Bank of America 2001 Annual Report Download - page 105

BANK OF AMERICA 2001 ANNUAL REPORT
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Note 12 Commitments and Contingencies
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation
to varying degrees of credit and market risk and are subject to the same credit and risk limitation reviews as those recorded on the balance sheet.
Credit Extension Commitments
The Corporation enters into commitments to extend credit, standby letters of credit (SBLC) and commercial letters of credit to meet the financing needs
of its customers. The unfunded commitments shown below have been reduced by amounts collateralized by cash and amounts participated to other
financial institutions of $2.7 billion and $2.8 billion at December 31, 2001 and 2000, respectively. The following table summarizes outstanding unfunded
commitments to extend credit at December 31, 2001 and 2000:
(Dollars in millions) 2001 2000
Credit card commitments $ 73,644 $ 72,058
Other loan commitments 221,529 243,124
Standby letters of credit and financial guarantees 40,374 33,420
Commercial letters of credit 3,957 3,327
Total $339,504 $351,929
Commitments to extend credit are legally binding, generally have specified rates and maturities and are for specified purposes. The Corporation
manages the credit risk on these commitments by subjecting these commitments to normal credit approval and monitoring processes. Certain
commitments have adverse change clauses which help to protect the Corporation against deterioration in the borrowers’ ability to pay. Other loan
commitments include equity commitments of approximately $2.7 billion which primarily relate to obligations to fund existing venture capital equity
investments. At December 31, 2001 and 2000, there were no unfunded commitments to any industry or foreign country greater than 10 percent of total
unfunded commitments to lend. Credit card lines are unsecured commitments, which are reviewed at least annually by management. Upon evalua-
tion of the customers’ creditworthiness, the Corporation has the right to terminate or change the terms of the credit card lines.
SBLC and financial guarantees are issued to support the debt obligations of customers. If an SBLC or financial guarantee is drawn upon, the
Corporation looks to its customer for payment. SBLCs and financial guarantees are subject to the same approval and collateral policies as other
extensions of credit.
Commercial letters of credit, issued primarily to facilitate customer trade finance activities, are collateralized by the underlying goods being
shipped by the customer and are generally short-term.
The following table summarizes the contractual maturity distribution of unfunded commitments at December 31, 2001:
Expire in Expires After Expires After
1 Year 1 Year Through 3 Years Through Expires After
(Dollars in millions) or Less 3 Years 5 Years 5 Years Total
Credit card commitments $ 73,644 $ – $ – $ – $ 73,644
Other loan commitments 97,570 50,891 37,359 35,709 221,529
Standby letters of credit and financial guarantees 28,268 8,790 829 2,487 40,374
Commercial letters of credit 3,243 518 49 147 3,957
Total $202,725 $60,199 $38,237 $38,343 $339,504
For each of these types of instruments, the Corporation’s maximum exposure to credit loss is represented by the contractual amount of these instru-
ments. Many of the commitments are collateralized and most are expected to expire without being drawn upon; therefore, the total commitment
amounts do not necessarily represent risk of loss or future cash requirements.
The Corporation has entered into operating leases for certain of its premises and equipment. Commitments under these leases approximate
$1 billion per year for each of the years 2002 through 2006 and $2.5 billion for all years thereafter.
When-Issued Securities
When-issued securities are commitments to purchase or sell securities during the time period between the announcement of a securities offering
and the issuance of those securities. Changes in market price between commitment date and issuance are reflected in trading account profits. At
December 31, 2001, the Corporation had commitments to purchase and sell when-issued securities of $45.0 billion and $39.6 billion, respectively. At
December 31, 2000, the Corporation had commitments to purchase and sell when-issued securities of $26.4 billion and $20.6 billion, respectively.
Litigation
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to a number of pending and threatened
legal actions and proceedings, including actions brought on behalf of various classes of claimants. In certain of these actions and proceedings, claims
for substantial monetary damages are asserted against the Corporation and its subsidiaries and certain of these actions and proceedings are based on