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 September 30, 2002
 
or
 
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934
 
Commission file number: 1-6523
 
Exact name of registrant as specified in its charter:
 
Bank of America Corporation
 
State of incorporation:
 
Delaware
 
IRS Employer Identification Number:
 
56-0906609
 
Address of principal executive offices:
 
Bank of America Corporate Center
Charlotte, North Carolina 28255
 
Registrant’s telephone number, including area code:
 
(704) 386-8486
 
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 October 31, 2002, there were 1,496,698,614 shares of Bank of America Corporation Common Stock outstanding.
 

Table of Contents
Bank of America Corporation
 
September 30, 2002 Form 10-Q
 
INDEX
 
Part I Financial Information
 
 
         
Page
Item 1.
   
Financial Statements:
     
       
2
       
3
       
4
       
5
       
6
  
Management’s Discussion and Analysis of Results of Operations and Financial Condition
   
17
  
Quantitative and Qualitative Disclosures about Market Risk
   
65
  
Controls and Procedures
   
65
Part II Other Information
  
Legal Proceedings
   
65
  
Changes in Securities and Use of Proceeds
   
66
  
Exhibits and Reports on Form 8-K
   
67
  
68
  
69
  
70
  
71
 

Table of Contents
Part I. Financial Information
Item 1. Financial Statements
 
Bank of America Corporation and Subsidiaries
Consolidated Statement of Income
    
Three Months Ended
September 30
   
Nine Months Ended
September 30
(Dollars in millions, except per share information)
   
2002
     
2001
   
2002
     
2001
Interest income
                                
Interest and fees on loans and leases
   
$
5,553
 
   
$
6,543
   
$
16,528
 
   
$
21,455
Interest and dividends on securities
   
 
1,104
 
   
 
892
   
 
2,974
 
   
 
2,631
Federal funds sold and securities purchased under agreements to resell
   
 
177
 
   
 
321
   
 
662
 
   
 
1,161
Trading account assets
   
 
1,006
 
   
 
930
   
 
2,832
 
   
 
2,712
Other interest income
   
 
345
 
   
 
636
   
 
1,044
 
   
 
1,529
    
  
  
  
Total interest income
   
 
8,185
 
   
 
9,322
   
 
24,040
 
   
 
29,488
    
  
  
  
Interest expense
                                
Deposits
   
 
1,414
 
   
 
2,097
   
 
4,142
 
   
 
7,173
Short-term borrowings
   
 
526
 
   
 
869
   
 
1,532
 
   
 
3,467
Trading account liabilities
   
 
342
 
   
 
285
   
 
971
 
   
 
887
Long-term debt
   
 
601
 
   
 
867
   
 
1,846
 
   
 
3,088
    
  
  
  
Total interest expense
   
 
2,883
 
   
 
4,118
   
 
8,491
 
   
 
14,615
    
  
  
  
Net interest income
   
 
5,302
 
   
 
5,204
   
 
15,549
 
   
 
14,873
Noninterest income
                                
Consumer service charges
   
 
763
 
   
 
712
   
 
2,189
 
   
 
2,120
Corporate service charges
   
 
585
 
   
 
528
   
 
1,717
 
   
 
1,538
    
  
  
  
Total service charges
   
 
1,348
 
   
 
1,240
   
 
3,906
 
   
 
3,658
    
  
  
  
Consumer investment and brokerage services
   
 
373
 
   
 
386
   
 
1,174
 
   
 
1,164
Corporate investment and brokerage services
   
 
174
 
   
 
142
   
 
522
 
   
 
415
    
  
  
  
Total investment and brokerage services
   
 
547
 
   
 
528
   
 
1,696
 
   
 
1,579
    
  
  
  
Mortgage banking income
   
 
218
 
   
 
109
   
 
545
 
   
 
426
Investment banking income
   
 
318
 
   
 
305
   
 
1,123
 
   
 
1,106
Equity investment gains (losses)
   
 
(216
)
   
 
22
   
 
(226
)
   
 
340
Card income
   
 
685
 
   
 
618
   
 
1,881
 
   
 
1,792
Trading account profits(1)
   
 
71
 
   
 
433
   
 
679
 
   
 
1,508
Other income
   
 
249
 
   
 
174
   
 
537
 
   
 
541
    
  
  
  
Total noninterest income
   
 
3,220
 
   
 
3,429
   
 
10,141
 
   
 
10,950
    
  
  
  
Total revenue
   
 
8,522
 
   
 
8,633
   
 
25,690
 
   
 
25,823
Provision for credit losses
   
 
804
 
   
 
1,251
   
 
2,532
 
   
 
2,886
Gains on sales of securities
   
 
189
 
   
 
97
   
 
326
 
   
 
82
Noninterest expense
                                
Personnel
   
 
2,368
 
   
 
2,304
   
 
7,200
 
   
 
7,239
Occupancy
   
 
457
 
   
 
448
   
 
1,330
 
   
 
1,309
Equipment
   
 
291
 
   
 
273
   
 
832
 
   
 
835
Marketing
   
 
210
 
   
 
165
   
 
550
 
   
 
516
Professional fees
   
 
126
 
   
 
144
   
 
339
 
   
 
411
Amortization of intangibles
   
 
54
 
   
 
219
   
 
164
 
   
 
665
Data processing
   
 
295
 
   
 
175
   
 
726
 
   
 
552
Telecommunications
   
 
119
 
   
 
121
   
 
361
 
   
 
368
Other general operating
   
 
700
 
   
 
757
   
 
2,102
 
   
 
2,186
Business exit costs
   
 
—
 
   
 
1,305
   
 
—
 
   
 
1,305
    
  
  
  
Total noninterest expense
   
 
4,620
 
   
 
5,911
   
 
13,604
 
   
 
15,386
    
  
  
  
Income before income taxes
   
 
3,287
 
   
 
1,568
   
 
9,880
 
   
 
7,633
Income tax expense
   
 
1,052
 
   
 
727
   
 
3,245
 
   
 
2,899
    
  
  
  
Net income
   
$
2,235
 
   
$
841
   
$
6,635
 
   
$
4,734
    
  
  
  
Net income available to common shareholders
   
$
2,233
 
   
$
839
   
$
6,631
 
   
$
4,730
    
  
  
  
Per common share information
                                
Earnings
   
$
1.49
 
   
$
0.52
   
$
4.34
 
   
$
2.95
    
  
  
  
Diluted earnings
   
$
1.45
 
   
$
0.51
   
$
4.22
 
   
$
2.90
    
  
  
  
Dividends
   
$
0.60
 
   
$
0.56
   
$
1.80
 
   
$
1.68
    
  
  
  
Average common shares issued and outstanding (in thousands)
   
 
1,504,017
 
   
 
1,599,692
   
 
1,526,946
 
   
 
1,603,340
    
  
  
  
(1)
 
Trading account profits for the nine months ended September 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)
   
September 30 2002
     
December 31 2001
  
Assets
                  
Cash and cash equivalents
   
$
24,469
 
   
$
26,837
 
Time deposits placed and other short-term investments
   
 
6,397
 
   
 
5,932
 
Federal funds sold and securities purchased under agreements to resell (includes $40,353 and $27,910 pledged as collateral)
   
 
40,371
 
   
 
28,108
 
Trading account assets (includes $21,758 and $22,550 pledged as collateral)
   
 
56,907
 
   
 
47,344
 
Derivative assets
   
 
32,838
 
   
 
22,147
 
Securities:
                  
Available-for-sale (includes $49,610 and $37,422 pledged as collateral)
   
 
88,571
 
   
 
84,450
 
Held-to-maturity, at cost (market value — $975 and $1,009)
   
 
1,010
 
   
 
1,049
 
    
  
Total securities
   
 
89,581
 
   
 
85,499
 
    
  
Loans and leases
   
 
341,091
 
   
 
329,153
 
Allowance for credit losses
   
 
(6,861
)
   
 
(6,875
)
    
  
Loans and leases, net of allowance for credit losses
   
 
334,230
 
   
 
322,278
 
    
  
Premises and equipment, net
   
 
6,758
 
   
 
6,414
 
Mortgage banking assets
   
 
2,129
 
   
 
3,886
 
Goodwill
   
 
11,389
 
   
 
10,854
 
Core deposits and other intangibles
   
 
1,127
 
   
 
1,294
 
Other assets
   
 
53,812
 
   
 
61,171
 
    
  
Total assets
   
$
660,008
 
   
$
621,764
 
    
  
Liabilities
                  
Deposits in domestic offices:
                  
Noninterest-bearing
   
$
116,847
 
   
$
112,064
 
Interest-bearing
   
 
228,174
 
   
 
220,703
 
Deposits in foreign offices:
                  
Noninterest-bearing
   
 
1,928
 
   
 
1,870
 
Interest-bearing
   
 
30,466
 
   
 
38,858
 
    
  
Total deposits
   
 
377,415
 
   
 
373,495
 
    
  
Federal funds purchased and securities sold under agreements to repurchase
   
 
61,823
 
   
 
47,727
 
Trading account liabilities
   
 
26,031
 
   
 
19,452
 
Derivative liabilities
   
 
23,701
 
   
 
14,868
 
Commercial paper
   
 
149
 
   
 
