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2007 Annual Report
Insights Innovations Opportunities
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Table of contents

  • Page 1
    Insights + Innovations Opportunities 2007 Annual Report

  • Page 2
    Associates from across our corporation, many pictured throughout this report, are the source of our insights and innovations.

  • Page 3
    We are a company of more than 200,000 associates, serving a vibrant community of customers and clients around the world. Our size and scope - unmatched by any other bank - give us the insights that help us innovate and create opportunities for all. Insights + Innovations Opportunities

  • Page 4
    ...Global Corporate & Investment Banking Global Wealth & Investment Management ($954) (1%) All Other** At year end Total assets Total loans and leases Total deposits Total shareholders' equity Book value per common share Market price per share of common stock Common shares issued and outstanding (in...

  • Page 5
    ...consumer and small business relationships. We serve consumers through checking, savings, credit and debit cards, home equity lending and mortgages. We serve mass-market small businesses with capital, credit, deposit and payment services. Revenue* (in millions) Net Income (in millions) $25,533 $17...

  • Page 6
    ... Our long-term growth strategy is working and has not changed: We are using market insight to drive innovation that creates opportunity and value for our customers and shareholders. Our earnings power from our core business activities is strong and growing. We are bringing innovative new products to...

  • Page 7
    KENNETH D. LEWIS, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT "In my career, I have not experienced a business cycle in which size, scale, revenue diversity and the ability to execute have been more important. Each of these attributes is a strength of our company." Bank of America 2007 5

  • Page 8
    ...in a row, opened nearly 14 million new Card Services accounts, became a leading direct-to-consumer mortgage and home equity originator and extended our leadership in the online banking and bill-pay business to lead the industry in mobile banking, with more than 600,000 active new accounts. In Global...

  • Page 9
    ... $0 Online Equity Trades. In 2007, we continued to introduce new products with the launch of No Fee Mortgage PLUS (which eliminates most fees on conforming mortgages), Mobile Banking (which enables customers to bank with their cell phones), new Risk Free CD products (which include high fixed rates...

  • Page 10
    ... of America Investment Services, Inc., our brokerage; U.S. Trust, Bank of America Private Wealth Management, which serves high-net-worth clients; and Columbia Management, our asset management team. In each of these groups, associates' top priority is client relationship expansion - by working with...

  • Page 11
    ... was to consolidate accountability within Global Commercial Banking for all aspects of client relationship management, including client revenue and profitability. At the same time, we consolidated credit and treasury management product delivery in a new team called Global Product Solutions. Client...

  • Page 12
    ... anticipate will close early in the third quarter of this year. This transaction will make Bank of America the nation's leading mortgage lender and loan servicer, adding another key asset to what has become a long list of financial products and services in which we hold a lead market position. I've...

  • Page 13
    ... of Columbia Management. Keith brings deep knowledge of the industry and a direct leadership style that will help us accelerate our growth in this important sector. We have one change on our board of directors this year: Steven Jones, dean of the Kenan-Flagler School of Business at the University of...

  • Page 14
    [LEF T TO RIGHT] JOE L. PRICE, CHIEF FINANCIAL OFFICER AMY WOODS BRINKLEY, CHIEF RISK OFFICER GREGORY L. CURL , VICE CHAIRMAN OF CORPORATE DEVELOPMENT 12 Bank of America 2007

  • Page 15
    ...States, it includes more than 6,100 banking centers, more than 18,500 ATMs and peerless e-banking services. This powerful distribution network lets us deploy products and services efficiently and build our business organically by bringing customers the advantages of our scale: greater convenience...

  • Page 16
    [LEF T TO RIGHT] BARBARA J. DESOER, GLOBAL TECHNOLOGY & OPERATIONS EXECUTIVE LIAM E. MCGEE, PRESIDENT, GLOBAL CONSUMER & SMALL BUSINESS BANKING BRUCE L. HAMMONDS, PRESIDENT, BANK OF AMERICA CARD SERVICES 14 Bank of America 2007

  • Page 17
    ... base of customers and clients helps us develop market insights that drive industry-leading innovations. Our new No Fee Mortgage PLUS, for example, helped us build our mortgage lending in a year when the overall mortgage market declined. And our pioneering ideas go beyond our products. In 2007, we...

  • Page 18
    [LEF T TO RIGHT] BRIAN T. MOYNIHAN, PRESIDENT, GLOBAL CORPORATE & INVESTMENT BANKING KEITH T. BANKS, PRESIDENT, GLOBAL WEALTH & INVESTMENT MANAGEMENT J. STEELE ALPHIN, CHIEF ADMINISTRATIVE OFFICER 16 Bank of America 2007

  • Page 19
    ...importance of building trust and increasing our value over time. Whether working with a consumer, a small business or a global corporation, Bank of America looks to create relationships of depth and longevity supported by our broad product portfolio. By pairing our investment and commercial bankers...

  • Page 20
    ... to deal directly with a bank they knew and trusted, particularly in uncertain economic times. Innovations â- We used our pricing and distribution power to pass on lower costs to our customers, redefining the mortgage product and sales process. â- Bank of America services the mortgages that it...

  • Page 21
    ...send the home buyer $250. And the Close-On-Time Service Guarantee promises that the loan will close within 25 days after the application is complete or the bank will pay the first month's principal and interest. In addition to offering great value, No Fee Mortgage PLUS is available via phone, online...

  • Page 22
    ...-to-end secure connection and the $0 Liability Online Banking Guarantee protect customers from promptly reported unauthorized activity. â- Mobile Banking customers can also send money to their Online Banking payees and transferees. Opportunities â- More than 240 million cell phones are in use in...

