Professional Documents
Culture Documents
2009 Ar
2009 Ar
Bank of America
100 North Tryon Street
Charlotte, NC 28255
Everything’s so complicated.
Can’t you make credit card terms simpler?
What steps are you taking to make sure my financial information is secure?
I’m a small-business owner with plans to expand. Will I be able to get access to capital?
How do I save for college and pay my weekly grocery bill at the same time?
To Our Shareholders:
Bank of America serves one in two U.S. households, virtually
the entire U.S. Fortune 1000 and clients around the world. We
built this company to serve customers and clients wherever
and however they choose, and to return value to shareholders.
We understand that we play an important role as an engine
of growth and a partner for success for millions of individuals,
families and businesses of every size.
As we emerge from the economic crisis of the past two years, we also have the
opportunity — and the obligation — to address a simple question I often hear:
“What is Bank of America doing to make financial services better?”
It’s a good question. My answer is, we’re working to improve our ability to support
the financial health of all those we serve. To provide financial solutions that are
clearly explained and easily understood. To take our seat at the table with policy-
makers at every level and help create a financial system that supports economic
growth and financial stability. And to do all this through a business model that
generates attractive returns for you — our shareholders.
Brian T. Moynihan
Chief Executive Officer and President
A Tough Year
2009 was a difficult year by almost every measure. As the largest lender in the United States Bank of America
during the worst recession in 70 years, we knew 2009 would be a stern test — and it was. is a global leader
For the full year, we reported net income of $6.3 billion — a good overall result given the eco-
in client assets,
nomic environment. After accounting for preferred dividends and the cost of exiting the federal
retail deposits,
commercial bank-
government’s Troubled Asset Relief Program (TARP), we reported a net loss applicable to
ing, credit cards,
common shareholders of $2.2 billion, or a loss of $0.29 per diluted share.
home loans and
TARP, and other actions by public officials, stabilized our financial system, and we’re grateful lending.
to U.S. taxpayers for making these funds available. We repaid the Treasury the full $45 billion
for the TARP preferred stock investment in December. Government support of our company
Bank of America has
and the industry also carried a heavy cost for our shareholders. In 2009, dividends and fees
relationships with
associated with government support programs reduced our net income available to you, our
shareholders, by $9.6 billion.
At the same time, we faced high credit costs in 2009, as provision expense for the year totaled
$49 billion. While credit costs will continue to be high in 2010, most credit quality metrics have
begun to improve. Net charge-offs fell in the fourth quarter for the first time in more than four
98
of U.S. Fortune
%
years. We think the economy will gain strength through the year, so we expect credit costs 1000 companies.
to improve.
Despite the many challenges we faced in 2009, we came through the worst year for banks
in several generations with net income up more than 50% over 2008. We strengthened our
capital through a series of actions that increased Tier 1 common capital by $57 billion. And we
$14,982
7.81%
$231,444
$177,052
4.93%
4.80%
$146,803
$6,276
$4,008
07 08 09 07 08 09 07 08 09
moved ahead on our merger integrations — LaSalle is complete, Countrywide is close, and the
“We came Merrill Lynch transition is progressing on schedule and under budget. Bringing these projects
through the to a successful close is critical as we look forward to putting all of our focus on customer and
client satisfaction this year and beyond.
worst year
for banks Leadership in a Changing Industry
in several Early in this crisis, it became clear that consumers across all our markets were frustrated
generations with their banking experience. They wanted clarity, consistency, transparency and simplicity
with net in their financial products and services.
income up We’ve responded with Clarity Commitment® documents in our home loans and credit card
more than businesses that explain in plain English the terms of each product or service; with limited and
50% over simplified fee structures in our deposits business; and with other changes that make it easier
2008.” for our customers to manage their finances.
In our capital markets businesses, we’re working with policy leaders on reforms for derivatives
trading, securitization and other sectors that aim to improve transparency and accountability.
We are a leading We are working to ensure that reforms balance safety and soundness with innovation, and
provider of allow us to deliver the products our clients need to run their businesses.
sales, trading While we have always had a “pay for performance” culture, we have made important changes
and research to our compensation practices to more closely align pay with long-term financial performance
services to and enable the company to recover funds when risks go bad.
clients in all
major markets. We also have adopted an improved approach to risk management. Each year, the management
team will recommend, and the board of directors will approve, an aggregate risk appetite for
the company that management will then allocate across the lines of business. We’ve clari-
fied risk management roles and responsibilities. We’re putting in place management routines
that will foster more open debate on risk-related issues, and we’re taking action based on
those debates.
$991,611
$2,223,299
$931,446
$900,128
$882,997
$876,344
$805,177
$1,817,943
$1,715,746
07 08 09 07 08 09 07 08 09
Before and during the recent crisis, many of our collective business judgments missed the
mark. We believe the changes we’re making now will put us in a much better position to see Bank of America
has more than
and respond to macroeconomic risks in the future. 18,000 ATMs and
award-winning online
We are moving ahead and making changes we believe are responsive to our customers’ and banking with active
clients’ needs. And we are urging constructive dialogue with policymakers to make sure we’ll users totaling nearly
be able to continue to meet the needs of our clients, while at the same time protecting the future
of our industry.
Clearly, the most urgent need has been loan modifications, to help families and businesses
manage their monthly cash flow to get through the crisis. We’ve reported regularly on our
1 in 2
households in
efforts to ease the crisis in home foreclosures, and we continue to accelerate our work to match the country.
the growing need. We lead the nation in the number of home loans we’ve modified — nearly Our retail footprint covers
700,000 trial and permanent modifications since January 2008. 80% of the U.S. population
and we serve 59 million
Another key area of focus is small- and medium-sized businesses. In 2009, we lent more than consumer and small-
business relationships.
$16 billion to these businesses, and we announced in December that we would increase lending
to small- and medium-sized businesses by $5 billion in 2010. We also modified more than 60,000
small business card loans. In the current crisis, we believe this is not only the right thing to do,
but that it’s also good business. A renegotiated loan is better than a defaulted loan — and we
believe many of these customers will become loyal advocates for Bank of America as they get
back on their feet in the coming years.
$749,852
$5,551
$643,541
$17,628
$523,159
$2,345
$2,263
$(6,882)
$(2,590)
07 08 09 07 08 09 07 08 09
*Fully taxable-equivalent
basis
That our company is taking this approach should not surprise anyone who has known or
“Now, it’s followed us over the years. A healthy sense of “enlightened self-interest” is a cornerstone
all about of our culture, and continues to fi nd life in our 10-year goals for community development
($1.5 trillion) and philanthropy ($2 billion), our industry-leading environmental initiatives
execution —
and other endeavors.
about meeting
and exceeding Our Vision for Bank of America
our customers’ Our vision for our company is simple. It’s Bank of America associates all over the world pulling
and clients’ together to create the right solutions for our customers and clients. It’s customers and clients
telling us we’re the best by bringing us more of their business. It’s shareholders investing in
expectations
our stock because they can see our bright future. It’s associates choosing to build their careers
every day.” here because they believe this is the best place to work. It’s community leaders acknowledg-
ing that Bank of America is the most important business partner helping to drive success in
their communities.
That’s what I mean when I talk about the finest financial services company in the world.
We have the best domestic and global franchise in the industry, and capabilities across
all our businesses that we believe meet or beat those of our competitors. Now, it’s all about
execution — about meeting and exceeding our customers’ and clients’ expectations every day.
Our great challenge is to take this large, diverse company we’ve built and make it the best in
the business at helping customers, clients, shareholders and communities achieve their finan-
cial goals. Helping our team meet this challenge by achieving operational excellence on a global
scale is the goal I have set for myself as chief executive officer.
I’d like to close by thanking Walter Massey and the board for their confidence in me as I begin
my journey as CEO. Most of all, I want to thank our customers, clients and shareholders for
your continued confidence in us. We take our responsibilities very seriously, and we are work-
ing hard every day to win in the marketplace.
Brian T. Moynihan
President and Chief Executive Officer
March 1, 2010
6 Bank of America 2009
Letter from the Chairman
Walter E. Massey
Chairman of the Board of Directors
To Our Shareholders:
Over the course of the past several years, our company and the global financial system
have changed dramatically. Our recent acquisitions, combined with the unexpected depth of
the financial crisis, signaled the need for more board members with deep and broad experience
in financial management, and familiarity with the financial regulatory environment.
Since April of last year, we have welcomed six new directors. They are:
• Susan S. Bies, former member, board of governors of the Federal Reserve System
• William P. Boardman, retired vice chairman, Banc One Corporation and
retired chairman, Visa International, Inc.
• Charles O. Holliday Jr., retired chairman and CEO, E.I. du Pont de Nemours and Co.
• D. Paul Jones Jr., former chairman, CEO and president, Compass Bancshares, Inc.
• Donald E. Powell, former chairman, Federal Deposit Insurance Corporation
• Robert W. Scully, former member, Office of the Chairman, Morgan Stanley
Our newly constituted board immediately set about the work of reassessing the current state of the company’s gover-
nance processes and controls, and began taking action to strengthen the board’s oversight functions. We continue this
work today.
We also had a number of members retire from the board last year. Leaving the board were: William Barnet, III; John T.
Collins; Gary L. Countryman; Tommy R. Franks; Patricia E. Mitchell; Joseph W. Prueher; O. Temple Sloan, Jr.; Meredith R.
Spangler; Robert L. Tillman; and Jackie M. Ward. We appreciate the many contributions of all these individuals over the
years, and offer our deep gratitude for their service.
In September, Ken Lewis, our company’s president and chief executive officer, announced his decision to retire from the
company at the end of the year. I think all of us on the board who had the opportunity to work with Ken over the years
observed a few things about him.
First, Ken knows the difference between management, the task of day-to-day administration, and leadership, the art of
inspiring others to follow — and that both are critical to the success of the company. Second, he is one of the most com-
petitive, focused and disciplined people I’m ever likely to meet. Third, he understands why values are the most important
foundation for any business. He lived the company’s values every day, and required his teammates to do the same.
Ken helped lead the growth of this company over the course of his 40-year career because he firmly believed that becoming a
large company with broad capabilities would enable us to create more value for customers, clients and shareholders. I know
he still believes that — and so do I.
On December 16 of last year, the board of directors elected Brian Moynihan to be the company’s president and chief execu-
tive officer starting January 1. Brian also joined our board of directors at the start of the year. Brian brings to his role a
tremendous breadth and depth of experience, having led, at different times, the company’s wealth management, corporate
and investment banking, and consumer and small-business banking businesses. He is as comfortable on Wall Street as he
is on Main Street.
Bank of America represents one of the great business opportunities in history. We have assembled a company of tremen-
dous scale, diversity and capabilities. Our challenge and opportunity is to take advantage of what we have built and make
it work even better for customers, clients, shareholders and communities.
Walter E. Massey
Chairman of the Board of Directors
March 1, 2010
Managing your money can be hard Clarity Commitment® In 2009, Clear and Simple We know our
we introduced Clarity Commitment customers’ needs are changing,
work, but the right bank can make it documents for home mortgages, so we’re changing with them. In
easier. That’s why Bank of America home equity loans and credit card 2009, we simplified our overdraft
is committed to providing customers agreements. A Clarity Commitment policies, limited fees and devel-
document is a simple, easy-to- oped a clear summary of what
with products and policies that are
read, one-page loan summary that customers should expect from
easy to understand — like our new includes important information their Bank of America checking
Clarity Commitment® documents and on payments, interest rates and account. We also focused on
simplified overdraft policies. fees — without a lot of legal termi- helping our customers keep better
nology — to complement customer track of their finances by offering
loan agreements. multiple balance alert options
with our checking and savings
accounts, as well as online tools.
It’s all part of our pledge to deliver
simple, predictable and transpar-
ent products and services to our
customers.
As America’s largest bank, we have Home Loan Modifications Since Credit Card Modifications In 2009,
January 2008, we have helped Bank of America modified 1.4 million
a responsibility to help customers nearly 700,000 customers with per- unsecured loans, including credit
who are struggling. That’s why Bank manent and trial loan modifications card loans, for customers struggling
of America has stepped up our home through our own programs and to meet their financial obligations.
the Home Affordable Modification Efforts included lowering interest
loan and credit card modification
Program (HAMP). We’ve also taken rates, reducing payments and fees
efforts and outreach programs. We significant steps to contact custom- or referring customers to debt man-
also expanded our home retention ers who may be eligible for home agement programs.
staffing to more than 15,000 to help loan modifications, including tar-
Deposits Customer Assistance
geted advertising, door-knocking
customers who are experiencing diffi- campaigns, and partnerships with
In 2009, we launched a Customer
Assistance Program to help our
culty with their home loans. nonprofit organizations.
customers who lost their jobs.
Since then, we have helped more
than 150,000 customers by lower-
ing fees.
Access to credit is essential to eco- Consumers Bank of America is Businesses Small businesses are
one of the largest providers of vital to the growth and stability of
nomic recovery and growth. That’s consumer credit in the world, our economy. We currently have
why Bank of America is open for busi- extending more than $430 billion more than $41 billion in outstand-
ness — helping our customers drive in consumer loans in 2009. These ing small- and medium-business
loans, which range from first mort- loans. In 2009, we extended more
the economy forward. In 2009, Bank of
gage and home equity loans to than $16 billion in credit to small-
America extended more than $758 bil- credit card and other consumer and medium-business customers
lion in credit to consumer and com- unsecured loans, help customers and approximately $310 billion to
mercial clients, which works out to finance their dreams. large commercial relationships.
For 2010, Bank of America has
about $3 billion per business day. pledged to increase lending to
small- and medium-sized busi-
nesses, an engine of job creation
in our economy, by $5 billion.
Providing clients with comprehensive Banking & Liquidity Management Leaving a Legacy We understand
From the safety and security of that providing wealth for future gen-
solutions and sound advice has never FDIC-insured offerings, to innova- erations and developing creative
been more critical. The combination tive financing and lending solutions, strategies for more effective giving
of Bank of America, U.S. Trust, and we provide our clients access to a are critical to clients. Through
full spectrum of banking and liquid- highly specialized credit, asset
Merrill Lynch — which includes one of
ity management services. management, and trust and estate
the largest teams of financial advisors planning, we are committed to
Solutions for Retirement Retire-
in the industry — enables us to deliver ment may be right around the
helping clients create the legacy
comprehensive wealth management they’ve always wanted.
corner or seem farther away than
to clients. Whether it’s preparing for ever. Either way, we’ll help clients
get there with retirement strate-
retirement or other investment goals,
gies for all stages of life. And for
we have the capabilities and resources clients who are business owners,
to help our clients plan for all of life’s we’ll help their employees save
dreams and milestone events. for retirement.
Strong communities are a cornerstone Community In 2009, we embarked minority families, businesses and
on our 10-year, $2 billion charitable nonprofits to promote neighbor-
to economic growth and stability. investment goal. During the year we hood revitalization. We also partner
That’s why Bank of America continues invested $200 million to help meet with community development
to advance the economic and social critical community needs, including financial institutions to provide
more than $20 million through our financing and other assistance to
health of the neighborhoods we
Neighborhood Excellence Initiative,® businesses unable to qualify for
serve through strategic community which recognizes community leader- traditional bank financing.
development programs, lending and ship and service. Also, associates
Environment Our 10-year,
investing initiatives, support of the donated more than 800,000 volun-
$20 billion environmental initia-
teer hours, contributing their time
arts, philanthropy, volunteerism and and expertise to meet critical com-
tive to address climate change
began in 2007. Since then, we
environmental commitments. Our munity needs.
have delivered more than $5.9 bil-
deep history of community involve- Economic Development In 2009, lion in lending, investing, and new
ment also supports our long-term we initiated our 10-year, $1.5 trillion products and services, including
business goals. community development lending nearly $900 million in financing for
and investing goal, providing capital renewable and energy efficiency
to low- and moderate-income and projects in 2009 alone.
$150 $60
$125 $50
$100 $40
$75 $30
$50 $20
$25 $10
$0 $0
2004 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
December 31 2004 2005 2006 2007 2008 2009 HIGH $47.08 $54.90 $54.05 $45.03 $18.59
BAC BANK OF AMERICA CORPORATION $100 $102 $124 $100 $37 $40 LOW 41.57 43.09 41.10 11.25 3.14
SPX S&P 500 INDEX $100 $105 $121 $128 $81 $102 CLOSE 46.15 53.39 41.26 14.08 15.06
BKX KBW BANK INDEX $100 $103 $121 $121 $50 $49
2 This graph compares the yearly change in the Corporation’s total cumulative shareholder return on its common stock with (i) the Standard & Poor’s 500 Index and (ii) the
KBW Bank Index for the years ended December 31, 2005 through 2009. The graph assumes an initial investment of $100 at the end of 2004 and the reinvestment of all
dividends during the years indicated.
$29.3
$25
15%
$23.0
24%
$20
$20.6
$18.1
$16.9
$15
17%
$14.0
$10 14%
$(1.0)
$5 19%
$0
Deposits Global Banking
$(5) Global Card Services Global Markets
Deposits Global Home Global Global Global Wealth & All Home Loans & Global Wealth &
Card Loans & Banking Markets Investment Other 2 Insurance Investment Management
Services Insurance Management All Other 2
Net Income (Loss) Per Business Segment (dollars in billions) Pre-tax, Pre-provision Income by
Business Segment 1
$8
$7.2
$6 (11)% 8%
$4 9%
39%
$3.0
$0.5
$2
$2.5
$2.5
20%
$0
$(5.6)
$(3.8)
$(2)
10%
25%
$(4)
Deposits includes a full range of products Home Loans & Insurance provides an exten- Global Markets provides financial products,
for consumers and small businesses includ- sive line of consumer real estate products advisory services, financing, securities clear-
ing traditional savings accounts, money and services including fixed and adjustable ing, and settlement and custody services
market savings accounts, CDs, IRAs, and rate first-lien mortgage loans for home pur- globally to institutional clients. We also work
noninterest- and interest-bearing checking chase and refinancing, reverse mortgages, with commercial and corporate clients to
accounts. Deposits results also include stu- home equity lines of credit and home equity provide debt and equity underwriting and dis-
dent lending and the impact of our Asset and loans. HL&I also offers property, casualty, tribution and risk management products.
Liability Management activities. life, disability and credit insurance.
Global Wealth & Investment Management
Global Card Services is one of the leading Global Banking provides a wide range of provides a wide offering of customized bank-
issuers of credit cards in the United States lending-related products and ser vices, ing, investment and brokerage services to
and Europe and provides a broad offering integrated working capital management, meet the wealth management needs of our
of products to consumers and small busi- treasury solutions and investment banking individual and institutional customer base.
nesses, including U.S. consumer and busi- services. Our clients include multinationals, Our primary wealth and investment manage-
ness card, consumer lending, international middle- market and business banking compa- ment businesses are: Merrill Lynch Global
card and debit card and a variety of co- nies, correspondent banks, commercial real Wealth Management; U.S. Trust, Bank of
branded and affinity card products. estate firms and governments. America Private Wealth Management; and
Columbia Management.
As one of the world’s largest financial institutions, became the first mortgage servicer to surpass 200,000
we know our actions can have a meaningful impact customers entering HAMP trial modifications — leading
the industry with the highest number of active trials and
on the economy, our communities and families
offers extended.
everywhere we do business. So, we have taken sig-
nificant steps to help promote economic growth, Support of the Arts Reflecting our belief that strong arts
institutions provide communities with stability, job oppor-
restore trust, and move the bank forward.
tunities and an improved quality of life, we invested nearly
Clarity Commitment® Our Clarity Commitment documents $50 million to support arts and heritage programs world-
have been hailed by customers for helping promote transpar- wide in 2009.
ency in traditionally complicated financial agreements. These Supporting Green Initiatives We are addressing climate
one-page summaries highlight key loan terms in mortgage, change by helping finance renewable and low-carbon energy
home equity and credit card loan agreements, improving solutions in our communities, like the financing we provided
clarity and transparency of agreements for our customers. for a 929-kilowatt solar power system at Mendocino College’s
Credit Card Assistance During 2009, we modified more than Ukiah campus in California. The system is expected to save
1.4 million consumer and small business unsecured loans, the college nearly $15 million in electricity costs over the next
including credit cards, representing more than $13.3 billion 25 years, as well as reduce greenhouse gas emissions.
in credit.
Community Development Our $1.5 trillion, 10-year com-
Financial Literacy In 2009, we enhanced our online tools to munity development goal started in 2009, and replaced
provide consumers with guidance on managing their credit, our previous goal of $750 billion. This initiative, unprece-
including launching our Facts About Fees Web site; our dented in the financial services community, is focused on
interactive Home Loan Guide to help customers make helping low- and moderate-income and minority families
informed decisions; our Bankofamerica.com/solutions and neighborhoods in the areas of affordable housing,
portal; and Help With My Credit,SM a Web site in partnership small-business and farm ownership, consumer loans and
with other financial institutions to assist consumers strug- economic development.
gling to make credit card payments.
Neighborhood Preservation By partnering with community
Helping Customers Save In 2009, we launched the Add groups to mitigate the impact foreclosures have on neigh-
It Up® program, currently serving more than one million borhoods, we participated in nearly 250 outreach events in
customers and allowing them to earn cash back on pur- 32 states, and, since 2008, provided more than $35 million
chases. And, customers have saved more than $3 billion to fund neighborhood stabilization programs, including the
with Keep the Change®since it launched. This program auto- Alliance for Stabilizing our Communities, a national coalition
matically rounds up debit card purchases to the next dollar to help homeowners in areas hardest hit by foreclosures.
and transfers the difference from their checking to their
Retirement Planning A leading concern of Americans over
savings account.
age 55 is how they will live in retirement. In 2009, Merrill Lynch
Lending We continue to make every good loan we can to Wealth Management launched My Retirement Income™
consumers and businesses. Total credit extended in 2009 to help retirees access and use retirement savings to fund
exceeded $758 billion. their everyday lives as well as special one-time events.
Small-Business Support In 2009, we extended more than Helping Companies Raise Capital Through our debt and
$16 billion in credit to small- and medium-business custom- equity underwriting expertise and distribution capabili-
ers. For 2010, Bank of America has pledged to increase lend- ties, we helped thousands of companies raise more than
ing to small- and medium-sized businesses by $5 billion. $347 billion of capital around the world, enabling them to
grow their businesses and achieve their goals.
Home Loan Modifications In the past two years, we have
helped nearly 700,000 customers with loan modifications, Philanthropic Giving As part of our $200 million philan-
including modifications made by Countrywide before the thropic giving total in 2009, we responded to a dramatic
acquisition in July 2008. These include permanent and trial increase in critical community needs, investing more than
modifications as part of the administration’s Home Afford- $8 million in emergency safety net grants to address issues
able Modification Program (HAMP). In December 2009, we of hunger, housing and more.
This report may contain, and from time to time our management may make, indices which may affect, among other things, our liquidity and the value
certain statements that constitute forward-looking statements. Words such of our assets and liabilities and, in turn, our trading and investment
as “expects,” “anticipates,” “believes,” “estimates” and other similar portfolios; changes in consumer, investor and counterparty confidence in,
expressions or future or conditional verbs such as “will,” “should,” “would” and the related impact on, financial markets and institutions; the Corpo-
and “could” are intended to identify such forward-looking statements. ration’s credit ratings and the credit ratings of our securitizations which
These statements are not historical facts, but instead represent the current are important to the Corporation’s liquidity, borrowing costs and trading
expectations, plans or forecasts of Bank of America Corporation and its revenues; estimates of fair value of certain of the Corporation’s assets
subsidiaries (the Corporation) regarding the Corporation’s integration of the and liabilities which could change in value significantly from period to
Merrill Lynch and Countrywide acquisitions and related cost savings, future period; legislative and regulatory actions in the United States (including
results and revenues, credit losses, credit reserves and charge-offs, delin- the Electronic Fund Transfer Act, the Credit Card Accountability Responsi-
quency trends, nonperforming asset levels, level of preferred dividends, bility and Disclosure (CARD) Act of 2009 and related regulations) and
service charges, the closing of the sales of Columbia Management internationally which may increase the Corporation’s costs and adversely
(Columbia) and First Republic Bank, effective tax rate, noninterest expense, affect the Corporation’s businesses and economic conditions as a whole;
impact of changes in fair value of Merrill Lynch structured notes, impact of the impact of litigation and regulatory investigations, including costs,
new accounting guidance regarding consolidation on capital and reserves, expenses, settlements and judgments; various monetary and fiscal poli-
mortgage production, the effect of various legal proceedings discussed in cies and regulations of the U.S. and non-U.S. governments; changes in
“Litigation and Regulatory Matters” in Note 14 – Commitments and Con- accounting standards, rules and interpretations (including new accounting
tingencies to the Consolidated Financial Statements and other matters guidance on consolidation) and the impact on the Corporation’s financial
relating to the Corporation and the securities that we may offer from time to statements; increased globalization of the financial services industry and
time. These statements are not guarantees of future results or perform- competition with other U.S. and international financial institutions; the
ance and involve certain risks, uncertainties and assumptions that are diffi- Corporation’s ability to attract new employees and retain and motivate
cult to predict and often are beyond the Corporation’s control. Actual existing employees; mergers and acquisitions and their integration into
outcomes and results may differ materially from those expressed in, or the Corporation, including our ability to realize the benefits and cost sav-
implied by, the Corporation’s forward-looking statements. ings from and limit any unexpected liabilities acquired as a result of the
You should not place undue reliance on any forward-looking statement Merrill Lynch acquisition; the Corporation’s reputation; and decisions to
and should consider the following uncertainties and risks, as well as the downsize, sell or close units or otherwise change the business mix of the
risks and uncertainties discussed elsewhere in this report, including Corporation.
under Item 1A. “Risk Factors of this Annual Report on Form 10-K,” and in Forward-looking statements speak only as of the date they are made,
any of the Corporation’s other subsequent Securities and Exchange and the Corporation undertakes no obligation to update any forward-
Commission (SEC) filings: negative economic conditions that adversely looking statement to reflect the impact of circumstances or events that
affect the general economy, housing prices, job market, consumer con- arise after the date the forward-looking statement was made.
fidence and spending habits which may affect, among other things, the Notes to the Consolidated Financial Statements referred to in the
credit quality of our loan portfolios (the degree of the impact of which is Management’s Discussion and Analysis of Financial Condition and
dependent upon the duration and severity of these conditions); the Corpo- Results of Operations (MD&A) are incorporated by reference into the
ration’s modification policies and related results; the level and volatility of MD&A. Certain prior period amounts have been reclassified to conform to
the capital markets, interest rates, currency values and other market current period presentation.
2009 Economic Environment increase in foreclosures continued to weigh heavily on the housing sector.
2009 was a transition year as the U.S. economy began to stabilize Businesses cut production, inventories, employment and capital
although unemployment continued to rise. Gross Domestic Product, which spending aggressively in response to the financial crisis in late 2008
fell sharply in the first quarter and continued to decline in the second continuing into 2009. Production and capital spending fell in the first half
quarter, rebounded in the second half of the year but remained well below of the year, inventories declined for the first three quarters and employ-
its earlier expansion peak level. Consumer spending, which had declined ment declined through the entire year although at a progressively lower
sharply in the second half of 2008, rose modestly in each quarter of rate. U.S. exports increased in the second half of the year reflecting the
2009 and received a boost from the U.S. government’s Cash-for-Clunkers rebound of certain international economies following the global recession.
auto subsidies in the third quarter. Consumer spending remained tenta- Despite the modest growth in product demand and output in the second
tive as households saved more and paid down debt. After reaching lows half of the year, job layoffs mounted, and the unemployment rate
in January, housing activity increased compared to 2008 as home sales increased to over 10 percent in the fourth quarter, the highest since the
and new housing starts rose through the year lifting residential con- early 1980s. Producing more with fewer workers drove improvement in
struction. Nevertheless, large inventories of unsold homes and the labor productivity, boosting profits in the second half of the year.
