at period end to
annualized net charge-offs

Capital ratios (period end)
Risk-based capital:

Tier 1
Total
Tier 1 Leverage

Fourth

13,106
2,574
15,680
8,535

10,641
306
(3,802)
(2,013)
(1,789)

2008 Quarters

2007 Quarters

Third

Second

First

Fourth

Third

Second

First

11,642
7,979
19,621
6,450

11,413
247
1,511
334
1,177

10,621
9,789
20,410
5,830

9,447
212
4,921
1,511
3,410

9,991 $
7,080
17,071
6,010

9,093
170
1,798
588
1,210 $

9,165
3,639
12,804
3,310

10,269
140
(915)
(1,183)
268

8,617
7,480
16,097
2,030

8,627
84
5,356
1,658
3,698

8,389
11,281
19,670
1,810

9,125
75
8,660
2,899
5,761

8,270
9,992
18,262
1,235

9,093
111
7,823
2,568
5,255

4,957,049

4,543,963

4,435,719

4,427,823

4,421,554

4,420,616

4,419,246

4,432,664

4,957,049

4,563,508

4,457,193

4,461,201

4,470,108

4,475,917

4,476,799

4,497,028

(0.37)%

0.25 %

0.78 %

0.28 %

0.06 %

0.93 %

1.48 %

1.40 %

(6.68)

(8.28)
9.74

9.06
n/m

(0.48)
(0.48)
0.32
27.77

1.97

6.24
8.79

8.73
n/m

0.15
0.15
0.64
30.01

9.25

18.54
9.48

9.20
88.67

0.73
0.72
0.64
31.11

14.08
38.13
11.25
70,645

35.00
37.48
18.52
$ 159,672

23.87
40.86
23.87
$ 106,292

2.90

7.26
9.00

8.77
n/m

0.23 $
0.23
0.64
31.22

0.60

1.90
8.56

8.32
n/m

0.05
0.05
0.64
32.09

11.02

25.58
8.77

8.51
77.97

0.83
0.82
0.64
30.45

17.55

39.22
8.85

8.55
43.60

1.29
1.28
0.56
29.95

16.16

36.29
8.98

8.78
48.02

1.18
1.16
0.56
29.74

37.91 $
45.03
35.31

41.26
52.71
41.10
$ 168,806 $ 183,107

50.27
51.87
47.00
$ 223,041

48.89
51.82
48.80
$ 216,922

51.02
54.05
49.46
$ 226,481

$ 941,563
1,948,854
892,141
255,709
142,535
176,566

$ 946,914
1,905,691
857,845
264,934
142,303
166,454

$ 878,639
1,754,613
786,002
205,194
140,243
161,428

$ 875,661 $ 868,119
1,742,467
781,625
196,444
141,085
144,924

1,764,927
787,623
198,463
141,456
154,728

$ 780,516
1,580,565
702,481
175,265
131,606
134,487

$ 740,199
1,561,649
697,035
158,500
130,700
133,551

$ 714,042
1,521,418
686,704
148,627
130,737
133,588

23,492
18,232

20,773
13,576

17,637
9,749

15,398 $
7,827

12,106
5,948

9,927
3,372

9,436
2,392

9,106
2,059

2.49 %

2.17 %

1.98 %

1.71 %

1.33 %

1.21 %

1.20 %

1.21 %

141
5,541

173
4,356

187
3,619

203
2,715 $

207
1,985

300
1,573

397
1,495

443
1,427

2.36 %

1.84 %

1.67 %

1.25 %

0.91 %

0.80 %

0.81 %

1.77

1.96

1.05

1.25

1.45

1.17

1.06

1.13

1.18

0.84

0.64

0.90

0.68

1.36

1.47

0.40

0.43

1.53

0.30

0.32

1.51

0.27

0.29

1.51

9.15 %

7.55 %

8.25 %

7.51 %

6.87 %

8.22 %

8.52 %

8.57 %

11.94
6.25
(1) Tangible shareholders’ equity is a non-GAAP measure. For additional information on ROTE and a corresponding reconciliation of tangible shareholders’ equity to a GAAP financial measure, see Supplemental Financial

12.11
6.33

11.02
5.04

12.60
6.07

11.86
6.20

11.54
5.51

11.71
5.59

13.00
6.44

Data beginning on page 29.

Includes the allowance for loan and lease losses, and the reserve for unfunded lending commitments.

108 Bank of America 2008

Table XIII Quarterly Average Balances and Interest Rates – FTE Basis

Fourth Quarter 2008

Third Quarter 2008

(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
Debt securities (1)
Loans and leases (2):

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (3)
Other consumer (4)

Total consumer

Commercial – domestic
Commercial real estate (5)
Commercial lease financing
Commercial – foreign

Total commercial

Total loans and leases

Other earning assets

Total earning assets (6)

Cash and cash equivalents
Other assets, less allowance for loan and lease losses

Total assets

Interest-bearing liabilities
Domestic interest-bearing deposits:

Savings
NOW and money market deposit accounts
Consumer CDs and IRAs
Negotiable CDs, public funds and other time deposits

Total domestic interest-bearing deposits

Foreign interest-bearing deposits:

Banks located in foreign countries
Governments and official institutions
Time, savings and other

Total foreign interest-bearing deposits

Total interest-bearing deposits

Federal funds purchased, securities sold under agreements to

repurchase and other short-term borrowings

Trading account liabilities
Long-term debt

Total interest-bearing liabilities (6)

Noninterest-bearing sources:

Noninterest-bearing deposits
Other liabilities
Shareholders’ equity

Total liabilities and shareholders’ equity

Net interest spread
Impact of noninterest-bearing sources

Interest
Income/
Expense

158
393
2,170
3,913

3,581
1,969
459
1,784
521
1,714
70

10,098

2,890
706
242
373

4,211

14,309

959

21,902

58
813
1,835
270

2,976

125
30
165

320

3,296

1,910
524
2,766

8,496

Average
Balance

10,511
104,843
205,698
280,942

253,468
152,035
21,324
64,906
17,211
83,331
3,544

595,819

226,095
64,586
22,069
32,994

345,744

941,563

73,116

1,616,673

77,388
254,793

$1,948,854

31,561
285,390
229,410
36,510

582,871

41,398
13,738
48,836

103,972

686,843

459,743
70,859
255,709

1,473,154

205,298
93,836
176,566

$1,948,854

Yield/
Rate

5.97%
1.50
4.21
5.57

5.65
5.17
8.60
10.94
12.05
8.18
7.83

6.76

5.09
4.35
4.40
4.49

4.85

6.06

5.22

5.40

0.73%
1.13
3.18
2.94

2.03

1.20
0.87
1.34

1.22

1.91

1.65
2.94
4.32

2.30

3.10%
0.21

3.31%

Average
Balance

11,361
136,322
191,757
266,013

260,748
151,142
22,031
63,414
17,075
85,392
3,723

603,525

224,117
63,220
22,585
33,467

343,389

946,914

70,099

1,622,466

36,030
247,195

$1,905,691

32,297
278,520
218,862
36,039

565,718

36,230
11,847
48,209

96,286

Interest
Income/
Expense

101
912
2,390
3,672

3,712
2,124
399
1,682
535
1,790
80

10,322

2,852
727
53
377

4,009

14,331

1,068

22,474

58
973
1,852
291

3,174

266
72
334

672

662,004

3,846

465,511
77,271
264,934

1,469,720

195,841
73,676
166,454

$1,905,691

3,223
661
2,824

10,554

$11,920

Yield/
Rate

3.54%
2.67
4.98
5.52

5.69
5.59
7.25
10.55
12.47
8.34
8.78

6.82

5.06
4.57
0.93
4.48

4.64

6.03

6.07

5.52

0.72%
1.39
3.37
3.21

2.23

2.91
2.43
2.76

2.78

2.31

2.76
3.40
4.26

2.86

2.66%
0.27

2.93%

Net interest income/yield on earning assets

$13,406

(1) Yields on AFS debt securities are calculated based on fair value rather than historical cost balances. The use of fair value does not have a material impact on net interest yield.
(2) Nonperforming loans are included in the respective average loan balances. Income on these nonperforming loans is recognized on a cash basis. We account for acquired impaired loans in accordance with SOP 03-3.

(3)

(4)

(5)

(6)

Loans accounted for in accordance with SOP 03-3 were written down to fair value upon acquisition and accrete interest income over the remaining life of the loan.
Includes foreign consumer loans of $2.0 billion, $2.6 billion, $3.0 billion and $3.3 billion in the fourth, third, second and first quarters of 2008, and $3.6 billion in the fourth quarter of 2007, respectively.
Includes consumer finance loans of $2.7 billion, $2.7 billion, $2.8 billion and $3.0 billion in the fourth, third, second and first quarters of 2008, and $3.1 billion in the fourth quarter of 2007, respectively; and other
foreign consumer loans of $654 million, $725 million, $862 million and $857 million in the fourth, third, second and first quarters of 2008, and $845 million in the fourth quarter of 2007, respectively.
Includes domestic commercial real estate loans of $63.6 billion, $62.2 billion, $61.6 billion and $61.0 billion in the fourth, third, second and first quarters of 2008, and $58.5 billion in the fourth quarter of 2007,
respectively.
Interest income includes the impact of interest rate risk management contracts, which decreased interest income on assets $41 million, $12 million, $104 million and $103 million in the fourth, third, second and first
quarters of 2008, and $134 million in the fourth quarter of 2007, respectively. Interest expense includes the impact of interest rate risk management contracts, which increased interest expense on liabilities $237
million, $86 million, $37 million and $49 million in the fourth, third, second and first quarters of 2008, and $201 million in the fourth quarter of 2007, respectively. For further information on interest rate contracts,
see Interest Rate Risk Management for Nontrading Activities beginning on page 88.

Bank of America 2008 109

Quarterly Average Balances and Interest Rates – FTE Basis (continued)

(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
Debt securities (1)
Loans and leases (2):

Residential mortgage
Home equity
Discontinued real estate
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (3)
Other consumer (4)

Total consumer

Commercial – domestic
Commercial real estate (5)
Commercial lease financing
Commercial – foreign

Total commercial

Total loans and leases

Other earning assets

Total earning assets (6)

Cash and cash equivalents
Other assets, less allowance for loan and lease losses

Total assets

Interest-bearing liabilities
Domestic interest-bearing deposits:

Second Quarter 2008

First Quarter 2008

Fourth Quarter 2007

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Average
Balance

Interest
Income/
Expense

Yield/
Rate

Average
Balance

Interest
Income/
Expense

Yield/
Rate

10,310

3.40% $

10,596

3.56% $

10,459

$ 122

4.63%

2.54
4.95
5.04

5.54
5.44
n/a
10.45
12.43
8.43
8.36

6.75

5.06
4.72
4.37
4.48

4.89

6.04

6.19

5.44

126,169
184,547
235,369

256,164
120,265
n/a
61,655
16,566
82,593
3,953

541,196

219,537
62,810
22,276
32,820

337,443

800
2,282
2,963

3,541
1,627
n/a
1,603
512
1,731
84

9,098

2,762
737
243
366

4,108

878,639

13,206

65,200

1,005

1,500,234

20,343

33,799
220,580

$1,754,613

3.34
5.04
5.17

5.68
6.46
n/a
11.28
12.51
8.68
8.61

7.13

6.06
5.74
4.69
5.11

5.81

6.64

6.75

5.89

145,043
192,410
219,377

270,541
116,562
n/a
63,277
15,241
78,705
4,049

548,375

212,394
62,202
22,227
30,463

327,286

1,208
2,417
2,835

3,837
1,872
n/a
1,774
474
1,699
87

9,743

3,198
887
261
387

4,733

875,661

14,476

67,208

1,129

1,510,295

22,159

33,949
220,683

$1,764,927

151,938
190,700
206,873

277,058
112,369
n/a
60,063
14,329
75,138
4,206

543,163

213,200
59,702
22,239
29,815

324,956

1,748
2,422
2,795

3,972
2,043
n/a
1,781
464
1,658
71

9,989

3,704
1,053
574
426

5,757

868,119

15,746

74,909

1,296

1,502,998

24,129

33,714
205,755

$1,742,467

4.59
5.06
5.40

5.73
7.21
n/a
11.76
12.86
8.75
6.77

7.32

6.89
6.99
10.33
5.67

7.03

7.21

6.89

6.39

Savings
NOW and money market deposit accounts
Consumer CDs and IRAs
Negotiable CDs, public funds and other time deposits

Total domestic interest-bearing deposits

Foreign interest-bearing deposits:

Banks located in foreign countries
Governments and official institutions
Time, savings and other

Total foreign interest-bearing deposits

Total interest-bearing deposits

Federal funds purchased, securities sold under

agreements to repurchase and other short-term
borrowings

Trading account liabilities
Long-term debt

Total interest-bearing liabilities (6)

Noninterest-bearing sources:

Noninterest-bearing deposits
Other liabilities
Shareholders’ equity

64
856
1,646
195

2,761

272
77
410

759

3,520

3,087
749
2,050

9,406

33,164
258,104
178,828
24,216

494,312

33,777
11,789
55,403

100,969

595,281

444,578
70,546
205,194

1,315,599

190,721
86,865
161,428

Total liabilities and shareholders’ equity

$1,754,613

Net interest spread
Impact of noninterest-bearing sources

Net interest income/yield on earning assets

$10,937

For Footnotes, see page 109.
n/a = not applicable

110 Bank of America 2008

0.77% $
1.33
3.70
3.25

2.25

3.25
2.62
2.97

3.02

2.38

2.79
4.27
4.00

2.87

31,798
248,949
188,005
32,201

500,953

39,196
14,650
53,064

106,910

607,863

452,854
82,432
198,463

50
1,139
2,071
320

3,580

400
132
476

1,008

4,588

4,142
840
2,298

1,341,612

11,868

179,760
88,827
154,728

$1,764,927

0.63% $
1.84
4.43
4.00

31,961
240,914
183,910
34,997

50
1,334
2,179
420

0.63%
2.20
4.70
4.76

2.87

491,782

3,983

3.21

4.10
3.62
3.61

3.79

3.04

3.68
4.10
4.63

3.55

45,050
16,506
51,919

113,475

605,257

557
192
521

1,270

5,253

456,530
81,500
196,444

5,598
825
2,638

1,339,731

14,314

4.91
4.62
3.98

4.44

3.44

4.87
4.02
5.37

4.25

176,368
81,444
144,924

$1,742,467

2.57%
0.35

2.92%

2.34%
0.39

2.73%

$10,291

2.14%
0.47

2.61%

$9,815

Glossary
Assets in Custody – Consist largely of custodial and non-discretionary
trust assets administered for customers excluding brokerage assets.
Trust assets encompass a broad range of asset types including real
estate, private company ownership interest, personal property and
investments.
Assets Under Management (AUM) – The total market value of assets
the investment advisory and discretion of Global Wealth and
under
Investment Management which generate asset management fees based
on a percentage of the assets’ market value. AUM reflects assets that
are generally managed for institutional, high net-worth and retail clients
and are distributed through various investment products including mutual
funds, other commingled vehicles and separate accounts.
Bridge Loan – A loan or security which is expected to be replaced by
permanent financing (debt or equity securities, loan syndication or asset
sales) prior to the maturity date of the loan. Bridge loans may include an
unfunded commitment, as well as funded amounts, and are generally
expected to be retired in one year or less.
CDO-Squared – A type of CDO where the underlying collateralizing secu-
rities include tranches of other CDOs.
Client Brokerage Assets – Include client assets which are held in broker-
age accounts. This includes non-discretionary brokerage and fee-based
assets which generate brokerage income and asset management fee
revenue.
Committed Credit Exposure – Includes any funded portion of a facility
plus the unfunded portion of a facility on which the Corporation is legally
bound to advance funds during a specified period under prescribed con-
ditions.
Core Net Interest Income – Managed Basis – Net interest income on a
fully taxable-equivalent basis excluding the impact of market-based activ-
ities and certain securitizations.
Credit Default Swaps (CDS) – A derivative contract that provides pro-
tection against the deterioration of credit quality and would allow one
party to receive payment in the event of default by a third party under a
borrowing arrangement.
Derivative – A contract or agreement whose value is derived from
changes in an underlying index such as interest rates, foreign exchange
rates or prices of securities. Derivatives utilized by the Corporation
include swaps, financial futures and forward settlement contracts, and
option contracts.
Excess Servicing Income – For certain assets that have been securitized,
interest income, fee revenue and recoveries in excess of interest paid to
the investors, gross credit losses and other trust expenses related to the
securitized receivables are all reclassified into excess servicing income,
which is a component of card income. Excess servicing income also
includes the changes in fair value of the Corporation’s card related
retained interests.
Home Equity Rapid Amortization Event – Certain events defined by the
Corporation’s home equity securitizations documents,
including when
aggregate draws on monoline insurer’s policies (which protect the bond-
holders in the securitization) exceed a specified threshold. The existence
of a rapid amortization event affects the flow of funds and may cause
acceleration of payments to the holders of the notes.
Interest-only Strip – A residual interest in a securitization trust represent-
ing the right to receive future net cash flows from securitized assets after
payments to third party investors and net credit losses. These arise when
assets are transferred to a special purpose entity as part of an asset
securitization transaction qualifying for sale treatment under GAAP.

Interest Rate Lock Commitments (IRLCs) – Commitment with a loan
applicant in which the loan terms, including interest rate, are guaranteed
for a designated period of time subject to credit approval.
Letter of Credit – A document issued by the Corporation on behalf of a
customer to a third party promising to pay that third party upon pre-
sentation of specified documents. A letter of credit effectively substitutes
the Corporation’s credit for that of the Corporation’s customer.
Managed Basis – Managed basis assumes that securitized loans were
not sold and presents earnings on these loans in a manner similar to the
way loans that have not been sold (i.e., held loans) are presented. Non-
interest income, both on a held and managed basis, also includes the
impact of adjustments to the interest-only strip that are recorded in card
income.
Managed Net Losses – Represents net charge-offs on held loans com-
bined with realized credit losses associated with the securitized loan port-
folio.
Mortgage Servicing Right (MSR) – The right to service a mortgage loan
when the underlying loan is sold or securitized. Servicing includes collec-
tions for principal, interest and escrow payments from borrowers and
accounting for and remitting principal and interest payments to investors.
Net Interest Yield – Net interest income divided by average total interest-
earning assets.
Operating Basis – A basis of presentation not defined by GAAP that
excludes merger and restructuring charges.
Option-Adjusted Spread (OAS) – The spread that is added to the discount
rate so that the sum of the discounted cash flows equals the market
price, thus, it is a measure of the extra yield over the reference discount
factor (i.e., the forward swap curve) that a company is expected to earn
by holding the asset.
Qualified Special Purpose Entity (QSPE) – A special purpose entity
whose activities are strictly limited to holding and servicing financial
assets and meet the requirements set forth in SFAS 140. A qualified
special purpose entity is generally not required to be consolidated by any
party.
Return on Average Common Shareholders’ Equity (ROE) – Measures the
earnings contribution of a unit as a percentage of the shareholders’
equity allocated to that unit.
Return on Average Tangible Shareholders’ Equity (ROTE) – Measures
the earnings contribution of a unit as a percentage of the shareholders’
equity allocated to that unit reduced by allocated goodwill and intangible
assets (excluding MSRs).
Securitize / Securitization – A process by which financial assets are sold
to a special purpose entity, which then issues securities collateralized by
those underlying assets, and the return on the securities issued is based
on the principal and interest cash flow of the underlying assets.
SOP 03-3 Portfolio – Loans acquired from Countrywide which showed
signs of deterioration and were considered impaired. These loans were
written down to fair value at the acquisition date in accordance with SOP
03-3.
Structured Investment Vehicle (SIV) – An entity that issues short dura-
tion debt and uses the proceeds from the issuance to purchase longer-
term fixed income securities.
Subprime Loans – Although a standard definition for subprime loans
(including subprime mortgage loans) does not exist, the Corporation
defines subprime loans as specific product offerings for higher risk bor-
rowers, including individuals with one or a combination of high credit risk
factors, such as low FICO scores (generally less than 620 for secured
products and 660 for unsecured products), high debt to income ratios
and inferior payment history.

Bank of America 2008 111

Super Senior CDO Exposure – Represents the most senior class of
commercial paper or notes that are issued by the CDO vehicles. These
financial
instruments benefit from the subordination of all other secu-
rities, including AAA-rated securities, issued by the CDO vehicles.
Unrecognized Tax Benefit (UTB) – The difference between the benefit
recognized for a tax position in accordance with FIN 48, which is meas-
ured as the largest dollar amount of that position that is more-likely-
than-not to be sustained upon settlement, and the tax benefit claimed on
a tax return.
Value-at-Risk (VAR) – A VAR model estimates a range of hypothetical
scenarios to calculate a potential
loss which is not expected to be
exceeded with a specified confidence level. VAR is a key statistic used to
measure and manage market risk.

Variable Interest Entities (VIE) – A term defined by FIN 46R for an entity
whose equity investors do not have a controlling financial interest. The
entity may not have sufficient equity at risk to finance its activities with-
from third parties. The
out additional subordinated financial support
equity investors may lack the ability to make significant decisions about
the entity’s activities, or they may not absorb the losses or receive the
residual returns generated by the assets and other contractual arrange-
ments of the VIE. The entity that will absorb a majority of expected varia-
the expected losses and
bility (the sum of
expected residual returns) consolidates the VIE and is referred to as the
primary beneficiary.

the absolute values of

112 Bank of America 2008

Accounting Pronouncements

Acronyms

SFAS 52

SFAS 109

SFAS 133

SFAS 140

SFAS 157

SFAS 159

FIN 46R

FIN 48

SAB 109

SOP 03-3

Foreign Currency Translation

Accounting for Income Taxes

Accounting for Derivative Instruments and Hedging Activ-
ities, as amended

Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities – a replacement of
FASB Statement No. 125

Fair Value Measurements

The Fair Value Option for Financial Assets and Financial
Liabilities

Consolidation of Variable Interest Entities
December 2003)—an interpretation of ARB No. 51

(revised

Accounting for Uncertainty in Income Taxes, an inter-
pretation of FASB Statement No. 109

Written Loan Commitments Recorded at Fair Value
Through Earnings

Accounting for Certain Loans or Debt Securities Acquired
in a Transfer

ABS

AFS

AICPA

ALCO

ALM

ARS

CDO

CLO

CMBS

CRC

EPS

FASB

FDIC

FFIEC

FIN

Asset-backed securities

Available-for-sale

American Institute of Certified Public Accountants

Asset and Liability Committee

Asset and liability management

Auction rate securities

Collateralized debt obligation

Collateralized loan obligation

Commercial mortgage-backed securities

Credit Risk Committee

Earnings per common share

Financial Accounting Standards Board

Federal Deposit and Insurance Corporation

Federal Financial Institutions Examination Council

Financial
pretation

Accounting Standards Board

Inter-

FRB/Federal Reserve

Board of Governors of the Federal Reserve System

FSP

FTE

GAAP

GRC

IPO

LHFS

LIBOR

MD&A

OCC

OCI

SBLCs

SEC

SFAS

SOP

SPE

Financial Accounting Standards Board Staff Posi-
tion

Fully taxable-equivalent

Generally accepted accounting principles in the
United States

Global Markets Risk Committee

Initial public offering

Loans held-for-sale

London InterBank Offered Rate

Management’s Discussion and Analysis of Finan-
cial Condition and Results of Operations

Office of the Comptroller of the Currency

Other comprehensive income

Standby letters of credit

Securities and Exchange Commission

Financial Accounting Standards Board Statement
of Financial Accounting Standards

American Institute of Certified Public Accountants
Statement of Position

Special purpose entity

Bank of America 2008 113

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 estab-
lishing and maintaining adequate internal control over financial reporting.
The Corporation’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in
the United States of America. The Corporation’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the com-
pany; (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 direc-
tors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or dis-
position of the company’s assets that could have a material effect on the
financial statements.
Because of

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.

its inherent limitations,

Management assessed the effectiveness of the Corporation’s internal
control over financial reporting as of December 31, 2008, based on the
framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – Integrated Framework. Based
on that assessment, management concluded that, as of December 31,
2008, the Corporation’s internal control over financial reporting is effec-
tive based on the criteria established in Internal Control – Integrated
Framework.

The effectiveness of the Corporation’s internal control over financial
reporting as of December 31, 2008, has been audited by Pricewaterhou-
seCoopers, LLP, an independent registered public accounting firm.

Kenneth D. Lewis
Chairman, Chief Executive Officer and President

Joe L. Price
Chief Financial Officer

114 Bank of America 2008

Report of Independent Registered Public Accounting Firm
Bank of America Corporation and Subsidiaries

the Corporation maintained,

To the Board of Directors and Shareholders
of Bank of America Corporation:
In our opinion, the accompanying Consolidated Balance Sheet and the
related Consolidated Statement of Income, Consolidated Statement of
Changes in Shareholders’ Equity and Consolidated Statement of Cash
Flows present fairly, in all material respects, the financial position of
Bank of America Corporation and its subsidiaries at December 31, 2008
and 2007, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2008 in con-
formity with accounting principles generally accepted in the United States
of America. Also in our opinion,
in all
material respects, effective internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Orga-
nizations of
the Treadway Commission (COSO). The Corporation’s
management is responsible for these financial statements, for maintain-
ing effective internal control over financial reporting and for its assess-
ment of the effectiveness of internal control over financial reporting,
included in the Report of Management on Internal Control Over Financial
Reporting appearing on page 114 of the 2008 Annual Report to Share-
holders. Our responsibility is to express opinions on these financial
statements and on the Corporation’s internal control over financial report-
ing based on our integrated audits. We conducted our audits in accord-
ance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in the finan-
cial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial report-
ing included obtaining an understanding of internal control over financial

reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such
other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 19 – Fair Value Disclosures to the Consolidated
Financial Statements, as of the beginning of 2007 the Corporation has
adopted SFAS No. 157, “Fair Value Measurements” and SFAS No. 159,
“The Fair Value Option for Financial Assets and Financial Liabilities.”

A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dis-
positions 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 direc-
tors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or dis-
position of the company’s assets that could have a material effect on the
financial statements.
Because of

its inherent limitations,

Charlotte, North Carolina
February 25, 2009

Bank of America 2008 115

Bank of America Corporation and Subsidiaries

Consolidated Statement of Income

(Dollars in millions, except per share information)

Interest income

Interest and fees on loans and leases
Interest on debt 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
Card income
Service charges
Investment and brokerage services
Investment banking income
Equity investment income
Trading account profits (losses)
Mortgage banking income
Insurance premiums
Gains (losses) on sales of debt securities
Other income (loss)

Total noninterest income

Total revenue, net of interest expense

Provision for credit losses

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

Preferred stock dividends

Net income available to common shareholders

Per common share information

Earnings
Diluted earnings
Dividends paid

2008

56,017
13,146
3,313
9,057
4,151

85,684

15,250
12,362
2,774
9,938

40,324

45,360

13,314
10,316
4,972
2,263
539
(5,911)
4,087
1,833
1,124
(5,115)

27,422

72,782

26,825

18,371
3,626
1,655
2,368
1,592
1,834
2,546
1,106
7,496
935

41,529

4,428
420

4,008

1,452

2,556

0.56
0.55
2.24

Year Ended December 31

2007

2006

55,681
9,784
7,722
9,417
4,700

87,304

18,093
21,967
3,444
9,359

52,863

34,441

14,077
8,908
5,147
2,345
4,064
(4,889)
902
761
180
897

32,392

66,833

8,385

18,753
3,038
1,391
2,356
1,174
1,676
1,962
1,013
5,751
410

37,524

20,924
5,942

14,982

182

14,800

3.35
3.30
2.40

48,274
11,655
7,823
7,232
3,601

78,585

14,480
19,837
2,640
7,034

43,991

34,594

14,290
8,224
4,456
2,317
3,189
3,358
541
437
(443)
1,813

38,182

72,776

5,010

18,211
2,826
1,329
2,336
1,078
1,755
1,732
945
4,776
805

35,793

31,973
10,840

21,133

21,111

4.66
4.59
2.12

Average common shares issued and outstanding (in thousands)

Average diluted common shares issued and outstanding (in thousands)

4,592,085

4,612,491

4,423,579

4,480,254

4,526,637

4,595,896

116 Bank of America 2008

See accompanying Notes to Consolidated Financial Statements.

Bank of America Corporation and Subsidiaries

Consolidated Balance Sheet

(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 $2,330 and $2,578 measured at fair value and

$82,099 and $128,887 pledged as collateral)

Trading account assets (includes $69,348 and $88,745 pledged as collateral)
Derivative assets
Debt securities:

Available-for-sale (includes $158,939 and $107,440 pledged as collateral)
Held-to-maturity, at cost (fair value – $685 and $726)

Total debt securities

Loans and leases (includes $5,413 and $4,590 measured at fair value and $166,891 and $115,285 pledged as collateral)
Allowance for loan and lease losses

Loans and leases, net of allowance

Premises and equipment, net
Mortgage servicing rights (includes $12,733 and $3,053 measured at fair value)
Goodwill
Intangible assets
Loans held-for-sale (includes $18,964 and $15,765 measured at fair value)
Other assets (includes $29,906 and $25,323 measured at fair value)

Total assets

Liabilities
Deposits in domestic offices:
Noninterest-bearing
Interest-bearing (includes $1,717 and $2,000 measured at fair value)

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 $1,978 and $660 measured at fair value and $421 and $518 of reserve for unfunded

lending commitments)

Long-term debt

Total liabilities

Commitments and contingencies (Note 9 – Variable Interest Entities and Note 13 – Commitments and Contingencies)

Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 8,202,042 and 185,067 shares
Common stock and additional paid-in capital, $0.01 par value; authorized – 10,000,000,000 and 7,500,000,000 shares; issued and

outstanding – 5,017,435,592 and 4,437,885,419 shares

Retained earnings
Accumulated other comprehensive income (loss)
Other

Total shareholders’ equity

Total liabilities and shareholders’ equity

December 31

2008

2007

32,857
9,570

42,531
11,773

82,478
159,522
62,252

276,904
685

277,589

931,446
(23,071)

908,375

13,161
13,056
81,934
8,535
31,454
137,160

129,552
162,064
34,662

213,330
726

214,056

876,344
(11,588)

864,756

11,240
3,347
77,530
10,296
34,424
119,515

$1,817,943

$1,715,746

$ 213,994
576,938

$ 188,466
501,882

4,004
88,061

882,997

206,598
57,287
30,709
158,056

36,952
268,292

3,761
111,068

805,177

221,435
77,342
22,423
191,089

53,969
197,508

1,640,891

1,568,943

37,701

4,409

76,766
73,823
(10,825)
(413)

177,052

60,328
81,393
1,129
(456)

146,803

$1,817,943

$1,715,746

See accompanying Notes to Consolidated Financial Statements.

Bank of America 2008 117

Bank of America Corporation and Subsidiaries

Consolidated Statement of Changes in Shareholders’ Equity

(Dollars in millions, shares in thousands)

Balance, December 31, 2005
Adjustment to initially apply FASB Statement No. 158 (2)
Net income
Net changes in available-for-sale debt and marketable

equity securities

Net changes in foreign currency translation adjustments
Net changes in derivatives
Dividends paid:
Common
Preferred

Issuance of preferred stock
Redemption of preferred stock
Common stock issued under employee plans and related

tax effects

Stock issued in acquisition (3)
Common stock repurchased
Other

Balance, December 31, 2006

Cumulative adjustment for accounting changes (4) :

Leveraged leases
Fair value option and measurement
Income tax uncertainties

Net income
Net changes in available-for-sale debt and marketable

equity securities

Net changes in foreign currency translation adjustments
Net changes in derivatives
Employee benefit plan adjustments
Dividends paid:
Common
Preferred

Issuance of preferred stock
Common stock issued under employee plans and related

tax effects

Common stock repurchased

Balance, December 31, 2007

Net income
Net changes in available-for-sale debt and marketable

equity securities

Net changes in foreign currency translation adjustments
Net changes in derivatives
Employee benefit plan adjustments
Dividends paid:
Common
Preferred (5)

Issuance of preferred stock
Stock issued in acquisition (6)
Issuance of common stock
Common stock issued under employee plans and related

tax effects

Issuance of stock warrants
Other

Balance, December 31, 2008

Common Stock and
Additional Paid-in
Capital

Amount

Retained
Earnings

Accumulated
Other
Comprehensive
Income
(Loss) (1)

Other

Preferred
Stock

271

3,999,688 $ 41,693 $ 67,552

$ (7,556) $(427)

(1,308)

245
269
641

21,133

(9,639)
(22)

2,850
(270)

118,418
631,145
(291,100)

4,863
29,377
(14,359)

(39)

(2)

Total
Shareholders’
Equity

$101,533
(1,308)
21,133

245
269
641

(9,639)
(22)
2,850
(270)

4,824
29,377
(14,359)
(2)

Comprehensive
Income

$21,133

245
269
641

(2)

2,851

4,458,151

61,574

79,024

(7,711)

(466)

135,272

22,286

(1,381)
(208)
(146)
14,982

(10,696)
(182)

9,269
149
(705)
127

1,558

53,464
(73,730)

2,544
(3,790)

(1,381)
(208)
(146)
14,982

9,269
149
(705)
127

(10,696)
(182)
1,558

2,554
(3,790)

4,409

4,437,885

60,328

81,393

1,129

(456)

146,803

4,008

(10,256)
(1,272)

(8,557)
(1,000)
944
(3,341)

33,242

106,776
455,000

17,775

4,201
9,883

854
1,500

(50)

4,008

(8,557)
(1,000)
944
(3,341)

(10,256)
(1,272)
33,242
4,201
9,883

897
1,500
–

14,982

9,269
149
(705)
127

23,822

4,008

(8,557)
(1,000)
944
(3,341)

$37,701

5,017,436 $ 76,766 $ 73,823

$(10,825) $(413)

$177,052

$ (7,946)

(1) Amounts shown are net-of-tax. For additional information on accumulated OCI, see Note 14 – Shareholders’ Equity and Earnings Per Common Share to the Consolidated Financial Statements.
(2)

Includes accumulated adjustment to apply SFAS 158 of $(1,428) million, net-of-tax, and the reversal of the additional minimum liability adjustment of $120 million, net-of-tax.
Includes adjustments for the fair value of outstanding MBNA Corporation (MBNA) stock-based compensation awards of 32 thousand shares and $435 million.

(3)
(4) Effective January 1, 2007, the Corporation adopted FSP 13-2, SFAS 157, SFAS 159 and FIN 48. For additional information on the adoption of these accounting pronouncements, see Note 1 – Summary of Significant

Accounting Principles to the Consolidated Financial Statements.

(5) Excludes $130 million of Series N Preferred Stock fourth quarter 2008 cumulative preferred dividends not declared as of year end and $50 million of accretion of discounts on preferred stock issuances.
(6)

Includes adjustments for the fair value of certain Countrywide stock-based compensation awards of 507 thousand shares and $86 million.

See accompanying Notes to Consolidated Financial Statements.

118 Bank of America 2008

Bank of America Corporation and Subsidiaries

Consolidated Statement of Cash Flows

(Dollars in millions)
Operating activities
Net income
Reconciliation of net income to net cash provided by operating activities:

Provision for credit losses
(Gains) losses on sales of debt securities
Depreciation and premises improvements amortization
Amortization of intangibles
Deferred income tax (benefit) expense
Net increase in trading and derivative instruments
Net (increase) decrease in other assets
Net increase (decrease) in accrued expenses and other liabilities
Other operating activities, net

Net cash provided by operating activities

Investing activities
Net (increase) decrease in time deposits placed and other short-term investments
Net decrease in federal funds sold and securities purchased under agreements to resell
Proceeds from sales of available-for-sale debt securities
Proceeds from paydowns and maturities of available-for-sale debt securities
Purchases of available-for-sale debt securities
Proceeds from maturities of held-to-maturity debt securities
Purchases of held-to-maturity debt securities
Proceeds from sales of loans and leases
Other changes in loans and leases, net
Net purchases of premises and equipment
Proceeds from sales of foreclosed properties
(Acquisition) divestiture of business activities, net
Other investing activities, net

Net cash used in investing activities

Financing activities
Net increase in deposits
Net decrease 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 preferred stock
Redemption of preferred stock
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid
Excess tax benefits of share-based payments
Other financing activities, net

Net cash provided by (used in) 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

2008

2007

2006

4,008

$ 14,982

$ 21,133

26,825
(1,124)
1,485
1,834
(5,801)
(21,603)
3,803
(14,449)
9,056
4,034

2,203
53,723
120,972
26,068
(184,232)
741
(840)
52,455
(69,574)
(2,098)
1,187
6,650
(10,185)
(2,930)

14,830
(34,529)
(33,033)
43,782
(35,072)
34,742
–
10,127
–
(11,528)
42
(56)
(10,695)
(83)
(9,674)
42,531
$ 32,857

8,385
(180)
1,168
1,676
(753)
(8,108)
(15,855)
4,190
5,531

11,036

2,191
6,294
28,107
19,233
(28,016)
630
(314)
57,875
(177,665)
(2,143)
104
(19,816)
5,040

(108,480)

45,368
(1,448)
32,840
67,370
(28,942)
1,558
–
1,118
(3,790)
(10,878)
254
(38)

103,412

134

6,102
36,429

5,010
443
1,114
1,755
1,850
(3,870)
(17,070)
4,517
(373)

14,509

(3,053)
13,020
53,446
22,417
(40,905)
7
–
37,812
(145,779)
(748)
93
(2,388)
(2,226)

(68,304)

38,340
(22,454)
23,709
49,464
(17,768)
2,850
(270)
3,117
(14,359)
(9,661)
477
(312)

53,133

(570)
36,999

$ 42,531

$ 36,429

$ 41,951
4,700

$ 51,829
9,196

$ 42,355
7,210

During 2008, the Corporation reclassified $10.9 billion of net transfers of AFS debt securities to trading account assets.

The Corporation securitized $26.1 billion of residential mortgage loans into mortgage-backed securities and $4.9 billion of automobile loans into asset-backed securities which were retained by the Corporation during 2008.

The fair values of noncash assets acquired and liabilities assumed in the Countrywide acquisition were $157.4 billion and $157.8 billion.

Approximately 107 million shares of common stock, valued at approximately $4.2 billion were issued in connection with the Countrywide acquisition.

The fair values of noncash assets acquired and liabilities assumed in the LaSalle Bank Corporation merger were $115.8 billion and $97.1 billion at October 1, 2007.

The fair values of noncash assets acquired and liabilities assumed in the U.S. Trust Corporation merger were $12.9 billion and $9.8 billion at July 1, 2007.

During 2007, the Corporation sold its operations in Chile and Uruguay for approximately $750 million in equity in Banco Itaú Holding Financeira S.A., and its assets in BankBoston Argentina for the assumption of its

liabilities. The total assets and liabilities in these divestitures were $6.1 billion and $5.6 billion.

During 2007, the Corporation transferred $1.7 billion of trading account assets to AFS debt securities.

On January 1, 2007, the Corporation transferred $3.7 billion of AFS debt securities to trading account assets following the adoption of SFAS 159.

The fair values of noncash assets acquired and liabilities assumed in the MBNA merger were $83.3 billion and $50.4 billion at January 1, 2006.

Approximately 631 million shares of common stock, valued at approximately $28.9 billion were issued in connection with the MBNA merger.

See accompanying Notes to Consolidated Financial Statements.

Bank of America 2008 119

Bank of America Corporation and Subsidiaries
Notes to Consolidated Financial Statements

On July 1, 2008, Bank of America Corporation and its subsidiaries (the
Corporation) acquired all of the outstanding shares of Countrywide Finan-
cial Corporation (Countrywide) through its merger with a subsidiary of the
Corporation in exchange for stock with a value of $4.2 billion. On
October 1, 2007, the Corporation acquired all the outstanding shares of
ABN AMRO North America Holding Company, parent of LaSalle Bank
Corporation (LaSalle), for $21.0 billion in cash. On July 1, 2007, the
Corporation acquired all the outstanding shares of U.S. Trust Corporation
for $3.3 billion in cash. These mergers were accounted for under the
purchase method of accounting. Consequently, Countrywide, LaSalle and
U.S. Trust Corporation’s results of operations were included in the Corpo-
ration’s results from their dates of acquisition.

On January 1, 2009, the Corporation acquired Merrill Lynch & Co., Inc.
(Merrill Lynch) through its merger with a subsidiary of the Corporation. For
more information related to the Merrill Lynch acquisition, see Note 2 –
Merger and Restructuring Activity to the Consolidated Financial State-
ments.

The Corporation, through its banking and nonbanking subsidiaries,
provides a diverse range of financial services and products throughout the
U.S. and in selected international markets. At December 31, 2008, the
Corporation operated its banking activities primarily under three charters:
Bank of America, National Association (Bank of America, N.A.), FIA Card
Services, N.A. and Countrywide Bank, FSB. Effective October 2008,
LaSalle Bank, N.A. merged with and into Bank of America, N.A., with Bank
of America, N.A. as the surviving entity. This merger had no impact on the
Consolidated Financial Statements of the Corporation.

Note 1 – Summary of Significant Accounting
Principles

Principles of Consolidation and Basis of
Presentation
The Consolidated Financial Statements include the accounts of the Corpo-
ration and its majority-owned subsidiaries, and those variable interest
entities (VIEs) where the Corporation is the primary beneficiary. All sig-
nificant intercompany accounts and transactions have been eliminated.
Results of operations of companies purchased are included from the
dates of acquisition and for VIEs, from the dates that the Corporation
became the primary beneficiary. Assets held in an agency or fiduciary
capacity are not included in the Consolidated Financial Statements. The
Corporation accounts for investments in companies for which it owns a
voting interest of 20 percent to 50 percent and for which it has the ability
to exercise significant influence over operating and financing decisions
using the equity method of accounting. These investments are included in
other assets and are subject to impairment testing. The Corporation’s
proportionate share of income or loss is included in equity investment
income.

The preparation of the Consolidated Financial Statements in con-
formity with accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from
those estimates and assumptions.

Certain prior period amounts have been reclassified to conform to

current period presentation.

Recently Proposed and Issued Accounting
Pronouncements
On January 12, 2009, the Financial Accounting Standards Board (FASB)
issued FASB Staff Position (FSP) No. Emerging Issues Task Force (EITF)
99-20-1, “Amendments to the Impairment and Interest Income Measure-
ment Guidance of EITF Issue No. 99-20” (FSP EITF 99-20-1). FSP EITF
the determination of whether an
99-20-1 changed the guidance for
impairment of certain non-investment grade, beneficial interests in securi-
tized financial assets is considered other-than-temporary. The adoption of
FSP EITF 99-20-1, effective December 31, 2008, did not have a material
impact on the Corporation’s financial condition and results of operations.
On December 11, 2008, the FASB issued FSP No. FAS 140-4 and FIN
46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities” (FSP FAS
140-4 and FIN 46(R)-8). FSP FAS 140-4 and FIN 46(R)-8 amends State-
ment of Financial Accounting Standards (SFAS) No. 140 “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities – a replacement of FASB Statement No. 125” (SFAS 140) to
require public entities to provide additional disclosures about transferors’
continuing involvements with transferred financial assets. It also amends
FASB Interpretation (FIN) No. 46 (revised December 2003) “Consolidation
of Variable Interest Entities – an interpretation of ARB No. 51” (FIN 46R)
to require public enterprises, including sponsors that have a variable
interest in a VIE, to provide additional disclosures about their involvement
with VIEs. The expanded disclosure requirements for FSP FAS 140-4 and
FIN 46(R)-8 are effective for the Corporation’s financial statements for the
year ending December 31, 2008 and are included in Note 8 – Securitiza-
tions and Note 9 – Variable Interest Entities to the Consolidated Financial
Statements. The adoption of FSP FAS 140-4 and FIN 46(R)-8 did not
impact the Corporation’s financial condition and results of operations.

On October 10, 2008, the FASB issued FSP No. 157-3, “Determining
the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active” (FSP 157-3). FSP 157-3 clarifies how SFAS No. 157 “Fair Value
Measurements” (SFAS 157) should be applied when valuing securities in
markets that are not active. The adoption of FSP 157-3, effective Sep-
tember 30, 2008, did not have a material impact on the Corporation’s
financial condition and results of operations.

On September 15, 2008, the FASB released exposure drafts which
would amend SFAS 140 and FIN 46R. As written, the proposed amend-
ments would, among other things, eliminate the concept of a qualifying
special purpose entity (QSPE) and change the standards for consolidation
of VIEs. The changes would be effective for both existing and newly cre-
ated entities as of January 1, 2010. If adopted as written, the amend-
ments would likely result in the consolidation of certain QSPEs and VIEs
that are not currently recorded on the Consolidated Balance Sheet of the
Corporation (e.g., credit card securitization trusts). Management is cur-
rently evaluating the impact the exposure drafts would have on the Corpo-
ration’s financial condition and results of operations if adopted as
written.

120 Bank of America 2008

On September 12, 2008, the FASB issued FSP No. 133-1 and FIN
45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An
Amendment of FASB Statement No. 133 and FASB Interpretation No. 45;
and Clarification of the Effective Date of FASB Statement No. 161” (FSP
133-1). FSP 133-1 requires expanded disclosures about credit derivatives
and guarantees. The expanded disclosure requirements for FSP 133-1
were effective for the Corporation’s financial statements for the year
ending December 31, 2008 and are included in Note 4 – Derivatives to
the Consolidated Financial Statements. The adoption of FSP 133-1 did
not impact the Corporation’s financial condition and results of operations.
On June 16, 2008, the FASB issued FSP EITF 03-6-1, “Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities” (FSP 03-6-1). FSP 03-6-1 defines unvested
share-based payment awards that contain nonforfeitable rights to divi-
dends as participating securities that should be included in computing
earnings per share (EPS) using the two-class method under SFAS
No. 128, “Earnings per Share.” FSP 03-6-1 is effective for the Corpo-
ration’s financial statements for the year beginning on January 1, 2009.
Additionally, all prior-period EPS data shall be adjusted retrospectively.
The adoption of FSP 03-6-1 will not have a material impact on the Corpo-
ration’s financial condition and results of operations.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures
about Derivative Instruments and Hedging Activities” (SFAS 161) which
requires expanded qualitative, quantitative and credit-risk disclosures
about derivatives and hedging activities and their effects on the Corpo-
ration’s financial position, financial performance and cash flows. SFAS
161 is effective for the Corporation’s financial statements for the year
beginning on January 1, 2009. The adoption of SFAS 161 will not impact
the Corporation’s financial condition and results of operations.

On February 20, 2008,

the FASB issued FSP No. FAS 140-3,
“Accounting for Transfers of Financial Assets and Repurchase Financing
Transactions” (FSP 140-3). FSP 140-3 requires that an initial transfer of a
financial asset and a repurchase financing that was entered into con-
temporaneously with, or in contemplation of, the initial transfer be eval-
uated together as a linked transaction under SFAS 140, unless certain
criteria are met. FSP 140-3 is effective for the Corporation’s financial
statements for the year beginning on January 1, 2009. The adoption of
FSP 140-3 is not expected to have a material impact on the Corporation’s
financial condition and results of operations.