1,558
 
Other short-term borrowings
   
 
34,272
 
   
 
20,659
 
Accrued expenses and other liabilities
   
 
22,393
 
   
 
27,459
 
Long-term debt
   
 
59,954
 
   
 
62,496
 
Trust preferred securities
   
 
6,031
 
   
 
5,530
 
    
  
Total liabilities
   
 
611,769
 
   
 
573,244
 
    
  
Commitments and contingencies (Note Seven)
                  
Shareholders’ equity
                  
Preferred stock, $0.01 par value; authorized — 100,000,000 shares; issued and outstanding — 1,391,749 and 1,514,478 shares
   
 
60
 
   
 
65
 
Common stock, $0.01 par value; authorized — 5,000,000,000 shares; issued and outstanding — 
1,502,161,891 and 1,559,297,220 shares
   
 
674
 
   
 
5,076
 
Retained earnings
   
 
46,870
 
   
 
42,980
 
Accumulated other comprehensive income
   
 
613
 
   
 
437
 
Other
   
 
22
 
   
 
(38
)
    
  
Total shareholders’ equity
   
 
48,239
 
   
 
48,520
 
    
  
Total liabilities and shareholders’ equity
   
$
660,008
 
   
$
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
 
(Dollars in millions, shares in thousands)
     
Preferred
Stock
     
Common Stock
     
Retained
Earnings
       
Accumulated
Other
Comprehensive
Income (Loss)(1)
     
Other
       
Total
Shareholders'
Equity
       
Comprehensive
Income
  
       
Shares
     
Amount
                       
Balance, December 31, 2000
     
$
72
 
   
1,613,632
 
   
$
8,613
 
   
$
39,815
 
     
$
(746
)
   
$
(126
)
     
$
47,628
 
           
Net income
                              
 
4,734
 
                         
 
4,734
 
     
$
4,734
 
Other comprehensive income, net of tax:
                                                                              
Net unrealized gains on available-for-sale and marketable equity securities
                                         
 
1,029
 
              
 
1,029
 
     
 
1,029
 
Net unrealized losses on foreign currency translation adjustments
                                         
 
(4
)
              
 
(4
)
     
 
(4
)
Net gains on derivatives
                                         
 
1,452
 
              
 
1,452
 
     
 
1,452
 
                                                                         
Comprehensive income
                                                                        
$
7,211
 
                                                                         
Cash dividends:
                                                                              
Common
                              
 
(2,691
)
                         
 
(2,691
)
           
Preferred
                              
 
(4
)
                         
 
(4
)
           
Common stock issued under employee plans
              
22,096
 
   
 
830
 
                       
 
73
 
     
 
903
 
           
Common stock repurchased
              
(53,826
)
   
 
(3,016
)
                                  
 
(3,016
)
           
Conversion of preferred stock
     
 
(5
)
   
226
 
   
 
5
 
                                                   
Other
              
1
 
   
 
59
 
   
 
3
 
              
 
58
 
     
 
120
 
           
      
  
  
  
    
  
    
          
Balance, September 30, 2001
     
$
67
 
   
1,582,129
 
   
$
6,491
 
   
$
41,857
 
     
$
1,731
 
   
$
5
 
     
$
50,151
 
           
      
  
  
  
    
  
    
          
Balance, December 31, 2001
     
$
65
 
   
1,559,297
 
   
$
5,076
 
   
$
42,980
 
     
$
437
 
   
$
(38
)
     
$
48,520
 
           
Net income
                              
 
6,635
 
                         
 
6,635
 
     
$
6,635
 
Other comprehensive income, net of tax:
                                                                              
Net unrealized gains on available-for-sale and marketable equity securities
                                         
 
1,256
 
              
 
1,256
 
     
 
1,256
 
Net unrealized gains on foreign currency translation adjustments
                                         
 
2
 
              
 
2
 
     
 
2
 
Net losses on derivatives
                                         
 
(1,082
)
              
 
(1,082
)
     
 
(1,082
)
                                                                         
Comprehensive income
                                                                        
$
6,811
 
                                                                         
Cash dividends:
                                                                              
Common
                              
 
(2,744
)
                         
 
(2,744
)
           
Preferred
                              
 
(4
)
                         
 
(4
)
           
Common stock issued under employee plans
              
41,834
 
   
 
2,143
 
                       
 
14
 
     
 
2,157
 
           
Common stock repurchased
              
(99,200
)
   
 
(6,798
)
                                  
 
(6,798
)
           
Conversion of preferred stock
     
 
(5
)
   
206
 
   
 
5
 
                                                   
Other
              
25
 
   
 
248
 
   
 
3
 
              
 
46
 
     
 
297
 
           
      
  
  
  
    
  
    
          
Balance, September 30, 2002
     
$
60
 
   
1,502,162
 
   
$
674
 
   
$
46,870
 
     
$
613
 
   
$
22
 
     
$
48,239
 
           
      
  
  
  
    
  
    
          
 
(1)
 
At September 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 $776 and $(480), respectively; foreign currency translation adjustments of $(169) and $(171), respectively; and net gains on derivatives of $6 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
    
Nine Months Ended September 30
  
(Dollars in millions)
   
2002
     
2001
  
Operating activities
                  
Net income
   
$
6,635
 
   
$
4,734
 
Reconciliation of net income to net cash used in operating activities:
                  
Provision for credit losses
   
 
2,532
 
   
 
2,886
 
Gains on sales of securities
   
 
(326
)
   
 
(82
)
Business exit costs
   
 
—
 
   
 
1,305
 
Depreciation and premises improvements amortization
   
 
663
 
   
 
641
 
Amortization of intangibles
   
 
164
 
   
 
665
 
Deferred income tax expense
   
 
278
 
   
 
272
 
Net increase in trading and hedging instruments
   
 
(5,049
)
   
 
(19,788
)
Net increase in other assets
   
 
(4,153
)
   
 
(11,412
)
Net increase (decrease) in accrued expenses and other liabilities
   
 
(6,188
)
   
 
16,135
 
Other operating activities, net
   
 
5,105
 
   
 
2,628
 
    
  
Net cash used in operating activities
   
 
(339
)
   
 
(2,016
)
    
  
Investing activities
                  
Net (increase) decrease in time deposits placed and other short-term investments
   
 
(465
)
   
 
819
 
Net (increase) decrease in federal funds sold and securities purchased under
                  
agreements to resell
   
 
(12,263
)
   
 
1,605
 
Proceeds from sales of available-for-sale securities
   
 
104,085
 
   
 
95,361
 
Proceeds from maturities of available-for-sale securities
   
 
17,191
 
   
 
5,632
 
Purchases of available-for-sale securities
   
 
(123,058
)
   
 
(99,971
)
Proceeds from maturities of held-to-maturity securities
   
 
39
 
   
 
40
 
Proceeds from sales and securitizations of loans and leases
   
 
20,904
 
   
 
9,874
 
Other changes in loans and leases, net
   
 
(24,581
)
   
 
11,565
 
Purchases and originations of mortgage banking assets
   
 
(648
)
   
 
(932
)
Net purchases of premises and equipment
   
 
(757
)
   
 
(580
)
Proceeds from sales of foreclosed properties
   
 
117
 
   
 
230
 
Acquisition of business activities
   
 
(110
)
   
 
(417
)
    
  
Net cash provided by (used in) investing activities
   
 
(19,546
)
   
 
23,226
 
    
  
Financing activities
                  
Net increase (decrease) in deposits
   
 
3,920
 
   
 
(4,374
)
Net increase in federal funds purchased and securities sold under
                  
agreements to repurchase
   
 
14,096
 
   
 
10,428
 
Net increase (decrease) in commercial paper and other short-term borrowings
   
 
12,204
 
   
 
(19,258
)
Proceeds from issuance of long-term debt and trust preferred securities
   
 
8,556
 
   
 
10,905
 
Retirement of long-term debt and trust preferred securities
   
 
(13,824
)
   
 
(18,239
)
Proceeds from issuance of common stock
   
 
2,157
 
   
 
903
 
Common stock repurchased
   
 
(6,798
)
   
 
(3,016
)
Cash dividends paid
   
 
(2,748
)
   
 
(2,695
)
Other financing activities, net
   
 
(29
)
   
 
(77
)
    
  
Net cash provided by (used in) financing activities
   
 
17,534
 
   
 
(25,423
)
    
  
Effect of exchange rate changes on cash and cash equivalents
   
 
(17
)
   
 
(20
)
    
  
Net decrease in cash and cash equivalents
   
 
(2,368
)
   
 
(4,233
)
Cash and cash equivalents at January 1
   
 
26,837
 
   
 
27,513
 
    
  
Cash and cash equivalents at September 30
   
$
24,469
 
   
$
23,280
 
    
  
Net transfers of loans and leases from loans held for sale (included in other assets) to the loan portfolio amounted to $11,022 for the nine months ended September 30, 2002. Net transfers of loans and leases from the loan portfolio to loans held for sale amounted to $18,651 for the same period in 2001. There were no loans and loans held for sale securitized and retained in the available-for-sale portfolio for the nine months ended September 30, 2002. Loans and loans held for sale securitized and retained in the available-for-sale securities portfolio amounted to $9,237 for the nine months ended September 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 and its subsidiaries (the Corporation), through its banking and nonbanking subsidiaries, provide a diverse range of financial services and products throughout the U.S. and in selected international markets. At September 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
 
Principles of Consolidation and Basis of Presentation
 
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.
 
