Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2002
 
or
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number:
 
Exact name of registrant as specified in its charter:
1-6523
 
Bank of America Corporation
State of incorporation:
 
IRS Employer Identification Number:
Delaware
 
56-0906609
Address of principal executive offices:
 
Registrant’s telephone number, including area code:
Bank of America Corporate Center
Charlotte, North Carolina 28255
 
(800) 299-2265
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes þ        No ¨
 
On July 31, 2002, there were 1,502,635,275 shares of Bank of America Corporation Common Stock outstanding.
 


Table of Contents
Bank of America Corporation
 
June 30, 2002 Form 10-Q
 
INDEX
 
         
Page

Part I    Financial Information
    
Item 1.
  
Financial Statements:
    
       
2
       
3
       
4
       
5
       
6
Item 2.
     
18
Item 3.
     
62
Part II    Other Information
    
Item 1.
     
62
Item 2.
     
63
Item 4.
     
64
Item 6.
     
65
  
66
  
67


Table of Contents
Part I. Financial Information
 
Item 1. Financial Statements
 
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF INCOME
 
    
Three Months Ended
June 30

    
Six Months Ended
June 30

 
(Dollars in millions, except per share information)
  
2002

    
2001

    
2002

    
2001

 
Interest income
                                   
Interest and fees on loans and leases
  
$
5,530
 
  
$
7,227
 
  
$
10,975
 
  
$
14,912
 
Interest and dividends on securities
  
 
924
 
  
 
894
 
  
 
1,870
 
  
 
1,739
 
Federal funds sold and securities purchased under agreements to resell
  
 
270
 
  
 
405
 
  
 
485
 
  
 
840
 
Trading account assets
  
 
948
 
  
 
936
 
  
 
1,826
 
  
 
1,782
 
Other interest income
  
 
312
 
  
 
463
 
  
 
699
 
  
 
893
 
    


  


  


  


Total interest income
  
 
7,984
 
  
 
9,925
 
  
 
15,855
 
  
 
20,166
 
    


  


  


  


Interest expense
                                   
Deposits
  
 
1,384
 
  
 
2,363
 
  
 
2,728
 
  
 
5,076
 
Short-term borrowings
  
 
529
 
  
 
1,221
 
  
 
1,006
 
  
 
2,598
 
Trading account liabilities
  
 
344
 
  
 
312
 
  
 
629
 
  
 
602
 
Long-term debt
  
 
633
 
  
 
999
 
  
 
1,245
 
  
 
2,221
 
    


  


  


  


Total interest expense
  
 
2,890
 
  
 
4,895
 
  
 
5,608
 
  
 
10,497
 
    


  


  


  


Net interest income
  
 
5,094
 
  
 
5,030
 
  
 
10,247
 
  
 
9,669
 
Noninterest income
                                   
Consumer service charges
  
 
734
 
  
 
714
 
  
 
1,426
 
  
 
1,408
 
Corporate service charges
  
 
565
 
  
 
511
 
  
 
1,132
 
  
 
1,010
 
    


  


  


  


Total service charges
  
 
1,299
 
  
 
1,225
 
  
 
2,558
 
  
 
2,418
 
    


  


  


  


Consumer investment and brokerage services
  
 
420
 
  
 
399
 
  
 
801
 
  
 
778
 
Corporate investment and brokerage services
  
 
178
 
  
 
137
 
  
 
348
 
  
 
273
 
    


  


  


  


Total investment and brokerage services
  
 
598
 
  
 
536
 
  
 
1,149
 
  
 
1,051
 
    


  


  


  


Mortgage banking income
  
 
135
 
  
 
196
 
  
 
327
 
  
 
317
 
Investment banking income
  
 
464
 
  
 
455
 
  
 
805
 
  
 
801
 
Equity investment gains (losses)
  
 
(36
)
  
 
171
 
  
 
(10
)
  
 
318
 
Card income
  
 
620
 
  
 
601
 
  
 
1,196
 
  
 
1,174
 
Trading account profits(1)
  
 
263
 
  
 
376
 
  
 
608
 
  
 
1,075
 
Other income
  
 
138
 
  
 
181
 
  
 
288
 
  
 
367
 
    


  


  


  


Total noninterest income
  
 
3,481
 
  
 
3,741
 
  
 
6,921
 
  
 
7,521
 
    


  


  


  


Total revenue
  
 
8,575
 
  
 
8,771
 
  
 
17,168
 
  
 
17,190
 
Provision for credit losses
  
 
888
 
  
 
800
 
  
 
1,728
 
  
 
1,635
 
Gains (losses) on sales of securities
  
 
93
 
  
 
(7
)
  
 
137
 
  
 
(15
)
Noninterest expense
                                   
Personnel
  
 
2,386
 
  
 
2,534
 
  
 
4,832
 
  
 
4,935
 
Occupancy
  
 
441
 
  
 
428
 
  
 
873
 
  
 
861
 
Equipment
  
 
279
 
  
 
271
 
  
 
541
 
  
 
562
 
Marketing
  
 
170
 
  
 
174
 
  
 
340
 
  
 
351
 
Professional fees
  
 
122
 
  
 
141
 
  
 
213
 
  
 
267
 
Amortization of intangibles
  
 
55
 
  
 
223
 
  
 
110
 
  
 
446
 
Data processing
  
 
226
 
  
 
187
 
  
 
431
 
  
 
377
 
Telecommunications
  
 
123
 
  
 
128
 
  
 
242
 
  
 
247
 
Other general operating
  
 
688
 
  
 
735
 
  
 
1,402
 
  
 
1,429
 
    


  


  


  


Total noninterest expense
  
 
4,490
 
  
 
4,821
 
  
 
8,984
 
  
 
9,475
 
    


  


  


  


Income before income taxes
  
 
3,290
 
  
 
3,143
 
  
 
6,593
 
  
 
6,065
 
Income tax expense
  
 
1,069
 
  
 
1,120
 
  
 
2,193
 
  
 
2,172
 
    


  


  


  


Net income
  
$
2,221
 
  
$
2,023
 
  
$
4,400
 
  
$
3,893
 
    


  


  


  


Net income available to common shareholders
  
$
2,220
 
  
$
2,022
 
  
$
4,398
 
  
$
3,891
 
    


  


  


  


Per common share information
                                   
Earnings
  
$
1.45
 
  
$
1.26
 
  
$
2.86
 
  
$
2.42
 
    


  


  


  


Diluted earnings
  
$
1.40
 
  
$
1.24
 
  
$
2.77
 
  
$
2.39
 
    


  


  


  


Dividends
  
$
0.60
 
  
$
0.56
 
  
$
1.20
 
  
$
1.12
 
    


  


  


  


Average common shares issued and outstanding (in thousands)
  
 
1,533,783
 
  
 
1,601,537
 
  
 
1,538,600
 
  
 
1,605,193
 
    


  


  


  



(1)
 
Trading account profits for the six months ended June 30, 2001 included the $83 million, or $0.03 per share, transition adjustment loss resulting from the adoption of Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (SFAS 133) on January 1, 2001.
 
See accompanying notes to consolidated financial statements.

2


Table of Contents
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEET
 
(Dollars in millions)
  
June 30 2002

    
December 31 2001

 
Assets
                 
Cash and cash equivalents
  
$
21,309
 
  
$
26,837
 
Time deposits placed and other short-term investments
  
 
6,307
 
  
 
5,932
 
Federal funds sold and securities purchased under agreements to resell (includes $35,167 and $27,910 pledged as collateral)
  
 
35,449
 
  
 
28,108
 
Trading account assets (includes $26,837 and $22,550 pledged as collateral)
  
 
63,466
 
  
 
47,344
 
Derivative assets
  
 
24,809
 
  
 
22,147
 
Securities:
                 
Available-for-sale (includes $38,863 and $37,422 pledged as collateral)
  
 
82,143
 
  
 
84,450
 
Held-to-maturity, at cost (market value—$992 and $1,009)
  
 
1,020
 
  
 
1,049
 
    


  


Total securities
  
 
83,163
 
  
 
85,499
 
    


  


Loans and leases
  
 
340,394
 
  
 
329,153
 
Allowance for credit losses
  
 
(6,873
)
  
 
(6,875
)
    


  


Loans and leases, net of allowance for credit losses
  
 
333,521
 
  
 
322,278
 
    


  


Premises and equipment, net
  
 
6,755
 
  
 
6,414
 
Mortgage banking assets
  
 
3,404
 
  
 
3,886
 
Goodwill
  
 
10,950
 
  
 
10,854
 
Core deposits and other intangibles
  
 
1,184
 
  
 
1,294
 
Other assets
  
 
48,131
 
  
 
61,171
 
    


  


Total assets
  
$
638,448
 
  
$
621,764
 
    


  


Liabilities
                 
Deposits in domestic offices:
                 
Noninterest-bearing
  
$
101,163
 
  
$
112,064
 
Interest-bearing
  
 
224,582
 
  
 
220,703
 
Deposits in foreign offices:
                 
Noninterest-bearing
  
 
1,750
 
  
 
1,870
 
Interest-bearing
  
 
33,274
 
  
 
38,858
 
    


  


Total deposits
  
 
360,769
 
  
 
373,495
 
    


  


Federal funds purchased and securities sold under agreements to repurchase
  
 
56,678
 
  
 
47,727
 
Trading account liabilities
  
 
25,751
 
  
 
19,452
 
Derivative liabilities
  
 
17,800
 
  
 
14,868
 
Commercial paper
  
 
1,946
 
  
 
1,558
 
Other short-term borrowings
  
 
31,027
 
  
 
20,659
 
Accrued expenses and other liabilities
  
 
32,002
 
  
 
27,459
 
Long-term debt
  
 
59,181
 
  
 
62,496
 
Trust preferred securities
  
 
5,530
 
  
 
5,530
 
    


  


Total liabilities
  
 
590,684
 
  
 
573,244
 
    


  


Commitments and contingencies (Note Seven)
                 
Shareholders’ equity
                 
Preferred stock, $0.01 par value; authorized—100,000,000 shares; issued and outstanding—1,411,750 and 1,514,478 shares
  
 
60
 
  
 
65
 
Common stock, $0.01 par value; authorized—5,000,000,000 shares; issued and outstanding—1,515,667,160 and 1,559,297,220 shares
  
 
1,499
 
  
 
5,076
 
Retained earnings
  
 
45,546
 
  
 
42,980
 
Accumulated other comprehensive income
  
 
660
 
  
 
437
 
Other
  
 
(1
)
  
 
(38
)
    


  


Total shareholders’ equity
  
 
47,764
 
  
 
48,520
 
    


  


Total liabilities and shareholders’ equity
  
$
638,448
 
  
$
621,764
 
    


  


 
See accompanying notes to consolidated financial statements.