On January 1, 2008, the Corporation adopted the Securities and
Exchange Commission’s (SEC) Staff Accounting Bulletin (SAB) No. 109,
“Written Loan Commitments Recorded at Fair Value Through Earnings”
(SAB 109) for loan commitments measured at fair value through earnings
which were issued or modified since adoption on a prospective basis.
SAB 109 requires that the expected net future cash flows related to serv-
icing of a loan be included in the measurement of all written loan
commitments that are accounted for at fair value through earnings. The
adoption of SAB 109 generally has resulted in higher fair values being
recorded upon initial recognition of derivative interest rate lock commit-
ments (IRLCs).

On January 1, 2008, the Corporation adopted EITF consensus on
Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards” (EITF 06-11). EITF 06-11 requires on a
prospective basis that the tax benefit related to dividend equivalents paid
on restricted stock and restricted stock units which are expected to vest
be recorded as an increase to additional paid-in capital. The adoption of
EITF 06-11 did not have a material impact on the Corporation’s financial
condition and results of operations.

the assets acquired,

On December 4, 2007, the FASB issued SFAS No. 141 (revised
2007), “Business Combinations” (SFAS 141R). SFAS 141R modifies the
accounting for business combinations and requires, with limited
exceptions, the acquirer in a business combination to recognize 100
percent of
liabilities assumed, and any non-
controlling interest in the acquiree at the acquisition-date fair value. In
addition, SFAS 141R requires the expensing of acquisition-related trans-
action and restructuring costs, and certain contingent assets and
liabilities acquired, as well as contingent consideration, to be recognized
at
fair value. SFAS 141R also modifies the accounting for certain
acquired income tax assets and liabilities. SFAS 141R is effective for new
acquisitions consummated on or after January 1, 2009. The Corporation
applied SFAS 141R to its January 1, 2009 acquisition of Merrill Lynch.

On December 4, 2007,

the FASB also issued SFAS No. 160,
“Noncontrolling Interests in Consolidated Financial Statements” (SFAS
160). SFAS 160 requires all entities to report noncontrolling (i.e., minor-
ity)
interests in subsidiaries as equity in the Consolidated Financial
Statements and to account for transactions between an entity and non-
controlling owners as equity transactions if the parent retains its control-
ling financial interest in the subsidiary. SFAS 160 also requires expanded
disclosure that distinguishes between the interests of the controlling
owners and the interests of the noncontrolling owners of a subsidiary.
SFAS 160 is effective for the Corporation’s financial statements for the
year beginning on January 1, 2009. The adoption of SFAS 160 is not
expected to have a material impact on the Corporation’s financial con-
dition and results of operations.

On January 1, 2007, the Corporation adopted FSP No. FAS 13-2,
“Accounting for a Change or Projected Change in the Timing of Cash
Flows Relating to Income Taxes Generated by a Leveraged Lease Trans-
action” (FSP 13-2). The principal provision of FSP 13-2 is the requirement
that a lessor recalculate the recognition of lease income when there is a
change in the estimated timing of the cash flows relating to income taxes
generated by such leveraged lease. The adoption of FSP 13-2 reduced the
beginning balance of retained earnings as of January 1, 2007 by $1.4
billion, net-of-tax, with a corresponding offset decreasing the net invest-
ment in leveraged leases recorded as part of loans and leases.

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. These agreements are recorded at the amounts at which
the securities were acquired or sold plus accrued interest, except for
certain structured reverse repurchase agreements for which the Corpo-
ration has elected the fair value option. For more information on struc-
tured reverse repurchase agreements for which the Corporation has
elected the fair value option, see Note 19 – Fair Value Disclosures to the
Consolidated Financial Statements. The Corporation’s policy is to obtain
the use of securities purchased under agreements to resell. The market
value of
including accrued interest, which
collateralize the related receivable on agreements to resell, is monitored.
The Corporation may
require counterparties to deposit additional
collateral or return collateral pledged, when appropriate.

the underlying securities,

Bank of America 2008 121

Collateral
The Corporation accepts collateral that it is permitted by contract or cus-
tom to sell or repledge. At December 31, 2008, the fair value of this col-
lateral was approximately $144.5 billion of which $117.6 billion was sold
or repledged. At December 31, 2007, the fair value of this collateral was
approximately $210.7 billion of which $156.3 billion was sold or
repledged. The primary source of this collateral
is reverse repurchase
agreements. The Corporation also pledges securities and loans as collat-
eral in transactions that include repurchase agreements, public and trust
deposits, U.S. Treasury Department (U.S. 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
levels vary depending on the
derivative activities. Required collateral
credit risk rating and the type of counterparty. Generally, the Corporation
accepts collateral in the form of cash, U.S. Treasury securities and other
marketable securities. Based on provisions contained in legal netting
agreements, the Corporation has netted cash collateral against the appli-
cable derivative mark-to-market exposures. Accordingly, the Corporation
offsets its obligation to return or its right to reclaim cash collateral
against the fair value of the derivatives being collateralized. The Corpo-
ration also pledges collateral on its own derivative positions which can be
applied against derivative liabilities.

Trading Instruments
Financial instruments utilized in trading activities are stated at fair value.
Fair value is generally based on quoted market prices or quoted market
prices for similar assets and liabilities. If these market prices are not
available,
fair values are estimated based on dealer quotes, pricing
models, discounted cash flow methodologies, or similar techniques for
which the determination of fair value may require significant management
judgment or estimation. Realized and unrealized gains and losses are
recognized in trading account profits (losses).

Derivatives and Hedging Activities
The Corporation designates a derivative as held for trading, an economic
hedge not designated as a SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities, as amended” (SFAS 133) hedge, or a
qualifying SFAS 133 hedge when it enters into the derivative contract. The
designation may change based upon management’s reassessment or
changing circumstances. Derivatives utilized by the Corporation include
swaps, financial futures and forward settlement contracts, and option
contracts. A swap agreement
is a contract between two parties to
exchange cash flows based on specified underlying notional amounts,
assets and/or indices. Financial futures and forward settlement contracts
are agreements to buy or sell a quantity of a financial instrument, index,
currency or commodity at a predetermined future date, and rate or price.
An option contract is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of a financial instru-
ment (including another derivative financial instrument), index, currency or
commodity at a predetermined rate or price during a period or at a time in
the future. Option agreements can be transacted on organized exchanges
or directly between parties. The Corporation also provides credit
derivatives to customers who wish to increase or decrease credit
exposures.
the Corporation utilizes credit derivatives to
manage the credit risk associated with the loan portfolio.

In addition,

All derivatives are recognized on the Consolidated Balance Sheet at
fair value, taking into consideration the effects of legally enforceable
master netting agreements that allow the Corporation to settle positive
and negative positions and offset cash collateral held with the same

122 Bank of America 2008

counterparty on a net basis. For exchange-traded contracts, fair value is
based on quoted market prices. For non-exchange traded contracts, fair
value is based on dealer quotes, pricing models, discounted cash flow
methodologies, or similar techniques for which the determination of fair
value may require significant management judgment or estimation.

Valuations of derivative assets and liabilities reflect the value of the
instrument including the values associated with counterparty risk. With
the issuance of SFAS 157, these values must also take into account the
Corporation’s own credit standing, thus including in the valuation of the
derivative instrument the value of the net credit differential between the
counterparties to the derivative contract. Effective January 1, 2007, the
Corporation updated its methodology to include the impact of both the
counterparty and its own credit standing.

Prior to January 1, 2007, the Corporation recognized gains and losses
at inception of a derivative contract only if the fair value of the contract
was evidenced by a quoted market price in an active market, an
observable price or other market transaction, or other observable data
in accordance with EITF Issue No. 02-3,
supporting a valuation model
“Issues Involved in Accounting for Derivative Contracts Held for Trading
Purposes and Contracts Involved in Energy Trading and Risk Management
Activities” (EITF 02-3). For those gains and losses not evidenced by the
above mentioned market data, the transaction price was used as the fair
value of the derivative contract. Any difference between the transaction
price and the model fair value was considered an unrecognized gain or
loss at inception of the contract. These unrecognized gains and losses
were recorded in income using the straight-line method of amortization
over the contractual life of the derivative contract. The adoption of SFAS
157 on January 1, 2007, eliminated the deferral of these gains and
losses resulting in the recognition of previously deferred gains and losses
as an increase to the beginning balance of retained earnings by a pre-tax
amount of $22 million.

Trading Derivatives and Economic Hedges
The Corporation designates at inception whether the derivative contract is
considered hedging or non-hedging for SFAS 133 accounting purposes.
Derivatives held for trading purposes are included in derivative assets or
derivative liabilities with changes in fair value reflected in trading account
profits (losses).

Derivatives used as economic hedges but not designated in a hedging
relationship for accounting purposes are also included in derivative
assets or derivative liabilities. Changes in the fair value of derivatives that
serve as economic hedges of mortgage servicing rights (MSRs), IRLCs
and first mortgage loans held-for-sale (LHFS) that are originated by the
Corporation are recorded in mortgage banking income. Changes in the fair
value of derivatives that serve as asset and liability management (ALM)
economic hedges, which do not qualify or were not designated as
accounting hedges, are recorded in other income (loss). Credit derivatives
used by the Corporation do not qualify for hedge accounting under SFAS
133 despite being effective economic hedges and changes in the fair
value of these derivatives are included in other income (loss).

Derivatives Used For SFAS 133 Hedge Accounting Purposes
For SFAS 133 hedges, the Corporation formally documents at inception
all relationships between hedging instruments and hedged items, as well
as its risk management objectives and strategies for undertaking various
accounting hedges. Additionally, the Corporation uses dollar offset or
regression analysis at the hedge’s inception and for each reporting period
thereafter to assess whether the derivative used in its hedging trans-
action is expected to be and has been highly effective in offsetting
changes in the fair value or cash flows of the hedged item. The Corpo-

ration discontinues hedge accounting when it
is determined that a
derivative is not expected to be or has ceased to be highly effective as a
hedge, and then reflects changes in fair value of the derivative in earn-
ings 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 predom-
inantly through the use of derivatives. Fair value hedges are used to
protect against changes in the fair value of the Corporation’s assets and
liabilities that are due to interest rate or foreign exchange volatility. Cash
flow hedges are used to minimize the variability in cash flows of assets or
liabilities, or forecasted transactions caused by interest rate or foreign
exchange fluctuation. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are hedged is 27 years,
with a substantial portion of the hedged transactions being less than 10
years. For open or future cash flow hedges, the maximum length of time
over which forecasted transactions are or will be hedged is less than
seven years. Changes in the fair value of derivatives designated as fair
value hedges are recorded in earnings, together and in the same income
statement line item with changes in the fair value of the related hedged
item. Changes in the fair value of derivatives designated as cash flow
hedges are recorded in accumulated other comprehensive income (OCI)
and are reclassified into the line item in the Consolidated Statement of
Income in which the hedged item is recorded in the same period the
hedged item affects earnings. Hedge ineffectiveness and gains and
losses on the excluded component of a derivative in assessing hedge
effectiveness are recorded in earnings in the same income statement line
item that is used to record hedge effectiveness. SFAS 133 retains certain
concepts of SFAS No. 52, “Foreign Currency Translation,” (SFAS 52) for
foreign currency exchange hedging. Consistent with SFAS 52, the Corpo-
ration records changes in the fair value of derivatives used as hedges of
the net investment in foreign operations, to the extent effective, as a
component of accumulated OCI.

liability. For

If a derivative instrument in a fair value hedge is terminated or the
hedge designation removed, the previous adjustments to the carrying
amount of the hedged asset or liability are subsequently accounted for in
the same manner as other components of the carrying amount of that
asset or
interest-earning assets and interest-bearing
liabilities, such adjustments are amortized to earnings over the remaining
life of the respective asset or liability. If a derivative instrument in a cash
flow hedge is terminated or the hedge designation is removed, related
amounts in accumulated OCI are reclassified into earnings in the same
period or periods during which the hedged forecasted transaction affects
earnings. If it is probable that a forecasted transaction will not occur, any
related amounts in accumulated OCI are reclassified into earnings in that
period.

Interest Rate Lock Commitments
The Corporation enters into IRLCs in connection with its mortgage bank-
ing activities to fund residential mortgage loans at specified times in the
future. IRLCs that relate to the origination of mortgage loans that will be
held for sale are considered derivative instruments under SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging
Activities.” As such, these IRLCs are recorded at fair value with changes
in fair value recorded in mortgage banking income.

Effective January 1, 2008, the Corporation adopted SAB 109 for its
derivative loan commitments issued or modified after the adoption date
which supersedes SEC SAB No. 105, “Application of Accounting Princi-
ples to Loan Commitments,” (SAB 105). SAB 109 requires that the
expected net future cash flows related to servicing of a loan be included

in the measurement of all written loan commitments that are accounted
for at fair value through earnings. In estimating the fair value of an IRLC,
the Corporation assigns a probability to the loan commitment based on
an expectation that it will be exercised and the loan will be funded. The
fair value of the commitments is derived from the fair value of related
mortgage loans which is based on observable market data. Changes to
the fair value of IRLCs are recognized based on interest rate changes,
changes in the probability that the commitment will be exercised and the
passage of time. Changes from the expected future cash flows related to
the customer relationship are excluded from the valuation of the IRLCs.
Prior to January 1, 2008, the Corporation did 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, as SAB 105 did not allow
expected net future cash flows related to servicing of a loan to be
included in the measurement of all written loan commitments that are
accounted for at fair value through earnings.

Outstanding IRLCs expose the Corporation to the risk that the price of
the loans underlying the commitments might decline from inception of the
rate lock to funding of the loan. To protect against this risk, the Corpo-
ration utilizes forward loan sales commitments and other derivative
instruments, including interest rate swaps and options, to economically
hedge the risk of potential changes in the value of the loans that would
result from the commitments. The changes in the fair value of these
derivatives are recorded in mortgage banking income.

Securities
Debt securities are classified based on management’s intention on the
date of purchase and recorded on the Consolidated Balance Sheet as
debt 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 account assets and are stated at fair value with
unrealized gains and losses included in trading account profits (losses).
All other debt securities that management has the intent and ability to
hold for the foreseeable future 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. If there is an other-than-temporary
deterioration in the fair value of any individual debt security classified as
AFS, the Corporation will reclassify the associated net unrealized loss out
of accumulated OCI with a corresponding adjustment to other income. If
there is an other-than-temporary deterioration in the fair value of any
individual security classified as held-to-maturity the Corporation will write
down the security to fair value with a corresponding adjustment to other
income. Interest on debt securities, including amortization of premiums
and accretion of discounts, is included in interest income. Realized gains
and losses from the sales of debt securities, which are included in gains
(losses) on sales of debt securities, are determined using the specific
identification method.

Marketable equity securities are classified based on management’s
intention on the date of purchase and recorded on the Consolidated
Balance Sheet as of the trade date. Marketable equity securities that are
bought and held principally for the purpose of resale in the near term are
classified as trading account assets and are stated at fair value with
unrealized gains and losses included in trading account profits (losses).
Other marketable equity securities that management has the intent and
ability to hold for the foreseeable future are accounted for as AFS and
classified in other assets. All AFS marketable equity securities are carried
at fair value with net unrealized gains and losses included in accumulated
OCI on an after-tax basis. If there is an other-than-temporary deterioration
in the fair value of any individual AFS marketable equity security, the

Bank of America 2008 123

Corporation will
reclassify the associated net unrealized loss out of
accumulated OCI with a corresponding adjustment to equity investment
income. Dividend income on all AFS marketable equity securities is
included in equity investment income. Realized gains and losses on the
sale of all AFS marketable equity securities, which are recorded in equity
investment
income, are determined using the specific identification
method.

Equity investments held by Principal

Investing, a diversified equity
investor in companies at all stages of their life cycle from startup to
buyout, are reported at fair value pursuant to the American Institute of
Certified Public Accountants (AICPA) Investment Company Audit Guide and
recorded in other assets. These investments are made either directly in a
company or held through a fund. Equity investments for which there are
active market quotes are carried at estimated fair value based on market
prices. Nonpublic and other equity investments for which representative
market quotes are not readily available are initially valued at the trans-
action price. Subsequently, the Corporation adjusts valuations when evi-
dence is available to support such adjustments. Such evidence includes
changes in value as a result of initial public offerings (IPO), market com-
parables, market
results, sales
restrictions, or other-than-temporary declines in value. The carrying value
of private equity investments reflects expected exit values based upon
market prices or other valuation methodologies including expected cash
flows and market comparables of similar companies. Additionally, certain
private equity investments that are not accounted for under the AICPA
Investment Company Audit Guide may be carried at fair value in accord-
ance with SFAS No. 159 “Fair Value Option for Financial Assets and
Liabilities” (SFAS 159). Gains and losses on these equity investments,
both unrealized and realized, are recorded in equity investment income.

the investees’

financial

liquidity,

between contractual cash flows and cash flows expected to be collected
from the Corporation’s initial investment in loans if those differences are
attributable, at least in part, to credit quality.

The initial fair values for loans within the scope of SOP 03-3 are
determined by discounting both principal and interest cash flows
expected to be collected using an observable discount rate for similar
instruments with adjustments that management believes a market partic-
ipant would consider in determining fair value. The Corporation estimates
the cash flows expected to be collected at acquisition using internal
credit risk, interest rate and prepayment risk models that incorporate
management’s best estimate of current key assumptions, such as
default rates, loss severity and payment speeds.

Subsequent decreases to expected principal cash flows will result in a
charge to provision for credit losses and a corresponding increase to
allowance for loan and lease losses. Subsequent increases in expected
principal cash flows will result in recovery of any previously recorded
allowance for loan losses, to the extent applicable, and a reclassification
from nonaccretable difference to accretable yield for any remaining
increase. All changes in expected interest cash flows will
in
reclassifications to/from nonaccretable differences.

result

the aggregate of

The Corporation provides equipment

financing to its customers
through a variety of lease arrangements. Direct financing leases are car-
lease payments receivable plus estimated
ried at
residual value of the leased property less unearned income. Leveraged
leases, which are a form of financing leases, are carried net of non-
recourse debt. Unearned income on leveraged and direct financing leases
is accreted to interest income over the lease terms by methods that
approximate the interest method.

Equity investments without readily determinable market values are
recorded in other assets, are accounted for using the cost method and
are subject to impairment testing if applicable.

Loans and Leases
Loans measured at historical cost are reported at their outstanding princi-
pal balances net of any unearned income, charge-offs, unamortized
deferred fees and costs on originated loans, and premiums or discounts
on purchased loans. Loan origination fees and certain direct origination
costs are deferred and recognized as adjustments to income over the
lives of the related loans. Unearned income, discounts and premiums are
amortized to interest income using methods that approximate the interest
method. Subsequent to the adoption of SFAS 159, on January 1, 2007
the Corporation elected the fair value option for certain loans. Fair values
for these loans are based on market prices, where available, or dis-
counted cash flows using market-based credit spreads of comparable
debt instruments or credit derivatives of the specific borrower or com-
parable borrowers. Results of discounted cash flow calculations may be
adjusted, as appropriate, to reflect other market conditions or the per-
ceived credit risk of the borrower.

The Corporation purchases loans with and without evidence of credit
quality deterioration since origination. Those loans with evidence of credit
quality deterioration for which it is probable at purchase that the Corpo-
ration will be unable to collect all contractually required payments are
accounted for under AICPA Statement of Position 03-3, “Accounting for
Certain Loans or Debt Securities Acquired in a Transfer” (SOP 03-3).
Evidence of credit quality deterioration as of the purchase date may
include statistics such as past due status, refreshed borrower credit
scores and refreshed loan-to-value (LTV), some of which are not immedi-
ately available as of the purchase date. The Corporation continues to
evaluate this information and other credit-related information as it
becomes available. SOP 03-3 addresses accounting for differences

Allowance for Credit Losses
The allowance for credit losses, which includes the allowance for loan
and lease losses and the reserve for unfunded lending commitments,
represents management’s estimate of probable losses inherent in the
Corporation’s lending activities. The allowance for loan and lease losses
and the reserve for unfunded lending commitments exclude loans and
unfunded lending commitments measured at fair value in accordance with
SFAS 159 as mark-to-market adjustments related to these instruments
already reflect a credit component. The allowance for loan and lease
losses represents the estimated probable credit
losses in funded
consumer and commercial
loans and leases while the reserve for
including standby letters of credit
unfunded lending commitments,
(SBLCs) and binding unfunded loan commitments, represents estimated
probable credit losses on these unfunded credit instruments based on
utilization assumptions. Credit exposures, excluding derivative assets,
trading account assets and loans measured at fair value, deemed to be
uncollectible are charged against these accounts. Cash recovered on
previously charged off amounts are recorded as recoveries to these
accounts.

The Corporation performs periodic and systematic detailed reviews of
its lending portfolios to identify credit risks and to assess the overall col-
lectability of those portfolios. The allowance on certain homogeneous
loan portfolios, which generally consist of consumer
loans (e.g.,
consumer real estate and credit card loans) and certain commercial loans
is based on
(e.g., business card and small business portfolio),
aggregated portfolio segment evaluations generally by product type. Loss
forecast models are utilized for these segments which consider a variety
of factors including, but not limited to, historical
loss experience, esti-
mated defaults or foreclosures based on portfolio trends, delinquencies,
economic conditions and credit scores. These models are updated on a
quarterly basis in order to incorporate information reflective of the current
economic environment. The remaining commercial portfolios are reviewed

124 Bank of America 2008

on an individual loan basis. Loans subject to individual reviews are ana-
lyzed and segregated by risk according to the Corporation’s internal risk
rating scale. These risk classifications, in conjunction with an analysis of
historical loss experience, current economic conditions, industry perform-
ance trends, geographic or obligor concentrations within each portfolio
segment, and any other pertinent information (including individual valu-
ations 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 expe-
rience is updated quarterly to incorporate the most recent data reflective
of the current economic environment.

impaired commercial

If necessary, a specific allowance for loan and lease losses is estab-
lished for individual
loans. A loan is considered
impaired when, based on current information and events, it is probable
that the Corporation will be unable to collect all amounts due, including
principal and interest, according to the contractual terms of the agree-
ment, and once a loan has been identified as individually impaired,
in accordance with SFAS 114.
management measures impairment
Individually impaired loans are measured based on the present value of
payments expected to be received, observable market prices, or for loans
that are solely dependent on the collateral for repayment, the estimated
fair value of the collateral. If the recorded investment in impaired loans
exceeds the present value of payments expected to be received, a
specific allowance is established as a component of the allowance for
loan and lease losses.

SOP 03-3 requires acquired impaired loans be recorded at fair value
and prohibits “carrying over” or the creation of valuation allowances in the
initial accounting of loans acquired in a transfer that are within the scope
of this SOP. The prohibition of the valuation allowance carryover applies
to the purchase of an individual loan, a pool of loans, a group of loans,
and loans acquired in a purchase business combination. For more
information on the SOP 03-3 portfolio associated with the acquisition of
Countrywide, see Note 6 – Outstanding Loans and Leases to the Con-
solidated Financial Statements.

The allowance for loan and lease losses includes two components
which are allocated to cover the estimated probable losses in each loan
and lease category based on the results of the Corporation’s detailed
review process described above. The first component covers those
commercial loans that are either nonperforming or impaired. The second
component covers consumer loans and leases, and performing commer-
loans and leases. Included within this second component of the
cial
allowance for loan and lease losses and determined separately from the
procedures outlined above are reserves which are maintained to cover
uncertainties that affect the Corporation’s estimate of probable losses
including domestic and global economic uncertainty and large single
name defaults. Management evaluates the adequacy of the allowance for
loan and lease losses based on the combined total of these two compo-
nents.

In addition to the allowance for loan and lease losses, the Corporation
also estimates probable losses related to unfunded lending commit-
ments, such as letters of credit and financial guarantees, and binding
unfunded loan commitments. The reserve for unfunded lending commit-
ments excludes commitments measured at fair value in accordance with
to individual
SFAS 159. Unfunded lending commitments are subject
reviews and are analyzed and segregated by risk according to the Corpo-
ration’s internal
in con-
junction with an analysis of historical
loss experience, utilization
assumptions, current economic conditions, performance trends within
specific portfolio segments and any other pertinent information, result in
the estimation of the reserve for unfunded lending commitments.

risk rating scale. These risk classifications,

The allowance for credit losses related to the loan and lease portfolio
is reported separately on the Consolidated Balance Sheet whereas the
allowance for credit losses related to the reserve for unfunded lending
commitments is reported on the Consolidated Balance Sheet in accrued
expenses and other liabilities. Provision for credit losses related to the
loan and lease portfolio and unfunded lending commitments is reported
in the Consolidated Statement of Income in the provision for credit loss-
es.

Nonperforming Loans and Leases, Charge-offs and
Delinquencies
In accordance with the Corporation’s policies, non-bankrupt credit card
loans, and open-end unsecured consumer loans are charged off no later
than the end of the month in which the account becomes 180 days past
due. The outstanding balance of real estate secured loans that is in
excess of the property value, less cost to sell, are charged off no later
than the end of the month in which the account becomes 180 days past
due. Personal property secured loans are charged off no later than the
end of the month in which the account becomes 120 days past due.
Accounts in bankruptcy are charged off
for credit card and certain
open-end unsecured accounts 60 days after bankruptcy notification. For
secured products, accounts in bankruptcy are written down to the
collateral value, less cost to sell, by the end of the month the account
becomes 60 days past due. Only real estate secured accounts are gen-
erally placed into nonaccrual status and classified as nonperforming at
90 days past due. These loans may be restored to performing status
when all principal and interest is current and full repayment of the remain-
ing contractual principal and interest is expected, or when the loan other-
wise becomes well-secured and is in the process of collection. Consumer
loans whose contractual terms have been restructured in a manner which
grants a concession to a borrower experiencing financial difficulties where
the Corporation does not receive adequate compensation are considered
troubled debt restructurings.

time under

Commercial loans and leases, excluding business card loans, that are
past due 90 days or more as to principal or interest, or where reasonable
doubt exists as to timely collection, including loans that are individually
identified as being impaired, are generally classified as nonperforming
unless well-secured and in the process of collection. Loans whose con-
tractual terms have been restructured in a manner which grants a con-
cession to a borrower experiencing financial difficulties, without
compensation on restructured loans, are classified as nonperforming until
the loan is performing for an adequate period of
the
restructured agreement. In situations where the Corporation does not
receive adequate compensation, the restructuring is considered a trou-
bled debt restructuring. Interest accrued but not collected is reversed
when a commercial loan is classified as nonperforming. Interest collec-
tions on commercial nonperforming loans and leases for which the ulti-
mate collectability of principal
is uncertain are applied as principal
reductions; otherwise, such collections are credited to income when
loans and leases may be restored to performing
received. Commercial
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. Busi-
ness card loans are charged off no later than the end of the month in
which the account becomes 180 days past due or in which 60 days has
elapsed since receipt of notification of bankruptcy filing, whichever comes
first, and are not classified as nonperforming.

The entire balance of a consumer and commercial

loan account is
contractually delinquent if the minimum payment is not received by the
specified due date on the customer’s billing statement. Interest and fees

Bank of America 2008 125

continue to accrue on past due loans until the date the loan goes into
nonaccrual status,
if applicable. Delinquency is reported on accruing
loans that are 30 days or more past due.

SOP 03-3 requires impaired loans be recorded at fair value at the
acquisition date. Although the customer may be contractually delinquent
or nonperforming the Corporation does not disclose these loans as delin-
quent or nonperforming as the loans were written down to fair value upon
acquisition and accrete interest income over the remaining life of the
loan. In addition, reported net charge-offs are lower as the initial fair
value at acquisition date would have already considered the estimated
credit losses in the fair valuing of these loans.

Loans Held-for-Sale
LHFS 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 or fair value. The
Corporation elected on January 1, 2007 to account for certain LHFS,
including first mortgage LHFS, at fair value in accordance with SFAS 159.
Fair values for LHFS are based on quoted market prices, where available,
or are determined by discounting estimated cash flows using interest
rates approximating the Corporation’s current origination rates for similar
loans and adjusted to reflect the inherent credit risk. Mortgage loan origi-
nation costs related to LHFS for which the Corporation elected the fair
value option are recognized in noninterest expense when incurred. Mort-
gage loan origination costs for LHFS carried at the lower of cost or market
are capitalized as part of the carrying amount of the loans and recognized
as a reduction of mortgage banking income upon the sale of such loans.

Premises and Equipment
Premises and Equipment are stated at cost less accumulated deprecia-
tion and amortization. Depreciation and amortization are recognized using
the straight-line method over the estimated useful
lives of the assets.
Estimated lives range up to 40 years for buildings, up to 12 years for
furniture and equipment, and the shorter of lease term or estimated
useful life for leasehold improvements.

Mortgage Servicing Rights
The Corporation accounts for consumer-related MSRs at fair value with
changes in fair value recorded in mortgage banking income in accordance
with SFAS No. 156 “Accounting for Servicing of Financial Assets” (SFAS
156), while commercial-related and residential reverse mortgage MSRs
continue to be accounted for using the amortization method (i.e., lower of
cost or market) with impairment recognized as a reduction to mortgage
banking income. To reduce the volatility of earnings to interest rate and
market value fluctuations, certain securities and derivatives such as
options and interest rate swaps may be used as economic hedges of the
MSRs, but are not designated as hedges under SFAS 133. These
economic hedges are marked to market and recognized through mortgage
banking income.

The Corporation determines the fair value of our consumer-related
MSRs using a valuation model that calculates the present value of esti-
mated future net servicing income. This is accomplished through an
option-adjusted spread (OAS) valuation approach which factors in
prepayment risk. This approach consists of projecting servicing cash
flows under multiple interest rate scenarios and discounting these cash
flows using risk-adjusted discount rates. The key economic assumptions
used in valuations of MSRs include weighted average lives of the MSRs
and the OAS levels. The OAS represents the spread that is added to the
discount rate so that the sum of the discounted cash flows equals the
market price, therefore it is a measure of the extra yield over the refer-

126 Bank of America 2008

ence discount factor (i.e., the forward swap curve) that the Corporation is
expected to earn by holding the asset. These variables can, and generally
do, change from quarter to quarter as market conditions and projected
interest rates change, and could have an adverse impact on the value of
our MSRs and could result in a corresponding reduction to mortgage
banking income.

Goodwill and Intangible Assets
Goodwill is calculated as the purchase premium after adjusting for the fair
value of net assets acquired. Goodwill is not amortized but is reviewed for
potential
impairment on an annual basis, or when events or circum-
stances indicate a potential impairment, at the reporting unit level. 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
the reporting unit
exceeds its fair value, an additional step has to be performed. This addi-
tional step compares the implied fair value of the reporting unit’s goodwill
(as defined in SFAS No. 142, “Goodwill and Other Intangible Assets”)
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. In 2008, 2007 and 2006, goodwill was tested for impairment and
it was determined that goodwill was not impaired at any of these dates.

the carrying amount of

impaired; however,

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.” An impairment loss will be recognized if
the carrying amount of
recoverable and
the intangible asset
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, 2008,
intangible assets included on the Consolidated Balance Sheet consist of
purchased credit card relationship intangibles, core deposit intangibles,
affinity relationships, and other intangibles that are amortized on an
accelerated or straight-line basis over anticipated periods of benefit of up
to 15 years.

is not

Special Purpose Financing Entities
In the ordinary course of business, the Corporation supports its custom-
ers’ financing needs by facilitating the customers’ access to different
funding sources, assets and risks. In addition, the Corporation utilizes
certain financing arrangements to meet its balance sheet management,
funding, liquidity, and market or credit risk management needs. These
financing entities may be in the form of corporations, partnerships, lim-
ited liability companies or trusts, and are generally not consolidated on
the Corporation’s Consolidated Balance Sheet. The majority of these
activities are basic term or revolving securitization vehicles for mortgages,
credit cards or other types of loans which are generally funded through
term-amortizing debt structures. Other special purpose entities finance
their activities by issuing short-term commercial paper. The securities
issued from both types of vehicles are designed to be paid off from the
underlying cash flows of the vehicles’ assets or the reissuance of com-
mercial paper.

Securitizations
The Corporation securitizes, sells and services interests in residential
mortgage loans and credit card loans, and from time to time, automobile,
other consumer and commercial loans. The accounting for these activities
is governed by SFAS 140. The securitization vehicles are typically QSPEs
which, in accordance with SFAS 140, are legally isolated, bankruptcy

remote and beyond the control of the seller. QSPEs are not included in
the Corporation’s Consolidated Financial Statements. When the Corpo-
ration securitizes assets, it may retain a portion of the securities, sub-
ordinated tranches, interest-only strips, subordinated interests in accrued
interest and fees on the securitized receivables, and, in some cases,
overcollateralization and cash reserve accounts, all of which are generally
considered retained interests in the securitized assets. The Corporation
may also retain senior
tranches in these securitizations. Gains and
losses upon sale of the assets are based on an allocation of the previous
carrying amount of the assets to the retained interests. Carrying amounts
of assets transferred are allocated in proportion to the relative fair values
of the assets sold and interests retained.

Quoted market prices are primarily used to obtain fair values of senior
retained interests. Generally, quoted market prices for retained residual
interests are not available; therefore, the Corporation estimates fair val-
ues based upon the present value of the associated expected future cash
flows. This may require management to estimate credit losses, prepay-
ment speeds, forward interest yield curves, discount rates and other fac-
retained interests. See Note 8 –
tors that
Securitizations to the Consolidated Financial Statements for further dis-
cussion.

the value of

impact

Interest-only strips retained in connection with credit card securitiza-
tions are classified in other assets and carried at fair value, with changes
in fair value recorded in card income. Other
retained interests are
recorded in other assets, AFS debt securities, or trading account assets
and are carried at fair value or amounts that approximate fair value with
changes recorded in income or accumulated OCI. If the fair value of such
retained interests has declined below its carrying amount and there has
been an adverse change in estimated contractual cash flows of the under-
lying assets, then such decline is determined to be other-than-temporary
and the retained interest is written down to fair value with a correspond-
ing adjustment to other income.

Other Special Purpose Financing Entities
Other special purpose financing entities (SPEs)
(e.g., Corporation-
sponsored multi-seller conduits, collateralized debt obligations, asset
acquisition conduits) are generally funded with short-term commercial
paper. These financing entities are usually contractually limited to a nar-
row range of activities that facilitate the transfer of or access to various
types of assets or financial instruments and provide the investors in the
transaction protection from creditors of the Corporation in the event of
bankruptcy or receivership of the Corporation. In certain situations, the
Corporation provides liquidity commitments and/or
loss protection
agreements.

The Corporation determines whether these entities should be con-
solidated by evaluating the degree to which it maintains control over the
financing entity and will receive the risks and rewards of the assets in the
financing entity. In making this determination, the Corporation considers
whether the entity is a QSPE, which is generally not required to be con-
solidated 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 entity that will absorb a
majority of expected variability (the sum of the absolute values of the
expected losses and expected residual returns) consolidates the VIE and
is referred to as the primary beneficiary. As certain events occur, the
Corporation reevaluates which parties will absorb variability and whether
the Corporation has become or
the primary benefi-
ciary. Reconsideration events may occur when VIEs acquire additional
assets, issue new variable interests or enter into new or modified con-
tractual arrangements. A reconsideration event may also occur when the

is no longer

Corporation acquires new or additional interests in a VIE. For additional
information on other SPEs, see Note 9 – Variable Interest Entities to the
Consolidated Financial Statements.

Fair Value
The Corporation measures the fair market values of its financial instru-
ments in accordance with SFAS 157, which requires an entity to maximize
the use of observable inputs and minimize the use of unobservable
inputs to determine the exit price. Also in accordance with SFAS 157, the
Corporation categorizes its financial instruments, based on the priority of
inputs to the valuation technique, into a three-level hierarchy, as dis-
cussed below. Trading account assets and liabilities, derivative assets
and liabilities, AFS debt and marketable equity securities, MSRs, and
certain other assets are carried at fair value in accordance with various
accounting literature, including SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115), SFAS 133, SFAS
156 and broker dealer or investment company guidance. The Corporation
has also elected to carry certain assets and liabilities at fair value in
accordance with SFAS 159 including certain corporate loans and loan
commitments, LHFS, structured reverse repurchase agreements, and
long-term deposits. SFAS 159 allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities on a contract-by-contract basis.

Level 1

Level 2

Level 3

term of

the assets or

Quoted prices in active markets for
identical assets or
liabilities. Level 1 assets and liabilities include debt and equity
securities and derivative contracts that are traded in an active
exchange market, as well as certain U.S. Treasury securities
that are highly liquid and are actively traded in over-the-counter
markets.
Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can
be corroborated by observable market data for substantially the
full
liabilities. Level 2 assets and
liabilities include debt securities with quoted prices that are
traded less frequently than exchange-traded instruments and
derivative contracts whose value is determined using a pricing
model with inputs that are observable in the market or can be
derived principally from or corroborated by observable market
data. This category generally includes U.S. government and
agency mortgage-backed debt securities, corporate debt secu-
rities, derivative contracts, residential mortgage and certain
LHFS.
Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or
liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as
well as instruments for which the determination of fair value
requires significant management judgment or estimation. This
category generally includes certain private equity investments,
retained residual interests in securitizations, residential MSRs,
asset-backed securities (ABS), highly structured, complex or
long-dated derivative contracts, certain LHFS, IRLCs and certain
collateralized debt obligations (CDOs) where independent pric-
ing information was not able to be obtained for a significant
portion of the underlying assets.

For more information on the fair value of the Corporation’s financial
instruments see Note 19 – Fair Value Disclosures to the Consolidated
Financial Statements.

Bank of America 2008 127

Income Taxes
The Corporation accounts for income taxes in accordance with SFAS
No. 109, “Accounting for Income Taxes” (SFAS 109) as interpreted by
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109” (FIN 48), 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 liabilities as measured by tax laws and their
bases as reported in the financial statements. Deferred tax assets are
also recognized for tax attributes such as net operating loss carryforwards
and tax credit carryforwards. Valuation allowances are then recorded to
reduce deferred tax assets to the amounts management concludes are
more-likely-than-not to be realized.

Under FIN 48,

income tax benefits are recognized and measured
based upon a two-step model: 1) a tax position must be more-likely-
than-not to be sustained based solely on its technical merits in order to
be recognized, and 2) the benefit is measured as the largest dollar
amount of that position that is more-likely-than-not to be sustained upon
settlement. The difference between the benefit recognized for a position
in accordance with this FIN 48 model and the tax benefit claimed on a tax
return is referred to as an unrecognized tax benefit (UTB). The Corporation
accrues income-tax-related interest and penalties, if applicable, within
income tax expense.
For additional

information on income taxes, see Note 18 – Income

Taxes to the Consolidated Financial Statements.

Retirement Benefits
The Corporation has established qualified retirement plans covering sub-
stantially all full-time and certain part-time employees. Pension expense
under these plans is charged to current operations and consists of sev-
eral components of net pension cost based on various actuarial assump-
tions regarding future experience under the plans.

In addition, the Corporation has established unfunded supplemental
benefit plans and supplemental executive retirement plans (SERPS) 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. The SERPS were frozen and the
executive officers do not accrue any additional benefits. These plans are
nonqualified under the Internal Revenue Code and assets used to fund
benefit payments are not segregated from other assets of the Corpo-
ration; therefore, in general, a participant’s or beneficiary’s claim to bene-
fits under
the
Corporation has established several postretirement healthcare and life
insurance benefit plans.

these plans is as a general creditor.

In addition,

The Corporation accounts for its retirement benefit plans in accord-
ance with SFAS No. 87, “Employers’ Accounting for Pensions” (SFAS 87),
SFAS No. 88, “Employers’ Accounting for Settlements and Curtailment of
Defined Benefit Pension Plans and for Termination Benefits,” SFAS
No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” and SFAS No. 158, “Employers’ Accounting for Defined Bene-
fit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R)” (SFAS 158), as applicable.

Accumulated Other Comprehensive Income
The Corporation records gains and losses on cash flow hedges, unreal-
ized gains and losses on AFS debt and marketable equity securities,

128 Bank of America 2008

unrecognized actuarial gains and losses, transition obligation and prior
service costs on pension and postretirement plans,
foreign currency
translation adjustments, and related hedges of net investments in foreign
operations in accumulated OCI, net-of-tax. Accumulated OCI also includes
fair value adjustments on certain retained interests in the Corporation’s
securitization transactions. Gains or losses on derivatives accounted for
as cash flow hedges are reclassified to net income when the hedged
transaction affects earnings. Gains and losses on AFS debt and market-
able equity securities are reclassified to earnings as the gains or losses
are realized upon sale of the securities. Other-than-temporary impairment
charges are reclassified to earnings at the time of the charge. Translation
translation adjustments are
gains or
reclassified to earnings upon the substantial sale or
liquidation of
investments in foreign operations.

losses on foreign currency

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. Net income available to common shareholders repre-
sents net income adjusted for preferred stock dividends including divi-
dends declared, accretions of discounts on preferred stock issuances and
cumulative dividends related to the current dividend period that have not
been declared as of year end. In addition, 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 outstanding for each period plus amounts
representing the dilutive effect of stock options outstanding, restricted
stock, restricted stock units, outstanding warrants, and the dilution result-
ing from the conversion of the registrant’s convertible preferred stock, if
applicable. The effects of convertible preferred stock, restricted stock,
restricted stock units, outstanding warrants and stock options are
excluded from the computation of diluted earnings per common share in
periods in which the effect would be antidilutive. Dilutive potential common
shares are calculated using the treasury stock method.

Foreign Currency Translation
Assets, liabilities and operations of foreign branches and subsidiaries are
recorded based on the functional currency of each entity. For certain of
the foreign operations, the functional currency is the local currency, in
which case the assets, liabilities and operations are translated, for con-
solidation purposes, at period-end rates from the local currency to the
reporting currency, the U.S. dollar. The resulting unrealized gains or
losses are reported as a component of accumulated OCI on an after-tax
basis. When the foreign entity’s functional currency is determined to be
the U.S. dollar, the resulting remeasurement currency gains or losses on
foreign denominated assets or liabilities are included in earnings.

Credit Card and Deposit Arrangements

Endorsing Organization Agreements
The Corporation contracts with other organizations to obtain their
endorsement of
the Corporation’s loan and deposit products. This
endorsement may provide the Corporation exclusive rights to market to
the organization’s members or to customers on behalf of the Corporation.
These organizations endorse the Corporation’s loan and deposit products
and provide the Corporation with their mailing lists and marketing activ-
ities. These agreements generally have terms that range from two to five

years. The Corporation typically pays royalties in exchange for
their
endorsement. Compensation costs related to the credit card agreements
are recorded as contra-revenue against card income.

Cardholder Reward Agreements
The Corporation offers reward programs that allow its cardholders to earn
points that can be redeemed for a broad range of rewards including cash,
travel and discounted products. The Corporation establishes a rewards
liability based upon the points earned which are expected to be redeemed
and the average cost per point redemption. The points to be redeemed
are estimated based on past redemption behavior, card product type,
account transaction activity and other historical card performance. The
liability is reduced as the points are redeemed. The estimated cost of the
rewards programs is recorded as contra-revenue against card income.

Insurance Premiums & Insurance Expense
Property and casualty and credit life and disability premiums are recog-
nized over the term of the policies on a pro-rata basis for all policies
except for certain of the lender-placed auto insurance and the guaranteed
auto protection (GAP) policies. For GAP insurance, revenue recognition is
correlated to the exposure and accelerated over the life of the contract.
For lender-placed auto insurance, premiums are recognized when collec-
tions become probable due to high cancellation rates experienced early in
the life of the policy. Mortgage reinsurance premiums are recognized as
earned. Insurance expense consists of insurance claims and commis-
sions, both of which are recorded in other general operating expense in
the Consolidated Statement of Income.

Note 2 – Merger and Restructuring Activity

Merrill Lynch
On January 1, 2009, the Corporation acquired Merrill Lynch through its
merger with a subsidiary of the Corporation in exchange for common and
preferred stock with a value of $29.1 billion, creating a premier financial
services franchise with significantly enhanced wealth management,
investment banking and international capabilities. Under the terms of the
merger agreement, Merrill Lynch common shareholders received 0.8595
of a share of Bank of America Corporation common stock in exchange for
each share of Merrill Lynch common stock. In addition, Merrill Lynch
non-convertible preferred shareholders received Bank of America Corpo-
ration preferred stock having substantially identical terms. Merrill Lynch
convertible preferred stock remains outstanding and is convertible into
Bank of America common stock at an equivalent exchange ratio. With the
acquisition, the Corporation has one of the largest wealth management
businesses in the world with more than 18,000 financial advisors and
more than $1.8 trillion in client assets. Global investment management
capabilities will include an economic ownership of approximately 50 per-
Inc., a publicly traded
cent
(primarily preferred stock)
investment management company.
the acquisition adds
strengths in debt and equity underwriting, sales and trading, and merger
and acquisition advice, creating significant opportunities to deepen rela-
tionships with corporate and institutional clients around the globe. Merrill
Lynch’s results of operations will be included in the Corporation’s results
beginning January 1, 2009.

in BlackRock,

In addition,

The Merrill Lynch merger is being accounted for under the acquisition
method of accounting in accordance with SFAS 141R. Accordingly, the
purchase price was preliminarily allocated to the acquired assets and
liabilities based on their estimated fair values at the Merrill Lynch acquis-
ition date as summarized in the following table. Preliminary goodwill of
$5.4 billion is calculated as the purchase premium after adjusting for the
fair value of net assets acquired and represents the value expected from
the synergies created from combining the Merrill Lynch wealth manage-
ment and corporate and investment banking businesses with the Corpo-
ration’s capabilities in consumer and commercial banking as well as the
economies of scale expected from combining the operations of the two
companies. The allocation of the purchase price will be finalized upon
completion of the analysis of the fair values of Merrill Lynch’s assets and
liabilities.

Bank of America 2008 129

Merrill Lynch Preliminary Purchase Price Allocation

(Dollars in billions, except per share amounts)
Purchase price
Merrill Lynch common shares exchanged (in millions)
Exchange ratio

The Corporation’s common stock issued (in millions)
Purchase price per share of the Corporation’s common stock (1)

Total value of the Corporation’s common stock and cash exchanged for fractional shares

Merrill Lynch preferred stock (2)
Fair value of outstanding employee stock awards

Total purchase price

Preliminary allocation of the purchase price
Merrill Lynch stockholders’ equity
Merrill Lynch goodwill and intangible assets
Pre-tax adjustments to reflect acquired assets and liabilities at fair value:

Securities
Loans
Intangible assets (3)
Other assets
Other liabilities
Long-term debt

Pre-tax total adjustments

Deferred income taxes

After-tax total adjustments

Fair value of net assets acquired
Preliminary goodwill resulting from the Merrill Lynch merger (4)

1,600
0.8595

1,375
$ 14.08

19.4
8.6
1.1

29.1

19.9
(2.6)

(0.9)
(5.0)
5.8
(3.6)
(1.2)
15.5

10.6
(4.2)

6.4

23.7

5.4

(1) The value of the shares of common stock exchanged with Merrill Lynch shareholders was based upon the closing price of the Corporation’s common stock at December 31, 2008, the last traded day prior to the date of

acquisition.