Special Purpose Entities
 
As part of its normal risk management activities, the Corporation enters into certain transactions that are facilitated through a special purpose entity (SPE). Generally, an SPE provides the investors in the transaction protection from creditors of the Corporation in the event of bankruptcy or receivership of the Corporation. The Corporation consolidates certain of these SPEs when it believes, under the current accounting guidance, that consolidation is appropriate. At September 30, 2002, assets of consolidated SPEs were approximately $3.9 billion.
 
Co-Branding Credit Card Arrangements
 
The Corporation has co-brand arrangements that entitle a cardholder to earn airline frequent-flyer points based on purchases made with the card. These arrangements have remaining terms not exceeding six years. The Corporation may pay one-time fees which would be deferred ratably over the term of the arrangement. The Corporation makes monthly payments to the co-brand partners based on the volume of cardholders’ purchases and on the number of points awarded to cardholders. Such payments are expensed as incurred and are recorded as contra-revenue.
 
Other Accounting Policies
 
Additional 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 represents 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,

6

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fixed income and equity securities, and derivative contracts in interest rates, equities, credit and commodities. Trading account profits for the nine months ended September 30, 2001 included an $83 million transition adjustment net loss recorded as a result of the implementation of SFAS 133.
 
    
Three Months Ended September 30
   
Nine Months Ended September 30
(Dollars in millions)
   
2002
   
2001
   
2002
   
2001
Trading account profits — as reported
   
$
71
   
$
433
   
$
679
   
$
1,508
Trading-related net interest income (1)
   
 
485
   
 
417
   
 
1,387
   
 
1,182
    
  
  
  
Total trading-related revenue
   
$
556
   
$
850
   
$
2,066
   
$
2,690
    
  
  
  
Trading-related revenue by product
                            
Foreign exchange
   
$
126
   
$
138
   
$
389
   
$
419
Interest rate
   
 
96
   
 
229
   
 
585
   
 
608
Credit (2)
   
 
255
   
 
267
   
 
717
   
 
768
Equities
   
 
77
   
 
190
   
 
318
   
 
743
Commodities
   
 
2
   
 
26
   
 
57
   
 
152
    
  
  
  
Total trading-related revenue
   
$
556
   
$
850
   
$
2,066
   
$
2,690
    
  
  
  
(1)    Presented on a taxable-equivalent basis.
(2)    Credit includes fixed income and credit default swaps and hedges of credit exposure.
 
Trading Account Assets and Liabilities
 
The fair values of the components of trading account assets and liabilities at September 30, 2002 and December 31, 2001 were:
 
(Dollars in millions)
   
September 30 2002
   
December 31 2001
Trading account assets
              
U.S. Government & Agency securities
   
$
17,705
   
$
15,009
Foreign sovereign debt
   
 
8,613
   
 
6,809
Corporate & other debt securities
   
 
11,366
   
 
11,596
Equity securities
   
 
4,725
   
 
2,976
Mortgage-backed securities
   
 
4,991
   
 
3,070
Other
   
 
9,507
   
 
7,884
    
  
Total
   
$
56,907
   
$
47,344
    
  
Trading account liabilities
              
U.S. Government & Agency securities
   
$
12,940
   
$
4,121
Foreign sovereign debt
   
 
2,255
   
 
3,096
Corporate & other debt securities
   
 
2,683
   
 
1,501
Equity securities
   
 
3,151
   
 
6,151
Other
   
 
5,002
   
 
4,583
    
  
Total
   
$
26,031
   
$
19,452
    
  
 
See Note Three below for additional information on derivative positions, including credit risk.

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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 through 93 of the Corporation’s 2001 Annual Report.
 
The following table presents the contract / notional and credit risk amounts at September 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 $14.9 billion of collateral on derivative positions, of which only $10.0 billion could be applied against credit risk at September 30, 2002.
 
 
Derivatives(1)
                            
    
September 30, 2002
   
December 31, 2001
(Dollars in millions)
   
Contract/ Notional
   
Credit Risk
   
Contract/ Notional
   
Credit Risk
Interest rate contracts
                            
Swaps
   
$
6,219,606
   
$
18,249
   
$
5,267,608
   
$
9,550
Futures and forwards
   
 
2,517,913
   
 
416
   
 
1,663,109
   
 
67
Written options
   
 
985,494
   
 
—
   
 
678,242
   
 
—
Purchased options
   
 
855,444
   
 
3,406
   
 
704,159
   
 
2,165
Foreign exchange contracts
                            
Swaps
   
 
166,708
   
 
2,342
   
 
140,778
   
 
2,274
Spot, futures and forwards
   
 
689,154
   
 
1,676
   
 
654,026
   
 
2,496
Written options
   
 
74,184
   
 
—
   
 
57,963
   
 
—
Purchased options
   
 
72,608
   
 
392
   
 
55,050
   
 
496
Equity contracts
                            
Swaps
   
 
14,905
   
 
999
   
 
14,504
   
 
562
Futures and forwards
   
 
81,379
   
 
—
   
 
46,970
   
 
44
Written options
   
 
22,481
   
 
—
   
 
21,009
   
 
—
Purchased options
   
 
26,670
   
 
2,673
   
 
28,902
   
 
2,511
Commodity contracts
                            
Swaps
   
 
11,515
   
 
1,029
   
 
6,600
   
 
1,152
Futures and forwards
   
 
4,393
   
 
—
   
 
2,176
   
 
—
Written options
   
 
18,390
   
 
—
   
 
8,231
   
 
—
Purchased options
   
 
23,907
   
 
351
   
 
8,219
   
 
199
Credit derivatives
   
 
82,399
   
 
1,305
   
 
57,182
   
 
631
    
  
  
  
Net replacement cost
          
$
32,838
          
$
22,147
           
         
(1)    Includes both long and short derivative positions.
 
The average fair value of derivative assets for the nine months ended September 30, 2002 and 2001 was $23.6 billion and $17.9 billion, respectively. The average fair value of derivative liabilities for the nine months ended September 30, 2002 and 2001 was $15.8 billion and $17.3 billion, respectively.
 
Fair Value and Cash Flow 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. The Corporation also uses these contracts to protect against changes in the cash flows of its variable-rate assets and liabilities and anticipated transactions. For the nine months ended September 30, 2002 and 2001, there were no significant gains or losses recognized which represented the ineffective portion of fair value hedges.

8

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For the nine months ended September 30, 2002, the Corporation recognized in the Consolidated Statement of Income a net loss of $12 million (included in interest income and mortgage banking income) which represented the ineffective portion of cash flow hedges. For the same period in 2001, there were no significant gains or losses recognized which represented the ineffective portion of cash flow hedges. At September 30, 2002 and December 31, 2001, the Corporation has determined that there were no cash flow 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 $165 million included in accumulated other comprehensive income at September 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 cash instruments that provide an economic hedge on its net investments in foreign operations against adverse movements in foreign currency exchange rates. For the nine months ended September 30, 2002 and 2001, the Corporation experienced net foreign currency pre-tax gains of $60 million and pre-tax losses of $153 million, respectively, related to its net investments in foreign operations. These gains and losses were recorded as a component of the foreign currency translation adjustment in other comprehensive income. These gains and losses were largely offset by net pre-tax losses of $59 million and net pre-tax gains of $136 million related to derivative and non-derivative instruments designated as hedges of this currency exposure during these same periods.
 
Note Four — Outstanding Loans and Leases
 
 
Outstanding loans and leases at September 30, 2002 and December 31, 2001 were:
 
    
September 30, 2002
     
December 31, 2001
  
(Dollars in millions)
   
Amount
   
Percent
     
Amount
   
Percent
  
Commercial — domestic
   
$
105,240
   
30.8
%
   
$
118,205
   
35.9
%
Commercial — foreign
   
 
20,677
   
6.1
 
   
 
23,039
   
7.0
 
Commercial real estate — domestic
   
 
20,707
   
6.1
 
   
 
22,271
   
6.8
 
Commercial real estate — foreign
   
 
447
   
0.1
 
   
 
383
   
0.1
 
    
  
  
  
Total commercial
   
 
147,071
   
43.1
 
   
 
163,898
   
49.8
 
    
  
  
  
Residential mortgage
   
 
105,617
   
31.0
 
   
 
78,203
   
23.8
 
Home equity lines
   
 
23,464
   
6.9
 
   
 
22,107
   
6.7
 
Direct/Indirect consumer
   
 
30,417
   
8.9
 
   
 
30,317
   
9.2
 
Consumer finance
   
 
9,495
   
2.8
 
   
 
12,652
   
3.9
 
Bankcard
   
 
23,062
   
6.8
 
   
 
19,884
   
6.0
 
Foreign consumer
   
 
1,965
   
0.5
 
   
 
2,092
   
0.6
 
    
  
  
  
Total consumer
   
 
194,020
   
56.9
 
   
 
165,255
   
50.2
 
    
  
  
  