  • Page 23
    ... of America Online and Mobile Banking, Heyl uses his laptop and iPhoneâ„¢ to access accounts, pay bills, transfer money and locate ATMs and banking centers across the nation. With Mobile Banking, protecting customer data is paramount. Bank of America's end-to-end security ensures that information...

  • Page 24
    ... huge cash volumes was adapted to serve the cash needs of major retailers. Opportunities â- With innovative technologies to help companies address their increasingly complex payments, receivables and cash-handling needs, Bank of America can capture market share in the dynamic retail marketplace.

  • Page 25
    ... or theft, and we can spend more time providing great customer service." Because the cash is credited directly to the company account, the technology gives Chick-fil-A faster access to funds and maximizes working capital. Additionally, if store managers need to replenish their cash registers, they...

  • Page 26
    ...base. Innovations â- We worked with our clients to execute a tender offer - a seldom-used structure in a leveraged buyout. â- Our creative capital structure and focused marketing strategy resulted in outstanding execution, despite an extremely challenging credit environment. Opportunities â- By...

  • Page 27
    ... team worked with its clients to modify the structure of the transaction to include a tender offer for Biomet's stock. Bank of America demonstrated excellence at every step in the transaction during a time of unprecedented market volatility, the sponsors noted. They added that the bank's health-care...

  • Page 28
    ... needs, from savings to credit to investments and estate planning. â- Bank of America and its affiliates leverage the company's unparalleled distribution capabilities to offer unmatched convenience and access to retirement solutions online, in banking centers and over the phone. Opportunities...

  • Page 29
    ... us, they find that Bank of America has a lot to offer." In 2007, Bank of America formed a new organization dedicated to serving the retirement needs of its customers and growing the company's market share of retirement assets. One initial growth initiative is an IRA acceleration campaign to capture...

  • Page 30
    ... them direct funds where needs are greatest. â- We have built nonprofit leadership through training and workshops that foster best practices, networking and professional growth. Opportunities â- We are helping nonprofits enhance their programs to provide better services to greater numbers of...

  • Page 31
    ...nonprofits resource themselves and form business priorities." With its commitment to change the way people think about the homeless, Common Ground was an ideal group to host internships for young New Yorkers selected as Bank of America Student Leadersâ„¢. Last summer, Andrew D'Antonio, a high school...

  • Page 32
    ... U.S. residents live in Bank of America's retail franchise, Bank of America is the leading provider of checking and savings accounts and credit and debit cards. It is a leading originator of direct-to-consumer mortgages and home equity loans and has a top merchant card processing service. Since the...

  • Page 33
    ... funds. Services include bank deposit and credit products; risk management, cash management and payment services; equity and debt capital raising; and advisory services based on industry expertise and deep knowledge of client strategies and needs. Investors benefit from highly rated debt and equity...

  • Page 34
    ... to achieve LEED (Leadership in Energy and Environmental Design) certification for all our new office buildings and banking centers. And we give employees a $3,000 rebate if they buy a hybrid vehicle. Bank of America associates have also worked hard to cut paper use by 40 percent since 2000. You can...

  • Page 35
    BANK OF AMERICA 2007 FINANCIAL REVIEW Bank of America 2007 33

  • Page 36
    ...Credit Risk Management ...Commercial Portfolio Credit Risk Management ...Foreign Portfolio ...Provision for Credit Losses ...Allowance for Credit Losses ...Market Risk Management ...Trading Risk Management ...Interest Rate Risk Management for Nontrading Activities ...Mortgage Banking Risk Management...

  • Page 37
    ... secondary markets; 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 instruments...

  • Page 38
    ... by adding LaSalle's commercial banking clients, retail customers and banking centers. On July 1, 2007, we acquired all the outstanding shares of U.S. Trust Corporation for $3.3 billion in cash. U.S. Trust Corporation focuses exclusively on managing wealth for high net-worth and ultra high net-worth...

  • Page 39
    ... driven by higher card, service charge and mortgage banking income. Net interest income increased $612 million, or two percent, to $28.8 billion due to the impacts of organic growth and the LaSalle acquisition on average loans and leases, and deposits. These increases in revenues were more than...

  • Page 40
    ... Table 2 Noninterest Income (Dollars in millions) 2007 2006 Card income Service charges Investment and brokerage services Investment banking income Equity investment income Trading account profits (losses) Mortgage banking income Gains (losses) on sales of debt securities Other income $14,077...

  • Page 41
    ...Risk Management beginning on page 69, Note 6 - Outstanding Loans and Leases and Note 7 - Allowance for Credit Losses to the Consolidated Financial Statements. Trading Account Assets Trading account assets consist primarily of fixed income securities (including government and corporate debt), equity...

  • Page 42
    ... 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...

  • Page 43
    ... 40.22 41.77 32.82 Market price per share of common stock Closing High closing Low closing $ $ $ $ $ Market capitalization Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders' equity Total shareholders' equity $ 183,107 $ 776,154 1,602...

  • Page 44
    ... points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated planning process, we set operating leverage and efficiency targets for the Corporation...

  • Page 45
    ... Merger and restructuring charges Related income tax benefit Operating earnings Reconciliation of average shareholders' equity to average tangible shareholders' equity Average shareholders' equity Average goodwill Average tangible shareholders' equity Reconciliation of return on average assets...

  • Page 46
    ... management accounting reporting process derives segment and business results by utilizing allocation methodologies for revenue, expense and capital. The net income derived for the businesses is dependent upon revenue and cost allocations using an activity-based costing model, funds transfer pricing...

  • Page 47
    ... of corporate ALM activities. Some ALM activities are recorded in the businesses (e.g., Deposits) such as external product pricing decisions, including deposit pricing strategies, as well as the effects of our internal funds transfer pricing process. The net effects of other ALM activities are...

