Bank of America 2008 Annual Report Download - page 84
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folios, and the addition of the Countrywide portfolio. In addition, reserves
were increased by $750 million associated with a reduction in the princi-
pal cash flows expected to be collected on the Countrywide SOP 03-3
portfolio, mainly the discontinued real estate portfolio.
The allowance for commercial loan and lease losses was $6.4 billion
at December 31, 2008, a $1.6 billion increase from December 31, 2007.
The increase in allowance levels was driven by higher losses in the small
business portfolio within GCSBB and reserve increases on the home-
builder loan portfolio within GCIB. For further discussion, see Provision for
Credit Losses on page 81.
The allowance for loan and lease losses as a percentage of total
loans and leases outstanding was 2.49 percent at December 31, 2008,
compared to 1.33 percent at December 31, 2007. The increase in the
ratio was primarily driven by reserve increases for higher losses in the
home equity and residential mortgage portfolios, reflective of continued
weakness in the housing markets and a slowing economy. The higher
ratio was also due to reserve increases in the Card Services’ unsecured
lending, domestic credit card, and small business portfolios. These
reserve increases were a result of the slowing economy, particularly in
geographic areas that have experienced the most significant housing
declines, and with respect to several portfolios, seasoning of vintages
originated in periods of higher growth. In addition, the 2008 ratio also
includes the impact of SOP 03-3 portfolio. As this portfolio was initially
recorded at fair value upon acquisition, the reserve related to these loans
is significantly lower than other portfolios.
Reserve for Unfunded Lending Commitments
In addition to the allowance for loan and lease losses, we also estimate
probable losses related to unfunded lending commitments excluding
commitments measured at fair value, such as letters of credit and finan-
cial guarantees, and binding unfunded loan commitments. Unfunded lend-
ing commitments are subject to the same assessment as funded loans,
except utilization assumptions are considered. The reserve for unfunded
lending commitments is included in accrued expenses and other liabilities
on the Consolidated Balance Sheet with changes to the reserve generally
made through the provision for credit losses.
The reserve for unfunded lending commitments at December 31,
2008 was $421 million compared to $518 million at December 31,
2007. Our reserve for unfunded commitments decreased as a result of
lower exposures.
82
Bank of America 2008