Segment Results
Deposits net income narrowed due to declines in net revenue and commercial real estate and commercial – domestic portfolios. These
increased noninterest expense. Net revenue declined mainly due to a increases reflect deterioration across a broad range of property types,
lower net interest income allocation from ALM activities and spread industries and borrowers. Noninterest expense increased as a result of
compression as interest rates declined. This decrease was partially offset the Merrill Lynch acquisition, and higher FDIC insurance and special
by growth in average deposits on strong organic growth and the migration assessment costs.
of certain client deposits from GWIM partially offset by an expected Global Markets net income increased driven by the addition of Merrill
decline in higher-yielding Countrywide deposits. Noninterest expense Lynch and a more favorable trading environment. Net revenue increased
increased as a result of higher Federal Deposit Insurance Corporation due to improved market conditions and new issuance capabilities due to
(FDIC) insurance and special assessment costs. the addition of Merrill Lynch driving increased fixed income, currency and
Global Card Services reported a net loss as credit costs continued to commodity, and equity revenues. In addition, improved market conditions
rise reflecting weak economies in the U.S., Europe and Canada. Managed led to significantly lower write-downs on legacy assets compared with the
net revenue declined mainly due to lower fee income driven by changes in prior year.
consumer retail purchase and payment behavior in the current economic GWIM net income increased driven by the addition of Merrill Lynch
environment and the absence of one-time gains that positively impacted partially offset by a lower net interest income allocation from ALM activ-
2008 results. The decline was partially offset by higher net interest ities, the migration of client balances to Deposits and Home Loans &
income as lower funding costs outpaced the decline in average managed Insurance, lower average equity market levels and higher credit costs. Net
loans. Provision for credit losses increased as economic conditions led to revenue more than doubled as a result of higher investment and broker-
higher losses. age services income due to the addition of Merrill Lynch, the gain on our
Home Loans & Insurance net loss widened as higher credit costs investment in BlackRock and the lower level of support we provided for
continued to negatively impact results. Net revenue and noninterest certain cash funds. Provision for credit losses increased driven by higher
expense increased primarily driven by the full-year impact of Countrywide net charge-offs in the consumer real estate and commercial portfolios.
and higher loan production from increased refinance activity. Provision for All Other net income increased driven by higher equity investment
credit losses increased driven by continued economic and housing market income and increased gains on the sale of debt securities partially offset
weakness combined with further deterioration in the purchased impaired by negative credit valuation adjustments on certain Merrill Lynch struc-
portfolio. tured notes as credit spreads improved. Results were also impacted by
Global Banking net income declined as increases in revenue driven by lower other-than-temporary impairment charges primarily related to
strong deposit growth, the impact of the Merrill Lynch acquisition and non-agency CMOs. Excluding the securitization impact to show Global
favorable market conditions for debt and equity issuances were more Card Services on a managed basis, the provision for credit losses
than offset by increased credit costs. Provision for credit losses increased due to higher credit costs related to our ALM residential mort-
increased driven by higher net charge-offs and reserve additions in the gage portfolio.
At December 31, 2009, total assets were $2.2 trillion, an increase of Trading Account Assets
$405.4 billion, or 22 percent, from December 31, 2008. Average total Trading account assets consist primarily of fixed income securities
assets in 2009 increased $593.5 billion, or 32 percent, from 2008. The (including government and corporate debt), equity and convertible instru-
increases in year-end and average total assets were primarily attributable ments. Year-end and average trading account assets increased $47.9
to the acquisition of Merrill Lynch, which impacted virtually all categories, billion and $30.5 billion in 2009, attributable primarily to the acquisition
but particularly federal funds sold and securities borrowed or purchased of Merrill Lynch.
under agreements to resell, trading account assets, and debt securities.
Cash and cash equivalents, which are included in all other assets in the Debt Securities
table above, increased due to our strengthened liquidity and capital posi- Debt securities include U.S. Treasury and agency securities, MBS, princi-
tion. Partially offsetting these increases was a decrease in year-end loans pally agency MBS, foreign bonds, corporate bonds and municipal debt.
and leases primarily attributable to customer payments, reduced demand We use the debt securities portfolio primarily to manage interest rate and
and charge-offs. liquidity risk and to take advantage of market conditions that create more
At December 31, 2009, total liabilities were $2.0 trillion, an increase economically attractive returns on these investments. The year-end and
of $351.0 billion, or 21 percent, from December 31, 2008. Average total average balances of debt securities increased $33.9 billion and $20.5
liabilities for 2009 increased $513.7 billion, or 31 percent, from 2008. billion from 2008 due to net purchases of securities and the impact of
The increases in year-end and average total liabilities were attributable to the acquisition of Merrill Lynch. For additional information on our AFS debt
the acquisition of Merrill Lynch which impacted virtually all categories, but securities, see Market Risk Management – Securities beginning on page
particularly federal funds purchased and securities loaned or sold under 96 and Note 5 – Securities to the Consolidated Financial Statements.
agreements to repurchase, long-term debt and other liabilities. In addition
to the impact of Merrill Lynch, deposits increased as we benefited from Loans and Leases
higher savings and movement into more liquid products due to the low Year-end loans and leases decreased $31.3 billion to $900.1 billion in
rate environment. Partially offsetting these increases was a decrease in 2009 compared to 2008 primarily due to lower commercial loans as the
commercial paper and other short-term borrowings due in part to lower result of customer payments and reduced demand, lower customer
Federal Home Loan Bank (FHLB) borrowings. merger and acquisition activity, and net charge-offs, partially offset by the
addition of Merrill Lynch. Average loans and leases increased $37.9 bil-
Federal Funds Sold and Securities Borrowed or lion to $948.8 billion in 2009 compared to 2008 primarily due to the
Purchased Under Agreements to Resell addition of Merrill Lynch, and the full-year impact of Countrywide. The
Federal funds transactions involve lending reserve balances on a short- average consumer loan portfolio increased $24.4 billion due to the addi-
term basis. Securities borrowed and securities purchased under agree- tion of Merrill Lynch domestic and foreign securities-based lending margin
ments to resell are utilized to accommodate customer transactions, earn loans, Merrill Lynch consumer real estate balances, and the full-year
interest rate spreads and obtain securities for settlement. Year-end and impact of Countrywide, partially offset by lower balance sheet retention,
average federal funds sold and securities borrowed or purchased under sales and conversions of residential mortgages into retained MBS and
agreements to resell increased $107.5 billion and $107.7 billion in net charge-offs. The average commercial loan and lease portfolio
2009, attributable primarily to the acquisition of Merrill Lynch. increased $13.5 billion primarily due to the acquisition of Merrill Lynch.
For a more detailed discussion of the loan portfolio, see Credit Risk
Management beginning on page 66, and Note 6 – Outstanding Loans and
Leases to the Consolidated Financial Statements.
Business Segment Operations net income. The net interest income of the business segments includes
the results of a funds transfer pricing process that matches assets and
Segment Description and Basis of Presentation liabilities with similar interest rate sensitivity and maturity characteristics.
We report the results of our operations through six business segments: Equity is allocated to business segments and related businesses
Deposits, Global Card Services, Home Loans & Insurance, Global Bank- using a risk-adjusted methodology incorporating each segment’s stand-
ing, Global Markets and GWIM, with the remaining operations recorded in alone credit, market, interest rate and operational risk components. The
All Other. The Corporation may periodically reclassify business segment nature of these risks is discussed further beginning on page 56. The
results based on modifications to its management reporting method- Corporation benefits from the diversification of risk across these compo-
ologies and changes in organizational alignment. Prior period amounts nents which is reflected as a reduction to allocated equity for each seg-
have been reclassified to conform to current period presentation. ment. Average equity is allocated to the business segments and is
We prepare and evaluate segment results using certain non-GAAP affected by the portion of goodwill that is specifically assigned to them.
methodologies and performance measures, many of which are discussed For more information on our basis of presentation, selected financial
in Supplemental Financial Data beginning on page 37. We begin by evalu- information for the business segments and reconciliations to consolidated
ating the operating results of the segments which by definition exclude total revenue, net income and year-end total assets, see Note 23 – Busi-
merger and restructuring charges. The segment results also reflect cer- ness Segment Information to the Consolidated Financial Statements.
tain revenue and expense methodologies which are utilized to determine
We value our CDO structures using the average of all prices obtained At December 31, 2009, total subprime super senior unhedged
from either external pricing services or offsetting trades for approximately exposure of $1.466 billion was carried at 15 percent and the $839 mil-
89 percent and 77 percent of the CDO exposure and related retained lion of non-subprime unhedged exposure was carried at 51 percent of
positions. The majority of the remaining positions where no pricing quotes their original net exposure amounts. Net hedged subprime super senior
were available were valued using matrix pricing and projected cash flows. exposure of $661 million was carried at 13 percent and the $652 million
Unrealized losses recorded in accumulated OCI on super senior cash of hedged non-subprime super senior exposure was carried at 64 percent
positions and retained positions from liquidated CDOs in aggregate of its original net exposure.
increased $88 million during 2009 to $104 million at December 31, The following table presents the carrying values of our subprime net
2009. exposures including subprime collateral content and percentages of cer-
tain vintages.
Monoline wrap protection on our super senior CDOs had a notional by the addition of Merrill Lynch exposures as well as credit deterioration
value of $3.8 billion at December 31, 2009, with a receivable of $2.8 bil- related to underlying counterparties, partially offset by positive valuation
lion and a counterparty credit valuation adjustment of $1.9 billion, or 66 adjustments on legacy assets and terminated monoline contracts.
percent. During 2009, we recorded $961 million of counterparty credit At December 31, 2009, the counterparty credit valuation adjustment
risk-related write-downs on these positions. At December 31, 2008, the related to non-super senior CDO monoline derivative exposure was $4.1
monoline wrap on our super senior CDOs had a notional value of $2.8 billion which reduced our net mark-to-market exposure to $4.1 billion. We
billion, with a receivable of $1.5 billion and a counterparty credit valuation do not hold collateral against these derivative exposures. Also, during
adjustment of $1.1 billion, or 72 percent. 2009 we recognized gains of $113 million for counterparty credit risk
In addition to the monoline financial guarantor exposure related to related to these positions.
super senior CDOs, we had $38.8 billion of notional exposure to mono- With the Merrill Lynch acquisition, we acquired a loan with a carrying
lines that predominantly hedge corporate collateralized loan obligation value of $4.4 billion as of December 31, 2009 that is collateralized by U.S.
and CDO exposure as well as CMBS, RMBS and other ABS cash and super senior ABS CDOs. Merrill Lynch originally provided financing to the
synthetic exposures that were acquired from Merrill Lynch. At borrower for an amount equal to approximately 75 percent of the fair value
December 31, 2008, the monoline wrap on our other guaranteed posi- of the collateral. The loan has full recourse to the borrower and all sched-
tions was $5.9 billion of notional exposure. Mark-to-market monoline uled payments on the loan have been received. Events of default under the
derivative credit exposure was $8.3 billion at December 31, 2009 com- loan are customary events of default, including failure to pay interest when
pared to $694 million at December 31, 2008. This increase was driven due and failure to pay principal at maturity. Collateral for the loan is
excluded from our CDO exposure discussions and the applicable tables.
2009
Merrill Lynch
Global Wealth U.S. Columbia
(Dollars in millions) Total Management (1) Trust Management Other
Net interest income (2) $ 5,564 $ 4,567 $ 1,361 $ 32 $ (396)
Noninterest income:
Investment and brokerage services 9,273 6,130 1,254 1,090 799
All other income (loss) 3,286 1,684 48 (201) 1,755
Total noninterest income 12,559 7,814 1,302 889 2,554
Total revenue, net of interest expense 18,123 12,381 2,663 921 2,158
Provision for credit losses 1,061 619 442 – –
Noninterest expense 13,077 9,411 1,945 932 789
Income (loss) before income taxes 3,985 2,351 276 (11) 1,369
Income tax expense (benefit) (2) 1,446 870 102 (4) 478
Net income (loss) $ 2,539 $ 1,481 $ 174 $ (7) $ 891
2008
Merrill Lynch
Global Wealth U.S. Columbia
(Dollars in millions) Total Management (1) Trust Management Other
Net interest income (2) $ 4,797 $ 3,211 $ 1,570 $ 6 $ 10
Noninterest income:
Investment and brokerage services 4,059 1,001 1,400 1,496 162
All other income (loss) (1,047) 58 18 (1,120) (3)
Total noninterest income 3,012 1,059 1,418 376 159
Total revenue, net of interest expense 7,809 4,270 2,988 382 169
Provision for credit losses 664 561 103 – –
Noninterest expense 4,910 1,788 1,831 1,126 165
Income (loss) before income taxes 2,235 1,921 1,054 (744) 4
Income tax expense (benefit) (2) 807 711 390 (275) (19)
Net income (loss) $ 1,428 $ 1,210 $ 664 $ (469) $ 23
(Dollars in millions) 2009 2008 Principal Investments added Merrill Lynch’s principal investments. The
Balance Sheet combined business is comprised of a diversified portfolio of investments
Average in private equity, real estate and other alternative investments. These
Total loans and leases (1) $155,561 $135,789 investments are made either directly in a company or held through a fund
Total assets (1, 2) 239,642 77,244 with related income recorded in equity investment income. Global Princi-
Total deposits 103,122 105,725
pal Investments has unfunded equity commitments amounting to $2.5
Allocated equity (3) 49,015 16,563
billion at December 31, 2009 related to certain of these investments. For
Year end more information on these commitments, see Note 14 – Commitments
Total loans and leases (1) $152,944 $136,163
Total assets (1, 2) 137,382 79,420 and Contingencies to the Consolidated Financial Statements.
Total deposits 78,618 86,888 Corporate Investments primarily includes investments in publicly
(1) Loan amounts are net of the securitization offset of $98.5 billion and $104.4 billion for 2009 and 2008 traded debt and equity securities and funds which are accounted for as
and $89.7 billion and $101.0 billion at December 31, 2009 and 2008. AFS marketable equity securities. Strategic Investments includes invest-
(2) Includes elimination of segments’ excess asset allocations to match liabilities (i.e., deposits) of $511.0
billion and $413.1 billion for 2009 and 2008 and $561.6 billion and $439.2 billion at December 31, ments of $9.2 billion in CCB, $5.4 billion in Itaú Unibanco Holding S.A.
2009 and 2008. (Itaú Unibanco), $2.5 billion in Grupo Financiero Santander, S.A.
(3) Increase in allocated equity was due to capital raises during 2009.
(Santander) and other investments. Our shares of Itaú Unibanco are
accounted for as AFS marketable equity securities. Our investment in
Global Card Services is reported on a managed basis which includes a Santander is accounted for under the equity method of accounting.
securitization impact adjustment which has the effect of assuming that In 2009, we sold 19.1 billion common shares representing our entire
loans that have been securitized were not sold and presents these loans initial investment in CCB for $10.1 billion, resulting in a pre-tax gain of
in a manner similar to the way loans that have not been sold are pre- $7.3 billion. During 2008, under the terms of the CCB purchase option,
sented. All Other’s results include a corresponding securitization offset we increased our ownership by purchasing approximately 25.6 billion
which removes the impact of these securitized loans in order to present common shares for $9.2 billion. We continue to hold the shares pur-
the consolidated results on a GAAP basis (i.e., held basis). See the chased in 2008.
Global Card Services section beginning on page 41 for information on the These shares are accounted for at cost, are recorded in other assets
Global Card Services managed results. The following All Other discussion and are non-transferable until August 2011. We remain a significant
focuses on the results on an as adjusted basis excluding the securitiza- shareholder in CCB with an approximate 11 percent ownership interest
tion offset. In addition to the securitization offset discussed above, All and intend to continue the important long-term strategic alliance with CCB
Other includes our Equity Investments businesses and Other. originally entered into in 2005. As part of this alliance, we expect to con-
Equity Investments includes Global Principal Investments, Corporate tinue to provide advice and assistance to CCB.
Investments and Strategic Investments. On January 1, 2009, Global
Debt, lease, equity and other obligations are more fully discussed in business owners’ access to credit. As part of the initiative, the U.S. Treas-
Note 13 – Long-term Debt and Note 14 – Commitments and Con- ury began making direct purchases of up to $15 billion of certain secu-
tingencies to the Consolidated Financial Statements. The Plans are more rities backed by Small Business Administration (SBA) loans to improve
fully discussed in Note 17 – Employee Benefit Plans to the Consolidated liquidity in the credit markets and purchasing new securities to ensure
Financial Statements. that financial institutions feel confident in extending new loans to small
We enter into commitments to extend credit such as loan commit- businesses. The program also temporarily raises guarantees to up to 90
ments, standby letters of credit (SBLCs) and commercial letters of credit percent in the SBA’s loan program and temporarily eliminates certain SBA
to meet the financing needs of our customers. For a summary of the total loan fees. We continue to lend to creditworthy small business customers
unfunded, or off-balance sheet, credit extension commitment amounts by through small business credit cards, loans and lines of credit products.
expiration date, see the table in Note 14 – Commitments and Con- In response to the economic downturn, the FDIC implemented the
tingencies to the Consolidated Financial Statements. Temporary Liquidity Guarantee Program (TLGP) to strengthen confidence
and encourage liquidity in the banking system by allowing the FDIC to
Regulatory Initiatives guarantee senior unsecured debt (e.g., promissory notes, unsubordinated
On November 12, 2009, the Federal Reserve issued the final rule related unsecured notes and commercial paper) up to prescribed limits, issued
to changes to Regulation E and on May 22, 2009, the CARD Act was by participating entities beginning on October 14, 2008, and continuing
signed into law. For more information on the impact of these new regu- through October 31, 2009. We participated in this program; however, as
lations, see Regulatory Overview on page 29. announced in September 2009, due to improved market liquidity and our
In December 2009, the Basel Committee on Banking Supervision ability to issue debt without the FDIC guarantee, we, with the FDIC’s
released consultative documents on both capital and liquidity. In addition,
agreement, exited the program and have stopped issuing FDIC-
we will begin Basel II parallel implementation during the second quarter of
guaranteed debt. At December 31, 2009, we still had FDIC-guaranteed
2010. For more information, see Basel Regulatory Capital Requirements
debt outstanding issued under the TLGP of $44.3 billion. The TLGP also
on page 64.
offered the Transaction Account Guarantee Program (TAGP) that guaran-
On January 21, 2010, the Federal Reserve, Office of the Comptroller
teed noninterest-bearing deposit accounts held at participating FDIC-
of the Currency, FDIC and Office of Thrift Supervision (collectively, joint
insured institutions on balances in excess of $250,000. We elected to
agencies) issued a final rule regarding risk-based capital and the impact
opt out of the six-month extension of the TAGP which extends the program
of adoption of new consolidation rules issued by the FASB. The final rule
eliminates the exclusion of certain asset-backed commercial paper to June 30, 2010. We exited the TAGP effective December 31, 2009.
(ABCP) program assets from risk-weighted assets and provides a reser- On September 21, 2009, the Corporation reached an agreement to
vation of authority to permit the joint agencies to require banks to treat terminate its term sheet with the U.S. government under which the U.S.
structures that are not consolidated under the accounting standards as if government agreed in principle to provide protection against the possi-
they were consolidated for risk-based capital purposes commensurate bility of unusually large losses on a pool of the Corporation’s financial
with the risk relationship of the bank to the structure. In addition, the final instruments that were acquired from Merrill Lynch. In connection with the
rule allows for an optional delay and phase-in for a maximum of one year termination of the term sheet, the Corporation paid a total of $425 mil-
for the effect on risk-weighted assets and the regulatory limit on the lion to the U.S. government to be allocated among the U.S. Treasury, the
inclusion of the allowance for loan and lease losses in Tier 2 capital Federal Reserve and the FDIC.
related to the assets that must be consolidated as a result of the In addition to exiting the TARP as discussed on page 30, terminating
accounting change. The transitional relief does not apply to the leverage the U.S. Government’s asset guarantee term sheet and exiting the TLGP,
ratio or to assets in VIEs to which a bank provides implicit support. We including the TAGP, we have exited or ceased participation in market dis-
have elected to forgo the phase-in period, and accordingly, we con- ruption liquidity programs created by the U.S. government in response to
solidated the amounts for regulatory capital purposes as of January 1, the economic downturn of 2008. We have exited or repaid borrowings
2010. For more information on the impact of this guidance, see Impact of under the Term Auction Facility, U.S. Treasury Temporary Liquidity Guaran-
Adopting New Accounting Guidance on Consolidation on page 64. tee Program for Money Market Funds, ABCP Money Market Fund Liquidity
On December 14, 2009, we announced our intention to increase lend- Facility, Commercial Paper Federal Funding Facility, Money Market
ing to small- and medium-sized businesses to approximately $21 billion Investor Funding Facility, Term Securities Lending Facility and Primary
in 2010 compared to approximately $16 billion in 2009. This announce- Dealer Credit Facility.
ment is consistent with the U.S. Treasury’s initiative, announced as part On November 17, 2009, the FDIC issued a final rule that required
of the Financial Stability Plan on February 2, 2009, to help increase small insured institutions to prepay on December 30, 2009 their estimated
Liquidity Risk and Capital Management Table 10 Global Excess Liquidity Sources
December 31, 2009
Funding and Liquidity Risk Management
(Dollars in billions)
We define liquidity risk as the potential inability to meet our contractual
and contingent financial obligations, on- or off-balance sheet, as they Parent company $ 99
Bank subsidiaries 89
come due. Our primary liquidity objective is to ensure adequate funding
Broker/dealers 26
for our businesses throughout market cycles, including during periods of
Total global excess liquidity sources $214
financial stress. To achieve that objective we analyze and monitor our
liquidity risk, maintain excess liquidity and access diverse funding sour-
ces including our stable deposit base. We define excess liquidity as read- As noted above, the excess liquidity available to the parent company
ily available assets, limited to cash and high-quality liquid unencumbered is held in cash and high-quality, liquid, unencumbered securities and
securities, that we can use to meet our funding requirements as those totaled $99 billion at December 31, 2009. Typically, parent company
obligations arise. cash is deposited overnight with Bank of America, N.A.
Global funding and liquidity risk management activities are centralized Our bank subsidiaries’ excess liquidity sources at December 31,
within Corporate Treasury. We believe that a centralized approach to fund- 2009 consisted of $89 billion in cash on deposit at the Federal Reserve
ing and liquidity risk management enhances our ability to monitor liquidity and high-quality, liquid, unencumbered securities. These amounts are
requirements, maximizes access to funding sources, minimizes borrowing distinct from the cash deposited by the parent company, as previously
costs and facilitates timely responses to liquidity events. described. In addition to their excess liquidity sources, our bank sub-
(Dollars in millions)
Contingency Planning
The Corporation maintains contingency funding plans that outline our
U.S. Dollar $281,692
Euros 99,917 potential responses to liquidity stress events at various levels of severity.
Japanese Yen 19,903 These policies and plans are based on stress scenarios and include
British Pound 16,460 potential funding strategies, communication and notification procedures
Australian Dollar 7,973
Canadian Dollar 4,894 that we would implement in the event we experienced stressed liquidity
Swiss Franc 2,666 conditions. We periodically review and test the contingency funding plans
Other 5,016 to validate efficacy and assess readiness.
Total long-term debt $ 438,521 Our U.S. bank subsidiaries can access contingency funding through
the Federal Reserve Discount Window. Certain non-U.S. subsidiaries have
We use derivative transactions to manage the duration, interest rate and cur- access to central bank facilities in the jurisdictions in which they operate.
rency risks of our borrowings, considering the characteristics of the assets they While we do not rely on these sources in our liquidity modeling, we main-
are funding. For further details on our ALM activities, refer to Interest Rate Risk tain the policies, procedures and governance processes that would
Management for Nontrading Activities beginning on page 95. enable us to access these sources if necessary.
We also diversify our funding sources by issuing various types of debt
instruments including structured notes. Structured notes are debt obligations Credit Ratings
that pay investors with returns linked to other debt or equity securities, indices, Our borrowing costs and ability to raise funds are directly impacted by our
currencies or commodities. We typically hedge the returns we are obligated to credit ratings. In addition, credit ratings may be important to customers or
pay on these notes with derivative positions and/or in the underlying instru- counterparties when we compete in certain markets and when we seek to
ments so that from a funding perspective, the cost is similar to our other engage in certain transactions including over-the-counter derivatives. It is
unsecured long-term debt. We could be required to immediately settle certain our objective to maintain high quality credit ratings.
structured note obligations for cash or other securities under certain circum- Credit ratings and outlooks are opinions subject to ongoing review by
stances, which we consider for liquidity planning purposes. We believe, how- the ratings agencies and may change from time to time based on our
financial performance, industry dynamics and other factors. During 2009,
ever, that a portion of such borrowings will remain outstanding beyond the
the ratings agencies took numerous actions to adjust our credit ratings
earliest put or redemption date. At December 31, 2009, we had outstanding
and outlooks, many of which were negative. The ratings agencies have
structured notes of $57 billion.
indicated that our credit ratings currently reflect their expectation that, if
Substantially all of our senior and subordinated debt obligations contain no
necessary, we would receive significant support from the U.S. govern-
provisions that could trigger a requirement for an early repayment, require addi- ment. In February 2010, Standard & Poor’s affirmed our current credit
tional collateral support, result in changes to terms, accelerate maturity, or ratings but revised the outlook to negative from stable based on their
create additional financial obligations upon an adverse change in our credit belief that it is less certain whether the U.S. government would be willing
ratings, financial ratios, earnings, cash flows or stock price. to provide extraordinary support. Other factors that influence our credit
The U.S. government and joint agencies have introduced various pro- ratings include the ratings agencies’ assessment of the general operating
grams to stabilize and provide liquidity to the U.S. financial markets since environment, our relative positions in the markets in which we compete,
2007. We have participated in certain of these initiatives and we repaid reputation, liquidity position, the level and volatility of earnings, corporate
our borrowings under U.S. government secured financing programs during governance and risk management policies, capital position and capital
2009. We also participated in the FDIC’s TLGP which allowed us to issue management practices.
senior unsecured debt that it guaranteed in return for a fee based on the The credit ratings of Merrill Lynch & Co., Inc. from the three major credit
amount and maturity of the debt. We issued $21.8 billion and $19.9 bil- ratings agencies are the same as those of Bank of America Corporation. The
lion of FDIC-guaranteed long-term debt in 2009 and 2008. We have also major credit ratings agencies have indicated that the primary drivers of Mer-
issued short-term notes under the program. At December 31, 2009, we rill Lynch’s credit ratings are Bank of America’s credit ratings.
had $41.7 billion outstanding under the program. We no longer issue A reduction in our credit ratings or the ratings of certain asset-backed
debt under this program and all of our debt issued under TLGP will mature securitizations could potentially have an adverse effect on our access to
by June 30, 2012. Under this program, our debt received the highest credit markets, the related cost of funds and our businesses. If Bank of
long-term ratings from the major credit ratings agencies which resulted in America Corporation or Bank of America, N.A. commercial paper or short-
term credit ratings were downgraded by one level, our incremental cost of
a lower total cost of issuance than if we had issued non-FDIC guaranteed
funds and potential lost funding could be material.
long-term debt. The associated FDIC fee for the 2009 issuances was
The credit ratings of Bank of America Corporation and Bank of Amer-
$554 million and is being amortized into expense over the stated term of
ica, N.A. as of February 26, 2010 are reflected in the table below.
