Bank of America 2004 Annual Report Download

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PortraitofaBank
2004 Annual Report

Table of contents

  • Page 1
    Portrait of a Bank 2004 Annual Report

  • Page 2
    ... full-service banking in 29 states and the District of Columbia. Bank of America is also the nation's largest small business bank and the number one financial institution providing domestic and global cash management services. In addition, Bank of America operates one of the largest private banks in...

  • Page 3
    ... of a Personal Banker and Investment Advisor ...21 Portrait of a Neighborhood Bank ...24 Four Business Lines Partner to Deliver the Whole Bank ...28 Bank of America Earns Record $14.1 Billion in 2004 ...30 Financial Review ...32 Executive Officers and Directors ...151 Corporate Information ...152

  • Page 4
    ... Global Capital Markets and Investment Banking $9,049 Global Business and Financial Services $6,722 Global Wealth and Investment Management $5,918 All Other $1,064** At year end Total assets Total loans and leases Total deposits Total shareholders' equity Book value per common share Market price...

  • Page 5
    "Our associates are working with teammates across the company to create new opportunities to deliver the full power of Bank of America to our customers." KENNETH D. LEWIS CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT 4 BANK OF AMERICA 2004

  • Page 6
    ... bankers to provide M&A advice to middle-market CEOs. Personal financial advisors are working with teammates across the bank to help us serve more of our consumer, small business, commercial and corporate customers with wealth management services. And last year, we launched an initiative called...

  • Page 7
    ... was Fleet, but our acquisition of National Processing Corporation was a great example of an effort to build scale and capabilities in an existing business. The addition of National Processing to Bank of America Merchant Services is enabling us to offer more payments solutions to our customers. As...

  • Page 8
    ... and competitive advantage. Today, your company is developing the skills and tools that enable us to grow by taking the right risks, and by getting paid appropriately for the risks we take. We are continuing to build a risk and reward management structure and culture of shared responsibility, in...

  • Page 9
    ...originated by Global Capital Markets and Investment Banking to the bank's high-net-worth and retail clients through our network of financial advisors. This partnership wouldn't work without a strong culture of shared accountability, effective governance controls, and the active participation of Risk...

  • Page 10
    ... who needs to get money to a child at college; efficiently underwriting and marketing a multibillion-dollar bond issue to finance plant and equipment for a Fortune 1000 company; loaning on inventory to get a small business over a temporary cash flow crisis; making an affordable mortgage available...

  • Page 11
    ..., SERVICE AND FULFILLMENT EXECUTIVE PRESIDENT, GLOBAL CAPITAL MARKETS AND INVESTMENT BANKING "Bank of America's diversity, capital strength and profitability give it an advantage in developing new ways to grow for our shareholders." "We are using our competitive edge as a universal bank to...

  • Page 12
    ...R PRESIDENT, GLOBAL BUSINESS AND FINANCIAL SERVICES "Our goal is to produce consistent, attractive earnings growth at high rates of profitability for our shareholders." "When Bank of America and Fleet merged, our goals were to retain customers and increase deposits and loans, and we achieved those...

  • Page 13
    ...and cultural advantages, our 33 million customer households enjoy the speed and convenience of Bank of America's leading online banking and electronic bill-pay services; a voice-recognition telephone system that balances easy self-service options with quick access to highly trained telephone bankers...

  • Page 14

  • Page 15
    ... bill payments per month. Consumer Banking product sales in 2004 increased 33% over the previous year, including 6.2 million new credit card accounts, compared with 5.9 million the previous year. The 11% retail deposit growth in 2004 was nearly double the national retail deposit growth rate...

  • Page 16
    ... Bank of America. In 2004, Bank of America was the nation's number five retail mortgage originator and the number two home equity lender. The franchise of banking centers, combined with Consumer Real Estate account executives and online access, brings the mortgage application and preapproval process...

  • Page 17
    ...small business specialists in many banking centers and business bankers are trained to connect with capabilities anywhere in Bank of America to provide credit, deposit, transaction and investment services; credit and debit card services; cash management; payroll services- even employee benefit plans...

  • Page 18
    ... a new Client Development Group in 2004, a telephone-based team of client managers, scheduled for enterprise-wide rollout in 2005. Doubled the number of associates who are specially trained to serve more than 2.5 million small businesses that use our banking centers. BANK OF AMERICA 2004 17

  • Page 19
    By breaking down the barriers between traditional commercial banking and investment banking, we can offer the services of our trading rooms-such as this one in Charlotte, NC-to middlemarket companies, like the large retailer pictured on page 20.

  • Page 20
    ... Services and Global Capital Markets and Investment Banking, and we are now breaking down these walls to deliver the bank's entire platform to our clients. Global Business and Financial Services is an industry leader, providing clients with deposit, credit, payments, cash BANK OF AMERICA 2004...

  • Page 21
    ... business mean added value for our clients. Working together, we believe the possibilities are endless. In 2004, Bank of America moved into double-digit market share for U.S. high yield underwriting, and was named U.S. Leveraged Lease Loan House of the Year by International Financing Review. Number...