3


Table of Contents
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
 
      
Preferred Stock

    
Common Stock

    
Retained Earnings

      
Accumulated Other Comprehensive Income (Loss) (1)

    
Other

    
Total Share- holders’ Equity

      
Comprehensive Income

 
(Dollars in millions, shares in thousands)
       
Shares

    
Amount

                    
Balance, December 31, 2000
    
$
72
 
  
1,613,632
 
  
$
8,613
 
  
$
39,815
 
    
$
(746
)
  
$
(126
)
  
$
47,628
 
          
Net income
                             
 
3,893
 
                      
 
3,893
 
    
$
3,893
 
Other comprehensive income, net of tax:
                                                                           
Net unrealized gains on available-for-sale and marketable equity securities
                                        
 
201
 
           
 
201
 
    
 
201
 
Net gains on derivatives
                                        
 
283
 
           
 
283
 
    
 
283
 
                                                                       


Comprehensive income
                                                                     
$
4,377
 
                                                                       


Cash dividends:
                                                                           
Common
                             
 
(1,797
)
                      
 
(1,797
)
          
Preferred
                             
 
(2
)
                      
 
(2
)
          
Common stock issued under employee plans
             
16,718
 
  
 
598
 
                      
 
37
 
  
 
635
 
          
Common stock repurchased
             
(29,400
)
  
 
(1,600
)
                               
 
(1,600
)
          
Conversion of preferred stock
    
 
(4
)
  
176
 
  
 
4
 
                                                
Other
                    
 
14
 
  
 
3
 
             
 
44
 
  
 
61
 
          
      


  

  


  


    


  


  


          
Balance, June 30, 2001
    
$
68
 
  
1,601,126
 
  
$
7,629
 
  
$
41,912
 
    
$
(262
)
  
$
(45
)
  
$
49,302
 
          
      


  

  


  


    


  


  


          
Balance, December 31, 2001
    
$
65
 
  
1,559,297
 
  
$
5,076
 
  
$
42,980
 
    
$
437
 
  
$
(38
)
  
$
48,520
 
          
Net income
                             
 
4,400
 
                      
 
4,400
 
    
$
4,400
 
Other comprehensive income, net of tax:
                                                                           
Net unrealized gains on available-for-sale and marketable equity securities
                                        
 
620
 
           
 
620
 
    
 
620
 
Net losses on derivatives
                                        
 
(397
)
           
 
(397
)
    
 
(397
)
                                                                       


Comprehensive income
                                                                     
$
4,623
 
                                                                       


Cash dividends:
                                                                           
Common
                             
 
(1,844
)
                      
 
(1,844
)
          
Preferred
                             
 
(2
)
                      
 
(2
)
          
Common stock issued under employee plans
             
38,612
 
  
 
1,979
 
                      
 
9
 
  
 
1,988
 
          
Common stock repurchased
             
(82,422
)
  
 
(5,679
)
                               
 
(5,679
)
          
Conversion of preferred stock
    
 
(5
)
  
173
 
  
 
5
 
                                                
Other
             
7
 
  
 
118
 
  
 
12
 
             
 
28
 
  
 
158
 
          
      


  

  


  


    


  


  


          
Balance, June 30, 2002
    
$
60
 
  
1,515,667
 
  
$
1,499
 
  
$
45,546
 
    
$
660
 
  
$
(1
)
  
$
47,764
 
          
      


  

  


  


    


  


  


          

(1)
 
At June 30, 2002 and December 31, 2001, Accumulated Other Comprehensive Income (Loss) consisted of net unrealized gains (losses) on available-for-sale and marketable equity securities of $140 and $(480), respectively; foreign currency translation adjustments of $(171) at both periods and net gains on derivatives of $691 and $1,088, respectively.
 
See accompanying notes to consolidated financial statements.

4


Table of Contents
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENT OF CASH FLOWS
 
    
Six Months Ended
June 30

 
(Dollars in millions)
  
2002

    
2001

 
Operating activities
                 
Net income
  
$
4,400
 
  
$
3,893
 
Reconciliation of net income to net cash provided by (used in) operating activities:
                 
Provision for credit losses
  
 
1,728
 
  
 
1,635
 
(Gains) losses on sales of securities
  
 
(137
)
  
 
15
 
Depreciation and premises improvements amortization
  
 
440
 
  
 
429
 
Amortization of intangibles
  
 
110
 
  
 
446
 
Deferred income tax (benefit) expense
  
 
(35
)
  
 
313
 
Net increase in trading and hedging instruments
  
 
(6,209
)
  
 
(18,378
)
Net (increase) decrease in other assets
  
 
10,087
 
  
 
(2,454
)
Net increase (decrease) in accrued expenses and other liabilities
  
 
3,983
 
  
 
(553
)
Other operating activities, net
  
 
2,945
 
  
 
372
 
    


  


Net cash provided by (used in) operating activities
  
 
17,312
 
  
 
(14,282
)
    


  


Investing activities
                 
Net (increase) decrease in time deposits placed and other short-term investments
  
 
(375
)
  
 
996
 
Net increase in federal funds sold and securities purchased under agreements to resell
  
 
(7,341
)
  
 
(262
)
Proceeds from sales of available-for-sale securities
  
 
77,809
 
  
 
42,500
 
Proceeds from maturities of available-for-sale securities
  
 
12,200
 
  
 
3,049
 
Purchases of available-for-sale securities
  
 
(86,661
)
  
 
(33,218
)
Proceeds from maturities of held-to-maturity securities
  
 
29
 
  
 
22
 
Proceeds from sales and securitizations of loans and leases
  
 
11,603
 
  
 
7,705
 
Other changes in loans and leases, net
  
 
(21,719
)
  
 
4,452
 
Purchases and originations of mortgage banking assets
  
 
(385
)
  
 
(614
)
Purchases of premises and equipment
  
 
(531
)
  
 
(367
)
Proceeds from sales of foreclosed properties
  
 
100
 
  
 
142
 
Acquisition of business activities
  
 
(110
)
  
 
(417
)
    


  


Net cash provided by (used in) investing activities
  
 
(15,381
)
  
 
23,988
 
    


  


Financing activities
                 
Net decrease in deposits
  
 
(12,726
)
  
 
(758
)
Net increase in federal funds purchased and securities sold under agreements to repurchase
  
 
8,951
 
  
 
2,778
 
Net increase (decrease) in commercial paper and other short-term borrowings
  
 
7,456
 
  
 
(6,760
)
Proceeds from issuance of long-term debt and trust preferred securities
  
 
6,615
 
  
 
7,906
 
Retirement of long-term debt and trust preferred securities
  
 
(12,193
)
  
 
(12,159
)
Proceeds from issuance of common stock
  
 
1,988
 
  
 
635
 
Common stock repurchased
  
 
(5,679
)
  
 
(1,600
)
Cash dividends paid
  
 
(1,846
)
  
 
(1,799
)
Other financing activities, net
  
 
(11
)
  
 
(11
)
    


  


Net cash used in financing activities
  
 
(7,445
)
  
 
(11,768
)
    


  


Effect of exchange rate changes on cash and cash equivalents
  
 
(14
)
  
 
(46
)
    


  


Net decrease in cash and cash equivalents
  
 
(5,528
)
  
 
(2,108
)
Cash and cash equivalents at January 1
  
 
26,837
 
  
 
27,513
 
    


  


Cash and cash equivalents at June 30
  
$
21,309
 
  
$
25,405
 
    


  


Net loans and leases transferred from loans held for sale to the loan portfolio amounted to $3,003 and $2,932 for the six months ended June 30, 2002 and 2001, respectively.
Loans transferred to foreclosed properties amounted to $150 and $250 for the six months ended June 30, 2002 and 2001, respectively.
There were no loans and loans held for sale securitized and retained in the available-for-sale portfolio for the six months ended June 30, 2002. Loans and loans held for sale securitized and retained in the available-for-sale securities portfolio amounted to $734 for the six months ended June 30, 2001.
 
See accompanying notes to consolidated financial statements.

5


Table of Contents
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
BANK OF AMERICA CORPORATION AND SUBSIDIARIES
 
Bank of America Corporation (the Corporation) is a Delaware corporation, a bank holding company and a financial holding company. Through its banking and nonbanking subsidiaries, the Corporation provides a diverse range of financial services and products throughout the U.S. and in selected international markets. At June 30, 2002, the Corporation operated its banking activities primarily under two charters: Bank of America, N.A. and Bank of America, N.A. (USA).
 
Note One—Accounting Policies
 
The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
 
The information contained in the consolidated financial statements is unaudited. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made. Certain prior period amounts have been reclassified to conform to current period classifications.
 
Accounting policies followed in the presentation of financial results are detailed on pages 82 through 87 of the Corporation’s 2001 Annual Report. See Goodwill and Other Intangibles beginning on page 6 of the Corporation’s Form 10-Q for the three months ended March 31, 2002 for a discussion of changes in accounting for goodwill and other intangibles effective January 1, 2002.
 
Note Two—Trading Activities
 
Trading-Related Revenue
 
Trading account profits represent the net amount earned from the Corporation’s trading positions, which include trading account assets and liabilities as well as derivative positions and mortgage banking certificates. Trading account profits, as reported in the Consolidated Statement of Income, does not include the net interest income recognized on interest-earning and interest-bearing trading positions or the related funding charge or benefit. Trading account profits and trading-related net interest income (“trading-related revenue”) are presented in the following table as they are both considered in evaluating the overall profitability of the Corporation’s trading positions. Trading-related revenue is derived from foreign exchange spot, forward and cross-currency contracts, credit trading and equity securities, and derivative contracts in interest rates, equities, credit and commodities. Trading account profits for the six months ended June 30, 2001 included an $83 million transition adjustment net loss recorded as a result of the implementation of SFAS 133.
    