  • Page 48
    ... Presented on a managed basis, specifically Card Services. Effective January 1, 2007, GCSBB combined the former Mortgage and Home Equity businesses into Consumer Real Estate. FTE basis (4) Represents provision for credit losses on held loans combined with realized credit losses associated with the...

  • Page 49
    ... ALM activities. The revenue is allocated to the deposit products using our funds transfer pricing process which takes into account the interest rates and maturity characteristics of the deposits. Deposits also generate fees such as account service fees, non-sufficient fund fees, overdraft charges...

  • Page 50
    ... litigation, see Note 13 - Commitments and Contingencies to the Consolidated Financial Statements. Key Statistics (Dollars in millions) 2007 2006 Card Services Average - total loans and leases: Managed Held Period end - total loans and leases: Managed Held Managed net losses (1): Amount Percent...

  • Page 51
    ...and adjustable rate loans for home purchase and refinancing needs, reverse mortgages, lines of credit and home equity loans. Mortgage products are either sold into the secondary mortgage market to investors, while retaining the Bank of America customer relationships, or are held on our balance sheet...

  • Page 52
    ... Service charges Investment and brokerage services Investment banking income Trading account profits (losses) All other income Total noninterest income Total revenue, net of interest expense Provision for credit losses Noninterest expense Income (loss) before income taxes Income tax expense (benefit...

  • Page 53
    ... to the Consolidated Financial Statements. Business Lending Business Lending provides a wide range of lending-related products and services to our clients through client relationship teams along with various product partners. Products include commercial and corporate bank loans and commitment...

  • Page 54
    ... commercial and corporate issuer clients to provide debt and equity underwriting and distribution capabilities, merger-related advisory services and risk management solutions using interest rate, equity, credit, currency and commodity derivatives, foreign exchange, fixed income and mortgage-related...

  • Page 55
    ...rate acquisition related financings. Å Equity products revenue decreased $273 million primarily due to lower client activity in equity capital markets and equity derivatives combined with reduced trading results. Collateralized Debt Obligation Exposure at December 31, 2007 CDO vehicles are special...

  • Page 56
    ... sales and trading activities is carried at approximately 30 percent of par value. As mentioned above, during the fourth quarter, the credit ratings of certain CDO structures were downgraded which among other things triggered widening of credit spreads for this type of security. CDO-related markets...

  • Page 57
    ... ALM activities. The revenue is attributed to the deposit products using our funds transfer pricing process which takes into account the interest rates and maturity characteristics of the deposits. Noninterest income is generated from payment and receipt products, merchant services, wholesale card...

  • Page 58
    ... (2) Return on average equity (3) Efficiency ratio (2) Period end - total assets (4) $ 2,095 3.06% 18.87 58.50 $157,157 (Dollars in millions) Total U.S. Trust (1) Premier Banking and Investments ALM/ Other Net interest income (2) Noninterest income: Investment and brokerage services All...

  • Page 59
    ... U.S. Trust Corporation acquisition and organic growth in average deposit and loan balances. The growth in balances was partially offset by spread compression and a shift in the deposit product mix. GWIM deposit growth benefited from the migration of customer relationships and related balances from...

  • Page 60
    ... support to certain cash funds managed within Columbia. The funds for which we provided support typically invest in high quality, shortterm securities with a weighted average maturity of 90 days or less, including a limited number of securities issued by SIVs. Due to market disruptions, certain SIV...

  • Page 61
    ... of funds transfer pricing allocation methodologies, amounts associated with the change in the value of derivatives used as economic hedges of interest rate and foreign exchange rate fluctuations that do not qualify for SFAS 133 hedge accounting treatment, foreign exchange rate fluctuations related...

  • Page 62
    ... integration costs associated with the MBNA acquisition offset by costs associated with the integration of U.S. Trust Corporation and LaSalle. For additional information on merger and restructuring charges, see Note 2 - Merger and Restructuring Activity to the Consolidated Financial Statements. The...

  • Page 63
    ...low-cost funding alternative to our customers by facilitating their access to the commercial paper market. Our customers sell or otherwise transfer assets to the conduits, which in turn issue high-grade, short-term commercial paper that is collateralized by the underlying assets. We receive fees for...

  • Page 64
    ... at a level equivalent to an investment grade. At December 31, 2007, the weighted average life of assets in the consolidated conduit was 5.4 years and the weighted average maturity of commercial paper issued by this conduit was 40 days. Assets of the Corporation are not available to pay creditors of...

  • Page 65
    ... changes in fair value recorded in trading account profits (losses). Derivative activity related to these entities is included in Note 4 - Derivatives to the Consolidated Financial Statements. We also administer a CDO conduit that obtains funds by issuing commercial paper to third party investors...

  • Page 66
    ... Note 19 - Fair Value Disclosures to the Consolidated Financial Statements. We enter into commitments to extend credit such as loan commitments, SBLCs and commercial letters of credit to meet the financing needs of our customers. The table below summarizes the total unfunded, or off-balance sheet...

  • Page 67
    ... of new products. Limits, the amount of exposure that may be taken in a product, relationship, region or industry, seek to align corporate-wide risk goals with those of each line of business and are part of our overall risk management process to help reduce the volatility of market, credit and...

  • Page 68
    ... contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity management involves forecasting funding requirements and maintaining sufficient capacity to meet the needs and accommodate fluctuations in asset and liability levels due to changes in our business...

  • Page 69
    ... retain mortgage loans originated as well as purchase and sell loans based on our assessment of market conditions. Regulatory Capital At December 31, 2007, the Corporation operated its banking activities primarily under three charters: Bank of America, N.A., FIA Card Services, N.A. and LaSalle Bank...