Table 13 Reconciliation of Tier 1 Common Capital, Tier 1 Capital and Total Capital
December 31
(Dollars in millions) 2009 2008
Total common shareholders’ equity $194,236 $139,351
Goodwill (86,314) (81,934)
Nonqualifying intangible assets (1) (8,299) (4,195)
Net unrealized losses on AFS debt and marketable equity securities and net losses on derivatives
recorded in accumulated OCI, net-of-tax 1,034 5,479
Unamortized net periodic benefit costs recorded in accumulated OCI, net-of-tax 4,092 4,642
Exclusion of fair value adjustment related to the Merrill Lynch structured notes (2) 3,010 –
Common Equivalent Securities 19,290 –
Disallowed deferred tax asset (7,080) –
Other 425 (4)
Total Tier 1 common capital 120,394 63,339
Preferred stock 17,964 37,701
Trust preferred securities 21,448 18,105
Noncontrolling interest 582 1,669
Total Tier 1 capital 160,388 120,814
Long-term debt qualifying as Tier 2 capital 43,284 31,312
Allowance for loan and lease losses 37,200 23,071
Reserve for unfunded lending commitments 1,487 421
Other (3) (16,282) (3,957)
Total capital $226,077 $171,661
(1) Nonqualifying intangible assets include core deposit intangibles, affinity relationships, customer relationships and other intangibles.
(2) Represents loss on Merrill Lynch structured notes, net-of-tax, that is excluded from Tier 1 common capital, Tier 1 capital and total capital for regulatory purposes.
(3) Balance includes a reduction of $18.7 billion and $6.7 billion related to allowance for loan and lease losses exceeding 1.25 percent of risk-weighted assets in 2009 and 2008. Balance also includes 45 percent of the
pre-tax unrealized fair value adjustments on AFS marketable equity securities.
At December 31, 2009, the Corporation’s Tier 1 common capital, Tier Merrill Lynch acquisition partially offset by an increase in risk-weighted
1 capital, total capital and Tier 1 leverage ratios were 7.81 percent, assets due to the acquisition.
10.40 percent, 14.66 percent and 6.91 percent, respectively.
The Corporation calculates Tier 1 common capital as Tier 1 capital Enterprise-wide Stress Testing
including CES less preferred stock, qualifying trust preferred securities, As a part of our core risk management practices, the Corporation con-
hybrid securities and qualifying noncontrolling interest. CES is included in ducts enterprise-wide stress tests on a periodic basis to better under-
Tier 1 common capital based upon applicable regulatory guidance and our stand earnings, capital and liquidity sensitivities to certain economic
expectation that the underlying Common Equivalent Stock would convert scenarios, including economic conditions that are more severe than
into common stock following shareholder approval of additional anticipated. These enterprise-wide stress tests provide an understanding
authorized shares. Shareholders approved the increase in the number of of the potential impacts to our risk profile, capital and liquidity.
authorized shares of common stock at the special meeting of share- Scenario(s) are selected by a group comprised of senior line of business,
holders held on February 23, 2010 and the Common Equivalent Stock risk and finance executives. Impacts to each line of business from each
converted to common stock on February 24, 2010. Tier 1 common capital scenario are then analyzed and determined, primarily leveraging the
increased to $120.4 billion at December 31, 2009 compared to $63.3 models and processes utilized in everyday management routines. Impacts
billion at December 31, 2008. The Tier 1 common capital ratio increased are assessed along with potential mitigating actions that may be taken in
301 bps to 7.81 percent. This increase was driven primarily by the sec- each scenario. Analysis from such stress scenarios is compiled for and
ond quarter at-the-market common stock issuance and the preferred to reviewed through our ROC, ALMRC, and the Enterprise Risk Committee of
common stock exchanges which together represented a benefit of 185 the Board and serves to inform and be incorporated, along with other core
bps and the issuance of CES which together provided a benefit of 138 business processes, into decision making by management and the
bps to the Tier 1 common capital ratio. In addition, Tier 1 common capital Board. The Corporation continues to invest in and improve stress testing
benefited from the common stock that was issued in connection with the capabilities as a core business process.
At December 31, 2009, our total liquidity exposure to SPEs was Customer-sponsored conduits are established by our customers to
$58.2 billion, a decrease of $10.0 billion from December 31, 2008. The provide them with direct access to the commercial paper market. We are
decrease was attributable to decreases in commercial paper conduits typically one of several liquidity providers for a customer’s conduit. We do
due to maturities and liquidations partially offset by the acquisition of not provide SBLCs or other forms of credit enhancement to these con-
Merrill Lynch. Legacy Merrill Lynch related exposures as of December 31, duits. Assets of these conduits consist primarily of auto loans and stu-
2009 were $4.9 billion in municipal bond trusts, $3.3 billion in CDO dent loans. The liquidity commitments benefit from structural protections
vehicles and $2.0 billion in credit-linked note and other vehicles. which vary depending upon the program, but given these protections, we
For more information on commercial paper conduits, municipal bond view the exposures as investment grade quality. These commitments are
trusts, CDO vehicles, credit-linked note and other vehicles, see Note 9 – included in Note 14 – Commitments and Contingencies to the Con-
Variable Interest Entities to the Consolidated Financial Statements. For solidated Financial Statements. As we typically provide less than 20
more information on home equity and credit card securitizations, see percent of the total liquidity commitments to these conduits and do not
Note 8 – Securitizations to the Consolidated Financial Statements. provide other forms of support, we have concluded that we do not hold a
In addition to recording the incremental assets and liabilities on the Basel Regulatory Capital Requirements
Corporation’s Consolidated Balance Sheet, we recorded an after-tax In June 2004, the Basel II Accord was published with the intent of more
charge of approximately $6 billion to retained earnings on January 1, closely aligning regulatory capital requirements with underlying risks, sim-
2010 as the cumulative effect of adoption of these new accounting stan- ilar to economic capital. While economic capital is measured to cover
dards. The charge relates primarily to the addition of $11 billion of allow- unexpected losses, the Corporation also manages regulatory capital to
ance for loan losses for the newly consolidated assets, principally credit adhere to regulatory standards of capital adequacy.
card related. The Basel II Final Rule (Basel II Rules), which was published on
On January 21, 2010, the joint agencies issued a final rule regarding December 7, 2007, establishes requirements for the U.S. implementation
risk-based capital and the impact of adoption of the new consolidation and provided detailed capital requirements for credit and operational risk
guidance issued by the FASB. The final rule allows for a phase-in period under Pillar 1, supervisory requirements under Pillar 2 and disclosure
for a maximum of one year for the effect on risk-weighted assets and the requirements under Pillar 3. The Corporation will begin Basel II parallel
regulatory limit on the inclusion of the allowance for loan and lease implementation during the second quarter of 2010.
losses in Tier 2 capital related to the assets that are consolidated. Our Financial institutions are required to successfully complete a minimum
current estimate of the incremental impact is a decrease in our Tier 1 and parallel qualification period before receiving regulatory approval to report
Tier 1 common capital ratios of 65 to 75 bps. However, the final capital regulatory capital using the Basel II methodology. During the parallel peri-
impact will be affected by certain factors, including, the final determi- od, the resulting capital calculations under both the current (Basel I) rules
nation of the cumulative effect of adoption of this new accounting guid- and the Basel II Rules will be reported to the financial institutions regu-
ance on retained earnings, and limitations of deferred tax assets for risk- latory supervisors for at least four consecutive quarterly periods. Once the
based capital purposes. The Corporation has elected to forgo the parallel period is successfully completed, the financial institution will uti-
phase-in period and consolidate the amounts for regulatory capital pur- lize Basel II as their methodology for calculating regulatory capital. A
poses as of January 1, 2010. For more information, refer to the Regu- three-year transitional floor period will follow after which use of Basel I will
latory Initiatives section on page 55. be discontinued.
In July 2009, the Basel Committee on Banking Supervision released a
consultative document entitled “Revisions to the Basel II Market Risk
Preferred Stock Issuances and Exchanges issued to the U.S. Treasury as part of the TARP. While participating in the
During the second quarter of 2009, we completed an offer to exchange TARP we recorded $7.4 billion in dividends and accretion on the TARP
up to approximately 200 million shares of common stock at an average Preferred Stock and repayment will save us approximately $3.6 billion in
price of $12.70 for outstanding depositary shares of portions of certain annual dividends and accretion. We did not repurchase the related
series of preferred stock. In addition, we also entered into agreements common stock warrants issued to the U.S. Treasury in connection with its
with certain holders of other non-government perpetual preferred shares TARP investment. The U.S. Treasury recently announced its intention to
to exchange their holdings of approximately $10.9 billion aggregate liqui- auction these warrants during March 2010. For more detail on the TARP
dation preference of perpetual preferred stock into approximately Preferred Stock, refer to Note 15 – Shareholders’ Equity and Earnings Per
800 million shares of common stock. In total, the exchange offer and Common Share to the Consolidated Financial Statements.
these privately negotiated exchanges covered the exchange of approx- The Corporation repurchased the TARP Preferred Stock through the use
imately $14.8 billion aggregate liquidation preference of perpetual pre- of $25.7 billion in excess liquidity and $19.3 billion in proceeds from the
ferred stock into approximately 1.0 billion shares of common stock. sale of 1.3 billion units of CES valued at $15.00 per unit. The CES con-
During the second quarter of 2009, we recorded an increase to retained sisted of depositary shares representing interests in shares of Common
earnings and net income applicable to common shareholders of approx- Equivalent Junior Preferred Stock Series S (Common Equivalent Stock) and
imately $580 million related to these exchanges. This represents the net warrants (Contingent Warrants) to purchase an aggregate 60 million
of a $2.6 billion benefit due to the excess of the carrying value of our shares of the Corporation’s common stock. Each depositary share
non-convertible preferred stock over the fair value of the common stock represented a 1/1000th interest in a share of Common Equivalent Stock
exchanged. This was partially offset by a $2.0 billion inducement to con- and each Contingent Warrant granted the holder the right to purchase
vertible preferred shareholders. The inducement represented the excess 0.0467 of a share of a common stock for $.01 per share. Each depositary
of the fair value of the common stock exchanged, which was accounted share entitled the holder, through the depository, to a proportional frac-
for as an induced conversion of convertible preferred stock, over the fair tional interest in all rights and preferences of the Common Equivalent
value of the common stock that would have been issued under the origi- Stock, including conversion, dividend, liquidation and voting rights.
nal conversion terms. The Corporation held a special meeting of stockholders on Febru-
On December 2, 2009, we received approval from the U.S. Treasury ary 23, 2010 at which we obtained stockholder approval of an amend-
and Federal Reserve to repay the U.S. government’s $45.0 billion pre- ment to our amended and restated certificate of incorporation to increase
ferred stock investment provided under TARP. In accordance with the the number of authorized shares of our common stock, and following
approval, on December 9, 2009, we repurchased all outstanding shares effectiveness of the amendment, on February 24, 2010, the Common
of Cumulative Perpetual Preferred Stock Series N, Series Q and Series R Equivalent Stock converted in full into our common stock and
portfolio) and 0.73 percent (0.79 percent excluding the Countrywide purchased impaired loan portfolio) at December 31, 2009 and 2008. Residential mortgages accruing past due 90 days or more represent
repurchases of insured or guaranteed loans. See Residential Mortgage discussion for more detail.
(3) Outstandings include foreign residential mortgages of $552 million at December 31, 2009 mainly from the Merrill Lynch acquisition. We did not have any foreign residential mortgage loans at December 31, 2008.
(4) Outstandings include $13.4 billion and $18.2 billion of pay option loans and $1.5 billion and $1.8 billion of subprime loans at December 31, 2009 and 2008. We no longer originate these products.
(5) Outstandings include dealer financial services loans of $41.6 billion and $40.1 billion, consumer lending loans of $19.7 billion and $28.2 billion, securities-based lending margin loans of $12.9 billion and $0, and
foreign consumer loans of $8.0 billion and $1.8 billion at December 31, 2009 and 2008, respectively.
(6) Outstandings include consumer finance loans of $2.3 billion and $2.6 billion, and other foreign consumer loans of $709 million and $618 million at December 31, 2009 and 2008.
We believe that the presentation of information adjusted to exclude been 0.72 percent (0.77 percent excluding the Countrywide purchased
the impacts of the Countrywide purchased impaired loan portfolio is more impaired loan portfolio) and 0.67 percent (0.72 percent excluding the
representative of the ongoing operations and credit quality of the busi- Countrywide purchased impaired loan portfolio) at December 31, 2009
ness. As a result, in the following discussions of the residential mort- and 2008.
gage, home equity and discontinued real estate portfolios, we Nonperforming residential mortgage loans increased $9.5 billion
supplement certain reported statistics with information that is adjusted to compared to December 31, 2008 due to the impacts of the weak housing
exclude the impacts of the Countrywide purchased impaired loan portfo- markets and economic conditions and in part due to TDRs. For more
lio. In addition, beginning on page 71, we separately disclose information information on TDRs, refer to the Nonperforming Consumer Loans and
on the Countrywide purchased impaired loan portfolio. Foreclosed Properties Activity discussion on page 74 and Note 6 – Out-
standing Loans and Leases to the Consolidated Financial Statements. At
Residential Mortgage December 31, 2009, $9.6 billion or approximately 58 percent, of the
The residential mortgage portfolio, which excludes the discontinued real nonperforming residential mortgage loans were greater than 180 days
estate portfolio acquired with Countrywide, makes up the largest percent- past due and had been written down to their fair values. Net charge-offs
age of our consumer loan portfolio at 42 percent of consumer loans and increased $3.4 billion to $4.4 billion in 2009, or 1.74 percent (1.82
leases (43 percent excluding the Countrywide purchased impaired loan percent excluding the Countrywide purchased impaired portfolio), of total
portfolio) at December 31, 2009. Approximately 15 percent of the resi- average residential mortgage loans compared to 0.36 percent (0.36
dential portfolio is in GWIM and represents residential mortgages that are percent excluding the Countrywide purchased impaired portfolio) for
originated for the home purchase and refinancing needs of our affluent 2008. These increases reflect the impacts of the weak housing markets
customers. The remaining portion of the portfolio is mostly in All Other and the weak economy. See the Countrywide Purchased Impaired Loan
and is comprised of both purchased loans as well as residential loans Portfolio discussion beginning on page 71 for more information.
originated for our customers which are used in our overall ALM activities. We mitigate a portion of our credit risk through synthetic securitiza-
Outstanding loans and leases decreased $5.9 billion at tions which are cash collateralized and provide mezzanine risk protection
December 31, 2009 compared to December 31, 2008 due to lower bal- of $2.5 billion which will reimburse us in the event that losses exceed 10
ance sheet retention of new originations, paydowns and charge-offs as bps of the original pool balance. For further information regarding these
well as sales and conversions of loans into retained MBS. These synthetic securitizations, see Note 6 – Outstanding Loans and Leases to
decreases were offset, in part, by the acquisition of Merrill Lynch and the Consolidated Financial Statements. The reported net charge-offs for
GNMA repurchases. Merrill Lynch added $21.7 billion of residential mort- residential mortgages do not include the benefits of amounts
gage outstandings as of December 31, 2009. At December 31, 2009 reimbursable under cash collateralized synthetic securitizations. Adjusting
and 2008, loans past due 90 days or more and still accruing interest of for the benefit of this credit protection, the residential mortgage net
$11.7 billion and $372 million were related to repurchases pursuant to charge-off ratio in 2009 would have been reduced by 25 bps and four bps
our servicing agreements with GNMA where repayments are insured by in 2008. Synthetic securitizations and the protection provided by GSEs
the FHA. The increase was driven by the repurchase of delinquent loans together provided risk mitigation for approximately 32 percent and 48
from securitizations during the year as we repurchase these loans for percent of our residential mortgage portfolio at December 31, 2009 and
economic reasons, with no significant detrimental impact to our risk 2008. Our regulatory risk-weighted assets are reduced as a result of
exposure. Excluding these repurchases, the accruing loans past due 90 these risk protection transactions because we transferred a portion of our
days or more as a percentage of consumer loans and leases would have credit risk to unaffiliated parties. At December 31, 2009 and 2008, these
Of the residential mortgage portfolio, $84.2 billion, or 35 percent, at agreements that contain representations and warranties related to,
December 31, 2009 are interest-only loans of which 89 percent were among other things, the process for selecting the loans for inclusion in a
performing. Nonperforming balances on interest-only residential mortgage sale and compliance with applicable criteria established by the buyer.
loans were $9.1 billion, or 55 percent, of total nonperforming residential Such agreements contain provisions under which we may be required to
mortgages. Additionally, net charge-offs on the interest-only portion of the either repurchase the loans or indemnify or provide other recourse to the
portfolio represented 58 percent of the total residential mortgage net buyer or insurer if there is a breach of the representations and warranties
charge-offs for 2009. that materially and adversely affects the interests of the buyer or pur-
The Community Reinvestment Act (CRA) encourages banks to meet suant to such other standard established by the terms of such agree-
the credit needs of their communities for housing and other purposes, ments. We have experienced and continue to experience increasing
particularly in neighborhoods with low or moderate incomes. At repurchase and similar demands from, and disputes with buyers and
December 31, 2009, our CRA portfolio comprised six percent of the total insurers. We expect to contest such demands that we do not believe are
residential mortgage loan balances but comprised 17 percent of non- valid. In the event that we are required to repurchase loans that have
performing residential mortgage loans. This portfolio also comprised 20 been the subject of repurchase demands or otherwise provide
percent of residential mortgage net charge-offs during 2009. While indemnification or other recourse, this could significantly increase our
approximately 32 percent of our residential mortgage portfolio carries risk losses and thereby affect our future earnings. For further information
mitigation protection, only a small portion of our CRA portfolio is covered regarding representations and warranties, see Note 8 – Securitizations to
by this protection. the Consolidated Financial Statements, and Item 1A., Risk Factors of this
We have sold and continue to sell mortgage and other loans, including Annual Report on Form 10-K.
mortgage loans, to third-party buyers and to FNMA and FHLMC under
Table 21 Countrywide Purchased Impaired Loan Portfolio – Residential Mortgage State Concentrations
Outstandings (1) Purchased Impaired Portfolio Net Charge-offs (1, 2)
December 31 Year Ended December 31
(Dollars in millions) 2009 2008 2009 2008
California $ 6,142 $ 5,633 $496 $177
Florida 843 776 143 103
Virginia 617 556 30 14
Maryland 278 253 13 6
Texas 166 148 5 5
Other U.S./Foreign 3,031 2,647 237 133
Total Countrywide purchased impaired residential mortgage loan portfolio $11,077 $10,013 $924 $438
(1) Those loans that were originally classified as discontinued real estate loans upon acquisition and have been subsequently modified are now included in the residential mortgage outstandings shown above. Charge-offs
on these loans prior to modification are excluded from the amounts shown above and shown as discontinued real estate charge-offs consistent with the product classification of the loan at the time of charge-off.
(2) Represents additional net charge-offs had the portfolio not been accounted for as impaired upon acquisition.
Discontinued Real Estate estate portfolio after consideration of purchase accounting adjustments.
The Countrywide purchased impaired discontinued real estate out- Refreshed LTVs and CLTVs greater than 90 percent based on the unpaid
standings were $13.3 billion at December 31, 2009 and comprised 35 principal balance represented 80 percent of the purchased impaired
percent of the total Countrywide purchased impaired loan portfolio. Those discontinued real estate portfolio at December 31, 2009. The table below
loans with a refreshed FICO score below 620 represented 51 percent of presents outstandings net of purchase accounting adjustments and net
the Countrywide purchased impaired discontinued real estate portfolio at charge-offs had the portfolio not been accounted for as impaired upon
December 31, 2009. Refreshed LTVs and CLTVs greater than 90 percent acquisition, by certain state concentrations.
represented 52 percent of the purchased impaired discontinued real
Table 23 Countrywide Purchased Impaired Loan Portfolio – Discontinued Real Estate State Concentrations
Outstandings (1) Purchased Impaired Portfolio Net Charge-offs (1, 2)
December 31 Year Ended December 31
(Dollars in millions) 2009 2008 2009 2008
California $ 7,148 $ 9,987 $1,845 $1,010
Florida 1,315 1,831 393 275
Arizona 430 666 151 61
Washington 421 492 30 8
Virginia 399 580 76 48
Other U.S./Foreign 3,537 4,541 517 297
Total Countrywide purchased impaired discontinued real estate loan portfolio $13,250 $18,097 $3,012 $1,699
(1) Those loans that were originally classified as discontinued real estate loans upon acquisition and have been subsequently modified are now excluded from amounts shown above. Charge-offs on these loans prior to
modification are included in the amounts shown above consistent with the product classification of the loan at the time of charge-off.
(2) Represents additional net charge-offs had the portfolio not been accounted for as impaired upon acquisition.
Pay option ARMs have interest rates that adjust monthly and minimum to reach a certain level within the first 10 years of the loans, the payment
required payments that adjust annually (subject to resetting of the loan if is reset to the interest-only payment; then at the 10-year point, the fully
minimum payments are made and deferred interest limits are reached). amortizing payment is required.
Annual payment adjustments are subject to a 7.5 percent maximum The difference between the frequency of changes in the loans’ inter-
change. To ensure that contractual loan payments are adequate to repay est rates and payments along with a limitation on changes in the mini-
a loan, the fully amortizing loan payment amount is re-established after mum monthly payments to 7.5 percent per year can result in payments
the initial five or 10-year period and again every five years thereafter. that are not sufficient to pay all of the monthly interest charges (i.e.,
These payment adjustments are not subject to the 7.5 percent limit and negative amortization). Unpaid interest charges are added to the loan
may be substantial due to changes in interest rates and the addition of balance until the loan balance increases to a specified limit, which is no
unpaid interest to the loan balance. Payment advantage ARMs have inter- more than 115 percent of the original loan amount, at which time a new
est rates that are fixed for an initial period of five years. Payments are monthly payment amount adequate to repay the loan over its remaining
subject to reset if the minimum payments are made and deferred interest contractual life is established.
limits are reached. If interest deferrals cause the loan’s principal balance
Credit Card – Foreign ularly the British pound against the U.S. dollar. Managed consumer for-
The consumer foreign credit card portfolio is managed in Global Card eign loans that were accruing past due 90 days or more increased to
Services. Outstandings in the held foreign credit card loan portfolio $799 million, or 2.56 percent, compared to $717 million, or 2.55 per-
increased $4.5 billion to $21.7 billion at December 31, 2009 compared cent, at December 31, 2008. The dollar increase was primarily due to the
to December 31, 2008 primarily due to the strengthening of certain for- strengthening of foreign currencies, especially the British pound against
eign currencies, particularly the British pound against the U.S. dollar. Net the U.S. dollar, further exacerbated by continuing weakness in the Euro-
charge-offs for the held foreign portfolio increased $688 million to $1.2 pean and Canadian economies. Net losses for the managed foreign port-
billion in 2009, or 6.30 percent of total average held credit card – foreign folio increased $895 million to $2.2 billion for 2009, or 7.43 percent of
loans compared to 3.34 percent in 2008. The increase was driven primar- total average managed credit card – foreign loans compared to 4.17
ily by weak economic conditions and higher unemployment also being percent in 2008. The increase in managed net losses was driven by the
experienced in Europe and Canada, including a higher level of bank- same factors as described in the held discussion above.
ruptcies/insolvencies. Managed consumer credit card unused lines of credit for foreign credit
Managed foreign credit card outstandings increased $3.1 billion to card totaled $69.0 billion at December 31, 2009 compared to $80.6 bil-
$31.2 billion at December 31, 2009 compared to December 31, 2008 lion at December 31, 2008. The $11.6 billion decrease was driven
primarily due to the strengthening of certain foreign currencies, partic- primarily by account management initiatives mainly on inactive accounts.
Other Consumer December 31, 2009 compared to five percent at December 31, 2008
At December 31, 2009, approximately 73 percent of the other consumer due primarily to increased modification volume during the year.
portfolio was associated with portfolios from certain consumer finance The outstanding balance of a real estate secured loan that is in
businesses that we have previously exited and are included in All Other. excess of the estimated property value, less costs to sell, is charged off
The remainder consisted of the foreign consumer loan portfolio which is no later than the end of the month in which the account becomes 180
mostly included in Global Card Services and deposit overdrafts which are days past due unless repayment of the loan is insured by the FHA. Prop-
recorded in Deposits. erty values are refreshed at least quarterly with additional charge-offs
taken as needed. At December 31, 2009, $10.7 billion, or approximately
Nonperforming Consumer Loans and Foreclosed Properties 60 percent, of the nonperforming residential mortgage loans and fore-
Activity closed properties, comprised of $9.6 billion of nonperforming loans and
Table 26 presents nonperforming consumer loans and foreclosed proper- $1.1 billion of foreclosed properties, were greater than 180 days past
due and had been written down to their fair values and $790 million, or
ties activity during 2009 and 2008. Nonperforming loans held for sale are
approximately 20 percent, of the nonperforming home equity loans and
excluded from nonperforming loans as they are recorded at either fair
foreclosed properties, comprised of $721 million of nonperforming loans
value or the lower of cost or fair value. Nonperforming loans do not
and $69 million of foreclosed properties, were greater than 180 days
include consumer credit card, consumer loans secured by personal prop-
past due and had been written down to their fair values.
erty or unsecured consumer loans that are past due as these loans are
In 2009, approximately 16 percent and six percent of the net increase
generally charged off no later than the end of the month in which the
in nonperforming loans were from Countrywide purchased non-impaired
account becomes 180 days past due. Real estate-secured past due loans and Merrill Lynch loans that deteriorated subsequent to acquisition.
loans repurchased pursuant to our servicing agreements with GNMA are While we witnessed increased levels of nonperforming loans transferred
not reported as nonperforming as repayments are insured by the FHA. to foreclosed properties due to the lifting of various foreclosure mor-
Additionally, nonperforming loans do not include the Countrywide pur- atoriums during 2009, the net reductions to foreclosed properties of $78
chased impaired portfolio. For further information regarding nonperforming million were driven by sales of foreclosed properties and write-downs.
loans, see Note 1 – Summary of Significant Accounting Principles to the
Consolidated Financial Statements. Total net additions to nonperforming Restructured Loans
loans in 2009 were $11.0 billion compared to $6.4 billion in 2008. The As discussed above, nonperforming loans also include certain loans that
net additions to nonperforming loans in 2009 were driven primarily by the have been modified in TDRs where economic concessions have been
residential mortgage and home equity portfolios reflecting weak housing granted to borrowers who have experienced or are expected to experience
markets and economy, seasoning of vintages originated in periods of financial difficulties. These concessions typically result from the Corpo-
higher growth and performing loans that were accelerated into non- ration’s loss mitigation activities and could include reductions in the
performing loan status upon modification into a TDR. Nonperforming interest rate, payment extensions, forgiveness of principal, forbearance or
consumer real estate related TDRs as a percentage of total non- other actions. Certain TDRs are classified as nonperforming at the time of
performing consumer loans and foreclosed properties were 21 percent at
Table 28 presents net charge-offs and related ratios for our commer- impaired loan portfolio as the initial fair value adjustments recorded on
cial loans and leases for 2009 and 2008. The reported net charge-off those loans upon acquisition would have already included the estimated
ratios for commercial – domestic, commercial real estate and commercial credit losses.