(2) Represents Merrill Lynch’s preferred stock exchanged for Bank of America preferred stock having substantially identical terms and also includes $1.5 billion of convertible preferred stock.
(3) Consists of trade name of $1.3 billion and customer relationship and core deposit intangibles of $4.5 billion. The amortization life is 10 years for the customer relationship and core deposit intangibles which will be

primarily amortized on a straight-line basis.

(4) No goodwill is expected to be deductible for federal income tax purposes. The goodwill will be primarily allocated to Global Corporate and Investment Banking and Global Wealth and Investment Management.

Preliminary Condensed Statement of Net Assets Acquired
The following condensed statement of net assets acquired reflects the
preliminary value assigned to Merrill Lynch’s net assets as of the acquis-
ition date.

(Dollars in billions)

Assets

Federal funds sold and securities purchased under

agreement to resell/securities borrowed

Trading account assets
Derivative assets
Investment securities
Loans and leases
Intangible assets
Other assets

Total assets

Liabilities

Deposits
Federal funds purchased and securities sold under
agreements to repurchase/securities loaned

Trading account liabilities
Derivative liabilities
Commercial paper and other short-term borrowings
Accrued expenses and other liabilities
Long-term debt

Total liabilities

Fair value of net assets acquired (1)

January 1, 2009

$138.8
87.9
97.7
74.4
52.7
5.8
194.3

$651.6

$ 98.1

111.6
18.1
72.0
37.9
100.8
189.4

627.9

$ 23.7

(1) The fair value of net assets acquired excludes preliminary goodwill resulting from the Merrill Lynch

merger of $5.4 billion.

The fair value of net assets acquired includes preliminary fair value
adjustments to certain receivables that were not considered impaired as
of the acquisition date. These fair value adjustments were determined
using incremental spread impacts for credit and liquidity risk which are
part of the rate used to discount contractual cash flows. However, the
Corporation believes that all contractual cash flows related to these
financial instruments will be collected. As such, these receivables were
not considered impaired at the acquisition date and were not subject to
the requirements of SOP 03-3. Receivables acquired that were not sub-
ject to the requirements of SOP 03-3 include non-impaired loans and
customer receivables with a preliminary fair value and gross contractual
amounts receivable of $150.7 billion and $156.1 billion at the time of
acquisition.

Contingencies
The fair value of net assets acquired includes certain contingent liabilities
that were recorded as of the acquisition date. Merrill Lynch has been
named as a defendant in various pending legal actions and proceedings
arising in connection with its activities as a global diversified financial
services institution. Some of these legal actions and proceedings include
claims for substantial compensatory and/or punitive damages or claims
for indeterminate amounts of damages. Merrill Lynch is also involved in
investigations and/or proceedings by governmental and self-regulatory
agencies. Due to the number of variables and assumptions involved in
assessing the possible outcome of
these legal actions, sufficient
information does not exist to reasonably estimate the fair value of these
contingent liabilities. As such, these contingencies have been measured
in accordance with SFAS No. 5, “Accounting for Contingencies” (SFAS 5).
For further information, see Note 13 – Commitments and Contingencies
to the Consolidated Financial Statements.

130 Bank of America 2008

In connection with the Merrill Lynch acquisition,

the Corporation
recorded certain guarantees, primarily standby liquidity facilities and let-
ters of credit, with a fair value of approximately $1.0 billion. At January 1,
the maximum payout that could arise from these guarantees
2009,
ranged from $0 to approximately $20.0 billion.

Countrywide
On July 1, 2008, the Corporation acquired Countrywide through its merger
with a subsidiary of the Corporation. Under the terms of the agreement,
Countrywide shareholders received 0.1822 of a share of Bank of America
Corporation common stock in exchange for each share of Countrywide
common stock. The acquisition of Countrywide significantly improved the
Corporation’s mortgage originating and servicing capabilities, while mak-
ing us a leading mortgage originator and servicer.

As provided by the merger agreement, 583 million shares of Country-
wide common stock were exchanged for 107 million shares of the Corpo-
ration’s common stock. The $2.0 billion of Countrywide’s Series B
convertible preferred shares that were previously held by the Corporation
were cancelled.

The merger is being accounted for as a purchase in accordance with
SFAS 141. Accordingly, the purchase price was preliminarily allocated to
the assets acquired and liabilities assumed based on their estimated fair
values at the merger date as summarized below. The final allocation of
the purchase price will be finalized upon completing the analysis of the
fair values of Countrywide’s assets and liabilities.

Countrywide Preliminary Purchase Price Allocation

(Dollars in billions)
Purchase price (1)
Preliminary allocation of the purchase price
Countrywide stockholders’ equity (2)
Pre-tax adjustments to reflect assets acquired and liabilities assumed

at fair value:
Loans
Investments in other financial instruments
Mortgage servicing rights
Other assets
Deposits
Notes payable and other liabilities

Pre-tax total adjustments

Deferred income taxes

After-tax total adjustments

Fair value of net assets acquired
Preliminary goodwill resulting from the Countrywide merger (3)

$ 4.2

8.4

(9.8)
(0.3)
(1.5)
(0.8)
(0.2)
(0.9)

(13.5)
4.9

(8.6)

(0.2)

$ 4.4

(1) The value of the shares of common stock exchanged with Countrywide 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 January 11, 2008, the date of the Countrywide merger
agreement.

(2) Represents the remaining Countrywide shareholders’ equity as of

the
cancellation of the $2.0 billion of Series B convertible preferred shares owned by the Corporation, as
part of the merger.

the acquisition date after

(3) No goodwill is expected to be deductible for federal income tax purposes. All the goodwill was allocated

to Global Consumer and Small Business Banking.

The Corporation acquired certain loans for which there was, at the
time of the merger, evidence of deterioration of credit quality since origi-
nation and for which it was probable that all contractually required pay-
ments would not be collected. For more information, see the Countrywide
SOP 03-3 discussion in Note 6 – Outstanding Loans and Leases to the
Consolidated Financial Statements.

LaSalle
On October 1, 2007, the Corporation acquired all the outstanding shares
of LaSalle, for $21.0 billion in cash. As part of the acquisition, ABN
AMRO Bank N.V. (the seller) capitalized approximately $6.3 billion as
equity of intercompany debt prior to the date of acquisition. With this
acquisition, the Corporation significantly expanded its presence in metro-
politan Chicago, Illinois and Michigan by adding LaSalle’s commercial
banking clients, retail customers and banking centers. LaSalle’s results
of operations were included in the Corporation’s results beginning
October 1, 2007.

The LaSalle acquisition was accounted for under the purchase method
of accounting in accordance with SFAS 141. The purchase price has been
allocated to the assets acquired and the liabilities assumed based on
their fair values at the LaSalle acquisition date as summarized in the fol-
lowing table.

LaSalle Purchase Price Allocation

(Dollars in billions)

Purchase price

Allocation of the purchase price
LaSalle stockholders’ equity
LaSalle goodwill and other intangible assets
Adjustments, net-of-tax, to reflect assets acquired and liabilities

assumed at fair value:
Loans and leases
Premises and equipment
Identified intangibles (1)
Other assets
Exit and termination liabilities

Fair value of net assets acquired
Goodwill resulting from the LaSalle merger (2)

$21.0

12.5
(2.7)

(0.1)
(0.2)
1.0
(0.3)
(0.4)

9.8

$11.2

(1)

Includes core deposit intangibles of $0.7 billion, and other intangibles of $0.3 billion. The amortization
life for core deposit intangibles and other intangibles is 10 years. These intangibles are amortized on an
accelerated basis.

(2) No goodwill is deductible for federal income tax purposes. The goodwill has been allocated across all of

the Corporation’s business segments.

The Corporation acquired certain loans for which there was, at the
time of the merger, evidence of deterioration of credit quality since origi-
nation and for which it was probable that all contractually required pay-
ments would not be collected. The outstanding contractual balance of
such loans was approximately $850 million and the recorded fair value
was approximately $650 million as of the merger date. At December 31,
2007, the outstanding contractual balance of such loans was approx-
imately $710 million and the recorded fair value was approximately $590
million. At December 31, 2008, the outstanding contractual balance and
the recorded fair value of these loans were not material.

U.S. Trust Corporation
On July 1, 2007, the Corporation acquired all the outstanding shares of
U.S. Trust Corporation for $3.3 billion in cash. The Corporation allocated
$1.7 billion to goodwill and $1.2 billion to intangible assets as part of the
purchase price allocation. U.S. Trust Corporation’s results of operations
were included in the Corporation’s results beginning July 1, 2007. The
acquisition significantly increased the size and capabilities of the Corpo-
ration’s wealth management business and positions it as one of the larg-
est financial services companies managing private wealth in the U.S.

Bank of America 2008 131

Merger-related Exit Cost and Restructuring
Reserves
The following table presents the changes in exit cost and restructuring
reserves for 2008 and 2007.

(Dollars in millions)

Balance, January 1
Exit costs and restructuring charges:

Countrywide
LaSalle
U.S. Trust Corporation
MBNA
Cash payments

Exit Cost
Reserves (1)

2008

2007

$ 377

$ 125

588
31
(3)
(6)
(464)

–
339
52
–
(139)

Restructuring
Reserves (2)

2008

$ 108

2007

$ 67

71
25
40
(3)
(155)

–
47
38
17
(61)

Balance, December 31

$ 523

$ 377

$ 86

$108

(1) Exit cost reserves were established in purchase accounting resulting in an increase in goodwill.
(2) Restructuring reserves were established by a charge to merger and restructuring charges.

As of December 31, 2007, there were $377 million of exit cost
reserves related to the MBNA, U.S. Trust Corporation, and LaSalle merg-
ers, including $187 million for severance, relocation and other employee-
related costs and $190 million for contract terminations. During 2008,
the net amount of $610 million was added to the exit cost reserves,
primarily related to the Countrywide acquisition, including $536 million for
severance, relocation and other employee-related costs, and $74 million
for contract terminations. The $31 million exit costs and restructuring
charges for 2008 was net of $56 million in exit cost reserve adjustments
related to the LaSalle acquisition primarily due to lower than expected
lease terminations with the offset being recorded as a reduction to good-
will. Cash payments of $464 million during 2008 consisted of $376 mil-
lion in severance, relocation and other employee-related costs and $88
million for contract terminations. As of December 31, 2008, exit cost
reserves of $523 million included $383 million for Countrywide, $135
million for LaSalle and $5 million for U.S. Trust Corporation. As of
December 31, 2008, there were no exit cost reserves related to the
MBNA acquisition.

As of December 31, 2007, there were $108 million of restructuring
reserves related to the MBNA, U.S. Trust Corporation and LaSalle merg-
ers, including $104 million related to severance and other employee-
related costs and $4 million related to contract terminations. During
2008, $133 million was added to the restructuring reserves related to
severance and other employee-related costs primarily associated with the
Countrywide acquisition. Cash payments of $155 million during 2008
consisted of $153 million in severance and other employee-related costs
and $2 million in contract terminations. As of December 31, 2008,
restructuring reserves of $86 million included $37 million for Country-
wide, $30 million for LaSalle and $19 million for U.S. Trust Corporation.
As of December 31, 2008, there were no restructuring reserves related to
the MBNA acquisition.

Payments under exit cost and restructuring reserves associated with
the MBNA acquisition were substantially completed in 2007 while pay-
ments associated with the U.S. Trust Corporation, LaSalle and Country-
wide acquisitions will continue into 2009.

MBNA
On January 1, 2006, the Corporation acquired all of the outstanding
shares of MBNA Corporation (MBNA) and as a result, 1,260 million
shares of MBNA common stock were exchanged for 631 million shares of
the Corporation’s common stock. MBNA shareholders also received cash
of $5.2 billion. MBNA’s results of operations were included in the Corpo-
ration’s results beginning January 1, 2006.

Unaudited Pro Forma Condensed Combined
Financial Information
If the Merrill Lynch and Countrywide mergers had been completed on
January 1, 2008 and 2007, total revenue, net of interest expense would
have been $58.5 billion and $83.9 billion for 2008 and 2007, and net
income (loss) from continuing operations would have been $(30.3) billion
and $4.4 billion. These results include the impact of amortizing certain
purchase accounting adjustments such as intangible assets as well as
fair value adjustments to loans, securities and issued debt. Pro forma
results of operations also include the impact of conforming certain
acquiree accounting policies to the Corporation’s policies. The pro forma
financial information does not indicate the impact of possible business
model changes nor does it consider any potential
impacts of current
market conditions or revenues, expense efficiencies, asset dispositions,
share repurchases, or other factors.

Merger and Restructuring Charges
Merger and restructuring charges are recorded in the Consolidated State-
ment of Income and include incremental costs to integrate the operations
of the Corporation, Countrywide, LaSalle, U.S. Trust Corporation and
MBNA. These charges represent costs associated with these one-time
activities and do not represent ongoing costs of the fully integrated com-
bined organization. The following table presents severance and employee-
related charges, systems integrations and related charges, and other
merger-related charges.

(Dollars in millions)

2008 (1)

2007 (2)

Severance and employee-related charges
Systems integrations and related charges
Other

Total merger and restructuring

charges

$138
640
157

$935

$106
240
64

2006

$ 85
552
168

$410

$805

(1)

(2)

Included for 2008 are merger-related charges of $623 million, $205 million and $107 million related to
the LaSalle, Countrywide and U.S. Trust Corporation mergers, respectively.
Included for 2007 are merger-related charges of $233 million, $109 million and $68 million related to
the MBNA, U.S. Trust Corporation and LaSalle mergers, respectively.

132 Bank of America 2008

Note 3 – Trading Account Assets and Liabilities
The following table presents the fair values of the components of trading account assets and liabilities at December 31, 2008 and 2007.

(Dollars in millions)

Trading account assets

U.S. government and agency securities (1)
Corporate securities, trading loans and other
Equity securities
Foreign sovereign debt
Mortgage trading loans and asset-backed securities

Total trading account assets

Trading account liabilities

U.S. government and agency securities
Equity securities
Foreign sovereign debt
Corporate securities and other

Total trading account liabilities

December 31

2008

2007

$ 84,660
34,056
20,258
13,614
6,934

$159,522

$ 32,850
12,128
7,252
5,057

$ 57,287

$ 48,240
55,360
22,910
17,161
18,393

$162,064

$ 35,375
25,926
9,292
6,749

$ 77,342

(1)

Includes $52.6 billion and $21.5 billion at December 31, 2008 and 2007 of government-sponsored enterprise obligations.

Note 4 – Derivatives
The Corporation designates derivatives as trading derivatives, economic
hedges, or as derivatives used for SFAS 133 accounting purposes. For
additional information on the Corporation’s derivatives and hedging activ-
ities, see Note 1 – Summary of Significant Accounting Principles to the
Consolidated Financial Statements.

The following table presents the contract/notional amounts and credit
risk amounts at December 31, 2008 and 2007 of all the Corporation’s
derivative positions.

The credit risk amounts take into consideration the effects of legally
enforceable master netting agreements, and on an aggregate basis have

been reduced by the cash collateral applied against derivative assets. At
December 31, 2008 and 2007,
the cash collateral applied against
derivative assets was $34.8 billion and $12.8 billion. In addition, at
December 31, 2008 and 2007,
the cash collateral applied against
derivative liabilities was $30.3 billion and $10.0 billion. The average fair
value of derivative assets, less cash collateral, for 2008 and 2007 was
$48.1 billion and $29.7 billion. The average fair value of derivative
liabilities, less cash collateral, for 2008 and 2007 was $27.0 billion and
$20.6 billion. The Corporation held $48.8 billion of collateral on
derivative positions, of which $42.5 billion could be applied against credit
risk at December 31, 2008.

(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

Purchased protection:

Credit default swaps
Total return swaps

Written protection:

Credit default swaps
Total return swaps

Credit risk before cash collateral

Less: Cash collateral applied

Total derivative assets

(1) Represents the total contract/notional amount of the derivatives outstanding and includes both written and purchased protection.

December 31, 2008

December 31, 2007

Contract/
Notional (1)

$26,577,385
4,432,102
1,731,055
1,656,641

438,932
1,376,483
199,846
175,678

34,685
14,145
214,125
217,461

2,110
9,633
17,574
15,570

1,025,876
6,575

1,000,034
6,203

Credit
Risk

$48,225
1,008
–
5,188

6,040
10,888
–
2,002

1,338
198
–
7,284

1,000
222
–
249

11,772
1,678

–
–

97,092
34,840

$62,252

Contract/
Notional (1)

$22,472,949
2,596,146
1,402,626
1,479,985

505,878
1,600,683
341,148
339,101

56,300
12,174
166,736
195,240

13,627
14,391
14,206
13,093

1,490,641
13,551

1,517,305
24,884

Credit
Risk

$15,368
10
–
2,508

7,350
4,124
–
1,033

2,026
10
–
6,337

770
12
–
372

6,822
671

–
–

47,413
12,751

$34,662

Bank of America 2008 133

financial

international

The Corporation executes the majority of its derivative positions in the
over-the-counter market with large,
institutions,
including broker/dealers and, to a lesser degree with a variety of other
investors. The Corporation is subject to counterparty credit risk in the
event that these counterparties fail to perform under the terms of their
contracts and records valuation adjustments against the derivative assets
to reflect counterparty credit risk. Substantially all of the derivative trans-
actions are executed on a daily margin basis. Therefore, events such as a
credit downgrade (depending on the ultimate rating level) or a breach of
credit covenants would typically require an increase in the amount of col-
lateral required of the counterparty (where applicable), and/or allow the
Corporation to take additional protective measures such as early termi-
nation of all trades. Further, as discussed above, 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 the occurrence of certain events. During 2008, valu-
ation adjustments of $3.2 billion were recognized as trading account
losses for counterparty credit risk. At December 31, 2008, the cumulative
counterparty credit risk valuation adjustment that was netted against the
derivative asset balance was $4.0 billion.

In addition, the fair value of the Corporation’s derivative liabilities is
adjusted to reflect the impact of the Corporation’s credit quality. During
2008, valuation adjustments of $364 million were recognized as trading
account profits for changes in the Corporation’s credit
risk. At
December 31, 2008, the Corporation’s cumulative credit risk valuation
adjustment that was netted against the derivative liabilities balance was
$573 million.

Credit Derivatives
The Corporation enters into credit derivatives primarily to facilitate client
transactions and to manage credit risk exposures. Credit derivatives
derive value based on an underlying third party-referenced obligation or a
portfolio of referenced obligations and generally require the Corporation
as the seller of credit protection to make payments to a buyer upon the
occurrence of a predefined credit event. Such credit events generally
include bankruptcy of the referenced credit entity and failure to pay under
the obligation, as well as acceleration of indebtedness and payment
repudiation or moratorium. For credit derivatives based on a portfolio of
referenced credits or credit indices, the Corporation may not be required
to make payment until a specified amount of loss has occurred and/or
may only be required to make payment up to a specified amount.

Credit derivative instruments in which the Corporation is the seller of
credit protection and their expiration at December 31, 2008 are summar-
ized in the table below. These instruments have been classified as
investment and non-investment grade based on the credit quality of the
underlying reference name within the credit derivative.

For most credit derivatives, the notional value represents the max-
imum amount payable by the Corporation. However, the Corporation does
not exclusively monitor
its exposure to credit derivatives based on
notional value because this measure does not take into consideration the
probability of occurrence. As such, the notional value is not a reliable

indicator of the Corporation’s exposure to these contracts. Instead, a risk
framework is used to define risk tolerances and establish limits to help to
ensure that certain credit risk-related losses occur within acceptable,
predefined limits.

The Corporation may economically hedge its exposure to credit
derivatives by entering into a variety of offsetting derivative contracts and
security positions. For example, in certain instances, the Corporation may
purchase credit protection with identical underlying referenced names to
the carrying value and
offset its exposure. At December 31, 2008,
notional value of credit protection sold in which the Corporation held
purchased protection with identical underlying referenced names was
$92.4 billion and $819.4 billion.

ALM Activities
Interest rate contracts and foreign exchange contracts are utilized in the
Corporation’s ALM activities. The Corporation maintains an overall inter-
est rate risk management strategy that incorporates the use of interest
rate contracts to minimize significant fluctuations in earnings that are
caused by interest rate volatility. The Corporation’s goal
is to manage
interest rate sensitivity so that movements in interest rates do not sig-
nificantly adversely affect net interest income. As a result of interest rate
fluctuations hedged fixed-rate assets and liabilities appreciate or depreci-
ate in market value. Gains or losses on the derivative instruments that
are linked to the hedged fixed-rate assets and liabilities are expected to
substantially offset this unrealized appreciation or depreciation. Interest
income and interest expense on hedged variable-rate assets and
liabilities increase or decrease as a result of interest rate fluctuations.
Gains and losses on the derivative instruments that are linked to these
hedged assets and liabilities are expected to substantially offset this
variability in earnings.

Interest rate contracts, which are generally non-leveraged generic inter-
est 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 pay-
ments based on the contractual underlying notional amount. Basis swaps
involve the exchange of interest payments based on the contractual under-
lying notional amounts, where both the pay rate and the receive rate are
floating rates based on different indices. Option products primarily consist
of caps, floors and swaptions. Futures contracts used for the Corpo-
ration’s ALM activities 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-denominated
assets and liabilities, as well as the Corporation’s investments in foreign
subsidiaries. Foreign exchange contracts, which include spot and forward
contracts, represent agreements to exchange the currency of one country
for the currency of another country at an agreed-upon price on an agreed-
upon settlement date. Exposure to loss on these contracts will increase
or decrease over their respective lives as currency exchange and interest
rates fluctuate.

(Dollars in millions)

Investment grade (2)
Non-investment grade (3)

Total

Maximum

Payout/Notional (1)

Less than One
Year

$ 801,886
198,148

$1,000,034

$1,039
1,483

$2,522

One to
Three Years

$13,062
9,222

$22,284

Three to
Five Years

$32,594
19,243

$51,837

Over Five
Years

$29,153
13,012

$42,165

Carrying
Value

$ 75,848
42,960

$118,808

(1) Excludes total return swaps as they are not specifically linked to a credit index or credit event.
(2) The Corporation considers ratings of BBB- or higher to meet the definition of investment grade.
(3)

Includes non-rated credit derivative instruments.

134 Bank of America 2008

Fair Value, Cash Flow and Net Investment Hedges
The Corporation uses various types of interest rate and foreign exchange
derivative contracts to protect against changes in the fair value of its
assets and liabilities due to fluctuations in interest rates and exchange
rates (fair value hedges). The Corporation also uses these types of con-
tracts to protect against changes in the cash flows of its assets and
liabilities, and other forecasted transactions (cash flow hedges). During
the next 12 months, net losses on derivative instruments included in
accumulated OCI of approximately $1.2 billion ($786 million after-tax) are
expected to be reclassified into earnings. These net losses reclassified
into earnings are expected to reduce net interest income related to the
respective hedged items.

The following table summarizes certain information related to the
Corporation’s derivative hedges accounted for under SFAS 133 for 2008,
2007 and 2006.

The Corporation hedges its net investment in consolidated foreign
operations determined to have functional currencies other than the U.S.
dollar using forward foreign exchange contracts that typically settle in 90
days as well as by issuing foreign-denominated debt. The Corporation
recorded a net derivative gain of $2.8 billion in accumulated OCI asso-
investment hedges for 2008 as compared to net
ciated with net
derivative losses of $516 million and $475 million for 2007 and 2006.

(Dollars in millions)

Fair value hedges

Hedge ineffectiveness recognized in net interest income

Cash flow hedges

Hedge ineffectiveness recognized in net interest income
Net gains on transactions which are probable of not occurring recognized in other income

2008

2007

2006

$28

(7)
–

$55

4
18

$23

18
–

Note 5 – Securities
The amortized cost, gross unrealized gains and losses in accumulated OCI, and fair value of AFS debt and marketable equity securities at
December 31, 2008 and 2007 were:

(Dollars in millions)

Available-for-sale debt securities, December 31, 2008
U.S. Treasury securities and agency debentures
Mortgage-backed securities (1)
Foreign securities
Corporate/Agency bonds
Other taxable securities (2)

Total taxable securities

Tax-exempt securities

Total available-for-sale debt securities

Available-for-sale marketable equity securities (3)

Available-for-sale debt securities, December 31, 2007
U.S. Treasury securities and agency debentures
Mortgage-backed securities (1)
Foreign securities
Corporate/Agency bonds
Other taxable securities (2)

Total taxable securities

Tax-exempt securities

Total available-for-sale debt securities

Available-for-sale marketable equity securities (3)

Amortized
Cost

4,540
235,137
5,675
5,560
24,832

275,744
10,501

$286,245

$ 18,892

749
166,768
6,568
3,107
24,608

201,800
14,468

$216,268

$ 6,562

Gross
Unrealized
Gains

Gross
Unrealized
Losses

121
3,924
6
31
11

4,093
44

$ 4,137

$ 7,717

10
92
290
2
69

463
73

536

$13,530

(14)
(9,483)
(678)
(1,022)
(1,300)

(12,497)
(981)

$(13,478)

$ (1,537)

–
(3,144)
(101)
(76)
(84)

(3,405)
(69)

$ (3,474)

(352)

Fair Value

4,647
229,578
5,003
4,569
23,543

267,340
9,564

$276,904

$ 25,072

759
163,716
6,757
3,033
24,593

198,858
14,472

$213,330

$ 19,740

(1) The majority of securities were issued by U.S. government-backed or government-sponsored enterprises.
(2)
(3) Represents those AFS marketable equity securities that are recorded in other assets on the Consolidated Balance Sheet. At December 31, 2008 and 2007, approximately $19.7 billion and $16.2 billion of the fair

Includes ABS.

value balance, including $7.7 billion and $13.4 billion of unrealized gain, represents China Construction Bank (CCB) shares.

At December 31, 2008 and 2007, both the amortized cost and fair
value of held-to-maturity debt securities was $685 million and $726 mil-
lion and the accumulated net unrealized gains (losses) on AFS debt and
marketable equity securities included in accumulated OCI were $(2.0) bil-
lion and $6.6 billion, net of the related income tax expense (benefit) of
$(1.1) billion and $3.7 billion.

losses were comprised of $3.5 billion and $398 million on AFS debt
securities during 2008 and 2007 and $661 million on AFS marketable
equity securities during 2008. No such losses on AFS marketable equity
securities were recognized during 2007. At December 31, 2008 and
2007, the Corporation had nonperforming AFS debt securities of $291
million and $180 million.

During 2008 and 2007, the Corporation recognized $4.1 billion and
$398 million of other-than-temporary impairment losses on AFS debt and
marketable equity securities. These other-than-temporary impairment

During 2008, the Corporation reclassified $12.6 billion of AFS debt
securities to trading account assets in connection with the Countrywide
acquisition as the Corporation realigned its AFS portfolio. Further, the

Bank of America 2008 135

Less than twelve months

Twelve months or longer

Total

(Dollars in millions)

Available-for-sale debt securities as of December 31, 2008

U.S. Treasury securities and agency debentures
Mortgage-backed securities
Foreign securities
Corporate/Agency bonds
Other taxable securities

Total taxable securities

Tax-exempt securities

Total temporarily-impaired available-for-sale debt securities
Temporarily-impaired available-for-sale marketable equity securities

Fair Value

306
22,350
3,491
2,573
12,870

41,590
6,386

47,976
3,431

Gross
Unrealized
Losses

(14)
(6,788)
(562)
(934)
(1,077)

(9,375)
(682)

(10,057)
(499)

Fair Value

–
11,649
1,126
666
501

13,942
1,540

15,482
1,555

Gross
Unrealized
Losses

–
(2,695)
(116)
(88)
(223)

(3,122)
(299)

(3,421)
(1,038)

Fair Value

306
33,999
4,617
3,239
13,371

55,532
7,926

63,458
4,986

Gross
Unrealized
Losses

(14)
(9,483)
(678)
(1,022)
(1,300)

(12,497)
(981)

(13,478)
(1,537)

Total temporarily-impaired available-for-sale securities

$ 51,407

$(10,556)

$ 17,037

$ (4,459)

$ 68,444

$(15,015)

Available-for-sale debt securities as of December 31, 2007

Mortgage-backed securities
Foreign securities
Corporate/Agency bonds
Other taxable securities

Total taxable securities

Tax-exempt securities

Total temporarily-impaired available-for-sale debt securities
Temporarily-impaired available-for-sale marketable equity securities

$10,103
357
127
622

11,209
2,563

13,772
2,353

(438)
(88)
(2)
(25)

(553)
(66)

(619)
(322)

$140,600
2,129
2,181
712

145,622
505

146,127
57

$(2,706)
(13)
(74)
(59)

(2,852)
(3)

(2,855)
(30)

$150,703
2,486
2,308
1,334

156,831
3,068

159,899
2,410

$ (3,144)
(101)
(76)
(84)

(3,405)
(69)

(3,474)
(352)

Total temporarily-impaired available-for-sale securities

$16,125

(941)

$146,184

$(2,885)

$162,309

$ (3,826)

Corporation has the ability and intent to hold these securities for a period
of time sufficient to recover all gross unrealized losses.

The Corporation had investments in AFS debt securities from Fannie
Mae, Freddie Mac and Ginnie Mae that exceeded 10 percent of con-
solidated shareholders’ equity as of December 31, 2008. These invest-
ments had market values of $104.1 billion, $46.9 billion and $44.6
billion at December 31, 2008 and total amortized costs of $102.9 billion,
$46.1 billion and $43.7 billion, respectively. The Corporation had invest-
ments in AFS debt securities from Fannie Mae and Freddie Mac that
exceeded 10 percent of consolidated shareholders’ equity as of
December 31, 2007. These investments had market values of $100.8
billion and $43.2 billion at December 31, 2007 and total amortized costs
of $102.9 billion and $43.9 billion. The Corporation’s investments in AFS
debt securities from Ginnie Mae did not exceed 10 percent of con-
solidated shareholders’ equity as of December 31, 2007.

Securities are pledged or assigned to secure borrowed funds, govern-
ment and trust deposits and for other purposes. The carrying value of
pledged
at
December 31, 2008 and 2007.

securities was $158.9 billion

and $107.4 billion

The expected maturity distribution of

the Corporation’s mortgage-
backed securities and the contractual maturity distribution of the Corpo-
ration’s other debt securities, and the yields of the Corporation’s AFS
debt securities portfolio at December 31, 2008 are summarized in the
following table. Actual maturities may differ
from the contractual or
expected maturities since borrowers may have the right to prepay obliga-
tions with or without prepayment penalties.

Corporation transferred approximately $1.7 billion of leveraged lending
bonds from trading account assets to AFS debt securities due to the
Corporation’s decision to hold these bonds for the foreseeable future.

The table above presents the current fair value and the associated
gross unrealized losses only on investments in securities with gross
unrealized losses at December 31, 2008 and 2007. The table also dis-
closes whether these securities have had gross unrealized losses for
less than twelve months, or for twelve months or longer.

At December 31, 2008, the amortized cost of approximately 12,000
AFS securities exceeded their fair value by $15.0 billion. Included in the
$15.0 billion of gross unrealized losses on AFS securities at
December 31, 2008, was $10.6 billion of gross unrealized losses that
have existed for less than twelve months and $4.5 billion of gross unreal-
ized losses that have existed for a period of twelve months or longer. Of
the gross unrealized losses existing for twelve months or more, $2.7 bil-
lion, or 60 percent, of the gross unrealized loss is related to approx-
imately 400 mortgage-backed securities primarily due to continued
deterioration in collateralized mortgage obligation values driven by a lack
of market liquidity. In addition, of the gross unrealized losses existing for
twelve months or more, $1.0 billion, or 23 percent, of the gross unreal-
ized loss is related to approximately 300 AFS marketable equity secu-
rities primarily due to the overall decline in the market during 2008. The

136 Bank of America 2008

December 31, 2008

Due in one
year or less

Due after one year
through five years

Due after five years
through ten years

Due after ten years

Total

Amount

Yield (1)

Amount

Yield (1)

Amount

Yield (1)

Amount

Yield (1)

Amount

Yield (1)

(Dollars in millions)

Fair value of available-for-sale debt

securities
U.S. Treasury securities and agency

debentures

Mortgage-backed securities
Foreign securities
Corporate/Agency bonds
Other taxable securities

Total taxable securities

Tax-exempt securities (2)

167
3,029
543
197
17,909

21,845
142

2.45%
4.71
4.89
4.48
2.47

2.90
5.41

2.92

$ 1,077
25,953
2,582
1,369
5,158

36,139
836

$ 36,975

4.89%
7.99
5.96
5.03
4.87

7.24
5.91

7.22

2,366
116,770
17
2,818
193

122,164
1,761

$ 123,925

5.14%
5.21
4.56
10.44
5.09

5.36
6.37

5.38

$ 1,037
83,826
1,861
185
283

87,192
6,825

$94,017

5.40%
5.55
6.37
6.23
6.76

5.58
6.87

5.68

$ 4,647
229,578
5,003
4,569
23,543

267,340
9,564

$276,904

5.04%
5.68
6.02
8.65
3.11

5.50
6.69

5.55

Total available-for-sale debt securities

$21,987

Amortized cost of available-for-sale debt

securities

$23,150

$ 41,879

$ 125,537

$95,679

$286,245

(1) Yields are calculated based on the amortized cost of the securities.
(2) Yields of tax-exempt securities are calculated on a fully taxable-equivalent (FTE) basis.

The components of realized gains and losses on sales of debt secu-

rities for 2008, 2007 and 2006 were:

(Dollars in millions)

Gross gains
Gross losses

Net gains (losses) on sales of

debt securities

2008

$1,367
(243)

2007

$197
(17)

2006

$ 87
(530)

$1,124

$180

$(443)

The income tax expense (benefit) attributable to realized net gains
(losses) on debt securities sales was $416 million, $67 million and
$(163) million in 2008, 2007 and 2006, respectively.

Certain Corporate and Strategic Investments
At December 31, 2008 and 2007, the Corporation owned approximately
19 percent, or 44.7 billion common shares and eight percent, or 19.1
billion common shares of CCB. The initial
investment of 19.1 billion
common shares is accounted for at fair value and recorded as AFS mar-
ketable equity securities in other assets with an offset to accumulated
OCI. These shares became transferable in October 2008. During 2008,
under the terms of the purchase option the Corporation increased its
ownership by purchasing approximately 25.6 billion common shares, or
$9.2 billion of CCB. These recently purchased shares are accounted for

at cost, are recorded in other assets and are non-transferable until
August 2011. At December 31, 2008 and 2007, the cost of the CCB
investment was $12.0 billion and $3.0 billion and the carrying value was
$19.7 billion and $16.4 billion. Dividend income on this investment is
recorded in equity investment income.

Additionally, the Corporation owned approximately 171.3 million and
137.0 million of preferred shares, and 51.3 million and 41.1 million of
common shares of Banco Itaú Holding Financeira S.A. (Banco Itaú) at
December 31, 2008 and 2007. This investment
in Banco Itaú is
accounted for at fair value and recorded as AFS marketable equity secu-
rities in other assets with an offset to accumulated OCI. Prior to the
second quarter of 2008, these shares were accounted for at cost. Divi-
dend income on this investment is recorded in equity investment income.
At December 31, 2008 and 2007, the cost of this investment was $2.6
billion and the fair value was $2.5 billion and $4.6 billion.

At December 31, 2008 and 2007, the Corporation had a 24.9 per-
cent, or $2.1 billion and $2.6 billion, investment in Grupo Financiero
Santander, S.A., the subsidiary of Grupo Santander, S.A. This investment
is recorded in other assets and is accounted for under the equity method
of accounting with income being recorded in equity investment income.

For additional

information on securities, see Note 1 – Summary of
Significant Accounting Principles to the Consolidated Financial State-
ments.

Bank of America 2008 137

Note 6 – Outstanding Loans and Leases
Outstanding loans and leases at December 31, 2008 and 2007 were:

(Dollars in millions)

Consumer

Residential mortgage
Home equity
Discontinued real estate (1)
Credit card – domestic
Credit card – foreign
Direct/Indirect consumer (2)
Other consumer (3)

Total consumer

Commercial

Commercial – domestic (4)
Commercial real estate (5)
Commercial lease financing
Commercial – foreign

Total commercial loans

Commercial loans measured at fair value (6)

Total commercial

Total loans and leases

December 31

2008

2007

$247,999
152,547
19,981
64,128
17,146
83,436
3,442

588,679

219,233
64,701
22,400
31,020

337,354
5,413

342,767

$274,949
114,820
n/a
65,774
14,950
76,538
4,170

551,201

208,297
61,298
22,582
28,376

320,553
4,590

325,143

$931,446

$876,344

(1)

(2)

(3)

(4)

Includes $18.2 billion of pay option loans and $1.8 billion of subprime loans obtained as part of the acquisition of Countrywide. The Corporation no longer originates these products.
Includes foreign consumer loans of $1.8 billion and $3.4 billion at December 31, 2008 and 2007.
Includes consumer finance loans of $2.6 billion and $3.0 billion, and other foreign consumer loans of $618 million and $829 million at December 31, 2008 and 2007.
Includes small business commercial – domestic loans, primarily card-related, of $19.1 billion and $19.3 billion at December 31, 2008 and 2007.
Includes domestic commercial real estate loans of $63.7 billion and $60.2 billion, and foreign commercial real estate loans of $979 million and $1.1 billion at December 31, 2008 and 2007.

(5)
(6) Certain commercial loans are measured at fair value in accordance with SFAS 159 and include commercial – domestic loans of $3.5 billion and $3.5 billion, commercial – foreign loans of $1.7 billion and $790 million,
and commercial real estate loans of $203 million and $304 million at December 31, 2008 and 2007. See Note 19 – Fair Value Disclosures to the Consolidated Financial Statements for additional discussion of fair
value for certain financial instruments.

Impaired Loans

(Dollars in millions)

Commercial

Commercial – domestic (1)
Commercial real estate
Commercial – foreign

Total impaired loans (2)

December 31

2008

2007

$2,257
3,906
290

$6,453

$1,018
1,099
19

$2,136

(1)

(2)

Includes small business commercial – domestic loans of $205 million and $152 million at
December 31, 2008 and 2007.
Includes performing commercial
December 31, 2008 and 2007.

restructurings of $13 million and $44 million at

troubled debt

Impaired loans include loans that have been modified in troubled debt
restructurings where concessions to borrowers who experienced financial
difficulties have been granted. Troubled debt restructurings typically result
from the Corporation’s loss mitigation activities and could include rate
reductions, payment extensions and principal forgiveness. Troubled debt
restructurings on commercial loans totaled $57 million and $74 million at
December 31, 2008 and 2007, of which $44 million and $30 million
were classified as nonperforming.

n/a = not applicable

The Corporation mitigates a portion of its credit risk in the residential
mortgage portfolio through synthetic securitizations which are cash collat-
eralized and provide mezzanine risk protection which will reimburse the
Corporation in the event that losses exceed 10 bps of the original pool
balance. As of December 31, 2008 and 2007, $109.3 billion and
$140.5 billion of mortgage loans were protected by these agreements. As
of December 31, 2008, $146 million of credit and other related costs
recognized in 2008 are reimbursable by these structures. In addition, the
Corporation has entered into credit protection agreements with
government-sponsored enterprises on $9.6 billion and $32.9 billion as of
December 31, 2008 and 2007, providing full protection on conforming
residential mortgage loans that become severely delinquent. These struc-
tures provided risk mitigation for approximately 48 percent and 63 per-
cent of the residential mortgage portfolio at December 31, 2008 and
2007.

Nonperforming Loans and Leases
The following table presents the recorded loan amounts for commercial
loans, without consideration for the specific component of the allowance
for loan and lease losses, which were considered individually impaired in
accordance with SFAS 114 at December 31, 2008 and 2007. SFAS 114
defines impairment to include performing loans which had previously
been accounted for as a troubled debt restructuring and excludes all
commercial leases.

138 Bank of America 2008

In addition to the commercial impaired loans included in the preceding
table, the Corporation recorded $903 million of consumer impaired loans
at December 31, 2008 that are individually impaired and restructured in a
troubled debt restructuring. Included in this amount were $529 million of
residential mortgage, $303 million of home equity and $71 million of
discontinued real estate. These impaired loans exclude loans that were
written down to fair value at acquisition within the scope of SOP 03-3,
which is discussed in more detail below. Included in consumer impaired
loans are performing troubled debt restructurings of $320 million for resi-
dential mortgage, $1 million for home equity and $66 million for dis-
continued real estate at December 31, 2008. There were no material
consumer impaired loans at December 31, 2007. At December 31, 2008
the Corporation had commitments of $123 million to lend additional
funds to debtors whose terms have been modified in a commercial or
consumer troubled debt restructuring.

The average recorded investment in the commercial and consumer
impaired loans for 2008, 2007 and 2006 was approximately $5.0 billion,
$1.2 billion and $722 million, respectively. At December 31, 2008 and
2007, the recorded investment in impaired loans requiring an allowance
for loan and lease losses per SFAS 114 guidelines was $5.4 billion and
$1.2 billion, and the related allowance for loan and lease losses was
$720 million and $123 million. For 2008, 2007 and 2006, interest
income recognized on impaired loans totaled $105 million, $130 million
and $36 million, respectively.

At December 31, 2008 and 2007, nonperforming loans and leases,
which exclude performing troubled debt restructurings and acquired loans
that were accounted for under SOP 03-3, totaled $16.4 billion and $5.6
billion. In addition, there were consumer and commercial nonperforming
LHFS of $1.3 billion and $188 million at December 31, 2008 and 2007.

In addition, the Corporation works with customers that are experienc-
ing financial difficulty through renegotiating credit card and direct/indirect
loans, while ensuring compliance with Federal Financial
consumer
Institutions Examination Council guidelines. At December 31, 2008 and
2007, the Corporation had renegotiated credit card – domestic held loans
of $2.3 billion and $1.6 billion, credit card – foreign held loans of $527
million and $483 million, and direct/indirect loans of $1.4 billion and
$810 million. These renegotiated loans are not considered non-
performing.

Countrywide SOP 03-3
Loans acquired with evidence of credit quality deterioration since origi-
nation and for which it is probable at purchase that the Corporation will
be unable to collect all contractually required payments are accounted for
under SOP 03-3. For additional information on the accounting under SOP
03-3 see the Loans and Leases section of Note 1 – Summary of Sig-
nificant Accounting Principles to the Consolidated Financial Statements.
The SOP 03-3 portfolio associated with the acquisition of LaSalle did not
materially impact results during 2008 and is excluded from the following
discussion.

As of July 1, 2008 and December 31, 2008 Countrywide acquired
loans within the scope of SOP 03-3 had an unpaid principal balance of
$58.2 billion and $55.4 billion and a carrying value of $44.2 billion and
$42.2 billion. The following table provides details on loans obtained in
connection with the Countrywide acquisition within the scope of SOP
03-3.

Acquired Loan Information as of July 1, 2008
(Dollars in millions)

Contractually required payments including interest
Less: Nonaccretable difference

Cash flows expected to be collected (2)

Less: Accretable yield

Fair value of loans acquired

Countrywide (1)

$ 83,864
(20,157)

63,707
(19,549)

$ 44,158

(1) Loan information as of Countrywide acquisition date, July 1, 2008.
(2) Represents undiscounted expected principal and interest cash flows at acquisition.

Under SOP 03-3, the excess of cash flows expected at acquisition
over the estimated fair value is referred to as the accretable yield and is
recognized in interest income over the remaining life of the loans. The
difference between contractually required payments at acquisition and the
cash flows expected to be collected at acquisition is referred to as the
nonaccretable difference. Changes in the expected cash flows from the
date of acquisition will either impact the accretable yield or result in a
losses. Subsequent decreases to
charge to the provision for credit
expected principal cash flows will result in a charge to provision for credit
losses and a corresponding increase to allowance for loan and lease
losses. Subsequent increases in expected principal cash flows will result
in recovery of any previously recorded allowance for loan losses, to the
extent applicable, and a reclassification from nonaccretable difference to
accretable yield for any remaining increase. All changes in expected inter-
est cash flows will result in reclassifications to/from nonaccretable differ-
ences.

The following table provides activity for the accretable yield of loans
acquired from Countrywide within the scope of SOP 03-3 for the six
months ended December 31, 2008. During 2008,
the Corporation
recorded a $750 million provision for credit losses establishing a corre-
sponding allowance for loan and lease losses at December 31, 2008.
This provision for credit losses represents deterioration in the Country-
wide SOP 03-3 portfolio subsequent to the July 1, 2008 acquisition date.
The reclassification to nonaccretable difference of $4.4 billion includes
the impact of
lower interest rates on
variable rate loans, and principal reductions due to credit deterioration.

increased prepayment speeds,

Accretable Yield Activity

(Dollars in millions)

Accretable yield, beginning balance (1)

Accretions
Disposals
Reclassifications to nonaccretable difference (2)

Accretable yield, December 31, 2008

Six Months Ended
December 31, 2008

$19,549
(1,667)
(589)
(4,433)

$12,860

(1) The beginning balance represents the accretable yield of loans acquired from Countrywide at July 1,

2008.

(2) Nonaccretable difference represents gross contractually required payments including interest less

expected cash flows.

Bank of America 2008 139

Note 7 – Allowance for Credit Losses
The following table summarizes the changes in the allowance for credit losses for 2008, 2007 and 2006.

(Dollars in millions)

Allowance for loan and lease losses, January 1
Adjustment due to the adoption of SFAS 159
Loans and leases charged off
Recoveries of loans and leases previously charged off

Net charge-offs

Provision for loan and lease losses
Other (1)

Allowance for loan and lease losses, December 31

Reserve for unfunded lending commitments, January 1

Adjustment due to the adoption of SFAS 159
Provision for unfunded lending commitments
Other (2)

Reserve for unfunded lending commitments, December 31

Allowance for credit losses, December 31

2008

$ 11,588
–
(17,666)
1,435

(16,231)

26,922
792

23,071

518
–
(97)
–

421

2007

$ 9,016
(32)
(7,730)
1,250

(6,480)

8,357
727

11,588

397
(28)
28
121

518

2006

$ 8,045
–
(5,881)
1,342

(4,539)

5,001
509

9,016

395
–
9
(7)

397

$ 23,492

$12,106

$ 9,413

(1) The 2008 amount includes the $1.2 billion addition of the Countrywide allowance for loan losses as of July 1, 2008. The 2007 amount includes the $725 million and $25 million additions of the LaSalle and U.S. Trust

Corporation allowance for loan losses as of October 1, 2007 and July 1, 2007. The 2006 amount includes the $577 million addition of the MBNA allowance for loan losses as of January 1, 2006.

(2) The 2007 amount includes the $124 million addition of the LaSalle reserve for unfunded lending commitments as of October 1, 2007.