  • Page 70
    ... equity securities and net (gains) losses on derivatives recorded in accumulated OCI, net-of-tax Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax Trust securities (2) Other Total Tier 1 Capital Long-term debt qualifying as Tier 2 Capital Allowance for loan and lease...

  • Page 71
    ...loans and leases, derivatives, trading account assets, assets held-for-sale, deposit overdrafts and unfunded lending commitments that include loan commitments, letters of credit and financial guarantees. Derivative positions, trading account assets and assets held-for-sale are recorded at fair value...

  • Page 72
    ...credit cycle. Statistical techniques in conjunction with experiential judgment are used in all aspects of portfolio management including underwriting, product pricing, risk appetite, setting credit limits, operating processes and metrics to quantify and balance risks and returns. In addition, credit...

  • Page 73
    .../Losses 2007 2006 Outstandings (Dollars in millions) Nonperforming (1, 2) 2006 Net Charge-off/ Loss Ratios (4) 2007 2006 2007 2007 2006 Held basis Residential mortgage Credit card - domestic Credit card - foreign Home equity (5) Direct/Indirect consumer (5, 6) Other consumer (5, 7) Total...

  • Page 74
    ... to 2006, driven by growth in the Card Services unsecured lending product and retail automotive portfolio purchases. Net losses for the managed loan portfolio increased $678 million to $1.6 billion, or 2.14 percent of total average managed direct/indirect loans compared to 1.49 percent (1.69 percent...

  • Page 75
    ...the Impact of SOP 03-3) (1, 2, 3, 4) Held Net Charge-offs (Dollars in millions) Managed Ratio 2007 2006 Net Losses 2007 2006 Ratio 2007 2006 2007 2006 Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer Other consumer $ 59 3,063 378 282 1,375...

  • Page 76
    ... to nonperforming loans and leases: LaSalle balance, October 1, 2007 New nonaccrual loans and leases Reductions in nonperforming loans and leases: Paydowns and payoffs Sales Returns to performing status (2) Charge-offs (3) Transfers to foreclosed properties Transfers to loans held-for-sale Total net...

  • Page 77
    ... Corporation initially adopted the fair value option for $4.0 billion of outstanding commercial loans as of January 1, 2007 and recorded pre-tax net losses of $21 million (net of adjustments related to the allowance for loan and lease losses and direct loan origination fees and costs) representing...

  • Page 78
    ...) Commercial Unfunded (3, 4) 2007 2006 Total Commercial Committed 2007 2006 2007 2006 Loans and leases Standby letters of credit and financial guarantees Derivative assets (5) Assets held-for-sale (6) Commercial letters of credit Bankers' acceptances Securitized assets Foreclosed properties...

  • Page 79
    ...-sale and fair value portfolios been included, the ratio of commercial utilized criticized exposure to total commercial utilized exposure would have been 4.77 percent and 2.23 percent at December 31, 2007 and 2006. Exposure includes standby letters of credit, financial guarantees, commercial letters...

  • Page 80
    ... housing markets. Approximately 70 percent of the small business commercial - domestic net charge-offs for 2007 were credit card related products. Commercial - Foreign The commercial - foreign portfolio is managed primarily in Business Lending and CMAS. Outstanding loans and leases, including loans...

  • Page 81
    ... loans and leases: LaSalle balance, October 1, 2007 New nonaccrual loans and leases Advances Reductions in nonperforming loans and leases: Paydowns and payoffs Sales Returns to performing status (3) Charge-offs (4) Transfers to foreclosed properties Transfers to loans held-for-sale Total...

  • Page 82
    ...the effect of reducing their cost of borrowings. If the rating agencies downgrade the monolines, the credit rating of the bond may fall and may have an adverse impact on the market value of the security. We have further exposure related to our public finance business where we are the lead manager or...

  • Page 83
    ... 31, 2007 and 2006. Total foreign exposure includes credit exposure net of local liabilities, securities, and other investments domiciled in countries other than the United States. Credit card exposure is reported on a funded basis. Total foreign exposure can be adjusted for externally guaranteed...

  • Page 84
    ...its outstanding voting and non-voting shares. Our investment in Banco Itaú is currently carried at cost and will be accounted for as AFS marketable equity securities and carried at fair value beginning in the second quarter of 2008. Table 25 Selected Emerging Markets (1) Loans and Leases, and Loan...

  • Page 85
    ... in our home equity portfolio reflective of the impact of the weak housing market as well as growth and seasoning of the Card Services consumer portfolios. These increases were partially offset by reserve reductions from the addition of higher loss profile accounts to the domestic credit card...

  • Page 86
    ... seasoning of the Card Services unsecured lending portfolio as well as discontinuing sales of new receivables into the unsecured lending trust. These increases were partially offset by growth in the residential mortgage portfolio, which has a low loss profile, as the Corporation increased retention...

  • Page 87
    ... 159 LaSalle balance, October 1, 2007 U.S. Trust Corporation balance, July 1, 2007 MBNA balance, January 1, 2006 Loans and leases charged off Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer Other consumer Total consumer charge-offs Commercial...

  • Page 88
    ... and/or activities including loans, deposits, securities, short-term borrowings, long-term debt, trading account assets and liabilities, and derivatives. Market-sensitive assets and liabilities are generated through loans and deposits associated with our traditional banking business, customer and...

  • Page 89
    ... and markets. Trading account assets and liabilities and derivative positions are reported at fair value. For more information on fair value, see Note 19 - Fair Value Disclosures to the Consolidated Financial Statements and Complex Accounting Estimates beginning on page 93. Trading-related revenues...