Total outstanding loans and leases
   
$
341,091
   
100.0
%
   
$
329,153
   
100.0
%
    
  
  
  

9

Table of Contents
 
The following table summarizes the changes in the allowance for credit losses for the three months and nine months ended September 30, 2002 and 2001:
 
    
Three Moths Ended September 30
     
Nine Months Ended September 30
  
(Dollars in millions)
   
2002
     
2001
     
2002
     
2001
  
Balance, beginning of period
   
$
6,873
 
   
$
6,911
 
   
$
6,875
 
   
$
6,838
 
    
  
  
  
Loans and leases charged off
   
 
(1,002
)
   
 
(1,654
)
   
 
(3,147
)
   
 
(3,523
)
Recoveries of loans and leases previously charged off
   
 
198
 
   
 
163
 
   
 
615
 
   
 
473
 
    
  
  
  
Net charge-offs
   
 
(804
)
   
 
(1,491
)
   
 
(2,532
)
   
 
(3,050
)
    
  
  
  
Provision for credit losses
   
 
804
 
   
 
1,251
 
   
 
2,532
 
   
 
2,886
 
Other, net
   
 
(12
)
   
 
(6
)
   
 
(14
)
   
 
(9
)
    
  
  
  
Balance, September 30
   
$
6,861
 
   
$
6,665
 
   
$
6,861
 
   
$
6,665
 
    
  
  
  
 
The following table presents the recorded investment in specific loans that were considered individually impaired at September 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)
     
September 30, 2002
   
December 31, 2001
Commercial — domestic
     
$
2,991
   
$
3,138
Commercial — foreign
     
 
882
   
 
501
Commercial real estate — domestic
     
 
214
   
 
240
Commercial real estate — foreign
     
 
2
   
 
—
      
  
Total impaired loans
     
$
4,089
   
$
3,879
      
  
 
At September 30, 2002 and December 31, 2001, nonperforming loans, including certain loans which were considered impaired, totaled $4.8 billion and $4.5 billion, respectively. Included in other assets was $184 million and $1.0 billion of nonperforming assets at September 30, 2002 and December 31, 2001, respectively. Foreclosed properties amounted to $282 million and $402 million at September 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 nine months ended September 30, 2002. Goodwill amortization expense for the nine months ended September 30, 2001 was $502 million. Net income for the nine months ended September 30, 2001 was $4.7 billion or $2.95 per share ($2.90 per share diluted). Net income adjusted to exclude goodwill amortization expense would have been $5.2 billion or $3.24 per share ($3.19 per share diluted) for the nine months ended September 30, 2001. The impact of goodwill amortization on net income for the nine months ended September 30, 2001 was $467 million or $0.29 per share (basic and diluted).
 
Goodwill amortization expense for the three months ended September 30, 2001 was $165 million. Net income for the three months ended September 30, 2001 was $841 million or $0.52 per share ($0.51 per share diluted). Net income adjusted to exclude goodwill amortization expense would have been $994 million or $0.62 per share ($0.61 per share diluted) for the three months ended September 30, 2001. The impact of goodwill amortization on net income for the three months ended September 30, 2001 was $153 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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The following table shows the changes in goodwill by business segment during the nine months ended September 30, 2002:
 
(Dollars in millions)
   
Total Corporation
     
Consumer and Commercial Banking
   
Asset Management
     
Global Corporate and Investment Banking
       
Equity Investments
Balance, January 1, 2002
   
$
10,854
 
   
$
7,726
   
$
943
 
   
$
2,051
 
     
$
134
    
  
  
  
    
Goodwill additions
   
 
550
 
   
 
—
   
 
550
 
   
 
—
 
     
 
—
Other(1)
   
 
(15
)
   
 
—
   
 
(1
)
   
 
(14
)
     
 
—
    
  
  
  
    
Balance, September 30, 2002
   
$
11,389
 
   
$
7,726
   
$
1,492
 
   
$
2,037
 
     
$
134
    
  
  
  
    
(1)
 
Includes certain other reclassifications.
 
In connection with the acquisition of the remaining 50 percent of Marsico Capital Management, LLC in 2001 for $1.1 billion, goodwill of $550 million, representing final contingent consideration, was recorded in the Asset Management business segment during the nine months ended September 30, 2002. All conditions related to this contingent consideration have been met.
 
The gross carrying value and accumulated amortization related to core deposits and other intangibles at September 30, 2002 and December 31, 2001 are presented below:
 
      
September 30, 2002
     
December 31, 2001
(Dollars in millions)
     
Gross Carrying
Value
   
Accumulated
Amortization
     
Gross Carrying
Value
     
Accumulated
Amortization
Core deposits
     
$
1,495
   
$
686
     
$
1,495
     
$
566
Other intangibles
     
 
735
   
 
417
     
 
730
     
 
365
      
  
    
    
Total core deposits and other intangibles
     
$
2,230
   
$
1,103
     
$
2,225
     
$
931
      
  
    
    
Amortization expense on core deposits and other intangibles was $164 million and $163 million for the nine months ended September 30, 2002 and 2001, respectively. The Corporation estimates that aggregate amortization expense will be $218 million for 2002, $212 million for 2003, $208 million for 2004, $207 million for 2005 and $206 million for 2006.
 
Note Six — Short-Term Borrowings, Long-Term Debt and Trust Preferred Securities
 
During the nine months ended September 30, 2002, Bank of America Corporation (Parent Company only) issued $5.0 billion in senior and subordinated long-term debt, domestically and internationally, with maturities ranging from 2003 to 2032. The $5.0 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 62 basis points over three-month London InterBank Offered Rate (LIBOR).
 
At September 30, 2002, Bank of America Corporation was authorized to issue approximately $24.8 billion of additional corporate debt and other securities under its existing shelf registration statements.
 
Bank of America Corporation had a 300 billion yen-denominated (approximately U.S. $3 billion at the time of filing) shelf registration in Japan. 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 September 30, 2002 and December 31, 2001. Both of these shelf registration statements expired on October 23, 2002.
 
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 $1.5 billion at September 30, 2002 compared to $2.5

11

Table of Contents
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 September 30, 2002 compared to $4.5 billion at December 31, 2001. During 2002, Bank of America N.A. issued $404 million 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 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 September 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 September 30, 2002 compared to $1.4 billion at December 31, 2001. At September 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 September 30, 2002 and December 31, 2001, $687 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 September 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 September 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.
 
The Corporation issued $1.4 billion of trust preferred securities during the nine months ended September 30, 2002. Of this amount, $900 million was issued by BAC Capital Trust II, a wholly-owned grantor trust of Bank of America Corporation. 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. BAC Capital Trust III, a wholly-owned grantor trust of Bank of America Corporation, issued $500 million in trust preferred securities. The annual dividend rate is seven percent and is paid quarterly on February 15, May 15, August 15 and November 15 of each year, commencing November 15, 2002.
 
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 market risk limitation reviews as those recorded on the balance sheet.
 
Credit Extension Commitments
 
The Corporation enters into commitments to extend credit such as loan commitments, 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 in the following table have been reduced by amounts participated to other financial institutions. The following table summarizes outstanding unfunded commitments to extend credit at September 30, 2002 and December 31, 2001.

12

Table of Contents
(Dollars in millions)
   
September 30
2002
   
December 31
2001
Loan commitments
   
$
220,477
   
$
221,529
Standby letters of credit and financial guarantees
   
 
31,179
   
 
32,416
Commercial letters of credit
   
 
3,970
   
 
3,581
    
  
Legally binding commitments
   
$
255,626
   
$
257,526
    
  
Credit card lines
   
$
73,120
   
$
73,644
    
  
Total commitments
   
$
328,746
   
$
331,170
    
  
 
Legally binding commitments to extend credit generally have specified rates and maturities. 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 a 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 September 30, 2002 and December 31, 2001, there were no unfunded legally binding 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 September 30, 2002, the Corporation had commitments to purchase and sell when-issued securities of $156.3 billion and $159.5 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 nine months ended September 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.
 
At September 30, 2002, the Corporation had forward whole mortgage loan purchase commitments of $6.5 billion. Of these commitments, $4.9 billion were settled in October 2002. The remaining commitments of $1.6 billion will be settled in November 2002. At September 30, 2002, the Corporation had forward whole mortgage loan sale commitments of $1.7 billion. These commitments were settled in October 2002.
 
Litigation
 
For updated information on litigation see Part II, Item 1 beginning on page 65.
 
Note Eight — Shareholders’ Equity and Earnings Per Common Share
 
Pre-tax net gains recorded in other comprehensive income related to available-for-sale and marketable equity securities, foreign currency translation adjustments and derivatives were $1.4 billion and $3.9 billion for the nine months ended September 30, 2002 and 2001, respectively. Pre-tax reclassification adjustments to net income of $531 million and $251 million were recorded for the nine months ended September 30, 2002 and 2001, respectively.

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Table of Contents
The related income tax expense was $686 million and $1.1 billion for the nine months ended September 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. The put options are accounted for as permanent equity, and accordingly, there is no impact on the income statement. No other derivative contracts are used in the Corporation’s repurchase programs.
 