Note 8 – Securitizations
The Corporation routinely securitizes loans and debt securities. These
securitizations are a source of funding for the Corporation in addition to
transferring the economic risk of the loans or debt securities to third par-
ties. In a securitization, various classes of debt securities may be issued
and are generally collateralized by a single class of transferred assets
which most often consist of residential mortgages, but may also include
commercial mortgages, credit card receivables, home equity loans, auto-
mobile loans or mortgage-backed securities. The securitized loans may be
serviced by the Corporation or by third parties. With each securitization,
the Corporation may retain a portion of the securities, subordinated
tranches, interest-only strips, subordinated interests in accrued interest
and fees on the securitized receivables, and,
in some cases, over-
collateralization and cash reserve accounts, all of which are called
retained interests. These retained interests are recorded in other assets,
AFS debt securities, or trading account assets and are carried at fair
value or amounts that approximate fair value with changes recorded in

income or accumulated OCI. Changes in the fair value of credit card
related interest-only strips are recorded in card income. In addition, the
Corporation may enter into derivatives with the securitization trust to miti-
gate the trust’s interest rate or foreign exchange risk. These derivatives
are entered into at market terms and are generally senior in payment. The
Corporation also may serve as the underwriter and distributor of the
securitization, serve as the administrator of the trust, and from time to
time, make markets in securities issued by the securitization trusts. For
more information related to derivatives, see Note 4 – Derivatives to the
Consolidated Financial Statements.

First Lien Mortgage-related Securitizations
The Corporation securitizes a portion of its residential mortgage loan origi-
nations in conjunction with or shortly after loan closing. In addition, the
Corporation may, from time to time, securitize commercial mortgages and
first lien residential mortgages that it originates or purchases from other
entities.

The following table summarizes selected information related to mortgage securitizations for 2008 and 2007.

Residential Mortgage

Non-Agency

(Dollars in millions)

Cash proceeds from new
securitizations (2)

Gains on securitizations (3, 4)
Cash flows received on residual

interests

Principal balance outstanding (5, 6)
Senior securities held
Subordinated securities held
Residual interests held

Agency

Prime

Subprime

Alt-A

Commercial
Mortgage

2008

2007

2008

2007

2008 (1)

2007

2008

2007

2008

2007

$ 123,653 $ 50,866
52

$ 1,038
2

$17,499
27

$ 1,377
24

$ –
–

–
–

745
1

$ 3,557
29

$15,409
103

–
1,123,916
13,815
–
–

–
192,627
4,702
–
–

6
111,683
4,926
43
–

–
44,565
5,261
143
–

33
57,933
121
4
13

–
–
–
–
–

4
136,027
2,946
18
–

–
12,157
553
36
–

–
55,403
184
136
7

–
47,587
584
77
13

(1) The cash proceeds related to the non-agency subprime securitization were received during 2007; however, this securitization did not achieve sale accounting until 2008.
(2) The Corporation sells residential mortgage loans to government-sponsored agencies in the normal course of business and receives mortgage-backed securities in exchange. These mortgage-backed securities are then

subsequently sold into the market to third party investors for cash proceeds.

(3) Net of hedges
(4) Substantially all of the residential mortgages securitized are initially classified as LHFS and recorded at fair value under SFAS 159. As such, gains are recognized on these LHFS prior to securitization. During 2008 and

2007, the Corporation recognized $1.6 billion and $212 million of gains on these LHFS.

(5) Generally, the Corporation as transferor will service the sold loans and thus recognize an MSR upon securitization. See additional information to follow related to the Corporation’s role as servicer and Note 21 –

Mortgage Servicing Rights to the Consolidated Financial Statements.

(6) The increase in principal balance outstanding at December 31, 2008 from the prior year was due to the addition of Countrywide securitizations.

140 Bank of America 2008

The following table summarizes the balance sheet classification of the Corporation’s residential and commercial mortgage senior and subordinated

securities held at December 31, 2008 and 2007.

Residential Mortgage

Non-Agency

Agency

Prime

Subprime

Alt-A

Commercial
Mortgage

2008

2007

2008

2007

2008

2007

2008

2007

2008

2007

$ 1,308

–

$ 367

$1,254

–

12,507

$13,815

4,702

$4,702

4,559

$4,926

4,007

$5,261

121

$121

–

$ 141

$ 3

$ 143

$ 4

$–

–

$–

–

$–

$ 278

$ 12

$168

$584

2,668

$2,946

541

$553

$184

–

$584

$ 36

$136

$ 77

–

$ 36

$136

$ 77

(Dollars in millions)

Senior securities (1, 2):

Trading account assets
Available-for-sale debt

securities

Total senior securities

Subordinated securities (1, 3):
Trading account assets
Available-for-sale debt

securities

Total subordinated

securities

(1) As a holder of these securities, the Corporation receives scheduled interest and principal payments accordingly. During 2008 and 2007, there were no significant impairments recorded on those securities classified as

AFS debt securities.

(2) At December 31, 2008 and 2007, $13.8 billion and $4.7 billion of the agency senior securities were valued using quoted market prices and $13 million were valued using model valuations at December 31, 2008. At
December 31, 2008 and 2007, $4.3 billion and $4.7 billion of the non-agency prime senior securities were valued using quoted market prices and $661 million and $583 million were valued using model valuations. At
December 31, 2008, all of the non-agency subprime senior securities were valued using model valuations. At December 31, 2008 and 2007, $2.4 billion and $553 million of the non-agency Alt-A senior securities were
valued using quoted market prices and $541 million were valued using model valuations at December 31, 2008. At December 31, 2008 and 2007, $16 million and $0 of the commercial mortgage senior securities
were valued using quoted market prices and $168 million and $584 million were valued using model valuations.

(3) At December 31, 2008 and 2007, $23 million and $141 million of the non-agency prime subordinated securities were valued using quoted market prices and $20 million and $2 million were valued using model
valuations. At December 31, 2008 all of the non-agency subprime and non-agency Alt-A subordinated securities were valued using model valuations. At December 31, 2007, all of the non-agency Alt-A subordinated
securities were valued using quoted market prices. At December 31, 2008 and 2007, all of the commercial mortgage subordinated securities were valued using model valuations.

At December 31, 2008 and 2007, the Corporation had recourse obli-
gations of $157 million and $150 million with varying terms up to seven
years on loans that had been securitized and sold.

The Corporation sells loans with various representations and warran-
ties related to, among other things, the ownership of the loan, validity of
the lien securing the loan, absence of delinquent taxes or liens against
the property securing the loan, the process used in selecting the loans for
inclusion in a transaction, the loan’s compliance with any applicable loan
criteria established by the buyer, and the loan’s compliance with appli-
cable local, state and federal laws. Under the Corporation’s representa-
tions and warranties,
the Corporation may be required to either
repurchase the mortgage loans with the identified defects or indemnify
the investor or insurer. In such cases, the Corporation bears any sub-
sequent credit loss on the mortgage loans. During 2008, the Corporation
repurchased $448 million of loans from securitization trusts as a result
of the Corporation’s representations and warranties. The Corporation’s
representations and warranties are generally not subject to stated limits.
liability arises only when the
However,
representations and warranties are breached. The Corporation attempts
to limit its risk of incurring these losses by structuring its operations to
ensure consistent production of quality mortgages and servicing those
mortgages at levels that meet secondary mortgage market standards. In
addition, certain of the Corporation’s securitizations include a corporate
guarantee, which are contracts written to protect purchasers of the loans
from credit losses up to a specified amount. The losses to be absorbed
by the guarantees are recorded when the Corporation sells the loans with
guarantees. The Corporation records its liability for representations and
warranties, and corporate guarantees in accrued expenses and other

the Corporation’s contractual

liabilities and records the related expense through mortgage banking
income.

In addition to the amounts included in the preceding tables, during
2008, the Corporation purchased $12.2 billion of mortgage-backed secu-
rities from third parties and resecuritized them, as compared to $18.1
billion during 2007. Net gains, which include net interest income earned
during the holding period, totaled $80 million for 2008, as compared to
net gains of $13 million during 2007. At December 31, 2008 and 2007
the Corporation retained $1.0 billion and $540 million of the senior secu-
rities issued in these transactions which were valued using quoted mar-
ket prices and recorded in trading account assets.

The Corporation has retained consumer MSRs from the sale or securi-
tization of mortgage loans. Servicing fee and ancillary fee income on
consumer mortgage loans serviced, including securitizations where we
still have continued involvement, were $3.3 billion and $810 million dur-
ing 2008 and 2007. Servicing advances on consumer mortgage loans,
including securitizations where we still have continuing involvement, were
$8.8 billion and $323 million at December 31, 2008 and 2007. In addi-
tion, the Corporation has retained commercial MSRs from the sale or
securitization of commercial mortgage loans. Servicing fee and ancillary
fee income on commercial mortgage loans serviced, including securitiza-
tions where we still have continued involvement, were $40 million and
$11 million during 2008 and 2007. Servicing advances on commercial
mortgage loans, including securitizations where we still have continuing
involvement, were $14 million and $13 million at December 31, 2008
and 2007. For more information on MSRs, see Note 21 – Mortgage Serv-
icing Rights to the Consolidated Financial Statements.

Bank of America 2008 141

Credit Card Securitizations
The Corporation maintains interests in credit card securitization vehicles. These retained interests include senior and subordinated securities, interest-
only strips, subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts. The following table summa-
rizes selected information related to credit card securitizations for 2008 and 2007.

(Dollars in millions)

Cash proceeds from new securitizations
Gains on securitizations
Collections reinvested in revolving period securitizations
Cash flows received on residual interests
Principal balance outstanding (1)
Senior securities held (2, 3)
Subordinated securities held (2, 3)
Residual interests held (4)

Credit Card

2008

$ 20,148
81
162,332
5,771
114,141
4,965
1,837
2,233

2007

$ 19,851
117
178,556
6,590
114,450
–
424
2,766

(1) Principal balance outstanding represents the principal balance of credit card receivables that have been legally isolated from the Corporation including those loans that are still held on the Corporation’s balance sheet

(i.e., seller’s interest).

(2) As a holder of these securities, the Corporation receives scheduled interest and principal payments accordingly. During 2008 and 2007, there were no significant impairments recorded on those securities classified as

AFS debt securities.

(3) Held senior and subordinated securities issued by credit card securitization vehicles are valued using quoted market prices and were all classified as AFS debt securities at December 31, 2008 and 2007.
(4) Residual interests include interest-only strips of $74 million. The remainder of the residual interests are subordinated interests in accrued interest and fees on the securitized receivables and cash reserve accounts
which are carried at fair value or amounts that approximate fair value and are not sensitive to favorable and adverse fair value changes in payment rates, expected credit losses and residual cash flows discount rates.
The residual interests were valued using model valuations and are classified in other assets.

At December 31, 2008 and 2007, there were no recognized servicing
assets or liabilities associated with any of these credit card securitization
transactions. The Corporation recorded $2.1 billion in servicing fees
related to credit card securitizations during both 2008 and 2007.

During the second half of 2008, the Corporation entered into a liquid-
ity support agreement related to the Corporation’s commercial paper
program that obtains financing by issuing tranches of commercial paper
backed by credit card receivables to third party investors from a trust
sponsored by the Corporation. If certain criteria are met, such as not
being able to reissue the commercial paper due to market illiquidity, the
commercial paper maturity dates can be extended to 390 days from the

issuance date. This extension would cause the outstanding
original
commercial paper to convert to an interest-bearing note and subsequent
credit card receivable collections would be applied to the outstanding
note balance. If any of the investor notes are still outstanding at the end
of the extended maturity period, our liquidity commitment obligates the
Corporation to purchase maturity notes in order to retire the investor
notes. As a maturity note holder, the Corporation would be entitled to the
remaining cash flows from the collateralizing credit card receivables. At
December 31, 2008 there were no maturity notes outstanding and the
Corporation held $5.0 billion of investment grade securities in AFS debt
securities issued by the trust due to illiquidity in the marketplace.

Sensitivity Analysis
Key economic assumptions used in measuring the fair value of certain residual interests that continue to be held by the Corporation in credit card
securitizations and the sensitivity of the current fair value of residual cash flows to changes in those assumptions are as follows:

(Dollars in millions)
Carrying amount of residual interests (at fair value) (1, 2)
Weighted average life to call or maturity (in years)
Monthly payment rate

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

Weighted average expected credit loss rate (annual rate)

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

Credit Card

December 31

2008

2,233
0.3

10.7-13.9%

8
22
(6)
(14)
9.0%
296
741
(26)
(57)
13.5%
3
4
(5)
(10)

2007

2,766
0.3

11.6-16.6%

51
158
(35)
(80)
5.3%
141
374
(133)
(333)
11.5%
9
13
(12)
(23)

(1) Residual interests include subordinated interests in accrued interest and fees on the securitized receivables, cash reserve accounts and interest-only strips which are carried at fair value or amounts that approximate

fair value.

(2) At December 31, 2008 and 2007, $74 million and $400 million of residual interests were sensitive to favorable and adverse fair value changes in payment rates, expected credit losses and residual cash flows

discount rates. The amount of the adverse change has been limited to the recorded amount of the residual interests where the hypothetical change exceeds its value.

142 Bank of America 2008

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 particular assump-
tion on the fair value of an interest that continues to be held by the

Corporation is calculated without changing any other assumption. In real-
ity, 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 sensitivities in the previous table do not reflect any hedge
strategies that may be undertaken to mitigate such risk.

Other Securitizations
The Corporation also maintains interests in other securitization vehicles. These retained interests include senior and subordinated securities and
residual interests. The following table summarizes selected information related to home equity and automobile loan securitizations for 2008 and 2007.

(Dollars in millions)

Cash proceeds from new securitizations
Losses on securitizations (1)
Collections reinvested in revolving period securitizations
Repurchase of loans from trust (2)
Cash flows received on residual interests
Principal balance outstanding (3)
Senior securities held (4, 5)
Subordinated securities held (4, 6)
Residual interests held (7)

Home Equity

Automobile

2008

–
–
235
128
27
34,169
–
3
93

2007

$ 363
(20)
41
–
115
8,776
2
14
5

2008

$ 741
(31)
–
184
–
5,385
4,102
383
84

2007

–
–
–
–
–
1,955
1,400
33
100

(1) Net of hedges
(2) The repurchases of loans from the trust for home equity loans during 2008 was a result of the Corporation’s representations and warranties and the exercise of an optional clean-up call. The repurchases of automobile

loans during 2008 was substantially due to the exercise of an optional clean-up call.

(3) The increase in principal balance outstanding at December 31, 2008 from the prior year was due to the addition of Countrywide home equity securitizations.
(4) As a holder of these securities, the Corporation receives scheduled interest and principal payments accordingly. During 2008 and 2007, there were no significant impairments recorded on those securities classified as

AFS debt securities.

(5) Substantially all of the held senior securities issued by these securitization vehicles are valued using quoted market prices. At December 31, 2007, all of the senior securities issued by home equity securitization
vehicles were classified as trading account assets. At December 31, 2008 and 2007, substantially all of the senior securities issued by the automobile securitization vehicle were classified as AFS debt securities.
(6) At December 31, 2008 and 2007, all of the subordinated securities issued by the home equity securitization vehicles were valued using model valuations. At December 31, 2008, all of the subordinated securities
issued by the home equity securitization vehicles were classified as AFS debt securities and at December 31, 2007, all of these subordinated securities were classified as trading account assets. At December 31,
2008, all of the subordinated securities issued by the automobile securitization vehicle were classified as AFS debt securities and $330 million were valued using quoted market prices, while $53 million were valued
using model valuations. At December 31, 2007, all of the subordinated securities issued by the automobile securitization vehicle were valued using model valuations and classified as trading account assets.

(7) Residual interests include the residual asset, overcollateralization and cash reserve accounts, which are carried at fair value or amounts that approximate fair value. The residual interests were valued using model

valuations and substantially all are classified in other assets.

Under the terms of the Corporation’s home equity securitizations,
advances are made to borrowers when they make a subsequent draw on
their line of credit and the Corporation is reimbursed for those advances
from the cash flows in the securitization. During the revolving period of
the securitization, this reimbursement normally occurs within a short
period after the advance. However, when the securitization transaction
has begun its rapid amortization period, reimbursement of the Corpo-
ration’s advance occurs only after other parties in the securitization have
received all of the cash flows to which they are entitled. This has the
effect of extending the time period for which the Corporation’s advances
are outstanding. In particular, if loan losses requiring draws on monoline
insurer’s policies (which protect the bondholders in the securitization)
exceed a specified threshold or duration, the Corporation may not receive
reimbursement for all of the funds advanced to borrowers, as the senior

bondholders and the monoline insurer have priority for repayment. As of
December 31, 2008, the reserve for losses on expected future draw obli-
gations on the home equity securitizations in or expected to be in rapid
amortization was $345 million.

The Corporation has retained consumer MSRs from the sale or securi-
tization of home equity loans. The Corporation recorded $78 million in
servicing fees related to home equity securitizations during 2008. No
such fees were recorded during 2007. For more information on MSRs,
see Note 21 – Mortgage Servicing Rights to the Consolidated Financial
Statements. At December 31, 2008 and 2007, there were no recognized
servicing assets or liabilities associated with any of these automobile
securitization transactions. The Corporation recorded $30 million and
$27 million in servicing fees related to automobile securitizations during
2008 and 2007.

Managed Asset Quality Indicators
The Corporation evaluates its credit card loan portfolio on a managed basis. Managed loans are defined as on-balance sheet loans as well as those
loans in revolving credit card securitizations. Portfolio balances, delinquency and historical loss amounts of the credit card managed loan portfolio for
2008 and 2007, are presented in the following table.

(Dollars in millions)

Held credit card outstandings
Securitization impact

Managed credit card outstandings

At and for the Year Ended December 31, 2008

At and for the Year Ended December 31, 2007

Accruing
Past
Due 90
Days or
More

$2,565
3,185

$5,750

Net
Charge-
offs/
Losses

$ 4,712
6,670

$11,382

Outstandings

$ 81,274
100,960

$182,234

Outstandings

$ 80,724
102,967

$183,691

Accruing
Past
Due 90
Days or
More

$2,127
2,757

$4,884

Net
Charge-
offs/
Losses

$3,442
4,772

$8,214

Bank of America 2008 143

Note 9 – Variable Interest Entities
In addition to the securitization vehicles described in Note 8 – Securitiza-
tions and Note 21 – Mortgage Servicing Rights to the Consolidated Finan-
cial Statements, which are typically structured as QSPEs, the Corporation
utilizes SPEs in the ordinary course of business to support its own and its
customers’ financing and investing needs. These SPEs are typically struc-
tured as VIEs and are thus subject to consolidation by the reporting
enterprise that absorbs the majority of the economic risks and rewards of
the VIE. To determine whether it must consolidate a VIE, the Corporation
qualitatively analyzes the design of the VIE to identify the creators of
variability within the VIE, including an assessment as to the nature of the
risks that are created by the assets and other contractual arrangements
of the VIE, and identifies whether it will absorb a majority of that varia-
bility.

In addition to the VIEs discussed below, the Corporation uses VIEs
such as trust preferred securities trusts in connection with its funding
activities, as described in more detail in Note 12 – Short-term Borrowings
and Long-term Debt to the Consolidated Financial Statements. The Corpo-
ration also uses VIEs in the form of synthetic securitization vehicles to
mitigate a portion of the credit risk on its residential mortgage loan portfo-
lio as described in Note 6 – Outstanding Loans and Leases to the Con-
solidated Financial Statements. The Corporation has also provided
support to or has loss exposure resulting from its involvement with other

VIEs, including certain cash funds managed within Global Wealth and
Investment Management (GWIM), as described in more detail in Note 13
– Commitments and Contingencies to the Consolidated Financial State-
ments.

On December 31, 2008, the Corporation adopted FSP FAS 140-4 and
FIN 46(R)-8 which requires additional disclosures about its involvement
with consolidated and unconsolidated VIEs and expanded the population
of VIEs to be disclosed. For example, an unconsolidated customer vehicle
that was sponsored by the Corporation is now included in the disclosures
because the Corporation has a variable interest in the vehicle, even
though that interest is not a significant variable interest. The following
disclosures incorporate these requirements.

The table below presents the assets and liabilities of VIEs which have
been consolidated on the Corporation’s Balance Sheet at December 31,
2008, total assets of consolidated VIEs at December 31, 2007, and the
Corporation’s maximum exposure to loss resulting from its involvement
with consolidated VIEs as of December 31, 2008 and 2007. The Corpo-
ration’s maximum exposure to loss is based on the unlikely event that all
of the assets in the VIEs become worthless and incorporates not only
losses associated with assets recorded on the Corporation’s
potential
Balance Sheet but also potential
losses associated with off-balance
sheet commitments such as unfunded liquidity commitments and other
contractual arrangements.

Consolidated VIEs

(Dollars in millions)
Consolidated VIEs, December 31, 2008 (1)
Maximum loss exposure (2)

Consolidated Assets (3)

Trading account assets
Derivative assets
Available-for-sale debt securities
Held-to-maturity debt securities
Loans and leases
All other assets

Total

Consolidated Liabilities

Commercial paper and other short-term borrowings
All other liabilities

Total

Consolidated VIEs, December 31, 2007 (1)
Maximum loss exposure (2)
Total assets (3)

Multi-Seller
Conduits

Asset
Acquisition
Conduits

Municipal
Bond Trusts

CDOs

Leveraged
Lease Trusts

Other
Vehicles

Total

$11,304

$1,121

$ 343

$2,443

$5,774

$3,222

$24,207

–
–
7,771
605
–
992

$ 9,368

$ 9,623
53

$ 9,676

$16,984
11,944

$ 188
931
–
–
–
2

$1,121

$1,121
–

$1,121

$2,003
2,003

$ 343
–
–
–
–
–

$ 343

$ 396
–

$ 396

–
–
2,443
–
–
–

$2,443

–
–

–

–
–
–
–
5,829
–

–
–
1,945
–
1,251
1,420

531
931
12,159
605
7,080
2,414

$5,829

$4,616

$23,720

–
55

$1,626
582

$2,208

$12,766
690

$13,456

$7,646
7,646

$4,311
4,464

$6,236
6,236

$4,247
5,671

$41,427
37,964

(1) Cash flows generated by the assets of the consolidated VIEs must generally be used to settle the specific obligations of the VIEs before they are available to the Corporation for general purposes.
(2) Maximum loss exposure for consolidated VIEs includes on-balance sheet assets, net of non-recourse liabilities, plus off-balance sheet exposures. It does not include losses previously recognized through write-downs of

assets.

(3) Total assets of consolidated VIEs are reported net of intercompany balances that have been eliminated in consolidation.

144 Bank of America 2008

Unconsolidated VIEs

(Dollars in millions)
Unconsolidated VIEs, December 31, 2008 (1)
Maximum loss exposure (2)
Total assets of VIEs

On-Balance Sheet Assets

Trading account assets
Derivative assets
Available-for-sale debt securities
Loans and leases
All other assets

Total

On-Balance Sheet Liabilities
Derivative liabilities
All other liabilities

Total

Unconsolidated VIEs, December 31, 2007 (1)
Maximum loss exposure (2)
Total assets of VIEs

Multi-
Seller
Conduits

Asset
Acquisition
Conduits

Municipal
Bond
Trusts

Real Estate
Investment
Vehicles

CDOs

Customer
Vehicles

Other
Vehicles

Total

$42,046
27,922

$2,622
2,622

$7,145
7,997

$ 2,383
2,570

$5,696
5,980

$ 5,741
6,032

$4,337
7,280

$69,970
60,403

1
–
–
388
23

412

–
–

–

$47,335
29,363

1
293
–
–
–

$ 294

$ 293
–

$ 293

$6,399
6,399

$ 688
379
–
–
–

$1,067

27
–

732
6
1,039
–
–

–
–
–
–
4,996

$ 2,877
2,864
–
–
–

$ 1,777

$4,996

$ 5,741

57
–

–
1,632

$1,632

–
–

–

$ 145
–
5
1,004
1,765

$2,919

85
80

$ 165

$ 4,444
3,542
1,044
1,392
6,784

$17,206

462
1,712

$ 2,174

$6,341
6,361

$11,135
13,300

$5,009
5,138

$ 9,114
11,725

$6,199
9,562

$91,532
81,848

Includes unconsolidated VIEs and certain QSPEs which are not included in Note 8 – Securitizations to the Consolidated Financial Statements.

(1)
(2) Maximum loss exposure for unconsolidated VIEs includes on-balance sheet assets plus off-balance sheet exposures. It does not include losses previously recognized through write-downs of assets or the establishment

of derivative or other liabilities.

The table above presents total assets of unconsolidated VIEs in which
the Corporation holds a significant variable interest and Corporation-
sponsored unconsolidated VIEs in which the Corporation holds a variable
interest, even if not significant, at December 31, 2008 and 2007. The
table also presents the Corporation’s maximum exposure to loss result-
ing from its involvement with these VIEs at December 31, 2008 and
2007. The Corporation’s maximum exposure to loss is based on the
unlikely event that all of the assets in the VIEs become worthless and
incorporates not only potential losses associated with assets recorded on
the Corporation’s balance sheet but also potential losses associated with
off-balance sheet commitments such as unfunded liquidity commitments
and other contractual arrangements. Certain QSPEs in which the Corpo-
ration has continuing involvement but that are not discussed in Note 8 –
Securitizations to the Consolidated Financial Statements are also
included in the table. Assets and liabilities of unconsolidated VIEs
recorded
at
December 31, 2008 are also summarized above.

the Corporation’s Consolidated Balance Sheet

Except as described below, we have not provided financial or other
support to consolidated or unconsolidated VIEs that we were not pre-
viously contractually required to provide, nor do we intend to do so.

Multi-Seller Conduits
The Corporation administers four multi-seller conduits which provide a
low-cost funding alternative to its customers by facilitating their access to
the commercial paper market. These customers sell or otherwise transfer
assets to the conduits, which in turn issue short-term commercial paper
that is rated high-grade and is collateralized by the underlying assets. The
Corporation receives fees for providing combinations of
liquidity and
SBLCs or similar
loss protection commitments to the conduits. The
Corporation also receives fees for serving as commercial paper place-
ment agent and for providing administrative services to the conduits. The
Corporation’s liquidity commitments are collateralized by various classes
of assets which incorporate features such as overcollateralization and
cash reserves that are designed to provide credit support to the conduits
at a level equivalent to investment grade as determined in accordance
with internal risk rating guidelines. Third parties participate in a small
number of the liquidity facilities on a pari passu basis with the Corpo-
ration.

The Corporation determines whether it must consolidate a multi-seller
conduit based on an analysis of projected cash flows using Monte Carlo
simulations which are driven principally by credit risk inherent in the
assets of the conduits. Interest rate risk is not included in the cash flow
analysis because the conduits are not designed to absorb and pass along
interest rate risk to investors. Instead, the assets of the conduits pay
variable rates of interest based on the conduits’
funding costs. The
assets of the conduits typically carry a risk rating of AAA to BBB based on
the Corporation’s current internal risk rating equivalent, which reflects
structural enhancements of the assets, including third party insurance.
Projected loss calculations are based on maximum binding commitment
amounts, probability of default based on the average one year Moody’s
Corporate Finance transition table, and recovery rates of 90 percent, 65
for senior, mezzanine and subordinate
percent and 45 percent
exposures. Approximately 97 percent of commitments in the uncon-
solidated conduits and 70 percent of commitments in the consolidated
conduit are senior exposures. Certain assets funded by one of the uncon-
solidated conduits benefit from embedded credit enhancement provided
by the Corporation. Credit risk created by these assets is deemed to be
credit risk of the Corporation, which is absorbed by third party investors.

The Corporation does not consolidate three conduits as it does not
expect to absorb a majority of the variability created by the credit risk of
the assets held in the conduits. On a combined basis, these three con-
duits have issued approximately $97 million of capital notes and equity
interests to third parties, $92 million of which were outstanding at
December 31, 2008. These instruments will absorb credit risk on a first
loss basis. The Corporation consolidates the fourth conduit, which has
not issued capital notes or equity interests to third parties.

At December 31, 2008, liquidity commitments to the consolidated
conduit were mainly collateralized by credit card loans (25 percent), auto
loans (14 percent), equipment
loans (10 percent), corporate and
loans (seven percent), and trade receivables (six percent).
commercial
None of these assets are subprime residential mortgages. In addition, 29
percent of the Corporation’s liquidity commitments were collateralized by
projected cash flows from long-term contracts (e.g., television broadcast
contracts, stadium revenues and royalty payments) which, as mentioned
above,
incorporate features that provide credit support. Amounts
advanced under these arrangements will be repaid when cash flows due

Bank of America 2008 145

under the long-term contracts are received. Approximately 74 percent of
this exposure is insured. At December 31, 2008, the weighted average
life of assets in the consolidated conduit was estimated to be 3.1 years
and the weighted average maturity of commercial paper issued by this
conduit was 33 days. Assets of the Corporation are not available to pay
creditors of the consolidated conduit except to the extent the Corporation
may be obligated to perform under the liquidity commitments and SBLCs.
Assets of the consolidated conduit are not available to pay creditors of
the Corporation.

At December 31, 2008, the Corporation’s liquidity commitments to
the unconsolidated conduits were mainly collateralized by credit card
loans (23 percent), student loans (17 percent), auto loans (14 percent),
trade receivables (10 percent), and equipment loans (seven percent). In
addition, 23 percent of the Corporation’s commitments were collateral-
ized by the conduits’ short-term lending arrangements with investment
funds, primarily real estate funds, which, as previously mentioned,
incorporate features that provide credit support. Amounts advanced under
these arrangements are secured by a diverse group of high quality equity
investors. Outstanding advances under these facilities will be repaid
when the investment funds issue capital calls. At December 31, 2008,
the weighted average life of assets in the unconsolidated conduits was
estimated to be 3.6 years and the weighted average maturity of commer-
cial paper issued by these conduits was 37 days.

The Corporation’s liquidity, SBLCs and similar loss protection commit-
ments obligate us to purchase assets from the conduits at the conduits’
cost. Subsequent realized losses on assets purchased from the uncon-
solidated conduits would be reimbursed from restricted cash accounts
that were funded by the issuance of capital notes and equity interests to
third party investors. The Corporation would absorb losses in excess of
such amounts. If a conduit is unable to re-issue commercial paper due to
illiquidity in the commercial paper markets or deterioration in the asset
portfolio, the Corporation is obligated to provide funding subject to the
following limitations. The Corporation’s obligation to purchase assets
under the SBLCs and similar loss protection commitments are subject to
a maximum commitment amount which is typically set at eight to 10
percent of total outstanding commercial paper. The Corporation’s obliga-
tion to purchase assets under the liquidity agreements, which comprise
the remainder of our exposure, is generally limited to the amount of
non-defaulted assets. Although the SBLCs are unconditional, we are not
obligated to fund under other liquidity or loss protection commitments if
involuntary bankruptcy
the conduit
proceeding.

is the subject of a voluntary or

One of the unconsolidated conduits holds CDO investments with an
aggregate outstanding par value of $388 million. The underlying collateral
includes middle market loans held in an insured CDO (65 percent) and
subprime residential mortgages (12 percent), with the remainder of the
collateral consisting primarily of
investment grade securities. During
2008, these investments were downgraded or threatened with a down-
grade by the rating agencies. In accordance with the terms of our existing
liquidity obligations, the Corporation funded these investments in a trans-
action that was accounted for as a secured borrowing, and the invest-
ments no longer serve as collateral for commercial paper issuances. The
Corporation will be reimbursed for any realized losses on these invest-
ments up to the amount of capital notes issued by the conduit. There
were no other significant downgrades nor were any losses recorded in
earnings from writedowns of assets held by any of the conduits during
this period.

The liquidity commitments and SBLCs provided to unconsolidated
conduits are included in Note 13 – Commitments and Contingencies to
the Consolidated Financial Statements.

146 Bank of America 2008

Asset Acquisition Conduits
The Corporation administers three asset acquisition conduits which
acquire assets on behalf of the Corporation or our customers. Two of the
conduits, which are unconsolidated, acquire assets at the request of
customers who wish to benefit from the economic returns of the specified
assets, which consist principally of liquid exchange-traded equity secu-
rities and some leveraged loans, on a leveraged basis. The consolidated
conduit holds subordinated debt securities for the Corporation’s benefit.
The conduits obtain funding by issuing commercial paper and sub-
ordinated certificates to third party investors. Repayment of the commer-
cial paper and certificates is assured by total return swap contracts
between the Corporation and the conduits and, for unconsolidated con-
duits, the Corporation is reimbursed through total return swap contracts
with its customers. The weighted average maturity of commercial paper
issued by the conduits at December 31, 2008 was 54 days. The Corpo-
ration receives fees for serving as commercial paper placement agent
and for providing administrative services to the conduits.

the tenor and relative risk of

The Corporation determines whether it must consolidate an asset
acquisition conduit based on the design of the conduit and whether the
third party investors are exposed to the Corporation’s credit risk or the
market risk of the assets. Interest rate risk is not included in the cash
flow analysis because the conduits are not designed to absorb and pass
along interest rate risk to investors, who receive current rates of interest
that are appropriate for
invest-
ments. When a conduit acquires assets for the benefit of the Corpo-
ration’s customers, the Corporation enters into back-to-back total return
swaps with the conduit and the customer such that the economic returns
of the assets are passed through to the customer. The Corporation’s
performance under
the derivatives is collateralized by the underlying
assets and, as such, the third party investors are exposed primarily to
credit risk of the Corporation. The Corporation’s exposure to the counter-
party credit risk of its customers is mitigated by the aforementioned
collateral arrangements and the ability to liquidate an asset held in the
conduit
the customer defaults on its obligation. When a conduit
acquires assets on the Corporation’s behalf and the Corporation absorbs
the market risk of the assets, it consolidates the conduit.

their

Derivative activity related to unconsolidated conduits is carried at fair
value with changes in fair value recorded in trading account profits
(losses).

Municipal Bond Trusts
The Corporation administers municipal bond trusts that hold highly-rated,
long-term, fixed-rate municipal bonds, some of which are callable prior to
maturity. The majority of the bonds are rated AAA or AA and some of the
bonds benefit from insurance provided by monolines. The trusts obtain
financing by issuing floating-rate trust certificates that reprice on a weekly
basis to third party investors. The floating-rate investors have the right to
tender the certificates at any time upon seven days notice. The Corpo-
ration serves as remarketing agent and liquidity provider for the trusts.
Should the Corporation be unable to remarket the tendered certificates, it
is generally obligated to purchase them at par. The Corporation is not
obligated to purchase the certificate if a bond’s credit rating declines
below investment grade or in the event of certain defaults or bankruptcy
of the issuer and insurer. The weighted average remaining life of bonds
held in the trusts at December 31, 2008 was 11.8 years. There were no
material writedowns or downgrades of assets or issuers during 2008.

Some of these trusts are QSPEs and, as such, are not subject to
consolidation by the Corporation. The Corporation consolidates those
trusts that are not QSPEs if it holds the residual interests or otherwise

expects to absorb a majority of the variability created by changes in
market value of assets in the trusts and changes in market rates of inter-
est. The Corporation does not consolidate a trust if the customer holds
the residual interest and the Corporation is protected from loss in con-
nection with its liquidity obligations. For example, the Corporation may
have the ability to trigger the liquidation of a trust that is not a QSPE if
the market value of the bonds held in the trust declines below a specified
threshold which is designed to limit market losses to an amount that is
interest, effectively preventing the
less than the customer’s residual
Corporation from absorbing the losses incurred on the assets held within
the trust.

The Corporation’s liquidity commitments to consolidated and uncon-
solidated trusts totaled $7.2 billion and $13.5 billion at December 31,
2008 and 2007. The decline is due principally to the liquidation of certain
consolidated trusts. Liquidity commitments to unconsolidated trusts of
$6.8 billion and $6.1 billion at December 31, 2008 and 2007 are
included in Note 13 – Commitments and Contingencies to the Con-
solidated Financial Statements.

Collateralized Debt Obligation Vehicles
CDO vehicles hold diversified pools of fixed income securities. They issue
multiple tranches of debt securities, including commercial paper, and
equity securities. The Corporation receives fees for structuring CDOs and
providing liquidity support for super senior tranches of securities issued
by certain CDOs. No third parties provide a significant amount of similar
commitments to these CDOs.

The Corporation evaluates whether it must consolidate a CDO based
principally on a determination as to which party is expected to absorb a
majority of the credit risk created by the assets of the CDO. When the
Corporation structured certain CDOs,
it acquired the super senior
tranches issued by the CDOs or provided commitments to support the
issuance of super senior commercial paper to third parties. When the
CDOs were first created, the Corporation did not expect its investments or
its liquidity commitments to absorb a significant amount of the variability
driven by the credit risk within the CDOs and did not consolidate the
CDOs. When the Corporation subsequently acquired commercial paper or
term securities issued by certain CDOs during 2008 and 2007, principally
as a result of our
liquidity obligations, we performed updated con-
solidation analyses. Due to credit deterioration in the pools of securities
held by the CDOs, the updated analyses typically indicated that the
Corporation would now be expected to absorb a majority of the variability
and, accordingly, we consolidated these CDOs. Consolidation did not
have a significant impact on net income, as the Corporation’s invest-
ments and liquidity obligations were recorded at fair value prior to con-
solidation. The creditors of the consolidated CDOs have no recourse to
the general credit of the Corporation.

Liquidity commitments provided to CDOs include written put options
with a notional amount of $542 million and $10.0 billion at
December 31, 2008 and 2007. The written put options pertain to com-
mercial paper which is the most senior class of securities issued by the
CDOs and benefits from the subordination of all other securities issued
by the CDOs. The Corporation is obligated to provide funding to the CDOs
by purchasing the commercial paper at predetermined contractual yields
in the event of a severe disruption in the short-term funding market. The
decrease of $9.5 billion in the notional amount of written put options was
due primarily to the elimination of liquidity commitments to certain CDOs.
This amount includes $2.2 billion of put options related to two CDOs that
were consolidated by the Corporation due to a change in contractual
arrangements such as the conversion of commercial paper into term
the remaining outstanding
notes and for which it now holds all of

commercial paper. It also includes $7.0 billion of put options that were
terminated due to liquidation of three CDOs.

At December 31, 2007, the Corporation also provided liquidity support
to a CDO conduit that held $2.3 billion of assets consisting of super
senior tranches of debt securities issued by other CDOs. The CDO con-
duit obtained funds by issuing commercial paper to third party investors.
During 2008, the Corporation purchased the assets and liquidated the
CDO conduit in accordance with our liquidity obligation due to a threat-
ened downgrade of the CDO conduit’s commercial paper. Four CDO
vehicles which issued securities formerly held in the CDO conduit are
consolidated on the Consolidated Balance Sheet of the Corporation at
December 31, 2008.

Leveraged Lease Trusts
The Corporation’s net involvement with consolidated leveraged lease
trusts totaled $5.8 billion and $6.2 billion at December 31, 2008 and
2007. The trusts hold long-lived equipment such as rail cars, power gen-
eration and distribution equipment, and commercial aircraft. The Corpo-
ration consolidates these trusts because it holds a residual
interest
which is expected to absorb a majority of the variability driven by credit
risk of the lessee and, in some cases, by the residual risk of the leased
property. The net investment represents the Corporation’s maximum loss
exposure to the trusts in the unlikely event that the leveraged lease
investments become worthless. Debt
issued by the leveraged lease
trusts is nonrecourse to the Corporation. The Corporation has no liquidity
exposure to these leveraged lease trusts.

Real Estate Investment Vehicles
The Corporation’s investment
in real estate investment vehicles at
December 31, 2008 and 2007 consisted principally of limited partnership
investments in unconsolidated partnerships that finance the construction
and rehabilitation of affordable rental housing. The Corporation earns a
return primarily through the receipt of tax credits allocated to the afford-
able housing projects.

The Corporation determines whether it must consolidate these limited
partnerships based on a determination as to which party is expected to
absorb a majority of the risk created by the real estate held in the vehicle,
which may include construction, market and operating risk. Typically, the
general partner in a limited partnership will absorb a majority of this risk
due to the legal nature of the limited partnership structure. The Corpo-
ration’s risk of loss is mitigated by policies requiring that the project qual-
ify for the expected tax credits prior to making its investment. The
Corporation may from time to time be asked to invest additional amounts
to support a troubled project. Such additional investments have not been
and are not expected to be significant.

Customer Vehicles
Customer vehicles include credit-linked note vehicles and asset acquis-
ition vehicles, which are typically created on behalf of customers who
wish to obtain market or credit exposure to a specific company or finan-
cial instrument.

Credit-linked note vehicles issue notes linked to the credit risk of a
specified company or debt instrument, purchase high-grade assets as
collateral and enter into credit default swaps to synthetically create the
credit risk to pay the return on the notes. The Corporation is typically the
counterparty for some or all of the credit default swaps and, to a lesser
extent, it may invest in securities issued by the vehicles. The Corporation
does not consolidate the vehicles because the credit default swaps cre-
ate variability which is absorbed by the third party investors. The Corpo-
ration is exposed to loss if the collateral held by the vehicle declines in

Bank of America 2008 147

assets out of the conduits. Due to illiquidity in the financial markets at
the time of the sales, the Corporation purchased a majority of these
assets. After subsequent sales to third parties, $1.1 billion of these
assets remain on the Consolidated Balance Sheet and are recorded
within trading account assets at December 31, 2008. The conduits are
QSPEs and, as such, are not subject to consolidation by the Corporation.
In the event that the Corporation is unable to remarket the conduits’
commercial paper such that they no longer qualify as QSPEs, the Corpo-
ration would consolidate the conduits which may have an adverse impact
on the fair value of the related derivative contracts. Derivative activity
related to the other corporate conduits is carried at fair value with
changes in fair value recorded in trading account profits (losses).

Note 10 – Goodwill and Intangible Assets
The following table presents goodwill at December 31, 2008 and 2007,
which includes approximately $4.4 billion of goodwill
related to the
acquisition of Countrywide. For more information on the Countrywide
acquisition, see Note 2 – Merger and Restructuring Activities to the
Consolidated Financial Statements.

(Dollars in millions)

Global Consumer and Small Business Banking
Global Corporate and Investment Banking
Global Wealth and Investment Management
All Other

Total goodwill

December 31

2008

$44,873
29,570
6,503
988

$81,934

2007

$40,340
29,648
6,451
1,091

$77,530

The Corporation performed its annual goodwill impairment test as of
June 30, 2008 which indicated some stress in certain reporting units. As
a result of this test and considering the overall market displacement, an
additional
impairment analysis was completed at year-end. The Corpo-
ration evaluated the fair value of its reporting units using a combination
of the market and income approach, using a range of valuations to
determine the fair value of each reporting unit. In performing the updated
goodwill impairment analysis the Mortgage, Home Equity and Insurance
Services business failed the first step analysis (i.e., carrying value
exceeded its fair value) and therefore the second step analysis was per-
formed (i.e., comparing the implied fair value of the reporting unit’s
goodwill with the carrying amount of that goodwill). In addition, although
not required, to further substantiate the value of the Corporation’s good-
will balance the second step analysis described above was performed for
the Card Services business as well. As a result of the tests, no goodwill
losses were recognized for 2008. For more information on goodwill
impairment testing, see the Goodwill and Intangible Assets section of
Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements.

value and is insufficient to cover the vehicle’s obligation to the Corpo-
ration under the credit default swaps.

instruments,

Asset acquisition vehicles acquire financial

typically
loans, at the direction of a single customer and obtain funding through
the issuance of structured notes to the Corporation. At the time the
vehicle acquires an asset, the Corporation enters into a total return swap
with the customer such that the economic returns of the asset are
passed through to the customer. As a result, the Corporation does not
consolidate the vehicles. The Corporation is exposed to counterparty
credit risk if the asset declines in value and the customer defaults on its
obligation to the Corporation under the total return swap. The Corpo-
ration’s risk may be mitigated by collateral or other arrangements.

Other Vehicles
Other vehicles include loan and other investment vehicles as well as
other corporate conduits that were established on behalf of the Corpo-
ration or customers who wish to obtain market or credit exposure to a
specific company or financial instrument.

Loan and other investment vehicles at December 31, 2008 and 2007
consisted primarily of securitization vehicles, including term securitization
vehicles that did not meet QSPE status, as well as managed investment
vehicles that invest in financial assets, primarily debt securities and
loans. The Corporation determines whether it is the primary beneficiary of
and must consolidate a loan or other investment vehicle based principally
on a determination as to which party is expected to absorb a majority of
the credit risk or market risk created by the assets of the vehicle. Typi-
cally, the party holding subordinated or residual interests in a vehicle will
absorb a majority of the risk. Investors in consolidated loan and other
investment vehicles have no recourse to the general credit of the Corpo-
ration as their investments are repaid solely from the assets of the
vehicle.

Other corporate conduits at December 31, 2008 and 2007 are
commercial paper conduits, which hold primarily high-grade, long-term
municipal, corporate and mortgage-backed securities. The assets held by
these other conduits have a weighted average remaining life of approx-
imately 2.5 years at December 31, 2008. Substantially all of the secu-
rities are rated AAA or AA and some of the bonds benefit from insurance
provided by monolines. The conduits obtain funding by issuing commer-
cial paper to third party investors. At December 31, 2008, the weighted
average maturity of the commercial paper was 15 days. We have entered
rate, currency and a
into derivative contracts which provide interest
pre-specified amount of credit protection to the conduits in exchange for
the commercial paper rate. In addition, the Corporation may be obligated
to purchase assets from the conduits if the assets or insurers are down-
graded. If an asset’s rating declines below a certain investment quality as
evidenced by its credit rating or defaults, the Corporation is no longer
exposed to the risk of loss.

During 2008, three monoline insurers were downgraded by the rating
agencies which resulted in the mandatory sale of $1.5 billion of insured

148 Bank of America 2008

The gross carrying values and accumulated amortization related to intangible assets at December 31, 2008 and 2007 are presented below:

(Dollars in millions)

Purchased credit card relationships
Core deposit intangibles
Affinity relationships
Other intangibles

Total intangible assets

December 31

2008

2007

Gross Carrying
Value

Accumulated
Amortization

Gross Carrying
Value

Accumulated
Amortization

$ 7,080
4,594
1,638
3,113

$16,425

$2,740
3,284
587
1,279

$7,890

$ 7,027
4,594
1,681
3,050

$16,352

$1,970
2,828
406
852

$6,056

Amortization of intangibles expense was $1.8 billion, $1.7 billion and
$1.8 billion in 2008, 2007 and 2006, respectively. The Corporation
estimates aggregate amortization expense will be approximately $1.6 bil-

lion, $1.4 billion, $1.2 billion, $1.0 billion and $840 million for 2009
through 2013, respectively.

Note 11 – Deposits
The Corporation had domestic certificates of deposit and other domestic time deposits of $100 thousand or more totaling $136.6 billion and $94.4
billion at December 31, 2008 and 2007. Foreign certificates of deposit and other foreign time deposits of $100 thousand or more totaled $85.4 bil-
lion and $109.1 billion at December 31, 2008 and 2007.

