Bank of America 2008 Annual Report Download - page 64

On January 1, 2009, the Corporation acquired Merrill Lynch which
contributed to both our consumer and commercial loans and commit-
ments. Acquired consumer loans consist of residential mortgages, home
equity loans and lines of credit and direct/indirect and other loans.
Commercial loans were comprised of both investment and non-investment
grade loans and include exposures to CMBS, monolines and leveraged
finance. Consistent with other acquisitions, we will incorporate the
acquired assets into our overall credit risk management processes and
enhance disclosures where appropriate.
Consumer Portfolio Credit Risk Management
Credit risk management for the consumer portfolio begins with initial
underwriting and continues throughout a borrower’s credit cycle. Stat-
istical 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. Statistical models are built using
detailed behavioral information from external sources such as credit
bureaus and/or internal historical experience. These models are a
component of our consumer credit risk management process and are
used in part to help determine both new and existing credit decisions,
portfolio management strategies including authorizations and line man-
agement, collection practices and strategies, determination of the allow-
ance for loan and lease losses, and economic capital allocations for
credit risk.
For information on our accounting policies regarding delinquencies,
nonperforming status and charge-offs for the consumer portfolio, see
Note 1 – Summary of Significant Accounting Principles to the Con-
solidated Financial Statements.
Management of Consumer Credit Risk
Concentrations
Consumer credit risk is evaluated and managed with a goal that credit
concentrations do not result in undesirable levels of risk. We review,
measure and manage credit exposure in numerous ways such as by
product and geography in order to achieve the desired mix. Additionally,
credit protection is purchased on certain portions of our portfolio to
enhance our overall risk management position.
The merger with Merrill Lynch will increase our concentrations to cer-
tain products and loan types. These increases are primarily in the resi-
dential mortgage, home equity and direct/indirect portfolios.
Consumer Credit Portfolio
Overall, consumer credit quality indicators deteriorated during 2008 as
our customers were negatively impacted by the slowing economy. Con-
tinued weakness in the housing markets, rising unemployment and
underemployment, and tighter credit conditions resulted in rising credit
risk across all our consumer portfolios. The deterioration in the consumer
credit quality indicators accelerated during the fourth quarter.
Table 15 presents our consumer loans and leases and our managed
credit card portfolio, and related credit quality information. Loans that
were acquired from Countrywide that were considered impaired were writ-
ten down to fair value at acquisition in accordance with SOP 03-3. Refer
to the SOP 03-3 discussion beginning on page 65 for more information. In
addition to being included in the “Outstandings” column below, these
loans are also shown separately, net of purchase accounting adjust-
ments, for increased transparency in the “SOP 03-3 Portfolio” column.
Table 15 Consumer Loans and Leases
December 31
Outstandings Nonperforming
(1, 2, 3)
Accruing Past Due 90
Days or More
(3, 4)
SOP 03-3
Portfolio
(5)
(Dollars in millions) 2008 2007 2008 2007 2008 2007 2008
Held basis
Residential mortgage $247,999 $274,949 $7,044 $1,999 $ 372 $ 237 $ 9,949
Home equity 152,547 114,820 2,670 1,340 ––14,163
Discontinued real estate
(6)
19,981 n/a 77 n/a –n/a 18,097
Credit card – domestic 64,128 65,774 n/a n/a 2,197 1,855 n/a
Credit card – foreign 17,146 14,950 n/a n/a 368 272 n/a
Direct/Indirect consumer
(7)
83,436 76,538 26 81,370 745 n/a
Other consumer
(8)
3,442 4,170 91 95 44n/a
Total held $588,679 $551,201 $9,908 $3,442 $4,311 $3,113 $42,209
Supplemental managed basis data
Credit card – domestic $154,151 $151,862 n/a n/a $5,033 $4,170 n/a
Credit card – foreign 28,083 31,829 n/a n/a 717 714 n/a
Total credit card – managed $182,234 $183,691 n/a n/a $5,750 $4,884 n/a
(1) The definition of nonperforming does not include consumer credit card and consumer non-real estate loans and leases. These loans are charged off no later than the end of the month in which the account becomes
180 days past due.
(2) Nonperforming held consumer loans and leases as a percentage of outstanding consumer loans and leases were 1.68 percent (1.81 percent excluding the SOP 03-3 portfolio) and 0.62 percent at December 31, 2008
and 2007.
(3) Balances do not include loans accounted for in accordance with SOP 03-3 even though the customer may be contractually past due. Loans accounted for in accordance with SOP 03-3 were written down to fair value
upon acquisition and accrete interest income over the remaining life of the loan.
(4) Accruing held consumer loans and leases past due 90 days or more as a percentage of outstanding consumer loans and leases were 0.73 percent (0.79 percent excluding the SOP 03-3 portfolio) and 0.57 percent at
December 31, 2008 and 2007.
(5) Represents acquired loans from Countrywide that were considered impaired and written down to fair value at the acquisition date in accordance with SOP 03-3. These amounts are included in the Outstandings column
in this table.
(6) Discontinued real estate includes pay option loans and subprime loans obtained in connection with the acquisition of Countrywide. The Corporation no longer originates these products.
(7) Outstandings include foreign consumer loans of $1.8 billion and $3.4 billion at December 31, 2008 and 2007.
(8) Outstandings include consumer finance loans of $2.6 billion and $3.0 billion, and other foreign consumer loans of $618 million and $829 million at and December 31, 2008 and 2007.
n/a = not applicable
62 Bank of America 2008