The calculation of earnings per common share and diluted earnings per common share for the three months and nine months ended September 30, 2002 and 2001 is presented below:
 
    
Three Months Ended
September 30
     
Nine Months Ended
September 30
  
(Dollars in millions, except per share information; shares in thousands)
   
2002
     
2001
     
2002
     
2001
  
Earnings per common share
                                    
Net income
   
$
2,235
 
   
$
841
 
   
$
6,635
 
   
$
4,734
 
Preferred stock dividends
   
 
(2
)
   
 
(2
)
   
 
(4
)
   
 
(4
)
    
  
  
  
Net income available to common shareholders
   
$
2,233
 
   
$
839
 
   
$
6,631
 
   
$
4,730
 
    
  
  
  
Average common shares issued and outstanding
   
 
1,504,017
 
   
 
1,599,692
 
   
 
1,526,946
 
   
 
1,603,340
 
    
  
  
  
Earnings per common share
   
$
1.49
 
   
$
0.52
 
   
$
4.34
 
   
$
2.95
 
    
  
  
  
Diluted earnings per common share
                                    
Net income available to common shareholders
   
$
2,233
 
   
$
839
 
   
$
6,631
 
   
$
4,730
 
Preferred stock dividends
   
 
2
 
   
 
2
 
   
 
4
 
   
 
4
 
    
  
  
  
Net income available to common shareholders and assumed conversions
   
$
2,235
 
   
$
841
 
   
$
6,635
 
   
$
4,734
 
    
  
  
  
Average common shares issued and outstanding
   
 
1,504,017
 
   
 
1,599,692
 
   
 
1,526,946
 
   
 
1,603,340
 
    
  
  
  
Incremental shares from assumed conversions:
                                    
Convertible preferred stock
   
 
2,346
 
   
 
2,633
 
   
 
2,415
 
   
 
2,705
 
Stock options
   
 
39,984
 
   
 
31,738
 
   
 
43,842
 
   
 
26,883
 
    
  
  
  
Dilutive potential common shares(1)
   
 
42,330
 
   
 
34,371
 
   
 
46,257
 
   
 
29,588
 
    
  
  
  
Total diluted average common shares issued and outstanding
   
 
1,546,347
 
   
 
1,634,063
 
   
 
1,573,203
 
   
 
1,632,928
 
    
  
  
  
Diluted earnings per common share
   
$
1.45
 
   
$
0.51
 
   
$
4.22
 
   
$
2.90
 
    
  
  
  
(1)
 
For the three months and nine months ended September 30, 2002, average options to purchase 23 million and 22 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive. For the three months and nine months ended September 30, 2001, average options to purchase 43 million and 87 million shares, respectively, were outstanding but not included in the computation of earnings per share because they were antidilutive.
 
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.
 
            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 banking and 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

14

Table of Contents
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 alliances and 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.
 
See Table Eight in the Business Segment Operations section of Management’s Discussion and Analysis beginning on page 31 for results of operations and average total assets for the three months and nine months ended September 30, 2002 and 2001 for each business segment.
 
A reconciliation of the four business segments’ net income to consolidated net income follows:
 
    
Three Months Ended September 30
     
Nine Months Ended September 30
  
(Dollars in millions)
   
2002
     
2001
     
2002
     
2001
  
Segments’ net income
   
$
1,920
 
   
$
1,841
 
   
$
5,970
 
   
$
5,589
 
Adjustments, net of taxes:
                                    
Earnings associated with unassigned capital
   
 
94
 
   
 
38
 
   
 
300
 
   
 
151
 
Asset/liability management mortgage portfolio
   
 
165
 
   
 
89
 
   
 
273
 
   
 
224
 
Liquidating businesses
   
 
(1
)
   
 
48
 
   
 
20
 
   
 
82
 
SFAS 133 transition adjustment net loss
   
 
—
 
   
 
—
 
   
 
—
 
   
 
(68
)
Provision for credit losses in excess of net charge-offs
   
 
—
 
   
 
—
 
   
 
—
 
   
 
(49
)
Gains on sales of securities
   
 
137
 
   
 
67
 
   
 
234
 
   
 
70
 
Exit charges
   
 
—
 
   
 
(1,250
)
   
 
—
 
   
 
(1,250
)
Other
   
 
(80
)
   
 
8
 
   
 
(162
)
   
 
(15
)
    
  
  
  
Consolidated net income
   
$
2,235
 
   
$
841
 
   
$
6,635
 
   
$
4,734
 
    
  
  
  
 
The adjustments presented in the table above include consolidated income and expense amounts not specifically allocated to individual business segments.
 
Note Ten — Securitizations
 
The Corporation securitizes, sells and services interests in consumer finance, commercial, bankcard and residential mortgage loans. When the Corporation securitizes assets, it may retain a portion or all of the securities, subordinated tranches, interest only strips and, in some cases, a cash reserve account, all of which are considered retained interests in the securitized assets. See Note One of the Corporation’s 2001 Annual Report for a more detailed discussion of securitizations.
 
Excess Spread Certificates (the Certificates) of $2.1 billion at September 30, 2002 are classified as mortgage banking assets and marked to market with the unrealized gains or losses recorded in trading account profits. The fair value of the Certificates decreased $1.8 billion compared to December 31, 2001 primarily due to an increase in mortgage prepayments and expected future prepayments, driven by a significant decrease in mortgage interest rates. At September 30, 2002, key economic assumptions and the sensitivities of the fair value of the Certificates to immediate changes in those assumptions were analyzed. The sensitivity analysis included the impact on fair value of modeled prepayment and discount rate changes under favorable and adverse conditions. A decrease of 10 percent and 20 percent in modeled prepayments would result in an increase in value ranging from $202 million to $438 million, and an increase in modeled prepayments of 10 percent and 20 percent would result in a decrease in value ranging from $174 million to $324 million. A decrease of 100 and 200 basis points in the discount rate would result in an increase in value ranging from $84 million to $176 million, and an increase in the discount rate of 100 and 200

15

Table of Contents
basis points would result in a decrease in value ranging from $78 million to $150 million. See Note One of the Corporation’s 2001 Annual Report for additional disclosures related to the Certificates.
 
The sensitivities related to the Certificates are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. Additionally, the Corporation has the ability to hedge interest rate risk associated with the Certificates. The above sensitivities do not reflect any hedge strategies that may be undertaken to mitigate such risk.

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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. The Corporation may be adversely affected by changes in domestic or foreign tax laws, rules and regulations as well as Internal Revenue Service or other governmental agencies’ interpretations thereof. 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.

17

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 30 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 September 30, 2002, the Corporation had $660 billion in assets and approximately 134,000 full-time equivalent employees. Refer to Table One for selected financial data for the three months and nine months ended September 30, 2002 and 2001.
 
Key performance highlights for the nine months ended September 30, 2002 compared to the same period in 2001:
 
•
 
Net income totaled $6.6 billion, or $4.22 per common share (diluted), compared to $4.7 billion, or $2.90 per common share (diluted). The return on average common shareholders’ equity was 18.71 percent. Net income for the three months ended September 30, 2002 totaled $2.2 billion, or $1.45 per common share (diluted), compared to $841 million, or $0.51 per common share (diluted) for the three months ended September 30, 2001. The return on average common shareholders’ equity was 19.02 percent. 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. The impact of goodwill amortization on net income was $467 million or $0.29 per share (diluted) for the nine months ended September 30, 2001 and $153 million or $0.09 per share (diluted) for the three months ended September 30, 2001. Prior year results also included $1.25 billion of after-tax business exit charges in the third quarter of 2001, which impacted diluted earnings per share by $0.77 and $0.76 for the three months and nine months ended September 30, 2001, respectively.
 
•
 
Total revenue includes net interest income and noninterest income. Total revenue was $25.7 billion, a decrease of $133 million.
 
 
•
 
Net interest income increased $676 million to $15.5 billion. The increase was driven by the net impact of higher discretionary portfolio levels and interest rate changes, higher levels of core deposit funding, consumer loan growth, losses associated with auto lease financing in 2001 and the margin impact of higher trading-related activities, partially offset by the securitization of subprime real estate loans and reduced commercial loan levels.
 
 
•
 
Noninterest income was $10.1 billion, an $809 million decrease. This decrease was primarily due to a sharp decline in trading account profits and higher equity investment impairment charges, partially offset by increases in service charges, investment and brokerage services, mortgage banking income and card income.
 
•
 
The provision for credit losses decreased $354 million to $2.5 billion, primarily due to $395 million in 2001 associated with exiting the subprime real estate lending business. Net charge-offs were $2.5 billion, or 1.01 percent of average loans and leases, a decrease of seven basis points. The decrease in net charge-offs of $518 million was primarily due to $635 million of charge-offs in 2001 related to exiting the subprime real estate lending business and decreases in commercial — domestic and consumer finance net charge-offs, partially offset by increases in bankcard and commercial — foreign net charge-offs.
 
•
 
Nonperforming assets were $5.1 billion, or 1.50 percent of loans, leases and foreclosed properties at September 30, 2002, a $223 million increase from December 31, 2001. Nonperforming assets continued to be affected by the weakened economic environment. The allowance for credit losses totaled $6.9 billion, or 2.01 percent of total loans and leases, at September 30, 2002 compared to 2.09 percent at December 31, 2001.
 
