Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ ü ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2005

[ ] 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

100 N. Tryon Street

Charlotte, North Carolina 28255

Registrant’s telephone number, including area code:

(704) 386-5681

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 ü No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ü No

On July 31, 2005, there were 4,017,927,925 shares of Bank of America Corporation Common Stock outstanding.

Bank of America Corporation

June 30, 2005 Form 10-Q

INDEX


			Page

Part I. Financial Information	Item 1.	Financial Statements: Consolidated Statement of Income for the Three Months and Six Months Ended June 30, 2005 and 2004	2

		Consolidated Balance Sheet at June 30, 2005 and December 31, 2004	3

		Consolidated Statement of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2005 and 2004	4

		Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2005 and 2004	5

		Notes to Consolidated Financial Statements	6

	Item 2.	Management’s Discussion and Analysis of Results of Operations and Financial Condition	29

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	93

	Item 4.	Controls and Procedures	93



Part II. Other Information	Item 1.	Legal Proceedings	93

	Item 2.	Unregistered Sales of Equity Securities and the Use of Proceeds	93

	Item 4.	Submission of Matters to a Vote of Security Holders	94

	Item 6.	Exhibits	95

	Signature		96

	Index to Exhibits		97

Part I. Financial Information

Item 1. Financial Statements

Bank of America Corporation and Subsidiaries

Consolidated Statement of Income


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions, except per share information)	2005		2004		2005		2004
Interest income
Interest and fees on loans and leases	$	8,312	$	7,237	$	16,419	$	12,786
Interest and dividends on securities		2,799		1,907		5,333		3,119
Federal funds sold and securities purchased under agreements to resell		1,252		413		2,145		847
Trading account assets		1,426		1,009		2,608		2,021
Other interest income		502		424		939		769

Total interest income		14,291		10,990		27,444		19,542

Interest expense
Deposits		2,379		1,529		4,422		2,735
Short-term borrowings		2,677		1,019		4,646		1,739
Trading account liabilities		611		298		1,038		632
Long-term debt		974		563		1,815		1,054

Total interest expense		6,641		3,409		11,921		6,160

Net interest income		7,650		7,581		15,523		13,382
Noninterest income
Service charges		1,920		1,783		3,697		3,199
Investment and brokerage services		1,049		999		2,062		1,634
Mortgage banking income		189		299		410		508
Investment banking income		431		547		797		951
Equity investment gains		492		84		891		217
Card income		1,437		1,159		2,726		1,954
Trading account profits		285		413		1,045		416
Other income		562		183		886		318

Total noninterest income		6,365		5,467		12,514		9,197

Total revenue		14,015		13,048		28,037		22,579
Provision for credit losses		875		789		1,455		1,413
Gains on sales of debt securities		325		795		984		1,290
Noninterest expense
Personnel		3,671		3,629		7,372		6,381
Occupancy		615		621		1,251		1,109
Equipment		297		318		594		579
Marketing		346		367		683		648
Professional fees		216		194		393		354
Amortization of intangibles		204		201		412		255
Data processing		368		333		732		617
Telecommunications		196		183		402		334
Other general operating		985		1,257		2,004		2,256
Merger and restructuring charges		121		125		233		125

Total noninterest expense		7,019		7,228		14,076		12,658

Income before income taxes		6,446		5,826		13,490		9,798
Income tax expense		2,150		1,977		4,499		3,268

Net income	$	4,296	$	3,849	$	8,991	$	6,530

Net income available to common shareholders	$	4,292	$	3,844	$	8,982	$	6,524

Per common share information
Earnings	$	1.07	$	0.95	$	2.23	$	1.88

Diluted earnings	$	1.06	$	0.93	$	2.20	$	1.85

Dividends paid	$	0.45	$	0.40	$	0.90	$	0.80

Average common shares issued and outstanding (in thousands)		4,005,356		4,062,384		4,019,089		3,471,516

Average diluted common shares issued and outstanding (in thousands)		4,065,355		4,131,290		4,081,921		3,531,038

See accompanying Notes to Consolidated Financial Statements.