Three Months Ended June 30

  
Six Months Ended June 30

(Dollars in millions)
  
2002

  
2001

  
2002

  
2001

Trading account profits—as reported
  
$
263
  
$
376
  
$
608
  
$
1,075
Trading-related net interest income
  
 
468
  
 
408
  
 
903
  
 
770
    

  

  

  

Total trading-related revenue
  
$
731
  
$
784
  
$
1,511
  
$
1,845
    

  

  

  

Trading-related revenue by product
                           
Foreign exchange
  
$
135
  
$
135
  
$
264
  
$
282
Interest rate
  
 
232
  
 
223
  
 
490
  
 
379
Credit trading
  
 
224
  
 
143
  
 
460
  
 
502
Equities and equity derivatives
  
 
109
  
 
209
  
 
242
  
 
556
Commodities
  
 
31
  
 
74
  
 
55
  
 
126
    

  

  

  

Total trading-related revenue
  
$
731
  
$
784
  
$
1,511
  
$
1,845
    

  

  

  

6


Table of Contents
Trading Account Assets and Liabilities
 
The fair values of the components of trading account assets and liabilities at June 30, 2002 and December 31, 2001 were:
 
(Dollars in millions)
  
June 30 2002

    
December 31
2001

Trading account assets
               
U.S. Government & Agency securities
  
$
21,335
    
$
15,009
Foreign sovereign debt
  
 
9,950
    
 
6,809
Corporate & other debt securities
  
 
12,530
    
 
11,596
Equity securities
  
 
3,859
    
 
2,976
Mortgage-backed securities
  
 
5,427
    
 
3,070
Other
  
 
10,365
    
 
7,884
    

    

Total
  
$
63,466
    
$
47,344
    

    

Trading account liabilities
               
U.S. Government & Agency securities
  
$
12,744
    
$
4,121
Foreign sovereign debt
  
 
3,151
    
 
3,096
Corporate & other debt securities
  
 
2,067
    
 
1,501
Equity securities
  
 
3,201
    
 
6,151
Other
  
 
4,588
    
 
4,583
    

    

Total
  
$
25,751
    
$
19,452
    

    

 
See Note Three below for additional information on derivative positions, including credit risk.
 
Note Three—Derivatives
 
Credit risk associated with derivatives is measured as the net replacement cost should the counterparties with contracts in a net gain position to the Corporation completely fail to perform under the terms of those contracts, assuming no recoveries of underlying collateral. A detailed discussion of derivative trading and asset and liability management activities is presented in Note 5 of the consolidated financial statements on pages 91 to 93 of the Corporation’s 2001 Annual Report.
 
The following table presents the contract / notional and credit risk amounts at June 30, 2002 and December 31, 2001 of the Corporation’s derivative positions held for trading and hedging purposes. These derivative positions are primarily executed in the over-the-counter market. The credit risk amounts presented in the following table do not consider the value of any collateral held but take into consideration the effects of legally enforceable master netting agreements. The Corporation held $11.4 billion of collateral on derivative positions, of which $5.5 billion was related to derivatives in a gain position at June 30, 2002.

7


Table of Contents
Derivatives (1)
 
    
June 30, 2002

  
December 31, 2001

(Dollars in millions)
  
Contract/Notional

  
Credit Risk

  
Contract/Notional

  
Credit Risk

Interest rate contracts
                           
Swaps
  
$
5,897,466
  
$
11,230
  
$
5,267,608
  
$
9,550
Futures and forwards
  
 
2,054,731
  
 
50
  
 
1,663,109
  
 
67
Written options
  
 
658,823
  
 
  
 
678,242
  
 
Purchased options
  
 
628,934
  
 
2,519
  
 
704,159
  
 
2,165
Foreign exchange contracts
                           
Swaps
  
 
159,440
  
 
2,239
  
 
140,778
  
 
2,274
Spot, futures and forwards
  
 
735,726
  
 
2,969
  
 
654,026
  
 
2,496
Written options
  
 
71,267
  
 
  
 
57,963
  
 
Purchased options
  
 
69,245
  
 
499
  
 
55,050
  
 
496
Equity contracts
                           
Swaps
  
 
15,349
  
 
778
  
 
14,504
  
 
562
Futures and forwards
  
 
82,589
  
 
19
  
 
46,970
  
 
44
Written options
  
 
26,524
  
 
  
 
21,009
  
 
Purchased options
  
 
29,728
  
 
2,240
  
 
28,902
  
 
2,511
Commodity contracts
                           
Swaps
  
 
11,634
  
 
993
  
 
6,600
  
 
1,152
Futures and forwards
  
 
3,141
  
 
  
 
2,176
  
 
Written options
  
 
12,217
  
 
  
 
8,231
  
 
Purchased options
  
 
13,941
  
 
260
  
 
8,219
  
 
199
Credit derivatives
  
 
77,342
  
 
1,013
  
 
57,182
  
 
631
    

  

  

  

Net replacement cost
         
$
24,809
         
$
22,147
    

  

  

  


(1)
 
Includes both long and short derivative positions.
 
The average fair value of derivative assets for the six months ended June 30, 2002 and 2001 was $21.4 billion and $17.4 billion, respectively. The average fair value of derivative liabilities for the six months ended June 30, 2002 and 2001 was $14.0 billion and $18.9 billion, respectively.
 
Fair Value Hedges
 
The Corporation uses various types of interest rate and foreign currency exchange rate derivative contracts to protect against changes in the fair value of its fixed-rate assets and liabilities due to fluctuations in interest rates and exchange rates. For the six months ended June 30, 2002 and 2001, there were no significant gains or losses recognized which represented the ineffective portion and excluded component in assessing hedge effectiveness of fair value hedges.
 
Cash Flow Hedges
 
The Corporation also uses various types of interest rate and foreign currency exchange rate derivative contracts to protect against changes in cash flows of its variable-rate assets and liabilities and anticipated transactions. For the six months ended June 30, 2002 and 2001, there were no significant gains or losses recognized which represented the ineffective portion and excluded component in assessing hedge effectiveness of cash flow hedges. At June 30, 2002 and December 31, 2001, the Corporation has determined that there were no hedging positions where it was probable that certain forecasted transactions may not occur within the originally designated time period.
 
For cash flow hedges, gains and losses on derivative contracts reclassified from accumulated other comprehensive income to current period earnings are included in the line item in the Consolidated Statement of Income in which the hedged item is recorded and in the same period the hedged item affects earnings. Deferred net gains on derivative instruments of approximately $250 million included in accumulated other comprehensive

8


Table of Contents
income at June 30, 2002 are expected to be reclassified into earnings during the next twelve months. These net gains reclassified into earnings are expected to increase income or reduce expense on the hedged items.
 
Hedges of Net Investments in Foreign Operations
 
The Corporation uses forward exchange contracts, currency swaps and nonderivative instruments that provide an economic hedge on its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the six months ended June 30, 2002 and 2001, net pre-tax losses of $92 million and net pre-tax gains of $96 million, respectively, related to these derivatives and nonderivative instruments were recorded as a component of the foreign currency translation adjustment in other comprehensive income. These net losses and gains were largely offset by gains and losses in the Corporation’s net investments in foreign operations. For the six months ended June 30, 2002, the Corporation recognized in the Consolidated Statement of Income a net loss of $20 million (included in net interest income) which represented the excluded component in assessing effectiveness of hedges of net investments in foreign operations. For the same period in 2001, the Corporation had no excluded component of net investment hedges.
 
Note Four—Loans and Leases
 
Loans and leases at June 30, 2002 and December 31, 2001 were:
 
    
June 30, 2002

    
December 31, 2001

 
(Dollars in millions)
  
Amount

  
Percent

    
Amount

  
Percent

 
Commercial—domestic
  
$
108,042
  
31.7
%
  
$
118,205
  
35.9
%
Commercial—foreign
  
 
21,675
  
6.4
 
  
 
23,039
  
7.0
 
Commercial real estate—domestic
  
 
20,940
  
6.2
 
  
 
22,271
  
6.8
 
Commercial real estate—foreign
  
 
404
  
0.1
 
  
 
383
  
0.1
 
    

  

  

  

Total commercial
  
 
151,061
  
44.4
 
  
 
163,898
  
49.8
 
    

  

  

  

Residential mortgage
  
 
102,773
  
30.2
 
  
 
78,203
  
23.8
 
Home equity lines
  
 
22,979
  
6.7
 
  
 
22,107
  
6.7
 
Direct/Indirect consumer
  
 
29,848
  
8.8
 
  
 
30,317
  
9.2
 
Consumer finance
  
 
10,535
  
3.1
 
  
 
12,652
  
3.9
 
Bankcard
  
 
21,155
  
6.2
 
  
 
19,884
  
6.0
 
Foreign consumer
  
 
2,043
  
0.6
 
  
 
2,092
  
0.6
 
    

  

  

  

Total consumer
  
 
189,333
  
55.6
 
  
 
165,255
  
50.2
 
    

  

  

  

Total loans and leases
  
$
340,394
  
100.0
%
  
$
329,153
  
100.0
%
    

  

  

  

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Table of Contents
 
The following table summarizes the changes in the allowance for credit losses for the three months and six months ended June 30, 2002 and 2001:
 
    
Three Months Ended June 30

    
Six Months Ended June 30

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

 
Balance, beginning of period
  
$
6,869
 
  
$
6,900
 
  
$
6,875
 
  
$
6,838
 
    


  


  


  


Loans and leases charged off
  
 
(1,076
)
  
 
(950
)
  
 
(2,145
)
  
 
(1,868
)
Recoveries of loans and leases previously charged off
  
 
188
 
  
 
163
 
  
 
417
 
  
 
308
 
    


  


  


  


Net charge-offs
  
 
(888
)
  
 
(787
)
  
 
(1,728
)
  
 
(1,560
)
    


  


  


  


Provision for credit losses
  
 
888
 
  
 
800
 
  
 
1,728
 
  
 
1,635
 
Other, net
  
 
4
 
  
 
(2
)
  
 
(2
)
  
 
(2
)
    


  


  


  


Balance, June 30
  
$
6,873
 
  
$
6,911
 
  
$
6,873
 
  
$
6,911
 
    


  


  


  


 
The following table presents the recorded investment in specific loans that were considered individually impaired at June 30, 2002 and December 31, 2001 in accordance with Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114), as described in the Corporation’s 2001 Annual Report on pages 84 to 85:
 
(Dollars in millions)
  
June 30, 2002

  
December 31, 2001

Commercial—domestic
  
$
2,642
  
$
3,138
Commercial—foreign
  
 
990
  
 
501
Commercial real estate—domestic
  
 
195
  
 
240
Commercial real estate—foreign
  
 
3
  
 
    

  

Total impaired loans
  
$
3,830
  
$
3,879
    

  

 
At June 30, 2002 and December 31, 2001, nonperforming loans, including certain loans which were considered impaired, totaled $4.6 billion and $4.5 billion, respectively. Included in other assets was $221 million and $1.0 billion of loans held for sale which would have been classified as nonperforming had they been included in loans at June 30, 2002 and December 31, 2001, respectively. Foreclosed properties amounted to $297 million and $402 million at June 30, 2002 and December 31, 2001, respectively.
 