•
 
Noninterest expense was $13.6 billion, a decrease of $1.8 billion. Excluding goodwill amortization of $502 million in 2001, noninterest expense declined $1.3 billion, or nine percent, in 2002 compared to the prior year, primarily due to $1.30 billion of business exit costs in 2001 and reductions in professional fees, partially offset by increased data processing expense.

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Table of Contents
Table One
 
Selected Financial Data(1)
 
      
Three Months Ended
September 30
       
Nine Months Ended
September 30
  
(Dollars in millions, except per share information)
     
2002
       
2001
       
2002
       
2001
  
Income statement
                                            
Net interest income
     
$
5,302
 
     
$
5,204
 
     
$
15,549
 
     
$
14,873
 
Noninterest income
     
 
3,220
 
     
 
3,429
 
     
 
10,141
 
     
 
10,950
 
Total revenue
     
 
8,522
 
     
 
8,633
 
     
 
25,690
 
     
 
25,823
 
Provision for credit losses
     
 
804
 
     
 
1,251
 
     
 
2,532
 
     
 
2,886
 
Gains on sales of securities
     
 
189
 
     
 
97
 
     
 
326
 
     
 
82
 
Noninterest expense
     
 
4,620
 
     
 
5,911
 
     
 
13,604
 
     
 
15,386
 
Income before income taxes
     
 
3,287
 
     
 
1,568
 
     
 
9,880
 
     
 
7,633
 
Income tax expense
     
 
1,052
 
     
 
727
 
     
 
3,245
 
     
 
2,899
 
Net income
     
 
2,235
 
     
 
841
 
     
 
6,635
 
     
 
4,734
 
Average common shares issued and outstanding (in thousands)
     
 
1,504,017
 
     
 
1,599,692
 
     
 
1,526,946
 
     
 
1,603,340
 
Average diluted common shares issued and outstanding (in thousands)
     
 
1,546,347
 
     
 
1,634,063
 
     
 
1,573,203
 
     
 
1,632,928
 
      
    
    
    
Performance ratios
                                            
Return on average assets
     
 
1.33
%
     
 
0.52
%
     
 
1.36
%
     
 
0.98
%
Return on average common shareholders' equity
     
 
19.02
 
     
 
6.78
 
     
 
18.71
 
     
 
13.03
 
Efficiency ratio (taxable-equivalent basis)
     
 
53.19
 
     
 
67.79
 
     
 
52.09
 
     
 
59.00
 
Total equity to total assets (period end)
     
 
7.31
 
     
 
7.83
 
     
 
7.31
 
     
 
7.83
 
Total average equity to total average assets
     
 
6.97
 
     
 
7.66
 
     
 
7.29
 
     
 
7.49
 
Dividend payout ratio
     
 
40.25
 
     
 
106.49
 
     
 
41.37
 
     
 
56.88
 
      
    
    
    
Per common share data
                                            
Earnings
     
$
1.49
 
     
$
0.52
 
     
$
4.34
 
     
$
2.95
 
Diluted earnings
     
 
1.45
 
     
 
0.51
 
     
 
4.22
 
     
 
2.90
 
Cash dividends paid
     
 
0.60
 
     
 
0.56
 
     
 
1.80
 
     
 
1.68
 
Book value
     
 
32.07
 
     
 
31.66
 
     
 
32.07
 
     
 
31.66
 
      
    
    
    
Average balance sheet
                                            
Total loans and leases
     
$
340,484
 
     
$
357,726
 
     
$
334,703
 
     
$
376,261
 
Total assets
     
 
669,149
 
     
 
642,184
 
     
 
651,257
 
     
 
648,789
 
Core deposits
     
 
331,761
 
     
 
306,766
 
     
 
326,535
 
     
 
303,303
 
Total deposits
     
 
373,933
 
     
 
363,328
 
     
 
368,142
 
     
 
360,793
 
Common shareholders' equity
     
 
46,592
 
     
 
49,134
 
     
 
47,396
 
     
 
48,528
 
Total shareholders' equity
     
 
46,652
 
     
 
49,202
 
     
 
47,457
 
     
 
48,597
 
      
    
    
    
Risk-based capital ratios (period end)
                                            
Tier 1 capital
     
 
8.13
%
     
 
7.95
%
     
 
8.13
%
     
 
7.95
%
Total capital
     
 
12.38
 
     
 
12.12
 
     
 
12.38
 
     
 
12.12
 
Leverage ratio
     
 
6.35
 
     
 
6.59
 
     
 
6.35
 
     
 
6.59
 
      
    
    
    
Market price per share of common stock
                                            
Closing
     
$
63.80
 
     
$
58.40
 
     
$
63.80
 
     
$
58.40
 
High
     
 
71.94
 
     
 
65.54
 
     
 
77.08
 
     
 
65.54
 
Low
     
 
57.90
 
     
 
50.25
 
     
 
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 nine months ended September 30, 2001 was $165 million and $502 million, respectively. The impact on net income was $153 million or $0.09 per share (diluted) for the three months ended September 30, 2001. The impact on net income was $467 million or $0.29 per share (diluted) for the nine months ended September 30, 2001.

19

Table of Contents
 
Supplemental Financial Data
 
The Corporation also uses certain non-GAAP (generally accepted accounting principles) measures and performance ratios, including financial information presented excluding nonrecurring charges, shareholder value added and taxable-equivalent net interest income. See Table Two for supplemental financial data for the three months and nine months ended September 30, 2002 and 2001.
 
Supplemental financial data presented excluding nonrecurring charges is a non-GAAP basis of presentation that excludes nonrecurring charges such as business exit, restructuring and merger charges. The Corporation defines nonrecurring charges as charges associated with events that are not reasonably expected to recur in the foreseeable future. Other companies may define nonrecurring charges in a different manner. Management believes that the exclusion of nonrecurring charges provides a meaningful period to period comparison.
 
Shareholder value added (SVA) is a key non-GAAP measure of performance used in managing the Corporation’s growth strategy orientation and strengthens the Corporation’s focus on generating long-term growth and shareholder value. SVA is used in measuring performance of our different business units and is an integral component for allocating resources. Each business segment has a goal for growth in SVA reflecting the individual segment’s business and customer strategy. Investment resources and initiatives are aligned with these SVA growth goals during the planning and forecasting process. Investment, relationship and profitability models all have SVA as a key measure to support the implementation of SVA growth goals. SVA is defined as cash basis earnings excluding nonrecurring charges less a charge for the use of capital. Cash basis earnings is net income adjusted to exclude amortization of intangibles. The charge for the use of capital is calculated by multiplying 12 percent (management’s estimate of the shareholders’ minimum required rate of return on capital invested) by average total common shareholders’ equity at the corporate level and by average allocated equity at the business segment level. Equity is allocated to the business segments based on an assessment of each segment’s credit, market, country and operational risk. No change has been made to the cost of capital used by the Corporation in the last twelve months. SVA increased 11 percent to $2.5 billion for the nine months ended September 30, 2002 compared to the prior year, due to both the $150 million increase in cash basis earnings excluding nonrecurring charges and the $1.1 billion reduction in average common shareholders’ equity. For additional discussion of SVA, see Business Segment Operations beginning on page 29.
 
Management reviews net interest income on a taxable-equivalent basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis. This measure ensures comparability of net interest income arising from both taxable and tax-exempt sources. Net interest income on a taxable-equivalent basis is also used in the calculation of the efficiency ratio and the net interest yield.
 
Table Two
 
Supplemental Financial Data
    
Three Months Ended September 30
     
Nine Months Ended September 30
  
(Dollars in millions, except per share information)
   
2002
     
2001
     
2002
     
2001
  
Performance metrics—excludes nonrecurring charges(1,2)
                                    
Earnings excluding nonrecurring charges
   
$
2,235
 
   
$
2,091
 
   
$
6,635
 
   
$
5,984
 
Earnings excluding nonrecurring charges per common share
   
 
1.49
 
   
 
1.31
 
   
 
4.34
 
   
 
3.73
 
Diluted earnings excluding nonrecurring charges per common share
   
 
1.45
 
   
 
1.28
 
   
 
4.22
 
   
 
3.66
 
Shareholder value added
   
 
880
 
   
 
824
 
   
 
2,546
 
   
 
2,293
 
Return on average assets
   
 
1.33
%
   
 
1.29
%
   
 
1.36
%
   
 
1.23
%
Return on average common shareholders' equity
   
 
19.02
 
   
 
16.87
 
   
 
18.71
 
   
 
16.48
 
Efficiency ratio (taxable-equivalent basis)
   
 
53.19
 
   
 
52.82
 
   
 
52.09
 
   
 
53.99
 
Dividend payout ratio
   
 
40.25
 
   
 
42.79
 
   
 
41.37
 
   
 
44.99
 
    
  
  
  
Taxable-equivalent basis data
                                    
Net interest income
   
$
5,465
 
   
$
5,290
 
   
$
15,974
 
   
$
15,128
 
Total revenue
   
 
8,685
 
   
 
8,719
 
   
 
26,115
 
   
 
26,078
 
Net interest yield
   
 
3.75
%
   
 
3.78
%
   
 
3.78
%
   
 
3.59
%
    
  
  
  
(1)
 
Nonrecurring charges represent provision for credit losses of $395 million and noninterest expense of $1.3 billion, both of which are related to the exit of certain consumer finance businesses in the third quarter of 2001. Noninterest expense charges consisted of goodwill write-offs, auto lease residual charges, real estate servicing asset charges and other transaction costs. The impact of business exit charges on net income was $1.25 billion. The impact on diluted earnings per share was $0.77 and $0.76 for the three months and nine months ended September 30, 2001, respectively. The Corporation defines nonrecurring charges as charges associated with events that are not reasonably expected to recur in the foreseeable future.
(2)
 
The three months ended September 30, 2001 included goodwill amortization of $165 million. The impact on net income was $153 million, or $0.09 per share (diluted). The nine months ended September 30, 2001 included goodwill amortization of $502 million. The impact on net income was $467 million, or $0.29 per share (diluted).