Time deposits of $100 thousand or more

(Dollars in millions)

Domestic certificates of deposit and other time deposits
Foreign certificates of deposit and other time deposits

Three months
or less

Over three months
to twelve months

$62,663
83,900

$69,913
486

Thereafter

$4,018
966

Total

$136,594
85,352

At December 31, 2008, the scheduled maturities for total time deposits were as follows:

(Dollars in millions)

Due in 2009
Due in 2010
Due in 2011
Due in 2012
Due in 2013
Thereafter

Total time deposits

Domestic

$248,231
6,976
2,962
2,122
1,854
2,990

$265,135

Foreign

$85,416
87
69
246
62
526

$86,406

Total

$333,647
7,063
3,031
2,368
1,916
3,516

$351,541

Bank of America 2008 149

Note 12 – Short-term Borrowings
and Long-term Debt

Short-term Borrowings
Bank of America Corporation and certain of its subsidiaries issue commer-
cial paper in order to meet short-term funding needs. Commercial paper
outstanding at December 31, 2008 was $38.0 billion compared to $55.6
billion at December 31, 2007.

Bank of America, N.A. maintains a domestic program to offer up to a
maximum of $75.0 billion, outstanding 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 $10.5 billion at December 31, 2008, compared to $12.3 billion
at December 31, 2007. These short-term bank notes, along with
commercial paper, Federal Home Loan Bank advances, U.S. Treasury tax
funds purchased, are reflected in
and loan notes, and term federal
commercial paper and other short-term borrowings on the Consolidated
Balance Sheet.

Long-term Debt
Long-term debt consists of borrowings having an original maturity of one
year or more. The following table presents the balance of long-term debt
at December 31, 2008 and 2007 and the related rates and maturity
dates at December 31, 2008:

(Dollars in millions)
Notes issued by Bank of America Corporation (1)
Senior notes:

Fixed, with a weighted average rate of 4.62%, ranging from 0.61% to 10.00%, due 2009 to 2043
Floating, with a weighted average rate of 3.05%, ranging from 0.42% to 6.78%, due 2009 to 2041

Subordinated notes:

Fixed, with a weighted average rate of 5.80%, ranging from 2.40% to 10.20%, due 2009 to 2038
Floating, with a weighted average rate of 3.06%, ranging from 2.48% to 5.13%, due 2016 to 2019

Junior subordinated notes (related to trust preferred securities):

Fixed, with a weighted average rate of 6.73%, ranging from 5.25% to 11.45%, due 2026 to 2055
Floating, with a weighted average rate of 3.56%, ranging from 2.25% to 8.17%, due 2027 to 2056

Total notes issued by Bank of America Corporation

Notes issued by Bank of America, N.A. and other subsidiaries
Senior notes:

Fixed, with a weighted average rate of 2.84%, ranging from 1.70% to 11.30%, due 2009 to 2027
Floating, with a weighted average rate of 2.43%, ranging from 0.47% to 4.50%, due 2009 to 2051

Subordinated notes:

Fixed, with a weighted average rate of 5.90%, ranging from 5.30% to 7.13%, due 2009 to 2036
Floating, with a weighted average rate of 2.42%, ranging from 2.28% to 3.77%, due 2010 to 2027

Total notes issued by Bank of America, N.A. and other subsidiaries

Notes issued by NB Holdings Corporation
Junior subordinated notes (related to trust preferred securities):

Floating, 3.82%, due 2027

Total notes issued by NB Holdings Corporation

Notes issued by BAC North America Holding Company and subsidiaries
Senior notes:

Fixed, with a weighted average rate of 5.27%, ranging from 3.00% to 7.00%, due 2009 to 2026

Junior subordinated notes (related to trust preferred securities):

Fixed, 6.97%, perpetual
Floating, with a weighted average rate of 3.83%, ranging from 2.05% to 6.50%, perpetual

Total notes issued by BAC North America Holding Company and subsidiaries

Other debt (1)
Advances from Federal Home Loan Banks

Fixed, with a weighted average rate of 4.80%, ranging from 1.00% to 8.29%, due 2009 to 2031
Floating, with a weighted average rate of 0.78%, ranging from 0.20% to 2.09%, due 2009 to 2013

Other

Total other debt

Total long-term debt

(1)

Includes long-term debt assumed related to Countrywide.

December 31

2008

2007

$ 67,776
54,076

$ 47,430
41,791

29,618
650

15,606
3,736

171,462

6,103
28,467

5,593
2,796

42,959

258

562

491
940

1,993

48,495
2,750
375

51,620

28,630
686

13,866
3,359

135,762

5,648
33,088

6,592
1,907

47,235

258

583

491
1,627

2,701

5,751
5,450
351

11,552

$268,292

$197,508

The majority of the floating rates are based on three- and six-month
London InterBank Offered Rates (LIBOR). Bank of America Corporation
and Bank of America, N.A. maintain various domestic and international
debt programs to offer both senior and subordinated notes. The notes
foreign currencies. At
may be denominated in U.S. dollars or

December 31, 2008 and 2007, the amount of foreign currency denomi-
nated debt translated into U.S. dollars included in total long-term debt
was $53.3 billion and $58.8 billion. Foreign currency contracts are used
to convert certain foreign currency denominated debt into U.S. dollars.

150 Bank of America 2008

(Dollars in millions)

Bank of America Corporation
Bank of America, N.A. and other subsidiaries
NB Holdings Corporation
BAC North America Holding Company and subsidiaries
Other

Total

2009

$18,411
15,466
–
73
8,932

$42,882

2010

$21,781
11,584
–
92
15,947

$49,404

2011

$13,299
75
–
51
13,604

$27,029

2012

$25,928
5,667
–
15
5,490

$37,100

2013

Thereafter

Total

$ 7,233
86
–
26
5,026

$12,371

$84,810
10,081
258
1,736
2,621

$171,462
42,959
258
1,993
51,620

$99,506

$268,292

At December 31, 2008 and 2007, Bank of America Corporation was
authorized to issue approximately $92.9 billion and $64.0 billion of addi-
tional corporate debt and other securities under its existing shelf registra-
tion statements. At December 31, 2008 and 2007, Bank of America,
N.A. was authorized to issue approximately $48.3 billion and $62.1 bil-
lion of bank notes. At both December 31, 2008 and 2007, Bank of Amer-
ica, N.A. was authorized to issue approximately $20.6 billion of additional
mortgage notes.

The weighted average effective interest rates for total long-term debt,
total fixed-rate debt and total floating-rate debt (based on the rates in
effect at December 31, 2008) were 4.26 percent, 5.05 percent and 2.80
percent, respectively, at December 31, 2008 and (based on the rates in
effect at December 31, 2007) were 5.09 percent, 5.21 percent and 4.93
percent, respectively, at December 31, 2007. 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, 2008 are included in the table
above.

Trust Preferred and Hybrid Securities
Trust preferred securities (Trust Securities) are issued by trust companies
(the Trusts) which are not consolidated. These Trust Securities are
mandatorily redeemable preferred security obligations of the Trusts. The
sole assets of the Trusts are Junior Subordinated Deferrable Interest
Notes of the Corporation or its subsidiaries (the Notes). The Trusts are
100 percent owned finance subsidiaries of the Corporation. Obligations
associated with the Notes are included in the Long-term Debt table on the
previous page.

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 pay-
ment 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 repay-
ment 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 Corpo-
ration’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.

Hybrid Income Term Securities (HITS) totaling $1.6 billion were also
issued by the Trusts to institutional investors in 2007. The BAC Capital
Trust XIII Floating Rate Preferred HITS have a distribution rate of three-
month LIBOR plus 40 bps and the BAC Capital Trust XIV Fixed-to-Floating
Rate Preferred HITS have an initial distribution rate of 5.63 percent. Both
series of HITS represent beneficial
the
respective capital trust, which consists of a series of the Corporation’s
junior subordinated notes and a stock purchase contract for a specified
series of the Corporation’s preferred stock. The Corporation will remarket
the junior subordinated notes underlying each series of HITS on or about
the five year anniversary of the issuance to obtain sufficient funds for the
capital trusts to buy the Corporation’s preferred stock under the stock
purchase contracts.

interests in the assets of

Debt).

long-term indebtedness

In connection with the HITS, the Corporation entered into two replace-
ment capital covenants for the benefit of investors in certain series of the
Corporation’s
of
(Covered
the Corporation’s 6.625% Junior Subordinated
December 31, 2008,
Notes due 2036 constitutes the Covered Debt under the covenant corre-
sponding to the Floating Rate Preferred HITS and the Corporation’s
5.625% Junior Subordinated Notes due 2035 constitutes the Covered
Debt under the covenant corresponding to the Fixed-to-Floating Rate Pre-
ferred HITS. These covenants generally restrict the ability of the Corpo-
ration and its subsidiaries to redeem or purchase the HITS and related
securities unless the Corporation has obtained the prior approval of the
Board of Governors of the Federal Reserve System (FRB) if required under
the FRB’s capital guidelines, the redemption or purchase price of the
HITS does not exceed the amount received by the Corporation from the
sale of certain qualifying securities, and such replacement securities
qualify as Tier 1 Capital and are not “restricted core capital elements”
under the FRB’s guidelines.

Included in the outstanding Trust Securities and Notes in the following
table are non-consolidated wholly owned subsidiary funding vehicles of
BAC North America Holding Company (BACNAH) and its subsidiaries that
issued preferred securities (Funding Securities). These subsidiary funding
vehicles have invested the proceeds of their Funding Securities in sepa-
rate series of preferred securities of BACNAH or its subsidiaries, as appli-
cable (BACNAH Preferred Securities). The BACNAH Preferred Securities
(and the corresponding Funding Securities) are non-cumulative and permit
nonpayment of dividends within certain limitations. The issuance dates
for the BACNAH Preferred Securities (and the related Funding Securities)
range from 2000 to 2001. These Funding Securities are subject to
mandatory redemption upon repayment by the issuer of the corresponding
series of BACNAH Preferred Securities at a redemption price equal to
their liquidation amount plus accrued and unpaid distributions for up to
one quarter.

For additional

information on Trust Securities for regulatory capital
purposes, see Note 15 – Regulatory Requirements and Restrictions to
the Consolidated Financial Statements.

Bank of America 2008 151

The following table is a summary of the outstanding Trust and Hybrid Securities and the related Notes at December 31, 2008 as originated by Bank

of America Corporation and its predecessor companies.

Aggregate
Principal
Amount
of Trust
Securities

Aggregate
Principal
Amount
of the
Notes

Issuance Date

December 2001
January 2002
August 2002
April 2003
November 2004
March 2005
August 2005
August 2005
March 2006
May 2006
August 2006
February 2007
February 2007
May 2007

December 1996
February 1997
April 1997

November 1996
November 1996
December 1996
January 1997

January 1997

December 1996
December 1998
March 2002
July 2003

June 1997
June 1998

June 1997
July 2000
November 2002
December 2002

December 1996
January 1997
June 2002
November 2002

May 2001
May 2001
May 2001
May 2001
May 2001
May 2001
May 2001
June 2001
June 2001
June 2001
June 2001
June 2001

575
900
500
375
518
1,000
1,221
530
900
1,000
863
700
850
500

365
500
500

450
300
450
400

250

250
250
534
175

250
250

9
6
10
5

250
280
300
200

77
77
77
77
77
77
88
70
53
27
80
70

Stated Maturity
of the Notes

Per Annum Interest
Rate of the Notes

Interest Payment Dates

Redemption Period

December 2031
February 2032
August 2032
May 2033
November 2034
March 2035
August 2035
August 2035
March 2055
May 2036
August 2055
March 2043
March 2043
June 2056

7.00%
7.00
7.00
5.88
6.00
5.63
5.25
6.00
6.25
6.63
6.88
3-mo. LIBOR +40 bps
5.63
3-mo. LIBOR +80 bps

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
3/8,9/8
2/10,8/10
2/25,5/25,8/25,11/25
3/29,6/29,9/29,12/29
5/23,11/23
2/2,5/2,8/2,11/2
3/15,6/15,9/15,12/15
3/15,9/15
3/1,6/1,9/1,12/1

On or after 12/15/06
On or after 2/01/07
On or after 8/15/07
On or after 5/01/08
On or after 11/03/09
Any time
Any time
On or after 8/25/10
On or after 3/29/11
Any time
On or after 8/02/11
On or after 3/15/17
On or after 3/15/17
On or after 6/01/37

December 2026
January 2027
April 2027

7.83
3-mo. LIBOR +55 bps
8.25

6/15,12/15
1/15,4/15,7/15,10/15
4/15,10/15

On or after 12/15/06
On or after 1/15/07
On or after 4/15/07

December 2026
December 2026
December 2026
January 2027

8.07
7.70
8.00
3-mo. LIBOR +57 bps

6/30,12/31
6/30,12/31
6/15,12/15
1/15,4/15,7/15,10/15

On or after 12/31/06
On or after 12/31/06
On or after 12/15/06
On or after 1/15/02

593
928
516
387
534
1,031
1,259
546
928
1,031
890
700
850
500

376
515
515

464
309
464
412

258

February 2027

3-mo. LIBOR +62.5 bps

2/1,5/1,8/1,11/1

On or after 2/01/07

258
258
550
180

258
258

9
6
10
5

258
289
309
206

77
77
77
77
77
77
88
70
53
27
80
70

December 2026
December 2028
March 2032
August 2033

7.92
3-mo. LIBOR +100 bps
7.20
6.00

6/15,12/15
3/18,6/18,9/18,12/18
3/15,6/15,9/15,12/15
2/1,5/1,8/1,11/1

On or after 12/15/06
On or after 12/18/03
On or after 3/08/07
On or after 7/31/08

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 6/15/07
On or after 6/08/03

June 2027
July 2030
November 2032
January 2033

December 2026
February 2027
October 2032
February 2033

10.50
11.45
3-mo. LIBOR +335 bps
3-mo. LIBOR +335 bps

6/1,12/1
1/19,7/19
2/15,5/15,8/15,11/15
1/7,4/7,7/7,10/7

On or after 6/01/07
On or after 7/19/10
On or after 11/15/07
On or after 1/07/08

8.28
3-mo. LIBOR +80 bps
8.13
8.10

6/1,12/1
2/1,5/1,8/1,11/1
1/1,4/1,7/1,10/1
2/15,5/15,8/15,11/15

On or after 12/01/06
On or after 2/01/07
On or after 10/01/07
On or after 2/15/08

Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual
Perpetual

3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps
3-mo. LIBOR +175 bps

2/15,5/15,8/15,11/15
3/15,6/15,9/15,12/15
1/15,4/15,7/15,10/15
2/28,5/30,8/30,11/30
3/30,6/30,9/30,12/30
1/30,4/30,7/30,10/30
3/15,6/15,9/15,12/15
3/5,6/5,9/5,12/5
3/12,6/12,9/12,12/12
3/26,6/26,9/26,12/26
1/10,4/10,7/10,10/10
1/24,4/24,7/24,10/24

On or after 8/15/06
On or after 9/15/06
On or after 10/15/06
On or after 8/30/06
On or after 9/30/06
On or after 10/30/06
On or after 9/15/06
On or after 9/05/06
On or after 9/12/06
On or after 9/26/06
On or after 9/12/06
On or after 10/24/06

(Dollars in millions)

Issuer

Bank of America
Capital Trust I
Capital Trust II
Capital Trust III
Capital Trust IV
Capital Trust V
Capital Trust VI
Capital Trust VII
Capital Trust VIII
Capital Trust X
Capital Trust XI
Capital Trust XII
Capital Trust XIII
Capital Trust XIV
Capital Trust XV

NationsBank
Capital Trust II
Capital Trust III
Capital Trust IV

BankAmerica
Institutional Capital A
Institutional Capital B
Capital II
Capital III

Barnett
Capital III

Fleet
Capital Trust II
Capital Trust V
Capital Trust VIII
Capital Trust IX

BankBoston
Capital Trust III
Capital Trust IV

Progress
Capital Trust I
Capital Trust II
Capital Trust III
Capital Trust IV

MBNA
Capital Trust A
Capital Trust B
Capital Trust D
Capital Trust E

ABN Amro North America
Series I
Series II
Series III
Series IV
Series V
Series VI
Series VII
Series IX
Series X
Series XI
Series XII
Series XIII

LaSalle

Series I

August 2000

491

Perpetual

6.97% through 9/15/2010;
3-mo. LIBOR +105.5 bps
thereafter
3-mo. LIBOR +5.5 bps
through 9/15/2010; 3-mo.
LIBOR +105.5 bps
thereafter

3/15,6/15,9/15,12/15

On or after 9/15/10

3/15,6/15,9/15,12/15

On or after 9/15/10

Series J

September 2000

Perpetual

Countrywide
Countrywide Capital III
Countrywide Capital IV
Countrywide Capital V

Total

152 Bank of America 2008

June 1997
April 2003
November 2006

200
500
1,495

206
515
1,496

June 2027
April 2033
November 2036

$20,047

$20,513

8.05
6.75
7.00

6/15,12/15
1/1,4/1,7/1,10/1
2/1,5/1,8/1,11/1

Only under special event
On or after 4/11/08
On or after 4/11/08

Note 13 – Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of
off-balance sheet commitments. These commitments expose the Corpo-
ration to varying degrees of credit and market risk and are subject to the
same credit and market risk limitation reviews as those instruments
recorded on the Corporation’s Consolidated Balance Sheet.

Credit Extension Commitments
The Corporation enters into commitments to extend credit such as loan
commitments, SBLCs and commercial letters of credit to meet the financ-
ing needs of
its customers. The unfunded legally binding lending
commitments shown in the following table are net of amounts distributed
(e.g., syndicated) to other financial institutions of $46.9 billion and $39.2
billion at December 31, 2008 and 2007. At December 31, 2008, the
carrying amount of these commitments, excluding fair value adjustments,
was $454 million,
including deferred revenue of $33 million and a
reserve for unfunded legally binding lending commitments of $421 mil-
lion. At December 31, 2007, the comparable amounts were $550 million,
$32 million and $518 million. The carrying amount of these commitments
is recorded in accrued expenses and other liabilities. For information
regarding the Corporation’s loan commitments accounted for at fair value,
see Note 19 – Fair Value Disclosures to the Consolidated Financial
Statements.

Legally binding commitments to extend credit generally have specified
rates and maturities. Certain of these commitments have adverse change
clauses that help to protect the Corporation against deterioration in the
borrowers’ ability to pay.

The Corporation also facilitates bridge financing (high-grade debt, high-
yield debt and equity) to fund acquisitions, recapitalizations and other
short-term needs as well as provide syndicated financing for clients.
These concentrations are managed, in part, through the Corporation’s
established “originate to distribute” strategy. These client transactions
are sometimes large and leveraged. They can also have a higher degree
of risk as the Corporation is providing offers or commitments for various

the clients’ capital structures,

components of
including lower-rated
unsecured and subordinated debt tranches and/or equity. In many cases,
these offers to finance will not be accepted. If accepted, these condi-
tional commitments are often retired prior to or shortly following funding
via the placement of securities, syndication or the client’s decision to
terminate. Where the Corporation has a commitment and there is a
market disruption or other unexpected event,
there is heightened
exposure in the portfolios, and higher potential for loss, unless an orderly
disposition of the exposure can be made. These commitments are not
necessarily indicative of actual risk or funding requirements as the com-
mitments may expire unused, the borrower may not be successful
in
completing the proposed transaction or may utilize multiple financing
sources, including other investment and commercial banks, as well as
accessing the general capital markets instead of drawing on the commit-
ment. In addition, the Corporation may reduce its portion of the commit-
ment through syndications to investors and/or lenders prior to funding.
Therefore, these commitments are generally significantly greater than the
amounts the Corporation will ultimately fund. Additionally, the borrower’s
ability to draw on the commitment may be subject to there being no mate-
rial adverse change in the borrower’s financial condition, among other
factors. Commitments also generally contain certain flexible pricing fea-
tures to adjust for changing market conditions prior to closing.

At December 31, 2008, the Corporation had no forward leveraged
finance commitments compared to $11.9 billion at December 31, 2007.
During 2008, the Corporation had new transactions of $10.0 billion,
funded and syndicated of $11.5 billion, closed but not yet syndicated of
$6.8 billion, and client terminations and other transactions of $3.6 billion
related to the forward leveraged finance commitments. The Corporation
also had unfunded capital markets commercial real estate commitments
of $700 million at December 31, 2008 compared to $2.2 billion at
December 31, 2007 with the primary change resulting from the $1.2 bil-
lion of transactions that were funded. The Corporation has not originated
any material unfunded capital markets commercial real estate commit-
ments subsequent to September 30, 2007.

(Dollars in millions)

Credit extension commitments, December 31, 2008
Loan commitments
Home equity lines of credit
Standby letters of credit and financial guarantees (1)
Commercial letters of credit

Legally binding commitments (2)

Credit card lines (3)

Total credit extension commitments

Credit extension commitments, December 31, 2007
Loan commitments
Home equity lines of credit
Standby letters of credit and financial guarantees (1)
Commercial letters of credit

Legally binding commitments (2)

Credit card lines (3)

Total credit extension commitments

Expires in 1
year or less

$ 128,992
3,883
33,350
2,228

168,453
827,350

$ 995,803

$ 178,931
8,482
31,629
3,753

222,795
876,393

$1,099,188

Expires after 1
year through
3 years

Expires after 3
years through
5 years

Expires after
5 years

$ 31,200
96,415
9,812
1,507

138,934
–

Total

$ 347,537
107,419
77,580
3,765

536,301
827,350

$ 67,111
4,799
8,328
1

80,239
–

$ 80,239

$ 138,934

$ 1,363,651

$106,904
2,758
7,943
33

117,638
–

$117,638

$ 27,902
107,055
8,731
717

144,405
–

$ 405,890
120,123
62,796
4,553

593,362
894,257

$144,405

$1,487,619

$ 120,234
2,322
26,090
29

148,675
–

$ 148,675

$ 92,153
1,828
14,493
50

108,524
17,864

$126,388

(1) At December 31, 2008 the notional value of SBLC and financial guarantees classified as investment grade and non-investment grade based on the credit quality of the underlying reference name within the instrument

were $54.4 billion and $23.2 billion compared to $44.1 billion and $18.7 billion at December 31, 2007.
Includes commitments to unconsolidated VIEs and certain QSPEs disclosed in Note 9 – Variable Interest Entities to the Consolidated Financial Statements, including $41.6 billion and $47.3 billion to multi-seller
conduits, $6.8 billion and $6.1 billion to municipal bond trusts, and $0 and $2.3 billion to CDOs at December 31, 2008 and 2007. Also includes commitments to SPEs that are not disclosed in Note 9 – Variable
Interest Entities to the Consolidated Financial Statements because the Corporation does not hold a significant variable interest, including $980 million and $1.7 billion to customer-sponsored conduits at December 31,
2008 and 2007.
Includes business card unused lines of credit.

(2)

(3)

Bank of America 2008 153

Other Commitments

Principal Investing and Other Equity Investments
At December 31, 2008 and 2007, the Corporation had unfunded equity
investment commitments of approximately $1.9 billion and $2.6 bil-
lion. These commitments relate primarily to the Corporation’s Principal
Investing business, which is comprised of a diversified portfolio of
investments in privately held and publicly traded companies at all stages
of their life cycle from start-up to buyout. These investments are made
either directly in a company or held through a fund and are accounted for
at fair value. Bridge equity commitments provide equity bridge financing to
facilitate clients’ investment activities. These conditional commitments
are often retired prior to or shortly following funding via syndication or the
client’s decision to terminate. Where the Corporation has a binding equity
bridge commitment and there is a market disruption or other unexpected
event, there is heightened exposure in the portfolio and higher potential
for loss, unless an orderly disposition of the exposure can be made. At
December 31, 2008, the Corporation did not have any unfunded bridge
equity commitments and had previously funded $1.2 billion of equity
bridges which are considered held for investment and recorded in other
assets at $670 million. During 2008, the Corporation recorded $545 mil-
lion in losses related to these investments through equity investment
income.

Loan Purchases
At December 31, 2008, the Corporation had no collateralized mortgage
obligation loan purchase commitments related to its ALM activities
compared to $752 million at December 31, 2007, all of which settled in
the first quarter of 2008.

In 2005, the Corporation entered into an agreement for the committed
purchase of
retail automotive loans over a five-year period, ending
June 30, 2010. The Corporation purchased $12.0 billion of such loans
under this agreement in 2008 compared to $4.5 billion of such loans in
2007. As of December 31, 2008, the Corporation was committed for
additional purchases of up to $13.0 billion over the remaining term of the
agreement of which $3.0 billion will be purchased by June 30, 2009. All
loans purchased under this agreement are subject to a comprehensive
set of credit criteria. This agreement is accounted for as a derivative
liability which had a balance of $316 million and $129 million at
December 31, 2008 and 2007.

Operating Leases
The Corporation is a party to operating leases for certain of its premises
and equipment. Commitments under these leases approximate $2.3 bil-
lion, $2.1 billion, $1.8 billion, $1.5 billion and $1.2 billion for 2009
through 2013, respectively, and $8.3 billion for all years thereafter.

Other Commitments
Beginning in the second half of 2007, the Corporation provided support to
certain cash funds managed within GWIM. The funds for which the Corpo-
ration provided support typically invested in high quality, short-term secu-
rities with a portfolio weighted average maturity of 90 days or less,
including securities issued by SIVs and senior debt holdings of financial
service companies. Due to market disruptions, certain investments in
SIVs and senior debt securities were downgraded by the rating agencies
and experienced a decline in fair value. The Corporation entered into capi-
tal commitments, under which the Corporation provided cash to these
funds in the event the net asset value per unit of a fund declined below
certain thresholds. The capital commitments expire no later than the third

quarter of 2010. At December 31, 2008 and 2007, the Corporation had
gross (i.e., funded and unfunded) capital commitments to the funds of
$1.0 billion and $565 million. In 2008, the Corporation incurred losses of
$695 million related to these capital commitments. At December 31,
2008 and 2007, the remaining loss exposure on capital commitments
was $300 million and $183 million. Additionally, during 2008, the Corpo-
ration purchased $1.7 billion of investments from the funds and recorded
losses of $418 million.

The Corporation may from time to time, but is under no obligation to,
provide additional support to funds managed within GWIM. Future sup-
port, if any, may take the form of additional capital commitments to the
funds or the purchase of assets from the funds.

The Corporation does not consolidate the cash funds managed within
GWIM because the subordinated support provided by the Corporation will
not absorb a majority of the variability created by the assets of the funds.
In reaching this conclusion, the Corporation considered both interest rate
and credit risk. The cash funds had total assets under management of
$185.9 billion and $189.5 billion at December 31, 2008 and 2007.

Other Guarantees

Employee Retirement Protection
The Corporation sells products that offer book value protection primarily
to plan sponsors of Employee Retirement Income Security Act of 1974
(ERISA) governed pension plans, such as 401(k) plans and 457 plans.
The book value protection is provided on portfolios of intermediate/short-
term investment-grade fixed income securities and is intended to cover
any shortfall
in the event that plan participants withdraw funds when
market value is below book value. The Corporation retains the option to
exit the contract at any time. If the Corporation exercises its option, the
purchaser can require the Corporation to purchase zero-coupon bonds
with the proceeds of the liquidated assets to assure the return of princi-
pal. To manage its exposure,
the Corporation imposes significant
restrictions and constraints on the timing of the withdrawals, the manner
in which the portfolio is liquidated and the funds are accessed, and the
investment parameters of the underlying portfolio. These constraints,
combined with structural protections, are designed to provide adequate
buffers and guard against payments even under extreme stress scenar-
ios. These guarantees are booked as derivatives and marked to market in
the trading portfolio. At December 31, 2008 and 2007, the notional
amount of these guarantees totaled $42.2 billion and $35.2 billion with
estimated maturity dates between 2009 and 2038. As of December 31,
2008 and 2007, the Corporation has not made a payment under these
products and has assessed the probability of payments under these
guarantees as remote.

Written Put Options
At December 31, 2008 and 2007, the Corporation provided liquidity
support in the form of written put options on $542 million and $10.0 bil-
lion of commercial paper issued by CDOs, all of which were issued by
unconsolidated CDOs at December 31, 2008. The commercial paper is
the most senior class of securities issued by the CDOs and benefits from
the subordination of all other securities, including AAA-rated securities,
issued by the CDOs. The Corporation is obligated under the written put
options to provide funding to the CDOs by purchasing the commercial
paper at predetermined contractual yields in the event of a severe dis-
ruption in the short-term funding market. These agreements are expected
to be terminated in 2009. The underlying collateral in the CDOs includes
mortgage-backed securities, ABS, and CDO securities issued by other

154 Bank of America 2008

vehicles. These written put options are recorded as derivatives on the
Consolidated Balance Sheet and are carried at fair value with changes in
fair value recorded in trading account profits (losses). At December 31,
2008, the Corporation held $323 million of commercial paper that was
issued by the unconsolidated CDOs.

Indemnifications
In the ordinary course of business, the Corporation enters into various
agreements that contain indemnifications, such as tax indemnifications,
whereupon payment may become due if certain external events occur,
such as a change in tax law. The indemnification clauses are often stan-
dard contractual terms and were entered into in the normal course of
business based on an assessment that the risk of loss would be remote.
These agreements typically contain an early termination clause that per-
mits the Corporation to exit the agreement upon these events. The max-
imum potential
indemnification agreements is
difficult to assess for several reasons, including the occurrence of an
external event, the inability to predict future changes in tax and other
laws, the difficulty in determining how such laws would apply to parties in
contracts, the absence of exposure limits contained in standard contract
language and the timing of the early termination clause. Historically, any
payments made under these guarantees have been de minimis. The
Corporation has assessed the probability of making such payments in the
future as remote.

future payment under

Merchant Services
The Corporation provides credit and debit card processing services to
various merchants by processing credit and debit card transactions on
their behalf. In connection with these services, a liability may arise in the
event of a billing dispute between the merchant and a cardholder that is
ultimately resolved in the cardholder’s favor and the merchant defaults
upon its obligation to reimburse the cardholder. A cardholder, through its
issuing bank, generally has until the later of up to six months after the
date a transaction is processed or the delivery of the product or service to
present a chargeback to the Corporation as the merchant processor. If
the Corporation is unable to collect this amount from the merchant, it
bears the loss for the amount paid to the cardholder. In 2008 and 2007,
the Corporation processed $369.4 billion and $361.9 billion of trans-
actions and recorded losses as a result of these chargebacks of $21 mil-
lion and $13 million.

At December 31, 2008 and 2007, the Corporation held as collateral
$38 million and $19 million of merchant escrow deposits which the
Corporation has the right
to offset against amounts due from the
individual merchants. The Corporation also has the right to offset any
payments with cash flows otherwise due to the merchant. Accordingly, the
Corporation believes that the maximum potential exposure is not repre-
sentative of the actual potential loss exposure. The Corporation believes
the maximum potential exposure for chargebacks would not exceed the
total amount of merchant transactions processed through Visa and Mas-
terCard for the last six months, which represents the claim period for the
cardholder, plus any outstanding delayed-delivery transactions. As of
December 31, 2008 and 2007, the maximum potential exposure totaled
approximately $147.1 billion and $151.2 billion.

Brokerage Business
Within the Corporation’s brokerage business, the Corporation has con-
tracted with a third party to provide clearing services that include under-
writing margin loans to the Corporation’s clients. This contract stipulates
indemnify the third party for any margin loan
that the Corporation will
losses that occur in their issuing margin to the Corporation’s clients. The

maximum potential future payment under this indemnification was $577
million and $1.0 billion at December 31, 2008 and 2007. Historically,
any payments made under this indemnification have been immaterial. As
these margin loans are highly collateralized by the securities held by the
brokerage clients, the Corporation has assessed the probability of making
such payments in the future as remote. This indemnification would end
with the termination of the clearing contract.

Other Guarantees
The Corporation also sells products that guarantee the return of principal
to investors at a preset future date. These guarantees cover a broad
range of underlying asset classes and are designed to cover the shortfall
between the market value of the underlying portfolio and the principal
amount on the preset future date. To manage its exposure, the Corpo-
ration requires that these guarantees be backed by structural and invest-
ment constraints and certain pre-defined triggers that would require the
underlying assets or portfolio to be liquidated 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, 2008 and 2007, the notional amount
of these guarantees totaled $1.3 billion and $1.5 billion. These guaran-
tees have various maturities ranging from two to five years. At
December 31, 2008 and 2007, the Corporation had not made a payment
under these products and has assessed the probability of payments
under these guarantees as remote.

future payment under

The Corporation has entered into additional guarantee agreements,
including lease end obligation agreements, partial credit guarantees on
certain leases, real estate joint venture guarantees, sold risk participation
swaps and sold put options that require gross settlement. The maximum
these agreements was approximately
potential
$7.3 billion and $4.8 billion at December 31, 2008 and 2007. The esti-
mated maturity dates of these obligations are between 2009 and 2033.
The Corporation has made no material payments under these guarantees.
For additional information on recourse obligations related to residential
mortgage loans sold and other guarantees related to securitizations, see
Note 8 – Securitizations to the Consolidated Financial Statements.

Litigation and Regulatory Matters
In the ordinary course of business, the Corporation and its subsidiaries
are routinely defendants in or parties to many pending and threatened
legal actions and proceedings, including actions brought on behalf of
various classes of claimants. Certain of these actions and proceedings
are based on alleged violations of consumer protection, securities, envi-
ronmental, banking, employment and other laws.
In certain of these
actions and proceedings, claims for substantial monetary damages are
asserted against the Corporation and its subsidiaries.

to regulatory examinations,

In the ordinary course of business, the Corporation and its subsidiaries
information gathering
are also subject
requests, inquiries and investigations. Certain subsidiaries of the Corpo-
ration are registered broker/dealers or investment advisors and are sub-
ject to regulation by the SEC, the Financial Industry Regulatory Authority
(FINRA), the New York Stock Exchange, the Financial Services Authority
and other domestic, international and state securities regulators. In con-
nection with formal and informal inquiries by those agencies, such sub-
sidiaries receive numerous requests, subpoenas and orders for
documents, testimony and information in connection with various aspects
of their regulated activities.

Bank of America 2008 155

In view of the inherent difficulty of predicting the outcome of such liti-
gation and regulatory matters, particularly where the claimants seek very
large or indeterminate damages or where the matters present novel legal
theories or involve a large number of parties, the Corporation cannot
state with confidence what the eventual outcome of the pending matters
will be, what the timing of the ultimate resolution of these matters will be,
or what the eventual
loss, fines or penalties related to each pending
matter may be.

In accordance with SFAS 5, the Corporation establishes reserves for
litigation and regulatory matters when those matters present loss con-
tingencies that are both probable and estimable. When loss con-
tingencies are not both probable and estimable, the Corporation does not
establish reserves. In some of the matters described below, including but
not limited to the Lehman Brothers Holdings, Inc. matters, loss con-
tingencies are not both probable and estimable in the view of manage-
ment, and accordingly, reserves have not been established for those
matters. Based on current knowledge, management does not believe that
loss contingencies, if any, arising from pending litigation and regulatory
matters, including the litigation and regulatory matters described below,
will have a material adverse effect on the consolidated financial position
or liquidity of the Corporation, but may be material to the Corporation’s
operating results for any particular reporting period.

Adelphia Communications Corporation
Adelphia Recovery Trust is the plaintiff in a lawsuit pending in the U.S.
District Court for the Southern District of New York (SDNY). The lawsuit
originally named over 700 defendants, including Bank of America, N.A.
(BANA), Banc of America Securities LLC (BAS), Merrill Lynch & Co., Inc.,
Merrill Lynch Capital Corp. (collectively Merrill Lynch), Fleet National Bank,
Fleet Securities, Inc. (collectively Fleet) and other affiliated entities, and
asserted over 50 claims under federal statutes and state common law
relating to loans and other services provided to various affiliates of ACC
and entities owned by members of
the founding family of Adelphia
Communications Corporation. The plaintiffs seek unspecified damages in
an amount not less than $5 billion. The District Court granted in part
defendants’ motions to dismiss, which resulted in the dismissal of
approximately 650 defendants from the lawsuit. The plaintiffs have
appealed the dismissal decision. The primary claims remaining against
BANA, BAS, Merrill Lynch, and Fleet include fraud, aiding and abetting
fraud, and aiding and abetting breach of fiduciary duty. Trial is scheduled
for February 2010.

Auction Rate Securities (ARS) Claims
On May 22, 2008, a putative class action, Bondar v. Bank of America
Corporation, was filed in the U.S. District Court for the Northern District of
California against the Corporation, Banc of America Investment Services,
Inc. (BAI) and BAS (collectively Bank of America) on behalf of persons who
purchased auction rate securities (ARS)
from the defendants. The
amended complaint, which was filed on January 22, 2009, alleges,
among other things, that Bank of America manipulated the market for,
and failed to disclose material facts about, ARS and seeks to recover
unspecified damages for losses in the market value of ARS allegedly
caused by the decision of the Company and other broker-dealers to dis-
continue supporting auctions for the securities. On February 12, 2009,
the Judicial Panel on Multidistrict Litigation consolidated Bondar and two
related, individual federal actions into one proceeding in the U.S. District
Court for the Northern District of California.

156 Bank of America 2008

On March 25, 2008, a putative class action, Burton v. Merrill Lynch &
Co., Inc., et al., was filed in the U.S. District Court for the Southern Dis-
trict of New York against Merrill Lynch on behalf of persons who pur-
chased and continue to hold ARS offered for sale by Merrill Lynch
between March 25, 2003 and February 13, 2008. The complaint alleges,
among other things, that Merrill Lynch failed to disclose material facts
about ARS. A similar action, captioned Stanton v. Merrill Lynch & Co.,
Inc., et al., was filed the next day in the same court. On October 31,
2008, the two cases were consolidated, and on December 10, 2008, a
consolidated class action amended complaint was filed. Plaintiffs seek to
recover alleged losses in the market value of ARS allegedly caused by the
decision of Merrill Lynch to discontinue supporting auctions for the secu-
rities. Responses to the amended complaint were due on February 27,
2009.

On September 4, 2008, two civil antitrust putative class actions, City
of Baltimore v. Citigroup et al., and Mayfield v. Citigroup et al., were filed
in the U.S. District Court for the Southern District of New York against the
institutions alleging that
Corporation, Merrill Lynch, and other financial
the defendants conspired to restrain trade in ARS by artificially supporting
auctions and later withdrawing that support. City of Baltimore is filed on
behalf of a class of
issuers of ARS underwritten by the defendants
between May 12, 2003 and February 13, 2008 who seek to recover the
alleged above-market interest payments they claim they were forced to
make when the Corporation, Merrill Lynch and others allegedly dis-
continued supporting ARS. The plaintiffs who also purchased ARS also
seek to recover claimed losses in the market value of those securities
institutions to dis-
allegedly caused by the decision of the financial
continue supporting auctions for the securities. Plaintiffs seek treble
damages and to rescind at par their purchases of ARS. Mayfield is filed
on behalf of a class of persons who acquired ARS directly from defend-
ants and who held those securities as of February 13, 2008. Plaintiffs
seek to recover alleged losses in the market value of ARS allegedly
caused by the decision of the Corporation and Merrill Lynch and others to
discontinue supporting auctions for the securities. Plaintiffs seek treble
damages and to rescind at par their purchases of ARS. On January 15,
2009, defendants, including the Corporation and Merrill Lynch, filed a
motion to dismiss the complaints.

On September 10, 2008, Bank of America announced an agreement
in principle with the Massachusetts Securities Division, without admitting
or denying allegations of wrongdoing, under which it will offer to purchase
at par ARS held by certain customers. On October 8, 2008, Bank of Amer-
ica announced agreements in principle with the SEC, the Office of the
New York State Attorney General (NYAG), and the North American Secu-
rities Administrators Association. The agreements are substantially sim-
ilar except that the agreement with the NYAG requires the payment of a
penalty to be allocated among and at the discretion of the settling states.
In addition, the agreement with the SEC provides that the SEC reserves
the right to seek an additional penalty in the event it concludes Bank of
America has not satisfied its obligations under the agreement.

Merrill Lynch has entered into agreements in principle to settle regu-
latory actions related to its sale of ARS. As part of these settlements,
Merrill Lynch agreed to offer to purchase ARS held by certain individuals,
charities, and non-profit corporations and to pay a fine.

Countrywide Equity and Debt Securities Matters
Countrywide Financial Corporation (CFC), certain other Countrywide enti-
ties, and certain former officers and directors of CFC, among others, have
been named as defendants in two putative class actions filed in the U.S.
District Court for the Central District of California relating to certain CFC
equity and debt securities. One case, entitled In re Countrywide Financial
Corp. Securities Litigation, was filed by certain New York state and munici-

pal pension funds on behalf of purchasers of CFC’s common stock and
certain other equity and debt securities. The complaint alleges, among
other things, that CFC made misstatements (including in certain SEC fil-
ings) concerning the nature and quality of its loan underwriting practices
and its financial results, in violation of the antifraud provisions of the
Securities Exchange Act of 1934 and Sections 11 and 12 of the Securities
Act of 1933. Plaintiffs also assert claims against BAS, Merrill Lynch,
Pierce, Fenner & Smith, Inc. (MLPFS) and other underwriter defendants
under Sections 11 and 12 of the Securities Act of 1933. Plaintiffs seek
unspecified
remedies. On
December 1, 2008, the Court granted in part and denied in part the
defendants’ motions to dismiss the First Consolidated Amended Com-
plaint, with leave to amend certain claims. Plaintiffs have filed a Second
Consolidated Amended Complaint. A motion to dismiss is pending.

compensatory

damages,

among

other

The other case, entitled Argent Classic Convertible Arbitrage Fund L.P.
v. Countrywide Financial Corp. et al., was filed in the U.S. District Court
for the Central District of California in October 2007 against CFC on
behalf of purchasers of certain Series A and B debentures issued in vari-
ous private placements pursuant to a May 16, 2007 CFC offering memo-
randum. This matter involves allegations similar to those in the In re
Countrywide Financial Corporation Securities Litigation case, asserts
claims under the antifraud provisions of the Exchange Act and California
state law, and seeks unspecified damages. Plaintiffs have filed an
amended complaint that added the Corporation as a defendant. A motion
to dismiss is pending.

CFC has also responded to subpoenas from the SEC and the U.S.

Department of Justice.

Countrywide Mortgage-Backed Securities Litigation
CFC, certain other Countrywide entities, certain former CFC officers and
directors, as well as BAS and MLPFS, are named as defendants in a
consolidated putative class action, entitled Luther v. Countrywide Home
Loans Servicing LP, et al., filed in the Superior Court of the State of Cal-
ifornia, County of Los Angeles, that relates to the public offering of vari-
ous mortgage-backed securities. The consolidated complaint alleges,
among other things, that the mortgage loans underlying these securities
were improperly underwritten and failed to comply with the guidelines and
processes described in the applicable registration statements and pro-
spectus supplements, in violation of Sections 11 and 12 of the Securities
Act of 1933 and seeks unspecified compensatory damages, among other
relief. In addition, in August 2008 a complaint was filed in the First Judi-
cial Court for the County of Santa Fe against CFC, certain other CFC enti-
ties and certain former officers and directors of CFC by three New Mexico
governmental entities that allegedly acquired certain of these mortgage-
backed securities. The complaint asserts claims under the Securities Act
and New Mexico state law. A motion to dismiss the complaint in the New
Mexico action is pending.

Countrywide State and Local Enforcement Actions
Certain state and local government officials filed proceedings against CFC
including lawsuits
and/or various of CFC’s wholly-owned subsidiaries,
brought by the state attorneys general of California, Florida,
Illinois,
Connecticut, Indiana and West Virginia in their respective state courts.
These lawsuits alleged, among other things, that CFC and/or its sub-
sidiaries violated state consumer protection laws by engaging in
deceptive marketing practices designed to increase the volume of loans it
originated and then sold into the secondary market. These lawsuits
sought, among other remedies, restitution, other monetary relief, penal-
ties and, in the Illinois action, rescission or repurchase of mortgage loans
made to Illinois consumers. CFC and its affiliates removed each of the
lawsuits to federal court, and they have been transferred, finally or provi-

sionally, to the U.S. District Court for the Southern District of California by
the Judicial Panel on Multidistrict Litigation. In addition, the Director of
the Washington State Department of Financial Institutions commenced an
administrative proceeding against a CFC wholly-owned subsidiary alleging,
among other things, that such subsidiary did not provide borrowers with
certain required disclosures and that the loan products made available to
Washington borrowers of protected races or ethnicities were less favor-
able than those made available to other, similarly situated borrowers.
That proceeding seeks, among other things, a monetary fine and an order
barring the CFC subsidiary from making consumer loans in the state of
Washington for five years. The state lawsuits have been settled finally or
in principle, except for the lawsuit brought by Indiana. The settlement
provides for a loan modification program, principally for subprime and pay
option ARM borrowers, and a nationwide fund of up to $150 million for
foreclosure relief programs designated by certain settling states and for
payments to individuals whose property was foreclosed and, prior to fore-
closure, had made few mortgage payments. The settlements with all of
the states except Connecticut have been documented and filed in state
court, leading to the dismissal of the federal court cases as to CFC and/
or its affiliates, and the remaining settlements are subject to the negotia-
tion and execution of agreements and the Court’s approval of such
agreements.

Countrywide Bond Insurance Litigation
In September 2008, CFC and other Countrywide entities were named as
defendants in an action filed by MBIA Insurance Corporation (MBIA) in
New York Supreme Court. The action relates to bond insurance policies
provided by MBIA with regard to certain securitized pools of home equity
lines of credit and fixed-rate second lien mortgage loans. MBIA allegedly
has paid claims as a result of defaults in the underlying loans, and claims
that these defaults are the result of improper underwriting. The complaint
alleges misrepresentation and breach of contract, among other claims,
and seeks unspecified actual and punitive damages, and attorneys’ fees.
The Countrywide defendants have filed a motion to dismiss the primary
claims in the action.

Data Treasury Litigation
The Corporation and BANA have been named as defendants in two cases
filed by Data Treasury Corporation (Data Treasury) in the U.S. District
Court for the Eastern District of Texas. In one case, Data Treasury alleges
that defendants “provided, sold, installed, utilized, and assisted others to
use and utilize image-based banking and archival solutions” in a manner
that infringes United States Patent Nos. 5,910,988 and 6,032,137. In
the other case, Data Treasury alleges that the Corporation and BANA,
among other defendants, are “making, using, selling, offering for sale,
and/or importing into the United States, directly, contributory, and/or by
inducement, without authority, products and services that fall within the
the claims of” United States Patent Nos. 5,265,007;
scope of
5,583,759;
seeks
unspecified damages and injunctive relief in both cases. This matter has
been scheduled for trial in the fall of 2009.

and 5,930,778. Data

5,717,868;

Treasury

Enron Litigation
On April 8, 2002, Merrill Lynch & Co., Inc. and MLPFS (collectively Merrill
Lynch) were added as defendants in a consolidated class action, entitled
Newby v. Enron Corp. et al., filed in the U.S. District Court for the South-
ern District of Texas on behalf of certain purchasers of Enron’s publicly
traded equity and debt securities. The complaint alleges, among other
things, that Merrill Lynch engaged in improper transactions that helped
Enron misrepresent its earnings and revenues. The District Court denied
Merrill Lynch’s motion to dismiss and certified a class action by Enron

Bank of America 2008 157

shareholders and bondholders against Merrill Lynch and other defend-
ants. On March 19, 2007, the U.S. Court of Appeals for the Fifth Circuit
reversed the District Court’s decision certifying the case as a class
action. On January 22, 2008, the Supreme Court denied plaintiffs’ peti-
tion to review the Fifth Circuit’s decision. The parties are currently await-
ing the District Court’s decision on Merrill Lynch’s request to dismiss the
case based on the Fifth Circuit’s March 19, 2007 decision and the
Supreme Court’s January 15, 2008 decision in another case, Stoneridge
Investment v. Scientific Atlanta, which rejected liability on the same
theory asserted by plaintiffs in this case. Over a dozen other actions have
been brought against Merrill Lynch and other investment firms in con-
nection with their Enron-related activities. There has been no adjudication
of the merits of these claims.

