Bank of America 2001 Annual Report Download - page 116

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BANK OF AMERICA 2001 ANNUAL REPORT
114
Short-Term Financial Instruments
The carrying value of short-term financial instruments, including cash and cash equivalents, federal funds sold and purchased, resale and repurchase
agreements, commercial paper and other short-term borrowings, approximates the fair value of these instruments. These financial instruments generally
expose the Corporation to limited credit risk and have no stated maturities or have an average maturity of less than 30 days and carry interest rates
which approximate market.
Financial Instruments Traded in the Secondary Market
Held-to-maturity securities, available-for-sale securities, trading account instruments, long-term debt and trust preferred securities traded actively in
the secondary market have been valued using quoted market prices. The fair values of securities and trading account instruments are reported in Notes
Three and Four.
Derivative Financial Instruments
All derivatives are recognized on the balance sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements
which allow the Corporation to settle positive and negative positions with the same counterparty on a net basis. For exchange traded contracts, fair
value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for
instruments with similar characteristics. The fair value of the Corporation’s derivative assets and liabilities is presented in Note Five.
Loans
Fair values were estimated for groups of similar loans based upon type of loan and maturity. The fair value of loans was determined by discounting
estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans and using credit factors. Where
quoted market prices were available, primarily for certain residential mortgage loans, such market prices were utilized as estimates for fair values.
Contractual cash flows for residential mortgage loans were adjusted for estimated prepayments using published industry data.
Substantially all of the foreign loans reprice within relatively short timeframes. Accordingly, for foreign loans, the carrying values were assumed
to approximate their fair values.
Mortgage Banking Assets
The Certificates are carried at estimated fair value which is based on an option-adjusted spread model which requires several key components including,
but not limited to, proprietary prepayment models and term structure modeling via Monte Carlo simulation.
Deposits
The fair value for deposits with stated maturities was calculated by discounting contractual cash flows using current market rates for instruments
with similar maturities. The carrying value of foreign time deposits approximates fair value. For deposits with no stated 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.
The book and fair values of certain financial instruments at December 31, 2001 and 2000 were as follows:
2001 2000
Book Fair Book Fair
(Dollars in millions)
Value Value Value Value
Financial assets
Loans $ 310,427 $314,804 $369,706 $374,313
Financial liabilities
Deposits 373,495 374,231 364,244 364,547
Long-term debt(1) 62,466 64,531 67,516 68,595
Trust preferred securities 5,530 5,612 4,955 4,792
(1) Excludes obligations under capital leases.