  • Page 90
    ... daily prices are not consistently available. Our VAR model uses a historical simulation approach based on three years of historical data and assumes a 99 percent confidence level. Statistically, this means that losses will exceed VAR, on average, one out of 100 trading days, or two to three times...

  • Page 91
    ... million. Table 28 Trading Activities Market Risk (1) Twelve Months Ended December 31 2007 VAR (Dollars in millions) 2006 VAR Average High (2) Low (2) Average High (2) Low (2) Foreign exchange Interest rate Credit Real estate/mortgage Equities Commodities Portfolio diversification $ 7.2 13...

  • Page 92
    ...interest income - managed basis on short-term financial instruments, debt securities, loans, deposits, borrowings, and derivative instruments. In addition, these simulations incorporate assumptions about balance sheet dynamics such as loan and deposit growth and pricing, changes in funding mix, and...

  • Page 93
    ... unrealized gains related to AFS marketable equity securities. Total market value of the AFS debt securities was $213.3 billion at December 31, 2007 with a weighted average duration of 4.3 years and primarily relates to our mortgage-backed securities portfolio. Prospective changes to the accumulated...

  • Page 94
    ... forecasted transactions (cash flow hedges). From time to time, the Corporation also utilizes equity-indexed derivatives accounted for as SFAS 133 cash flow hedges to minimize exposure to price fluctuations on the forecasted purchase or sale of certain equity investments. The net losses on both open...

  • Page 95
    ... banking activities for which the fair value option was elected had an aggregate fair value of $9.56 billion and an aggregate outstanding principal balance of $9.82 billion. Net gains resulting from changes in fair value of loans held-for-sale that we originated, including realized gains and losses...

  • Page 96
    ... repurchase agreements, and long-term deposits at fair value in accordance with SFAS 159. We also carry trading account assets and liabilities, derivative assets and liabilities, AFS debt and marketable equity securities, MSRs, and certain other assets at fair value. For more information, see Note...

  • Page 97
    ...a 99 percent confidence level. For more information on VAR, see Trading Risk Management beginning on page 87. AFS debt and marketable equity securities are recorded at fair value, which is generally based on quoted market prices or market prices for similar assets. Statements, we account for income...

  • Page 98
    ...(losses) on sales of debt securities of $1.5 billion. Card income increased primarily due to the addition of MBNA resulting in higher excess servicing income, cash advance fees, interchange income and late fees. Trading account profits (losses) increased due to a favorable market environment. Equity...

  • Page 99
    ... fees and late fees due primarily to the impact of the MBNA merger. All other income increased primarily as a result of the MBNA merger. Service charges increased due to new account growth and increased usage. These increases were partially offset by increases in the provision for credit losses...

  • Page 100
    ... assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Debt securities (2) Loans and leases (3): Residential mortgage Credit card - domestic Credit card - foreign Home equity (4) Direct/Indirect...

  • Page 101
    ...interest income Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Debt securities Loans and leases: Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer...

  • Page 102
    Table III Outstanding Loans and Leases December 31 (Dollars in millions) 2007 2006 2005 2004 2003 Consumer Residential mortgage Credit card - domestic Credit card - foreign Home equity (1) Direct/Indirect consumer (1, 2) Other consumer (1, 3) Total consumer $274,949 65,774 14,950 114,834 76,...

  • Page 103
    ... - foreign Small business commercial - domestic Total commercial (4) Total nonperforming loans and leases Foreclosed properties Nonperforming securities (5) Total nonperforming assets (6, 7) (1) (2) (3) (4) (5) (6) (7) Nonperforming home equity loan balances previously included in direct/indirect...

  • Page 104
    ... to our servicing agreements with GNMA mortgage pools, where repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veteran Affairs. Excludes small business commercial-domestic loans. (3) Balances do not include loans measured at fair value in accordance...

  • Page 105
    ... 2007 U.S. Trust Corporation balance, July 1, 2007 MBNA balance, January 1, 2006 FleetBoston balance, April 1, 2004 Loans and leases charged off Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer Other consumer Total consumer charge-offs Commercial...

  • Page 106
    ...of total Amount Allowance for loan and lease losses Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer Other consumer Total consumer Commercial - domestic (1) Commercial real estate Commercial lease financing Commercial - foreign Total commercial...

  • Page 107
    Table IX Short-term Borrowings 2007 (Dollars in millions) 2006 2005 Rate Amount Rate Amount Rate Amount Federal funds purchased At December 31 Average during year Maximum month-end balance during year $ 14,187 7,595 14,187 207,248 245,886 277,196 55,596 57,712 69,367 135,493 113,621 142,047 ...

  • Page 108
    ...Fair value of new contracts Other changes in fair value Gross fair value of contracts outstanding, December 31, 2007 Effects of legally enforceable master netting agreements Net fair value of contracts outstanding, December 31, 2007 $ 1,148 $ 1,226 Table XI Non-exchange Traded Commodity Contract...

  • Page 109
    ....54 47.08 43.09 Market price per share of common stock Closing High closing Low closing $ $ $ $ $ $ $ $ Market capitalization Average balance sheet Total loans and leases Total assets Total deposits Long-term debt Common shareholders' equity Total shareholders' equity $ 183,107 $ 868,119...

  • Page 110
    ... assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Debt securities (1) Loans and leases (2): Residential mortgage Credit card - domestic Credit card - foreign Home equity (3) Direct/Indirect...

  • Page 111
    ... Earning assets Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell Trading account assets Debt securities (1) Loans and leases (2): Residential mortgage Credit card - domestic Credit card - foreign Home equity (3) Direct...