  • Page 22
    ..., Premier Banking & Investments delivers personal attention, trusted advice and guidance, plus integrated custom-tailored banking, credit, investment and day-to-day transaction services to clients with less than $3 million in investable assets. Every feature of this business is designed to reward...

  • Page 23
    ... wealth markets, including Walnut Creek, California, above. When qualified consumer banking customers join Premier Banking, their average balances grow by 9%. Premier Banking revenue grew by 36% in 2004. Total balances in Premier Banking & Investments (deposits, loans and client brokerage assets...

  • Page 24
    ... MANAGEMENT mortgages through equity and fixed-income products With the "home-field advantage" of Bank of to retirement accounts and wealth transfer strategies. America's scale and scope and a powerful, industryFor daily banking transactions, Premier Banking & leading solution, Premier Banking...

  • Page 25
    ...In New York City, with the 2004 national elections in high gear, a world-famous square along Fifth '03 Avenue is transformed into Democracy Plaza, a unique celebration of America's democratic values. In cities across the nation, nearly 800 Bank of America associates partner with CHOICES, a nonprofit...

  • Page 26
    ... organizations within our communities. Because Bank of America allows full-time associates to volunteer up to two hours per week of company time to such activities, many other associates also made significant contributions of their time to meet community needs in 2004. With one of the largest...

  • Page 27
    ... On Us!® in the Northeast, offering Bank of America customers free admission to 51 of the finest museums and cultural venues in that region. Our customers can visit participating institutions simply by showing their ATM, debit or credit card. Museums On Us! has attracted more than 250,000 people...

  • Page 28
    ...pledges by Bank of America and Fleet, and delivers more than $205 million in community development activity in our neighborhoods every day. Investments and lending in our communities will focus on affordable housing and home ownership, small business/small farm ownership, consumer loans and economic...

  • Page 29
    ... of checking account services and the nation's number one debit card provider. Global Consumer and Small Business banking includes the nation's fastest-growing major credit card company, the number five provider of consumer first mortgages and number two provider of home equity lines of credit...

  • Page 30
    ... deposit and loan products, cash management and payment services. Investor clients are served by strong equity and debt research, sales and trading capabilities. All clients benefit from extensive derivative and other risk-management products. Through offices in 35 countries, Global Capital Markets...

  • Page 31
    ... driven by the results of asset-liability management activities, higher consumer loan levels and higher core deposit levels, partially offset by reductions in large corporate and foreign loan portfolios as well as lower trading-related contributions and mortgage warehouse levels. Noninterest income...

  • Page 32
    ...Global Consumer and Small Business Banking earned $6.55 billion. In addition to adding Fleet, this segment achieved strong growth in checking and savings accounts, which helped to drive double-digit growth in deposit balances. Home equity and credit card loan outstandings grew. Mortgage results were...

  • Page 33
    ... of Management on Internal Control Over Financial Reporting ...94 Report of Independent Registered Public Accounting Firm ...95 Consolidated Statement of Income ...96 Consolidated Balance Sheet ...97 Consolidated Statement of Changes in Shareholders' Equity ...98 Consolidated Statement of Cash Flows...

  • Page 34
    ... and impact funding sources; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial...

  • Page 35
    ...more information on Global Consumer and Small Business Banking, see page 41. Global Business and Financial Services Net Income increased $1.4 billion, or 93 percent, to $2.8 billion for 2004 including the $824 million impact of the addition of FleetBoston. Both average Loans and Leases, and Deposits...

  • Page 36
    ... of securities and whole loan mortgages), the impact of higher rates, growth in consumer loan levels (primarily credit card and home equity) and higher core deposit funding levels. Partially offsetting these increases were reductions in the large corporate and foreign loan balances, lower trading...

  • Page 37
    ... credit card portfolios of $16.1 billion and $10.1 billion, respectively. Average Available-for-sale (AFS) Securities increased $79.7 billion, or 114 percent, as a result of investing excess cash from deposit growth and repositioning our ALM portfolio. Additionally, average trading-related assets...

  • Page 38
    ... payout Per common share data Earnings Diluted earnings Dividends paid Book value Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders' equity Total shareholders' equity $ 472,645 1,044,660 551,559 93,330 83,953 84,183 $ $ $ $ Capital ratios...

  • Page 39
    ...the business, investment appetite, competitive environment, market factors, and other items (i.e. risk appetite). The aforementioned performance measures and ratios, earnings per common share (EPS), return on average assets, return on average common shareholders' equity and dividend payout ratio, as...

  • Page 40
    ... except per share information) 2004 2003 2002 2001 2000 Operating basis(1,2) Operating earnings Operating earnings per common share Diluted operating earnings per common share Shareholder value added Return on average assets Return on average common shareholders' equity Efficiency ratio (fully...

  • Page 41
    ... of higher rates, higher consumer loan levels (primarily credit card loans and home equity lines) and higher core deposit funding levels, partially offset by reductions in the large corporate and foreign loan balances, and lower mortgage warehouse levels. Core average earning assets increased $207...