Note Five—Goodwill and Other Intangibles
 
In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), no goodwill amortization was recorded for the six months ended June 30, 2002. Goodwill amortization expense for the six months ended June 30, 2001 was $337 million. Net income for the six months ended June 30, 2001 was $3.9 billion or $2.42 per share ($2.39 per share diluted). Net income adjusted to exclude goodwill amortization expense would have been $4.2 billion or $2.62 per share ($2.58 per share diluted) for the six months ended June 30, 2001. The impact of goodwill amortization on net income for the six months ended June 30, 2001 was $314 million or $0.20 per share ($0.19 per share diluted).
 
Goodwill amortization expense for the three months ended June 30, 2001 was $169 million. Net income for the three months ended June 30, 2001 was $2.0 billion or $1.26 per share ($1.24 per share diluted). Net income adjusted to exclude goodwill amortization expense would have been $2.2 billion or $1.36 per share ($1.33 per share diluted) for the three months ended June 30, 2001. The impact of goodwill amortization on net income for the three months ended June 30, 2001 was $155 million or $0.10 per share ($0.09 per share diluted). See Goodwill and Other Intangibles beginning on page 6 of the Corporation’s Form 10-Q for the three months ended March 31, 2002 for a discussion of changes in accounting for goodwill and other intangibles effective January 1, 2002.

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Table of Contents
 
At June 30, 2002, the gross carrying value and accumulated amortization related to core deposits and other intangibles was $2.2 billion and $1.0 billion, respectively. At December 31, 2001, the gross carrying value and accumulated amortization related to core deposits and other intangibles was $2.2 billion and $931 million, respectively. Amortization expense on core deposits and other intangibles was $110 million and $109 million for the six months ended June 30, 2002 and 2001, respectively. The Corporation estimates that aggregate amortization expense will be $219 million for 2002, $216 million for 2003, $209 million for 2004, $203 million for 2005 and $201 million for 2006.
 
Note Six—Short-Term Borrowings, Long-Term Debt and Trust Preferred Securities
 
During the six months ended June 30, 2002, Bank of America Corporation (Parent Company only) issued $3.6 billion in senior and subordinated long-term debt, domestically and internationally, with maturities ranging from 2005 to 2032. The $3.6 billion was converted from fixed rates ranging from 4.32 percent to 6.90 percent to floating rates through interest rate swaps at spreads ranging from 44 basis points below to 55 basis points over three-month London InterBank Offered Rate (LIBOR).
 
At June 30, 2002, Bank of America Corporation was authorized to issue approximately $7.5 billion of additional corporate debt and other securities under its existing shelf registration statements.
 
Bank of America Corporation has a 300 billion yen-denominated (approximately U.S. $3 billion at the time of filing) shelf registration in Japan to be used exclusively for primary offerings to non-United States residents. In addition, Bank of America Corporation allocated $2 billion of a joint Euro medium-term note program to be used exclusively for secondary offerings to non-United States residents for a shelf registration statement filed in Japan. Bank of America Corporation had $420 million outstanding under these programs at both June 30, 2002 and December 31, 2001, respectively.
 
Bank of America, N.A. maintains a domestic program to offer up to a maximum of $50.0 billion, at any one time, of bank notes with fixed or floating rates and maturities ranging from seven days or more from date of issue. Short-term bank notes outstanding under this program totaled $4.9 billion at June 30, 2002 compared to $2.5 billion at December 31, 2001. These short-term bank notes, along with Treasury tax and loan notes and term federal funds purchased, are reflected in other short-term borrowings in the Consolidated Balance Sheet. Long-term debt under current and former programs totaled $3.1 billion at June 30, 2002 compared to $4.5 billion at December 31, 2001. During 2002, Bank of America N.A. issued $1.6 billion senior long-term bank notes at fixed rates ranging from 2.00 percent to 3.66 percent to mature in 2003.
 
Bank of America Corporation and Bank of America, N.A. maintain a joint Euro medium-term note program to offer up to $25.0 billion of senior, or in the case of Bank of America Corporation, subordinated notes exclusively to non-United States residents. The notes bear interest at fixed or floating rates and may be denominated in U.S. dollars or foreign currencies. Bank of America Corporation uses foreign currency contracts to convert certain foreign-denominated debt into U.S. dollars. Bank of America Corporation’s notes outstanding under this program totaled $5.6 billion at June 30, 2002 compared to $6.3 billion at December 31, 2001. Bank of America, N.A.’s notes outstanding under this program totaled $1.3 billion at June 30, 2002 compared to $1.4 billion at December 31, 2001. At June 30, 2002, Bank of America Corporation and Bank of America, N.A. were authorized to issue approximately $9.4 billion and $8.7 billion, respectively. At June 30, 2002 and December 31, 2001, $796 million and $2.0 billion, respectively, were outstanding under the former BankAmerica Corporation Euro medium-term note program. No additional debt securities will be offered under that program.
 
At June 30, 2002 and December 31, 2001 Bank of America Oregon, N.A. maintained $6.0 billion in Federal Home Loan Bank advances from the Home Loan Bank in Seattle, Washington. At June 30, 2002 and December 31, 2001, Bank of America Georgia, N.A. maintained $2.8 billion and $2.3 billion, respectively, in Federal Home Loan Bank advances from the Home Loan Bank in Atlanta, Georgia.
 
During the six months ended June 30, 2002, BAC Capital Trust II, a wholly-owned grantor trust of Bank of America Corporation, issued $900 million of trust preferred securities. The annual dividend rate is seven percent and is paid quarterly on February 1, May 1, August 1 and November 1 of each year, commencing May 1, 2002.

11


Table of Contents
 
The Corporation redeemed the 7.84 percent Trust Originated Preferred Securities issued by NB Capital Trust I and the 7.75 percent Trust Originated Preferred Securities issued by BankAmerica Capital I on March 15, 2002. On the redemption date, NB Capital Trust I and Bank America Capital I had aggregate principal balances of $600 million and $300 million, respectively, and redemption prices of $25 per security plus accrued and unpaid distributions up to but excluding the redemption date of March 15, 2002.
 
Note Seven—Commitments and Contingencies
 
In the normal course of business, the Corporation enters into a number of off-balance sheet commitments. These commitments expose the Corporation to varying degrees of credit and market risk and are subject to the same credit and risk limitation reviews as those recorded on the balance sheet.
 
Credit Extension Commitments
 
The Corporation enters into commitments to extend credit, standby letters of credit (SBLCs) and commercial letters of credit to meet the financing needs of its customers. For each of these types of instruments, the Corporation’s maximum exposure to credit loss is represented by the contractual amount of these instruments. Many of the commitments are collateralized and most commercial commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent risk of loss or future cash requirements. The unfunded commitments shown below have been reduced by cash held by the Corporation and amounts participated to other financial institutions. The following table summarizes outstanding unfunded commitments to extend credit at June 30, 2002 and December 31, 2001:
 
(Dollars in millions)
  
June 30 2002

  
December 31 2001

Loan commitments
  
$
217,521
  
$221,529
Standby letters of credit and financial guarantees
  
 
31,409
  
32,416
Commercial letters of credit
  
 
3,767
  
3,581
    

  
Legally binding commitments
  
$
252,697
  
$257,526
    

  
Credit card commitments
  
 
$73,083
  
$73,644
    

  
Total
  
$
325,780
  
$331,170
    

  
 
Legally binding commitments to extend credit generally have specified rates and maturities and are for specified purposes. Certain of these commitments have adverse change clauses which help to protect the Corporation against deterioration in the borrowers’ ability to pay. SBLCs and financial guarantees are issued to support the debt obligations of customers. If an SBLC or financial guarantee is drawn upon, the Corporation looks to its customer for payment. Commercial letters of credit, issued primarily to facilitate customer trade finance activities, are collateralized by the underlying goods being shipped to the customer and are generally short-term. Credit card lines are unsecured commitments that are not legally binding. Management reviews credit card lines at least annually, and upon evaluation of the customers’ creditworthiness, the Corporation has the right to terminate or change the terms of the credit card lines.
 
The Corporation manages the credit risk on unfunded commitments by subjecting these commitments to the same credit approval and monitoring processes used for on-balance sheet loans. At June 30, 2002 and December 31, 2001, there were no unfunded commitments to any industry or foreign country greater than 10 percent of total unfunded commitments to extend credit.
 
Other Commitments
 
When-issued securities are commitments to purchase or sell securities during the time period between the announcement of a securities offering and the issuance of those securities. Changes in market price between commitment date and issuance are reflected in trading account profits. At June 30, 2002, the Corporation had commitments to purchase and sell when-issued securities of $101.7 billion and $110.5 billion, respectively. At December 31, 2001, the Corporation had commitments to purchase and sell when-issued securities of $45.0 billion and $39.6 billion, respectively. The increase during the six months ended June 30, 2002 was primarily attributable to an increase in agency mortgage-backed securities activity resulting from higher volumes of refinancings in the lower interest rate environment.

12


Table of Contents
 
At June 30, 2002, the Corporation had forward whole loan purchase commitments of $2.2 billion. These commitments were settled in July 2002.
 
Litigation
 
For information on litigation see Part II, Item 1 beginning on page 62.
 