  • Page 112
    ... managed for institutional, high net-worth and retail clients and are distributed through various investment products including mutual funds, other commingled vehicles and separate accounts. Bridge Loan - A loan or security which is expected to be replaced by permanent financing (debt or equity...

  • Page 113
    ... Public Accountants Asset and Liability Committee Asset and liability management Collateralized debt obligation Collateralized loan obligation Commercial mortgage-backed securities Earnings per common share Financial Accounting Standards Board Federal Deposit and Insurance Corporation Federal...

  • Page 114
    ... of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations...

  • Page 115
    ... Accounting Principles to the Consolidated Financial Statements, the Corporation has adopted SFAS No. 157, "Fair Value Measurements" and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." A company's internal control over financial reporting is a process designed...

  • Page 116
    ... Deposits Short-term borrowings Trading account liabilities Long-term debt Total interest expense Net interest income Noninterest income Card income Service charges Investment and brokerage services Investment banking income Equity investment income Trading account profits (losses) Mortgage banking...

  • Page 117
    Bank of America Corporation and Subsidiaries Consolidated Balance Sheet December 31 (Dollars in millions) 2007 2006 Assets Cash and cash equivalents Time deposits placed and other short-term investments Federal funds sold and securities purchased under agreements to resell (includes $2,578 ...

  • Page 118
    ... for accounting changes (4) : Leveraged leases Fair value option and measurement Income tax uncertainties Net income Net changes in available-for-sale debt and marketable equity securities Net changes in foreign currency translation adjustments Net changes in derivatives Employee benefit plan...

  • Page 119
    ... cash used in investing activities Financing activities Net increase in deposits Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase Net increase in commercial paper and other short-term borrowings Proceeds from issuance of long-term debt Retirement...

  • Page 120
    Bank of America Corporation and Subsidiaries Notes to Consolidated Financial Statements On October 1, 2007, Bank of America Corporation and its subsidiaries (the Corporation) acquired all the outstanding shares of ABN AMRO North America Holding Company, parent of LaSalle Bank Corporation (LaSalle),...

  • Page 121
    ... assets and liabilities, see the Fair Value section of this note and Note 19 - Fair Value Disclosures to the Consolidated Financial Statements. Effective January 1, 2007, the Corporation adopted FASB Staff Position (FSP) No. FAS 13-2, "Accounting for a Change or Projected Change in the Timing...

  • Page 122
    ... financial instrument), index, currency or commodity at a predetermined rate or price during a period or at a time in the future. Option agreements can be transacted on organized exchanges or directly between parties. The Corporation also provides credit derivatives to customers who wish to increase...

  • Page 123
    ... on management's intention on the date of purchase and recorded on the Consolidated Balance Sheet as of the trade date. Marketable equity securities that are bought and held principally for the purpose of resale in the near term are classified as trading account assets and are stated at fair value...

  • Page 124
    ...between the purchase price and the par value of the loan is reflected in interest income over the life of the loan. The Corporation provides equipment financing to its customers through a variety of lease arrangements. Direct financing leases are carried at the aggregate of lease payments receivable...

  • Page 125
    ... Assets" (SFAS 156) and began accounting for consumer-related MSRs at fair value with changes in fair value recorded in mortgage banking income, while commercial-related and residential reverse mortgage MSRs continue to be accounted for using the amortization method (i.e., lower of cost or market...

  • Page 126
    ... and loan commitments, loans held-for-sale, structured reverse repurchase agreements, and long-term deposits at fair value in accordance with SFAS 159. The Corporation also carries trading account assets and liabilities, derivative assets and liabilities, AFS debt and marketable equity securities...

  • Page 127
    ... by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model...

  • Page 128
    ... pays royalties in exchange for their endorsement. These compensation costs to the Corporation are recorded as contra-revenue against card income. (Dollars in millions) Purchase price Preliminary allocation of the purchase price LaSalle stockholders' equity LaSalle goodwill and intangible assets...

  • Page 129
    ... stock exchanged with MBNA 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, June 30, 2005, the date of the MBNA merger announcement. Includes purchased credit card...

  • Page 130
    ...-related costs and $5 million in contract terminations. Payments under exit cost and restructuring reserves associated with the MBNA merger were substantially completed in 2007 while payments associated with the U.S. Trust Corporation and LaSalle mergers will continue into 2009. 128 Bank of America...

  • Page 131
    .... Exchange-traded instruments conform to standard terms and are subject to policies set by the exchange involved, including margin and security deposit requirements. Management believes the credit risk associated with these types of instruments is minimal. The average fair value of derivative assets...

  • Page 132
    ... and forwards Written options Purchased options Credit derivatives Credit risk before cash collateral Less: Cash collateral applied Total derivative assets (1) Represents the total contract/notional amount of the derivatives outstanding and includes both short and long positions. The table...

  • Page 133
    ... Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale debt securities, December 31, 2007 U.S. Treasury securities and agency debentures Mortgage-backed securities (1) Foreign securities Corporate/Agency bonds Other taxable securities (2) Total taxable securities...

  • Page 134
    ... Losses Total Gross Unrealized Losses (Dollars in millions) Fair Value Fair Value Fair Value Available-for-sale debt securities as of December 31, 2007 Mortgage-backed securities Foreign securities Corporate/Agency bonds Other taxable securities Total taxable securities Tax-exempt securities...

  • Page 135
    ... in other assets and is accounted for under the equity method of accounting with income being recorded in equity investment income. For additional information on securities, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Bank of America 2007 133

  • Page 136
    Note 6 - Outstanding Loans and Leases Outstanding loans and leases at December 31, 2007 and 2006 were: December 31 (Dollars in millions) 2007 2006 Consumer Residential mortgage Credit card - domestic Credit card - foreign Home equity (1) Direct/Indirect consumer (1, 2) Other consumer (1, 3) $...