– foreign were impacted by the addition of the Merrill Lynch purchased
Table 30 presents commercial utilized reservable criticized exposure exposure rose by $21.7 billion primarily due to increases in commercial
by product type. Criticized exposure corresponds to the Special Mention, real estate and commercial – domestic. Commercial real estate increased
Substandard and Doubtful asset categories defined by regulatory author- $10.0 billion primarily due to the non-homebuilder portfolio which has
ities. In addition to reservable loans and leases, excluding those been impacted by the weak economy partially offset by a decrease in the
accounted for under the fair value option, exposure includes SBLCs, homebuilder portfolio. The $9.3 billion increase in commercial – domestic
financial guarantees, bankers’ acceptances and commercial letters of reflects deterioration across various lines of business and industries,
credit for which we are legally bound to advance funds under prescribed primarily in Global Banking. At December 31, 2009, approximately 85
conditions, during a specified period. Although funds have not been percent of the loans within criticized reservable utilized exposure are
advanced, these exposure types are considered utilized for credit risk secured.
management purposes. Total commercial utilized reservable criticized
During 2009, deterioration within the commercial real estate portfolio at risk as occupancy and rental rates continued to deteriorate due to the
shifted from the homebuilder portfolio to the non-homebuilder portfolio. current economic environment and restrained business hiring and capital
Non-homebuilder credit quality indicators and appraised values weakened investment. We have adopted a number of proactive risk mitigation ini-
in 2009 due to deteriorating property fundamentals and increased loss tiatives to reduce utilized and potential exposure in the commercial real
severities, whereas homebuilder credit quality indicators, while remaining estate portfolios.
elevated, began to stabilize. The non-homebuilder portfolio remains most
At December 31, 2009, we had total committed non-homebuilder the non-homebuilder construction and land development portfolio
exposure of $84.4 billion compared to $84.1 billion at December 31, increased $2.0 billion and $6.1 billion from December 31, 2008 to $2.6
2008. The increase was due to the Merrill Lynch acquisition, largely off- billion and $8.9 billion at December 31, 2009.
set by repayments and net charge-offs. Non-homebuilder nonperforming At December 31, 2009, we had committed homebuilder exposure of
loans and foreclosed properties were $4.8 billion, or 7.73 percent of total $10.4 billion compared to $16.2 billion at December 31, 2008 of which
non-homebuilder loans and foreclosed properties at December 31, 2009 $7.3 billion and $11.0 billion were funded secured loans. The decline in
compared to $1.2 billion, or 2.21 percent at December 31, 2008, with homebuilder committed exposure was driven by repayments, charge-offs,
the increase driven by deterioration in the shopping center/retail, office, reduced new home construction and continued risk mitigation initiatives.
and land and land development portfolios. Homebuilder nonperforming loans and foreclosed properties stabilized
Non-homebuilder utilized reservable criticized exposure increased due to the slowdown in the rate of home price declines. Homebuilder uti-
$11.9 billion to $18.1 billion, or 27.27 percent of total non-homebuilder lized reservable criticized exposure decreased by $1.9 billion driven by
utilized reservable exposure at December 31, 2009 compared to $6.3 higher net charge-offs. The nonperforming loans, leases and foreclosed
billion, or 10.66 percent, at December 31, 2008. The increase was properties and the utilized reservable criticized ratios for the homebuilder
driven primarily by office, shopping center/retail and multi-family rental portfolio were 42.16 percent and 74.44 percent at December 31, 2009
property types which have been the most adversely affected by high compared to 27.07 percent and 66.33 percent at December 31, 2008.
unemployment and the slowdown in consumer spending. Lower loan balances and exposures in 2009 drove a portion of the
For the non-homebuilder portfolio, net charge-offs increased $1.3 bil- increase in the ratios. Net charge-offs for the homebuilder portfolio
lion for 2009 compared to 2008 with the increase concentrated in increased $524 million in 2009 from 2008.
non-homebuilder land and land development, office, shopping center/
retail and multi-family rental property types. Commercial – Foreign
Within our total non-homebuilder exposure, at December 31, 2009, The commercial – foreign loan portfolio is managed primarily in Global
we had total committed non-homebuilder construction and land develop- Banking. Outstanding loans, excluding loans accounted for under the fair
ment exposure of $24.5 billion compared to $27.8 billion at value option, decreased due to repayments as borrowers accessed the
December 31, 2008. Non-homebuilder construction and land develop- capital markets to refinance bank debt and aggressively managed working
ment exposure is mostly secured and diversified across property types capital and investment spending, partially offset by the acquisition of
and geographies. Assets in the non-homebuilder construction and land Merrill Lynch. Reduced merger and acquisition activity was also a factor
development portfolio face significant challenges in the current rental contributing to modest new loan origination. Net charge-offs increased
market. Weak rental demand and cash flows and declining property valu- primarily due to deterioration in the portfolio, particularly in financial serv-
ations have resulted in increased levels of reservable criticized exposure ices, consumer dependent and housing-related sectors. For additional
and nonperforming loans and foreclosed properties. Nonperforming loans information on the commercial – foreign portfolio, refer to the Foreign
and foreclosed properties and utilized reservable criticized exposure for Portfolio discussion beginning on page 86.
Table 33 Nonperforming Commercial Loans, Leases and Foreclosed Properties Activity (1, 2)
(Dollars in millions) 2009 2008
Nonperforming loans and leases
Balance, January 1 $ 6,497 $ 2,155
Additions to nonperforming loans and leases:
Merrill Lynch balance, January 1, 2009 402 –
New nonaccrual loans and leases 16,190 8,110
Advances 339 154
Reductions in nonperforming loans and leases:
Paydowns and payoffs (3,075) (1,467)
Sales (630) (45)
Returns to performing status (3) (461) (125)
Charge-offs (4) (5,626) (1,900)
Transfers to foreclosed properties (857) (372)
Transfers to loans held-for-sale (76) (13)
Total net additions to nonperforming loans and leases 6,206 4,342
Total nonperforming loans and leases, December 31 12,703 6,497
Foreclosed properties
Balance, January 1 321 75
Additions to foreclosed properties:
New foreclosed properties 857 372
Reductions in foreclosed properties:
Sales (310) (110)
Write-downs (91) (16)
Total net additions to foreclosed properties 456 246
Total foreclosed properties, December 31 777 321
Nonperforming commercial loans, leases and foreclosed properties, December 31 $13,480 $ 6,818
Nonperforming commercial loans and leases as a percentage of outstanding commercial loans and leases (5) 4.00% 1.93%
Nonperforming commercial loans, leases and foreclosed properties as a percentage of outstanding commercial loans,
leases and foreclosed properties (5) 4.24 2.02
(1) Balances do not include nonperforming LHFS of $4.5 billion and $852 million at December 31, 2009 and 2008.
(2) Includes small business commercial – domestic activity.
(3) Commercial loans and leases may be restored to performing status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected, or when the loan
otherwise becomes well-secured and is in the process of collection. TDRs are generally classified as performing after a sustained period of demonstrated payment performance.
(4) Business card loans are not classified as nonperforming; therefore, the charge-offs on these loans have no impact on nonperforming activity.
(5) Outstanding commercial loans and leases exclude loans accounted for under the fair value option.
Risk Mitigation losses of $2.9 billion in 2009 compared to net gains of $993 million in
Credit protection is purchased to cover the funded portion as well as the 2008. The average Value-at-Risk (VAR) for these credit derivative hedges
unfunded portion of certain credit exposure. To lessen the cost of obtain- was $76 million in 2009 compared to $24 million in 2008. The average
ing our desired credit protection levels, credit exposure may be added VAR for the related credit exposure was $130 million in 2009 compared
within an industry, borrower or counterparty group by selling protection. to $57 million in 2008. The year-over-year increase in VAR was driven by
At December 31, 2009 and 2008, we had net notional credit default the combination of the Merrill Lynch and Bank of America businesses in
protection purchased in our credit derivatives portfolio to hedge our 2009. There is a diversification effect between the net credit default
funded and unfunded exposures for which we elected the fair value option protection hedging our credit exposure and the related credit exposure
as well as certain other credit exposures of $19.0 billion and $9.7 billion. such that the combined average VAR was $89 million in 2009. Refer to
The increase from December 31, 2008 is primarily driven by the acquis- the Trading Risk Management discussion beginning on page 92 for a
ition of Merrill Lynch. The mark-to-market impacts, including the cost of description of our VAR calculation for the market-based trading portfolio.
net credit default protection hedging our credit exposure, resulted in net
Table 36 Net Credit Default Protection by Credit Exposure Debt Rating (1)
(Dollars in millions) December 31
2009 2008
Ratings (2) Net Notional Percent of Total Net Notional Percent of Total
AAA $ 15 (0.1)% $ 30 (0.3)%
AA (344) 1.8 (103) 1.1
A (6,092) 32.0 (2,800) 29.0
BBB (9,573) 50.4 (4,856) 50.2
BB (2,725) 14.3 (1,948) 20.2
B (835) 4.4 (579) 6.0
CCC and below (1,691) 8.9 (278) 2.9
NR (3) 2,220 (11.7) 880 (9.1)
Total net credit default protection $(19,025) 100.0% $(9,654) 100.0%
(1) Ratings are refreshed on a quarterly basis.
(2) The Corporation considers ratings of BBB- or higher to meet the definition of investment grade.
(3) In addition to names which have not been rated, “NR” includes $2.3 billion and $948 million in net credit default swaps index positions at December 31, 2009 and 2008. While index positions are principally
investment grade, credit default swaps indices include names in and across each of the ratings categories.
In addition to our net notional credit default protection purchased to subject to credit risk in the event that these counterparties fail to perform
cover the funded and unfunded portion of certain credit exposures, credit under the terms of these contracts. In most cases, credit derivative
derivatives are used for market-making activities for clients and establish- transactions are executed on a daily margin basis. Therefore, events such
ing positions intended to profit from directional or relative value changes. as a credit downgrade (depending on the ultimate rating level) or a breach
We execute the majority of our credit derivative positions in the of credit covenants would typically require an increase in the amount of
over-the-counter market with large, multinational financial institutions, collateral required of the counterparty (where applicable), and/or allow us
including broker/dealers and, to a lesser degree, with a variety of other to take additional protective measures such as early termination of all
investors. Because these transactions are executed in the trades.
over-the-counter market, we are subject to settlement risk. We are also
Counterparty Credit Risk Valuation Adjustments adjusted in future periods due to changes in the value of the derivative
We record a counterparty credit risk valuation adjustment on certain contract, collateral and creditworthiness of the counterparty.
derivatives assets, including our credit default protection purchased, in During 2009, credit valuation gains (losses) were recognized in trad-
order to properly reflect the credit quality of the counterparty. These ing account profits (losses) related to counterparty credit risk on
adjustments are necessary as the market quotes on derivatives do not derivative assets. For additional information on gains or losses related to
fully reflect the credit risk of the counterparties to the derivative assets. the counterparty credit risk on derivative assets, refer to Note 4 –
We consider collateral and legally enforceable master netting agreements Derivatives to the Consolidated Financial Statements. For information on
that mitigate our credit exposure to each counterparty in determining the our monoline counterparty credit risk, see the discussion beginning on
counterparty credit risk valuation adjustment. All or a portion of these pages 49 and 82, and for information on our CDO-related counterparty
counterparty credit risk valuation adjustments are reversed or otherwise credit risk, see the Global Markets discussion beginning on page 47.
Our total foreign exposure was $257.7 billion at December 31, 2009, United Kingdom was the only country where the total cross-border
an increase of $126.6 billion from December 31, 2008. Our foreign exposure exceeded one percent of our total assets at December 31,
exposure remained concentrated in Europe, which accounted for $170.8 2009. The increase of $47.4 billion was primarily due to the acquisition
billion, or 66 percent, of total foreign exposure. The European exposure of Merrill Lynch. At December 31, 2009, Germany and France, with total
was mostly in Western Europe and was distributed across a variety of cross-border exposure of $18.9 billion and $17.4 billion, representing
industries. Asia Pacific was our second largest foreign exposure at $47.6 0.85 percent and 0.78 percent of total assets were the only other coun-
billion, or 18 percent. Latin America accounted for $19.5 billion, or eight tries that had total cross-border exposure which exceeded 0.75 percent
percent, of total foreign exposure. The increases of $104.3 billion, $7.9 of our total assets.
billion and $8.1 billion in our foreign exposure in Europe, Asia Pacific and Exposure includes cross-border claims by our foreign offices including
Latin America, respectively, from December 31, 2008 were primarily due loans, acceptances, time deposits placed, trading account assets, secu-
to the acquisition of Merrill Lynch. For more information on our Asia rities, derivative assets, other interest-earning investments and other
Pacific and Latin America exposure, see the discussion of the foreign monetary assets. Amounts also include unused commitments, SBLCs,
exposure to selected countries defined as emerging markets below. commercial letters of credit and formal guarantees. Sector definitions are
As shown in Table 39, at December 31, 2009 and 2008, the United consistent with FFIEC reporting requirements for preparing the Country
Kingdom had total cross-border exposure of $60.7 billion and $13.3 bil- Exposure Report.
lion, representing 2.73 percent and 0.73 percent of our total assets. The
Table 39 Total Cross-border Exposure Exceeding One Percent of Total Assets (1)
Exposure as a
Cross-border Percentage of Total
(Dollars in millions) December 31 Public Sector Banks Private Sector Exposure Assets
United Kingdom 2009 $157 $8,478 $ 52,080 $ 60,715 2.73%
2008 543 567 12,167 13,277 0.73
(1) At December 31, 2009 and 2008, total cross-border exposure for the United Kingdom included derivatives exposure of $5.0 billion and $3.2 billion, which has been reduced by the amount of cash collateral applied of
$7.1 billion and $4.5 billion. Derivative assets were collateralized by other marketable securities of $18 million and $124 million at December 31, 2009 and 2008.
purchased impaired loans, allowance for loan and lease losses as a percentage of total nonperforming loans and leases would have been 99 percent and 136 percent at December 31, 2009 and 2008. For more
information on the impact of purchased impaired loans on asset quality, see Consumer Portfolio Credit Risk Management beginning on page 66 and Commercial Portfolio Credit Risk Management beginning on page 76.
(4) The 2009 amount includes a $750 million reduction in the allowance for loan and lease losses related to credit card loans of $8.5 billion which were exchanged for a $7.8 billion held-to-maturity debt security that was
issued by the Corporation’s U.S. Credit Card Securitization Trust and retained by the Corporation. This reduction was partially offset by a $340 million increase associated with the reclassification to other assets of the
December 31, 2008 amount expected to be reimbursed under residential mortgage cash collateralized synthetic securitizations. The 2008 amount includes the $1.2 billion addition of the Countrywide allowance for
loan losses as of July 1, 2008.
(5) The 2009 amount represents the fair value of the acquired Merrill Lynch unfunded lending commitments excluding those accounted for under the fair value option, net of accretion and the impact of funding previously
unfunded portions.
(6) Outstanding loan and lease balances and ratios do not include loans accounted for under the fair value option. Loans measured at fair value were $4.9 billion and $5.4 billion at December 31, 2009 and 2008. Average
loans measured at fair value were $6.9 billion and $4.9 billion for 2009 and 2008.
n/a = not applicable
Market Risk Management well as mortgage, equity, commodity, issuer and market liquidity risk
Market risk is the risk that values of assets and liabilities or revenues will factors. We seek to mitigate these risk exposures by using techniques
be adversely affected by changes in market conditions such as market that encompass a variety of financial instruments in both the cash and
movements. This risk is inherent in the financial instruments associated derivatives markets. The following discusses the key risk components
with our operations and/or activities including loans, deposits, securities, along with respective risk mitigation techniques.
short-term borrowings, long-term debt, trading account assets and
liabilities, and derivatives. Market-sensitive assets and liabilities are Interest Rate Risk
generated through loans and deposits associated with our traditional Interest rate risk represents exposures to instruments whose values vary
banking business, customer and other trading operations, ALM process, with the level or volatility of interest rates. These instruments include, but
credit risk mitigation activities and mortgage banking activities. In the are not limited to, loans, debt securities, certain trading-related assets
event of market volatility, factors such as underlying market movements and liabilities, deposits, borrowings and derivative instruments. Hedging
and liquidity have an impact on the results of the Corporation. instruments used to mitigate these risks include related derivatives such
Our traditional banking loan and deposit products are nontrading posi- as options, futures, forwards and swaps.
tions and are generally reported at amortized cost for assets or the
amount owed for liabilities (historical cost). However, these positions are Foreign Exchange Risk
still subject to changes in economic value based on varying market con- Foreign exchange risk represents exposures to changes in the values of
ditions, primarily changes in the levels of interest rates. The risk of current holdings and future cash flows denominated in other currencies.
adverse changes in the economic value of our nontrading positions is The types of instruments exposed to this risk include investments in for-
managed through our ALM activities. We have elected to account for cer- eign subsidiaries, foreign currency-denominated loans and securities,
tain assets and liabilities under the fair value option. For further future cash flows in foreign currencies arising from foreign exchange
information on the fair value of certain financial assets and liabilities, see transactions, foreign currency-denominated debt and various foreign
Note 20 – Fair Value Measurements to the Consolidated Financial State- exchange derivative instruments whose values fluctuate with changes in
ments. the level or volatility of currency exchange rates or foreign interest rates.
Our trading positions are reported at fair value with changes currently Hedging instruments used to mitigate this risk include foreign exchange
reflected in income. Trading positions are subject to various risk factors, options, currency swaps, futures, forwards, foreign currency- denominated
which include exposures to interest rates and foreign exchange rates, as debt and deposits.
60
50
Number of Days
40
30
20
10
0
< -125 -125 to -100 -100 to -75 -75 to -50 -50 to -25 -25 to 0 0 to 25 25 to 50 50 to 75 75 to 100 100 to 125 > 125
Revenue (dollars in millions)
Twelve Months Ended December 31, 2009 Twelve Months Ended December 31, 2008
To evaluate risk in our trading activities, we focus on the actual and defined time period to estimate future performance. Historical results
potential volatility of individual positions as well as portfolios. VAR is a may not always be indicative of future results and changes in market
key statistic used to measure market risk. In order to manage day-to-day conditions or in the composition of the underlying portfolio could have a
risks, VAR is subject to trading limits both for our overall trading portfolio material impact on the accuracy of the VAR model. To ensure that the
and within individual businesses. All limit excesses are communicated to VAR model reflects current market conditions, we update the historical
management for review. data underlying our VAR model on a bi-weekly basis and regularly review
A VAR model simulates the value of a portfolio under a range of hypo- the assumptions underlying the model.
thetical scenarios in order to generate a distribution of potential gains We continually review, evaluate and enhance our VAR model to ensure
and losses. VAR represents the worst loss the portfolio is expected to that it reflects the material risks in our trading portfolio. Nevertheless,
experience based on historical trends with a given level of confidence and due to the limitations mentioned above, we have historically used the
depends on the volatility of the positions in the portfolio and on how VAR model as only one of the components in managing our trading risk
strongly their risks are correlated. Within any VAR model, there are sig- and also use other techniques such as stress testing and desk level lim-
nificant and numerous assumptions that will differ from company to its. Periods of extreme market stress influence the reliability of these
company. In addition, the accuracy of a VAR model depends on the avail- techniques to various degrees.
ability and quality of historical data for each of the positions in the portfo- The accuracy of the VAR methodology is reviewed by backtesting (i.e.,
lio. A VAR model may require additional modeling assumptions for new comparing actual results against expectations derived from historical
products which do not have extensive historical price data or for illiquid data) the VAR results against the daily profit and loss. Graphic
positions for which accurate daily prices are not consistently available. representation of the backtesting results with additional explanation of
A VAR model is an effective tool in estimating ranges of potential backtesting excesses are reported to the GRC. Backtesting excesses
gains and losses on our trading portfolios. There are however many limi- occur when trading losses exceed VAR. Senior management reviews and
tations inherent in a VAR model as it utilizes historical results over a evaluates the results of these tests.
400
300
200
(Dollars in millions)
100 Daily
Trading-
0 related
Revenue
-100
VAR
-200
-300
-400
12/31/2008 3/31/2009 6/30/2009 9/30/2009 12/31/2009
(1) Our VAR model uses a historical simulation approach based on three years of historical data and an expected shortfall methodology equivalent to 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 each year.
Table 43 presents average, high and low daily trading VAR for 2009 and 2008.
The increase in average VAR during 2009 as compared to 2008 Trading Portfolio Stress Testing
resulted from the acquisition of Merrill Lynch. In periods of market stress, Because the very nature of a VAR model suggests results can exceed our
the GRC members communicate daily to discuss losses and VAR limit estimates, we also “stress test” our portfolio. Stress testing estimates
excesses. As a result of this process, the lines of business may the value change in our trading portfolio that may result from abnormal
selectively reduce risk. Where economically feasible, positions are sold or market movements. Various scenarios, categorized as either historical or
macroeconomic hedges are executed to reduce the exposure. hypothetical, are regularly run and reported for the overall trading portfolio
Counterparty credit risk is an adjustment to the mark-to-market value and individual businesses. Historical scenarios simulate the impact of
of our derivative exposures reflecting the impact of the credit quality of price changes which occurred during a set of extended historical market
counterparties on our derivative assets. Since counterparty credit events. Generally, a 10-business-day window or longer, representing the
exposure is not included in the VAR component of the regulatory capital most severe point during the crisis, is selected for each historical scenar-
allocation, we do not include it in our trading VAR, and it is therefore not io. Hypothetical scenarios provide simulations of anticipated shocks from
included in the daily trading-related revenue illustrated in our histogram or predefined market stress events. These stress events include shocks to
used for backtesting. underlying market risk variables which may be well beyond the shocks
found in the historical data used to calculate the VAR. As with the histor-
During 2009, the spread between the spot three-month London Inter- December 31, 2009 and 2008, resulting from a 100 bp gradual parallel
Bank Offered Rate (LIBOR) and the Federal Funds target rate converged. increase, a 100 bp gradual parallel decrease, a 100 bp gradual curve
We are typically asset sensitive to Federal Funds and Prime rates, and flattening (increase in short-term rates or decrease in long-term rates)
liability sensitive to LIBOR. Net interest income benefits as the spread and a 100 bp gradual curve steepening (decrease in short-term rates or
between Federal Funds and LIBOR narrows. increase in long-term rates) from the forward market curve. For further
Table 45 below reflects the pre-tax dollar impact to forecasted core discussion of core net interest income – managed basis see page 39.
net interest income – managed basis over the next twelve months from
Table 46 Asset and Liability Management Interest Rate and Foreign Exchange Contracts
December 31, 2009
Expected Maturity
(1) At December 31, 2009, the receive fixed interest rate swap notional that represented forward starting swaps and will not be effective until their respective contractual start dates was $2.5 billion and the forward
starting pay fixed swap positions was $76.8 billion. At December 31, 2008, there were no forward starting pay or receive fixed swap positions.
(2) Does not include basis adjustments on fixed-rate debt issued by the Corporation and hedged under fair value hedges pursuant to derivatives designated as hedging instruments that substantially offset the fair values
of these derivatives.
(3) At December 31, 2009, same-currency basis swaps consist of $42.9 billion in both foreign currency and U.S. dollar-denominated basis swaps in which both sides of the swap are in the same currency. There were no
same-currency basis swaps at December 31, 2008.
(4) Foreign exchange basis swaps consist of cross-currency variable interest rate swaps used separately or in conjunction with receive fixed interest rate swaps.
(5) Does not include foreign currency translation adjustments on certain foreign debt issued by the Corporation which substantially offset the fair values of these derivatives.
(6) Option products of $6.5 billion at December 31, 2009 were comprised of $177 million in purchased caps and $6.3 billion in swaptions. Option products of $5.0 billion at December 31, 2008 are comprised completely
of purchased caps.
(7) Foreign exchange contracts include foreign currency-denominated and cross-currency receive fixed interest rate swaps as well as foreign currency forward rate contracts. Total notional was comprised of $46.0 billion in
foreign currency-denominated and cross-currency receive fixed swaps and $57.7 billion in foreign currency forward rate contracts at December 31, 2009, and $23.1 billion in foreign currency-denominated and cross-
currency receive fixed swaps and $78 million in foreign currency forward rate contracts at December 31, 2008.
(8) Reflects the net of long and short positions.
consumer loans of $8.0 billion, $1.8 billion, $3.4 billion, $3.9 billion and $48 million at December 31, 2009, 2008, 2007, 2006 and 2005, respectively. The 2009 amount includes securities-based lending margin
loans of $12.9 billion.
(4) Includes consumer finance loans of $2.3 billion, $2.6 billion, $3.0 billion, $2.8 billion and $2.8 billion and other foreign consumer loans of $709 million, $618 million, $829 million, $2.3 billion and $3.8 billion at
respectively.
(6) Includes domestic commercial real estate loans of $66.5 billion, $63.7 billion, $60.2 billion, $35.7 billion and $35.2 billion, and foreign commercial real estate loans of $3.0 billion, $979 million, $1.1 billion, $578
million and $585 million at December 31, 2009, 2008, 2007, 2006 and 2005, respectively.
(7) Certain commercial loans are accounted for under the fair value option and include commercial – domestic loans of $3.0 billion, $3.5 billion and $3.5 billion, commercial – foreign loans of $1.9 billion, $1.7 billion and
$790 million, and commercial real estate loans of $90 million, $203 million and $304 million at December 31, 2009, 2008 and 2007, respectively.
n/a = not applicable
according to their terms and conditions, including troubled debt restructured loans of which $3.0 billion were performing at December 31, 2009 and not included in the table above. Approximately $194 million of the
estimated $1.4 billion in contractual interest was received and included in earnings for 2009.
(3) Excludes small business commercial – domestic loans.
(4) In 2009, $450 million in interest income was estimated to be contractually due on commercial loans and leases classified as nonperforming at December 31, 2009, including troubled debt restructured loans of which
$91 million were performing at December 31, 2009 and not included in the table above. Approximately $128 million of the estimated $450 million in contractual interest was received and included in earnings for
2009.
(5) Balances do not include loans accounted for under the fair value option. At December 31, 2009, there were $15 million of nonperforming loans accounted for under the fair value option. At December 31, 2009, there
were $87 million of loans or leases past due 90 days or more and still accruing interest accounted for under the fair value option.
n/a = not applicable
The management of Bank of America Corporation is responsible for estab- Treadway Commission in Internal Control – Integrated Framework. Based
lishing and maintaining adequate internal control over financial reporting. on that assessment, management concluded that, as of December 31,
The Corporation’s internal control over financial reporting is a process 2009, the Corporation’s internal control over financial reporting is effec-
designed to provide reasonable assurance regarding the reliability of tive based on the criteria established in Internal Control – Integrated
financial reporting and the preparation of financial statements for external Framework.
purposes in accordance with accounting principles generally accepted in The Corporation’s internal control over financial reporting as of
the United States of America. The Corporation’s internal control over December 31, 2009 has been audited by PricewaterhouseCoopers, LLP,
financial reporting includes those policies and procedures that (i) pertain an independent registered public accounting firm, as stated in their
to the maintenance of records that, in reasonable detail, accurately and accompanying report which expresses an unqualified opinion on the effec-
fairly reflect the transactions and dispositions of the assets of the tiveness of the Corporation’s internal control over financial reporting as of
Corporation; (ii) provide reasonable assurance that transactions are December 31, 2009.