  • Page 42
    ..., and services, including deposit products such as checking accounts, money market savings accounts, time deposits and IRAs, debit card products, and credit products such as credit card, home equity products and residential mortgages. Consumer Banking recorded $16.7 billion of Total Revenue for 2004...

  • Page 43
    ... Global Consumer and Small Business Banking, our most significant product lines are Card Services, Consumer Real Estate and Consumer Deposit Products. Card Services Card Services provides a broad offering of credit cards to an array of customers including consumers and small businesses. Our products...

  • Page 44
    ... fixed and adjustable rate loans, first and second lien loans, home equity lines of credit, and lot and construction loans. To manage this portfolio, these products are either sold into the secondary mortgage market to investors while we retain the customer relationship and servicing rights or are...

  • Page 45
    ...: Mortgage Servicing Rights December 31 (Dollars in millions) 2004 2003 MSR data: Balance(1,2) Capitalization rate Unpaid balance(3) Number of customers (in thousands) (1) 2,359 1.19% $ 197,795 1,582 $ 2,684 1.47% $ 183,116 1,586 $ MSRs outside of Global Consumer and Small Business Banking...

  • Page 46
    ...-nationals, middle market companies, correspondent banks, commercial real estate firms and governments. Our services include treasury management, trade finance, foreign exchange, short-term credit facilities and short-term investing. The revenues and operating results where customers and clients are...

  • Page 47
    ... and makes markets in equity and equity-linked securities, high-grade and high-yield corporate debt securities, commercial paper, and mortgage-backed and asset-backed securities. We also provide debt and equity securities research, loan syndications, mergers and acquisitions advisory services and...

  • Page 48
    ... Losses on sales of debt securities Noninterest expense Income before income taxes Income tax expense $ Net income Shareholder value added Net interest yield (fully taxable-equivalent basis) Return on average equity Efficiency ratio (fully taxable-equivalent basis) Average: Total loans and leases...

  • Page 49
    ...investment, trust, banking and lending services. During the third quarter of 2004, we announced a new business designed to serve the needs of ultra high-net-worth individuals and families. The goal is for this new business to provide a higher level of contact and tailored wealth management solutions...

  • Page 50
    ... managers in Premier Banking, additional financial advisors in BAI and increased incentives in BAI due to increased sales and changes to payout schedules. All Other Included in All Other are our Latin America and Equity Investments businesses, and Other. Latin America includes our full-service...

  • Page 51
    ...response to interest rate fluctuations and to manage mortgage prepayment risk. Provision for Credit Losses increased $65 million resulting from higher ALM whole loan mortgage portfolio levels, changes to components of the formula and other factors, partially offset by reduced credit costs associated...

  • Page 52
    .... For example, except for trading-related business activities, interest rate risk associated with our business activities is managed centrally in the Corporate Treasury function. Line of business management makes and executes the business plan and is closest to the changing nature of risks and...

  • Page 53
    ... performance, and reviews business plans, including capital allocation, for the Corporation and for major businesses. The ALCO, a subcommittee of the Finance Committee, approves limits for trading activities, and was established to manage the risk of loss of value and related Net Interest Income of...

  • Page 54
    ... and procedures for effectively managing through the problem period, and define roles and responsibilities. They are reviewed and approved annually by ALCO. Our borrowing costs and ability to raise funds are directly impacted by our credit ratings. The credit ratings of Bank of America Corporation...

  • Page 55
    ... funds in 2004 and 2003, respectively. Deposits by type Domestic interest-bearing: Savings NOW and money market accounts Consumer CDs and IRAs Negotiable CDs and other time deposits Total domestic interest-bearing Foreign interest-bearing: Banks located in foreign countries Governments and official...

  • Page 56
    ... purchase securities of $3.3 billion and commitments to purchase loans of $3.8 billion. The most significant of our vendor contracts include communication services, processing services and software contracts. Other long-term liabilities include our obligations related to the Qualified Pension Plans...

  • Page 57
    ..., some customers receive the benefit of commercial paper financing rates related to certain lease arrangements. We facilitate these transactions and collect fees from the financing entity for the services it provides including administration, trust services and marketing the commercial paper. We...

  • Page 58
    ... At December 31, 2004 and 2003, the consolidated assets and liabilities of these conduits were reflected in AFS Securities, Other Assets, and Commercial Paper and Other Short-term Borrowings in the Global Capital Markets and Investment Banking business segment. At December 31, 2004 and 2003, we held...

  • Page 59
    ... and trading account assets, assets held-for-sale and commercial letters of credit. For derivative positions, we use the current mark-to-market value to represent credit exposure without giving consideration to future mark-to-market changes. Our consumer and commercial credit extension and review...

  • Page 60
    ... and leases on April 1, 2004 related to FleetBoston, partially offset by consumer loan sales of $95 million. Broad-based growth in the consumer portfolio more than offset the increase in consumer nonperforming assets, resulting in an improvement in the nonperforming ratios. BANK OF AMERICA 2004 59

  • Page 61
    ... and net charge-off ratios for 2004 and 2003. Table 12 Consumer Net Charge-offs and Net Charge-off Ratios(1) 2004 (Dollars in millions) 2003 Amount Percent Amount Percent Residential mortgage Credit card Home equity lines Direct/Indirect consumer Other consumer Nonperforming consumer assets...