Note Eight—Shareholders’ Equity and Earnings Per Common Share
 
Pre-tax gains recorded in other comprehensive income were $1.3 billion and $778 million for the six months ended June 30, 2002 and 2001, respectively. Pre-tax reclassification adjustments to net income of $310 million and $155 million were recorded for the six months ended June 30, 2002 and 2001, respectively. The related income tax expense was $727 million and $139 million for the six months ended June 30, 2002 and 2001, respectively.
 
The Corporation sells put options on its common stock to independent third parties. The put option program was designed to partially offset the cost of share repurchases. The put options give the holders the right to sell shares of the Corporation’s common stock to the Corporation on certain dates at specified prices. The put option contracts allow the Corporation to determine the method of settlement, and the premiums received are reflected as a component of other shareholders’ equity. At June 30, 2002, there were six million put options outstanding with exercise prices ranging from $61.82 per share to $70.72 per share, which expire from September 2002 to March 2003. The closing market price of the Corporation’s common stock at June 30, 2002 was $70.36 per share. At December 31, 2001, there were two million put options outstanding with exercise prices ranging from $61.82 per share to $61.84 per share, all of which expire in September 2002.
 
The calculation of earnings per common share and diluted earnings per common share for the three months and six months ended June 30, 2002 and 2001 is presented below:
    
Three Months Ended
June 30

    
Six Months Ended
June 30

 
(Dollars in millions, except per share information; shares in thousands)
  
2002

    
2001

    
2002

    
2001

 
Earnings per common share
                                   
Net income
  
$
2,221
 
  
$
2,023
 
  
$
4,400
 
  
$
3,893
 
Preferred stock dividends
  
 
(1
)
  
 
(1
)
  
 
(2
)
  
 
(2
)
    


  


  


  


Net income available to common shareholders
  
$
2,220
 
  
$
2,022
 
  
$
4,398
 
  
$
3,891
 
    


  


  


  


Average common shares issued and outstanding
  
 
1,533,783
 
  
 
1,601,537
 
  
 
1,538,600
 
  
 
1,605,193
 
    


  


  


  


Earnings per common share
  
$
1.45
 
  
$
1.26
 
  
$
2.86
 
  
$
2.42
 
    


  


  


  


Diluted earnings per common share
                                   
Net income available to common shareholders
  
$
2,220
 
  
$
2,022
 
  
$
4,398
 
  
$
3,891
 
Preferred stock dividends
  
 
1
 
  
 
1
 
  
 
2
 
  
 
2
 
    


  


  


  


Net income available to common shareholders and assumed conversions
  
$
2,221
 
  
$
2,023
 
  
$
4,400
 
  
$
3,893
 
    


  


  


  


Average common shares issued and outstanding
  
 
1,533,783
 
  
 
1,601,537
 
  
 
1,538,600
 
  
 
1,605,193
 
    


  


  


  


Incremental shares from assumed conversions:
                                   
Convertible preferred stock
  
 
2,394
 
  
 
2,708
 
  
 
2,446
 
  
 
2,746
 
Stock options
  
 
56,073
 
  
 
28,719
 
  
 
45,790
 
  
 
23,953
 
    


  


  


  


Dilutive potential common shares (1)
  
 
58,467
 
  
 
31,427
 
  
 
48,236
 
  
 
26,699
 
    


  


  


  


Total diluted average common shares issued and outstanding
  
 
1,592,250
 
  
 
1,632,964
 
  
 
1,586,836
 
  
 
1,631,892
 
    


  


  


  


Diluted earnings per common share
  
$
1.40
 
  
$
1.24
 
  
$
2.77
 
  
$
2.39
 
    


  


  


  



(1)
 
For the three months and six months ended June 30, 2002, average options to purchase 18 million and 23 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive. For the three months and six months ended June 30, 2001, average options to purchase 86 million and 88 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive.

13


Table of Contents
 
Note Nine—Business Segment Information
 
The Corporation reports the results of its operations through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. Certain operating segments have been aggregated into a single business segment. A customer-centered strategic approach is changing the way the Corporation focuses on its business. In addition to traditional financial reporting, the Corporation has begun using customer segment-based financial operating information.
 
Consumer and Commercial Banking provides a diversified range of products and services to individuals and small businesses through multiple delivery channels and commercial lending and treasury management services to middle market companies with annual revenue between $10 million and $500 million. Asset Management offers investment, fiduciary and comprehensive credit expertise; asset management services to institutional clients, high-net-worth individuals and retail customers; and investment, securities and financial planning services to affluent and high-net-worth individuals. Global Corporate and Investment Banking provides capital raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading as well as traditional bank deposit and loan products, cash management and payment services to large corporations and institutional clients. Equity Investments includes Principal Investing which makes both direct and indirect equity investments in a wide variety of companies at all stages of the business cycle. Equity Investments also includes the Corporation’s strategic technology and alliances investment portfolio.
 
Corporate Other consists primarily of gains and losses associated with managing the balance sheet of the Corporation, certain consumer finance and commercial lending businesses being liquidated and certain residential mortgages originated by the mortgage group or otherwise acquired and held for asset/liability management purposes.
 
The following table includes results of operations and average total assets for the three months and six months ended June 30, 2002 and 2001, and goodwill balances at June 30, 2002 and December 31, 2001, for each business segment. Certain prior period amounts have been reclassified between segments to conform to the current period presentation.

14


Table of Contents
 
Business Segments
 
    
For the three months ended June 30

 
    
Total Corporation

    
Consumer and Commercial Banking (1)

    
Asset Management (1)

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Net interest income (2)
  
$
5,262
 
  
$
5,117
 
  
$
3,511
 
  
$
3,288
 
  
$
184
 
  
$
181
 
Noninterest income
  
 
3,481
 
  
 
3,741
 
  
 
2,016
 
  
 
1,924
 
  
 
440
 
  
 
450
 
    


  


  


  


  


  


Total revenue
  
 
8,743
 
  
 
8,858
 
  
 
5,527
 
  
 
5,212
 
  
 
624
 
  
 
631
 
Provision for credit losses
  
 
888
 
  
 
800
 
  
 
449
 
  
 
329
 
  
 
144
 
  
 
63
 
Gains (losses) on sales of securities
  
 
93
 
  
 
(7
)
  
 
6
 
  
 
1
 
  
 
 
  
 
 
Amortization of intangibles (3)
  
 
55
 
  
 
223
 
  
 
44
 
  
 
159
 
  
 
2
 
  
 
14
 
Other noninterest expense
  
 
4,435
 
  
 
4,598
 
  
 
2,743
 
  
 
2,687
 
  
 
372
 
  
 
380
 
    


  


  


  


  


  


Income before income taxes
  
 
3,458
 
  
 
3,230
 
  
 
2,297
 
  
 
2,038
 
  
 
106
 
  
 
174
 
Income tax expense
  
 
1,237
 
  
 
1,207
 
  
 
854
 
  
 
797
 
  
 
34
 
  
 
61
 
    


  


  


  


  


  


Net income
  
$
2,221
 
  
$
2,023
 
  
$
1,443
 
  
$
1,241
 
  
$
72
 
  
$
113
 
    


  


  


  


  


  


Average total assets
  
$
646,599
 
  
$
655,557
 
  
$
302,324
 
  
$
289,223
 
  
$
25,504
 
  
$
26,849
 
    


  


  


  


  


  


    
For the three months ended June 30

 
    
Global Corporate and Investment Banking (1)

    
Equity Investments (1)

    
Corporate Other

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Net interest income (2)
  
$
1,232
 
  
$
1,184
 
  
$
(39
)
  
$
(32
)
  
$
374
 
  
$
496
 
Noninterest income
  
 
1,127
 
  
 
1,262
 
  
 
(39
)
  
 
110
 
  
 
(63
)
  
 
(5
)
    


  


  


  


  


  


Total revenue
  
 
2,359
 
  
 
2,446
 
  
 
(78
)
  
 
78
 
  
 
311
 
  
 
491
 
Provision for credit losses
  
 
216
 
  
 
255
 
  
 
 
  
 
 
  
 
79
 
  
 
153
 
Gains (losses) on sales of securities
  
 
(18
)
  
 
(12
)
  
 
 
  
 
 
  
 
105
 
  
 
4
 
Amortization of intangibles (3)
  
 
8
 
  
 
36
 
  
 
 
  
 
3
 
  
 
1
 
  
 
11
 
Other noninterest expense
  
 
1,264
 
  
 
1,407
 
  
 
9
 
  
 
19
 
  
 
47
 
  
 
105
 
    


  


  


  


  


  


Income before income taxes
  
 
853
 
  
 
736
 
  
 
(87
)
  
 
56
 
  
 
289
 
  
 
226
 
Income tax expense
  
 
293
 
  
 
264
 
  
 
(34
)
  
 
20
 
  
 
90
 
  
 
65
 
    


  


  


  


  


  


Net income
  
$
560
 
  
$
472
 
  
$
(53
)
  
$
36
 
  
$
199
 
  
$
161
 
    


  


  


  


  


  


Average total assets
  
$
238,227
 
  
$
236,090
 
  
$
6,164
 
  
$
6,510
 
  
$
74,380
 
  
$
96,885
 
    


  


  


  


  


  


15


Table of Contents
Business Segments (continued)
    
For the six months ended June 30

 
    
Total Corporation

    
Consumer and
Commercial Banking (1)

    
Asset Management (1)

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Net interest income (2)
  
$
10,509
 
  
$
9,838
 
  
$
7,013
 
  
$
6,387
 
  
$
372
 
  
$
352
 
Noninterest income (4)
  
 
6,921
 
  
 
7,521
 
  
 
3,989
 
  
 
3,809
 
  
 
853
 
  
 
888
 
    


  


  


  


  


  


Total revenue
  
 
17,430
 
  
 
17,359
 
  
 
11,002
 
  
 
10,196
 
  
 
1,225
 
  
 
1,240
 
Provision for credit losses
  
 
1,728
 
  
 
1,635
 
  
 
876
 
  
 
656
 
  
 
170
 
  
 
71
 
Gains (losses) on sales of securities
  
 
137
 
  
 
(15
)
  
 
31
 
  
 
1
 
  
 
 
  
 
 
Amortization of intangibles (3)
  
 
110
 
  
 
446
 
  
 
88
 
  
 
317
 
  
 
3
 
  
 