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United
States of America, and that receipts and expenditures of the Corporation
are being made only in accordance with authorizations of management
and directors of the Corporation; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
Brian T. Moynihan
or disposition of the Corporation’s assets that could have a material Chief Executive Officer and President
effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. Neil A. Cotty
Management assessed the effectiveness of the Corporation’s internal Interim Chief Financial Officer
control over financial reporting as of December 31, 2009, based on the Chief Accounting Officer
framework set forth by the Committee of Sponsoring Organizations of the
To the Board of Directors and Shareholders of Bank of and evaluating the design and operating effectiveness of internal control
America Corporation: based on the assessed risk. Our audits also included performing such
In our opinion, the accompanying Consolidated Balance Sheet and the other procedures as we considered necessary in the circumstances. We
related Consolidated Statement of Income, Consolidated Statement of believe that our audits provide a reasonable basis for our opinions.
Changes in Shareholders’ Equity and Consolidated Statement of Cash A company’s internal control over financial reporting is a process
Flows present fairly, in all material respects, the financial position of designed to provide reasonable assurance regarding the reliability of
Bank of America Corporation and its subsidiaries at December 31, 2009 financial reporting and the preparation of financial statements for external
and 2008, and the results of their operations and their cash flows for purposes in accordance with generally accepted accounting principles. A
each of the three years in the period ended December 31, 2009 in con- company’s internal control over financial reporting includes those policies
formity with accounting principles generally accepted in the United States and procedures that (i) pertain to the maintenance of records that, in
of America. Also in our opinion, the Corporation maintained, in all reasonable detail, accurately and fairly reflect the transactions and dis-
material respects, effective internal control over financial reporting as of positions of the assets of the company; (ii) provide reasonable assurance
December 31, 2009, based on criteria established in Internal Control – that transactions are recorded as necessary to permit preparation of
Integrated Framework issued by the Committee of Sponsoring Orga- financial statements in accordance with generally accepted accounting
nizations of the Treadway Commission (COSO). The Corporation’s principles, and that receipts and expenditures of the company are being
management is responsible for these financial statements, for maintain- made only in accordance with authorizations of management and direc-
ing effective internal control over financial reporting and for its assess- tors of the company; and (iii) provide reasonable assurance regarding
ment of the effectiveness of internal control over financial reporting, prevention or timely detection of unauthorized acquisition, use, or dis-
included in the accompanying Report of Management on Internal Control position of the company’s assets that could have a material effect on the
Over Financial Reporting. Our responsibility is to express opinions on financial statements.
these financial statements and on the Corporation’s internal control over Because of its inherent limitations, internal control over financial
financial reporting based on our integrated audits. We conducted our reporting may not prevent or detect misstatements. Also, projections of
audits in accordance with the standards of the Public Company Account- any evaluation of effectiveness to future periods are subject to the risk
ing Oversight Board (United States). Those standards require that we plan that controls may become inadequate because of changes in conditions,
and perform the audits to obtain reasonable assurance about whether the or that the degree of compliance with the policies or procedures may
financial statements are free of material misstatement and whether effec- deteriorate.
tive internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in the finan-
cial statements, assessing the accounting principles used and significant Charlotte, North Carolina
estimates made by management, and evaluating the overall financial February 26, 2010
statement presentation. Our audit of internal control over financial report-
ing included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
Shareholders’ equity
Preferred stock, $0.01 par value; authorized – 100,000,000 shares; issued and outstanding – 5,246,660 and 8,202,042 shares 37,208 37,701
Common stock and additional paid-in capital, $0.01 par value; authorized – 10,000,000,000 shares; issued and outstanding –
8,650,243,926 and 5,017,435,592 shares 128,734 76,766
Retained earnings 71,233 73,823
Accumulated other comprehensive income (loss) (5,619) (10,825)
Other (112) (413)
Total shareholders’ equity 231,444 177,052
Total liabilities and shareholders’ equity $2,223,299 $1,817,943
December 31
(Dollars in millions) 2009 2008
Trading account assets
U.S. government and agency securities (1) $ 44,585 $ 60,038
Corporate securities, trading loans and other 57,009 34,056
Equity securities 33,562 20,258
Foreign sovereign debt 28,143 13,614
Mortgage trading loans and asset-backed securities 18,907 6,349
Total trading account assets $182,206 $134,315
Trading account liabilities
U.S. government and agency securities $ 26,519 $ 27,286
Equity securities 18,407 12,128
Foreign sovereign debt 12,897 7,252
Corporate securities and other 7,609 5,057
Total trading account liabilities $ 65,432 $ 51,723
(1) Includes $23.5 billion and $52.6 billion at December 31, 2009 and 2008 of government-sponsored enterprise (GSE) obligations.
ALM and Risk Management Derivatives ent indices. Option products primarily consist of caps, floors and swap-
The Corporation’s ALM and risk management activities include the use of tions. Futures contracts used for the Corporation’s ALM activities are
derivatives to mitigate risk to the Corporation including both derivatives primarily index futures providing for cash payments based upon the
that are designated as hedging instruments and economic hedges. Inter- movements of an underlying rate index.
est rate, commodity, credit and foreign exchange contracts are utilized in Interest rate and market risk can be substantial in the mortgage busi-
the Corporation’s ALM and risk management activities. ness. Market risk is the risk that values of mortgage assets or revenues
The Corporation maintains an overall interest rate risk management strat- will be adversely affected by changes in market conditions such as interest
egy that incorporates the use of interest rate contracts to minimize sig- rate movements. To hedge interest rate risk in mortgage banking pro-
nificant fluctuations in earnings that are caused by interest rate volatility. duction income, the Corporation utilizes forward loan sale commitments
The Corporation’s goal is to manage interest rate sensitivity so that move- and other derivative instruments including purchased options. The Corpo-
ments in interest rates do not significantly adversely affect earnings. As a ration also utilizes derivatives such as interest rate options, interest rate
result of interest rate fluctuations, hedged fixed-rate assets and liabilities swaps, forward settlement contracts and euro-dollar futures as economic
appreciate or depreciate in fair value. Gains or losses on the derivative hedges of the fair value of MSRs. For additional information on MSRs, see
instruments that are linked to the hedged fixed-rate assets and liabilities are Note 22 – Mortgage Servicing Rights.
expected to substantially offset this unrealized appreciation or depreciation. The Corporation uses foreign currency contracts to manage the foreign
Interest rate contracts, which are generally non-leveraged generic exchange risk associated with certain foreign currency-denominated
interest rate and basis swaps, options, futures and forwards, are used by assets and liabilities, as well as the Corporation’s investments in foreign
the Corporation in the management of its interest rate risk position. subsidiaries. Foreign exchange contracts, which include spot and forward
Non-leveraged generic interest rate swaps involve the exchange of fixed- contracts, represent agreements to exchange the currency of one country
rate and variable-rate interest payments based on the contractual under- for the currency of another country at an agreed-upon price on an agreed-
lying notional amount. Basis swaps involve the exchange of interest upon settlement date. Exposure to loss on these contracts will increase
payments based on the contractual underlying notional amounts, where or decrease over their respective lives as currency exchange and interest
both the pay rate and the receive rate are floating rates based on differ- rates fluctuate.
The following table summarizes certain information related to the after-tax) on derivative instruments that qualify as cash flow hedges are
Corporation’s derivatives designated as cash flow hedges and net expected to be reclassified into earnings. These net losses reclassified
investment hedges for 2009 and 2008. During the next 12 months, net into earnings are expected to reduce net interest income related to the
losses in accumulated OCI of approximately $937 million ($590 million respective hedged items.
2009 2008
Hedge Hedge
Ineffectiveness Ineffectiveness
Amounts Amounts and Amount Amounts Amounts and Amount
Recognized Reclassified Excluded from Recognized Reclassified Excluded from
in OCI on from OCI Effectiveness in OCI on from OCI Effectiveness
(Dollars in millions, amounts pre-tax) Derivatives into Income Testing (1) Derivatives into Income Testing (1)
Derivatives designated as cash flow hedges
Interest rate risk on variable rate portfolios (2, 3, 4, 5) $ 579 $(1,214) $ 71 $ (82) $(1,334) $ (7)
Commodity price risk on forecasted purchases
and sales (6) 72 70 (2) n/a n/a n/a
Price risk on equity investments included in
available-for-sale securities (331) – – 243 – –
Total (7) $ 320 $(1,144) $ 69 $ 161 $(1,334) $ (7)
Net investment hedges
Foreign exchange risk (8) $(2,997) $ – $(142) $2,814 $ – $(192)
(1) Amounts related to derivatives designated as cash flow hedges represent hedge ineffectiveness and amounts related to net investment hedges represent amounts excluded from effectiveness testing.
(2) Amounts reclassified from OCI reduced interest income on assets by $110 million and $224 million during 2009 and 2008, and increased interest expense on liabilities by $1.1 billion during both 2009 and 2008.
(3) Hedge ineffectiveness of $73 million and $(10) million was recorded in interest income and $(2) million and $3 million was recorded in interest expense during 2009 and 2008.
(4) Amounts recognized in OCI on derivatives exclude amounts related to terminated hedges of AFS securities of $(9) million and $206 million for 2009 and 2008.
(5) Amounts reclassified from OCI exclude amounts related to derivative interest accruals which increased interest income by $104 million for 2009 and amounts which increased interest expense $73 million for 2008.
(6) Gains reclassified from OCI into income were recorded in trading account profits (losses) during 2009, 2008 and 2007 were $44 million, $0 and $18 million, respectively, related to the discontinuance of cash flow
hedging because it was probable that the original forecasted transaction would not occur.
(7) For 2007, hedge ineffectiveness recognized in net interest income was $4 million.
(8) Amounts recognized in OCI on derivatives exclude losses of $387 million related to long-term debt designated as a net investment hedge for 2009.
Sales and Trading Revenue revenue generated within Global Markets is recorded on different income
The Corporation enters into trading derivatives to facilitate client trans- statement line items including trading account profits (losses) and net
actions, for proprietary trading purposes, and to manage risk exposures interest income as well as other revenue categories. However, the vast
arising from trading assets and liabilities. It is the Corporation’s policy to majority of income related to derivative instruments is recorded in trading
include these derivative instruments in its trading activities which include account profits (losses). The following table identifies the amounts in the
derivative and non-derivative cash instruments. The resulting risk from income statement line items attributable to the Corporation’s sales and
these derivatives is managed on a portfolio basis as part of the Corpo- trading revenue categorized by primary risk for 2009 and 2008.
ration’s Global Markets business segment. The related sales and trading
2009 2008
Trading
Trading Net Account Net
Account Other Interest Profits Other Interest
(Dollars in millions) Profits Revenues (1) Income Total (Losses) Revenues (1) Income Total
Interest rate risk $ 3,145 $ 33 $1,068 $ 4,246 $ 1,083 $ 47 $ 276 $ 1,406
Foreign exchange risk 972 6 26 1,004 1,320 6 13 1,339
Equity risk 2,041 2,613 246 4,900 (66) 686 99 719
Credit risk 4,433 (2,576) 4,637 6,494 (8,276) (6,881) 4,380 (10,777)
Other risk 1,084 13 (469) 628 130 58 (14) 174
Total sales and trading revenue $11,675 $ 89 $5,508 $17,272 $(5,809) $(6,084) $4,754 $(7,139)
(1) Represents investment and brokerage services and other income recorded in Global Markets that the Corporation includes in its definition of sales and trading revenue.
Credit Derivatives include bankruptcy of the referenced credit entity and failure to pay under
The Corporation enters into credit derivatives primarily to facilitate client the obligation, as well as acceleration of indebtedness and payment
transactions and to manage credit risk exposures. Credit derivatives repudiation or moratorium. For credit derivatives based on a portfolio of
derive value based on an underlying third party-referenced obligation or a referenced credits or credit indices, the Corporation may not be required
portfolio of referenced obligations and generally require the Corporation to make payment until a specified amount of loss has occurred and/or
as the seller of credit protection to make payments to a buyer upon the may only be required to make payment up to a specified amount.
occurrence of a predefined credit event. Such credit events generally
Maximum Payout/Notional
Credit default swaps:
Investment grade $147,501 $411,258 $596,103 $335,526 $1,490,388
Non-investment grade 123,907 417,834 399,896 356,735 1,298,372
Total 271,408 829,092 995,999 692,261 2,788,760
Total return swaps/other:
Investment grade 31 60 1,081 8,087 9,259
Non-investment grade 2,035 1,280 2,183 18,352 23,850
Total 2,066 1,340 3,264 26,439 33,109
Total credit derivatives $273,474 $830,432 $999,263 $718,700 $2,821,869
Maximum Payout/Notional
Credit default swaps:
Investment grade $ 49,535 $169,508 $395,768 $187,075 $ 801,886
Non-investment grade 17,217 48,829 89,650 42,452 198,148
Total 66,752 218,337 485,418 229,527 1,000,034
Total return swaps/other:
Non-investment grade 1,178 628 37 4,360 6,203
Total credit derivatives $ 67,930 $218,965 $485,455 $233,887 $1,006,237
The notional amount represents the maximum amount payable by the The Corporation economically hedges its market risk exposure to
Corporation for most credit derivatives. However, the Corporation does credit derivatives by entering into a variety of offsetting derivative con-
not solely monitor its exposure to credit derivatives based on notional tracts and security positions. For example, in certain instances, the
amount because this measure does not take into consideration the Corporation may purchase credit protection with identical underlying
probability of occurrence. As such, the notional amount is not a reliable referenced names to offset its exposure. The carrying value and notional
indicator of the Corporation’s exposure to these contracts. Instead, a risk amount of written credit derivatives for which the Corporation held pur-
framework is used to define risk tolerances and establish limits to help chased credit derivatives with identical underlying referenced names at
ensure that certain credit risk-related losses occur within acceptable, December 31, 2009 was $79.4 billion and $2.3 trillion compared to
predefined limits. $92.4 billion and $819.4 billion at December 31, 2008.
Gross Gross
Amortized Unrealized Unrealized
(Dollars in millions) Cost Gains Losses Fair Value
Available-for-sale debt securities, December 31, 2009
U.S. Treasury and agency securities $ 22,648 $ 414 $ (37) $ 23,025
Mortgage-backed securities:
Agency 164,677 2,415 (846) 166,246
Agency-collateralized mortgage obligations 25,330 464 (13) 25,781
Non-agency residential (1) 37,940 1,191 (4,028) 35,103
Non-agency commercial 6,354 671 (116) 6,909
Foreign securities 4,732 61 (896) 3,897
Corporate bonds 6,136 182 (126) 6,192
Other taxable securities (2) 19,475 245 (478) 19,242
Total taxable securities 287,292 5,643 (6,540) 286,395
Tax-exempt securities 15,334 115 (243) 15,206
Total available-for-sale debt securities $302,626 $5,758 $ (6,783) $301,601
Available-for-sale marketable equity securities (3) $ 6,020 $3,895 $ (507) $ 9,408
Available-for-sale debt securities, December 31, 2008
U.S. Treasury and agency securities $ 4,540 $ 121 $ (14) $ 4,647
Mortgage-backed securities:
Agency 191,913 3,064 (146) 194,831
Non-agency residential 40,139 860 (8,825) 32,174
Non-agency commercial 3,085 – (512) 2,573
Foreign securities 5,675 6 (678) 5,003
Corporate bonds 5,560 31 (1,022) 4,569
Other taxable securities (2) 24,832 11 (1,300) 23,543
Total taxable securities 275,744 4,093 (12,497) 267,340
Tax-exempt securities 10,501 44 (981) 9,564
Total available-for-sale debt securities $286,245 $4,137 $(13,478) $276,904
Available-for-sale marketable equity securities (3) $ 18,892 $7,717 $ (1,537) $ 25,072
(1) Includes approximately 85 percent of prime bonds, 10 percent of Alt-A bonds and five percent of subprime bonds.
(2) Includes substantially all ABS.
(3) Recorded in other assets on the Corporation’s Consolidated Balance Sheet.
At December 31, 2009, the amortized cost and fair value of HTM debt During 2009, the Corporation transferred $5.6 billion of auction rate
securities was $9.8 billion and $9.7 billion, which includes ABS that were securities (ARS) from trading account assets to AFS debt securities due
issued by the Corporation’s credit card securitization trust and retained to the Corporation’s decision to hold these securities. During 2008, the
by the Corporation with an amortized cost of $6.6 billion and a fair value Corporation reclassified $12.6 billion of AFS debt securities to trading
of $6.4 billion. At December 31, 2008, both the amortized cost and fair account assets in connection with the Countrywide acquisition as the
value of HTM debt securities were $685 million. The accumulated net Corporation realigned its AFS portfolio. Further, the Corporation trans-
unrealized gains (losses) on AFS debt and marketable equity securities ferred $1.7 billion of leveraged lending bonds from trading account
included in accumulated OCI were $(628) million and $2.1 billion, net of assets to AFS debt securities due to the Corporation’s decision to hold
the related income tax expense (benefit) of $(397) million and $1.3 bil- these bonds.
lion. At December 31, 2009 and 2008, the Corporation had non- During 2009, the Corporation recorded other-than-temporary impair-
performing AFS debt securities of $467 million and $291 million. ment losses on AFS and HTM debt securities as follows:
2009
Non-agency Non-agency
Residential Commercial Foreign Corporate Other Taxable
(Dollars in millions) MBS MBS Securities Bonds Securities (1) Total
Total other-than-temporary impairment losses (unrealized
and realized) $(2,240) $(6) $(360) $(87) $(815) $(3,508)
Unrealized other-than-temporary impairment losses
recognized in OCI (2) 672 – – – – 672
Net impairment losses recognized in earnings (3) $(1,568) $(6) $(360) $(87) $(815) $(2,836)
(1) Includes $31 million of other-than-temporary impairment losses on HTM debt securities.
(2) Represents the noncredit component of other-than-temporary impairment losses on AFS debt securities. For 2009, for certain securities, the Corporation recognized credit losses in excess of unrealized losses in OCI.
In these instances, a portion of the credit losses recognized in earnings has been offset by an unrealized gain. Balances above exclude $582 million of gross gains recorded in OCI related to these securities for 2009.
(3) Represents the credit component of other-than-temporary impairment losses on AFS and HTM debt securities.
The impairment of AFS debt and marketable equity securities is based ized losses existing for twelve months or longer, $3.6 billion, or 66 per-
on a variety of factors, including the length of time and extent to which cent, of the gross unrealized losses are related to approximately 500
the market value has been less than cost, the financial condition of the MBS primarily due to continued deterioration in collateralized mortgage
issuer of the security, and the Corporation’s intent and ability to hold the obligation values driven by illiquidity in the markets. In addition, of the
security to recovery. gross unrealized losses existing for twelve months or longer, $394 mil-
At December 31, 2009, the amortized cost of approximately 12,000 lion, or seven percent, is related to approximately 800 AFS marketable
AFS securities exceeded their fair value by $7.3 billion. Included in the equity securities primarily due to the overall decline in the market during
$7.3 billion of gross unrealized losses on AFS securities at December 31, 2008. The Corporation has no intent to sell these securities and it is not
2009, was $1.9 billion of gross unrealized losses that have existed for more-likely-than-not that the Corporation will be required to sell these
less than twelve months and $5.4 billion of gross unrealized losses that securities before recovery of amortized cost.
have existed for a period of twelve months or longer. Of the gross unreal-
December 31
2009 2008
Amortized Amortized
(Dollars in millions) Cost Fair Value Cost Fair Value
Federal National Mortgage Association $100,321 $101,096 $102,908 $104,126
Government National Mortgage Association 60,610 61,121 43,713 44,627
Federal Home Loan Mortgage Corporation 29,076 29,810 46,114 46,859
Securities are pledged or assigned to secure borrowed funds, govern- rities, and the yields of the Corporation’s AFS debt securities portfolio at
ment and trust deposits and for other purposes. The carrying value of December 31, 2009 are summarized in the following table. Actual matur-
pledged securities was $122.7 billion and $158.9 billion at ities may differ from the contractual or expected maturities since bor-
December 31, 2009 and 2008. rowers may have the right to prepay obligations with or without
The expected maturity distribution of the Corporation’s MBS and the prepayment penalties.
contractual maturity distribution of the Corporation’s other debt secu-
The components of realized gains and losses on sales of debt secu- fair value and recorded as AFS marketable equity securities in other
rities for 2009, 2008 and 2007 were: assets with an offset, net-of-tax, in accumulated OCI. The remaining
investment of 25.6 billion common shares is accounted for at cost, is
recorded in other assets and is non-transferable until August 2011. At
(Dollars in millions) 2009 2008 2007 December 31, 2009 and 2008, the cost of the CCB investment was $9.2
Gross gains $5,047 $1,367 $197 billion and $12.0 billion, the carrying value was $9.2 billion and $19.7
Gross losses (324) (243) (17)
billion, and the fair value was $22.0 billion and $24.5 billion. Dividend
Net gains on sales of debt securities $4,723 $1,124 $180 income on this investment is recorded in equity investment income. The
Corporation remains a significant shareholder in CCB and intends to con-
The income tax expense attributable to realized net gains on sales of tinue the important long-term strategic alliance with CCB originally
debt securities was $1.7 billion, $416 million and $67 million in 2009, entered into in 2005. As part of this alliance, the Corporation expects to
2008 and 2007, respectively. continue to provide advice and assistance to CCB.
At December 31, 2009 and 2008, the Corporation owned approx-
Certain Corporate and Strategic Investments imately 188.4 million and 171.3 million preferred shares and 56.5 million
At December 31, 2009 and 2008, the Corporation owned approximately and 51.3 million common shares of Itaú Unibanco Holding S.A. (Itaú
11 percent, or 25.6 billion common shares and 19 percent, or 44.7 bil- Unibanco). During 2009, the Corporation received a dividend of
lion common shares of China Construction Bank (CCB). During 2009, the 17.1 million preferred shares and 5.2 million common shares. The Itaú
Corporation sold its initial investment of 19.1 billion common shares in Unibanco investment is accounted for at fair value and recorded as AFS
marketable equity securities in other assets with an offset, net-of-tax, in
CCB for a pre-tax gain of $7.3 billion. These shares were accounted for at
accumulated OCI. Dividend income on this investment is recorded in
December 31
(Dollars in millions) 2009 2008
Consumer
Residential mortgage (1) $242,129 $248,063
Home equity 149,126 152,483
Discontinued real estate (2) 14,854 19,981
Credit card – domestic 49,453 64,128
Credit card – foreign 21,656 17,146
Direct/Indirect consumer (3) 97,236 83,436
Other consumer (4) 3,110 3,442
Total consumer 577,564 588,679
Commercial
Commercial – domestic (5) 198,903 219,233
Commercial real estate (6) 69,447 64,701
Commercial lease financing 22,199 22,400
Commercial – foreign 27,079 31,020
Total commercial loans 317,628 337,354
Commercial loans measured at fair value (7) 4,936 5,413
Total commercial 322,564 342,767
Total loans and leases $900,128 $931,446
(1) Includes foreign residential mortgages of $552 million at December 31, 2009 mainly from the Merrill Lynch acquisition. The Corporation did not have any material foreign residential mortgage loans prior to January 1, 2009.
(2) Includes $13.4 billion and $18.2 billion of pay option loans and $1.5 billion and $1.8 billion of subprime loans at December 31, 2009 and 2008. The Corporation no longer originates these products.
(3) Includes dealer financial services loans of $41.6 billion and $40.1 billion, consumer lending of $19.7 billion and $28.2 billion, securities-based lending margin loans of $12.9 billion and $0, and foreign consumer
loans of $7.8 billion and $1.8 billion at December 31, 2009 and 2008.
(4) Includes consumer finance loans of $2.3 billion and $2.6 billion, and other foreign consumer loans of $709 million and $618 million at December 31, 2009 and 2008.
(5) Includes small business commercial – domestic loans, primarily credit card related, of $17.5 billion and $19.1 billion at December 31, 2009 and 2008.
(6) Includes domestic commercial real estate loans of $66.5 billion and $63.7 billion and foreign commercial real estate loans of $3.0 billion and $979 million at December 31, 2009 and 2008.
(7) Certain commercial loans are accounted for under the fair value option and include commercial – domestic loans of $3.0 billion and $3.5 billion, commercial – foreign loans of $1.9 billion and $1.7 billion, and
commercial real estate loans of $90 million and $203 million at December 31, 2009 and 2008. See Note 20 – Fair Value Measurements for additional discussion of fair value for certain financial instruments.
The Corporation mitigates a portion of its credit risk through synthetic during the year. During 2009, $669 million was recognized in other
securitizations which are cash collateralized and provide mezzanine risk income for amounts that will be reimbursed under these structures. As of
protection of $2.5 billion which will reimburse the Corporation in the December 31, 2009, the Corporation had a receivable of $1.0 billion
event that losses exceed 10 bps of the original pool balance. As of from these structures for reimbursement of losses. In addition, the
December 31, 2009 and 2008, $70.7 billion and $109.3 billion of mort- Corporation has entered into credit protection agreements with GSEs
gage loans were protected by these agreements. The decrease in these totaling $6.6 billion and $9.6 billion as of December 31, 2009 and
credit protected pools was due to approximately $12.1 billion in loan 2008, providing full protection on conforming residential mortgage loans
sales, a terminated transaction of $6.6 billion and principal payments that become severely delinquent.
December 31
(Dollars in millions) 2009 2008
Consumer
Residential mortgage $16,596 $ 7,057
Home equity 3,804 2,637
Discontinued real estate 249 77
Direct/Indirect consumer 86 26
Other consumer 104 91
Total consumer 20,839 9,888
Commercial
Commercial – domestic (1) 5,125 2,245
Commercial real estate 7,286 3,906
Commercial lease financing 115 56
Commercial – foreign 177 290
Total commercial 12,703 6,497
Total nonperforming loans and leases $33,542 $16,385
(1) Includes small business commercial – domestic loans of $200 million and $205 million at December 31, 2009 and 2008.
Included in certain loan categories in the nonperforming table above At December 31, 2009 and 2008, remaining commitments to lend
are TDRs that were classified as nonperforming. At December 31, 2009 additional funds to debtors whose terms have been modified in a
and 2008, the Corporation had $2.9 billion and $209 million of resi- commercial or consumer TDR were immaterial.
dential mortgages, $1.7 billion and $302 million of home equity, $486 The Corporation seeks to assist customers that are experiencing finan-
million and $44 million of commercial – domestic loans, and $43 million cial difficulty through renegotiating credit card and consumer lending
and $5 million of discontinued real estate loans that were TDRs and loans while ensuring compliance with Federal Financial Institutions
classified as nonperforming. In addition to these amounts, the Corpo- Examination Council (FFIEC) guidelines. At December 31, 2009 and
ration had performing TDRs that were on accrual status of $2.3 billion 2008, the Corporation had renegotiated consumer credit card – domestic
and $320 million of residential mortgages, $639 million and $1 million of held loans of $4.2 billion and $2.3 billion of which $3.1 billion and $1.7
home equity, $91 million and $13 million of commercial – domestic billion were current or less than 30 days past due under the modified
loans, and $35 million and $66 million of discontinued real estate. terms. In addition, at December 31, 2009 and 2008, the Corporation had
renegotiated consumer credit card – foreign held loans of $898 million
Impaired Loans and Troubled Debt Restructurings and $517 million of which $471 million and $287 million were current or
A loan is considered impaired when, based on current information and less than 30 days past due under the modified terms, and consumer
events, it is probable that the Corporation will be unable to collect all lending loans of $2.0 billion and $1.3 billion of which $1.5 billion and
amounts due from the borrower in accordance with the contractual terms $854 million were current or less than 30 days past due under the modi-
of the loan. Impaired loans include nonperforming commercial loans, fied terms. These renegotiated loans are excluded from nonperforming
commercial performing TDRs, and both performing and nonperforming loans.
consumer real estate TDRs. As defined in applicable accounting guid-
ance, impaired loans exclude nonperforming consumer loans not modified Purchased Impaired Loans
in a TDR, and all commercial loans and leases accounted for under the Purchased impaired loans are acquired loans with evidence of credit qual-
fair value option. Purchased impaired loans are reported and discussed ity deterioration since origination for which it is probable at purchase date
separately below. that the Corporation will be unable to collect all contractually required
At December 31, 2009 and 2008, the Corporation had $12.7 billion payments. In connection with the Countrywide acquisition in 2008, the
and $6.5 billion of commercial impaired loans and $7.7 billion and $903 Corporation acquired purchased impaired loans, substantially all of which
million of consumer impaired loans. The average recorded investment in are residential mortgage, home equity and discontinued real estate, with
the commercial and consumer impaired loans for 2009, 2008 and 2007 an unpaid principal balance of $47.7 billion and $55.4 billion and a carry-
was approximately $15.1 billion, $5.0 billion and $1.2 billion, ing amount of $37.5 billion and $42.2 billion at December 31, 2009 and
respectively. At December 31, 2009 and 2008, the recorded investment 2008. At December 31, 2009, the unpaid principal balance of Merrill
in impaired loans requiring an allowance for loan and lease losses was Lynch purchased impaired consumer and commercial loans was $2.4 bil-
$18.6 billion and $6.9 billion, and the related allowance for loan and lion and $2.0 billion and the carrying amount of these loans was $2.1
lease losses was $3.0 billion and $720 million. For 2009, 2008 and billion and $692 million. As of the acquisition date of January 1, 2009,
2007, interest income recognized on impaired loans totaled $266 mil- these loans had an unpaid principal balance of $2.7 billion and $2.9 bil-
lion, $105 million and $130 million, respectively. lion and a fair value of $2.3 billion and $1.9 billion.