  • Page 62
    ... in credit exposures are made as a result of this ongoing analysis and review. Additionally, we utilize syndication of exposure to other entities, loan sales and other risk mitigation techniques to manage the size and risk profile of the loan portfolio. Table 13 presents outstanding commercial loans...

  • Page 63
    ...1, 2004 2004 Real estate(1) $ Diversified financials Banks Retailing Education and government Individuals and trusts Materials Consumer durables and apparel Leisure and sports, hotels and restaurants Transportation Healthcare equipment and services Capital goods Commercial services and supplies...

  • Page 64
    ... and trusts 12,357 Transportation 11,135 Education and government 10,134 Capital goods 9,673 Materials 9,547 Commercial services and supplies 9,362 Food, beverage and tobacco 9,344 Leisure and sports, hotels and restaurants 8,987 Healthcare equipment and services 7,972 Real estate(1) 6,140...

  • Page 65
    ... 9,417 1.08% 0.95 0.89 1.07% 1.41 1.46 (1) Exposure includes cross-border claims by our foreign offices as follows: loans, accrued interest receivable, acceptances, time deposits placed, trading account assets, securities, derivative assets, other interest-earning investments and other monetary...

  • Page 66
    ...credit exposure (Loans and Leases, letters of credit, etc.), and $16 million and $24 million, respectively, of local country exposure net of local liabilities. Also included in Argentina's December 31, 2004 balance were $89 million of securities. At December 31, 2004, Argentina nonperforming assets...

  • Page 67
    ..., payoffs, credit quality improvements, loan sales and net charge-offs; partially offset by the addition of $7.1 billion of FleetBoston commercial criticized exposure on April 1, 2004 and $7.3 billion of newly criticized exposure. The decrease in 2004 was centered in Global Capital Markets and...

  • Page 68
    ... commercial loans and leases at April 1, 2004. The decrease in 2004 was centered in Latin America, Global Capital Markets and Investment Banking and Global Business and Financial Services. These businesses combined to reduce nonperforming commercial loans and leases by $566 million during 2004...

  • Page 69
    ...Commercial real estate Commercial lease financing Commercial - foreign Total commercial (1) $ 177 (3) 9 173 $ 356 0.15% (0.01) 0.05 1.05 0.20% $ 633 41 124 306 $1,104 0.68% 0.20 1.23 2.36 0.81% Percentage amounts are calculated as net charge-offs divided by average outstanding loans and leases...

  • Page 70
    ... by the $466 million addition related to the FleetBoston on-balance sheet card portfolio on April 1, 2004, organic credit card portfolio growth, the return of previously securitized credit card balances to the balance sheet and increases in the minimum payment requirements. BANK OF AMERICA 2004 69

  • Page 71
    ... in commercial credit quality, including paydowns and payoffs, loan sales, net charge-offs and returns to performing status. The general portion of the Allowance for Loan and Lease Losses increased $438 million during 2004. The addition of FleetBoston general reserves on April 1, 2004 accounted for...

  • Page 72
    ... loan and lease losses, January 1 FleetBoston balance, April 1, 2004 Loans and leases charged off Residential mortgage Credit card Home equity lines Direct/Indirect consumer Other consumer(1) Total consumer Commercial - domestic Commercial real estate Commercial lease financing Commercial - foreign...

  • Page 73
    .... Market-sensitive assets and liabilities are generated through loans and deposits associated with our traditional banking business, our customer and proprietary trading operations, our ALM process, credit risk mitigation activities, and mortgage banking activities. 72 BANK OF AMERICA 2004

  • Page 74
    ... foreign exchange rates or interest rates. Mortgage Risk Our exposure to mortgage risk takes several forms. First, we trade and engage in market-making activities in a variety of mortgage securities, including whole loans, pass-through certificates, commercial mortgages, and collateralized mortgage...

  • Page 75
    ... by general market conditions and customer demand. Trading Account Profits are dependent on the volume and type of transactions, the level of risk assumed, and the volatility of price and rate movements at any given time within the ever-changing market environment. The histogram of daily revenue or...

  • Page 76
    ..., high and low daily VAR for 2004 and 2003. Table 26 Trading Activities Market Risk Twelve Months Ended December 31 2004 (Dollars in millions) 2003 Low VAR(1) Average VAR High VAR(1) Low VAR(1) Average VAR High VAR(1) Foreign exchange Interest rate Credit(2) Real estate/mortgage(3) Equities...

  • Page 77
    ... the securities portfolio in order to manage prepayment risk and to take advantage of interest rate fluctuations. Through sales in the securities portfolio, we realized $2.1 billion and $941 million in Gains on Sales of Debt Securities in 2004 and 2003, respectively. 76 BANK OF AMERICA 2004

  • Page 78
    ... Rate and Foreign Exchange Derivative Contracts Interest rate and foreign exchange derivative contracts are utilized in our ALM process and serve as an efficient, low-cost tool to mitigate our risk. We use derivatives to hedge or offset the changes in cash flows or market values of our Balance...