Heilig-Meyers Litigation
In AIG Global Securities Lending Corp., et al. v. Banc of America Secu-
rities LLC, pending in the U.S. District Court for the Southern District of
New York, the plaintiffs purchased asset-backed securities issued by a
trust formed by Heilig-Meyers Co., and allege that BAS, as underwriter,
made misrepresentations in connection with the sale of those securities
in violation of the federal securities laws and New York common law. The
case was tried and a jury rendered a verdict against BAS in favor of the
plaintiffs for violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 and for common law fraud. The jury awarded
aggregate compensatory damages of $84.9 million plus prejudgment
interest totaling approximately $59 million. BAS filed motions to set aside
the verdict in January 2009.

In re Initial Public Offering Securities Litigation
Beginning in 2001, Robertson Stephens, Inc. (an investment banking
subsidiary of FleetBoston that ceased operations during 2002), BAS,
Merrill Lynch & Co., Inc., MLPFS (collectively Merrill Lynch), other under-
writers, and various issuers and others, were named as defendants in
certain of the 309 putative class action lawsuits that have been con-
solidated in the U.S. District Court for the Southern District of New York
as In re Initial Public Offering Securities Litigation. Plaintiffs contend that
the defendants failed to make certain required disclosures and manipu-
lated prices of securities sold in initial public offerings through, among
other things, alleged agreements with institutional
investors receiving
allocations to purchase additional shares in the aftermarket and seek
unspecified damages. On December 5, 2006, the U.S. Court of Appeals
for the Second Circuit reversed the District Court’s order certifying the
proposed classes. On September 27, 2007, plaintiffs filed a motion to
certify modified classes, which defendants opposed. On October 10,
2008, the District Court granted plaintiffs’ request to withdraw without
prejudice their class certification motion. A settlement in principle has
been reached, subject to negotiation of definitive documentation and
court approval. If the settlement is finalized and approved, Robertson
Stephens, Inc., BAS and Merrill Lynch will pay, in total, approximately
$100 million to the settlement classes.

Interchange and Related Cases
The Corporation and certain of its subsidiaries are defendants in putative
class actions filed on behalf of retail merchants that accept Visa and
MasterCard payment cards. Additional defendants include Visa, Master-
Card, and other financial
institutions. Plaintiffs seek unspecified treble
damages and injunctive relief and allege that the defendants conspired to
fix the level of interchange and merchant discount fees and that certain
including various Visa and MasterCard rules, violate
other practices,
federal and California antitrust laws. The class actions are coordinated
for pre-trial proceedings in the U.S. District Court for the Eastern District

158 Bank of America 2008

of New York, together with individual actions brought only against Visa
and MasterCard, under the caption In Re Payment Card Interchange Fee
and Merchant Discount Anti-Trust Litigation (Interchange). On January 8,
2008, the District Court dismissed all claims for pre-2004 damages.
Plaintiffs filed a motion for class certification on May 8, 2008, and the
defendants have opposed that motion. On January 29, 2009, the class
plaintiffs filed an amended consolidated complaint.

The class plaintiffs have also filed two supplemental complaints
against certain defendants, including the Corporation and certain of its
subsidiaries, relating to, respectively, MasterCard’s 2006 initial public
offering (MasterCard IPO) and Visa’s 2008 initial public offering (Visa
IPO). The supplemental complaints, which seek unspecified treble dam-
ages and injunctive relief, assert, among other things, claims under
federal antitrust laws. On November 25, 2008, the District Court granted
defendants’ motion to dismiss the supplemental complaint relating to
MasterCard’s IPO, with leave to amend. On January 29, 2009, plaintiffs
amended this supplemental complaint and also filed the supplemental
complaint relating to Visa’s IPO. Responses to all of the complaints are
due on March 16, 2009.

The Corporation and certain of its subsidiaries have entered into
agreements that provide for sharing liabilities in connection with certain
antitrust litigation against Visa (the Visa-Related Litigation),
including
Interchange. Under these agreements, the Corporation’s obligations to
Visa in the Visa-Related Litigation are capped at the Corporation’s mem-
bership interest in Visa USA (approximately 12.1 percent as of December
31, 2008, but expected to rise to approximately 12.6 percent after giving
effect to the transaction with Merrill Lynch & Co., Inc.). Also under these
agreements, Visa Inc. has used a portion of the proceeds from the Visa
IPO to fund liabilities arising from the Visa-Related Litigation, including the
settlement during 2008 of Discover Financial Services v. Visa USA, et al.
and the 2007 settlement of American Express Travel Related Services
Company v. Visa USA, et al., and has stated that it will use such pro-
ceeds to fund other liabilities in the future, if any, arising from the Visa-
Related Litigation.

Lehman Brothers Holdings, Inc.
Beginning in September 2008, BAS, MLPFS, Countrywide Securities
Corporation and LaSalle Financial Services Inc., along with other under-
writers and individuals, were named as defendants in several putative
class action complaints filed in the U.S. District Court for the Southern
District of New York and state courts in Arkansas, California, New York
and Texas. Plaintiffs allege that the underwriter defendants violated Sec-
tions 11 and 12 of the Securities Act of 1933 by making false or mislead-
ing disclosures in connection with various debt and convertible stock
offerings of Lehman Brothers Holdings, Inc. and seek unspecified dam-
ages. On January 9, 2009, the U.S. District Court for the Southern District
of New York issued an order consolidating most of these cases under the
caption In re Lehman Brothers Securities and ERISA Litigation.

Mediafiction Litigation
Approximately a decade ago, Merrill Lynch International Bank Limited
(MLIB) (formerly Merrill Lynch Capital Markets Bank Limited) acted as
manager for a $284 million issuance of notes for an Italian library of
movies, backed by the future flow of receivables to such movie rights.
Mediafiction S.p.A (Mediafiction) was responsible for collecting payments
in connection with the rights to the movies and forwarding the payments
to MLIB for distribution to note holders. Mediafiction failed to make the
required payments to MLIB and subsequently filed for protection under
the bankruptcy laws of Italy. MLIB has filed claims in the Mediafiction
bankruptcy proceeding for amounts that Mediafiction failed to pay on the
notes and Mediafiction has filed a counterclaim alleging that the agree-

ment between MLIB and Mediafiction is null and void and seeking return
of the payments previously made by Mediafiction to MLIB. In October
2008, the Court of Rome granted Mediafiction S.p.A.’s counter-claim
against MLIB in the amount of $137 million. MLIB has appealed the rul-
ing to the Court of Appeals of the Court of Rome.

Merrill Lynch Merger-Related Matters
Beginning in January 2009, the Corporation and certain of its officers and
directors have been named as defendants in putative class actions
brought by shareholders alleging violations of Sections 10(b), 14(a) and
20(a) of the Securities Exchange Act of 1934, and SEC rules promulgated
thereunder, based on, among other things, the alleged failure to disclose
information concerning the financial performance of Merrill Lynch during
the fourth quarter of 2008 in connection with the proxy statement pur-
suant
to which the Corporation’s shareholders approved the merger
between the Corporation and Merrill Lynch (the Merger) and certain other
public statements. These actions, which seek unspecified damages and
other relief, include Sklar v. Bank of America Corp., et al., Finger Interests
No. One Ltd. v. Bank of America Corp., et al., Fort Worth Employees’ Ret.
Fund v. Bank of America Corp., et. al., Palumbo v. Bank of America Corp.,
et al., Zitner v. Bank of America Corp., et al., and Stabbert v. Bank of
America Corp., et al. in the U.S. District Court for the Southern District of
New York, Boorn v. Bank of America Corp., et. al. in the U.S District Court
for the Northern District of Georgia, and Cromier v. Bank of America Corp.,
et al. in the U.S. District Court for the Northern District of California.

The Corporation and certain of its officers and directors have also
been named as defendants in a putative class action, Stern v. Bank of
America Corp., et al., brought in the Delaware Court of Chancery by
shareholders alleging breaches of fiduciary duties in connection with the
Merger.

Other putative class actions,

including Dailey v. Bank of America
Corp., et al., Wilson v. Bank of America Corp., et al., Adams v. Bank of
America Corp., et al., Wright v. Bank of America Corp., et al., and Stricker
v. Bank of America Corp. Corporate Benefits Comm., et al., have been
filed in the U.S. District Court for the Southern District of New York
against the Corporation and certain of its officers and directors seeking
recovery for losses from the Bank of America 401(k) Plan pursuant to the
Employee Retirement Income Security Act. The complaints allege, among
other things, that defendants made false and misleading statements in
connection with the Merger and failed to inform participants in the plan of
risks associated with investment in the Corporation’s stock.

In addition, several derivative actions have been filed against directors
of the Corporation, and the Corporation as nominal defendant, in the U.S.
District Court for the Southern District of New York, including Louisiana
Municipal Police Employees Ret. System v. Lewis et al., Waldman v.
Lewis, et al., Hollywood Police Officers’ Ret. System v. Lewis, et al.,
Siegel v. Lewis, et al., Lehmann v. Lewis, et al., and Smith v. Lewis, et al.
Other derivative actions have been filed in the Delaware Court of Chan-
cery, consolidated as In re Bank of America Corp. Stockholder Derivative
Litigation, and in North Carolina Superior Court, Cunniff v. Lewis, et al.
The derivative actions assert common law claims for breach of fiduciary
duty and waste of corporate assets in connection with the Merger. Certain
derivative actions filed in the U.S. District Court for the Southern District
of New York also allege violations of Section 14(a) of the Securities
Exchange Act of 1934 and Rule 14a-9 promulgated thereunder based on,
among other things, the alleged failure to disclose information concerning
the financial performance of Merrill Lynch during the fourth quarter of
2008 in connection with the proxy statement pursuant to which the
Corporation’s shareholders approved the Merger.

The Corporation and Merrill Lynch have also received and are respond-
ing to inquiries from governmental authorities relating to (1) the Merger,
and (2) incentive compensation paid to employees for 2008.

Merrill Lynch Subprime-Related Matters

In re Merrill Lynch & Co., Inc. Securities, Derivative, and ERISA
Litigation
Inc. and MLPFS
Beginning in October 2007, Merrill Lynch & Co.,
(collectively Merrill Lynch) and certain present and former Merrill Lynch
officers and directors were named in both putative class actions filed on
behalf of certain persons who acquired Merrill Lynch securities (the Secu-
rities Action) or participated in Merrill Lynch retirement plans (the ERISA
Action) and purported shareholder derivative actions (the Derivative
Actions) that have largely been consolidated under the caption, In re Mer-
rill Lynch & Co., Inc. Securities, Derivative, and ERISA Litigation, filed in
the U.S. District Court for the Southern District of New York. The com-
plaints allege, among other things, that the defendants misrepresented
and omitted facts related to Merrill Lynch’s exposure to subprime
collateralized debt obligations and subprime lending markets in violation
of
the federal securities laws, and seek damages in unspecified
amounts. The Securities Action plaintiffs allege harm to investors who
purchased Merrill Lynch securities during the class period; the ERISA
Action plaintiffs allege harm to employees who invested retirement assets
in Merrill Lynch securities, in violation of the Employee Retirement Income
Securities Act (ERISA); and the plaintiffs in the derivative suits allege
harm to Merrill Lynch itself from alleged breaches of fiduciary duty. In
January 2009, Merrill Lynch agreed in principle to settle the Securities
Action for $475 million and the ERISA Action for $75 million. The settle-
ment is subject to a number of conditions, including court approval and
confirmatory discovery, and was reached without any adjudication of the
merits or finding of liability. On February 17, 2009, the District Court
granted the defendants’ motion to dismiss the Derivative Actions.

Louisiana Sheriffs’ Pension & Relief Fund v. Conway, et al.
On October 3, 2008, a putative class action was filed against Merrill
Lynch & Co., Inc., Merrill Lynch Capital Trust I, Merrill Lynch Capital Trust
II, Merrill Lynch Capital Trust III, MLPFS (collectively Merrill Lynch), and
certain present and former Merrill Lynch officers and directors, and
underwriters, including BAS, in New York Supreme Court. The complaint
seeks relief on behalf of all persons who purchased or otherwise acquired
Merrill Lynch debt securities issued pursuant
registration
statement dated March 31, 2006. The complaint alleges that Merrill
Lynch’s prospectuses misstated Merrill Lynch’s financial condition and
failed to disclose its exposure to losses from investments tied to sub-
prime and other mortgages, as well as its liability arising from its partic-
ipation in the auction rate securities market. On October 22, 2008, the
action was removed to federal court and on November 5, 2008 it was
accepted as a related case to In re Merrill Lynch & Co., Inc. Securities,
Derivative, and ERISA Litigation. On February 9, 2009, Merrill Lynch filed
a motion to dismiss the action.

to a shelf

Connecticut Carpenters Pension Fund, et al. v. Merrill Lynch & Co.,
Inc., et al.
On December 5, 2008, a class action complaint was filed against Merrill
Lynch & Co., Inc., MLPFS, Merrill Lynch Mortgage Investors, Inc., Merrill
Lynch Mortgage Lending, Inc., and Merrill Lynch Credit Corporation, Inc.
(collectively Merrill Lynch) and certain present and former Merrill Lynch
officers and directors in the Superior Court of the State of California,
County of Los Angeles on behalf of persons who purchased Merrill Lynch

Bank of America 2008 159

Mortgage Trust Certificates pursuant or traceable to registration state-
ments that Merrill Lynch Mortgage Investors, Inc. filed with the SEC on
August 5, 2005, December 21, 2005, and February 2, 2007. The com-
plaint alleges that the registration statements misrepresented or omitted
material facts regarding the quality of the mortgage pools underlying the
Trusts, the mortgages’ loan-to-value ratios, and other criteria that were
used to qualify borrowers for mortgages. Plaintiffs seek to recover alleged
losses in the market value of the Certificates allegedly caused by the
performance of the underlying mortgages.

Public Employees’ Ret. System of Mississippi v. Merrill Lynch & Co.
Inc.
On February 17, 2009, a putative class action was filed against Merrill
Lynch and others in the U.S. District Court for the Southern District of
New York on behalf of persons who purchased Merrill Lynch Mortgage
Trust Certificates pursuant or traceable to registration statements that
Merrill Lynch Mortgage Investors, Inc. filed with the SEC on December 21,
2005 and February 2, 2007. The complaint alleges, among other things,
that the registration statements and related documents misrepresented
or omitted material facts regarding the underwriting standards used to
originate the mortgages in the mortgage pools underlying the Trusts.
Plaintiffs seek to recover alleged losses in the market value of the Certifi-
cates allegedly caused by the performance of the underlying mortgages or
to rescind their purchases of the Certificates.

In addition to the above class actions, Merrill Lynch is a respondent or
defendant in arbitrations and lawsuits brought by customers relating to
the purchase of subprime-related securities. Plaintiffs generally allege
causes of action for negligence, breach of duty, and fraud.

Merrill Lynch & Co., Inc. is cooperating with the SEC and other gov-

ernmental authorities investigating sub-prime mortgage-related activities.

Miller
On August 13, 1998, a predecessor of BANA was named as a defendant
in a class action filed in Superior Court of California, County of San Fran-
cisco, entitled Paul J. Miller v. Bank of America, N.A., challenging its prac-
tice of debiting accounts that received, by direct deposit, governmental
benefits to repay fees incurred in those accounts. The action alleges,
among other claims, fraud, negligent misrepresentation and other viola-
tions of California law. On October 16, 2001, a class was certified con-
sisting of more than one million California residents who have, had or will
have, at any time after August 13, 1994, a deposit account with BANA
into which payments of public benefits are or have been directly
deposited by the government.

On March 4, 2005, the trial court entered a judgment that purported
to award the class restitution in the amount of $284 million, plus attor-
neys’
fees, and provided that class members whose accounts were
assessed an insufficient funds fee in violation of law suffered substantial
emotional or economic harm and, therefore, are entitled to an additional
$1,000 statutory penalty. The judgment also purported to enjoin BANA,
among other things, from engaging in the account balancing practices at
issue. On November 22, 2005, the California Court of Appeal stayed the
judgment, including the injunction, pending appeal.

On November 20, 2006, the California Court of Appeal reversed the
judgment in its entirety, holding that BANA’s practice did not constitute a
violation of California law. On March 21, 2007, the California Supreme
Court granted plaintiff’s petition to review the Court of Appeal’s decision.

Municipal Derivatives Matters
The Antitrust Division of the U.S. Department of Justice (DOJ), the SEC,
and the IRS are investigating possible anticompetitive bidding practices in

160 Bank of America 2008

the municipal derivatives industry involving various parties,
including
BANA, from the early 1990s to date. The activities at issue in these
industry-wide government investigations concern the bidding process for
municipal derivatives that are offered to states, municipalities and other
issuers of tax-exempt bonds. The Corporation has cooperated, and con-
tinues to cooperate, with the DOJ, the SEC and the IRS. On February 4,
2008, BANA received a Wells notice advising that the SEC staff
is
considering recommending that the SEC bring a civil
injunctive action
and/or an administrative proceeding “in connection with the bidding of
various financial
instruments associated with municipal securities.” An
SEC action or proceeding could seek a permanent injunction, disgorge-
ment plus prejudgment interest, civil penalties and other remedial relief.
Merrill Lynch & Co., Inc. is also being investigated by the SEC and the
DOJ.

On January 11, 2007, the Corporation entered into a Corporate Condi-
tional Leniency Letter (the Letter) with DOJ. Under the Letter and subject
to the Corporation’s continuing cooperation, DOJ will not bring any crimi-
nal antitrust prosecution against the Corporation in connection with the
matters that the Corporation reported to DOJ. Subject to satisfying DOJ
and the court presiding over any civil
litigation of the Corporation’s
cooperation, the Corporation is eligible for (i) a limit on liability to single,
rather than treble, damages in certain types of related civil antitrust
actions, and (ii) relief from joint and several antitrust liability with other
civil defendants.

Beginning in March 2008, the Corporation, BANA and other financial
institutions, including Merrill Lynch & Co., Inc., have been named as
defendants in complaints filed in federal courts in the District of Colum-
bia, New York and elsewhere. Plaintiffs purport to represent classes of
government and private entities that purchased municipal derivatives
from defendants. The complaints allege that defendants conspired to
allocate customers and fix or stabilize the prices of certain municipal
derivatives from 1992 through the present. The plaintiffs’ complaints
seek unspecified damages, including treble damages. These lawsuits
were consolidated for pre-trial proceedings in the In re Municipal
Derivatives Antitrust
Litigation, MDL No. 1950 (Master Docket
No. 08-2516), pending in the U.S. District Court for the Southern District
of New York, and plaintiffs have filed a Consolidated Class Action com-
plaint
financial
institutions were also named in several related individual suits filed in
California state courts on behalf of a number of cities and counties in
California. These complaints allege a substantially similar conspiracy and
assert violations of California’s Cartwright Act, as well as fraud and deceit
claims. All of these state complaints have been removed to federal court
and are now part of In re Municipal Derivatives Antitrust Litigation, MDL
No. 1950 (Master Docket No. 08-2516). Motions to remand these cases
to state court were denied.

in this matter. BANA, BAS, Merrill Lynch and other

Beginning in April 2008, the Corporation and BANA received sub-
poenas, interrogatories and/or civil investigative demands from a number
of state attorneys general requesting documents and information regard-
ing municipal derivatives transactions from 1992 through the pres-
ent. The Corporation and BANA are cooperating with the state attorneys
general.

Parmalat Finanziaria S.p.A.
On December 24, 2003, Parmalat Finanziaria S.p.A. was admitted into
insolvency proceedings in Italy, known as “extraordinary administration.”
The Corporation, through certain of its subsidiaries, including BANA, pro-
vided 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 reorganiza-
tion for the restructuring of the companies of the Parmalat group that are

included in the Italian extraordinary administration proceeding. In July
2004, the Italian Ministry of Production Activities approved the Extra-
ordinary Commissioner’s restructuring plan, as amended, for the Parma-
lat group companies that are included in the Italian extraordinary
administration proceeding. This plan was approved by the voting creditors
and the Court of Parma, Italy in October of 2005.

Litigation and investigations relating to Parmalat are pending in both

Italy and the United States.

Proceedings in Italy
On May 26, 2004, The Public Prosecutor’s Office for the Court of Milan,
Italy filed criminal charges against Luca Sala, Luis Moncada, and Antonio
Luzi, three former employees of the Corporation, alleging the crime of
market manipulation in connection with a press release issued by Parma-
lat. On December 18, 2008 the Court of Milan, Italy fully acquitted each
of the former employees of all charges. At this time, the acquittal has not
been appealed. The Public Prosecutor’s Office also filed a related charge
in May, 2004 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. The trial
on this administrative charge is ongoing, with hearing dates scheduled in
2009.

Separately, on October 9, 2008 the Public Prosecutor of the Court of
Parma, Italy filed a notice of intent to file criminal charges against twelve
former and current employees of the Corporation in connection with the
insolvency of Parmalat S.p.A. The notice of intent to file charges alleges
the Corporation’s transactions with Parmalat contributed to the
that
insolvency of Parmalat, that certain transactions violated the Italian usury
laws, and that certain former employees of
the Corporation wrongly
diverted funds in connection with certain transactions.

Proceedings in the United States
On March 5, 2004, a First Amended Complaint was filed in a securities
action pending in the U.S. District Court for the Southern District of New
York entitled Southern Alaska Carpenters Pension Fund et al. v. Bonlat
Financing Corporation et al. The action was brought as a putative class
action on behalf of purchasers of Parmalat securities, alleged violations
of the federal securities laws against the Corporation and certain affili-
ates, and sought unspecified damages. The action was subsequently
consolidated as the In re Parmalat Securities Litigation before Judge
Lewis A. Kaplan of the Southern District of New York. On August 12,
2008, the District Court dismissed the putative class claims against the
Corporation and its affiliates in their entirety and no appeal was taken.

On October 7, 2004, Enrico Bondi filed an action in the U.S. District
Court for the Western District of North Carolina on behalf of Parmalat and
its shareholders and creditors against the Corporation and various related
entities, entitled Dr. Enrico Bondi, Extraordinary Commissioner of Parma-
lat Finanziaria, S.p.A., et al. v. Bank of America Corporation, et al (the
Bondi Action). The complaint alleged federal and state RICO claims and
various state law claims, including fraud. The complaint seeks damages
in excess of $10 billion. The Bondi Action was transferred to the U.S.
District Court
the Southern District of New York for coordinated
pre-trial purposes with putative class actions and other related cases
against non-Bank of America defendants under the caption In re Parmalat
Securities Litigation. Following orders on motions to dismiss, the remain-
ing claims are federal and state RICO claims, a breach of fiduciary duty
claim, and other state law claims with respect to three transactions
entered into between the Corporation and Parmalat. The Corporation filed
an answer and counterclaims seeking damages. The District Court
granted in part a motion to dismiss certain of the counterclaims, leaving
intact the counterclaims for fraud, negligent misrepresentation and civil

for

conspiracy against Parmalat S.p.A., Parmalat Finanziaria S.p.A. and
Parmalat Netherlands, B.V., as well as a claim for securities fraud against
Parmalat S.p.A. and Parmalat Finanziaria S.p.A.

Certain purchasers of Parmalat-related private placement offerings
have filed complaints against the Corporation and various related entities
in the following actions: Principal Global Investors, LLC, et al. v. Bank of
America Corporation, et al. in the U.S. District Court for the Southern
District of Iowa; Monumental Life Insurance Company, et al. v. Bank of
America Corporation, et al. in the U.S. District Court for the Northern Dis-
trict of Iowa; Prudential Insurance Company of America and Hartford Life
Insurance Company v. Bank of America Corporation, et al. in the U.S.
District Court for the Northern District of Illinois; Allstate Life Insurance
Company v. Bank of America Corporation, et al. in the U.S. District Court
for the Northern District of Illinois; Hartford Life Insurance v. Bank of
America Corporation, et al. in the U.S. District Court for the Southern
District of New York; and John Hancock Life Insurance Company, et al. v.
Bank of America Corporation et al. in the U.S. District Court for the Dis-
trict of Massachusetts. The actions variously allege violations of federal
and state securities law and state common law, and seek rescission and
unspecified damages based upon the Corporation’s and related entities’
alleged roles in certain private placement offerings issued by Parmalat-
related companies. All cases have been transferred to the U.S. District
Court for the Southern District of New York for coordinated pre-trial pur-
poses with the In re Parmalat Securities Litigation matter. The plaintiffs
seek rescission and unspecified damages resulting from alleged pur-
chases of approximately $305 million in private placement instruments.

Pender
The Corporation is a defendant in a putative class action entitled William
L. Pender, et al. v. Bank of America Corporation, et al. (formerly captioned
Anita Pothier, et al. v. Bank of America Corporation, et al.), which is pend-
ing in the U.S. District Court for the Western District of North Carolina.
The action is brought on behalf of participants in or beneficiaries of The
Bank of America Pension Plan (formerly known as the NationsBank Cash
Balance Plan) and The Bank of America 401(k) Plan (formerly known as
the NationsBank 401(k) Plan). The Corporation, BANA, The Bank of Amer-
ica Pension Plan, The Bank of America 401(k) Plan, the Bank of America
Corporation Corporate Benefits Committee and various members thereof,
and PricewaterhouseCoopers LLP are defendants. The complaint alleges
violations of ERISA, including that the design of The Bank of America
Pension Plan violated ERISA’s defined benefit pension plan standards
and that such plan’s definition of normal retirement age is invalid. In
addition, the complaint alleges age discrimination by The Bank of America
Pension Plan, unlawful lump sum benefit calculation, violation of ERISA’s
that certain voluntary transfers of assets by
“anti-backloading” rule,
participants in The Bank of America 401(k) Plan to The Bank of America
Pension Plan violated ERISA, and other related claims. The complaint
alleges that plan participants 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 December 1, 2005, the plaintiffs moved
to certify classes consisting of, among others, (i) all persons who accrued
or who are currently accruing benefits under The Bank of America Pension
Plan and (ii) all persons who elected to have amounts representing their
account balances under The Bank of America 401(k) Plan transferred to
The Bank of America Pension Plan. That motion, and a motion to dismiss
the complaint, are pending.

Bank of America 2008 161

Note 14 – Shareholders’ Equity and Earnings
Per Common Share
During the first quarter of 2009, the Corporation issued preferred stock
and warrants to purchase common stock. For additional information, see
Note 25 – Subsequent Events to the Consolidated Financial Statements.
In January 2009, the Corporation issued common stock in connection
with its acquisition of Merrill Lynch. For additional information, see Note 2
– Merger and Restructuring Activity to the Consolidated Financial State-
ments.

Common Stock
In October 2008, the Corporation issued 455 million shares of common
stock at $22.00 per share which resulted in proceeds of $9.9 billion, net
of underwriting expenses. In July 2008, the Corporation issued 107 million
shares in connection with the Countrywide acquisition. Also during the
year, the Corporation issued 17.8 million shares under employee stock
plans. Additionally, the Corporation may repurchase shares, subject to
certain restrictions including those imposed by the U.S. government, from
time to time, in the open market or in private transactions through the

Corporation’s approved repurchase program. In 2008, the Corporation did
not repurchase any shares of common stock. As discussed further below,
the declaration of common stock dividends and the repurchase of common
shares are subject to certain restrictions in connection with the Troubled
Asset Relief Program (TARP) Capital Purchase Program.

In October 2008, the Board declared a fourth quarter cash dividend of
$0.32 per common share which was paid on December 26, 2008 to
common shareholders of record on December 5, 2008. In July 2008, the
Board declared a third quarter cash dividend of $0.64 per common share
which was paid on September 26, 2008 to common shareholders of
record on September 5, 2008. In April 2008, the Board declared a sec-
ond quarter cash dividend of $0.64 per common share which was paid on
June 27, 2008 to shareholders of record on June 6, 2008. In January
2008, the Board declared a first quarter cash dividend of $0.64 per
common share which was paid on March 28, 2008 to shareholders of
record on March 7, 2008.

In addition, in January 2009, the Board declared a regular quarterly
cash dividend on common stock of $0.01 per share, payable on
March 27, 2009 to common shareholders of record on March 6, 2009.

162 Bank of America 2008

Preferred Stock
The following table presents a summary of Preferred Stock issued by the Corporation.

Preferred Stock Summary

(Dollars in

millions, except

as noted)

Series (1)

Series B (3)

Series D (4, 5)

Series E (4, 5)

Series H (4, 5)

Series I (4, 5)

Series J (4, 5)

Series K (5, 6)

Series L (7)

Series M (5, 6)

Series N (8)

Total

Description

7%
Cumulative
Redeemable

6.204% Non-
Cumulative

Floating Rate
Non-
Cumulative

8.20% Non-
Cumulative

6.625% Non-
Cumulative

7.25% Non-
Cumulative

Fixed-to-
Floating Rate
Non-
Cumulative

7.25% Non-
Cumulative
Perpetual
Convertible

Fixed-to-
Floating Rate
Non-
Cumulative

Fixed Rate
Cumulative
Perpetual

Initial
Issuance
Date

January
1998

September
2006

November
2006

May
2008

September
2007

November
2007

January
2008

April
2008

October
2008

Total
Shares
Issued

Liquidation
Preference
per Share
(in dollars)

Carrying
Value (2)

Per Annum
Dividend Rate

Redemption Period

7,642

100

33,000

25,000

825

7.00%

6.204%

n/a

On or after
September 14, 2011

81,000

25,000

2,025

117,000

25,000

2,925

22,000

25,000

550

41,400

25,000

1,035

Annual rate equal to the
greater of (a) 3-mo.
LIBOR + 35 bps and (b)
4.00%

8.20%

6.625%

7.25%

On or after
November 15, 2011

On or after
May 1, 2013

On or after
October 1, 2017

On or after
November 1, 2012

240,000

25,000

6,000

8.00% through 1/29/18;
3-mo. LIBOR + 363 bps
thereafter

On or after
January 30, 2018

6,900,000

1,000

6,900

7.25%

n/a

160,000

25,000

4,000

600,000

8,202,042

25,000

13,550

$37,811

8.125% through
5/14/18; 3-mo. LIBOR +
364 bps thereafter

5.00% through
11/14/13; 9.00%
thereafter

On or after
May 15, 2018

On or after
November 15, 2011

(1) Series of preferred stock have a par value of $0.01 per share.
(2) Amounts shown before third party issuance costs totaling $110 million.
(3) Series B Preferred Stock does not have early redemption/call rights.
(4) Ownership is held in the form of depository shares each representing a 1/1000th interest in a share of preferred stock paying a quarterly cash dividend.
(5) The Corporation may redeem series of preferred stock on or after the redemption date, in whole or in part, at its option, at the liquidation preference plus declared and unpaid dividends.
(6) Ownership is held in the form of depository shares each representing a 1/25th interest in a share of preferred stock, paying a semi-annual cash dividend, if and when declared, until the redemption date then adjusts to

a quarterly cash dividend, if and when declared, thereafter.

(7) Series L Preferred Stock does not have early redemption/call rights. Each share of the Series L Preferred Stock may be converted at any time, at the option of the holder, into 20 shares of the Corporation’s common
stock plus cash in lieu of fractional shares. On or after January 30, 2013, the Corporation may cause some or all of the Series L Preferred Stock, at its option, at any time or from time to time, to be converted into
shares of common stock at the then-applicable conversion rate if, for 20 trading days during any period of 30 consecutive trading days, the closing price of common stock exceeds 130 percent of the then-applicable
conversion price of the Series L Preferred Stock. If the Corporation exercises its right to cause the automatic conversion of Series L Preferred Stock on January 30, 2013, it will still pay any accrued dividends payable
on January 30, 2013 to the applicable holders of record.

(8) Series N Preferred Stock initially pays quarterly cash dividends. Series N Preferred Stock may be redeemed earlier with net proceeds from qualified equity offerings, which is defined generally as a sale or issuance of

common or perpetual preferred stock to third parties that qualifies as Tier 1 Capital.

n/a = not applicable

Bank of America 2008 163

The shares of the series of preferred stock previously discussed are
not subject to the operation of a sinking fund and have no participation
rights. With the exception of the Series L Preferred Stock, the shares of
the series of preferred stock in the previous table are not convertible. The
holders of these series have no general voting rights. If any dividend
payable on these series is in arrears for three or more semi-annual or six
or more quarterly dividend periods, as applicable (whether consecutive or
not), the holders of these series and any other class or series of pre-
ferred stock ranking equally as to payment of dividends and upon which
equivalent voting rights have been conferred and are exercisable (voting
as a single class) will be entitled to vote for the election of two additional
directors. These voting rights terminate when the Corporation has paid in
full dividends on these series for at least two semi-annual or four quar-
terly dividend periods, as applicable, following the dividend arrearage (or,
in the case of the Series N Preferred Stock, upon payment of all accrued
and unpaid dividends).

In October 2008, in connection with the TARP Capital Purchase Pro-
gram, established as part of the Emergency Economic Stabilization Act of
2008, the Corporation issued to the U.S. Treasury 600 thousand shares
of Series N Preferred Stock as presented in the previous table. The Ser-
ies N Preferred Stock has a call feature after three years. In connection
with this investment, the Corporation also issued to the U.S. Treasury
10-year warrants to purchase approximately 73.1 million shares of Bank
of America Corporation common stock at an exercise price of $30.79 per
share. Upon the request of the U.S. Treasury, at any time, the Corpo-
ration has agreed to enter into a deposit arrangement pursuant to which
the Series N Preferred Stock may be deposited and depositary shares,
representing 1/25th of a share of Series N Preferred Stock, may be
issued. The Corporation has agreed to register the Series N Preferred
Stock, the warrants, the shares of common stock underlying the warrants
and the depositary shares, if any, for resale under the Securities Act of
1933.

As required under the TARP Capital Purchase Program in connection
with the sale of the Series N Preferred Stock to the U.S. Treasury, divi-
dend payments on, and repurchases of, the Corporation’s outstanding
preferred and common stock are subject to certain restrictions. For as

long as any Series N Preferred Stock is outstanding, no dividends may be
declared or paid on the Corporation’s outstanding preferred and common
stock until all accrued and unpaid dividends on Series N Preferred Stock
are fully paid. In addition, the U.S. Treasury’s consent is required for any
increase in dividends declared on shares of common stock before the
third anniversary of the issuance of the Series N Preferred Stock unless
the Series N Preferred Stock is redeemed by the Corporation or trans-
ferred in whole by the U.S. Treasury. Further, the U.S. Treasury’s consent
is required for any repurchase of any equity securities or trust preferred
securities except
repurchases of Series N Preferred Stock or
repurchases of common shares in connection with benefit plans con-
sistent with past practice before the third anniversary of the issuance of
the Series N Preferred Stock unless redeemed by the Corporation or
transferred in whole by the U.S. Treasury.

for

On July 14, 2006, the Corporation redeemed its 6.75% Perpetual
Preferred Stock with a stated value of $250 per share. The
382.5 thousand shares, or $96 million, outstanding of preferred stock
were redeemed at the stated value of $250 per share, plus accrued and
unpaid dividends.

On July 3, 2006, the Corporation redeemed its Fixed/Adjustable Rate
Cumulative Preferred Stock with a stated value of $250 per share. The
700 thousand shares, or $175 million, outstanding of preferred stock
were redeemed at the stated value of $250 per share, plus accrued and
unpaid dividends.

All preferred stock outstanding has preference over the Corporation’s
common stock with respect to the payment of dividends and distribution
of the Corporation’s assets in the event of a liquidation or dissolution.
Except in certain circumstances, the holders of preferred stock have no
voting rights.

During 2008, 2007 and 2006 the aggregate dividends declared on
preferred stock were $1.3 billion, $182 million and $22 million
the Corporation declared
in January 2009,
respectively.
aggregate dividends on preferred stock of $909 million, including $145
million related to preferred stock exchanged in connection with the Merrill
Lynch acquisition.

In addition,

Accumulated OCI
The following table presents the changes in accumulated OCI for 2008, 2007 and 2006, net-of-tax.

(Dollars in millions)

Balance, December 31, 2007
Net change in fair value recorded in accumulated OCI (5)
Net realized losses reclassified into earnings (6)

Balance, December 31, 2008

Balance, December 31, 2006
Net change in fair value recorded in accumulated OCI (5)
Net realized (gains) losses reclassified into earnings (6)

Balance, December 31, 2007

Balance, December 31, 2005
Net change in fair value recorded in accumulated OCI
Net realized (gains) losses reclassified into earnings (6)

Balance, December 31, 2006

Securities (1)

Derivatives (2)

Employee
Benefit Plans (3)

Foreign
Currency (4)

$ 6,536
(10,354)
1,797

$ (2,021)

$ (2,733)
9,416
(147)

$ 6,536

$ (2,978)
465
(220)

$ (2,733)

$(4,402)
104
840

$(3,458)

$(3,697)
(1,252)
547

$(4,402)

$(4,338)
534
107

$(3,697)

$(1,301)
(3,387)
46

$ (4,642)

$(1,428)
4
123

$(1,301)

$ (118)
(1,310)
–

$(1,428)

$ 296
(1,000)
–

$ (704)

$ 147
142
7

$ 296

$ (122)
219
50

$ 147

Total

$ 1,129
(14,637)
2,683

$(10,825)

$ (7,711)
8,310
530

$ 1,129

$ (7,556)
(92)
(63)

$ (7,711)

(1)

In 2008, 2007 and 2006, the Corporation reclassified net realized losses into earnings on the sales and other-than-temporary impairments of AFS debt securities of $1.4 billion, $137 million and $279 million,
net-of-tax, respectively, and net realized (gains) losses on the sales and other-than-temporary impairments of AFS marketable equity securities of $377 million, $(284) million, and $(499) million, net-of-tax, respectively.

(2) The amounts included in accumulated OCI for terminated interest rate derivative contracts were losses of $3.4 billion, $3.8 billion and $3.2 billion, net-of-tax, at December 31, 2008, 2007 and 2006, respectively.
(3) For more information, see Note 16 – Employee Benefit Plans to the Consolidated Financial Statements.
(4) For 2008, the net change in fair value recorded in accumulated OCI represented $3.8 billion in losses associated with the Corporation’s foreign currency translation adjustments on its net investment in consolidated

foreign operations partially offset by gains of $2.8 billion on the related foreign currency exchange hedging results.

(5) Securities include the fair value adjustment of $4.8 billion and $8.4 billion, net-of-tax, related to the Corporation’s investment in CCB at December 31, 2008 and 2007.
(6)

Included in this line item are amounts related to derivatives used in cash flow hedge relationships. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted
transactions affect earnings. This line item also includes (gains) losses on AFS debt and marketable equity securities and impairment charges. These amounts are reclassified into earnings upon sale of the related
security or when the other-than-temporary impairment charge is recognized.

164 Bank of America 2008

Earnings Per Common Share
The calculation of earnings per common share and diluted earnings per common share for 2008, 2007 and 2006 is presented below. See Note 1 –
Summary of Significant Accounting Principles to the Consolidated Financial Statements for a discussion on the calculation of earnings per common
share.

(Dollars in millions, except per share information; shares in thousands)

2008

2007

2006

Earnings per common share
Net income
Preferred stock dividends (1)

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

Average common shares issued and outstanding
Dilutive potential common shares (2, 3)

Total diluted average common shares issued and outstanding

Diluted earnings per common share

4,008
(1,452)

2,556

4,592,085

0.56

2,556

4,592,085
20,406

4,612,491

14,982
(182)

14,800

4,423,579

3.35

14,800

4,423,579
56,675

4,480,254

21,133
(22)

21,111

4,526,637

4.66

21,111

4,526,637
69,259

4,595,896

0.55

3.30

4.59

(1)

In 2008, preferred stock dividends includes $130 million of Series N Preferred Stock fourth quarter 2008 cumulative preferred dividends not declared as of year end and $50 million of accretion of discounts on
preferred stock issuances.

(2) For 2008, 2007 and 2006, average options to purchase 181 million, 28 million and 355 thousand shares, respectively, were outstanding but not included in the computation of earnings per common share because
they were antidilutive. For 2008, 128 million average dilutive potential common shares associated with the convertible Series L Preferred Stock issued in January of 2008 were excluded from the diluted share count
because the result would have been antidilutive under the “if-converted” method.
Includes incremental shares from restricted stock units, restricted stock shares, stock options and warrants.

(3)

Note 15 – Regulatory Requirements and
Restrictions
The FRB requires the Corporation’s banking subsidiaries to maintain
reserve balances based on a percentage of certain deposits. Average
daily reserve balances required by the FRB were $7.1 billion and $5.7 bil-
lion for 2008 and 2007. Currency and coin residing in branches and cash
vaults (vault cash) are used to partially satisfy the reserve requirement.
The average daily reserve balances, in excess of vault cash, held with the
FRB amounted to $133 million and $49 million for 2008 and 2007.

The primary source of funds for cash distributions by the Corporation
to its shareholders is dividends received from its banking subsidiaries
Bank of America, N.A., FIA Card Services, N.A., and Countrywide Bank,
FSB. In 2008, the Corporation received $12.2 billion in dividends from its
banking subsidiaries. In 2009, Bank of America, N.A., FIA Card Services,
N.A., and Countrywide Bank, FSB can declare and pay dividends to the
Corporation of $0, $226 million and $695 million plus an additional
amount equal to their net profits for 2009, as defined by statute, up to
the date of any such dividend declaration. The other subsidiary national
banks can initiate aggregate dividend payments in 2009 of $1.2 billion
plus an additional amount equal to their net profits for 2009, 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 with-
out approval by the Office of the Comptroller of the Currency (OCC) is the
subsidiary bank’s net profits for that year combined with its net retained
profits, as defined, for the preceding two years. In addition, the Corpo-
ration’s declaration of common stock dividends is subject to certain
restrictions in connection with its preferred stock issued to the U.S.
Treasury under
the TARP Capital Purchase Program. For additional
information see Note 14 – Shareholders’ Equity and Earnings Per Com-
mon Share to the Consolidated Financial Statements.

The FRB, OCC, Office of Thrift Supervision (OTS) and FDIC (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
At
material
December 31, 2008 and 2007, the Corporation, Bank of America, N.A.
and FIA Card Services, N.A. were classified as “well-capitalized” under

the Corporation’s

statements.

financial

effect

this regulatory framework. Effective July 1, 2008,
the Corporation
acquired Countrywide Bank, FSB which is regulated by the OTS and is,
therefore, subject to OTS capital requirements. Countrywide Bank, FSB is
required by OTS regulations to maintain a tangible equity ratio of at least
two percent to avoid being classified as “critically undercapitalized.” At
December 31, 2008, Countrywide Bank, FSB’s tangible equity ratio was
6.64 percent and was classified as “well-capitalized” for regulatory pur-
poses. Management believes that the Corporation, Bank of America, N.A.,
FIA Card Services, N.A. and Countrywide Bank, FSB will remain “well-
capitalized.”

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 share-
holders’ equity, Trust Securities, minority interests and qualifying pre-
ferred 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 payment would cause the issuing bank’s risk-based capital ratio to
fall or remain below the required minimum. Tier 3 Capital can only be
used to satisfy the Corporation’s market risk capital requirement and may
not be used to support its credit risk requirement. At December 31, 2008
and 2007, the Corporation had no subordinated debt that qualified as
Tier 3 Capital.

Certain corporate sponsored trust companies which issue Trust Secu-
rities are not consolidated pursuant to FIN 46R. In accordance with FRB
guidance, the FRB allows Trust Securities to qualify as Tier 1 Capital with
revised quantitative limits that will be effective on March 31, 2009. As a
result, we include Trust Securities in Tier 1 Capital.

Such limits restrict core capital elements to 15 percent for internation-
ally active bank holding companies. In addition, the FRB revised the qual-
instruments included in regulatory capital.
itative standards for capital

Bank of America 2008 165

Internationally active bank holding companies are those with consolidated
assets greater than $250 billion or on-balance sheet exposure greater
than $10 billion. At December 31, 2008, the Corporation’s restricted
core capital elements comprised 14.7 percent of total core capital ele-
ments. The Corporation expects to remain fully compliant with the revised
limits prior to the implementation date of March 31, 2009.

To meet minimum, adequately capitalized regulatory requirements, an
institution must maintain a Tier 1 Capital ratio of four percent and a Total
Capital ratio of eight percent. A “well-capitalized” institution must gen-
erally maintain capital ratios 200 bps higher than the minimum guide-
lines. The risk-based capital rules have been further supplemented by a
Tier 1 Leverage ratio, defined as Tier 1 Capital divided by adjusted quar-
terly average total assets, after certain adjustments. “Well-capitalized”
bank holding companies must have a minimum Tier 1 Leverage ratio of
three percent. National banks must maintain a Tier 1 Leverage ratio of at
least five percent to be classified as “well-capitalized.”

Net unrealized gains (losses) on AFS debt securities, net unrealized
gains on AFS marketable equity securities, net unrealized gains (losses)
on derivatives, and employee benefit plan adjustments in shareholders’
equity at December 31, 2008 and 2007, are excluded from the calcu-
lations 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 pre-tax gains on AFS marketable equity securities.

On January 1, 2009, the Corporation completed its acquisition of
Merrill Lynch and subsequently issued an additional $10.0 billion of pre-
ferred stock in connection with the TARP Capital Purchase Program. On

January 16, 2009, the U.S. government agreed to assist in the Merrill
Lynch acquisition by making a further investment in the Corporation of
$20.0 billion in preferred stock. For additional information regarding the
acquisition of Merrill Lynch see Note 2 – Merger and Restructuring Activity
to the Consolidated Financial Statements and for additional information
regarding these equity issuances see Note 25 – Subsequent Events to
the Consolidated Financial Statements.

Regulatory Capital Developments
In June 2004, Basel II was published with the intent of more closely align-
ing regulatory capital requirements with underlying risks. Similar to eco-
nomic capital measures, Basel II seeks to address credit risk, market
risk, and operational risk. On December 7, 2007, the U.S. regulatory
Agencies published the Basel
II Rules) providing
detailed capital requirements for credit and operational risk under Pillar 1,
supervisory requirements under Pillar 2 and disclosure requirements
under Pillar 3. The Corporation is still awaiting final rules for market risk
requirements under Basel II.