The Corporation recorded $3.7 billion in provision, including a $3.5 In the above table, the 2009 “other” amount under allowance for loan
billion addition to the allowance for loan and leases losses, during 2009 and lease losses includes a $750 million reduction in the allowance for
specifically for the purchased impaired loan portfolio. The amount of the loan and lease losses related to $8.5 billion of credit card loans that
allowance for loan and lease losses associated with the purchased were exchanged for a $7.8 billion HTM debt security that was issued by
impaired loan portfolio was $3.9 billion at December 31, 2009. the Corporation’s U.S. Credit Card Securitization Trust and retained by the
Residential Mortgage
Non-Agency
Agency Prime Subprime Alt-A Commercial Mortgage
(Dollars in millions) 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
For the Year Ended December 31
Cash proceeds from new
securitizations (1) $ 346,448 $ 123,653 $ – $ 1,038 $ – $ 1,377 $ – $ – $ 313 $3,557
Gains on securitizations (2,3) 73 25 – 2 – 24 – – – 29
Cash flows received on residual
interests – – 25 6 71 33 5 4 23 –
At December 31
Principal balance outstanding (4) 1,255,650 1,123,916 81,012 111,683 83,065 57,933 147,072 136,027 65,397 55,403
Residual interests held – – 9 – 2 13 – – 48 7
Senior securities held (5, 6):
Trading account assets $ 2,295 $ 1,308 $ 201 $ 367 $ 12 $ – $431 $278 $ 469 $ 168
Available-for-sale debt securities 13,786 12,507 3,845 4,559 188 121 561 569 1,215 16
Total senior securities held $ 16,081 $ 13,815 $ 4,046 $ 4,926 $ 200 $ 121 $992 $847 $1,684 $ 184
Subordinated securities held (5, 7):
Trading account assets $ – $ – $ – $ 23 $ – $ 3 $ – $ 1 $ 122 $ 136
Available-for-sale debt securities – – 13 20 22 1 4 17 23 –
Total subordinated
securities held $ – $ – $ 13 $ 43 $ 22 $ 4 $ 4 $ 18 $ 145 $ 136
(1) The Corporation sells residential mortgage loans to GSEs in the normal course of business and receives MBS in exchange which may then be sold into the market to third party investors for cash proceeds.
(2) Net of hedges
(3) Substantially all of the residential mortgages securitized are initially classified as LHFS and accounted for under the fair value option. As such, gains are recognized on these LHFS prior to securitization. During 2009
and 2008, the Corporation recognized $5.5 billion and $1.6 billion of gains on these LHFS.
(4) Generally, the Corporation as transferor will service the sold loans and thus recognize a MSR upon securitization.
(5) As a holder of these securities, the Corporation receives scheduled interest and principal payments. During 2009 and 2008, there were no significant other-than-temporary impairment losses recorded on those
securities classified as AFS debt securities.
(6) At December 31, 2009 and 2008, substantially all of the residential mortgage held senior securities were valued using quoted market prices. At December 31, 2009, substantially all of the commercial mortgage held
senior securities were valued using quoted market prices while at December 31, 2008 substantially all were valued using model valuations.
(7) At December 31, 2009, substantially all of the residential mortgage held subordinated securities and all of the commercial mortgage held subordinated securities were valued using quoted market prices while at
December 31, 2008 substantially all were valued using model valuations.
In addition to the amounts included in the table above, during 2009, which include net interest income earned during the holding period,
the Corporation purchased $49.2 billion of MBS from third parties and totaled $213 million and $80 million in 2009 and 2008. At
resecuritized them compared to $12.2 billion during 2008. Net gains, December 31, 2009 and 2008, the Corporation retained $543 million
Credit Card
(Dollars in millions) 2009 2008
For the Year Ended December 31
Cash proceeds from new securitizations $ 650 $ 20,148
Gains on securitizations — 81
Collections reinvested in revolving period securitizations 133,771 162,332
Cash flows received on residual interests 5,512 5,771
At December 31
Principal balance outstanding (1) 103,309 114,141
Senior securities held (2) 7,162 4,965
Subordinated securities held (3) 7,993 1,837
Other subordinated or residual interests held (4) 5,195 2,233
(1) Principal balance outstanding represents the principal balance of credit card receivables that have been legally isolated from the Corporation including those loans represented by the seller’s interest that are still held
on the Corporation’s Consolidated Balance Sheet.
(2) At December 31, 2009 and 2008, held senior securities issued by credit card securitization trusts were valued using quoted market prices and substantially all were classified as AFS debt securities and there were no
other-than-temporary impairment losses recorded on those securities.
(3) At December 31, 2009, the $6.6 billion Class D security was carried at amortized cost and classified as HTM debt securities and $1.4 billion of other held subordinated securities were valued using quoted market
prices and were classified as AFS debt securities. At December 31, 2008, all of the held subordinated securities were valued using quoted market prices and classified as AFS debt securities.
(4) Other subordinated and residual interests include discount receivables, subordinated interests in accrued interest and fees on the securitized receivables, and cash reserve accounts and interest-only strips which are
carried at fair value or amounts that approximate fair value. The residual interests were valued using model valuations. Residual interests associated with the Class D and discount receivables transactions have not
been recognized.
Economic assumptions are used in measuring the fair value of certain extension would cause the outstanding commercial paper to convert to an
residual interests that continue to be held by the Corporation. The interest-bearing note and subsequent credit card receivable collections
expected loss rate assumption used to measure the discount receivables would be applied to the outstanding note balance. If these notes are still
at December 31, 2009 was 13 percent. A 10 percent and 20 percent outstanding at the end of the extended maturity period, the liquidity
adverse change to the expected loss rate would have caused a decrease commitment obligates the Corporation and other liquidity support pro-
of $280 million and $1.2 billion to the fair value of the discount receiv- viders, if any, to purchase maturity notes from the trust in order to retire
ables at December 31, 2009. The discount rate assumption used to the interest-bearing notes held by investors. As a maturity note holder,
measure the Class D security at December 31, 2009 was six percent. A the Corporation would be entitled to the remaining cash flows from the
100 bps and 200 bps increase in the discount rate would have caused a collateralizing credit card receivables. At December 31, 2009 and 2008,
decrease of $116 million and $228 million to the fair value of the Class none of the commercial paper had been extended and there were no
D security. Conversely, a 100 bps and 200 bps decrease in the discount maturity notes outstanding. Due to illiquidity in the marketplace, the
rate would have caused an increase of $120 million and $245 million to Corporation held $7.1 billion and $5.0 billion of the outstanding commer-
the fair value of the Class D security. These sensitivities are hypothetical cial paper as of December 31, 2009 and 2008, which is classified in AFS
and should be used with caution. As the amounts indicate, changes in debt securities on the Corporation’s Consolidated Balance Sheet.
fair value based on variations in assumptions generally cannot be
extrapolated because the relationship of the change in assumption to the Other Securitizations
change in fair value may not be linear. The Corporation also maintains interests in other securitization trusts to
At December 31, 2009 and 2008, there were no recognized servicing which the Corporation transferred assets including municipal bonds,
assets or liabilities associated with any of the credit card securitization automobile loans and home equity loans. These retained interests
transactions. The Corporation recorded $2.0 billion and $2.1 billion in include senior and subordinated securities and residual interests. During
servicing fees related to credit card securitizations during 2009 and 2009, the Corporation had cash proceeds from new securitizations of
2008. municipal bonds of $664 million as well as cash flows received on
During 2008, the Corporation became one of the liquidity support residual interests of $316 million. At December 31, 2009, the principal
providers for the Corporation’s commercial paper program that obtains balance outstanding for municipal bonds securitization trusts was $6.9
financing by issuing tranches of commercial paper backed by credit card billion, senior securities held were $122 million and residual interests
receivables to third-party investors from a trust sponsored by the Corpo- held were $203 million. The residual interests were valued using model
ration. During 2009, the Corporation became the sole liquidity support valuations and substantially all are classified as derivative assets. At
provider for the program and increased its liquidity commitment from December 31, 2009, all of the held senior securities issued by municipal
$946 million to $2.3 billion. The maximum amount of commercial paper bond securitization trusts were valued using quoted market prices and
that can be issued under this program given the current level of liquidity classified as trading account assets.
support is $8.8 billion, all of which was outstanding at December 31, During 2009, the Corporation securitized $9.0 billion of automobile
2009 and 2008. If certain conditions set forth in the legal documents loans in a transaction that was structured as a secured borrowing under
governing the trust are not met, such as not being able to reissue the applicable accounting guidance and the loans are therefore recorded on
commercial paper due to market illiquidity, the commercial paper maturity the Corporation’s Consolidated Balance Sheet and excluded from the
dates will be extended to 390 days from the original issuance date. This following table.
Under the terms of the Corporation’s home equity securitizations, The Corporation has consumer MSRs from the sale or securitization of
advances are made to borrowers when they draw on their lines of credit home equity loans. The Corporation recorded $128 million and $78 mil-
and the Corporation is reimbursed for those advances from the cash lion of servicing fee income related to home equity securitizations during
flows in the securitization. During the revolving period of the securitiza- 2009 and 2008. For more information on MSRs, see Note 22 – Mortgage
tion, this reimbursement normally occurs within a short period after the Servicing Rights. At December 31, 2009 and 2008, there were no recog-
advance. However, when the securitization transaction has begun a rapid nized servicing assets or liabilities associated with any of the automobile
amortization period, reimbursement of the Corporation’s advance occurs securitization transactions. The Corporation recorded $43 million and
only after other parties in the securitization have received all of the cash $30 million in servicing fees related to automobile securitizations during
flows to which they are entitled. This has the effect of extending the time 2009 and 2008.
period for which the Corporation’s advances are outstanding. In partic- The Corporation provides financing to certain entities under asset-
ular, if loan losses requiring draws on monoline insurers’ policies, which backed financing arrangements. These entities are controlled and con-
protect the bondholders in the securitization, exceed a specified thresh- solidated by third parties. At December 31, 2009, the principal balance
old or duration, the Corporation may not receive reimbursement for all of outstanding for these asset-backed financing arrangements was $10.4
the funds advanced to borrowers, as the senior bondholders and the billion, the maximum loss exposure was $6.8 billion, and on-balance
monoline insurers have priority for repayment. sheet assets were $6.7 billion which are primarily recorded in loans and
The Corporation evaluates all of its home equity securitizations for leases. The total cash flows for 2009 were $491 million and are primarily
their potential to experience a rapid amortization event by estimating the related to principal and interest payments received.
amount and timing of future losses on the underlying loans, the excess
spread available to cover such losses and by evaluating any estimated NOTE 9 – Variable Interest Entities
shortfalls in relation to contractually defined triggers. A maximum funding The Corporation utilizes SPEs in the ordinary course of business to sup-
obligation attributable to rapid amortization cannot be calculated as a port its own and its customers’ financing and investing needs. These
home equity borrower has the ability to pay down and redraw balances. At SPEs are typically structured as VIEs and are thus subject to con-
December 31, 2009 and 2008, home equity securitization transactions solidation by the reporting enterprise that absorbs the majority of the
in rapid amortization had $14.1 billion and $13.1 billion of trust certifi- economic risks and rewards of the VIE. To determine whether it must
cates outstanding. This amount is significantly greater than the amount consolidate a VIE, the Corporation qualitatively analyzes the design of the
the Corporation expects to fund. At December 31, 2009, an additional VIE to identify the creators of variability within the VIE, including an
$1.1 billion of trust certificates outstanding pertain to home equity securi- assessment as to the nature of the risks that are created by the assets
tization transactions that are expected to enter rapid amortization during and other contractual arrangements of the VIE, and identifies whether it
the next 24 months. The charges that will ultimately be recorded as a will absorb a majority of that variability.
result of the rapid amortization events are dependent on the performance In addition, the Corporation uses VIEs such as trust preferred secu-
of the loans, the amount of subsequent draws, and the timing of related rities trusts in connection with its funding activities, as described in more
cash flows. At December 31, 2009 and 2008, the reserve for losses on detail in Note 13 – Long-term Debt. The Corporation also uses VIEs in
expected future draw obligations on the home equity securitizations in or the form of synthetic securitization vehicles to mitigate a portion of
expected to be in rapid amortization was $178 million and $345 million. the credit risk on its residential mortgage loan portfolio as described in
Consolidated VIEs
Loan and Other
Multi-Seller Investment Leveraged Other
(Dollars in millions) Conduits Vehicles CDOs Lease Trusts Vehicles Total
Consolidated VIEs, December 31, 2009
Maximum loss exposure $ 9,388 $ 8,265 $3,863 $5,634 $1,463 $28,613
Consolidated Assets (1)
Trading account assets $ – $ 145 $2,785 $ – $ 548 $ 3,478
Derivative assets – 579 – – 830 1,409
Available-for-sale debt securities 3,492 1,799 1,414 – 23 6,728
Held-to-maturity debt securities 2,899 – – – – 2,899
Loans and leases 318 11,752 – 5,650 – 17,720
All other assets 4 3,087 – – 184 3,275
Total $ 6,713 $17,362 $4,199 $5,650 $1,585 $35,509
Consolidated Liabilities (1)
Commercial paper and other short-term borrowings $ 6,748 $ – $ – $ – $ 987 $ 7,735
All other liabilities – 12,127 2,753 17 163 15,060
Total $ 6,748 $12,127 $2,753 $ 17 $1,150 $22,795
Consolidated VIEs, December 31, 2008
Maximum loss exposure $11,304 $ 3,189 $2,443 $5,774 $1,497 $24,207
Total assets of VIEs (1) 9,368 4,449 2,443 5,829 1,631 23,720
(1) Total assets and liabilities of consolidated VIEs are reported net of intercompany balances that have been eliminated in consolidation.
At December 31, 2009, the Corporation’s total maximum loss incorporates not only potential losses associated with assets recorded on
exposure to consolidated VIEs was $28.6 billion, which includes $5.9 bil- the Corporation’s Consolidated Balance Sheet but also potential losses
lion attributable to the addition of Merrill Lynch, primarily loan and other associated with off-balance sheet commitments such as unfunded liquid-
investment vehicles and CDOs. ity commitments and other contractual arrangements. The Corporation’s
The table below presents total assets of unconsolidated VIEs in which maximum exposure to loss does not include losses previously recognized
the Corporation holds a significant variable interest and Corporation- through write-downs of assets. Certain QSPEs, principally municipal bond
sponsored unconsolidated VIEs in which the Corporation holds a variable trusts, in which the Corporation has continuing involvement are discussed
interest, even if not significant, at December 31, 2009 and 2008. The in Note 8 – Securitizations and are also included in the table. Assets and
table also presents the Corporation’s maximum exposure to loss result- liabilities of unconsolidated VIEs recorded on the Corporation’s Con-
ing from its involvement with these VIEs at December 31, 2009 and solidated Balance Sheet at December 31, 2009 are also summarized
2008. The Corporation’s maximum exposure to loss is based on the below.
unlikely event that all of the assets in the VIEs become worthless and
Unconsolidated VIEs
Loan and
Multi- Other Real Estate Municipal
Seller Investment Investment Bond Customer Other
(Dollars in millions) Conduits Vehicles Vehicles Trusts CDOs Vehicles Vehicles Total
Unconsolidated VIEs, December 31, 2009
Maximum loss exposure $25,135 $ 5,571 $4,812 $10,143 $ 6,987 $ 9,904 $1,232 $ 63,784
Total assets of VIEs 13,893 11,507 4,812 12,247 56,590 13,755 1,232 114,036
On-balance sheet assets
Trading account assets $ — $ 216 $ — $ 191 $ 1,253 $ 1,118 $ — $ 2,778
Derivative assets — 128 — 167 2,085 4,708 62 7,150
Available-for-sale debt securities — — — — 368 — — 368
Loans and leases 318 933 — — — — — 1,251
All other assets 60 4,287 4,812 — 166 — — 9,325
Total $ 378 $ 5,564 $4,812 $ 358 $ 3,872 $ 5,826 $ 62 $ 20,872
On-balance sheet liabilities
Derivative liabilities $ — $ 139 $ — $ 287 $ 781 $ 154 $ 54 $ 1,415
All other liabilities — 581 1,460 — — 856 — 2,897
Total $ — $ 720 $1,460 $ 287 $ 781 $ 1,010 $ 54 $ 4,312
Unconsolidated VIEs, December 31, 2008
Maximum loss exposure $42,046 $ 2,789 $5,696 $ 7,145 $ 2,383 $ 5,741 $4,170 $ 69,970
Total assets of VIEs 27,922 5,691 5,980 7,997 2,570 6,032 4,211 60,403
December 31
(Dollars in millions) 2009 2008
Deposits $17,875 $17,805
Global Card Services 22,292 22,271
Home Loans & Insurance 4,797 4,797
Global Banking 27,550 28,409
Global Markets 3,358 2,080
Global Wealth & Investment Management 10,411 6,503
All Other 31 69
Total goodwill $86,314 $81,934
No goodwill impairment was recognized for 2009 and 2008. For more accordingly, the second step analysis of comparing the implied fair value
information on goodwill impairment testing, see the Goodwill and of the reporting unit’s goodwill with the carrying amount of that goodwill
Intangible Assets section of Note 1 – Summary of Significant Accounting was performed. Although Global Card Services passed step one of the
Principles. goodwill impairment analysis, to further substantiate the value of the
Based on the results of the annual impairment test at June 30, 2009, goodwill balance, the Corporation also performed the step two analysis
and due to continued stress on Home Loans & Insurance and Global Card for this reporting unit. The results of the second step of the goodwill
Services as a result of current market conditions, the Corporation con- impairment test, which were consistent with the results of the annual
cluded that an additional impairment analysis should be performed for impairment test, indicated that no goodwill was impaired for 2009.
these two reporting units as of December 31, 2009. In performing the The following table presents the gross carrying values and accumu-
first step of the additional impairment analysis, the Corporation compared lated amortization related to intangible assets at December 31, 2009
the fair value of each reporting unit to its carrying amount, including and 2008. Gross carrying amounts include $5.4 billion of intangible
goodwill. Consistent with the annual test, the Corporation utilized a assets related to the Merrill Lynch acquisition consisting of $800 million
combination of the market approach and the income approach for Home of core deposit intangibles, $3.1 billion of customer relationships and
Loans & Insurance and the income approach for Global Card Services. For $1.5 billion of non-amortizing other intangibles.
Home Loans & Insurance the carrying value exceeded the fair value, and
December 31
2009 2008
Gross Carrying Accumulated Gross Carrying Accumulated
(Dollars in millions) Value Amortization Value Amortization
Purchased credit card relationships $ 7,179 $3,452 $ 7,080 $2,740
Core deposit intangibles 5,394 3,722 4,594 3,284
Customer relationships 4,232 760 1,104 259
Affinity relationships 1,651 751 1,638 587
Other intangibles 3,438 1,183 2,009 1,020
Total intangible assets $21,894 $9,868 $16,425 $7,890
Amortization of intangibles expense was $2.0 billion, $1.8 billion and lion, $1.6 billion, $1.4 billion, $1.2 billion and $1.0 billion for 2010
$1.7 billion in 2009, 2008 and 2007, respectively. The Corporation through 2014, respectively.
estimates aggregate amortization expense will be approximately $1.8 bil-
At December 31, 2009, the scheduled maturities for total time deposits were as follows:
NOTE 12 – Short-term Borrowings Home Loan Bank advances, U.S. Treasury tax and loan notes, and term
Bank of America, N.A. maintains a global program to offer up to a max- federal funds purchased, are reflected in commercial paper and other
imum of $75.0 billion outstanding at any one time, of bank notes with short-term borrowings on the Consolidated Balance Sheet. See Note 13 –
fixed or floating rates and maturities of at least seven days from the date Long-term Debt for information regarding the long-term notes that may be
of issue. Short-term bank notes outstanding under this program totaled issued under the $75.0 billion bank note program.
$20.6 billion at December 31, 2009 compared to $10.5 billion at The following table presents information for short-term borrowings.
December 31, 2008. These short-term bank notes, along with Federal
Short-term Borrowings
2009 2008 2007
(Dollars in millions) Amount Rate Amount Rate Amount Rate
Federal funds purchased
At December 31 $ 4,814 0.09% $ 14,432 0.11% $ 14,187 4.15%
Average during year 4,239 0.05 8,969 1.67 7,595 4.84
Maximum month-end balance during year 4,814 — 18,788 — 14,187 —
Securities loaned or sold under agreements to repurchase
At December 31 250,371 0.39 192,166 0.84 207,248 4.63
Average during year 365,624 0.96 264,012 2.54 245,886 5.21
Maximum month-end balance during year 430,067 — 295,537 — 277,196 —
Commercial paper
At December 31 13,131 0.65 37,986 1.80 55,596 4.85
Average during year 26,697 1.03 57,337 3.09 57,712 5.03
Maximum month-end balance during year 37,025 — 65,399 — 69,367 —
Other short-term borrowings
At December 31 56,393 1.72 120,070 2.07 135,493 4.95
Average during year 92,083 1.87 125,392 2.99 113,621 5.18
Maximum month-end balance during year 169,602 — 160,150 — 142,047 —
December 31
(Dollars in millions) 2009 2008
Notes issued by Bank of America Corporation
Senior notes:
Fixed, with a weighted-average rate of 4.80%, ranging from 0.61% to 7.63%, due 2010 to 2043 $ 78,282 $ 64,799
Floating, with a weighted-average rate of 1.17%, ranging from 0.15% to 4.57%, due 2010 to 2041 47,731 51,488
Structured notes 8,897 5,565
Subordinated notes:
Fixed, with a weighted-average rate of 5.69%, ranging from 2.40% to 10.20%, due 2010 to 2038 28,017 29,618
Floating, with a weighted-average rate of 1.60%, ranging from 0.60% to 4.39%, due 2016 to 2019 681 650
Junior subordinated notes (related to trust preferred securities):
Fixed, with a weighted-average rate of 6.71%, ranging from 5.25% to 11.45%, due 2026 to 2055 15,763 15,606
Floating, with a weighted-average rate of 0.88%, ranging from 0.50% to 3.63%, due 2027 to 2056 3,517 3,736
Total notes issued by Bank of America Corporation 182,888 171,462
Notes issued by Merrill Lynch & Co., Inc. and subsidiaries
Senior notes:
Fixed, with a weighted-average rate of 5.24%, ranging from 0.05% to 8.83%, due 2010 to 2066 52,506 –
Floating, with a weighted-average rate of 0.80%, ranging from 0.13% to 5.29%, due 2010 to 2044 36,624 –
Structured notes 48,518 –
Subordinated notes:
Fixed, with a weighted-average rate of 6.07%, ranging from 0.12% to 8.13%, due 2010 to 2038 9,258 –
Floating, with a weighted-average rate of 1.12%, ranging from 0.83% to 1.26%, due 2017 to 2037 1,857 –
Junior subordinated notes (related to trust preferred securities):
Fixed, with a weighted-average rate of 6.93%, ranging from 6.45% to 7.38%, due 2062 to 2066 3,552 –
Other long-term debt 2,636 –
Total notes issued by Merrill Lynch & Co., Inc. and subsidiaries 154,951 –
Notes issued by Bank of America, N.A. and other subsidiaries
Senior notes:
Fixed, with a weighted-average rate of 2.16%, ranging from 0.40% to 8.10%, due 2010 to 2027 12,461 6,103
Floating, with a weighted-average rate of 0.38%, ranging from 0.15% to 3.31%, due 2010 to 2051 24,846 28,467
Subordinated notes:
Fixed, with a weighted-average rate of 5.91%, ranging from 5.30% to 7.13%, due 2012 to 2036 5,193 5,593
Floating, with a weighted-average rate of 0.73%, ranging from 0.25% to 3.76%, due 2010 to 2027 2,272 2,796
Total notes issued by Bank of America, N.A. and other subsidiaries 44,772 42,959
Notes issued by NB Holdings Corporation
Junior subordinated notes (related to trust preferred securities):
Floating, 0.85%, due 2027 258 258
Total notes issued by NB Holdings Corporation 258 258
Notes issued by BAC North America Holding Company and subsidiaries
Senior notes:
Fixed, with a weighted-average rate of 5.40%, ranging from 3.00% to 7.00%, due 2010 to 2026 420 562
Junior subordinated notes (related to trust preferred securities):
Fixed, 6.97%, perpetual 490 491
Floating, with a weighted-average rate of 1.54%, ranging from 0.31% to 2.03%, perpetual 945 940
Total notes issued by BAC North America Holding Company and subsidiaries 1,855 1,993
Other debt
Advances from Federal Home Loan Banks:
Fixed, with a weighted-average rate of 4.08%, ranging from 0.36% to 8.29%, due 2010 to 2028 53,032 48,495
Floating, with a weighted-average rate of 0.14%, ranging from 0.13% to 0.14%, due 2011 to 2013 750 2,750
Other 15 375
Total other debt 53,797 51,620
Total long-term debt $438,521 $268,292
The majority of the floating rates are based on three- and six-month America, N.A. was authorized to issue $35.3 billion and $48.3 billion of
London InterBank Offered Rates (LIBOR). additional bank notes. Long-term bank notes outstanding under Bank of
Bank of America Corporation, Merrill Lynch & Co., Inc. and subsidiaries, America, N.A.’s $75.0 billion bank note program totaled $19.1 billion and
and Bank of America, N.A. maintain various domestic and international debt $16.2 billion at December 31, 2009 and 2008. In addition, Bank of
programs to offer both senior and subordinated notes. The notes may be America, N.A. was authorized to issue $20.6 billion of additional mort-
denominated in U.S. dollars or foreign currencies. At December 31, 2009 gage notes under the $30.0 billion mortgage bond program at both
and 2008, the amount of foreign currency-denominated debt translated into December 31, 2009 and 2008.