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 and Note One of the consolidated financial statements on pages 82 through 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
 
The following is a discussion of the Corporation’s results of operation for the nine months ended September 30, 2002 compared to the same period in 2001. A discussion of the three months ended September 30, 2002 compared to the same period in 2001 is included if additional information is necessary to explain the results for the current quarter.
 
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 nine months ended September 30, 2002 and 2001 is presented in Tables Four and Five, respectively.
 
Net interest income on a taxable-equivalent basis increased $175 million and $846 million for the three months and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. Management also reviews “core net interest income,” which adjusts reported net interest income on a taxable-equivalent basis for the impact of trading-related activities and loans originated by the Corporation and sold into revolving bankcard securitizations. 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. New advances under these previously securitized balances will be recorded on the Corporation’s balance sheet after the revolving period of the securitization, which has the effect of increasing loans on the Corporation’s balance sheet and increasing net interest income and charge-offs, with a corresponding reduction in noninterest income. 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.

21

Table of Contents
 
Table Three below provides a reconciliation of net interest income on a taxable-equivalent basis as presented in Tables Four and Five to core net interest income for the three months and nine months ended September 30, 2002 and 2001:
 
Table Three
 
Net Interest Income
 
    
Three Months Ended
September 30
     
Increase/
(Decrease)
     
Nine Months Ended
September 30
     
Increase/ (Decrease)
  
(Dollars in millions)
   
2002
     
2001
        
2002
     
2001
     
Net interest income
                                                  
As reported(1)
   
$
5,465
 
   
$
5,290
 
   
3.3
%
   
$
15,974
 
   
$
15,128
 
   
5.6
%
Less: Trading-related net interest income
   
 
(485
)
   
 
(417
)
          
 
(1,387
)
   
 
(1,182
)
       
Add: Impact of revolving securitizations
   
 
112
 
   
 
172
 
          
 
412
 
   
 
529
 
       
    
  
  
  
  
  
Core net interest income
   
$
5,092
 
   
$
5,045
 
   
0.9
%
   
$
14,999
 
   
$
14,475
 
   
3.6
%
    
  
  
  
  
  
Average earning assets
                                                  
As reported
   
$
580,248
 
   
$
557,108
 
   
4.2
%
   
$
563,964
 
   
$
562,038
 
   
0.3
%
Less: Trading-related earning assets
   
 
(126,280
)
   
 
(105,953
)
          
 
(121,307
)
   
 
(101,305
)
       
Add: Impact of revolving securitizations
   
 
5,276
 
   
 
9,809
 
          
 
6,743
 
   
 
10,335
 
       
    
  
  
  
  
  
Core average earning assets
   
$
459,244
 
   
$
460,964
 
   
(0.4
)%
   
$
449,400
 
   
$
471,068
 
   
(4.6
)%
    
  
  
  
  
  
Net interest yield on earning assets(1,2)
                                                  
As reported
   
 
3.75
%
   
 
3.78
%
   
(3
)bps
   
 
3.78
%
   
 
3.59
%
   
19
bps
Add: Impact of trading-related activities
   
 
0.62
 
   
 
0.52
 
   
10
 
   
 
0.62
 
   
 
0.45
 
   
17
 
Add: Impact of revolving securitizations
   
 
0.04
 
   
 
0.06
 
   
(2
)
   
 
0.05
 
   
 
0.06
 
   
(1
)
    
  
  
  
  
  
Core net interest yield on earning assets
   
 
4.41
%
   
 
4.36
%
   
5
bps
   
 
4.45
%
   
 
4.10
%
   
35
bps
    
  
  
  
  
  
(1)
 
Net interest income is presented on a taxable-equivalent basis.
(2)
 
Bps denotes basis points; 100 bps equals 1%.
 
Core net interest income on a taxable-equivalent basis increased $524 million for the nine months ended September 30, 2002. This increase was driven by the net impact of higher discretionary portfolio levels and interest rate changes, higher levels of core deposit funding, consumer loan growth 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.
Core average earning assets decreased $21.7 billion for the nine months ended September 30, 2002, primarily due to exiting unprofitable commercial loan relationships and the decline in subprime real estate loans (net of the remaining securitization), partially offset by residential mortgage growth. Information on average managed loans and leases can be found in the Outstanding Loans and Leases section on page 42.
The core net interest yield increased 35 basis points for the nine months ended September 30, 2002, mainly due to the net impact of higher discretionary portfolio levels and interest rate changes, exiting less profitable commercial loan relationships and higher levels of core deposit funding, partially offset by the securitization of subprime real estate loans.

22

Table of Contents
Table Four
 
Quarterly Average Balances and Interest Rates — Taxable-Equivalent Basis
 
    
Third Quarter 2002
     
Second 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
   
$
10,396
   
$
63
   
2.41
%
   
$
10,673
   
$
63
   
2.37
%
Federal funds sold and securities purchased under agreements to resell
   
 
40,294
   
 
178
   
1.76
 
   
 
48,426
   
 
270
   
2.23
 
Trading account assets
   
 
85,129
   
 
1,017
   
4.76
 
   
 
78,113
   
 
961
   
4.93
 
Securities(1)
   
 
76,484
   
 
1,120
   
5.85
 
   
 
67,291
   
 
939
   
5.59
 
Loans and leases(2):
                                          
Commercial — domestic
   
 
106,039
   
 
1,728
   
6.47
 
   
 
111,522
   
 
1,887
   
6.78
 
Commercial — foreign
   
 
21,256
   
 
206
   
3.85
 
   
 
21,454
   
 
212
   
3.97
 
Commercial real estate — domestic
   
 
20,576
   
 
265
   
5.10
 
   
 
21,486
   
 
258
   
4.83
 
Commercial real estate — foreign
   
 
425
   
 
4
   
3.92
 
   
 
393
   
 
5
   
5.14
 
    
  
  
  
  
  
Total commercial
   
 
148,296
   
 
2,203
   
5.90
 
   
 
154,855
   
 
2,362
   
6.12
 
    
  
  
  
  
  
Residential mortgage
   
 
104,590
   
 
1,733
   
6.61
 
   
 
94,726
   
 
1,602
   
6.77
 
Home equity lines
   
 
23,275
   
 
314
   
5.35
 
   
 
22,579
   
 
305
   
5.41
 
Direct/Indirect consumer
   
 
30,029
   
 
530
   
7.01
 
   
 
30,021
   
 
542
   
7.25
 
Consumer finance
   
 
10,043
   
 
201
   
7.97
 
   
 
11,053
   
 
226
   
8.20
 
Bankcard
   
 
22,263
   
 
583
   
10.38
 
   
 
20,402
   
 
510
   
10.01
 
Foreign consumer
   
 
1,988
   
 
19
   
3.83
 
   
 
2,048
   
 
19
   
3.71
 
    
  
  
  
  
  
Total consumer
   
 
192,188
   
 
3,380
   
7.00
 
   
 
180,829
   
 
3,204
   
7.10
 
    
  
  
  
  
  
Total loans and leases
   
 
340,484
   
 
5,583
   
6.52
 
   
 
335,684
   
 
5,566
   
6.65
 
    
  
  
  
  
  
Other earning assets
   
 
27,461
   
 
387
   
5.61
 
   
 
22,005
   
 
353
   
6.42
 
    
  
  
  
  
  
Total earning assets(3)
   
 
580,248
   
 
8,348
   
5.73
 
   
 
562,192
   
 
8,152
   
5.81
 
    
  
  
  
  
  
Cash and cash equivalents
   
 
20,202
                 
 
21,200
              
Other assets, less allowance for credit losses
   
 
68,699
                 
 
63,207
              
    
  
  
  
  
  
Total assets
   
$
669,149
                 
$
646,599
              
    
  
  
  
  
  
Interest-bearing liabilities
                                          
Domestic interest-bearing deposits:
                                          
Savings
   
$
22,047
   
$
36
   
0.64
%
   
$
21,841
   
$
34
   
0.64
%
NOW and money market deposit accounts
   
 
132,939
   
 
362
   
1.08
 
   
 
129,856
   
 
346
   
1.07
 
Consumer CDs and IRAs
   
 
67,179
   
 
746
   
4.40
 
   
 
68,015
   
 
764
   
4.51
 
Negotiable CDs, public funds and other time deposits
   
 
4,254
   
 
51
   
4.73
 
   
 