28
 
Other noninterest expense
  
 
8,874
 
  
 
9,029
 
  
 
5,494
 
  
 
5,268
 
  
 
727
 
  
 
761
 
    


  


  


  


  


  


Income before income taxes
  
 
6,855
 
  
 
6,234
 
  
 
4,575
 
  
 
3,956
 
  
 
325
 
  
 
380
 
Income tax expense
  
 
2,455
 
  
 
2,341
 
  
 
1,715
 
  
 
1,549
 
  
 
112
 
  
 
139
 
    


  


  


  


  


  


Net income
  
$
4,400
 
  
$
3,893
 
  
$
2,860
 
  
$
2,407
 
  
$
213
 
  
$
241
 
    


  


  


  


  


  


Average total assets
  
$
642,163
 
  
$
652,147
 
  
$
300,808
 
  
$
286,373
 
  
$
25,805
 
  
$
26,717
 
    


  


  


  


  


  


Goodwill, beginning balance
  
$
10,854
 
           
$
7,726
 
           
$
943
 
        
    


           


           


        
Goodwill, ending balance
  
$
10,950
 
           
$
7,726
 
           
$
1,053
 
        
    


           


           


        
    
For the six months ended June 30

 
    
Global Corporate and Investment Banking (1)

    
Equity Investments (1)

    
Corporate Other

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

    
2002

    
2001

 
Net interest income (2)
  
$
2,458
 
  
$
2,232
 
  
$
(79
)
  
$
(73
)
  
$
745
 
  
$
940
 
Noninterest income (4)
  
 
2,238
 
  
 
2,677
 
  
 
(23
)
  
 
253
 
  
 
(136
)
  
 
(106
)
    


  


  


  


  


  


Total revenue
  
 
4,696
 
  
 
4,909
 
  
 
(102
)
  
 
180
 
  
 
609
 
  
 
834
 
Provision for credit losses
  
 
480
 
  
 
502
 
  
 
 
  
 
 
  
 
202
 
  
 
406
 
Gains (losses) on sales of securities
  
 
(42
)
  
 
(21
)
  
 
 
  
 
 
  
 
148
 
  
 
5
 
Amortization of intangibles (3)
  
 
16
 
  
 
71
 
  
 
1
 
  
 
5
 
  
 
2
 
  
 
25
 
Other noninterest expense
  
 
2,535
 
  
 
2,712
 
  
 
36
 
  
 
67
 
  
 
82
 
  
 
221
 
    


  


  


  


  


  


Income before income taxes
  
 
1,623
 
  
 
1,603
 
  
 
(139
)
  
 
108
 
  
 
471
 
  
 
187
 
Income tax expense
  
 
558
 
  
 
573
 
  
 
(54
)
  
 
39
 
  
 
124
 
  
 
41
 
    


  


  


  


  


  


Net income
  
$
1,065
 
  
$
1,030
 
  
$
(85
)
  
$
69
 
  
$
347
 
  
$
146
 
    


  


  


  


  


  


Average total assets
  
$
234,939
 
  
$
235,025
 
  
$
6,161
 
  
$
6,614
 
  
$
74,450
 
  
$
97,418
 
    


  


  


  


  


  


Goodwill, beginning balance
  
$
2,051
 
           
$
134
 
                          
    


           


                          
Goodwill, ending balance
  
$
2,037
 
           
$
134
 
                          
    


           


                          

(1)
 
There were no material intersegment revenues among the segments.
(2)
 
Net interest income is presented on a taxable-equivalent basis.
(3)
 
The Corporation adopted SFAS 142 on January 1, 2002. Accordingly, no goodwill amortization was recorded in 2002.
(4)
 
Noninterest income included the $83 million SFAS 133 transition adjustment net loss which was recorded in trading account profits for the six months ended June 30, 2001. The components of the transition adjustment by segment were a gain of $4 million for Consumer and Commercial Banking, a gain of $19 million for Global Corporate and Investment Banking and a loss of $106 million for Corporate Other.

16


Table of Contents
 
A reconciliation of the four business segments’ net income to consolidated net income follows:
 
    
Three Months Ended June 30

    
Six Months Ended June 30

 
(Dollars in millions)
  
2002

    
2001

    
2002

    
2001

 
Segments’ net income
  
$2,022
 
  
$1,862
 
  
$4,053
 
  
$
3,747
 
Adjustments, net of taxes:
                             
Earnings associated with unassigned capital
  
111
 
  
61
 
  
206
 
  
 
112
 
Asset/liability management mortgage portfolio
  
43
 
  
64
 
  
109
 
  
 
135
 
Liquidating businesses
  
10
 
  
36
 
  
21
 
  
 
34
 
SFAS 133 transition adjustment net loss
  
 
  
 
  
 
  
 
(68
)
Provision for credit losses in excess of net charge-offs
  
 
  
(8
)
  
 
  
 
(49
)
Gains on sales of securities
  
71
 
  
3
 
  
99
 
  
 
3
 
Other
  
(36
)
  
5
 
  
(88
)
  
 
(21
)
    

  

  

  


Consolidated net income
  
$2,221
 
  
$2,023
 
  
$4,400
 
  
$
3,893
 
    

  

  

  


 
The adjustments presented in the table above include consolidated income and expense amounts not specifically allocated to individual business segments.
 

17


Table of Contents
 
Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
 
This report on Form 10-Q contains certain forward-looking statements that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of Bank of America Corporation (the Corporation). This could cause results or performance to differ materially from those expressed in our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers of the Corporation’s Form 10-Q should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report, as well as those discussed in the Corporation’s 2001 Annual Report. These statements are representative only on the date hereof, and the Corporation undertakes no obligation to update any forward-looking statements made.
 
The possible events or factors include the following: the Corporation’s loan growth is dependent on general economic conditions as well as various discretionary factors such as decisions to securitize, sell or purchase certain loans or loan portfolios; syndications or participations of loans; retention of residential mortgage loans; and the management of borrower, industry, product and geographic concentrations and the mix of the loan portfolio. The level of nonperforming assets, charge-offs and provision expense can be affected by local, regional and international economic and market conditions, including the concentrations of borrowers, industries, products and geographic locations, the mix of the loan portfolio and management’s judgments regarding the collectibility of loans. Liquidity requirements may change as a result of fluctuations in assets and liabilities and off-balance sheet exposures, which will impact the capital and debt financing needs of the Corporation and the mix of funding sources. Decisions to purchase, hold or sell securities are also dependent on liquidity requirements and market volatility, as well as on- and off-balance sheet positions. Factors that may impact interest rate risk include local, regional and international economic conditions, levels, mix, maturities, yields or rates of assets and liabilities, utilization and effectiveness of interest rate contracts and the wholesale and retail funding sources of the Corporation. The Corporation is also exposed to the potential of losses arising from adverse changes in market rates and prices which can adversely impact the value of financial products, including securities, loans, deposits, debt and derivative financial instruments, such as futures, forwards, swaps, options and other financial instruments with similar characteristics. The Corporation is also exposed to potential litigation liabilities, including costs, expenses, settlements and judgments, that may adversely affect the Corporation. In addition, the banking industry in general is subject to various monetary and fiscal policies and regulations, which include those determined by the Federal Reserve Board, the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation, state regulators and the Office of Thrift Supervision, whose policies and regulations could affect the Corporation’s results. Other factors that may cause actual results to differ from the forward-looking statements include the following: competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions, such as investment banking firms, investment advisory firms, brokerage firms, investment companies and insurance companies, as well as other entities which offer financial services, located both within and outside the United States and through alternative delivery channels such as the Internet; interest rate, market and monetary fluctuations; inflation; market volatility; general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates; introduction and acceptance of new banking-related products, services and enhancements; fee pricing strategies, mergers and acquisitions and their integration into the Corporation; and management’s ability to manage these and other risks.

18


Table of Contents
 
Overview
 
The Corporation is a Delaware corporation, a bank holding company and a financial holding company and is headquartered in Charlotte, North Carolina. The Corporation operates in 21 states and the District of Columbia and has offices located in 34 countries. The Corporation provides a diversified range of banking and certain nonbanking financial services and products both domestically and internationally through four business segments: Consumer and Commercial Banking, Asset Management, Global Corporate and Investment Banking and Equity Investments. At June 30, 2002, the Corporation had $638 billion in assets and approximately 135,000 full-time equivalent employees. Refer to Table One for selected financial data for the three months and six months ended June 30, 2002 and 2001.
 
Key performance highlights for the six months ended June 30, 2002 compared to the same period in 2001:
 
 
Net income totaled $4.4 billion, or $2.77 per common share (diluted), compared to $3.9 billion, or $2.39 per common share (diluted). The return on average common shareholders’ equity was 18.55 percent. Shareholder value added (SVA) increased 13 percent to $1.7 billion. As a result of the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002, the Corporation no longer amortizes goodwill. Excluding goodwill amortization in 2001, net income and earnings per share would have been $4.2 billion and $2.58 per common share (diluted). Net income for the three months ended June 30, 2002 totaled $2.2 billion, or $1.40 per common share (diluted), compared to $2.0 billion, or $1.24 per common share (diluted) for the three months ended June 30, 2001. The return on average common shareholders’ equity was 18.47 percent. SVA increased five percent to $834 million for the three months ended June 30, 2002. Excluding goodwill amortization for the three months ended June 30, 2001, net income and earnings per share would have been $2.2 billion, or $1.33 per common share (diluted).
 
 
Total revenue includes net interest income on a taxable-equivalent basis and noninterest income. Total revenue was $17.4 billion, an increase of $71 million.
 
 
 
Net interest income increased $671 million to $10.5 billion. The increase was primarily due to changes in interest rates, the effect of portfolio repositioning, higher levels of core funding, losses associated with auto lease financing in 2001 and the margin impact of higher trading-related activities, partially offset by the securitization of the subprime real estate loan portfolio and reduced commercial loan levels. Average core deposits grew to $323.9 billion, a $22.3 billion increase. The net interest yield was 3.80 percent, a 30 basis point increase.
 
 
 
Noninterest income was $6.9 billion, a $600 million decrease. This decrease was primarily due to sharp declines in trading account profits and equity investment gains, partially offset by increases in service charges and investment and brokerage services.
 
