Bank of America 2005 Annual Report Download - page 50

Effects of the Restatement
The following tables set forth the effects of the restatement relating to derivative transactions on major caption
items within our Consolidated Statement of Income for the years 2004 and 2003, and our Consolidated Balance Sheet as
of December 31, 2004. Although the year and fourth quarter of 2005 are not restated, this information was previously
provided in the Corporation’s current report on Form 8-K filed on January 23, 2006, and therefore, is included as part of
the restatement information.
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
Year Ended December 31
2005 2004 2003
(Dollars in millions, except per share
information) As Previously Reported(1) Restated As Previously Reported Restated As Previously Reported Restated
Totalinterestincome ........................ $58,696 $58,626 $43,224 $42,953 $31,563 $31,172
Total interest expense ........................ 27,540 27,889 14,430 14,993 10,099 10,667
Netinterestincome .......................... 31,156 30,737 28,794 27,960 21,464 20,505
Total noninterest income ..................... 25,610 25,354 20,085 21,005 16,450 17,329
Total revenue ............................... 56,766 56,091 48,879 48,965 37,914 37,834
Gains on sales of debt securities ............... 1,084 1,084 2,123 1,724 941 941
Income before income taxes ................... 25,155 24,480 21,221 20,908 15,861 15,781
Income tax expense .......................... 8,269 8,015 7,078 6,961 5,051 5,019
Netincome ................................. $16,886 $16,465 $14,143 $13,947 $10,810 $10,762
Net income available to common shareholders . . . $16,868 $16,447 $14,127 $13,931 $10,806 $10,758
Per common share information
Earnings ................................... $ 4.21 $ 4.10 $ 3.76 $ 3.71 $ 3.63 $ 3.62
Dilutedearnings ............................ $ 4.15 $ 4.04 $ 3.69 $ 3.64 $ 3.57 $ 3.55
(1) The Corporation provided unaudited financial information relating to 2005 in its current report on Form 8-K filed on January 23,
2006.
The impact of the restatement on our Consolidated Statement of Income was to reverse previously applied hedge
accounting for affected hedging relationships in the relevant periods. For derivative instruments previously accounted
for as fair value hedges, the net accruals for the derivatives were recorded to Net Interest Income, and net changes in
fair values of the derivative instruments as a result of changes in rates were recorded as basis adjustments to the hedged
items, such as Loans and Leases, and Long-term Debt. As a result of the restatement, the previous accounting treatment
was reversed (i.e., the net accruals recorded to Net Interest Income were reversed and there was no basis adjustment for
the hedged items), and the total changes in the fair values of the derivative instruments including interest accrual
settlements were recorded directly to Other Income. In addition, for derivative instruments that were previously
accounted for as cash flow hedges, the Corporation recorded accruals from the derivative instruments to Net Interest
Income and recorded net changes in the fair values of the derivatives, net-of-tax, to Accumulated Other Comprehensive
Income (OCI). As a result of the restatement, the cash flow hedge effects were reversed from Accumulated OCI and Net
Interest Income, and recorded in Other Income. Accordingly, Net Interest Income decreased $419 million, $834 million
and $959 million for 2005, 2004 and 2003, respectively. Other Income decreased $256 million in 2005, and increased
$920 million and $879 million in 2004 and 2003.
The change in Other Income (included in Total Noninterest Income) after the restatement adjustments was
primarily due to the effects of changes in rates in each respective year on the fair values of derivative instruments used
in the ALM process. These derivative instruments were primarily comprised of receive fixed interest rate swaps, long
futures and forward contracts, which generally increase in value when interest rates fall, and decrease in value when
interest rates rise.
Gains on Sales of Debt Securities declined from the previously reported results by $399 million in the third quarter
of 2004. The previously reported results did not recognize cash flow hedge losses upon sale of the underlying hedged
securities. This cash flow hedge utilized a forward purchase agreement to hedge the variability in cash flows from the
anticipated purchase of securities. The Corporation subsequently sold the related securities and did not previously
reclassify the loss on the forward purchase agreement from Accumulated OCI into income.
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