  • Page 79
    ... line of business level and support groups. Compliance and operational risk awareness is also driven across the Corporation through training and strategic communication efforts. For selected risks, we establish specialized support groups, for example, Information Security and Supply Chain Management...

  • Page 80
    ... value is determined based on limited available market information and other factors, principally from reviewing the issuer's financial statements and changes in credit ratings made by one or more rating agencies. At December 31, 2004, $4.4 billion of Trading Account Assets were fair valued using...

  • Page 81
    ... 31, 2004, there were no changes to the quantitative models, or uses of such models, that resulted in a material adjustment to the Consolidated Statement of Income. AFS Securities are recorded at fair value, which is generally based on direct market quotes from actively traded markets. Investments...

  • Page 82
    ... loan levels, larger trading-related contributions, higher mortgage warehouse and higher core deposit funding levels. Partially offsetting these increases was the impact of lower interest rates and reductions in the large corporate, foreign and exited consumer loan businesses portfolios. The net...

  • Page 83
    ... revenue-related incentives of $435 million. Employee benefits expense increased due to stock option expense of $120 million in 2003 and the impacts of a change in the expected long-term rates of return on plan assets to 8.5 percent for 2003 from 9.5 percent in 2002 and a change in the discount rate...

  • Page 84
    ... Investment Banking Income, Service Charges, Investment and Brokerage Services, and Equity Investment Gains offset by declines in Trading Account Profits. In 2003, Net Income increased $192 million, or 12 percent, due to the increase in Noninterest Income and lower Provision for Credit Losses offset...

  • Page 85
    ... Yield/ Rate (Dollars in millions) Earning assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Securities Loans and leases (1): Residential mortgage Credit card Home equity lines Direct/Indirect...

  • Page 86
    ... Interest Income/ Expense Yield/ Rate Average Balance 2002 Interest Income/ Expense Yield/ Rate $ 9,056 78,857 97,222 70,666 $ 172 1,373 4,005 3,131 1.90% 1.74 4.12 4.43 5.41 10.... 3.72 2.43 1,871 1,286 2,034 10,099 $22,107 3.06 0.34 3.40% $21,511 3.29 0.48 3.77% BANK OF AMERICA 2004 85

  • Page 87
    ... Net Change Volume Rate Increase (decrease) in interest income Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Securities Loans and leases: Residential mortgage Credit card Home equity lines Direct...

  • Page 88
    ...1,461 $ 31,284 17.7% $ 12,672 18,612 $ 31,284 $122,095 31,879 22,404 $176,378 100.0% Total (1) (2) Loan maturities are based on the remaining maturities under contractual terms. Loan maturities include other consumer, commercial - foreign and commercial real estate loans. BANK OF AMERICA 2004 87

  • Page 89
    ... Asset and Liability Management Interest Rate and Foreign Exchange Contracts December 31, 2004 (Dollars in millions, average estimated duration in years) Fair Value Expected Maturity Total 2005 2006 2007 2008 2009 Thereafter Average Estimated Duration Cash flow hedges Receive fixed interest rate...

  • Page 90
    ... rate swaps (1) Notional amount Weighted average fixed rate Foreign exchange contracts Notional amount Futures and forward rate contracts (4) Notional amount (3) Total net fair value positions Closed interest rate contracts (5) Total ALM contracts See footnotes on page 88. BANK OF AMERICA 2004...

  • Page 91
    ... V Non-exchange Traded Commodity Contracts Asset Positions Liability Positions (Dollars in millions) Net fair value of contracts outstanding, January 1, 2004 Effects of legally enforceable master netting agreements Gross fair value of contracts outstanding, January 1, 2004 Contracts realized or...

  • Page 92
    ...on average common shareholders' equity Total equity to total assets (period end) Total average equity to total average assets Dividend payout Per common share data Earnings Diluted earnings Dividends paid Book value Average balance sheet Total loans and leases Total assets Total deposits Long-term...

  • Page 93
    ...Average Balance Yield/ Rate Average Balance Yield/ Rate Earning assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Securities Loans and leases (1): Residential mortgage Credit card Home equity...

  • Page 94
    ... Quarter 2004 Interest Average Income/ Balance Expense Yield/ Rate Average Balance First Quarter 2004 Interest Income/ Expense Yield/ Rate Average Balance Fourth Quarter 2003 Interest Income/ Expense Yield/ Rate...$ 7,751 $5,970 2.97 0.29 3.26% $5,745 3.12 0.31 3.43% BANK OF AMERICA 2004 93

  • Page 95
    ... expresses unqualified opinions on management's assessment and on the effectiveness of the Corporation's internal control over financial reporting as of December 31, 2004. Kenneth D. Lewis Chairman, President and Chief Executive Officer Marc D. Oken Chief Financial Officer 94 BANK OF AMERICA 2004

  • Page 96
    ... and the related Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders' Equity and Consolidated Statements of Cash Flows present fairly, in all material respects, the financial position of Bank of America Corporation and its subsidiaries at December 31, 2004 and 2003...