 
The provision for credit losses increased $93 million to $1.7 billion. Net charge-offs were $1.7 billion, or 1.05 percent of average loans and leases, an increase of 23 basis points. The increase in net charge-offs of $168 million was primarily due to increases in bankcard and commercial – foreign net charge-offs, which were partially offset by a decrease in consumer finance net charge-offs and a decrease in commercial – domestic net charge-offs.
 
 
Nonperforming assets were $4.9 billion, or 1.45 percent of loans, leases and foreclosed properties at June 30, 2002, a $31 million increase from December 31, 2001. Nonperforming assets continued to be affected by the weakened economic environment. Nonperforming assets declined $1.3 billion from a year ago, primarily due to the exit of the subprime real estate lending business. The allowance for credit losses totaled $6.9 billion, or 2.02 percent of total loans and leases, at June 30, 2002 and remained flat compared to December 31, 2001.
 
 
Noninterest expense was $9.0 billion, compared to $9.5 billion in 2001. Excluding goodwill amortization of $337 million in 2001, noninterest expense would have declined $154 million, or two percent, in 2002 compared to the prior year, primarily due to lower personnel expense and professional fees, partially offset by increased data processing expense.

19


Table of Contents
Table One
 
Selected Financial Data(1)
 
    
Three Months Ended
June 30

    
Six Months Ended
June 30

 
(Dollars in millions, except per share information)
  
2002

    
2001

    
2002

    
2001

 
Income statement
                                   
Net interest income
  
$
5,094
 
  
$
5,030
 
  
$
10,247
 
  
$
9,669
 
Net interest income (taxable-equivalent basis)
  
 
5,262
 
  
 
5,117
 
  
 
10,509
 
  
 
9,838
 
Noninterest income
  
 
3,481
 
  
 
3,741
 
  
 
6,921
 
  
 
7,521
 
Total revenue
  
 
8,575
 
  
 
8,771
 
  
 
17,168
 
  
 
17,190
 
Total revenue (taxable-equivalent basis)
  
 
8,743
 
  
 
8,858
 
  
 
17,430
 
  
 
17,359
 
Provision for credit losses
  
 
888
 
  
 
800
 
  
 
1,728
 
  
 
1,635
 
Gains (losses) on sales of securities
  
 
93
 
  
 
(7
)
  
 
137
 
  
 
(15
)
Noninterest expense
  
 
4,490
 
  
 
4,821
 
  
 
8,984
 
  
 
9,475
 
Income before income taxes
  
 
3,290
 
  
 
3,143
 
  
 
6,593
 
  
 
6,065
 
Income tax expense
  
 
1,069
 
  
 
1,120
 
  
 
2,193
 
  
 
2,172
 
Net income
  
 
2,221
 
  
 
2,023
 
  
 
4,400
 
  
 
3,893
 
Average common shares issued and outstanding (in thousands)
  
 
1,533,783
 
  
 
1,601,537
 
  
 
1,538,600
 
  
 
1,605,193
 
Average diluted common shares issued and outstanding (in thousands)
  
 
1,592,250
 
  
 
1,632,964
 
  
 
1,586,836
 
  
 
1,631,892
 
    


  


  


  


Performance ratios
                                   
Shareholder value added
  
$
834
 
  
$
791
 
  
$
1,666
 
  
$
1,470
 
Return on average assets
  
 
1.38
%
  
 
1.24
%
  
 
1.38
%
  
 
1.20
%
Return on average common shareholders’ equity
  
 
18.47
 
  
 
16.67
 
  
 
18.55
 
  
 
16.27
 
Total equity to total assets (period-end)
  
 
7.48
 
  
 
7.88
 
  
 
7.48
 
  
 
7.88
 
Total average equity to total average assets
  
 
7.47
 
  
 
7.43
 
  
 
7.45
 
  
 
7.40
 
Efficiency ratio
  
 
51.34
 
  
 
54.44
 
  
 
51.54
 
  
 
54.58
 
Net interest yield
  
 
3.75
 
  
 
3.61
 
  
 
3.80
 
  
 
3.50
 
Dividend payout ratio
  
 
41.40
 
  
 
44.35
 
  
 
41.93
 
  
 
46.17
 
    


  


  


  


Per common share data
                                   
Earnings
  
$
1.45
 
  
$
1.26
 
  
$
2.86
 
  
$
2.42
 
Diluted earnings
  
 
1.40
 
  
 
1.24
 
  
 
2.77
 
  
 
2.39
 
Cash dividends paid
  
 
0.60
 
  
 
0.56
 
  
 
1.20
 
  
 
1.12
 
Book value
  
 
31.47
 
  
 
30.75
 
  
 
31.47
 
  
 
30.75
 
    


  


  


  


Average balance sheet
                                   
Total loans and leases
  
$
335,684
 
  
$
383,500
 
  
$
331,765
 
  
$
385,683
 
Total assets
  
 
646,599
 
  
 
655,557
 
  
 
642,163
 
  
 
652,147
 
Core deposits
  
 
325,994
 
  
 
305,420
 
  
 
323,879
 
  
 
301,544
 
Total deposits
  
 
365,986
 
  
 
363,348
 
  
 
365,198
 
  
 
359,504
 
Common shareholders’ equity
  
 
48,213
 
  
 
48,640
 
  
 
47,805
 
  
 
48,219
 
Total shareholders’ equity
  
 
48,274
 
  
 
48,709
 
  
 
47,867
 
  
 
48,290
 
    


  


  


  


Risk-based capital ratios (period-end)
                                   
Tier 1 capital
  
 
8.09
%
  
 
7.90
%
  
 
8.09
%
  
 
7.90
%
Total capital
  
 
12.42
 
  
 
12.09
 
  
 
12.42
 
  
 
12.09
 
Leverage ratio
  
 
6.47
 
  
 
6.50
 
  
 
6.47
 
  
 
6.50
 
    


  


  


  


Market price per share of common stock
                                   
Closing
  
$
70.36
 
  
$
60.03
 
  
$
70.36
 
  
$
60.03
 
High
  
 
77.08
 
  
 
62.18
 
  
 
77.08
 
  
 
62.18
 
Low
  
 
66.82
 
  
 
48.65
 
  
 
57.51
 
  
 
45.00
 
    


  


  


  



(1)
 
As a result of the adoption of SFAS 142 on January 1, 2002, the Corporation no longer amortizes goodwill. Goodwill amortization expense for the three months and six months ended June 30, 2001 was $169 million and $337 million, respectively. Excluding goodwill amortization in 2001, net income and earnings per share would have been $2,178 and $1.33 per share (diluted), respectively, for the three months ended June 30, 2001 and $4,207 and $2.58 per share (diluted), respectively, for the six months ended June 30, 2001.

20


Table of Contents
 
Summary of Significant Accounting Policies
 
The Corporation’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. Many of the Corporation’s accounting policies require significant judgment regarding valuation of assets and liabilities and/or significant interpretation of the specific accounting guidance. The Corporation’s significant accounting policies are discussed in detail in Note One of the consolidated financial statements on pages 82 to 87 of the Corporation’s 2001 Annual Report. For a complete discussion of the more judgmental and complex accounting policies of the Corporation, see Summary of Significant Accounting Policies on page 36 of the Corporation’s 2001 Annual Report.
 
Results of Operations
 
Net Interest Income
 
An analysis of the Corporation’s net interest income on a taxable-equivalent basis and average balance sheet for the most recent five quarters and for the six months ended June 30, 2002 and 2001 is presented in Tables Three and Four, respectively.
 
As reported, net interest income on a taxable-equivalent basis increased $671 million for the six months ended June 30, 2002, compared to the same period in 2001. Management also reviews “core net interest income,” which adjusts reported net interest income for the impact of trading-related activities and loans originated by the Corporation and sold into revolving securitizations (which consist primarily of bankcard receivables) which will return to the balance sheet at the end of the securitization. For purposes of internal analysis, management combines trading-related net interest income with trading account profits, as discussed in the Global Corporate and Investment Banking business segment discussion beginning on page 36, as trading strategies are evaluated based on total revenue. Noninterest income, rather than net interest income, is recorded for assets that have been securitized as the Corporation takes on the role of servicer and records servicing income and gains or losses on securitizations, where appropriate.
 
Table Two below provides a reconciliation of net interest income on a taxable-equivalent basis presented in Tables Three and Four to core net interest income for the three months and six months ended June 30, 2002 and 2001:
 
Table Two
 
Net Interest Income
 
    
Three Months Ended
June 30

      
Increase/ (Decrease)

    
Six Months Ended
June 30

      
Increase/ (Decrease)

 
(Dollars in millions)
  
2002

    
2001

         
2002

    
2001

      
Net interest income
                                                     
As reported (1)
  
$
5,262
 
  
$
5,117
 
    
2.8
%
  
$
10,509
 
  
$
9,838
 
    
6.8
%
Less:    Trading-related net interest income
  
 
(468
)
  
 
(408
)
           
 
(903
)
  
 
(770
)
        
Add:    Impact of revolving securitizations
  
 
143
 
  
 
178
 
           
 
300
 
  
 
357
 
        
    


  


    

  


  


    

Core net interest income
  
$
4,937
 
  
$
4,887
 
    
1.0
%
  
$
9,906
 
  
$
9,425
 
    
5.1
%
    


  


    

  


  


    

Average earning assets
                                                     
As reported
  
$
562,192
 
  
$
567,628
 
    
(1.0
)%
  
$
555,688
 
  
$
564,544
 
    
(1.6
)%
Less:    Trading-related earning assets
  
 
(124,748
)
  
 
(102,156
)
           
 
(119,100
)
  
 
(99,323
)
        
Add:    Impact of revolving securitizations
  
 
6,537
 
  
 
10,498
 
           
 
7,494
 
  
 
10,602
 
        
    


  


    

  


  


    

Core average earning assets
  
$
443,981
 
  
$
475,970
 
    
(6.7
)%
  
$
444,082
 
  
$
475,823
 
    
(6.7
)%
    


  


    

  


  


    

Net interest yield on earning assets (1,2)
                                                     
As reported
  
 
3.75
%
  
 
3.61
%
    
14
bp
  
 
3.80
%
  
 
3.50
%
    
30
bp
Add:    Impact of trading-related activities
  
 
0.65
 
  
 
0.44
 
    
21
 
  
 
0.62
 
  
 
0.42
 
    
20
 
Add:    Impact of revolving securitizations
  
 
0.06
 
  
 
0.06
 
    
 
  
 
0.06
 
  
 
0.06
 
    
 
    


  


    

  


  


    

Core net interest yield on earning assets
  
 
4.46
%
  
 
4.11
%
    
35
bp
  
 
4.48
%
  
 
3.98
%
    
50
bp
    


  


    

  


  


    


(1)
 
Net interest income is presented on a taxable-equivalent basis.
(2)
 
bp denotes basis points; 100 bp equals 1%.