U.S. dollars included in total long-term debt was $156.8 billion and $53.3 The weighted-average effective interest rates for total long-term debt
billion. Foreign currency contracts are used to convert certain foreign (excluding structured notes), total fixed-rate debt and total floating-rate
currency-denominated debt into U.S. dollars. debt (based on the rates in effect at December 31, 2009) were 3.62
At December 31, 2009 and 2008, Bank of America Corporation was percent, 4.93 percent and 0.80 percent, respectively, at December 31,
authorized to issue approximately $119.1 billion and $92.9 billion of 2009 and (based on the rates in effect at December 31, 2008) were
additional corporate debt and other securities under its existing domestic 4.26 percent, 5.05 percent and 2.80 percent, respectively, at
shelf registration statements. At December 31, 2009 and 2008, Bank of December 31, 2008.
Certain structured notes contain provisions whereby the borrowings subsidiaries to the extent of funds held by the Trusts (the Preferred Secu-
are redeemable at the option of the holder (put options) at specified rities Guarantee). The Preferred Securities Guarantee, when taken
dates prior to maturity. Other structured notes have coupon or repayment together with the Corporation’s other obligations including its obligations
terms linked to the performance of debt or equity securities, indices, under the Notes, generally will constitute a full and unconditional guaran-
currencies or commodities and the maturity may be accelerated based on tee, on a subordinated basis, by the Corporation of payments due on the
the value of a referenced index or security. In both cases, the Corporation Trust Securities.
or a subsidiary, may be required to settle the obligation for cash or other Hybrid Income Term Securities (HITS) totaling $1.6 billion were also
securities prior to the contractual maturity date. These borrowings are issued by the Trusts to institutional investors in 2007. The BAC Capital
reflected in the above table as maturing at their earliest put or Trust XIII Floating Rate Preferred HITS have a distribution rate of three-
redemption date. month LIBOR plus 40 bps and the BAC Capital Trust XIV Fixed-to-Floating
Rate Preferred HITS have an initial distribution rate of 5.63 percent. Both
Trust Preferred and Hybrid Securities series of HITS represent beneficial interests in the assets of the
Trust preferred securities (Trust Securities) are issued by trust companies respective capital trust, which consist of a series of the Corporation’s
(the Trusts) that are not consolidated. These Trust Securities are manda- junior subordinated notes and a stock purchase contract for a specified
torily redeemable preferred security obligations of the Trusts. The sole series of the Corporation’s preferred stock. The Corporation will remarket
assets of the Trusts generally are junior subordinated deferrable interest the junior subordinated notes underlying each series of HITS on or about
notes of the Corporation or its subsidiaries (the Notes). The Trusts gen- the five-year anniversary of the issuance to obtain sufficient funds for the
erally are 100 percent owned finance subsidiaries of the Corporation. capital trusts to buy the Corporation’s preferred stock under the stock
Obligations associated with the Notes are included in the Long-term Debt purchase contracts.
table on the previous page. In connection with the HITS, the Corporation entered into two replace-
Certain of the Trust Securities were issued at a discount and may be ment capital covenants for the benefit of investors in certain series of the
redeemed prior to maturity at the option of the Corporation. The Trusts Corporation’s long-term indebtedness (Covered Debt). As of
generally have invested the proceeds of such Trust Securities in the December 31, 2009, the Corporation’s 6.625% Junior Subordinated
Notes. Each issue of the Notes has an interest rate equal to the corre- Notes due 2036 constitute the Covered Debt under the covenant corre-
sponding Trust Securities distribution rate. The Corporation has the right sponding to the Floating Rate Preferred HITS and the Corporation’s
to defer payment of interest on the Notes at any time or from time to time 5.625% Junior Subordinated Notes due 2035 constitute the Covered
for a period not exceeding five years provided that no extension period Debt under the covenant corresponding to the Fixed-to-Floating Rate Pre-
may extend beyond the stated maturity of the relevant Notes. During any ferred HITS. These covenants generally restrict the ability of the Corpo-
such extension period, distributions on the Trust Securities will also be ration and its subsidiaries to redeem or purchase the HITS and related
deferred and the Corporation’s ability to pay dividends on its common and securities unless the Corporation has obtained the prior approval of the
preferred stock will be restricted. Board of Governors of the Federal Reserve System (Federal Reserve) if
The Trust Securities generally are subject to mandatory redemption required under the Federal Reserve’s capital guidelines, the redemption
upon repayment of the related Notes at their stated maturity dates or or purchase price of the HITS does not exceed the amount received by
their earlier redemption at a redemption price equal to their liquidation the Corporation from the sale of certain qualifying securities, and such
amount plus accrued distributions to the date fixed for redemption and replacement securities qualify as Tier 1 Capital and are not “restricted
the premium, if any, paid by the Corporation upon concurrent repayment core capital elements” under the Federal Reserve’s guidelines.
of the related Notes. Also included in the outstanding Trust Securities and Notes in the
Periodic cash payments and payments upon liquidation or redemption following table are non-consolidated wholly owned subsidiary funding
with respect to Trust Securities are guaranteed by the Corporation or its vehicles of BAC North America Holding Company (BACNAH, formerly ABN
Aggregate Aggregate
Principal Principal
Amount Amount
(Dollars in millions)
of Trust of the Stated Maturity Per Annum Interest Interest Payment
Issuer Issuance Date Securities Notes of the Notes Rate of the Notes Dates Redemption Period
Bank of America
Capital Trust I December 2001 $ 575 $ 593 December 2031 7.00% 3/15,6/15,9/15,12/15 On or after 12/15/06
Capital Trust II January 2002 900 928 February 2032 7.00 2/1,5/1,8/1,11/1 On or after 2/01/07
Capital Trust III August 2002 500 516 August 2032 7.00 2/15,5/15,8/15,11/15 On or after 8/15/07
Capital Trust IV April 2003 375 387 May 2033 5.88 2/1,5/1,8/1,11/1 On or after 5/01/08
Capital Trust V November 2004 518 534 November 2034 6.00 2/3,5/3,8/3,11/3 On or after 11/03/09
Capital Trust VI March 2005 1,000 1,031 March 2035 5.63 3/8,9/8 Any time
Capital Trust VII (1) August 2005 1,415 1,415 August 2035 5.25 2/10,8/10 Any time
Capital Trust VIII August 2005 530 546 August 2035 6.00 2/25,5/25,8/25,11/25 On or after 8/25/10
Capital Trust X March 2006 900 928 March 2055 6.25 3/29,6/29,9/29,12/29 On or after 3/29/11
Capital Trust XI May 2006 1,000 1,031 May 2036 6.63 5/23,11/23 Any time
Capital Trust XII August 2006 863 890 August 2055 6.88 2/2,5/2,8/2,11/2 On or after 8/02/11
Capital Trust XIII February 2007 700 700 March 2043 3-mo. LIBOR +40 bps 3/15,6/15,9/15,12/15 On or after 3/15/17
Capital Trust XIV February 2007 850 850 March 2043 5.63 3/15,9/15 On or after 3/15/17
Capital Trust XV May 2007 500 500 June 2056 3-mo. LIBOR +80 bps 3/1,6/1,9/1,12/1 On or after 6/01/37
NationsBank
Capital Trust II December 1996 365 376 December 2026 7.83 6/15,12/15 On or after 12/15/06
Capital Trust III February 1997 500 515 January 2027 3-mo. LIBOR +55 bps 1/15,4/15,7/15,10/15 On or after 1/15/07
Capital Trust IV April 1997 500 515 April 2027 8.25 4/15,10/15 On or after 4/15/07
BankAmerica
Institutional Capital A November 1996 450 464 December 2026 8.07 6/30,12/31 On or after 12/31/06
Institutional Capital B November 1996 300 309 December 2026 7.70 6/30,12/31 On or after 12/31/06
Capital II December 1996 450 464 December 2026 8.00 6/15,12/15 On or after 12/15/06
Capital III January 1997 400 412 January 2027 3-mo. LIBOR +57 bps 1/15,4/15,7/15,10/15 On or after 1/15/02
Barnett
Capital III January 1997 250 258 February 2027 3-mo. LIBOR +62.5 bps 2/1,5/1,8/1,11/1 On or after 2/01/07
Fleet
Capital Trust II December 1996 250 258 December 2026 7.92 6/15,12/15 On or after 12/15/06
Capital Trust V December 1998 250 258 December 2028 3-mo. LIBOR +100 bps 3/18,6/18,9/18,12/18 On or after 12/18/03
Capital Trust VIII March 2002 534 550 March 2032 7.20 3/15,6/15,9/15,12/15 On or after 3/08/07
Capital Trust IX July 2003 175 180 August 2033 6.00 2/1,5/1,8/1,11/1 On or after 7/31/08
BankBoston
Capital Trust III June 1997 250 258 June 2027 3-mo. LIBOR +75 bps 3/15,6/15,9/15,12/15 On or after 6/15/07
Capital Trust IV June 1998 250 258 June 2028 3-mo. LIBOR +60 bps 3/8,6/8,9/8,12/8 On or after 6/08/03
Progress
Capital Trust I June 1997 9 9 June 2027 10.50 6/1,12/1 On or after 6/01/07
Capital Trust II July 2000 6 6 July 2030 11.45 1/19,7/19 On or after 7/19/10
Capital Trust III November 2002 10 10 November 2032 3-mo. LIBOR +335 bps 2/15,5/15,8/15,11/15 On or after 11/15/07
Capital Trust IV December 2002 5 5 January 2033 3-mo. LIBOR +335 bps 1/7,4/7,7/7,10/7 On or after 1/07/08
MBNA
Capital Trust A December 1996 250 258 December 2026 8.28 6/1,12/1 On or after 12/01/06
Capital Trust B January 1997 280 289 February 2027 3-mo. LIBOR +80 bps 2/1,5/1,8/1,11/1 On or after 2/01/07
Capital Trust D June 2002 300 309 October 2032 8.13 1/1,4/1,7/1,10/1 On or after 10/01/07
Capital Trust E November 2002 200 206 February 2033 8.10 2/15,5/15,8/15,11/15 On or after 2/15/08
ABN AMRO North America
Series I May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 2/15,5/15,8/15,11/15 On or after 11/8/12
Series II May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 3/15,6/15,9/15,12/15 On or after 11/8/12
Series III May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 1/15,4/15,7/15,10/15 On or after 11/8/12
Series IV May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 2/28,5/30,8/30,11/30 On or after 11/8/12
Series V May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 3/30,6/30,9/30,12/30 On or after 11/8/12
Series VI May 2001 77 77 Perpetual 3-mo. LIBOR +175 bps 1/30,4/30,7/30,10/30 On or after 11/8/12
Series VII May 2001 88 88 Perpetual 3-mo. LIBOR +175 bps 3/15,6/15,9/15,12/15 On or after 11/8/12
Series IX June 2001 70 70 Perpetual 3-mo. LIBOR +175 bps 3/5,6/5,9/5,12/5 On or after 11/8/12
Series X June 2001 53 53 Perpetual 3-mo. LIBOR +175 bps 3/12,6/12,9/12,12/12 On or after 11/8/12
Series XI June 2001 27 27 Perpetual 3-mo. LIBOR +175 bps 3/26,6/26,9/26,12/26 On or after 11/8/12
Series XII June 2001 80 80 Perpetual 3-mo. LIBOR +175 bps 1/10,4/10,7/10,10/10 On or after 11/8/12
Series XIII June 2001 70 70 Perpetual 3-mo. LIBOR +175 bps 1/24,4/24,7/24,10/24 On or after 11/8/12
LaSalle
Series I 6.97% through 9/15/2010;
3-mo. LIBOR +105.5 bps
August 2000 491 491 Perpetual thereafter 3/15,6/15,9/15,12/15 On or after 9/15/10
Series J 3-mo. LIBOR +5.5 bps
through 9/15/2010; 3-mo.
LIBOR +105.5 bps
September 2000 95 95 Perpetual thereafter 3/15,6/15,9/15,12/15 On or after 9/15/10
Countrywide
Capital III June 1997 200 206 June 2027 8.05 6/15,12/15 Only under special event
Capital IV April 2003 500 515 April 2033 6.75 1/1,4/1,7/1,10/1 On or after 4/11/08
Capital V November 2006 1,495 1,496 November 2036 7.00 2/1,5/1,8/1,11/1 On or after 11/1/11
Merrill Lynch
Preferred Capital Trust III January 1998 750 900 Perpetual 7.00 3/30,6/30,9/30,12/30 On or after 3/08
Preferred Capital Trust IV June 1998 400 480 Perpetual 7.12 3/30,6/30,9/30,12/30 On or after 6/08
Preferred Capital Trust V November 1998 850 1,021 Perpetual 7.28 3/30,6/30,9/30,12/30 On or after 9/08
Capital Trust I December 2006 1,050 1,051 December 2066 6.45 3/15,6/15,9/15,12/15 On or after 12/11
Capital Trust II May 2007 950 951 June 2062 6.45 3/15,6/15,9/15,12/15 On or after 6/12
Capital Trust III August 2007 750 751 September 2062 7.375 3/15,6/15,9/15,12/15 On or after 9/12
Total $24,991 $25,823
(1) Aggregate principal amount of notes were issued in British Pound. Presentation currency is U.S. Dollar.
Legally binding commitments to extend credit generally have specified have any unfunded bridge equity commitments. The Corporation had
rates and maturities. Certain of these commitments have adverse change funded equity bridges of $1.2 billion that were committed prior to the
clauses that help to protect the Corporation against deterioration in the market disruption. These equity bridges are considered held for invest-
borrowers’ ability to pay. ment and recorded in other assets. In 2009, the Corporation recorded a
total of $670 million in losses in equity investment income related to
Other Commitments these investments. At December 31, 2009, these equity bridges had a
zero balance.
Global Principal Investments and Other Equity Investments
At December 31, 2009 and 2008, the Corporation had unfunded equity Loan Purchases
investment commitments of approximately $2.8 billion and $1.9 billion. In 2005, the Corporation entered into an agreement for the committed
These commitments generally relate to the Corporation’s Global Principal purchase of retail automotive loans over a five-year period, ending
Investments business which is comprised of a diversified portfolio of June 30, 2010. The Corporation purchased $6.6 billion of such loans in
investments in private equity, real estate and other alternative invest- 2009 and purchased $12.0 billion of such loans in 2008 under this
ments. These investments are made either directly in a company or held agreement. As of December 31, 2009, the Corporation was committed
through a fund. Bridge equity commitments provide equity bridge financ- for additional purchases of $6.5 billion over the remaining term of the
ing to facilitate clients’ investment activities. These conditional commit- agreement. All loans purchased under this agreement are subject to a
ments are generally retired prior to or shortly following funding via comprehensive set of credit criteria. This agreement is accounted for as a
syndication or the client’s decision to terminate. Where the Corporation derivative liability with a fair value of $189 million and $316 million at
has a binding equity bridge commitment and there is a market disruption December 31, 2009 and 2008.
or other unexpected event, there is heightened exposure in the portfolio At December 31, 2009, the Corporation had commitments to pur-
and higher potential for loss, unless an orderly disposition of the chase loans (e.g., residential mortgage and commercial real estate) of
exposure can be made. At December 31, 2009, the Corporation did not $2.2 billion which upon settlement will be included in loans or LHFS.
During 2009, in addition to the exchanges detailed in the table above, exchanged. This was partially offset by a $2.04 billion inducement repre-
the Corporation exchanged 3.6 million shares, or $3.6 billion aggregate senting the excess of the fair value of the common stock exchanged over
liquidation preference of Series L 7.25% Non-Cumulative Perpetual Con- the fair value of the common stock that would have been issued under
vertible Preferred Stock into 255 million shares of common stock valued the original conversion terms.
at $2.8 billion, which was accounted for as an induced conversion of In connection with the Merrill Lynch acquisition, Merrill Lynch
preferred stock. non-convertible preferred shareholders received Bank of America Corpo-
As a result of the exchange, the Corporation recorded an increase to ration preferred stock having substantially identical terms. Merrill Lynch
retained earnings and net income applicable to common shareholders of convertible preferred stock remains outstanding and is now convertible
approximately $580 million. This represents the net of a $2.62 billion into Bank of America common stock at an exchange ratio equivalent to
benefit due to the excess of the carrying value of the Corporation’s the exchange ratio for Merrill Lynch common stock in connection with the
non-convertible preferred stock over the fair value of the common stock acquisition.
Available-for- Available-for-
Sale Debt Sale Marketable Employee Foreign
(Dollars in millions) Securities Equity Securities Derivatives Benefit Plans (1) Currency (2) Total
Balance, December 31, 2008 $(5,956) $ 3,935 $(3,458) $(4,642) $ (704) $(10,825)
Cumulative adjustment for accounting change – OTTI (3) (71) – – – – (71)
Net change in fair value recorded in accumulated OCI 6,364 2,651 197 318 211 9,741
Net realized (gains) losses reclassified into earnings (965) (4,457) 726 232 – (4,464)
Balance, December 31, 2009 $ (628) $ 2,129 $(2,535) $(4,092) $ (493) $ (5,619)
Balance, December 31, 2007 $(1,880) $ 8,416 $(4,402) $(1,301) $ 296 $ 1,129
Net change in fair value recorded in accumulated OCI (4) (5,496) (4,858) 104 (3,387) (1,000) (14,637)
Net realized losses reclassified into earnings 1,420 377 840 46 – 2,683
Balance, December 31, 2008 $(5,956) $ 3,935 $(3,458) $(4,642) $ (704) $(10,825)
Balance, December 31, 2006 $(3,117) $ 384 $(3,697) $(1,428) $ 147 $ (7,711)
Net change in fair value recorded in accumulated OCI 1,100 8,316 (1,252) 4 142 8,310
Net realized losses reclassified into earnings 137 (284) 547 123 7 530
Balance, December 31, 2007 $(1,880) $ 8,416 $(4,402) $(1,301) $ 296 $ 1,129
(1) Net change in fair value represents after-tax adjustments based on the final year-end actuarial valuations.
(2) Net change in fair value represents only the impact of changes in foreign exchange rates on the Corporation’s net investment in foreign operations.
(3) Effective January 1, 2009, the Corporation adopted new accounting guidance on the recognition of other-than-temporary impairment losses on debt securities. For additional information on the adoption of this
accounting guidance, see Note 1 – Summary of Significant Accounting Principles and Note 5 – Securities.
(4) For more information on employee benefit plans, see Note 17 – Employee Benefit Plans.
Earnings Per Common Share share count because the result would have been antidilutive under the
On January 1, 2009, the Corporation adopted new accounting guidance “if-converted” method. For 2009, 81 million average potential dilutive
on EPS which defines unvested share-based payment awards that contain common shares associated with the Common Equivalent Securities were
nonforfeitable rights to dividends as participating securities that are also excluded from the diluted share count because the result would have
included in computing EPS using the two-class method. Prior period EPS been antidilutive under the “if-converted” method. For 2009, average
amounts have been reclassified to conform to current period pre- warrants to purchase 265 million shares of common stock were out-
sentation. See Note 1 – Summary of Significant Accounting Principles for standing but not included in the computation of earnings per common
additional information. share because they were antidilutive under the treasury stock method. For
For 2009, 2008 and 2007, average options to purchase 315 million, 2008, 128 million average dilutive potential common shares associated
181 million and 28 million shares, respectively, of common stock were with the convertible Series L Preferred Stock issued in January 2008 were
outstanding but not included in the computation of earnings per common excluded from the diluted share count because the result would have been
share because they were antidilutive under the treasury stock method. For antidilutive under the “if-converted” method.
2009, 147 million average dilutive potential common shares associated The calculation of earnings per common share and diluted earnings
with the convertible Series L Preferred Stock and Mandatory Convertible per common share for 2009, 2008 and 2007 is presented below.
Preferred Stock Series 2 and Series 3 were excluded from the diluted
(Dollars in millions, except per share information; shares in thousands) 2009 2008 2007
Earnings (loss) per common share
Net income $ 6,276 $ 4,008 $ 14,982
Preferred stock dividends (4,494) (1,452) (182)
Accelerated accretion from redemption of preferred stock issued to the U.S. Treasury (3,986) – –
Net income (loss) applicable to common shareholders $ (2,204) $ 2,556 $ 14,800
Income (loss) allocated to participating securities (6) (69) (108)
Net income (loss) allocated to common shareholders $ (2,210) $ 2,487 $ 14,692
Average common shares issued and outstanding 7,728,570 4,592,085 4,423,579
Earnings (loss) per common share $ (0.29) $ 0.54 $ 3.32
Regulatory Capital Developments stances assuming a more prolonged and deeper recession over a two-
In June 2004, the Basel II Accord was published with the intent of more year period than both private and government economists currently proj-
closely aligning regulatory capital requirements with underlying risks, sim- ect. The Corporation achieved the increased capital requirement during
ilar to economic capital. While economic capital is measured to cover 2009 through strategic transactions that increased common capital by
unexpected losses, the Corporation also manages regulatory capital to approximately $39.7 billion which significantly exceeded the SCAP buffer.
adhere to regulatory standards of capital adequacy. The Basel II Final This included a gain from the sale of shares in CCB, direct sale of com-
Rule (Basel II Rules), which was published on December 7, 2007, estab- mon stock, reduced dividends on preferred shares associated with
lished requirements for the U.S. implementation and provided shares exchanged for common stock and related deferred tax dis-
detailed capital requirements for credit and operational risk under Pillar 1, allowances.
supervisory requirements under Pillar 2 and disclosure requirements
under Pillar 3. The Corporation will begin Basel II parallel implementation NOTE 17 – Employee Benefit Plans
during the second quarter of 2010.
In July 2009, the Basel Committee on Banking Supervision released a Pension and Postretirement Plans
consultative document entitled “Revisions to the Basel II Market Risk The Corporation sponsors noncontributory trusteed pension plans that
Framework” that would significantly increase the capital requirements for cover substantially all officers and employees, a number of non-
trading book activities if adopted as proposed. The proposal recom- contributory nonqualified pension plans, and postretirement health and
mended implementation by December 31, 2010, but regulatory agencies life plans. The plans provide defined benefits based on an employee’s
have not yet issued a notice of proposed rulemaking, which is required compensation and years of service. The Bank of America Pension Plan
before establishing final rules. As a result, the Corporation cannot (the Pension Plan) provides participants with compensation credits, gen-
determine the implementation date or the final capital impact. erally based on years of service. For account balances based on compen-
In December 2009, the Basel Committee on Banking Supervision sation credits prior to January 1, 2008, the Pension Plan allows
issued a consultative document entitled “Strengthening the Resilience of participants to select from various earnings measures, which are based
the Banking Sector.” If adopted as proposed, this could increase sig- on the returns of certain funds or common stock of the Corporation. The
nificantly the aggregate equity that bank holding companies are required participant-selected earnings measures determine the earnings rate on
to hold by disqualifying certain instruments that previously have qualified the individual participant account balances in the Pension Plan. Partic-
as Tier 1 capital. In addition, it would increase the level of risk-weighted ipants may elect to modify earnings measure allocations on a periodic
assets. The proposal could also increase the capital charges imposed on basis subject to the provisions of the Pension Plan. For account balances
certain assets potentially making certain businesses more expensive to based on compensation credits subsequent to December 31, 2007, the
conduct. Regulatory agencies have not opined on the proposal for account balance earnings rate is based on a benchmark rate. For eligible
implementation. The Corporation continues to assess the potential employees in the Pension Plan on or after January 1, 2008, the benefits
impact of the proposal. become vested upon completion of three years of service. It is the policy
As part of the Capital Assistance Program (CAP), the Corporation, as of the Corporation to fund not less than the minimum funding amount
well as several other large financial institutions, are subject to the SCAP required by ERISA.
conducted by the federal regulators. The objective of the SCAP is to The Pension Plan has a balance guarantee feature for account balan-
assess losses that could occur under certain economic scenarios, includ- ces with participant-selected earnings, applied at the time a benefit
ing economic conditions more severe than the Corporation currently payment is made from the plan that effectively provides principal pro-
anticipates. As a result of the SCAP, in May 2009 federal regulators tection for participant balances transferred and certain compensation
determined that the Corporation required an additional $33.9 billion of credits. The Corporation is responsible for funding any shortfall on the
Tier 1 common capital to sustain the most severe economic circum- guarantee feature.
Amounts recognized in the Consolidated Financial Statements at December 31, 2009 and 2008 were as follows:
The net periodic benefit cost (income) for each of the Plans in 2009 unrecognized gain or loss at the beginning of the fiscal year (or at sub-
includes the results of Merrill Lynch. The net periodic benefit cost sequent remeasurement) is recognized on a level basis during the year.
(income) of the Merrill Lynch Nonqualified and Other Pension Plans, and Assumed health care cost trend rates affect the postretirement bene-
Postretirement Health and Life Plans was $(20) million and $18 million in fit obligation and benefit cost reported for the Postretirement Health Care
2009 using a blended discount rate of 5.59 percent at January 1, 2009. Plans. The assumed health care cost trend rate used to measure the
The net periodic benefit cost (income) for 2009 and 2008 includes the expected cost of benefits covered by the Postretirement Health Care
results of Countrywide. The net periodic benefit cost of the Countrywide Plans was 8.00 percent for 2010, reducing in steps to 5.00 percent in
Qualified Pension Plan was $29 million in 2008 using a discount rate of 2017 and later years. A one-percentage-point increase in assumed health
6.75 percent at July 1, 2008. The net periodic benefit cost of the care cost trend rates would have increased the service and interest costs
Countrywide Nonqualified Pension Plan was $1 million. Countrywide did and the benefit obligation by $4 million and $57 million in 2009, $4 mil-
not have a Postretirement Health and Life Plan. lion and $35 million in 2008, and $5 million and $64 million in 2007. A
Net periodic postretirement health and life expense was determined one-percentage-point decrease in assumed health care cost trend rates
using the “projected unit credit” actuarial method. Gains and losses for would have lowered the service and interest costs and the benefit obliga-
all benefits except postretirement health care are recognized in accord- tion by $4 million and $50 million in 2009, $4 million and $31 million in
ance with the standard amortization provisions of the applicable account- 2008, and $4 million and $54 million in 2007.
ing guidance. For the Postretirement Health Care Plans, 50 percent of the Pre-tax amounts included in accumulated OCI at December 31, 2009
and 2008 were as follows:
Pre-tax amounts recognized in OCI for 2009 included the following components:
Nonqualified
Qualified and Other Postretirement
Pension Pension Health and
(Dollars in millions) Plans Plans Life Plans Total
Other changes in plan assets and benefit obligations recognized in OCI
Current year actuarial (gain) loss $ (918) $416 $(24) $(526)
Amortization of actuarial gain (loss) (377) (8) 77 (308)
Current year prior service cost 36 – – 36
Amortization of prior service credit (cost) (39) 8 – (31)
Amortization of transition obligation – – (31) (31)
Total recognized in OCI $(1,298) $416 $ 22 $(860)
Asset Category
2010 Target Allocation
Nonqualified
Qualified and Other Postretirement
Pension Pension Health and
Plans Plans Life Plans
Equity securities 60 – 80% 5 – 15% 50 – 75%
Debt securities 20 – 40 65 – 80 25 – 45
Real estate 0–5 0–5 0–5
Other 0 – 10 5 – 20 0–5
Equity securities for the Qualified Pension Plans include common Fair Value Measurements
stock of the Corporation in the amounts of $224 million (1.54 percent of For information on fair value measurements, including descriptions of
total plan assets) and $269 million (1.88 percent of total plan assets) at Level 1, 2 and 3 of the fair value hierarchy and the valuation methods
December 31, 2009 and 2008. employed by the Corporation, see Note 1 – Summary of Significant
Accounting Principles and Note 20 – Fair Value Measurements.