  • Page 97
    ... Deposits Short-term borrowings Trading account liabilities Long-term debt Total interest expense Net interest income Noninterest income Service charges Investment and brokerage services Mortgage banking income Investment banking income Equity investment gains (losses) Card income Trading account...

  • Page 98
    Consolidated Balance Sheet Bank of America Corporation and Subsidiaries December 31 (Dollars in millions) 2004 2003 Assets Cash and cash equivalents Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell (includes $91,243 and $...

  • Page 99
    ...Net unrealized losses on available-for-sale debt and marketable equity securities Net unrealized gains on foreign currency translation adjustments Net unrealized losses on derivatives Cash dividends paid: Common Preferred Common stock issued under employee plans and related tax benefits Common stock...

  • Page 100
    ... cash used in investing activities Financing activities Net increase in deposits Net increase in federal funds purchased and securities sold under agreements to repurchase Net increase (decrease) in commercial paper and other short-term borrowings Proceeds from issuance of long-term debt Retirement...

  • Page 101
    ... 50 percent and for which it may have significant influence over operating and financing decisions using the equity method of accounting. These investments are included in Other Assets and the Corporation's proportionate share of income or loss is included in Other Income. 100 BANK OF AMERICA 2004

  • Page 102
    ... impact on the Corporation's results of operations or financial condition. On March 9, 2004, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 105, "Application of Accounting Principles to Loan Commitments" (SAB 105), which specifies that servicing assets embedded in...

  • Page 103
    ... fair value of traded options, which have different characteristics than employee stock options, and changes to the subjective assumptions used in the model can result in materially different fair value estimates. The weighted average grant date fair values of the options granted during 2004, 2003...

  • Page 104
    ... fair value hedges, cash flow hedges or hedges of net investments in foreign operations. The Corporation manages interest rate and foreign currency exchange rate sensitivity predominantly through the use of derivatives. Fair value hedges are used to limit the Corporation's exposure to total changes...

  • Page 105
    ...sale of all AFS marketable equity securities, which are recorded in Equity Investment Gains, are Interest Rate Lock Commitments The Corporation enters into interest rate lock commitments (IRLCs) in connection with its mortgage banking activities to fund residential mortgage loans at specified times...

  • Page 106
    ... loan commitments, represents estimated probable credit losses in these off-balance sheet credit instruments based on utilization assumptions. Credit exposures, excluding Derivative Assets and Trading Account Assets, deemed to be uncollectible are charged against these accounts. Cash recovered...

  • Page 107
    ...Mortgage Servicing Rights (MSRs) on June 1, 2004. Prior to the conversion of the Certificates into MSRs, the Certificates were accounted for on a mark-to-market basis (i.e. fair value) and changes in the value were recognized as Trading Account Profits. On the date of the conversion, the Corporation...

  • Page 108
    ... The Corporation securitizes, sells and services interests in residential mortgage loans, and from time to time, consumer finance, commercial and credit card loans. The accounting for these activities are governed by SFAS 140, "Accounting for Transfers and Servicing of Financial Assets and...

  • Page 109
    ... payments are expensed as incurred and are recorded as contra-revenue. Other Comprehensive Income The Corporation records unrealized gains and losses on AFS Securities, foreign currency translation adjustments, related hedges of net investments in foreign operations, and gains and losses on cash...

  • Page 110
    ...The value of the shares of common stock exchanged with FleetBoston shareholders was based upon the average of the closing prices of the Corporation's common stock for the period commencing two trading days before, and ending two trading days after, October 27, 2003, the date of the Merger Agreement...

  • Page 111
    ..., cash payments of $276 million have been charged against this liability including $244 million of severance, relocation and other employee-related costs, and $32 million of contract terminations. Net interest income Noninterest income Provision for credit losses Gains on sales of debt securities...

  • Page 112
    ... to manage the credit risk associated with the loan portfolio. 2004 2003 FleetBoston April 1, 2004 Trading account assets U.S. government and agency securities Corporate securities, trading loans and other Equity securities Mortgage trading loans and asset-backed securities Foreign sovereign...

  • Page 113
    ... are primarily executed in the over-the-counter market. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements, and on an aggregate Derivatives (1) basis have been reduced by the cash collateral held against Derivative Assets. At December...

  • Page 114
    ...caps, floors, swaptions and options on index futures contracts. Futures contracts used for the ALM process are primarily index futures providing for cash payments based upon the movements of an underlying rate index. The Corporation uses foreign currency contracts to manage the foreign exchange risk...

  • Page 115
    ... AFS marketable equity securities that are recorded in Other Assets on the Consolidated Balance Sheet. At December 31, 2004, accumulated net unrealized losses on AFS debt and marketable equity securities included in Shareholders' Equity were $196 million, net of the related income tax benefit of...