  • Page 137
    ...) of securities that were valued using quoted market prices. In addition, the Corporation retained securities, including residual interests, which totaled $196 million and $224 million at December 31, 2007 and 2006 and are classified in trading account assets, with changes in fair value recorded in...

  • Page 138
    ...) in the AFS debt securities portfolio which are valued using quoted market prices. At December 31, 2007 and 2006, there were no recognized servicing assets or liabilities associated with any of these credit card and other securitization transactions. Key economic assumptions used in measuring the...

  • Page 139
    ... Average Loans and Leases Outstanding Year Ended December 31, 2006 (Dollars in millions) Net Losses Net Loss Ratio (4) Net Losses Net Loss Ratio (4) Residential mortgage Credit card - domestic Credit card - foreign Home equity Direct/Indirect consumer Other consumer Total consumer Commercial...

  • Page 140
    ...a low-cost funding alternative to its customers by facilitating their access to the commercial paper market. These customers sell or otherwise transfer assets to the conduits, which in turn issue high-grade, short-term commercial paper that is collateralized by the underlying assets. The Corporation...

  • Page 141
    ... the Consolidated Balance Sheet and are carried at fair value with changes in fair value recorded in trading account profits (losses). See Note 13 - Commitments and Contingencies to the Consolidated Financial Statements for more information on the written put options. Derivative activity related to...

  • Page 142
    ... $331,883 Total time deposits Note 12 - Short-term Borrowings and Long-term Debt Short-term Borrowings Bank of America Corporation and certain of its subsidiaries issue commercial paper in order to meet short-term funding needs. Commercial paper outstanding at December 31, 2007 was $55.6 billion...

  • Page 143
    ... 583 215 491 1,627 2,916 - - - - - Total notes issued by BAC North America Holding Company and subsidiaries Other debt Advances from the Federal Home Loan Bank of Atlanta Floating Advances from the Federal Home Loan Bank of New York Fixed, with a weighted average rate of 6.06%, ranging from 4.00...

  • Page 144
    ... of bank notes. At December 31, 2007, Bank of America, N.A. was authorized to issue approximately $20.6 billion of additional mortgage notes. The weighted average effective interest rates for total long-term debt, total fixed-rate debt and total floating-rate debt (based on the rates in effect at...

  • Page 145
    The following table is a summary of the outstanding Trust Securities and the Notes at December 31, 2007 as originated by Bank of America Corporation and the predecessor banks. Aggregate Principal Amount of Trust Securities $ 575 900 500 375 518 1,000 1,685 530 900 1,000 863 700 850 500 365 500 500 ...

  • Page 146
    ... 31, 2006 Loan commitments Home equity lines of credit Standby letters of credit and financial guarantees Commercial letters of credit Legally binding commitments (1) Credit card lines Total credit extension commitments (1) Includes commitments to VIEs disclosed in Note 9 - Variable Interest...

  • Page 147
    ...to certain cash funds managed within GWIM. The funds for which the Corporation provided support typically invest in high quality, short-term securities with a weighted average maturity of 90 days or less, including a limited number of securities issued by SIVs. Due to market disruptions, certain SIV...

  • Page 148
    ... mortgage-backed securities, ABS, and CDO securities issued by other vehicles. These written put options are recorded as derivatives on the Consolidated Balance Sheet and are carried at fair value with changes in fair value recorded in trading account profits (losses). Derivative activity related...

  • Page 149
    ... future date. The Corporation is required to fund any shortfall at the preset future date between the proceeds of the liquidated assets and the purchase price of the zero-coupon bonds. These guarantees are booked as derivatives and marked to market in the trading portfolio. At December 31, 2007 and...

  • Page 150
    ... 16, 2001, a class was certified consisting of more than one million California residents who have, had or will have, at any time after August 13, 1994, a deposit account with BANA into which payments of public benefits are or have been directly deposited by the government. 148 Bank of America 2007

  • Page 151
    ... Court for the Southern District of New York; and John Hancock Life Insurance Company, et al. v. Bank of America Corporation et al. in the U.S. District Court for the District of Massachusetts. The actions variously allege violations of federal and state securities law and state common law, and...

  • Page 152
    ...shares, from time to time, in the open market or in private transactions through the Corporation's approved repurchase program. The Corporation expects to continue to repurchase a number of shares of common stock comparable to any shares issued under the Corporation's employee stock plans. Effective...

  • Page 153
    ...) losses on AFS debt and marketable equity securities and impairments. These amounts are reclassified into earnings upon sale of the related security. Employee benefit plans include the accumulated adjustment to initially apply SFAS 158 of $(1.3) billion. Earnings per Common Share The calculation...

  • Page 154
    ... events since December 31, 2007 that management believes have changed the Corporation's, Bank of America, N.A.'s, FIA Card Services, N.A.'s, and LaSalle Bank, N.A.'s capital classifications. The regulatory capital guidelines measure capital in relation to the credit and market risks of both off- and...

  • Page 155
    ... of service. It is the policy of the Corporation to fund not less than the minimum funding amount required by ERISA. The Pension Plan has a balance guarantee feature for account balances with participant-selected earnings, applied at the time a benefit payment is made from the plan that protects...

  • Page 156
    ... discount rate at December 31, 2007, was 6.00 percent. For both the Qualified Pension Plans and the Postretirement Health and Life Plans, the expected long-term return on plan assets is 8.00 percent for 2008. The expected return on plan assets is determined using the calculated market-related value...

