Bank of America 2006 Annual Report Download - page 41

Federal Funds Sold and Securities Purchased under
Agreements to Resell
The Federal Funds Sold and Securities Purchased under Agreements to
Resell average balance increased $6.2 billion, or four percent, in 2006
compared to the prior year. The increase was from activities in the trading
businesses, primarily in interest rate and equity products, as a result of
expanded activities related to a variety of client needs.
Trading Account Assets
Trading Account Assets consist primarily of fixed income securities
(including government and corporate debt), equity and convertible instru-
ments. The average balance increased $11.8 billion to $145.3 billion in
2006, which was due to growth in client-driven market-making activities in
interest rate, credit and equity products. For additional information, see
Market Risk Management beginning on page 75.
Debt Securities
Available-for-sale (AFS) Debt Securities include fixed income securities
such as mortgage-backed securities, foreign debt, asset-backed secu-
rities, municipal debt, U.S. Government agencies and corporate debt. We
use the AFS portfolio primarily to manage interest rate risk and liquidity
risk and to take advantage of market conditions that create more econom-
ically attractive returns on these investments. The average balance in the
securities portfolio increased $5.4 billion from 2005 primarily due to the
increase in the AFS portfolio in the first half of the year partially offset by
the sale of mortgage-backed securities of $43.7 billion in the third quarter
of 2006. For additional information, see Market Risk Management begin-
ning on page 75.
Loans and Leases, Net of Allowance for Loan and
Lease Losses
Average Loans and Leases, net of Allowance for Loan and Lease Losses,
was $643.3 billion in 2006, an increase of 22 percent from 2005. The
consumer loan and lease portfolio increased $83.9 billion primarily due to
higher retained mortgage production and the MBNA merger. The commer-
cial loan and lease portfolio increased $31.3 billion due to organic growth
and the MBNA merger, including the business card portfolio. For a more
detailed discussion of the loan portfolio and the allowance for credit loss-
es, see Credit Risk Management beginning on page 62, and Notes 6 and
7 of the Consolidated Financial Statements.
Deposits
Average Deposits increased $40.6 billion to $673.0 billion in 2006 com-
pared to 2005 due to a $24.2 billion increase in average foreign interest-
bearing deposits and a $14.0 billion increase in average domestic
interest-bearing deposits primarily due to the assumption of liabilities in
connection with the MBNA merger. 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 react more slowly
to interest rate changes than market-based deposits. Core deposits
include savings, NOW and money market accounts, consumer CDs and
IRAs, and noninterest-bearing deposits. Core deposits exclude negotiable
CDs, public funds, other domestic time deposits and foreign interest-
bearing deposits. Average core deposits increased $11.0 billion to $574.6
billion in 2006, a two percent increase from the prior year. The increase
was distributed between consumer CDs and noninterest-bearing deposits
partially offset by decreases in NOW and money market deposits, and
savings. The increase in consumer CDs was impacted by the shift of
deposit balances from NOW and money market deposits and savings to
consumer CDs as a result of the favorable rates offered on consumer
CDs. Average market-based deposit funding increased $29.6 billion to
$98.4 billion in 2006 compared to 2005 due to increases of $24.2 billion
in foreign interest-bearing deposits and $5.3 billion in negotiable CDs,
public funds and other time deposits related to funding of growth in core
and market-based assets.
Federal Funds Purchased and Securities Sold under
Agreements to Repurchase
The Federal Funds Purchased and Securities Sold under Agreements to
Repurchase average balance increased $56.2 billion to $286.9 billion in
2006 as a result of expanded trading activities within interest rate and
equity products related to client activities.
Trading Account Liabilities
Trading Account Liabilities consist primarily of short positions in fixed
income securities (including government and corporate debt), equity and
convertible instruments. The average balance increased $7.0 billion to
$64.7 billion in 2006, which was due to growth in client-driven market-
making activities in equity products, partially offset by a reduction in inter-
est rate products. For additional information, see Market Risk
Management beginning on page 75.
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. The average balance
increased $28.6 billion to $124.2 billion in 2006, mainly due to the
increase in Federal Home Loan Bank advances to fund core asset growth,
primarily in the ALM portfolio.
Long-term Debt
Period end and average Long-term Debt increased $45.2 billion and $32.4
billion. The increase resulted from the funding of core asset growth, the
addition of MBNA and the issuance of subordinated debt to support Tier 2
capital. For additional information, see Note 12 of the Consolidated Finan-
cial Statements.
Shareholders’ Equity
Period end and average Shareholders’ Equity increased $33.7 billion and
$30.6 billion primarily due to the issuance of stock related to the MBNA
merger. This increase along with Net Income and issuances of Preferred
Stock, was partially offset by cash dividends, net share repurchases of
Common Stock and redemption of Preferred Stock.
Bank of America 2006 39