21


Table of Contents
Core net interest income on a taxable-equivalent basis increased $481 million for the six months ended June 30, 2002. This increase was driven by changes in interest rates, the effect of portfolio repositioning, higher levels of core funding and the losses associated with auto lease financing in 2001, partially offset by the securitization of the subprime real estate loans and reduced commercial loan levels. The higher levels of core funding reflected a $22.3 billion, or seven percent, increase in average core deposits.
 
Core average earning assets decreased $31.7 billion for the six months ended June 30, 2002, as a result of exiting unprofitable commercial loan relationships partially offset by repositioning of the securities portfolio. Average managed commercial loans decreased 20 percent for the six months ended June 30, 2002 reflecting continuing efforts to reduce corporate loan levels and exit less profitable relationships. Average managed consumer loans decreased nine percent for the six months ended June 30, 2002 due to the exit of the subprime real estate business. The subprime real estate loan portfolio was transferred to loans held for sale and subsequently securitized by the Corporation. This securitization was the primary driver of the increase in average securities.
 
The core net interest yield increased 50 basis points for the six months ended June 30, 2002, mainly due to the effects of changes in interest rates and portfolio repositioning, higher levels of core funding and exiting less profitable commercial loan relationships, partially offset by the securitization of subprime real estate loans.

22


Table of Contents
Table Three
 
Quarterly Average Balances and Interest Rates—Taxable-Equivalent Basis
 
    
Second Quarter 2002

    
First Quarter 2002

 
(Dollars in millions)
  
Average Balance

  
Interest Income/ Expense

  
Yield/ Rate

    
Average Balance

  
Interest Income/ Expense

  
Yield/ Rate

 
Earning assets
                                         
Time deposits placed and other short-term investments
  
$
10,673
  
$
63
  
2.37
%
  
$
10,242
  
$
61
  
2.43
%
Federal funds sold and securities purchased under agreements to resell
  
 
48,426
  
 
270
  
2.23
 
  
 
44,682
  
 
215
  
1.94
 
Trading account assets
  
 
78,113
  
 
961
  
4.93
 
  
 
70,613
  
 
888
  
5.06
 
Securities (1)
  
 
67,291
  
 
939
  
5.59
 
  
 
73,542
  
 
963
  
5.24
 
Loans and leases (2):
                                         
Commercial—domestic
  
 
111,522
  
 
1,887
  
6.78
 
  
 
116,160
  
 
1,978
  
6.90
 
Commercial—foreign
  
 
21,454
  
 
212
  
3.97
 
  
 
21,917
  
 
226
  
4.17
 
Commercial real estate—domestic
  
 
21,486
  
 
258
  
4.83
 
  
 
22,251
  
 
275
  
5.01
 
Commercial real estate—foreign
  
 
393
  
 
5
  
5.14
 
  
 
389
  
 
4
  
4.00
 
    

  

  

  

  

  

Total commercial
  
 
154,855
  
 
2,362
  
6.12
 
  
 
160,717
  
 
2,483
  
6.26
 
    

  

  

  

  

  

Residential mortgage
  
 
94,726
  
 
1,602
  
6.77
 
  
 
81,104
  
 
1,389
  
6.88
 
Home equity lines
  
 
22,579
  
 
305
  
5.41
 
  
 
22,010
  
 
294
  
5.42
 
Direct/Indirect consumer
  
 
30,021
  
 
542
  
7.25
 
  
 
30,360
  
 
550
  
7.34
 
Consumer finance
  
 
11,053
  
 
226
  
8.20
 
  
 
12,134
  
 
255
  
8.46
 
Bankcard
  
 
20,402
  
 
510
  
10.01
 
  
 
19,383
  
 
490
  
10.26
 
Foreign consumer
  
 
2,048
  
 
19
  
3.71
 
  
 
2,093
  
 
19
  
3.71
 
    

  

  

  

  

  

Total consumer
  
 
180,829
  
 
3,204
  
7.10
 
  
 
167,084
  
 
2,997
  
7.24
 
    

  

  

  

  

  

Total loans and leases
  
 
335,684
  
 
5,566
  
6.65
 
  
 
327,801
  
 
5,480
  
6.76
 
    

  

  

  

  

  

Other earning assets
  
 
22,005
  
 
353
  
6.42
 
  
 
22,231
  
 
358
  
6.52
 
    

  

  

  

  

  

Total earning assets (3)
  
 
562,192
  
 
8,152
  
5.81
 
  
 
549,111
  
 
7,965
  
5.86
 
    

  

  

  

  

  

Cash and cash equivalents
  
 
21,200
                
 
22,037
             
Other assets, less allowance for credit losses
  
 
63,207
                
 
66,530
             
    

                

             
Total assets
  
$
646,599
                
$
637,678
             
    

                

             
Interest-bearing liabilities
                                         
Domestic interest-bearing deposits:
                                         
Savings
  
$
21,841
  
$
34
  
0.64
%
  
$
20,716
  
$
33
  
0.64
%
NOW and money market deposit accounts
  
 
129,856
  
 
346
  
1.07
 
  
 
127,218
  
 
335
  
1.07
 
Consumer CDs and IRAs
  
 
68,015
  
 
764
  
4.51
 
  
 
69,359
  
 
730
  
4.27
 
Negotiable CDs, public funds and other time deposits
  
 
4,635
  
 
30
  
2.43
 
  
 
4,671
  
 
32
  
2.82
 
    

  

  

  

  

  

Total domestic interest-bearing deposits
  
 
224,347
  
 
1,174
  
2.10
 
  
 
221,964
  
 
1,130
  
2.06
 
    

  

  

  

  

  

Foreign interest-bearing deposits (4):
                                         
Banks located in foreign countries
  
 
14,048
  
 
108
  
3.10
 
  
 
15,464
  
 
107
  
2.79
 
Governments and official institutions
  
 
2,449
  
 
12
  
1.89
 
  
 
2,904
  
 
14
  
1.96
 
Time, savings and other
  
 
18,860
  
 
90
  
1.91
 
  
 
19,620
  
 
93
  
1.93
 
    

  

  

  

  

  

Total foreign interest-bearing deposits
  
 
35,357
  
 
210
  
2.38
 
  
 
37,988
  
 
214
  
2.29
 
    

  

  

  

  

  

Total interest-bearing deposits
  
 
259,704
  
 
1,384
  
2.14
 
  
 
259,952
  
 
1,344
  
2.10
 
    

  

  

  

  

  

Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings
  
 
97,579
  
 
529
  
2.17
 
  
 
86,870
  
 
477
  
2.23
 
Trading account liabilities
  
 
31,841
  
 
344
  
4.34
 
  
 
31,066
  
 
285
  
3.72
 
Long-term debt and trust preferred securities
  
 
65,940
  
 
633
  
3.84
 
  
 
67,694
  
 
612
  
3.62
 
    

  

  

  

  

  

Total interest-bearing liabilities (3)
  
 
455,064
  
 
2,890
  
2.55
 
  
 
445,582
  
 
2,718
  
2.47
 
    

  

  

  

  

  

Noninterest-bearing sources:
                                         
Noninterest-bearing deposits
  
 
106,282
                
 
104,451
             
Other liabilities
  
 
36,979
                
 
40,189
             
Shareholders’ equity
  
 
48,274
                
 
47,456
             
    

                

             
Total liabilities and shareholders’ equity
  
$
646,599
                
$
637,678
             
    

                

             
Net interest spread
                
3.26
 
                
3.39
 
Impact of noninterest-bearing sources
                
0.49
 
                
0.46
 
                  

                

Net interest income/yield on earning assets
         
$
5,262
  
3.75
%
         
$
5,247
  
3.85
%
           

  

         

  


(1)
 
The average balance and yield on securities are based on the average of historical amortized cost balances.
(2)
 
Nonperforming loans are included in the respective average loan balances. Income on such nonperforming loans is recognized on a cash basis.
(3)
 
Interest income also includes the impact of interest rate risk management contracts, which increased interest income on the underlying assets $509 and $560 in the second and first quarters of 2002 and $473, $284 and $194 in the fourth, third and second quarters of 2001, respectively. These amounts were substantially offset by corresponding decreases in the income earned on the underlying assets. Interest expense includes the impact of interest rate risk management contracts, which (increased) decreased interest expense on the underlying liabilities $(65) and $55 in the second and first quarters of 2002 and $(40), $31 and $49 in the fourth, third and second quarters of 2001, respectively. These amounts were substantially offset by corresponding decreases or increases in the interest paid on the underlying liabilities. For further information on interest rate contracts, see “Asset and Liability Management Activities” beginning on page 57.
(4)
 
Primarily consists of time deposits in denominations of $100,000 or more.

23


Table of Contents
<
Fourth Quarter 2001

      
Third Quarter 2001

      
Second Quarter 2001

 
Average
Balance

    
Interest
Income/
Expense

    
Yield/
Rate

      
Average
Balance

    
Interest
Income/
Expense

    
Yield/
Rate

      
Average
Balance

    
Interest
Income/
Expense

    
Yield/
Rate

 
$
7,255
    
$
64
    
3.47
%
    
$
5,881
    
$
71
    
4.84
%
    
$
7,085
    
$
81
    
4.58
%
                                                                           
 
38,825
    
 
253
    
2.60
 
    
 
36,133
    
 
321
    
3.54
 
    
 
33,859
    
 
405
    
4.79
 
 
67,535
    
 
920
    
5.43
 
    
 
68,258
    
 
937
    
5.46
 
    
 
67,311
    
 
944
    
5.62
 
 
71,454
    
 
1,090
    
6.10
 
    
 
58,930
    
 
902
    
6.12
 
    
 
55,719
    
 
909
    
6.53