II Final Rules (Basel

The Basel II Rules’ effective date was April 1, 2008, which allows U.S.
financial
institutions to begin parallel reporting as early as 2008. The
Corporation continues execution efforts to ensure preparedness with all
Basel II requirements. The goal is to achieve full compliance by the end of
internationally
the three-year implementation period in 2011. Further,
Basel II was implemented in several countries during 2008, while others
will begin implementation in 2009 and beyond.

Regulatory Capital

(Dollars in millions)

Risk-based capital
Tier 1

Bank of America Corporation
Bank of America, N.A.
FIA Card Services, N.A.
Countrywide Bank, FSB (2)

Total

Bank of America Corporation
Bank of America, N.A.
FIA Card Services, N.A.
Countrywide Bank, FSB (2)

Tier 1 Leverage

Bank of America Corporation
Bank of America, N.A.
FIA Card Services, N.A.
Countrywide Bank, FSB (2)

(1) Dollar amount required to meet guidelines for adequately capitalized institutions.
(2) Countrywide Bank, FSB is presented for periods subsequent to June 30, 2008.
n/a = not applicable

2008

Actual

Ratio

Amount

9.15%
8.51
13.90
9.03

13.00
11.71
16.25
10.28

6.44
5.94
14.28
6.64

$120,814
88,979
19,573
7,602

171,661
122,392
22,875
8,662

120,814
88,979
19,573
7,602

December 31

2007

Minimum
Required (1)

Actual

Minimum

Ratio

Amount

Required (1)

$ 52,833
41,818
5,632
3,369

105,666
83,635
11,264
6,738

56,155
44,944
4,113
3,437

6.87%
8.23
14.29
n/a

11.02
11.01
16.82
n/a

5.04
5.94
16.37
n/a

$ 83,372
75,395
21,625
n/a

133,720
100,891
25,453
n/a

83,372
75,395
21,625
n/a

$48,516
36,661
6,053
n/a

97,032
73,322
12,105
n/a

49,595
38,092
3,963
n/a

166 Bank of America 2008

Note 16 – Employee Benefit Plans

Pension and Postretirement Plans
The Corporation sponsors noncontributory trusteed qualified pension
plans that cover substantially all officers and employees, a number of
noncontributory nonqualified pension plans, and postretirement health
and life plans. The plans provide defined benefits based on an employ-
ee’s compensation and years of service. The Bank of America Pension
Plan (the Pension Plan) provides participants with compensation credits,
generally based on years of service. For account balances based on
compensation credits prior to January 1, 2008, the Pension Plan allows
participants to select from various earnings measures, which are based
on the returns of certain funds or common stock of the Corporation. The
participant-selected earnings measures determine the earnings rate on
the individual participant account balances in the Pension Plan. Partic-
ipants may elect to modify earnings measure allocations on a periodic
basis subject to the provisions of the Pension Plan. For account balances
based on compensation credits subsequent to December 31, 2007, the
account balance earnings rate is based on a benchmark rate. For eligible
employees in the Pension Plan on or after January 1, 2008, the benefits
become vested upon completion of three years of service. It is the policy
of the Corporation to fund not less than the minimum funding amount
required by ERISA.

The Pension Plan has a balance guarantee feature for account balan-
ces with participant-selected earnings, applied at the time a benefit
payment is made from the plan that effectively provides principal pro-
tection for participant balances transferred and certain compensation
credits. The Corporation is responsible for funding any shortfall on the
guarantee feature.

As a result of recent mergers, the Corporation assumed the obliga-
tions related to the pension plans of former FleetBoston, MBNA, U.S.
Trust Corporation, LaSalle and Countrywide. These plans together with
the Pension Plan, are referred to as the Qualified Pension Plans. The
Bank of America Pension Plan for Legacy Fleet (the FleetBoston Pension
Plan) and the Bank of America Pension Plan for Legacy U.S. Trust Corpo-
to the
ration (the U.S. Trust Pension Plan) are substantially similar
these plans do not allow
Pension Plan discussed above; however,

participants to select various earnings measures; rather the earnings rate
is based on a benchmark rate; in addition, both plans include participants
with benefits determined under formulas based on average or career
compensation and years of service rather than by reference to a pension
account. The Bank of America Pension Plan for Legacy MBNA (the MBNA
Pension Plan), The Bank of America Pension Plan for Legacy LaSalle (the
LaSalle Pension Plan) and the Countrywide Financial Corporation Inc.
Defined Benefit Pension Plan (the Countrywide Pension Plan) provide
retirement benefits based on the number of years of benefit service and a
percentage of the participant’s average annual compensation during the
five highest paid consecutive years of their last ten years of employment.
Effective December 31, 2008, the Countrywide Pension Plan, LaSalle
Pension Plan, MBNA Pension Plan and U.S. Trust Pension Plan merged
into the FleetBoston Pension Plan, which was renamed the Bank of Amer-
ica Pension Plan for Legacy Companies. The plan merger did not change
participant benefits or benefit accruals as the Bank of America Pension
Plan for Legacy Companies continues the respective benefit structures of
the five plans for their respective participant groups.

The Corporation sponsors a number of noncontributory, nonqualified
pension plans (the Nonqualified Pension Plans). As a result of mergers,
the Corporation assumed the obligations related to the noncontributory,
nonqualified pension plans of
former FleetBoston, MBNA, U.S. Trust
Corporation, LaSalle, and Countrywide. These plans, which are unfunded,
provide defined pension benefits to certain employees.

In addition to retirement pension benefits, full-time, salaried employ-
ees and certain part-time employees may become eligible to continue
participation as retirees in health care and/or life insurance plans spon-
sored by the Corporation. Based on the other provisions of the individual
plans, certain retirees may also have the cost of these benefits partially
paid by the Corporation. The obligations assumed as a result of the
mergers are substantially similar
to the Corporation’s Postretirement
Health and Life Plans, except for Countrywide which did not have a Post-
retirement Health and Life Plan.

The tables within this Note include the information related to the U.S.
Trust Corporation plans beginning July 1, 2007, the LaSalle plans begin-
ning October 1, 2007 and the Countrywide plans beginning July 1, 2008.

Bank of America 2008 167

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, 2008
and 2007. Amounts recognized at December 31, 2008 and 2007 are
reflected in other assets, and accrued expenses and other liabilities on
the Consolidated Balance Sheet. The discount rate assumption is based
on a cash flow matching technique and is subject to change each year.
This technique utilizes a yield curve based upon Aa-rated corporate bonds
with cash flows that match estimated benefit payments to produce the

discount rate assumption. For the Qualified Pension Plans, the Non-
qualified Pension Plans and the Postretirement Health and Life Plans, the
discount rate at December 31, 2008, was 6.00 percent. For both the
Qualified Pension Plans and the Postretirement Health and Life Plans, the
expected long-term return on plan assets is 8.00 percent for 2009. The
expected return on plan assets is determined using the calculated
market-related value for the Qualified Pension Plans and the fair value for
the Postretirement Health and Life Plans. The asset valuation method for
the Qualified Pension Plans recognizes 60 percent of the prior year’s
market gains or losses at the next measurement date, with the remaining
40 percent spread equally over the subsequent four years.

(Dollars in millions)

Change in fair value of plan assets
Fair value, January 1
U.S. Trust Corporation balance, July 1, 2007
LaSalle balance, October 1, 2007
Countrywide balance, July 1, 2008
Actual return on plan assets
Company contributions (2)
Plan participant contributions
Benefits paid
Federal subsidy on benefits paid

Fair value, December 31

Change in projected benefit obligation
Projected benefit obligation, January 1
U.S. Trust Corporation balance, July 1, 2007
LaSalle balance, October 1, 2007
Countrywide balance, July 1, 2008
Service cost
Interest cost
Plan participant contributions
Plan amendments
Actuarial gains
Benefits paid
Federal subsidy on benefits paid

Projected benefit obligation, December 31

Amount recognized, December 31

Funded status, December 31
Accumulated benefit obligation
Overfunded (unfunded) status of ABO
Provision for future salaries
Projected benefit obligation

Weighted average assumptions,
December 31
Discount rate
Expected return on plan assets
Rate of compensation increase

Qualified Pension Plans (1)

Nonqualified Pension
Plans (1)

Postretirement Health
and Life Plans (1)

2008

2007

2008

2007

2008

2007

$18,720
–
–
305
(5,310)
1,400
–
(861)
n/a

$14,254

$14,200
–
–
439
343
837
–
5
(1,239)
(861)
n/a

$13,724

530

$12,864
1,390
860
13,724

$16,793
437
1,400
–
1,043
–
–
(953)
n/a

$18,720

$12,680
363
1,133
–
316
761
–
3
(103)
(953)
n/a

$14,200

$ 4,520

$13,540
5,180
660
14,200

2
–
–
–
–
154
–
(154)
n/a

–
–
–
–
–
159
–
(157)
n/a

$ 1,307
–
–
53
7
77
–
–
(32)
(154)
n/a

$ 1,258

$(1,256)

$ 1,246
(1,244)
12
1,258

$ 1,345
6
108
–
9
71
–
(1)
(74)
(157)
n/a

$ 1,307

$(1,305)

$ 1,284
(1,282)
23
1,307

$ 165
–
–
–
(43)
83
117
(227)
15

$ 110

$ 1,576
–
–
–
16
87
117
–
(180)
(227)
15

$ 1,404

$(1,294)

n/a
n/a
n/a
$ 1,404

90
–
85
–
7
84
109
(225)
15

165

$ 1,549
9
120
–
16
84
109
–
(101)
(225)
15

$ 1,576

$(1,411)

n/a
n/a
n/a
$ 1,576

6.00%
8.00
4.00

6.00%
n/a
4.00

6.00%
8.00
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 2009 is $0, $110 million and $119 million,

respectively.
n/a = not applicable

Amounts recognized in the Consolidated Financial Statements at December 31, 2008 and 2007 were as follows:

(Dollars in millions)

Other assets
Accrued expenses and other liabilities

Net amount recognized at December 31

168 Bank of America 2008

Qualified
Pension Plans

Nonqualified Pension
Plans

Postretirement Health
and Life Plans

2008

$607
(77)

$530

2007

$4,520
–

$4,520

2008

–
(1,256)

$(1,256)

2007

–
(1,305)

$(1,305)

2008

–
(1,294)

$(1,294)

2007

–
(1,411)

$(1,411)

Net periodic benefit cost (income) for 2008, 2007 and 2006 included the following components:

Qualified Pension Plans

Nonqualified Pension Plans

Postretirement Health
and Life Plans

(Dollars in millions)

2008 (1)

2007

2006

2008 (1)

2007

2006

2008 (1)

2007

2006

Components of net periodic benefit cost (income)
Service cost
Interest cost
Expected return on plan assets
Amortization of transition obligation
Amortization of prior service cost (credits)
Recognized net actuarial loss (gain)
Recognized loss (gain) due to settlements and

curtailments

$ 343
837
(1,444)
–
33
83

316
761
(1,312)
–
47
156

306
676
(1,034)
–
41
229

–

7
77
–
–
(8)
14

–

9
71
–
–
(7)
17

$ 13
78
–
–
(8)
20

$ 16
87
(13)
31
–
(81)

$ 16
84
(8)
32
–
(60)

$ 13
86
(10)
31
–
12

–

(2)

–

Net periodic benefit cost (income)

$ (148)

(32)

218

$ 90

$ 104

$ 103

$ 40

$ 62

$ 132

Weighted average assumptions used to determine

net cost for years ended December 31

Discount rate (2)
Expected return on plan assets
Rate of compensation increase

6.00%
8.00
4.00

5.75%
8.00
4.00

5.50%
8.00
4.00

6.00%
n/a
4.00

5.75%
n/a
4.00

5.50%
n/a
4.00

6.00%
8.00
n/a

5.75%
8.00
n/a

5.50%
8.00
n/a

(1)

(2)

Includes the results of Countrywide. The net periodic benefit cost of the Countrywide Qualified Pension Plan was $29 million in 2008 using a discount rate of 6.75 percent at July 1, 2008. The net periodic benefit cost
of the Countrywide Nonqualified Pension Plan was $1 million and Countrywide did not have a Postretirement Health and Life Plan.
In connection with the U.S. Trust Corporation and LaSalle mergers, those plans were remeasured on July 1, 2007 and October 1, 2007, using a discount rate of 6.15 percent and 6.50 percent.

n/a = not applicable

Net periodic postretirement health and life expense was determined
using the “projected unit credit” actuarial method. Gains and losses for
all benefits except postretirement health care are recognized in accord-
ance with the standard amortization provisions of the applicable account-
ing 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 bene-
fit 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 8.00 percent for 2009, reducing in steps to 5.00 percent in
2015 and later years. A one-percentage-point increase in assumed health
care cost trend rates would have increased the service and interest costs
and the benefit obligation by $4 million and $35 million in 2008, $5 mil-
lion and $64 million in 2007, and $3 million and $51 million in 2006. A
one-percentage-point decrease in assumed health care cost trend rates
would have lowered the service and interest costs and the benefit obliga-
tion by $4 million and $31 million in 2008, $4 million and $54 million in
2007, and $3 million and $44 million in 2006.

Pre-tax amounts included in accumulated OCI at December 31, 2008 and 2007 were as follows:

(Dollars in millions)

Net actuarial (gain) loss
Transition obligation
Prior service cost (credits)

Amounts recognized in accumulated OCI

Qualified
Pension Plans

Nonqualified
Pension Plans

2008

$7,232
–
129

$7,361

2007

$1,776
–
157

$1,933

2008

$ 70
–
(30)

$ 40

2007

$119
–
(38)

$ 81

Postretirement
Health and
Life Plans

2008

$(158)
126
–

$ (32)

2007

$(106)
157
–

$ 51

Total

2008

$7,144
126
99

$7,369

2007

$1,789
157
119

$2,065

Pre-tax amounts recognized in OCI for 2008 included the following components:

(Dollars in millions)

Other changes in plan assets and benefit obligations recognized in OCI

Current year actuarial (gain) loss
Amortization of actuarial gain (loss)
Current year prior service (credit) cost
Amortization of prior service credit (cost)
Amortization of transition obligation

Total recognized in OCI

Qualified
Pension
Plans

Nonqualified
Pension
Plans

Postretirement
Health and
Life Plans

$5,539
(83)
5
(33)
–

$5,428

$(35)
(14)
–
8
–

$(41)

$(133)
81
–
–
(31)

$ (83)

Total

$5,371
(16)
5
(25)
(31)

$5,304

Bank of America 2008 169

The estimated net actuarial loss and prior service cost (credits) for the
Qualified Pension Plans that will be amortized from accumulated OCI into
net periodic benefit cost (income) during 2009 are pre-tax amounts of
$395 million and $36 million. The estimated net actuarial loss and prior
service cost for the Nonqualified Pension Plans that will be amortized
from accumulated OCI into net periodic benefit cost (income) during 2009
are pre-tax amounts of $7 million and $(8) million. The estimated net
actuarial loss and transition obligation for the Postretirement Health and
Life Plans that will be amortized from accumulated OCI into net periodic
benefit cost (income) during 2009 are pre-tax amounts of $(58) million
and $31 million.

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 pro-
vide a total return that, over the long-term, increases the ratio of assets
to liabilities. The strategy attempts to maximize the investment return on
assets at a level of risk deemed appropriate by the Corporation while
complying with ERISA and any applicable regulations and laws. The
investment strategy utilizes asset allocation as a principal determinant for
establishing the risk/reward profile of the assets. Asset allocation ranges

are established, periodically reviewed, and adjusted as funding levels and
liability characteristics change. Active and passive investment managers
are employed to help enhance the risk/return profile of the assets. An
additional aspect of the investment strategy used to minimize risk (part of
the asset allocation plan)
includes matching the equity exposure of
participant-selected earnings measures. For example, the common stock
of the Corporation held in the trust is maintained as an offset to the
exposure related to participants who selected to receive an earnings
measure based on the return performance of common stock of the Corpo-
ration. No plan assets are expected to be returned to the Corporation
during 2009.

The Expected Return on Asset Assumption (EROA assumption) was
developed through analysis of historical market returns, historical asset
class volatility and correlations, current market conditions, anticipated
future asset allocations, the funds’ past experience, and expectations on
potential future market returns. The EROA assumption represents a long-
term average view of the performance of the Qualified Pension Plans and
Postretirement Health and Life Plan assets, a return that may or may not
be achieved during any one calendar year. In a simplistic analysis of the
EROA assumption, the building blocks used to arrive at the long-term
return assumption would include an implied return from equity securities
of 8.75 percent, debt securities of 5.75 percent, and real estate of 7.00
percent for all pension plans and postretirement health and life plans.

The Qualified Pension Plans’ and Postretirement Health and Life
Plans’ asset allocations at December 31, 2008 and 2007 and target
allocations for 2008 by asset category are as follows:

Qualified Pension Plans

Postretirement Health and Life Plans

2009
Target
Allocation

60 – 80%
20 – 40
0 – 5

Percentage of
Plan Assets at
December 31

2008

2007

53%
44
3

70%
27
3

2009
Target
Allocation

50 – 75%
25 – 45
0 – 5

Percentage of
Plan Assets at
December 31

2008

2007

58%
40
2

67%
30
3

100%

Asset Category

Equity securities
Debt securities
Real estate

Total

170 Bank of America 2008

Equity securities for the Qualified Pension Plans include common
stock of the Corporation in the amounts of $269 million (1.88 percent of
total plan assets) and $667 million (3.56 percent of total plan assets) at
December 31, 2008 and 2007.

The Bank of America, MBNA, U.S. Trust Corporation, and LaSalle
Postretirement Health and Life Plans had no investment in the common
stock of the Corporation at December 31, 2008 or 2007. The Fleet-
Boston Postretirement Health and Life Plans included common stock of
the Corporation in the amount of $0.05 million (0.12 percent of total plan
assets) and $0.3 million (0.20 percent of
total plan assets) at
December 31, 2008 and 2007.

Defined Contribution Plans
The Corporation maintains qualified defined contribution retirement plans
and nonqualified defined contribution retirement plans.

The Corporation contributed approximately $454 million, $420 million
and $328 million for 2008, 2007 and 2006, in cash, respectively. At
December 31, 2008 and 2007, an aggregate of 104 million shares and
93 million shares of the Corporation’s common stock were held by the
401(k) plans. Payments to the 401(k) plans for dividends on common
stock were $214 million, $228 million and $216 million during 2008,
2007 and 2006, respectively.

In addition, certain non-U.S. employees within the Corporation are
covered under defined contribution pension plans that are separately
administered in accordance with local laws.

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)

2009
2010
2011
2012
2013
2014 - 2018

Qualified Pension
Plans (1)

Nonqualified Pension
Plans (2)

Postretirement Health and Life Plans

Net Payments (3)

Medicare Subsidy

$ 968
975
1,004
1,022
1,026
5,101

$110
109
112
112
111
530

$150
149
150
149
149
588

$15
15
16
16
16
78

(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.

Note 17 – Stock-Based Compensation Plans
The compensation cost recognized in income for the plans described
below was $885 million, $1.2 billion and $1.0 billion in 2008, 2007 and
2006, respectively. The related income tax benefit recognized in income
was $328 million, $438 million and $382 million for 2008, 2007 and
2006, respectively.

The following table presents the assumptions used to estimate the
fair value of stock options granted on the date of grant using the lattice
option-pricing model. Lattice option-pricing models incorporate ranges of
assumptions for inputs and those ranges are disclosed in the following
table. The risk-free rate for periods within the contractual life of the stock
option is based on the U.S. Treasury yield curve in effect at the time of
grant. Expected volatilities are based on implied volatilities from traded
stock options on the Corporation’s common stock, historical volatility of
the Corporation’s common stock, and other factors. The Corporation uses
historical data to estimate stock option exercise and employee termi-
nation within the model. The expected term of stock options granted is
derived from the output of the model and represents the period of time
that stock options granted are expected to be outstanding. The estimates
of fair value from these models are theoretical values for stock options
and changes in the assumptions used in the models could result in mate-
rially different fair value estimates. The actual value of the stock options
will depend on the market value of the Corporation’s common stock when
the stock options are exercised.

Risk-free interest rate
Dividend yield
Expected volatility
Weighted average volatility
Expected lives (years)

2008

2007

2006

2.05 –3.85%

4.72 –5.16%

4.59 –4.70%

5.30
26.00 –36.00
32.80
6.6

4.40
16.00 –27.00
19.70
6.5

4.50
17.00 –27.00
20.30
6.5

The Corporation has equity compensation plans that were approved by
its shareholders. These plans are the Key Employee Stock Plan and the
Key Associate Stock Plan. 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, 10-year options to
purchase approximately 260 million shares of common stock were
granted through December 31, 2002, to certain employees at the closing
market price on the respective grant dates. Options granted under the
plan generally vest
installments. At
December 31, 2008, approximately 53 million options were outstanding
under this plan. No further awards may be granted.

four equal annual

in three or

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 can-
celled after December 31, 2002. Upon the FleetBoston merger, the
shareholders authorized an additional 102 million shares and on April 26,
2006, the shareholders authorized an additional 180 million shares for
grant under the Key Associate Stock Plan. In January 2009,
in con-
junction with the Merrill Lynch merger, the shareholders authorized an
additional 105 million shares for grant under the Key Associate Stock
Plan. At December 31, 2008, approximately 159 million options were

Bank of America 2008 171

outstanding under this plan. Approximately 18 million shares of restricted
stock and restricted stock units were granted in 2008. These shares of
restricted stock generally vest in three equal annual installments begin-
ning one year from the grant date.

The weighted average grant-date fair value of options granted in 2008,
2007 and 2006 was $8.92, $8.44 and $6.90, respectively. The total
intrinsic value of options exercised in 2008 was $54 million.

The following table presents the status of the restricted stock/unit

The following table presents the status of all option plans at

awards at December 31, 2008, and changes during 2008:

December 31, 2008, and changes during 2008:

Employee stock options

Outstanding at January 1, 2008
Countrywide acquisition, July 1, 2008
Granted
Exercised
Forfeited

228,660,049
9,062,914
17,123,312
(7,900,507)
(14,516,711)

Outstanding at December 31, 2008 (1)

232,429,057

Options exercisable at December 31, 2008
Options vested and expected to vest (2)

186,430,678
231,919,145

Weighted
Average Exercise
Price

$ 39.49
150.99
42.70
30.94
59.92

43.08

41.87
43.08

(1)

(2)

Includes 53 million options under the Key Employee Stock Plan, 159 million options under the Key
Associate Stock Plan and 20 million options to employees of predecessor companies assumed in
mergers.
Includes vested shares and nonvested shares after a forfeiture rate is applied.

At December 31, 2008, the Corporation had no aggregate intrinsic
value of options outstanding, exercisable, and vested and expected to
vest. The weighted average remaining contractual term of options out-
standing was 5.0 years, options exercisable was 4.2 years, and options
vested and expected to vest was 5.0 years at December 31, 2008.

Restricted stock/unit awards

Outstanding at January 1, 2008
Countrywide acquisition, July 1, 2008
Granted
Vested
Cancelled

Outstanding at December 31, 2008

Weighted
Average Grant
Date Fair
Value

$48.80
23.81
41.97
47.16
46.31

45.45

31,821,724
718,152
17,856,372
(16,209,483)
(1,470,801)

32,715,964

At December 31, 2008, there was $610 million of total unrecognized
compensation cost related to share-based compensation arrangements
for all awards that is expected to be recognized over a weighted average
period of 0.88 years. The total fair value of restricted stock vested in
2008 was $657 million, of which $15 million related to restricted stock
acquired in connection with Countrywide and vested upon acquisition as a
result of change in control provisions. In 2008, the amount of cash used
to settle equity instruments was $39 million.

172 Bank of America 2008

Note 18 – Income Taxes
The components of income tax expense for 2008, 2007 and 2006 were as follows:

(Dollars in millions)

Current income tax expense

Federal
State
Foreign

Total current expense

Deferred income tax expense (benefit)

Federal
State
Foreign

Total deferred expense (benefit)
Total income tax expense (1)

2008

2007

2006

$ 5,075
561
585

6,221

(5,269)
(520)
(12)

(5,801)

$5,210
681
804

6,695

(710)
(18)
(25)

(753)

$ 7,398
796
796

8,990

1,807
45
(2)

1,850

$ 420

$5,942

$10,840

(1) Does not reflect the deferred tax effects of unrealized gains and losses on AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and employee benefit plan adjustments that
are included in accumulated OCI. As a result of these tax effects, accumulated OCI increased $5.9 billion in 2008, decreased $5.0 billion in 2007 and increased $378 million in 2006. Also, does not reflect tax effects
associated with the Corporation’s employee stock plans which decreased common stock and additional paid-in capital $9 million in 2008 and increased common stock and additional paid-in capital $251 million and
$674 million in 2007 and 2006. Goodwill was reduced $9 million, $47 million and $195 million in 2008, 2007 and 2006, respectively, reflecting certain tax benefits attributable to exercises of employee stock options
issued by MBNA and FleetBoston which had vested prior to the merger dates.

Income tax expense for 2008, 2007 and 2006 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 2008, 2007 and 2006 are presented in the following table.

(Dollars in millions)

Expected federal income tax expense
Increase (decrease) in taxes resulting from:
State tax expense, net of federal benefit
Low income housing credits/other credits
Tax-exempt income, including dividends
Leveraged lease tax differential
Foreign tax differential
Changes in prior period UTBs (including interest)
Non-U.S. leasing – TIPRA/AJCA
Other

Total income tax expense

2008

2007

2006

Amount

$1,550

Percent

35.0%

Amount

$7,323

Percent

Amount

Percent

35.0%

$11,191

35.0%

27
(722)
(631)
216
(192)
169
–
3

0.6
(16.3)
(14.3)
4.9
(4.3)
3.8
–
0.1

431
(590)
(683)
148
(485)
143
(221)
(124)

2.1
(2.8)
(3.3)
0.7
(2.3)
0.7
(1.1)
(0.6)

547
(537)
(630)
249
(291)
126
175
10

1.7
(1.7)
(2.0)
0.8
(0.9)
0.4
0.5
0.1

$ 420

9.5%

$5,942

28.4%

$10,840

33.9%

As a result of the Tax Increase Prevention and Reconciliation Act of
2005 (TIPRA) and the American Jobs Creation Act of 2004 (the AJCA), the
Corporation’s non-U.S. based commercial aircraft leasing business no
longer qualified for a reduced U.S. tax rate. Accounting for the change in
law resulted in the discrete recognition of a $175 million charge to
income tax expense during 2006. However, the AJCA modified the anti-
deferral provisions associated with the active leasing of aircraft operated
predominantly outside the U.S. The restructuring of the Corporation’s
non-U.S. based commercial aircraft leasing business in compliance with

the provisions of the AJCA resulted in a one-time income tax benefit of
$221 million in 2007.

The Corporation adopted the provisions of FIN 48 on January 1, 2007.
FIN 48 clarifies the accounting and reporting for income taxes where
interpretation of the tax law may be uncertain. As a result of the adoption
of FIN 48, the Corporation recognized a $198 million increase in UTB
balance,
reducing retained earnings by $146 million and increasing
goodwill by $52 million. The reconciliation of the beginning UTB balance
to the ending balance is presented in the following table.

Reconciliation of the Change in Unrecognized Tax Benefits

(Dollars in millions)

Beginning balance
Increases related to positions taken during prior years
Increases related to positions taken during the current year
Positions acquired or assumed in business combinations
Decreases related to positions taken during prior years
Settlements
Expiration of statute of limitations

Ending balance

2008

$3,095
688
241
169
(371)
(209)
(72)

$3,541

2007

$2,667
67
456
328
(227)
(108)
(88)

$3,095

Bank of America 2008 173

As of December 31, 2008 and 2007, the balance of the Corporation’s
UTBs which would, if recognized, affect the Corporation’s effective tax
rate was $2.6 billion (reflective of the January 1, 2009 adoption of SFAS
141R) and $1.8 billion. Included in the UTB balance are some items the
recognition of which would not affect the effective tax rate, such as the
tax effect of certain temporary differences, the portion of gross state
UTBs that would be offset by the tax benefit of the associated federal
deduction and UTBs related to acquired entities that may impact goodwill
if recognized during the initial measurement period for the acquisition. As
of December 31, 2008 and 2007, the portion of the UTB balance that
could impact goodwill
if recognized in the future was $117 million and
$577 million.

The Corporation files income tax returns in more than 100 state and
foreign jurisdictions each year and is under continuous examination by
various state and foreign taxing authorities. While many of these examina-
tions are resolved every year, the Corporation does not anticipate that
resolutions occurring within the next twelve months would result in a
material change to the Corporation’s financial position.

During 2008 and 2007, the Corporation recognized within income tax
expense, $147 million and $161 million of interest and penalties, net of
tax. As of December 31, 2008 and 2007, the Corporation’s accrual for
interest and penalties that related to income taxes, net of taxes and
remittances, including applicable interest on certain leveraged lease posi-
tions, was $677 million and $573 million.

The table below summarizes the status of significant U.S. federal
examinations for the Corporation and various acquired subsidiaries as of
December 31, 2008:

Significant components of the Corporation’s net deferred tax assets
and liabilities at December 31, 2008 and 2007 are presented in the fol-
lowing table.

Company

Years under examination

Bank of America Corporation
Bank of America Corporation
FleetBoston
FleetBoston
LaSalle
Countrywide
Countrywide

2000-2002
2003-2005
1997-2000
2001-2004
2003-2005
2005-2006
2007

Status at
December 31, 2008

In Appeals process
Field examination
In Appeals process
Field examination
In Appeals process
Field examination
Field examination

With the exception of the examinations of the 2003 through 2005 tax
years for the Corporation and the 2007 tax year for Countrywide, and
except as noted below, it is reasonably possible that all above examina-
tions will be concluded during 2009.

During 2008, the Internal Revenue Service (IRS) announced a settle-
ment initiative related to lease-in, lease-out (LILO) and sale-in, lease-out
(SILO) leveraged lease transactions. Pursuant to the settlement initiative,
the Corporation received offers to settle its LILOs and SILOs and
accepted these offers, which impact the years in Appeals and under
examination for the Corporation and FleetBoston. According to the terms
of the settlement initiative, an acceptance will not be binding until a clos-
ing agreement is executed by both parties, which is expected during
2009. The Corporation revised the assumptions used in accounting for
the projected cash flows of the relevant leases to reflect its expectation
of receiving the tax treatment proposed in the leasing settlement ini-
tiative. As a result of prior remittances, the Corporation does not expect
to pay any additional tax and interest related to the settlement initiative.

Upon the execution of a closing agreement for the settlement ini-
tiative, the Corporation’s remaining unagreed proposed adjustment for
the 2000 through 2002 tax years is the disallowance of foreign tax cred-
its related to certain structured investment transactions. The Corporation
continues to believe the crediting of these foreign taxes against U.S.
income taxes was appropriate. Except with respect to the foreign tax
credit issue, management believes it is reasonably possible that the
2000 through 2002 examinations can be concluded within the next
twelve months.

Considering all federal examinations, it is reasonably possible that the
UTB balance will decrease by as much as $650 million during the next
twelve months, since resolved items would be removed from the balance
whether their resolution resulted in payment or recognition.

All tax years subsequent to the above years remain open to examina-

tion.

(Dollars in millions)

Deferred tax assets

Allowance for credit losses
Security and loan valuations
Employee compensation and retirement

benefits

Accrued expenses
Net operating loss carryforwards
Available-for-sale securities
State income taxes
Other

Gross deferred tax assets
Valuation allowance (1)

Total deferred tax assets, net of valuation

allowance

Deferred tax liabilities

Equipment lease financing
Mortgage servicing rights
Intangibles
Fee income
Available-for-sale securities
State income taxes
Other

December 31

2008

2007

$ 8,042
5,590

$ 4,056
3,673

2,409
2,271
1,263
1,149
279
1,987

22,990
(272)

1,541
1,307
–
–
–
73

10,650
(148)

22,718

10,502

5,720
3,404
1,712
1,637
–
–
1,549

6,875
859
2,015
1,445
3,836
347
1,667

Gross deferred liabilities
Net deferred tax assets (liabilities) (2)

14,022

$ 8,696

17,044

$ (6,542)

(1) At December 31, 2008 $115 million of the valuation allowance related to gross deferred tax assets was
attributable to the Countrywide merger. In accordance with SFAS 141R, tax attributes associated with
these gross deferred tax assets could result in tax benefits to reduce goodwill during a portion of 2009.
(2) The Corporation’s net deferred tax assets (liabilities) were adjusted during 2008 and 2007 to include
$3.5 billion of net deferred tax assets and $226 million of net deferred tax liabilities related to business
combinations.

The valuation allowance at December 31, 2008 and 2007 is attribut-
able to deferred tax assets generated in certain state and foreign juris-
dictions for which management believes it is more likely than not that
realization of these assets will not occur. The change in the valuation
allowance primarily resulted from certain state deferred tax assets
acquired in the Countrywide merger.

At December 31, 2008 and 2007, federal income taxes had not been
provided on $6.5 billion and $5.8 billion of undistributed earnings of for-
eign subsidiaries, earned prior to 1987 and after 1997 that have been
reinvested for an indefinite period of time. If the earnings were dis-
tributed, an additional $1.1 billion and $925 million of tax expense, net
of credits for foreign taxes paid on such earnings and for the related for-
eign withholding taxes, would have resulted as of December 31, 2008
and 2007.

174 Bank of America 2008

Note 19 – Fair Value Disclosures
Effective January 1, 2007, the Corporation adopted SFAS 157, which
provides a framework for measuring fair value under GAAP. SFAS 157
also eliminated the deferral of gains and losses at inception of certain
derivative contracts whose fair value was not evidenced by market
observable data. SFAS 157 requires that the impact of this change in
accounting for derivative contracts be recorded as an adjustment to
beginning retained earnings in the period of adoption.

The Corporation also adopted SFAS 159 on January 1, 2007. SFAS
159 allows an entity the irrevocable option to elect fair value for the initial
and subsequent measurement for certain financial assets and liabilities
on a contract-by-contract basis, with changes in fair value recognized in

earnings as they occur. The Corporation elected to adopt the fair value
option for certain financial instruments on the adoption date. SFAS 159
requires that the difference between the carrying value before election of
the fair value option and the fair value of these instruments be recorded
as an adjustment to beginning retained earnings in the period of adop-
tion.

The following table summarizes the impact of the change in account-
ing for derivative contracts described above and the impact of adopting
the fair value option for certain financial instruments on January 1, 2007.
Amounts shown represent the carrying value of the affected instruments
before and after the changes in accounting resulting from the adoption of
SFAS 157 and SFAS 159.

Transition Impact

(Dollars in millions)

Impact of adopting SFAS 157

Net derivative assets and liabilities (1)

Impact of electing the fair value option under SFAS 159

Loans and leases (2)
Accrued expenses and other liabilities (3)
Loans held-for-sale (4)
Available-for-sale debt securities (5)
Federal funds sold and securities purchased under agreements to resell (6)
Interest-bearing deposit liabilities in domestic offices (7)

Cumulative-effect adjustment, pre-tax

Tax impact

Cumulative-effect adjustment, net-of-tax, decrease to retained earnings

Ending Balance
Sheet
December 31, 2006

Adoption Net
Gain/(Loss)

Opening Balance
Sheet
January 1, 2007

$7,100

$ 22

$7,122

3,968
(28)
8,778
3,692
1,401
(548)

(21)
(321)
–
–
(1)
1

(320)
112

$(208)

3,947
(349)
8,778
3,692
1,400
(547)

(1) The transition adjustment reflects the impact of recognizing previously deferred gains and losses as a result of the rescission of certain requirements of EITF 02-3 in accordance with SFAS 157.
(2)
(3) The January 1, 2007 balance after adoption represents the fair value of certain unfunded commercial loan commitments. The December 31, 2006 balance prior to adoption represents the reserve for unfunded lending

Includes loans to certain large corporate clients. The ending balance at December 31, 2006 and the transition adjustment were net of a $32 million reduction in the allowance for loan and lease losses.

commitments associated with these commitments.

(4) No transition adjustment was recorded for the loans held-for-sale because they were already recorded at fair value pursuant to lower of cost or market accounting.
(5) Changes in fair value of these AFS debt securities resulting from foreign currency exposure, which is the primary driver of fair value for these securities, had previously been hedged by derivatives that qualified for fair
value hedge accounting in accordance with SFAS 133. As a result, there was no transition adjustment. Following the election of the fair value option, these AFS debt securities have been transferred to trading account
assets.
Includes structured reverse repurchase agreements that were hedged with derivatives in accordance with SFAS 133.
Includes long-term fixed rate deposits that were economically hedged with derivatives.

(7)

(6)

SFAS 157 defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement
instru-
date. The Corporation determines the fair values of its financial
ments based on the fair value hierarchy established in SFAS 157 which
requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value.
The Corporation carries certain corporate loans and loan commitments,
LHFS, structured reverse repurchase agreements, and long-term deposits
at fair value in accordance with SFAS 159. The Corporation also carries at
fair value trading account assets and liabilities, derivative assets and
liabilities, AFS debt securities, MSRs, and certain other assets. For a
detailed discussion regarding the fair value hierarchy and how the Corpo-
ration measures fair value, see Note 1 – Summary of Significant Account-
ing Principles to the Consolidated Financial Statements.

Fair Value Measurement

Level 1, 2 and 3 Valuation Techniques
Financial
instruments are considered Level 1 when valuation can be
identical assets or
based on quoted prices in active markets for
liabilities. Level 2 financial instruments are valued using quoted prices for

similar assets or liabilities; quoted prices in markets that are not active;
or models using inputs that are observable or can be corroborated by
observable market data of substantially the full term of the assets or
liabilities. Financial instruments are considered Level 3 when their values
are determined using pricing models, discounted cash flow method-
ologies or similar techniques and at least one significant model assump-
tion or input is unobservable and when determination of the fair value
requires significant management judgment or estimation.

The Corporation also uses market indices for direct inputs to certain
models, where the cash settlement is directly linked to appreciation or
depreciation of that particular index (primarily in the context of structured
credit products). In those cases, no material adjustments are made to
the index-based values. In other cases, market indices are also used as
inputs to valuation, but are adjusted for trade specific factors such as
rating, credit quality, vintage and other factors.

Corporate Loans and Loan Commitments
The fair values of loans and loan commitments are based on market
prices, where available, or discounted cash flows using market-based
credit spreads of comparable debt instruments or credit derivatives of the
specific borrower or comparable borrowers. Results of discounted cash
flow calculations may be adjusted, as appropriate, to reflect other market
conditions or the perceived credit risk of the borrower.

Bank of America 2008 175

Structured Reverse Repurchase Agreements and Long-term
Deposits
The fair values of structured reverse repurchase agreements and long-
term deposits are determined using quantitative models, including dis-
counted cash flow models that require the use of multiple market inputs
including interest rates and spreads to generate continuous yield or pric-
ing curves and volatility factors. The majority of market inputs are actively
quoted and can be validated through external sources, including brokers,
market transactions and third-party pricing services. The Corporation does
incorporate, consistent with the requirements of SFAS 157, within its fair
value measurements of
long-term deposits the net credit differential
between the counterparty credit risk and our own credit risk. The value of
the net credit differential
is determined by reference to existing direct
market reference costs of credit, or where direct references are not avail-
able, a proxy is applied consistent with direct
references for other
counterparties that are similar in credit risk.

Trading Account Assets and Liabilities and Available-for-Sale Debt
Securities
The fair values of trading account assets and liabilities are primarily
based on actively traded markets where prices are based on either direct
market quotes or observed transactions. The fair values of AFS debt
securities are generally based on quoted market prices or market prices
for similar assets. Liquidity is a significant factor in the determination of
the fair values of trading account assets or liabilities and AFS debt secu-
rities. Market price quotes may not be readily available for some posi-
tions, or positions within a market sector where trading activity has
slowed significantly or ceased such as certain CDO positions and other
ABS. Some of these instruments are valued using a net asset value
approach, which considers the value of the underlying securities. Under-
lying assets are valued using external pricing services, where available, or
matrix pricing based on the vintages and ratings. Situations of illiquidity
generally are triggered by the market’s perception 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.

Derivative Assets and Liabilities
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 majority of market
inputs are actively quoted and can be validated through external sources,

including brokers, market transactions 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. The fair values of derivative assets
and liabilities include adjustments for market liquidity, counterparty credit
quality and other deal specific factors, where appropriate. Consistent with
the way the Corporation fair values long-term deposits as previously dis-
cussed, the Corporation incorporates, within its fair value measurements
of over-the-counter derivatives, the net credit differential between the
counterparty credit risk and our own credit risk. An estimate of severity of
loss is also used in the determination of fair value, primarily based
on historical experience, adjusted for recent name specific expectations.

Mortgage Servicing Rights
The fair values of MSRs are determined using models which depend on
estimates of prepayment rates, the resultant weighted average lives of
the MSRs and the OAS levels. For more information on MSRs, see Note
21 – Mortgage Servicing Rights to the Consolidated Financial Statements.

Loans Held-for-Sale
The fair values of LHFS are based on quoted market prices, where avail-
able, or are determined by discounting estimated cash flows using inter-
est rates approximating the Corporation’s current origination rates for
similar loans adjusted to reflect the inherent credit risk.

Other Assets
The Corporation fair values certain other assets including AFS equity
securities and certain retained residual
interests in securitization
vehicles. The fair values of AFS equity securities are generally based on
quoted market prices or market prices for similar assets. However,
non-public investments are initially valued at transaction price and sub-
sequently adjusted when evidence is available to support such adjust-
ments. Retained residual interests in securitization vehicles are based on
certain observable inputs such as interest rates and credit spreads, as
well as unobservable inputs such as estimated net charge-off and pay-
ment rates.

Asset-backed Secured Financings
The fair values of asset-backed secured financings are based on external
broker bids, where available, or are determined by discounting estimated
cash flows using interest rates approximating the Corporation’s current
origination rates for similar loans adjusted to reflect the inherent credit
risk.

176 Bank of America 2008

Recurring Fair Value
Assets and liabilities measured at fair value on a recurring basis, including financial instruments for which the Corporation accounts for in accordance
with SFAS 159 are summarized below:

(Dollars in millions)

Assets

Federal funds sold and securities purchased under agreements to resell
Trading account assets
Derivative assets
Available-for-sale debt securities
Loans and leases (2)
Mortgage servicing rights
Loans held-for-sale
Other assets (3)

Total assets

Liabilities

Interest-bearing deposits in domestic offices
Trading account liabilities
Derivative liabilities
Accrued expenses and other liabilities

Total liabilities

Assets

Total assets

Liabilities

Interest-bearing deposits in domestic offices
Trading account liabilities
Derivative liabilities
Accrued expenses and other liabilities

Total liabilities

Fair Value Measurements Using

December 31, 2008

Level 1

–
44,889
2,109
2,789
–
–
–
25,089

Level 2

Level 3

Netting
Adjustments (1)

Assets/Liabilities
at Fair Value

2,330
107,315
1,525,106
255,413
–
–
15,582
1,245

–
7,318
8,289
18,702
5,413
12,733
3,382
3,572

–
–
(1,473,252)
–
–
–
–
–

2,330
159,522
62,252
276,904
5,413
12,733
18,964
29,906

$ 74,876

$1,906,991

$ 59,409

$(1,473,252)

$ 568,024

–
42,974
4,872
38

$ 47,884

–
42,986
516
2,089
–
–
–
19,796

1,717
14,313
1,488,509
–

$1,504,539

–
–
6,019
1,940

$ 7,959

–
–
(1,468,691)
–

$(1,468,691)

December 31, 2007

2,578
115,051
442,471
205,734
–
–
14,431
1,540

–
4,027
8,972
5,507
4,590
3,053
1,334
3,987

–
–
(417,297)
–
–
–
–
–

$65,387

$ 781,805

$31,470

$ (417,297)

–
57,331
534
–

$57,865

2,000
20,011
426,223
–

$ 448,234

–
–
10,175
660

$10,835

–
–
(414,509)
–

$ (414,509)

1,717
57,287
30,709
1,978

$ 91,691

2,578
162,064
34,662
213,330
4,590
3,053
15,765
25,323

$461,365

2,000
77,342
22,423
660

$102,425

(1) Amounts represent the impact of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and also cash collateral held or placed with the same counterparties.
(2) Loans and leases at December 31, 2008 and December 31, 2007 included $22.4 billion and $22.6 billion of leases that were not eligible for the fair value option as leases are specifically excluded from fair value

option election in accordance with SFAS 159.

(3) Other assets include equity investments held by Principal Investing, AFS equity securities and certain retained residual interests in securitization vehicles, including interest-only strips. Substantially all of other assets

are eligible for, and the Corporation has not chosen to elect, fair value accounting at December 31, 2008 and 2007.

Bank of America 2008 177

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable

inputs (Level 3) during the year ended December 31, 2008 and 2007, including realized and unrealized gains (losses) included in earnings and OCI.

Level 3 Fair Value Measurements

(Dollars in millions)

Balance, January 1, 2008
Countrywide acquisition
Included in earnings
Included in other comprehensive income
Purchases, issuances and settlements
Transfers into (out of) Level 3

Net
Derivatives (1)

$(1,203)
(185)
2,531
–
1,380
(253)

Trading
Account
Assets

$ 4,027
1,407
(3,222)
–
(2,055)
7,161

Balance, December 31, 2008

$ 2,270

$ 7,318

Year Ended December 31, 2008

Available-for-
Sale Debt
Securities

$ 5,507
528
(2,509)
(1,688)
2,754
14,110

$18,702

Loans and
Leases (2)

$ 4,590
–
(780)
–
1,603
–

Mortgage
Servicing
Rights

$ 3,053
17,188
(7,115)
–
(393)
–

Loans
Held-for-
Sale (2)

$ 1,334
1,425
(1,047)
–
(542)
2,212

Other
Assets (3)

$ 3,987
–
175
–
(550)
(40)

$ 5,413

$12,733

$ 3,382

$ 3,572

Accrued
Expenses
and Other
Liabilities (2)

$ (660)
(1,212)
(169)
–
101
–

$(1,940)

Balance, January 1, 2007
Included in earnings
Included in other comprehensive income
Purchases, issuances and settlements
Transfers into (out of) Level 3

Balance, December 31, 2007

Year Ended December 31, 2007

788
(341)
–
(333)
(1,317)

303
(2,959)
–
708
5,975

$(1,203)

$ 4,027

$ 1,133
(398)
(206)
4,588
390

$ 5,507

$3,947
(140)
–
783
–

$ 2,869
231
–
(47)
–

–
(90)
–
(1,259)
2,683

$6,605
2,149
(79)
(4,638)
(50)

$4,590

$ 3,053

$ 1,334

$3,987

$ (349)
(279)
–
(32)
–

$ (660)

(1) Net derivatives at December 31, 2008 and 2007 included derivative assets of $8.3 billion and $9.0 billion and derivative liabilities of $6.0 billion and $10.2 billion. Net derivatives acquired in connection with

Countrywide on July 1, 2008 included derivative assets of $107 million and derivative liabilities of $292 million.