4,635
   
 
30
   
2.43
 
    
  
  
  
  
  
Total domestic interest-bearing deposits
   
 
226,419
   
 
1,195
   
2.09
 
   
 
224,347
   
 
1,174
   
2.10
 
    
  
  
  
  
  
Foreign interest-bearing deposits(4):
                                          
Banks located in foreign countries
   
 
17,044
   
 
123
   
2.85
 
   
 
14,048
   
 
108
   
3.10
 
Governments and official institutions
   
 
2,188
   
 
10
   
1.85
 
   
 
2,449
   
 
12
   
1.89
 
Time, savings and other
   
 
18,686
   
 
86
   
1.83
 
   
 
18,860
   
 
90
   
1.91
 
    
  
  
  
  
  
Total foreign interest-bearing deposits
   
 
37,918
   
 
219
   
2.29
 
   
 
35,357
   
 
210
   
2.38
 
    
  
  
  
  
  
Total interest-bearing deposits
   
 
264,337
   
 
1,414
   
2.12
 
   
 
259,704
   
 
1,384
   
2.14
 
    
  
  
  
  
  
Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings
   
 
108,281
   
 
526
   
1.93
 
   
 
97,579
   
 
529
   
2.17
 
Trading account liabilities
   
 
33,038
   
 
342
   
4.11
 
   
 
31,841
   
 
344
   
4.34
 
Long-term debt and trust preferred securities
   
 
64,880
   
 
601
   
3.71
 
   
 
65,940
   
 
633
   
3.84
 
    
  
  
  
  
  
Total interest-bearing liabilities(3)
   
 
470,536
   
 
2,883
   
2.44
 
   
 
455,064
   
 
2,890
   
2.55
 
    
  
  
  
  
  
Noninterest-bearing sources:
                                          
Noninterest-bearing deposits
   
 
109,596
                 
 
106,282
              
Other liabilities
   
 
42,365
                 
 
36,979
              
Shareholders’ equity
   
 
46,652
                 
 
48,274
              
    
  
  
  
  
  
Total liabilities and shareholders’ equity
   
$
669,149
                 
$
646,599
              
    
  
  
  
  
  
Net interest spread
                 
3.29
 
                 
3.26
 
Impact of noninterest-bearing sources
                 
0.46
 
                 
0.49
 
    
  
  
  
  
  
Net interest income/yield on earning assets
          
$
5,465
   
3.75
%
          
$
5,262
   
3.75
%
    
  
  
  
  
  
(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 includes the impact of interest rate risk management contracts, which increased interest income on the underlying assets $397, $509 and $560 in the third, second and first quarters of 2002 and $473 and $284 in the fourth and third 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 $(69), $(65) and $55 in the third, second and first quarters of 2002 and $(40) and $31 in the fourth and third 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 60.
(4)
 
Primarily consists of time deposits in denominations of $100,000 or more.

23

Table of Contents
Table Four
 
Quarterly Average Balances and Interest Rates — Taxable-Equivalent Basis
 
    
First Quarter 2002
     
Fourth Quarter 2001
     
Third Quarter 2001
  
(Dollars in millions)
   
Average Balance
   
Interest Income/ Expense
   
Yield/ Rate
     
Average Balance
   
Interest Income/ Expense
   
Yield/ Rate
     
Average Balance
   
Interest Income/ Expense
   
Yield/ Rate
  
Earning assets
                                                               
Time deposits placed and other short-term investments
   
$
10,242
   
$
61
   
2.43
%
   
$
7,255
   
$
64
   
3.47
%
   
$
5,881
   
$
71
   
4.84
%
Federal funds sold and securities purchased under agreements to resell
   
 
44,682
   
 
215
   
1.94
 
   
 
38,825
   
 
253
   
2.60
 
   
 
36,133
   
 
321
   
3.54
 
Trading account assets
   
 
70,613
   
 
888
   
5.06
 
   
 
67,535
   
 
920
   
5.43
 
   
 
68,258
   
 
937
   
5.46
 
Securities(1)
   
 
73,542
   
 
963
   
5.24
 
   
 
71,454
   
 
1,090
   
6.10
 
   
 
58,930
   
 
902
   
6.12
 
Loans and leases(2):
                                                               
Commercial — domestic
   
 
116,160
   
 
1,978
   
6.90
 
   
 
121,399
   
 
2,138
   
6.99
 
   
 
129,673
   
 
2,343
   
7.17
 
Commercial — foreign
   
 
21,917
   
 
226
   
4.17
 
   
 
23,789
   
 
278
   
4.63
 
   
 
25,267
   
 
353
   
5.54
 
Commercial real estate — domestic
   
 
22,251
   
 
275
   
5.01
 
   
 
23,051
   
 
316
   
5.45
 
   
 
24,132
   
 
395
   
6.50
 
Commercial real estate — foreign
   
 
389
   
 
4
   
4.00
 
   
 
375
   
 
4
   
4.49
 
   
 
366
   
 
5
   
5.78
 
    
  
  
  
  
  
  
  
  
Total commercial
   
 
160,717
   
 
2,483
   
6.26
 
   
 
168,614
   
 
2,736
   
6.44
 
   
 
179,438
   
 
3,096
   
6.85
 
    
  
  
  
  
  
  
  
  
Residential mortgage
   
 
81,104
   
 
1,389
   
6.88
 
   
 
78,366
   
 
1,385
   
7.05
 
   
 
80,526
   
 
1,457
   
7.22
 
Home equity lines
   
 
22,010
   
 
294
   
5.42
 
   
 
22,227
   
 
340
   
6.07
 
   
 
22,115
   
 
394
   
7.06
 
Direct/Indirect consumer
   
 
30,360
   
 
550
   
7.34
 
   
 
30,363
   
 
583
   
7.61
 
   
 
30,670
   
 
607
   
7.85
 
Consumer finance
   
 
12,134
   
 
255
   
8.46
 
   
 
13,035
   
 
296
   
9.04
 
   
 
25,169
   
 
505
   
8.00
 
Bankcard
   
 
19,383
   
 
490
   
10.26
 
   
 
18,656
   
 
498
   
10.58
 
   
 
17,632
   
 
493
   
11.11
 
Foreign consumer
   
 
2,093
   
 
19
   
3.71
 
   
 
2,093
   
 
21
   
4.02
 
   
 
2,176
   
 
28
   
5.28
 
    
  
  
  
  
  
  
  
  
Total consumer
   
 
167,084
   
 
2,997
   
7.24
 
   
 
164,740
   
 
3,123
   
7.54
 
   
 
178,288
   
 
3,484
   
7.78
 
    
  
  
  
  
  
  
  
  
Total loans and leases
   
 
327,801
   
 
5,480
   
6.76
 
   
 
333,354
   
 
5,859
   
6.99
 
   
 
357,726
   
 
6,580
   
7.31
 
    
  
  
  
  
  
  
  
  
Other earning assets
   
 
22,231
   
 
358
   
6.52
 
   
 
36,782
   
 
707
   
7.67
 
   
 
30,180
   
 
597
   
7.89
 
    
  
  
  
  
  
  
  
  
Total earning assets(3)
   
 
549,111
   
 
7,965
   
5.86
 
   
 
555,205
   
 
8,893
   
6.37
 
   
 
557,108
   
 
9,408
   
6.72
 
    
  
  
  
  
  
  
  
  
Cash and cash equivalents
   
 
22,037
                 
 
23,182
                 
 
20,753
              
Other assets, less allowance for credit losses
   
 
66,530
                 
 
73,410
                 
 
64,323
              
    
                
                
             
Total assets
   
$
637,678
                 
$
651,797
                 
$
642,184
              
    
                
                
             
Interest-bearing liabilities
                                                               
Domestic interest-bearing deposits:
                                                               
Savings
   
$
20,716
   
$
33
   
0.64
%
   
$
20,132
   
$
42
   
0.83
%
   
$
20,076
   
$
53
   
1.04
%
NOW and money market deposit accounts
   
 
127,218
   
 
335
   
1.07
 
   
 
121,758
   
 
426
   
1.39
 
   
 
116,638
   
 
588
   
2.00
 
Consumer CDs and IRAs
   
 
69,359
   
 
730
   
4.27
 
   
 
71,895
   
 
898
   
4.96
 
   
 
73,465
   
 
918
   
4.95
 
Negotiable CDs, public funds and other time deposits
   
 
4,671
   
 
32
   
2.82
 
   
 
5,196
   
 
44
   
3.39
 
   
 
5,085
   
 
57
   
4.44
 
    
  
  
  
  
  
  
  
  
Total domestic interest-bearing deposits
   
 
221,964
   
 
1,130
   
2.06
 
   
 
218,981
   
 
1,410
   
2.56
 
   
 
215,264
   
 
1,616
   
2.98
 
    
  
  
  
  
  
  
  
  
Foreign interest-bearing deposits(4):
                                                               
Banks located in foreign countries
   
 
15,464
   
 
107
   
2.79
 
   
 
20,771
   
 
170
   
3.22
 
   
 
24,097
   
 
257
   
4.22
 
Governments and official institutions
   
 
2,904
   
 
14
   
1.96