  • Page 157
    ... Life Plans (1) 2007 2006 2007 2006 Change in fair value of plan assets Fair value, January 1 MBNA balance, January 1, 2006 U.S. Trust Corporation balance, July 1, 2007 LaSalle balance, October 1, 2007 Actual return on plan assets Company contributions (2) Plan participant contributions Benefits...

  • Page 158
    ... 1, 2007 and October 1, 2007, using a discount rate of 6.15 percent and 6.50 percent. n/a = not applicable Net periodic postretirement health and life expense was determined using the "projected unit credit" actuarial method. Gains and losses for all benefits except postretirement health care are...

  • Page 159
    ...'s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation's investment strategy is designed to provide a total return that, over the long-term, increases the ratio...

  • Page 160
    ... fair value of stock options granted on the date of grant using the lattice option-pricing model for 2007 and 2006. Lattice option-pricing models incorporate ranges of assumptions for inputs and those ranges are disclosed in the table below. The risk-free rate for periods within the contractual life...

  • Page 161
    ... 57 million options under the Key Employee Stock Plan, 151 million options under the Key Associate Stock Plan and 20 million options to employees of predecessor companies assumed in mergers. Includes vested shares and nonvested shares after a forfeiture rate is applied. Bank of America 2007 159

  • Page 162
    ... (benefit) Federal State Foreign Total deferred expense (benefit) Total income tax expense (1) (1) Does not reflect the deferred tax effects of unrealized gains and losses on AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and employee benefit plan...

  • Page 163
    ... 2,051 Deferred tax assets Allowance for credit losses Security valuations Employee compensation and retirement benefits Accrued expenses Available-for-sale securities Foreign tax credit carryforward Other Gross deferred tax assets Valuation allowance (1) Total deferred tax assets, net of valuation...

  • Page 164
    ...the election of the fair value option, these AFS debt securities have been transferred to trading account assets. Includes structured reverse repurchase agreements that were hedged with derivatives in accordance with SFAS 133. Includes long-term fixed rate deposits that were economically hedged with...

  • Page 165
    ... the asset or liability in an orderly transaction between market participants on the measurement date. For additional information on how the Corporation measures fair value, see Note 1 - Summary of Significant Accounting Principles to the Consolidated Financial Statements. Bank of America 2007 163

  • Page 166
    ... securities purchased under agreements to resell (2) Trading account assets Derivative assets Available-for-sale debt securities Loans and leases (2, 3) Mortgage servicing rights Other assets (4) Total assets Liabilities Interest-bearing deposits in domestic offices (2) Trading account liabilities...

  • Page 167
    ... loan terms. In these cases, fair value is estimated using discounted cash flow models with market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Mortgage Servicing Rights Derivatives The fair values of Level 3 derivative...

  • Page 168
    ... and Other Liabilities (3) (Dollars in millions) Net Derivatives (1) Other Assets (3) Total Changes in unrealized gains or losses relating to assets still held at reporting date for 2007: Card income Equity investment income Trading account losses Mortgage banking income (loss) Other income...

  • Page 169
    ..., time deposits placed, federal funds sold and purchased, resale and certain repurchase agreements, commercial paper and other short-term investments and borrowings, approximates the fair value of these instruments. These financial instruments generally expose the Corporation to limited credit risk...

  • Page 170
    ... average lives of the MSRs and the OAS levels. Commercial and residential reverse mortgage MSRs are accounted for using the amortization method (i.e., lower of cost or market). Commercial and residential reverse mortgage MSRs totaled $294 million at December 31, 2007, and commercial MSRs totaled...

  • Page 171
    ... range of financial services to both the Corporation's issuer and investor clients that range from business banking clients to large international corporate and institutional investor clients using a strategy to deliver value-added financial products and advisory solutions. Bank of America 2007 169

  • Page 172
    ... $1,459,737 Global Corporate and Investment Banking (2) (Dollars in millions) Global Wealth and Investment Management (2) 2005 2007 2006 2007 2006 2005 Net interest income (4) Noninterest income Total revenue, net of interest expense Provision for credit losses Amortization of intangibles...

  • Page 173
    ... Offset (2) Net interest income (3) Noninterest income: Card income Equity investment income Gains (losses) on sales of debt securities All other income Total noninterest income Total revenue, net of interest expense Provision for credit losses Merger and restructuring charges All other noninterest...

  • Page 174
    ... ALM activities, including securities portfolio Equity investments Liquidating businesses Elimination of segment excess asset allocations to match liabilities Elimination of managed securitized loans (1) Other $1,210,595 384,459 15,639 10,224 (79,926) (101,865) 20,611 $1,459,737 Consolidated total...

  • Page 175
    ... Total assets Liabilities and shareholders' equity Commercial paper and other short-term borrowings Accrued expenses and other liabilities Payables to subsidiaries: Bank holding companies and related subsidiaries Nonbank companies and related subsidiaries Long-term debt Shareholders' equity Total...

  • Page 176
    ... (purchases) sales of securities Net payments to subsidiaries Other investing activities, net Net cash used in investing activities Financing activities Net increase (decrease) in commercial paper and other short-term borrowings Proceeds from issuance of long-term debt Retirement of long-term debt...

  • Page 177
    ... Center for Media New York, NY Thomas M. Ryan Chairman, President and Chief Executive Officer CVS Caremark Corporation Woonsocket, RI O. Temple Sloan, Jr. Chairman General Parts International Inc. Raleigh, NC Meredith R. Spangler Trustee and Board Member C.D. Spangler Construction Company Charlotte...

  • Page 178
    ..., shareholder relations manager, at 1.800.521.3984. For inquiries concerning dividend checks, dividend reinvestment plan, electronic deposit of dividends, tax information, transferring ownership, address changes or lost or stolen stock certificates, contact Bank of America Shareholder Services at...

  • Page 179
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