The table below presents a reconciliation of all Plan investment assets measured at fair value using significant unobservable inputs (Level 3) during
2009.
Defined Contribution Plans approximately $605 million, $454 million and $420 million in 2009,
The Corporation maintains qualified defined contribution retirement plans 2008 and 2007, respectively, in cash, to the qualified defined con-
and nonqualified defined contribution retirement plans. As a result of the tribution plans. At December 31, 2009 and 2008, 203 million shares and
Merrill Lynch acquisition, the Corporation also maintains the defined con- 104 million shares of the Corporation’s common stock were held by
tribution plans of Merrill Lynch which include the 401(k) Savings & plans. Payments to the plans for dividends on common stock were $8
Investment Plan, the Retirement and Accumulation Plan (RAP) and the million, $214 million and $228 million in 2009, 2008 and 2007,
Employee Stock Ownership Plan (ESOP). The Corporation contributed respectively.
The reconciliation of the beginning unrecognized tax benefits (UTB) balance to the ending balance is presented in the following table.
As of December 31, 2009, 2008 and 2007, the balance of the Corpo- In addition to the above examinations, the Corporation is in the proc-
ration’s UTBs which would, if recognized, affect the Corporation’s effec- ess of appealing an adverse decision by the U.S. Tax Court with respect
tive tax rate was $4.0 billion, $2.6 billion and $1.8 billion, respectively. to a 1987 Merrill Lynch transaction. The income tax associated with this
Included in the UTB balance are some items, the recognition of which matter has been remitted and is included in the UTB balance above.
would not affect the effective tax rate, such as the tax effect of certain With the exception of the 2003 through 2005 tax years of Bank of
temporary differences, the portion of gross state UTBs that would be America and the issues for which protests have been filed for Bank of
offset by the tax benefit of the associated federal deduction and the por- America and Merrill Lynch as described below, it is reasonably possible
tion of gross foreign UTBs that would be offset by tax reductions in other that all above U.S. federal examinations will be concluded during the next
jurisdictions. twelve months.
The Corporation is under examination by the IRS and other tax author- During 2008, the IRS announced a settlement initiative related to
ities in countries and states in which it has significant business oper- lease-in, lease-out (LILO) and sale-in, lease-out (SILO) leveraged lease
ations. The table below summarizes the status of significant U.S. federal transactions. The Corporation executed closing agreements under this
examinations (unless otherwise noted) for the Corporation and various settlement initiative in late 2009 for all of these transactions for Bank of
acquired subsidiaries as of December 31, 2009. America Corporation and predecessor companies. Determinations of final
tax and interest are expected to be finalized by the end of the first quarter
of 2010. As a result of prior remittances, the Corporation does not expect
Years under Status at
to pay additional tax and interest related to the settlement initiative.
examination (1) December 31, 2009
The remaining unagreed proposed adjustment for Bank of America
Bank of America Corporation 2000-2002 In Appeals process
Bank of America Corporation 2003-2005 Field examination Corporation for 2000 through 2002 tax years is the disallowance of for-
Merrill Lynch – U.S. 2004 In Appeals process eign tax credits related to certain structured investment transactions. The
Merrill Lynch – U.S. 2005-2007 Field examination Corporation continues to believe the crediting of these foreign taxes
Merrill Lynch – U.K. 2007 Field examination against U.S. income taxes was appropriate and has filed a protest to that
FleetBoston 1997-2000 In Appeals process
effect with the Appeals Office.
FleetBoston 2001-2004 Field examination
LaSalle 2003-2005 Field examination The IRS proposed adjustments for two issues in the audit of Merrill
Countrywide 2005-2006 Field examination Lynch for the tax year 2004 which have been protested to the Appeals
Countrywide 2007 Field examination Office. The issues involve eligibility for the dividends received deduction
(1) All tax years in material jurisdictions subsequent to the above years remain open to examination.
Net
Deferred Valuation Deferred First Year
(Dollars in millions) Tax Asset Allowance Tax Asset Expiring
Net operating losses – U.S. $7,378 $ – $7,378 After 2027
Net operating losses – U.K. 9,817 – 9,817 None (1)
Net operating losses – U.S. states (2) 1,232 (443) 789 Various
Net operating losses – other 41 (41) – Various
Capital losses 3,187 (3,187) – After 2013
General business credits 1,525 – 1,525 After 2027
Alternative minimum tax credits 123 – 123 None
Foreign tax credits 615 (306) 309 After 2017
(1) The U.K. NOL may be carried forward indefinitely. Due to change-in-control limitations in the three years prior to and following the change in ownership, this unlimited carryforward period may be jeopardized by certain
major changes in the nature or conduct of the U.K. businesses.
(2) The NOL and related valuation allowance for U.S. states before considering the benefit of federal deductions were $1.9 billion and $682 million.
With the acquisition of Merrill Lynch on January 1, 2009, the Corpo- these assets prior to their expiration. Merrill Lynch also has U.S. federal
ration established a valuation allowance to reduce certain deferred tax capital loss and foreign tax credit carryforwards against which valuation
assets to the amount more-likely-than-not to be realized before their allowances have been recorded to reduce the assets to the amounts the
expiration. During 2009, the Corporation released $650 million of the Corporation believes are more-likely-than-not to be realized.
valuation allowance attributable to Merrill Lynch’s capital loss carryfor- At December 31, 2009 and 2008, federal income taxes had not been
ward due to utilization against net capital gains generated in 2009. The provided on $16.7 billion and $6.5 billion of undistributed earnings of
valuation allowance also increased by $139 million due to increases in foreign subsidiaries earned prior to 1987 and after 1997 that have been
operating loss carryforwards and other deferred tax assets generated in reinvested for an indefinite period of time. If the earnings were dis-
certain state and foreign jurisdictions for which management believes it is tributed, an additional $2.5 billion and $1.1 billion of tax expense, net of
more-likely-than-not that realization of these assets will not occur. credits for foreign taxes paid on such earnings and for the related foreign
The Corporation concluded that no valuation allowance is necessary to withholding taxes, would have resulted as of December 31, 2009 and
reduce the U.K. NOL, U.S. federal NOL, and general business credit carry- 2008.
forwards since estimated future taxable income will be sufficient to utilize
2008
Gains Gains Purchases,
Balance (Losses) (Losses) Issuances Transfers Balance
January 1, Countrywide Included in Included and into / (out of) December 31,
(Dollars in millions) 2008 (1) Acquisition Earnings in OCI Settlements Level 3 (1) 2008 (1)
Trading account assets $ 4,027 $ – $(3,222) $ – $(1,233) $ 7,161 $ 6,733
Net derivative assets (2) (1,203) (185) 2,531 – 1,380 (253) 2,270
Available-for-sale debt securities 5,507 528 (2,509) (1,688) 2,754 14,110 18,702
Loans and leases (3) 4,590 – (780) – 1,603 – 5,413
Mortgage servicing rights 3,053 17,188 (7,115) – (393) – 12,733
Loans held-for-sale (3) 1,334 1,425 (1,047) – (542) 2,212 3,382
Other assets (4) 3,987 1,407 175 – (1,372) (40) 4,157
Accrued expenses and other
liabilities (3) (660) (1,212) (169) – 101 – (1,940)
(1) Assets (liabilities)
(2) Net derivatives at December 31, 2009 and 2008 include derivative assets of $23.0 billion and $8.3 billion and derivative liabilities of $15.2 billion and $6.0 billion, respectively.
(3) Amounts represent items which are accounted for under the fair value option including commercial loans, loan commitments and LHFS.
(4) Other assets is primarily comprised of AFS marketable equity securities and other equity investments.
2009
Trading Mortgage
Equity Account Banking Other
Card Income Investment Profits Income Income
(Dollars in millions) (Loss) Income (Losses) (Loss) (1) (Loss) Total
Trading account assets:
Corporate securities, trading loans and other $ – $ – $ 370 $ – $ – $ 370
Equity securities – – (396) – – (396)
Foreign sovereign debt – – 136 – – 136
Mortgage trading loans and asset-backed securities – – (262) – – (262)
Total trading account assets – – (152) – – (152)
Net derivative assets – – (2,526) 8,052 – 5,526
Available-for-sale debt securities:
Non-agency MBS:
Residential – – – (20) (1,139) (1,159)
Commercial – – – – (185) (185)
Foreign securities – – – – (79) (79)
Corporate/Agency bonds – – – – (22) (22)
Other taxable securities – – – – (75) (75)
Tax-exempt securities – – – – 2 2
Total available-for-sale debt securities – – – (20) (1,498) (1,518)
Loans and leases (2) – – (11) – 526 515
Mortgage servicing rights – – – 5,286 – 5,286
Loans held-for-sale (2) – – (216) 306 588 678
Other assets 21 947 – 244 61 1,273
Trading account liabilities – Foreign sovereign debt – – (38) – – (38)
Accrued expenses and other liabilities (2) – – 36 (11) 1,360 1,385
Long-term debt (2) – – (2,083) – (227) (2,310)
Total $ 21 $ 947 $ (4,990) $13,857 $ 810 $ 10,645
2008
Trading account assets $ – $ – $(3,044) $ (178) $ – $ (3,222)
Net derivative assets – – 103 2,428 – 2,531
Available-for-sale debt securities – – – (74) (2,435) (2,509)
Loans and leases (2) – – (5) – (775) (780)
Mortgage servicing rights – – – (7,115) – (7,115)
Loans held-for-sale (2) – – (195) (848) (4) (1,047)
Other assets 55 110 – – 10 175
Accrued expenses and other liabilities (2) – – 9 295 (473) (169)
Total $ 55 $ 110 $(3,132) $ (5,492) $(3,677) $(12,136)
2007
Trading account assets (3) $ – $ – $(2,959) $ – $ – $ (2,959)
Net derivative assets (3) – – (515) 174 – (341)
Available-for-sale debt securities (3, 4) – – – – (398) (398)
Loans and leases (2) – – (1) – (139) (140)
Mortgage servicing rights (3) – – – 231 – 231
Loans held-for-sale (2) – – (61) (29) – (90)
Other assets (5) 103 1,971 – – 75 2,149
Accrued expenses and other liabilities (2) – – (5) – (274) (279)
Total $103 $1,971 $(3,541) $ 376 $ (736) $ (1,827)
(1) Mortgage banking income does not reflect the impact of Level 1 and Level 2 hedges against MSRs.
(2) Amounts represent items which are accounted for under the fair value option.
(3) Amounts represent items which are carried at fair value prior to the adoption of the fair value option.
(4) Amounts represent write-downs on certain securities that were deemed to be other-than-temporarily impaired during 2007.
(5) Amounts represent items which are accounted for under the fair value option.
Level 3 Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
2009
Trading Mortgage
Equity Account Banking Other
Card Income Investment Profits Income Income
(Dollars in millions) (Loss) Income (Losses) (Loss) (1) (Loss) Total
Trading account assets:
Corporate securities, trading loans and other $ – $ – $ 89 $ – $ – $ 89
Equity securities – – (328) – – (328)
Foreign sovereign debt – – 137 – – 137
Mortgage trading loans and asset-backed securities – – (332) – – (332)
Total trading account assets – – (434) – – (434)
Net derivative assets – – (2,761) 348 – (2,413)
Available-for-sale debt securities:
Mortgage-backed securities:
Non-agency MBS:
Residential – – – (20) (659) (679)
Other taxable securities – – (11) – (3) (14)
Tax-exempt securities – – (2) – (8) (10)
Total available-for-sale debt securities – – (13) (20) (670) (703)
Loans and leases (2) – – – – 210 210
Mortgage servicing rights – – – 4,100 – 4,100
Loans held-for-sale (2) – – (195) 164 695 664
Other assets (71) (106) – 6 1,061 890
Trading account liabilities – Foreign sovereign debt – – (38) – – (38)
Accrued expenses and other liabilities (2) – – – (11) 1,740 1,729
Long-term debt (2) – – (2,303) – (225) (2,528)
Total $ (71) $(106) $ (5,744) $ 4,587 $ 2,811 $ 1,477
2008
Trading account assets $ – $ – $(2,144) $ (178) $ – $ (2,322)
Net derivative assets – – 2,095 1,154 – 3,249
Available-for-sale debt securities – – – (74) (1,840) (1,914)
Loans and leases (2) – – – – (1,003) (1,003)
Mortgage servicing rights – – – (7,378) – (7,378)
Loans held-for-sale (2) – – (154) (423) (4) (581)
Other assets (331) (193) – – – (524)
Accrued expenses and other liabilities (2) – – – 292 (880) (588)
Total $(331) $(193) $ (203) $(6,607) $(3,727) $(11,061)
2007
Trading account assets (3) $ – $ – $(2,857) $ – $ – $ (2,857)
Net derivative assets (3) – – (196) 139 – (57)
Available-for-sale debt securities (3) – – – – (398) (398)
Loans and leases (2) – – – – (167) (167)
Mortgage servicing rights (3) – – – (43) – (43)
Loans held-for-sale (2) (58) (22) (80)
Other assets (4) (136) (65) – – – (201)
Accrued expenses and other liabilities (4) – – (1) – (395) (396)
Total $(136) $ (65) $(3,112) $ 74 $ (960) $ (4,199)
(1) Mortgage banking income does not reflect impact of Level 1 and Level 2 hedges against MSRs.
(2) Amounts represent items which are accounted for under the fair value option.
(3) Amounts represent items which were accounted for prior to the adoption of the fair value option.
(4) Amounts represent items which were carried at fair value prior to the adoption of the fair value option and certain portfolios of LHFS which are accounted for under the fair value option.
Fair Value Option Elections value of $32.8 billion and $18.9 billion and an aggregate outstanding
principal balance of $36.5 billion and $20.7 billion. Interest income on
Corporate Loans and Loan Commitments these loans is recorded in other interest income. These changes in fair
The Corporation elected to account for certain large corporate loans and value are mostly offset by hedging activities. An immaterial portion of
loan commitments which exceeded the Corporation’s single name credit these amounts was attributable to changes in instrument-specific credit
risk concentration guidelines under the fair value option. Lending risk.
commitments, both funded and unfunded, are actively managed and
monitored and, as appropriate, credit risk for these lending relationships Other Assets
may be mitigated through the use of credit derivatives, with the Corpo- The Corporation elected the fair value option for certain other assets.
ration’s credit view and market perspectives determining the size and Other assets primarily represents non-marketable convertible preferred
timing of the hedging activity. These credit derivatives do not meet the shares for which the Corporation has economically hedged a majority of
requirements for derivatives designated as hedging instruments and are the position with derivatives. At December 31, 2009, these assets had a
therefore carried at fair value with changes in fair value recorded in other fair value of $253 million.
income. Electing the fair value option allows the Corporation to carry
these loans and loan commitments at fair value, which is more con- Securities Financing Agreements
sistent with management’s view of the underlying economics and the The Corporation elected the fair value option for certain securities financ-
manner in which they are managed. In addition, accounting for these ing agreements. The fair value option election was made for certain secu-
loans and loan commitments at fair value reduces the accounting asym- rities financing agreements based on the tenor of the agreements which
metry that would otherwise result from carrying the loans at historical reflects the magnitude of the interest rate risk. The majority of securities
cost and the credit derivatives at fair value. financing agreements collateralized by U.S. government securities were
At December 31, 2009 and 2008, funded loans which the Corporation excluded from the fair value option election as these contracts are gen-
elected to carry at fair value had an aggregate fair value of $4.9 billion erally short-dated and therefore the interest rate risk is not considered
and $5.4 billion recorded in loans and leases and an aggregate out- significant. At December 31, 2009, securities financing agreements for
standing principal balance of $5.4 billion and $6.4 billion. At which the fair value option has been elected had an aggregate fair value
December 31, 2009 and 2008, unfunded loan commitments that the of $95.1 billion and a principal balance of $94.6 billion.
Corporation has elected to carry at fair value had an aggregate fair value
of $950 million and $1.1 billion recorded in accrued expenses and other Long-term Deposits
liabilities and an aggregate committed exposure of $27.0 billion and The Corporation elected to fair value certain long-term fixed-rate and rate-
$16.9 billion. Interest income on these loans is recorded in interest and linked deposits which are economically hedged with derivatives. At
fees on loans and leases. December 31, 2009 and 2008, these instruments had an aggregate fair
value of $1.7 billion for both years ended and principal balance of $1.6
Loans Held-for-Sale billion and $1.7 billion recorded in interest-bearing deposits. Interest paid
The Corporation also elected to account for certain LHFS at fair value. on these instruments continues to be recorded in interest expense. Elec-
Electing to use fair value allows a better offset of the changes in fair tion of the fair value option will allow the Corporation to reduce the
values of the loans and the derivative instruments used to economically accounting volatility that would otherwise result from the accounting
hedge them. The Corporation has not elected to fair value other LHFS asymmetry created by accounting for the financial instruments at histor-
primarily because these loans are floating rate loans that are not econom- ical cost and the economic hedges at fair value. The Corporation did not
ically hedged using derivative instruments. At December 31, 2009 and elect to fair value other financial instruments within the same balance
2008, residential mortgage loans, commercial mortgage loans, and other sheet category because they were not economically hedged using
LHFS for which the fair value option was elected had an aggregate fair derivatives.
Gains (Losses) Relating to Assets and Liabilities Accounted for Using Fair Value Option
2009
Commercial
Corporate Asset- Paper and
Loans and Securities Long- backed Other Long-
Loan Loans Financing Other term Secured Short-term term
(Dollars in millions) Commitments Held-for-Sale Agreements Assets Deposits Financings Borrowings Debt Total
Trading account profits (losses) $ 25 $ (211) $ – $ 379 $ – $ – $(236) $(3,938) $ (3,981)
Mortgage banking income (loss) – 8,251 – – – (11) – – 8,240
Equity investment income (loss) – – – (177) – – – – (177)
Other income (loss) 1,886 588 (292) – 35 – – (4,900) (2,683)
Total $ 1,911 $8,628 $(292) $ 202 $ 35 $ (11) $(236) $(8,838) $ 1,399
2008
Trading account profits (losses) $ 4 $ (680) $ – $ – $ – $ – $ – $ – $ (676)
Mortgage banking income – 281 – – – 295 – – 576
Other income (loss) (1,248) (215) (18) – (10) – – – (1,491)
Total $(1,244) $ (614) $ (18) $ – $(10) $295 $ – $ – $(1,591)
NOTE 21 – Fair Value of Financial Instruments have short-term maturities and carry interest rates that approximate
The fair values of financial instruments have been derived, in part, by the market. The Corporation elected to account for certain structured reverse
Corporation’s assumptions, the estimated amount and timing of future repurchase agreements under the fair value option. See Note 20 – Fair
cash flows and estimated discount rates. Different assumptions could Value Measurements for additional information on these structured
significantly affect these estimated fair values. Accordingly, the net realiz- reverse repurchase agreements.
able values could be materially different from the estimates presented
below. In addition, the estimates are only indicative of the value of Loans
individual financial instruments and should not be considered an Fair values were generally determined by discounting both principal and
indication of the fair value of the Corporation. interest cash flows expected to be collected using an observable discount
The following disclosures represent financial instruments in which the rate for similar instruments with adjustments that the Corporation
ending balance at December 31, 2009 and 2008 are not carried at fair believes a market participant would consider in determining fair value.
value in its entirety on the Corporation’s Consolidated Balance Sheet. The Corporation estimates the cash flows expected to be collected using
internal credit risk, interest rate and prepayment risk models that
Short-term Financial Instruments incorporate the Corporation’s best estimate of current key assumptions,
The carrying value of short-term financial instruments, including cash and such as default rates, loss severity and prepayment speeds for the life of
cash equivalents, time deposits placed, federal funds sold and pur- the loan. The Corporation elected to account for certain large corporate
chased, resale and certain repurchase agreements, commercial paper loans which exceeded the Corporation’s single name credit risk concen-
and other short-term investments and borrowings, approximates the fair tration guidelines under the fair value option. See Note 20 – Fair Value
value of these instruments. These financial instruments generally expose Measurements for additional information on loans for which the Corpo-
the Corporation to limited credit risk and have no stated maturities or ration adopted the fair value option.
December 31
2009 2008
(Dollars in millions) Carrying Value (1) Fair Value Carrying Value (1) Fair Value
Financial assets
Loans (2) $841,020 $813,596 $886,198 $841,629
Financial liabilities
Deposits 991,611 991,768 882,997 883,987
Long-term debt 438,521 440,246 268,292 260,291
(1) The carrying value of loans is presented net of allowance for loan and lease losses. Amounts exclude leases.
(2) Fair value is determined based on the present value of future cash flows using credit spreads or risk adjusted rates of return that a buyer of the portfolio would require at December 31, 2009 and 2008. However, the
Corporation expects to collect the principal cash flows underlying the book values as well as the related interest cash flows.
NOTE 22 – Mortgage Servicing Rights amounts do not include $782 million in gains in 2009 resulting from
The Corporation accounts for consumer MSRs at fair value with changes lower than expected prepayments and $(333) million in losses in 2008
in fair value recorded in the Consolidated Statement of Income in mort- resulting from higher than expected prepayments. The net amounts of
gage banking income. The Corporation economically hedges these MSRs $5.3 billion and $(7.1) billion are included in the line “mortgage banking
with certain derivatives and securities including MBS and U.S. Treasuries. income (loss)” in the table “Level 3 – Total Realized and Unrealized Gains
The securities that economically hedge the MSRs are recorded in other (Losses) Included in Earnings” in Note 20 – Fair Value Measurements.
assets with changes in the fair value of the securities and the related At December 31, 2009 and 2008, the fair value of consumer MSRs
interest income recorded as mortgage banking income. was $19.5 billion and $12.7 billion. The Corporation uses an OAS valu-
The following table presents activity for residential first mortgage ation approach to determine the fair value of MSRs which factors in pre-
MSRs for 2009 and 2008. payment risk. This approach consists of projecting servicing cash flows
under multiple interest rate scenarios and discounting these cash flows
using risk-adjusted discount rates. The key economic assumptions used
(Dollars in millions) 2009 2008
in valuations of MSRs include weighted-average lives of the MSRs and
Balance, January 1 $12,733 $ 3,053 the OAS levels.
Merrill Lynch balance, January 1, 2009 209 —
Countrywide balance, July 1, 2008 — 17,188 Key economic assumptions used in determining the fair value of
Additions / sales 5,728 2,587 MSRs at December 31, 2009 and 2008 were as follows:
Impact of customer payments (3,709) (3,313)
Other changes in MSR market value 4,504 (6,782)
Balance, December 31 $19,465 $12,733 December 31
Mortgage loans serviced for investors (in billions) $ 1,716 $ 1,654 2009 2008
(Dollars in millions) Fixed Adjustable Fixed Adjustable
During 2009 and 2008, other changes in MSR market value were $4.5 Weighted-average option
adjusted spread 1.67% 4.64% 1.71% 6.40%
billion and $(6.8) billion. These amounts reflect the change in discount Weighted-average life,
rates and prepayment speed assumptions, mostly due to changes in in years 5.62 3.26 3.26 2.71
interest rates, as well as the effect of changes in other assumptions. The
Business Segments
At and for the Year Ended December 31 Total Corporation (1) Deposits (2) Global Card Services (3)
(Dollars in millions) 2009 2008 2007 2009 2008 2007 2009 2008 2007
Net interest income (4) $ 48,410 $ 46,554 $36,190 $ 7,160 $ 10,970 $10,215 $ 20,264 $ 19,589 $16,627
Noninterest income 72,534 27,422 32,392 6,848 6,870 6,187 9,078 11,631 11,146
Total revenue, net of
interest expense 120,944 73,976 68,582 14,008 17,840 16,402 29,342 31,220 27,773
Provision for credit losses (5) 48,570 26,825 8,385 380 399 227 30,081 20,164 11,678
Amortization of intangibles 1,978 1,834 1,676 238 297 294 911 1,048 1,040
Other noninterest expense 64,735 39,695 35,848 9,455 8,486 8,056 7,050 8,112 8,337
Income (loss) before
income taxes 5,661 5,622 22,673 3,935 8,658 7,825 (8,700) 1,896 6,718
Income tax expense (benefit) (4) (615) 1,614 7,691 1,429 3,146 2,751 (3,145) 662 2,457
Net income (loss) $ 6,276 $ 4,008 $14,982 $ 2,506 $ 5,512 $ 5,074 $ (5,555) $ 1,234 $ 4,261
Year end total assets $2,223,299 $1,817,943 $445,363 $390,487 $217,139 $252,683
December 31
(Dollars in millions) 2009 2008
Segment total assets $2,085,917 $1,738,523
Adjustments:
ALM activities, including securities portfolio 560,063 552,796
Equity investments 34,662 31,422
Liquidating businesses 22,244 3,172
Elimination of segment excess asset allocations to match liabilities (561,607) (439,162)
Elimination of managed securitized loans (1) (89,715) (100,960)
Other 171,735 32,152
Consolidated total assets $2,223,299 $1,817,943
(1) Represents Global Card Services securitized loans.
December 31
(Dollars in millions) 2009 2008
Assets
Cash held at bank subsidiaries $ 91,892 $ 98,525
Debt securities 8,788 16,241
Receivables from subsidiaries:
Bank holding companies and related subsidiaries 58,931 39,239
Nonbank companies and related subsidiaries 13,043 23,518
Investments in subsidiaries:
Bank holding companies and related subsidiaries 206,994 172,460
Nonbank companies and related subsidiaries 47,078 20,355
Other assets 13,773 20,428
Total assets $440,499 $390,766
Liabilities and shareholders’ equity
Commercial paper and other short-term borrowings $ 5,968 $ 26,536
Accrued expenses and other liabilities 19,204 15,244
Payables to subsidiaries:
Bank holding companies and related subsidiaries 363 469
Nonbank companies and related subsidiaries 632 3
Long-term debt 182,888 171,462
Shareholders’ equity 231,444 177,052
Total liabilities and shareholders’ equity $440,499 $390,766
*Executive Officer
**Retiring by not standing for reelection at the 2010 Annual Meeting
Bank of America Corporation (“Bank of America”) is a financial holding company that, through its subsidiaries and affiliated companies, provides banking
Design: Sequel Studio, New York
and nonbanking financial services. Global Wealth & Investment Management is a division of Bank of America Corporation. Merrill Lynch, Pierce, Fenner &
Smith Incorporated, U.S. Trust, Bank of America Private Wealth Management and Columbia Management are all affiliates within Global Wealth & Investment
Management. Merrill Lynch, Pierce, Fenner & Smith Incorporated is a registered broker-dealer, member FINRA and SIPC, and a wholly owned subsidiary
of Bank of America Corporation. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A. Columbia Management
Group, LLC (“Columbia Management”) is the investment management division of Bank of America Corporation. Columbia Management entities furnish
investment management services and products for institutional and individual investors.
Banking products are provided by Bank of America, N.A. and affiliated banks. Members FDIC and wholly owned subsidiaries of Bank of America Corporation.
Investment products: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed
Board of Directors from left to right: bottom row seated: Brian T. Moynihan, Walter E. Massey, Monica C. Lozano, Charles O. Rossotti;
Top row standing: Charles O. Holliday, Jr., Frank P. Bramble, Sr., Susan S. Bies, William P. Boardman, Charles K. Gifford,
D. Paul Jones, Jr., Thomas J. May, Donald E. Powell, Thomas M. Ryan, Robert W. Scully, Virgis W. Colbert
Please recycle.