  • Page 116
    .... The Corporation had investments in Securities from the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) that exceeded 10 percent of consolidated Shareholders' Equity as of December 31, 2004 and 2003. Those investments had market values of...

  • Page 117
    ... 2002, respectively. Note 6 Outstanding Loans and Leases Outstanding loans and leases at December 31, 2004 and 2003 were: December 31 (Dollars in millions) 2004 2003 FleetBoston April 1, 2004 Consumer Residential mortgage Credit card Home equity lines Direct/Indirect consumer Other consumer...

  • Page 118
    ...in the securitized assets. Those assets may be serviced by the Corporation or by third parties. The Corporation also uses other special purpose financing entities to access the commercial paper market and for other lending, leasing and real estate activities. See Note 1 of the Consolidated Financial...

  • Page 119
    ... in some cases, a cash reserve account. Before any optional clean-up calls are executed, economic analyses will be performed. Monthly average net pay rate (pay rate less draw rate). Annual rates of expected credit losses are presented for credit card, home equity lines and commercial securitizations...

  • Page 120
    ..., which include credit cards, home equity lines and commercial loans. New advances under previously securitized accounts will be recorded on the Corporation's Consolidated Balance Sheet after the revolving period of the securitization, which has the effect of increasing Loans and Leases on the...

  • Page 121
    ...commercial paper markets. The Corporation functions as administrator and provides either liquidity and letters of credit, or derivatives to the VIE. The Corporation also provides asset management and related services to other special purpose vehicles that engage in lending, investing, or real estate...

  • Page 122
    ...219 28,669 Note 11 Short-term Borrowings and Long-term Debt Short-term Borrowings Bank of America Corporation and certain other subsidiaries issue commercial paper in order to meet short-term funding needs. Commercial paper outstanding at December 31, 2004 was $25.4 billion compared to $7.6 billion...

  • Page 123
    ...London InterBank Offered Rates (LIBOR). Bank of America Corporation and Bank of America, N.A. maintain various domestic and international debt programs to offer both senior and subordinated notes. The notes may be denominated in U.S. dollars or foreign currencies. Foreign currency contracts are used...

  • Page 124
    ...31, 2004 as originated by Bank of America Corporation and the predecessor banks. (Dollars in millions) Issuer Issuance Date Aggregate Principal Amount of Trust Securities Aggregate Principal Amount of the Notes Stated Maturity of the Notes Per Annum Interest Rate of the Notes Interest Payment...

  • Page 125
    ... reviews as those recorded on the Corporation's Consolidated Balance Sheet. Credit Extension Commitments The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of its customers...

  • Page 126
    ... Credit card lines are unsecured commitments that are not legally binding. Management reviews credit card lines at least annually, and upon evaluation of the customers' creditworthiness, the Corporation has the right to terminate or change certain terms of the credit card lines. The Corporation uses...

  • Page 127
    ... maturity dates of these obligations are between 2005 and 2033. At December 31, 2004 and 2003, the Corporation had made no material payments under these products. The Corporation provides credit and debit card processing services to various merchants, processing credit and debit card transactions...

  • Page 128
    .... Fleet Specialist On March 30, 2004, Fleet Specialist and certain other specialist firms entered into agreements with the SEC and the New York Stock Exchange (the NYSE) to settle charges that the firms violated certain federal securities laws and NYSE rules in the course of their specialist trading...

  • Page 129
    ..., putative class action complaints seeking unspecified damages have been filed in the U.S. District Court for the Southern District of New York against Fleet Specialist, FleetBoston, the Corporation, and other specialist firms (and their parent companies) on behalf of investors who traded stock on...

  • Page 130
    ... Operations Matters On March 15, 2004, the Corporation announced agreements in principle with the New York Attorney General (the NYAG) and the SEC to settle matters related to late trading and market timing of mutual funds. The Corporation agreed, without admitting or denying wrongdoing, to (1) pay...

  • Page 131
    ... was filed in June 2004 in the U.S. District Court for the Southern District of Illinois. The action is brought on behalf of all participants in or beneficiaries of any cash balance defined benefit plan maintained by 130 BANK OF AMERICA 2004 the Corporation or its predecessors. The complaint names...

  • Page 132
    .... The complaint seeks equitable and remedial relief, including a declaration that the cash balance amendment to the Fleet Pension Plan was ineffective, additional unspecified benefit payments, attorneys' fees and interest. On December 28, 2004, plaintiff filed a motion for class certification. On...

  • Page 133
    ... per common share by $0.06 in 2004. These repurchases were partially offset by the issuance of approximately 121 million shares of common stock under employee plans, which increased Shareholders' Equity by $3.9 billion, net of $127 of deferred compensation related to restricted stock awards, and...

  • Page 134
    ... 31, 2004, the Corporation had 690,000 shares authorized and 382,450 shares, or $95 million, outstanding of Bank of America 6.75% Perpetual Preferred Stock with a stated value of $250 per share. Ownership is held in the form of depositary shares paying dividends quarterly at an annual rate of...