The table below summarizes gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recorded in
earnings for Level 3 assets and liabilities during the year ended December 31, 2008 and 2007. These amounts include those gains and losses gen-
erated by loans, LHFS and loan commitments which are accounted for at fair value in accordance with SFAS 159.

Level 3 Total Realized and Unrealized Gains (Losses) Included in Earnings

Year Ended December 31, 2008

(Dollars in millions)

Card income
Equity investment income
Trading account profits (losses)
Mortgage banking income (loss) (2)
Other income (loss)

Net
Derivatives

–
–
103
2,428
–

Trading
Account
Assets

–
–
(3,044)
(178)
–

Total

$2,531

$ (3,222)

Card income
Equity investment income
Trading account profits (losses)
Mortgage banking income (loss) (2)
Other income (loss)

–
–
(515)
174
–

–
–
(2,959)
–
–

–
–
–
(74)
(2,435)

$(2,509)

–
–
–
–
(398)

Available-for-
Sale Debt
Securities

Loans and
Leases (1)

Mortgage
Servicing
Rights

–
–
–
(7,115)
–

Loans
Held-for-
Sale (1)

–
–
(195)
(848)
(4)

Other
Assets

55
110
–
–
10

Accrued
Expenses
and Other
Liabilities (1)

–
–
9
295
(473)

Total

55
110
(3,132)
(5,492)
(3,677)

–
–
(5)
–
(775)

$(780)

$(7,115)

$(1,047)

$ 175

$(169)

$(12,136)

Year Ended December 31, 2007

–
–
(1)
–
(139)

–
–
–
231
–

–
–
(61)
(29)
–

(90)

$ 103
1,971
–
–
75

$2,149

–
–
(5)
–
(274)

$(279)

103
1,971
(3,541)
376
(736)

$ (1,827)

Total

$ (341)

$(2,959)

$ (398)

$(140)

$ 231

(1) Amounts represent items which are accounted for at fair value in accordance with SFAS 159.
(2) Mortgage banking income does not reflect impact of Level 1 and Level 2 hedges against MSRs.

178 Bank of America 2008

The table below summarizes changes in unrealized gains or losses recorded in earnings during the years ended December 31, 2008 and 2007 for
Level 3 assets and liabilities that were still held at December 31, 2008 and 2007. These amounts include changes in fair value of loans, LHFS and
loan commitments which are accounted for at fair value in accordance with SFAS 159.

Level 3 Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date

(Dollars in millions)

Card income (loss)
Equity investment income (loss)
Trading account profits (losses)
Mortgage banking income (loss) (2)
Other income (loss)

Total

Card income (loss)
Equity investment income (loss)
Trading account profits (losses)
Mortgage banking income (loss) (2)
Other income (loss)

Total

Year Ended December 31, 2008

Net
Derivatives
–
–
2,095
1,154
–
$3,249

Trading
Account
Assets

–
–
(2,144)
(178)
–

$ (2,322)

Available-for-
Sale Debt
Securities

–
–
–
(74)
(1,840)

Loans
and
Leases (1)

–
–
–
–
(1,003)

Mortgage
Servicing
Rights

–
–
–
(7,378)
–

Loans
Held-for-
Sale (1)

–
–
(154)
(423)
(4)

$(1,914)

$(1,003)

$(7,378)

$(581)

–
–
(196)
139
–
$ (57)

–
–
(2,857)
–
–

$(2,857)

Year Ended December 31, 2007

–
–
–
–
(398)

–
–
–
–
(167)

$ (398)

$ (167)

–
–
–
(43)
–

(43)

–
–
(58)
(22)
–

$ (80)

Accrued
Expenses
and Other
Liabilities (1)

–
–
–
292
(880)

$(588)

–
–
(1)
–
(395)

$(396)

Other
Assets

$(331)
(193)
–
–
–

$(524)

$(136)
(65)
–
–
–

$(201)

Total

(331)
(193)
(203)
(6,607)
(3,727)

$(11,061)

(136)
(65)
(3,112)
74
(960)

$ (4,199)

(1) Amounts represented items which are accounted for at fair value in accordance with SFAS 159.
(2) Mortgage banking income does not reflect impact of Level 1 and Level 2 hedges against MSRs.

Non-recurring Fair Value
Certain assets and liabilities are measured at fair value on a non-recurring basis and are not included in the tables above. These assets and liabilities
primarily include LHFS, unfunded loan commitments held-for-sale, and foreclosed properties. The amounts below represent only balances measured at
fair value during the period and still held as of the reporting date.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

(Dollars in millions)
Assets

Loans held-for-sale
Foreclosed properties (1)

Liabilities

Accrued expenses and other liabilities

At and for the Year Ended
December 31, 2008

At and for the Year Ended
December 31, 2007

Level 1

Level 2

Level 3

(Losses)

Level 1

Level 2

Level 3

(Losses)

$–
–

–

$1,828
–

$9,782
590

$(1,699)
(171)

–

$–
–

–

$1,200
–

$13,300
155

$(172)
(17)

–

142

(145)

(1) Amounts are included in other assets on the Consolidated Balance Sheet and represent fair value and related losses of foreclosed properties that were written down subsequent to their initial classification as

foreclosed properties.

Fair Value Option Elections

Corporate Loans and Loan Commitments
The Corporation elected to account for certain large corporate loans and
loan commitments which exceeded the Corporation’s single name credit
risk concentration guidelines at fair value in accordance with SFAS 159.
Lending commitments, both funded and unfunded, are actively managed
and monitored, and, as appropriate, credit risk for these lending relation-
ships may be mitigated through the use of credit derivatives, with the
Corporation’s credit view and market perspectives determining the size
and timing of the hedging activity. These credit derivatives do not meet
the requirements for hedge accounting under SFAS 133 and are therefore
carried at fair value with changes in fair value recorded in other income.
Electing the fair value option allows the Corporation to account for these
loans and loan commitments at fair value, which is more consistent with
management’s view of the underlying economics and the manner in which
they are managed.
In addition, accounting for these loans and loan
commitments at fair value reduces the accounting asymmetry that would

otherwise result from carrying the loans at historical cost and the credit
derivatives at fair value.

At December 31, 2008 and 2007, funded loans which the Corporation
has elected to fair value had an aggregate fair value of $5.41 billion and
$4.59 billion recorded in loans and leases and an aggregate outstanding
principal balance of $6.42 billion and $4.82 billion. At December 31,
2008 and 2007, unfunded loan commitments that the Corporation has
elected to fair value had an aggregate fair value of $1.12 billion and
$660 million recorded in accrued expenses and other liabilities and an
aggregate committed exposure of $16.9 billion and $20.9 billion. Interest
income on these loans is recorded in interest and fees on loans and
leases. At December 31, 2008 and 2007, none of these loans were 90
days or more past due and still accruing interest or had been placed on
nonaccrual status.

Loans Held-for-Sale
The Corporation also elected to account for certain loans held-for-sale at
fair value. Electing to use fair value allows a better offset of the changes

Bank of America 2008 179

in fair values of the loans and the derivative instruments used to econom-
ically hedge them without the burden of complying with the requirements
for hedge accounting under SFAS 133. The Corporation has not elected to
fair value other loans held-for-sale primarily because these loans are float-
ing rate loans that are not economically hedged using derivative instru-
ments. At December 31, 2008 and 2007, residential mortgage loans,
commercial mortgage loans, and other loans held-for-sale for which the
fair value option was elected had an aggregate fair value of $18.96 billion
and $15.77 billion and an aggregate outstanding principal balance of
$20.75 billion and $16.72 billion. Interest income on these loans is
recorded in other interest income. These changes in fair value are mostly
offset by hedging activities. An immaterial portion of these amounts was
attributable to changes in instrument-specific credit risk.

Structured Reverse Repurchase Agreements
The Corporation elected to fair
value certain structured reverse
repurchase agreements which were hedged with derivatives which quali-
fied for fair value hedge accounting in accordance with SFAS 133. Elec-
tion of the fair value option allows the Corporation to reduce the burden
of complying with the requirements of hedge accounting under SFAS 133.
At December 31, 2008 and 2007, these instruments had an aggregate
fair value of $2.33 billion and $2.58 billion, and a principal balance of
$2.34 billion and $2.54 billion recorded in federal funds sold and secu-
rities purchased under agreements to resell. Interest earned on these
instruments continues to be recorded in interest income. The Corporation
did not elect to fair value other financial
instruments within the same
balance sheet category because they were not economically hedged using
derivatives.

Long-term Deposits
The Corporation elected to fair value certain long-term fixed rate deposits
which are economically hedged with derivatives. At December 31, 2008
and 2007, these instruments had an aggregate fair value of $1.72 billion
and $2.00 billion and principal balance of $1.70 billion and $1.99 billion
recorded in interest-bearing deposits. Interest paid on these instruments
continues to be recorded in interest expense. Election of the fair value
option will allow the Corporation to reduce the accounting volatility that
from the accounting asymmetry created by
would otherwise result
accounting for
instruments at historical cost and the
economic hedges at fair value. The Corporation did not elect to fair value
other
instruments within the same balance sheet category
because they were not economically hedged using derivatives.

the financial

financial

Asset-backed Secured Financings
During 2008, the Corporation elected to fair value certain asset-backed
secured financings that were acquired as part of the Countrywide acquis-
ition. At December 31, 2008, these secured financings had an aggregate
fair value of $816 million and principal balance of $1.6 billion recorded in
accrued expenses and other liabilities. Using the fair value option election
allows the Corporation to reduce the accounting volatility that would
otherwise result from the accounting asymmetry created by accounting for
the asset-backed secured financings at historical cost and the corre-
sponding mortgage LHFS securing these financings at fair value.

The following table provides information about where changes in the
fair value of assets or liabilities for which the fair value option has been
elected are included in the Consolidated Statement of Income.

Gains (Losses) Relating to Assets and Liabilities Accounted for Using Fair Value Option

Corporate
Loans and
Loan
Commitments

Loans
Held-for-Sale

4
–
(1,248)

$(1,244)

(6)
–
(413)

$ (419)

$(680)
281
(215)

$(614)

$(348)
333
(58)

$ (73)

Year Ended December 31, 2008

Structured
Reverse
Repurchase
Agreements

$ –
–
(18)

$(18)

Long-
term
Deposits

$ –
–
(10)

$(10)

Year Ended December 31, 2007

$ –
–
23

$ 23

$ –
–
(26)

$(26)

Asset-
Backed
Secured
Financings

–
295
–

$295

–
–
–

–

Total

$ (676)
576
(1,491)

$(1,591)

$ (354)
333
(474)

$ (495)

(Dollars in millions)

Trading account profits (losses)
Mortgage banking income
Other income (loss)

Total

Trading account profits (losses)
Mortgage banking income
Other income (loss)

Total

180 Bank of America 2008

instruments including those financial

Note 20 – Fair Value of Financial Instruments
(SFAS 107 Disclosure)
SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”
(SFAS 107), requires the disclosure of the estimated fair value of finan-
cial
instruments for which the
Corporation did not elect the fair value option. The fair values of such
instruments have been derived, in part, by management’s assumptions,
the estimated amount and timing of future cash flows and estimated
discount rates. Different assumptions could significantly affect these
estimated fair values. Accordingly, the net realizable values could be
materially different from the estimates presented below. In addition, the
estimates are only indicative of the value of individual financial
instru-
ments and should not be considered an indication of the fair value of the
Corporation.

The provisions of SFAS 107 do not require the disclosure of the fair
value of
instruments,
including goodwill and intangible assets such as purchased credit card,
affinity and trust relationships.

lease financing arrangements and nonfinancial

The following disclosures represent financial instruments in which the
ending balance at December 31, 2008 are not carried at fair value in its
entirety on the Corporation’s Consolidated Balance Sheet.

federal

time deposits placed,

Short-term Financial Instruments
The carrying value of short-term financial instruments, including cash and
cash equivalents,
funds sold and pur-
chased, resale and certain repurchase agreements, commercial paper
and other short-term investments and borrowings, approximates the fair
value of these instruments. These financial instruments generally expose
the Corporation to limited credit risk and have no stated maturities or
have short-term maturities and carry interest
rates that approximate
market. In accordance with SFAS 159, the Corporation elected to fair
value certain structured reverse repurchase agreements. See Note 19 –
Fair Value Disclosures to the Consolidated Financial Statements for addi-
tional information on these structured reverse repurchase agreements.

(Dollars in millions)

Financial assets
Loans (2)
Financial liabilities
Deposits
Long-term debt

Loans
Fair values were generally determined by discounting both principal and
interest cash flows expected to be collected using an observable discount
rate for similar instruments with adjustments that management believes
a market participant would consider in determining fair value. The Corpo-
ration estimates the cash flows expected to be collected at acquisition
using internal credit risk, interest rate and prepayment risk models that
incorporate management’s best estimate of current key assumptions,
such as default rates, loss severity and prepayment speeds for the life of
the loan. In accordance with SFAS 159, the Corporation elected to fair
value certain large corporate loans which exceeded the Corporation’s
single name credit risk concentration guidelines. See Note 19 – Fair
Value Disclosures to the Consolidated Financial Statements for additional
information on loans for which the Corporation adopted the fair value
option.

Deposits
The fair value for certain deposits with stated maturities was calculated
by discounting contractual cash flows using current market rates for
instruments with similar maturities. The carrying value of foreign time
deposits approximates fair value. For deposits with no stated maturities,
the carrying amount was considered to approximate fair value and does
not take into account the significant value of the cost advantage and
stability of the Corporation’s long-term relationships with depositors. In
accordance with SFAS 159, the Corporation elected to fair value certain
long-term fixed rate deposits which are economically hedged with
derivatives. See Note 19 – Fair Value Disclosures to the Consolidated
Financial Statements for additional information on these long-term fixed
rate deposits.

Long-term Debt
The Corporation uses quoted market prices for its long-term debt when
available. When quoted market prices are not available, fair value is
estimated based on current market interest rates and credit spreads for
debt with similar maturities.

The book and fair values of certain financial

instruments at

December 31, 2008 and 2007 were as follows:

December 31

2008

2007

Book Value(1)

Fair Value

Book Value(1)

Fair Value

$886,198

$841,629

$842,392

$847,405

882,997
268,292

883,987
260,291

805,177
197,508

806,511
195,835

(1) Loans are presented net of allowance for loan losses. Amounts exclude leases.
(2) The fair value is determined based on the present value of future cash flows using credit spreads or risk adjusted rates of return that a buyer of the portfolio would require in the dislocated markets as of December 31,

2008. However, the Corporation expects to collect the principal cash flows underlying the book values as well as the related interest cash flows.

Bank of America 2008 181

Note 21 – Mortgage Servicing Rights
The Corporation accounts for consumer MSRs at fair value with changes
in fair value recorded in the Consolidated Statement of Income in mort-
gage banking income. The Corporation economically hedges these MSRs
with certain derivatives and securities.

The following table presents activity for consumer mortgage MSRs for

2008 and 2007.

(Dollars in millions)

Balance, January 1
Countrywide balance, July 1, 2008
Additions
Impact of customer payments
Other changes in MSR market value

Balance, December 31

Mortgage loans serviced for investors (in billions)

2008

$ 3,053
17,188
2,587
(3,313)
(6,782)

$12,733

$ 1,654

2007

$2,869
–
792
(766)
158

$3,053

$ 259

During 2008 and 2007, other changes in MSR market value were
$(6.8) billion and $158 million. These amounts reflect the change in

discount
rates and prepayment speed assumptions, mostly due to
changes in interest rates, as well as the effect of changes in other
assumptions. The amounts do not include $(333) million in losses in
2008 resulting from cash received being lower than expected prepay-
ments and $73 million in gains in 2007 resulting from the actual cash
received exceeding expected prepayments. The total amounts of $(7.1)
billion and $231 million are included in the line “mortgage banking
income (loss)” in the table “Level 3 – Total Realized and Unrealized Gains
(Losses) Included in Earnings” in Note 19 – Fair Value Disclosures to the
Consolidated Financial Statements.

At December 31, 2008 and 2007, the fair value of consumer MSRs
was $12.7 billion and $3.1 billion. The Corporation uses an OAS valu-
ation approach to determine the fair value of MSRs which factors in pre-
payment risk. This approach consists of projecting servicing cash flows
under multiple interest rate scenarios and discounting these cash flows
using risk-adjusted discount rates. The key economic assumptions used
in valuations of MSRs include weighted average lives of the MSRs and
the OAS levels.

Key economic assumptions used in determining the fair value of

MSRs at December 31, 2008 and 2007 were as follows:

(Dollars in millions)

Weighted average option adjusted spread
Weighted average life, in years

December 31, 2008

December 31, 2007

Fixed

1.71%
3.26

Adjustable

6.40%
2.71

Fixed

0.59%
4.80

Adjustable

2.54%
2.75

The following table presents the sensitivity of the weighted average
lives and fair value of MSRs to changes in modeled assumptions. The
sensitivities in the following 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 particular assumption on

the fair value of a MSR that continues to be held by the Corporation is
calculated without changing any other assumption. In reality, changes in
one factor may result in changes in another, which might magnify or coun-
teract the sensitivities. Additionally, the Corporation has the ability to
hedge interest rate and market valuation fluctuations associated with
MSRs. The sensitivities below do not reflect any hedge strategies that
may be undertaken to mitigate such risk.

(Dollars in millions)

Prepayment rates

Impact of 10% decrease
Impact of 20% decrease
Impact of 10% increase
Impact of 20% increase

OAS level

Impact of 100 bps decrease
Impact of 200 bps decrease
Impact of 100 bps increase
Impact of 200 bps increase

n/a = not applicable

December 31, 2008

Change in Weighted Average Lives

Fixed

Adjustable

Change
in Fair
Value

0.23 years
0.51
(0.20)
(0.36)

n/a
n/a
n/a
n/a

0.13 years $
0.28
(0.11)
(0.20)

786
1,717
(674)
(1,258)

n/a
n/a
n/a
n/a

460
955
(428)
(827)

Commercial and residential reverse mortgage MSRs are accounted for
using the amortization method (i.e., lower of cost or market). Commercial
and residential reverse mortgage MSRs totaled $323 million and $294

million at December 31, 2008 and 2007 and are not included in the
tables above.

182 Bank of America 2008

Note 22 – Business Segment Information
The Corporation reports the results of its operations through three busi-
ness segments: Global Consumer and Small Business Banking (GCSBB),
Global Corporate and Investment Banking (GCIB) and Global Wealth and
Investment Management
(GWIM). The Corporation may periodically
reclassify business segment results based on modifications to its man-
agement reporting methodologies and changes in organizational align-
ment.

Global Consumer and Small Business Banking
GCSBB provides a diversified range of products and services to
individuals and small businesses. The Corporation reports GCSBB’s
results, specifically credit card and certain unsecured lending portfolios,
on a managed basis. Reporting on a managed basis is consistent with
the way that management evaluates the results of GCSBB. Managed
basis assumes that securitized loans were not sold and presents earn-
ings on these loans in a manner similar to the way loans that have not
been sold (i.e., held loans) are presented. This basis of presentation
excludes the Corporation’s securitized mortgage and home equity portfo-
lios for which the Corporation retains servicing. Loan securitization is an
alternative funding process that is used by the Corporation to diversify
funding sources. Loan securitization removes loans from the Con-
solidated Balance Sheet through the sale of loans to an off-balance sheet
QSPE which is excluded from the Corporation’s Consolidated Financial
Statements in accordance with GAAP.

The performance of the managed portfolio is important in under-
standing GCSBB’s results as it demonstrates the results of the entire
portfolio serviced by the business. Securitized loans continue to be serv-
iced by the business and are subject to the same underwriting standards
and ongoing monitoring as held loans. In addition, retained excess servic-
ing income is exposed to similar credit risk and repricing of interest rates
as held loans. GCSBB’s managed income statement line items differ
from a held basis as follows:
Š Managed net interest income includes GCSBB’s net interest income on
held loans and interest income on the securitized loans less the
internal funds transfer pricing allocation related to securitized loans.
Š Managed noninterest income includes GCSBB’s noninterest income on
a held basis less the reclassification of certain components of card
income (e.g., excess servicing income) to record securitized net inter-
est income and provision for credit losses. Noninterest income, both
on a held and managed basis, also includes the impact of adjustments
to the interest-only strips that are recorded in card income as
management continues to manage this impact within GCSBB.

Š Provision for credit losses represents the provision for credit losses on
held loans combined with realized credit losses associated with the
securitized loan portfolio.

Global Corporate and Investment Banking
GCIB provides a wide range of financial services to both the Corporation’s
issuer and investor clients that range from business banking clients to
investor clients using a
large international corporate and institutional
strategy to deliver value-added financial products and advisory solutions.

Global Wealth and Investment Management
GWIM offers investment and brokerage services, estate management,
financial planning services, fiduciary management, credit and banking
expertise, and diversified asset management products to institutional
clients, as well as affluent and high net-worth individuals. GWIM also
includes the impact of migrated qualifying affluent customers, including
their related deposit balances, from GCSBB. After migration, the asso-
ciated net interest income, service charges and noninterest expense on
the deposit balances are recorded in GWIM.

All Other
All Other consists of equity investment activities including Principal Inves-
ting, Corporate Investments and Strategic Investments, the residential
mortgage portfolio associated with ALM activities, the residual impact of
the cost allocation processes, merger and restructuring charges, and the
results of certain businesses that are expected to be or have been sold
or are in the process of being liquidated. All Other also includes certain
amounts
corresponding
“securitization offset” which removes the “securitization impact” of sold
loans in GCSBB, in order to present the consolidated results of the
Corporation on a GAAP basis (i.e., held basis).

associated with

ALM activities

and

Basis of Presentation
Total revenue, net of interest expense, includes net interest income on a
FTE basis and noninterest income. The adjustment of net interest income
to a FTE basis results in a corresponding increase in income tax expense.
The net interest income of the businesses includes the results of a funds
transfer pricing process that matches assets and liabilities with similar
interest rate sensitivity and maturity characteristics. Net interest income
of the business segments also includes an allocation of net interest
income generated by the Corporation’s ALM activities.

Certain expenses not directly attributable to a specific business
segment are allocated to the segments based on pre-determined means.
The most significant of these expenses include data processing costs,
item processing costs and certain centralized or shared functions. Data
processing costs are allocated to the segments based on equipment
usage. Item processing costs are allocated to the segments based on the
volume of
items processed for each segment. The costs of certain
centralized or shared functions are allocated based on methodologies
which reflect utilization.

Bank of America 2008 183

The following table presents total revenue, net of interest expense, on a FTE basis and net income for 2008, 2007, and 2006, and total assets at

December 31, 2008 and 2007 for each business segment, as well as All Other.

Business Segments

At and for the Year Ended December 31

(Dollars in millions)

Net interest income (4)
Noninterest income

Total revenue, net of interest expense

Provision for credit losses (5)
Amortization of intangibles
Other noninterest expense

Income before income taxes

Income tax expense (4)

Net income

Period-end total assets

(Dollars in millions)

Net interest income (4)
Noninterest income (loss)

Total revenue, net of interest expense

Provision for credit losses (5)
Amortization of intangibles
Other noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (4)

Net income (loss)

Period-end total assets

(Dollars in millions)

Net interest income (4)
Noninterest income

Total revenue, net of interest expense

Provision for credit losses (5)
Amortization of intangibles
Other noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (4)

Net income (loss)

Period-end total assets

2006

$28,059
16,769

44,828
8,518
1,452
16,725

18,133
6,682

$11,451

2006

$ 3,754
3,330

7,084
(39)
72
3,652

3,399
1,257

$ 2,142

2008

46,554
27,422

73,976
26,825
1,834
39,695

5,622
1,614

4,008

Total Corporation (1)

2007

36,190
32,392

68,582
8,385
1,676
35,848

22,673
7,691

2006

$35,818
38,182

74,000
5,010
1,755
34,038

33,197
12,064

14,982

$21,133

$1,817,943

$1,715,746

Global Consumer and
Small Business Banking (2, 3)

2008

$ 33,851
24,493

58,344
26,841
1,383
23,554

6,566
2,332

2007

$ 28,712
19,143

47,855
12,920
1,336
19,013

14,586
5,224

4,234

$511,401

$ 9,362

$445,319

Global Corporate
and Investment Banking (2)

Global Wealth and
Investment Management (2)

2008

4,775
3,010

7,785
664
231
4,673

2,217
801

2007

$ 3,917
3,636

7,553
14
150
4,330

3,059
1,099

1,416

$187,994

$ 1,960

$155,683

2008

16,538
(3,098)

13,440
3,080
191
10,190

(21)
(7)

(14)

2007

11,206
2,445

13,651
658
178
12,020

795
285

510

$ 707,170

$ 778,158

All Other (2, 3)

2008

(8,610)
3,017

(5,593)
(3,760)
29
1,278

(3,140)
(1,512)

(1,628)

2007

(7,645)
7,168

(477)
(5,207)
12
485

4,233
1,083

3,150

$ 411,378

$ 336,586

2006

$ 9,914
11,443

21,357
6
218
11,659

9,474
3,505

$ 5,969

2006

$ (5,909)
6,640

731
(3,475)
13
2,002

2,191
620

$ 1,571

(1) There were no material intersegment revenues.
(2) Total assets include asset allocations to match liabilities (i.e., deposits).
(3) GCSBB is presented on a managed basis with a corresponding offset recorded in All Other.
(4) FTE basis
(5) Provision for credit losses represents: For GCSBB – Provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio and for All Other – Provision for credit

losses combined with the GCSBB securitization offset.

184 Bank of America 2008

GCSBB is reported on a managed basis which includes a “securitization impact” adjustment which has the effect of presenting securitized loans in
a manner similar to the way loans that have not been sold are presented. All Other’s results include a corresponding “securitization offset” which
removes the impact of these securitized loans in order to present the consolidated results of the Corporation on a held basis. The tables below recon-
cile GCSBB and All Other to a held basis by reclassifying net interest income, insurance premiums, all other income and realized credit losses asso-
ciated with the securitized loans to card income.

Global Consumer and Small Business Banking – Reconciliation

(1) Provision for credit losses represents provision for credit losses on held loans combined with realized credit losses associated with the securitized loan portfolio.
(2) The securitization impact on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses.
(3) FTE basis

$ 4,234

$ 9,362

$11,451

(Dollars in millions)

Net interest income (3)
Noninterest income:
Card income
Service charges
Mortgage banking income
Insurance premiums
All other income

Total noninterest income

Total revenue, net of interest

expense

Provision for credit losses
Noninterest expense

Income before income taxes

Income tax expense (3)

Net income

Managed
Basis (1)

$33,851

10,057
6,807
4,422
1,968
1,239

24,493

58,344
26,841
24,937

6,566
2,332

All Other – Reconciliation

(Dollars in millions)

Net interest income (3)
Noninterest income:

Card income (loss)
Equity investment income
Gains (losses) on sales of debt

securities

All other income (loss)

Total noninterest income

Total revenue, net of interest

expense

Provision for credit losses
Merger and restructuring charges
All other noninterest expense

Income (loss) before income taxes

Income tax expense (benefit) (3)

Reported
Basis (1)

$(8,610)

2,164
265

1,133
(545)

3,017

(5,593)
(3,760)
935
372

(3,140)
(1,512)

2,250
–
–
(186)
(33)

2,031

(6,670)
(6,670)
–

–
–

–

(2,250)
–

–
219

(2,031)

6,670
6,670
–
–

–
–

–

2008

Securitization
Impact (2)

2007

2006

Held
Basis

Managed
Basis (1)

Securitization
Impact (2)

Held
Basis

Managed
Basis (1)

Securitization
Impact (2)

Held
Basis

$(8,701)

$25,150

$28,712

$(8,027)

$20,685

$28,059

$(7,593)

$20,466

12,307
6,807
4,422
1,782
1,206

26,524

51,674
20,171
24,937

6,566
2,332

10,194
6,007
1,332
912
698

19,143

47,855
12,920
20,349

14,586
5,224

3,356
–
–
(250)
(38)

3,068

(4,959)
(4,959)
–

–
–

–

13,550
6,007
1,332
662
660

22,211

42,896
7,961
20,349

14,586
5,224

9,371
5,344
919
615
520

16,769

44,828
8,518
18,177

18,133
6,682

4,566
–
–
(302)
(33)

4,231

(3,362)
(3,362)
–

–
–

–

13,937
5,344
919
313
487

21,000

41,466
5,156
18,177

18,133
6,682

$11,451

2008

2007

2006

Securitization
Offset (2)

As
Adjusted

Reported
Basis (1)

Securitization
Offset (2)

As
Adjusted

Reported
Basis (1)

Securitization
Offset (2)

As
Adjusted

$ 8,701

$(7,645)

$ 8,027

$ 382

$(5,909)

$7,593

$1,684

(86)
265

1,133
(326)

986

1,077
2,910
935
372

(3,140)
(1,512)

2,817
3,745

180
426

7,168

(477)
(5,207)
410
87

4,233
1,083

(3,356)
–

(539)
3,745

–
288

180
714

(3,068)

4,100

4,482
(248)
410
87

4,233
1,083

4,959
4,959
–
–

–
–

–

3,795
2,872

(475)
448

6,640

731
(3,475)
805
1,210

2,191
620

(4,566)
–

–
335

(771)
2,872

(475)
783

(4,231)

2,409

3,362
3,362
–
–

–
–

–

4,093
(113)
805
1,210

2,191
620

$1,571

Net income (loss)

$(1,628)

$ 3,150

$3,150

$ 1,571

(1) Provision for credit losses represents provision for credit losses in All Other combined with the GCSBB securitization offset.
(2) The securitization offset on net interest income is on a funds transfer pricing methodology consistent with the way funding costs are allocated to the businesses.
(3) FTE basis

Bank of America 2008 185

The following tables present reconciliations of the three business segments’ (GCSBB, GCIB and GWIM) total revenue, net of interest expense, on a
FTE basis and net income to the Consolidated Statement of Income, and total assets to the Consolidated Balance Sheet. The adjustments presented
in the table below include consolidated income and expense amounts not specifically allocated to individual business segments.

(Dollars in millions)

Segments’ total revenue, net of interest expense (1)
Adjustments:

ALM activities
Equity investment income
Liquidating businesses
FTE basis adjustment
Managed securitization impact to total revenue, net of interest expense
Other

Consolidated revenue, net of interest expense

Segments’ net income
Adjustments, net of taxes:

ALM activities
Equity investment income
Liquidating businesses
Merger and restructuring charges
Other

Consolidated net income

(1) FTE basis

(Dollars in millions)

Segments’ total assets
Adjustments:

ALM activities, including securities portfolio
Equity investments
Liquidating businesses
Elimination of segment excess asset allocations to match liabilities
Elimination of managed securitized loans (1)
Other

Consolidated total assets

(1) Represents GCSBB’s securitized loans.

Year Ended December 31

2008

$79,569

1,867
265
256
(1,194)
(6,670)
(1,311)

$72,782

$ 5,636

(1,015)
167
86
(630)
(236)

2007

2006

$69,059

$73,269

66
3,745
1,060
(1,749)
(4,959)
(389)

(936)
2,872
3,013
(1,224)
(3,362)
(856)

$66,833

$11,832

$72,776

$19,562

(241)
2,359
613
(258)
677

(816)
1,809
1,276
(507)
(191)

$ 4,008

$14,982

$21,133

December 31

2008

2007

$1,406,565

$1,379,160

553,730
28,839
3,172
(100,611)
(100,960)
27,208

452,626
28,358
4,608
(104,118)
(102,967)
58,079

$1,817,943

$1,715,746

186 Bank of America 2008

Note 23 – Parent Company Information
The following tables present the Parent Company Only financial information:

Condensed Statement of Income

(Dollars in millions)

Income
Dividends from subsidiaries:

Bank holding companies and related subsidiaries
Nonbank companies and related 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 benefit

Income before equity in undistributed earnings of subsidiaries
Equity in undistributed earnings (losses) of subsidiaries:
Bank holding companies and related subsidiaries
Nonbank companies and related 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
Debt securities
Receivables from subsidiaries:

Bank holding companies and related subsidiaries
Nonbank companies and related subsidiaries

Investments in subsidiaries:

Bank holding companies and related subsidiaries
Nonbank companies and related 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 holding companies and related subsidiaries
Nonbank companies and related subsidiaries

Long-term debt
Shareholders’ equity

Total liabilities and shareholders’ equity

Year Ended December 31

2008

2007

2006

$ 18,178
1,026
3,433
940

23,577

6,818
1,829

8,647

14,930
1,793

16,723

(11,221)
(1,494)

(12,715)

$ 4,008

$ 2,556

$20,615
181
4,939
3,319

29,054

7,834
3,127

10,961

18,093
1,136

19,229

(4,497)
250

(4,247)

$14,982

$14,800

$15,950
111
3,944
2,346

22,351

5,799
3,019

8,818

13,533
1,002

14,535

5,613
985

6,598

$21,133

$21,111

December 31

2008

2007

$ 98,525
16,241

$ 51,953
3,198

39,239
23,518

172,460
20,355
20,428

30,032
33,637

181,248
6,935
30,919

$390,766

$337,922

$ 26,536
15,244

$ 40,667
13,226

469
3
171,462
177,052

1,464
—
135,762
146,803

$390,766

$337,922

Bank of America 2008 187

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 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 preferred stock
Redemption of preferred stock
Proceeds from issuance of common stock
Common stock repurchased
Cash dividends paid
Other financing activities, net

Net cash provided by 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

2008

2007

2006

$ 4,008

$ 14,982

$ 21,133

12,715
(598)

16,125

(12,142)
2,490
43

(9,609)

(14,131)
28,994
(13,178)
34,742
–
10,127
–
(11,528)
5,030

40,056

46,572
51,953

4,247
(276)

18,953

(839)
(44,457)
(824)

(46,120)

8,873
38,730
(12,056)
1,558
–
1,118
(3,790)
(10,878)
576

24,131

(3,036)
54,989

(6,598)
2,159

16,694

(705)
(13,673)
(1,300)

(15,678)

12,519
28,412
(15,506)
2,850
(270)
3,117
(14,359)
(9,661)
(2,799)

4,303

5,319
49,670

$ 98,525

$ 51,953

$ 54,989

188 Bank of America 2008

Note 24 – Performance by Geographical Area
Since the Corporation’s operations are highly integrated, certain asset, liability, income and expense amounts must be allocated to arrive at total
assets, total revenue, net of interest expense, income before income taxes and net income by geographic area. The Corporation identifies its geo-
graphic 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.

(Dollars in millions)

Domestic (3)

Asia

Europe, Middle East and Africa

Latin America and the Caribbean

Total Foreign

Total Consolidated

At December 31

Year Ended December 31

Total Assets (1)

$1,678,853
1,529,899

50,567
46,359

78,790
129,303

9,733
10,185

139,090
185,847

Total
Revenue, Net
of Interest
Expense (2)

$67,549
60,245
64,577

Income
(Loss)
Before
Income Taxes

$ 3,289
18,039
28,041

1,770
1,613
1,117
3,020
4,097
4,835
443
878
2,247

5,233
6,588
8,199

1,207
1,146
637
(456)
894
1,843
388
845
1,452

1,139
2,885
3,932

Net Income
(Loss)

$ 3,254
13,137
18,605

761
721
420
(252)
592
1,193
245
532
915

754
1,845
2,528

$1,817,943
1,715,746

$72,782
66,833
72,776

$ 4,428
20,924
31,973

$ 4,008
14,982
21,133

Year

2008
2007
2006

2008
2007
2006
2008
2007
2006
2008
2007
2006

2008
2007
2006

(1) Total assets include 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 $13.5 billion and $10.9 billion at December 31, 2008 and 2007; total revenue, net of interest expense of $1.2 billion, $770 million and
$636 million; income before income taxes of $552 million, $292 million and $269 million; and net income of $404 million, $195 million and $182 million for the years ended December 31, 2008, 2007 and 2006,
respectively.

Bank of America 2008 189

additional
losses will be shared between the Corporation (10 percent)
and the U.S. government (90 percent). These assets would remain on the
Corporation’s balance sheet and the Corporation would continue to
manage these assets in the ordinary course of business as well as retain
the associated income. The assets that would be covered by this guaran-
tee are expected to carry a 20 percent risk weighting for regulatory capital
purposes. As a fee for this arrangement, the Corporation expects to issue
to the U.S. Treasury and FDIC a total of $4.0 billion of a new class of
preferred stock and to issue warrants to acquire 30.1 million shares of
Bank of America common stock.

the residual

risk in the asset pool

If necessary, under this proposed agreement, the Federal Reserve will
provide liquidity for
through a
nonrecourse loan facility. As previously discussed, the Corporation would
be responsible for the first $10.0 billion in losses on the asset pool.
Once additional
losses exceed this amount by $8.0 billion the Corpo-
ration would be able to draw on this facility. This loan facility would termi-
nate and any related funded loans would mature on the termination dates
of the U.S. government’s guarantee. The Federal Reserve is expected to
charge a fee of 20 bps per annum on undrawn amounts and a floating
interest rate of the overnight index swap rate plus 300 bps per annum on
funded amounts. Interest and fee payments would be with recourse to the
Corporation.

Further, the Corporation issued to the U.S. Treasury 800 thousand
shares of Bank of America Corporation Fixed Rate Cumulative Perpetual
Preferred Stock, Series R (Series R Preferred Stock) with a par value of
$0.01 per share for $20.0 billion. The Series R Preferred Stock pays divi-
dends at an eight percent annual rate on a liquidation preference of
$25,000 per share. The Series R Preferred Stock may only be redeemed
after the Series N and Series Q Preferred Stock have been redeemed. In
connection with this investment, the Corporation also issued to the U.S.
Treasury 10-year warrants to purchase approximately 150.4 million
shares of Bank of America Corporation common stock at an exercise
price of $13.30 per share. Upon the request of the U.S. Treasury, at any
time, the Corporation has agreed to enter into a deposit arrangement
pursuant to which the Series R Preferred Stock may be deposited and
depositary shares, representing 1/25th of a share of Series R Preferred
Stock, may be issued. The Corporation has agreed to register the Series
R Preferred Stock, the warrants, the shares of common stock underlying
the warrants and the depositary shares, if any, for resale under the Secu-
rities Act of 1933.

As required under the TARP Capital Purchase Program dividend pay-
ments on, and repurchases of, the Corporation’s outstanding preferred
and common stock are subject to certain restrictions. In addition to these
restrictions, in connection with this arrangement, the Corporation will
comply with enhanced executive compensation restrictions and continue
with current mortgage loan modification programs. Additionally, any
increase in the quarterly common stock dividend for the next three years
will require the consent of the U.S. government.

Note 25 – Subsequent Events
In January 2009, in connection with the TARP Capital Purchase Program,
established as part of the Emergency Economic Stabilization Act of 2008
and in connection with the Merrill Lynch acquisition, the Corporation
issued to the U.S. Treasury 400 thousand shares of Bank of America
Corporation Fixed Rate Cumulative Perpetual Preferred Stock, Series Q
(Series Q Preferred Stock) with a par value of $0.01 per share for $10.0
billion. The Series Q Preferred Stock initially pays quarterly dividends at a
five percent annual rate that increases to nine percent after five years on
a liquidation preference of $25,000 per share. The Series Q Preferred
Stock has a call feature after three years. In connection with this invest-
ment, the Corporation also issued to the U.S. Treasury 10-year warrants
to purchase approximately 48.7 million shares of Bank of America Corpo-
ration common stock at an exercise price of $30.79 per share. Upon the
request of the U.S. Treasury, at any time, the Corporation has agreed to
enter into a deposit arrangement pursuant to which the Series Q Pre-
ferred Stock may be deposited and depositary shares,
representing
1/25th of a share of Series Q Preferred Stock, may be issued. The Corpo-
ration has agreed to register the Series Q Preferred Stock, the warrants,
the shares of common stock underlying the warrants and the depositary
shares, if any, for resale under the Securities Act of 1933.

As required under the TARP Capital Purchase Program in connection
with the sale of the Series Q Preferred Stock to the U.S. Treasury, divi-
dend payments on, and repurchases of, the Corporation’s outstanding
preferred and common stock are subject to certain restrictions. The
restrictions are the same as previously discussed in connection with the
sale of the Series N Preferred Stock. For more information on these
restrictions, see Note 14 – Shareholders’ Equity and Earnings Per Com-
mon Share to the Consolidated Financial Statements.

Also in January 2009, the U.S. Treasury, the FDIC and the Federal
Reserve agreed in principle to provide protection against the possibility of
unusually large losses on an asset pool of approximately $118.0 billion
of financial instruments comprised of $81.0 billion of derivative assets
and $37.0 billion of other financial assets. The assets that would be
protected under this agreement are expected generally to be domestic,
pre-market disruption (i.e., originated prior to September 30, 2007) lever-
aged and commercial real estate loans, CDOs, financial guarantor coun-
terparty exposure, certain trading counterparty exposure and certain
investment securities. These protected assets would be expected to
exclude certain foreign assets and assets originated or issued on or after
March 14, 2008. The majority of the protected assets were added by the
Corporation as a result of its acquisition of Merrill Lynch. This guarantee
is expected to be in place for 10 years for residential assets and five
years for non-residential assets unless the guarantee is terminated by the
Corporation at an earlier date. It is expected that the Corporation will
absorb the first $10.0 billion of losses related to the assets while any

190 Bank of America 2008

Executive Officers and Directors
Bank of America Corporation

Executive Officers

Kenneth D. Lewis
Chairman, Chief Executive Officer
and President

Amy Woods Brinkley
Chief Risk Officer

Barbara J. Desoer
President, Mortgage,
Home Equity &
Insurance Services

Liam E. McGee
President, Consumer &
Small Business Bank

Brian T. Moynihan
President, Global Banking &
Wealth Management

Joe L. Price
Chief Financial Officer

Richard K. Struthers
President, Global Card Services

Board of Directors

William Barnet, III
Chairman, President
and Chief Executive Officer
The Barnet Company
Spartanburg, SC

Frank P. Bramble, Sr.
Former Executive Officer
MBNA Corporation
Wilmington, DE

Virgis W. Colbert
Senior Advisor
MillerCoors Company
Milwaukee, WI

John T. Collins
Chief Executive Officer
The Collins Group Inc.
Boston, MA

Gary L. Countryman
Chairman Emeritus
Liberty Mutual Group
Boston, MA

Tommy R. Franks
Retired General
United States Army
Roosevelt, OK

Charles K. Gifford
Former Chairman
Bank of America Corporation
Charlotte, NC

Kenneth D. Lewis
Chairman, Chief Executive
Officer and President
Bank of America Corporation
Charlotte, NC

Monica C. Lozano
Publisher and
Chief Executive Officer
La Opinión
Los Angeles, CA

Walter E. Massey
President Emeritus
Morehouse College
Atlanta, GA

Thomas J. May
Chairman, President and
Chief Executive Officer
NSTAR
Boston, MA

Patricia E. Mitchell
President and Chief
Executive Officer
The Paley Center for Media
New York, NY

Joseph W. Prueher
Retired Admiral
United States Navy
Virginia Beach, VA

Charles O. Rossotti
Senior Advisor
The Carlyle Group
Washington, D.C.

Thomas M. Ryan
Chairman, President and
Chief Executive Officer
CVS/Caremark Corporation
Woonsocket, RI

O. Temple Sloan, Jr.
Chairman
General Parts International Inc.
Raleigh, NC

Meredith R. Spangler
Trustee and Board Member
C.D. Spangler Construction Company
Charlotte, NC

Robert L. Tillman
Former Chairman and CEO Emeritus
Lowe’s Companies Inc.
Mooresville, NC

Jackie M. Ward
Retired Chairman/CEO
Computer Generation Inc.
Atlanta, GA

Bank of America 2008 191

Corporate Information
Bank of America Corporation

Headquarters
The principal executive offices of Bank of America
Corporation (the 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 (NYSE) 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 20, 2009, there were 263,495
registered 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 29, 2009, in the Belk
Theater of the North Carolina Blumenthal Performing Arts
Center, 130 North Tryon Street, Charlotte, NC.

For general shareholder information, call Jane Smith, share-
holder relations manager, at 1.800.521.3984. For inquiries
concerning dividend checks, dividend reinvestment plan,
electronic deposit of dividends, tax information, transfer-
ring ownership, address changes or lost or stolen stock
certificates, contact Bank of America Shareholder Services at
Computershare Trust Company, N.A., via our Internet access
at www.computershare.com/bac; call 1.800.642.9855; or
write to P.O. Box 43078, Providence, RI 02940-3078.

Analysts, portfolio managers and other investors seeking
additional information about Bank of America stock should
contact our Investor Relations group at 1.704.386.5681.
Visit the Investor Relations area of the Bank of America
Web site, http://investor.bankofamerica.com, for stock and
dividend information, financial news releases, links to Bank of
America SEC filings, electronic versions of our annual reports
and other items of interest to the Corporation’s shareholders.

Annual Report on Form 10-K
The Corporation’s 2008 Annual Report on Form 10-K is avail-
able at http://investor.bankofamerica.com. The Corporation
also will provide a copy of the 2008 Annual Report on Form
10-K (without exhibits) upon written request addressed to:

Bank of America Corporation
Shareholder Relations Department
NC1-002-29-01
101 South 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 our online
Newsroom at www.bankofamerica.com/newsroom for news
releases, speeches and other items relating to the Corporation,
including a complete list of the Corporation’s media relations
specialists grouped by business specialty or geography.

NYSE and SEC Certifications
The Corporation filed with the New York Stock Exchange
(NYSE) on May 19, 2008, the Annual CEO Certification as
required by the NYSE corporate governance listing standards.
The Corporation has also filed, as exhibits to its 2008
Annual Report on Form 10-K, the CEO and CFO certifications
as required by Section 302 and Section 906 of the
Sarbanes-Oxley Act.

Global Wealth & Investment Management is a division of Bank of America Corporation. Banc of America Investment Services, Inc.®, U.S. Trust, Bank of America
Private Wealth Management and Columbia Management are all affiliates within Global Wealth & Investment Management. Banc of America Investment Services,
Inc. is a registered broker-dealer, member FINRA and SIPC, and a nonbank subsidiary of Bank of America, N.A. U.S. Trust, Bank of America Private Wealth
Management operates through Bank of America, N.A., a wholly owned subsidiary of Bank of America Corporation. Columbia Management Group, LLC (“Columbia
Management”) is the investment management division of Bank of America Corporation. Columbia Management entities furnish investment management services
and products for institutional and individual investors. Premier Banking & InvestmentsTM is offered through Bank of America Premier Banking® and Banc of
America Investment Services, Inc. Banking products are provided by Bank of America, N.A., Member FDIC.

Investment products: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed

192 Bank of America 2008

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Bank of America 2008 Annual Report

Please recycle.

The front section of this annual report is printed on 100% post-consumer
waste (PCW) recycled paper that is manufactured with wind power.
The Financial Review is printed on 30% PCW recycled paper.

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3/9/09 6:06:41 PM