  • Page 135
    ... 31, 2004 that management believes have changed the Corporation's, Bank of America, N.A.'s or Fleet National Bank's capital classifications. 2004 2003 2002 Earnings per common share Net income Preferred stock dividends Net income available to common shareholders Average common shares issued and...

  • Page 136
    ... the framework's "advanced approaches" - the advanced internal ratings-based approach for measuring credit risk and the advanced measurement approaches for operational risk - by year-end 2007. The Corporation is in the process of finalizing its plans to address Basel II. BANK OF AMERICA 2004 135

  • Page 137
    ... also have the cost of these benefits partially paid by the Corporation. As a result of the Merger, the Corporation assumed the obligations related to the plans of former FleetBoston. These plans are substantially similar to the legacy Bank of America plans discussed above, however, the FleetBoston...

  • Page 138
    ...Change in fair value of plan assets (Primarily listed stocks, fixed income and real estate) Fair value, January 1 FleetBoston balance, April 1, 2004 Actual return on plan assets Company contributions(2) Plan participant contributions Benefits paid Fair value, December 31 Change in projected benefit...

  • Page 139
    ... of prior service cost Recognized net actuarial loss $ 9 76 (16) 32 1 74 $ 9 68 (15) 32 4 89 $ 11 67 (17) 32 6 40 $139 Net periodic postretirement benefit cost Weighted average assumptions used to determine net cost for years ended December 31 Discount rate (2) Expected return on plan assets...

  • Page 140
    ...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...

  • Page 141
    ... options to purchase 77,938,908 shares of the Corporation's common stock and 2,597,920 unvested restricted stock units granted to employees of predecessor companies assumed in mergers. The weighted average option price of the assumed options was $32.39 at December 31, 2004. 140 BANK OF AMERICA 2004

  • Page 142
    ... level. Under the plan, eligible employees received a one-time award of a predetermined number of options entitling them to purchase shares of the Corporation's common stock. All options are nonqualified and have an exercise price equal to the fair market value on the date of grant. Approximately...

  • Page 143
    ...tables present the status of all plans at December 31, 2004, 2003 and 2002, and changes during the years then ended: 2004 Weighted Average Exercise Price 2003 Weighted Average Exercise Price 2002 Weighted Average Exercise Price Employee stock options Outstanding at January 1 Options assumed through...

  • Page 144
    ...reflect tax benefits associated with the Corporation's employee stock plans which increased Shareholders' Equity by $401, $443 and $251 in 2004, 2003 and 2002, respectively. Goodwill has been reduced by $101, reflecting the tax benefits attributable to 2004 exercises of employee stock options issued...

  • Page 145
    ..., and credit card and trust relationships. Deferred tax assets Allowance for credit losses Security valuations Accrued expenses Foreign tax credit carryforward Available-for-sale securities Loan fees and expenses Net operating loss carryforwards Other Gross deferred tax assets Valuation allowance...

  • Page 146
    ... companies. Global Capital Markets and Investment Banking provides capital-raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for the Corporation's clients as well as traditional bank deposit and loan products, treasury management and payment services...

  • Page 147
    ... and Financial Services(1) (Dollars in millions) Global Capital Markets and Investment Banking (1) 2002 2004 2003 2002 2004 2003 Net interest income (fully taxable-equivalent basis) Noninterest income Total revenue Provision for credit losses Losses on sales of debt securities Amortization of...

  • Page 148
    ... capital ALM activities (1,2) Latin America Equity investments Liquidating businesses Merger and restructuring charges Litigation expense Tax settlement Severance charge Other $ $ $ $ $ $ Consolidated net income $ $ $ December 31 2004 2003 Segments' total assets Adjustments: ALM activities...

  • Page 149
    ...244 Total equity in undistributed earnings (losses) of subsidiaries Net income Net income available to common shareholders Condensed Balance Sheet December 31 (Dollars in millions) 2004 2003 Assets Cash held at bank subsidiaries Securities Receivables from subsidiaries: Bank subsidiaries Other...

  • Page 150
    ... commercial paper and other short-term borrowings Proceeds from issuance of long-term debt Retirement of long-term debt Proceeds from issuance of common stock Common stock repurchased Cash dividends paid Other financing activities, net Net cash provided by (used in) financing activities Net increase...

  • Page 151
    ..., Income (Loss) Before Income Taxes and Net Income (Loss) by geographic area. The Corporation identifies its geographic performance based upon the business unit structure used to manage the capital or expense deployed in the region, as applicable. This requires certain judgments related to the...

  • Page 152
    ... Management Marc D. Oken Chief Financial Officer H. Jay Sarles Vice Chairman and Special Advisor to the CEO R. Eugene Taylor President, Global Business and Financial Services Board of Directors William Barnet, III Chairman, President and Chief Executive Officer The Barnet Company, Inc. Real estate...

  • Page 153
    ... plan, electronic deposit of dividends, tax information, transferring ownership, address changes or lost or stolen stock certificates, contact EquiServe Trust Company, P . O. Box 43095, Providence, RI 02940-3095; call Bank of America Shareholder Services at 1.800.642.9855; or use online access...

  • Page 154
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