Bank of America Corporation and Subsidiaries Consolidated Balance Sheet
(Dollars in millions)	June 30 2005			December 31 2004
Assets
Cash and cash equivalents	$	33,935		$	28,936
Time deposits placed and other short-term investments		9,682			12,361
Federal funds sold and securities purchased under agreements to resell (includes $149,130 and $91,243 pledged as collateral)		149,287			91,360
Trading account assets (includes $43,587 and $38,929 pledged as collateral)		126,658			93,587
Derivative assets		26,019			30,235
Securities:
Available-for-sale (includes $103,694 and $45,127 pledged as collateral)		233,412			194,743
Held-to-maturity, at cost (market value - $174 and $ 329)		174			330

Total securities		233,586			195,073

Loans and leases		529,418			521,837
Allowance for loan and lease losses		(8,319	)		(8,626	)

Loans and leases, net of allowance		521,099			513,211

Premises and equipment, net		7,602			7,517
Mortgage servicing rights		2,366			2,482
Goodwill		45,381			45,262
Core deposit intangibles and other intangibles		3,472			3,887
Other assets		87,243			86,546

Total assets	$	1,246,330		$	1,110,457

Liabilities
Deposits in domestic offices:
Noninterest-bearing	$	175,427		$	163,833
Interest-bearing		397,778			396,645
Deposits in foreign offices:
Noninterest-bearing		6,102			6,066
Interest-bearing		56,110			52,026

Total deposits		635,417			618,570

Federal funds purchased and securities sold under agreements to repurchase		207,710			119,741
Trading account liabilities		61,906			36,654
Derivative liabilities		15,630			17,928
Commercial paper and other short-term borrowings		93,763			78,598
Accrued expenses and other liabilities (includes $383 and $402 of reserve for unfunded lending commitments)		34,470			41,243
Long-term debt		96,894			98,078

Total liabilities		1,145,790			1,010,812

Commitments and contingencies (Note 10)

Shareholders’ equity
Preferred stock, $0.01 par value; authorized - 100,000,000 shares; issued and outstanding - 1,090,189 and 1,090,189 shares		271			271
Common stock and additional paid-in capital, $0.01 par value; authorized - 7,500,000,000 shares; issued and outstanding - 4,016,703,839 and 4,046,546,212 shares		42,507			44,236
Retained earnings		63,328			58,006
Accumulated other comprehensive income (loss)		(4,992	)		(2,587	)
Other		(574	)		(281	)

Total shareholders’ equity		100,540			99,645

Total liabilities and shareholders’ equity	$	1,246,330		$	1,110,457

See accompanying Notes to Consolidated Financial Statements.


Bank of America Corporation and Subsidiaries Consolidated Statement of Changes in Shareholders’ Equity
	Preferred Stock			Common Stock and Additional Paid-in Capital					Retained Earnings			Accumulated Other Comprehensive Income (Loss) ⁽¹⁾			Other			Total Share- holders’ Equity			Comprehensive Income
				Shares		Amount
(Dollars in millions, shares in thousands)				Shares		Amount
Balance, December 31, 2003	$	54		2,882,288		$	29		$	50,198		$	(2,148	)	$	(153	)	$	47,980
Net income										6,530									6,530		$	6,530
Net unrealized losses on available-for-sale debt and marketable equity securities													(2,025	)					(2,025	)		(2,025	)
Net unrealized losses on foreign currency translation adjustments													(18	)					(18	)		(18	)
Net unrealized gains on derivatives													329						329			329
Cash dividends paid:
Common										(2,796	)								(2,796	)
Preferred										(6	)								(6	)
Common stock issued under employee plans and related tax benefits				66,804			2,280									(183	)		2,097
Stocks issued in acquisition⁽²⁾		271		1,186,728			46,480												46,751
Common stock repurchased				(73,366	)		(3,076	)		88									(2,988	)
Conversion of preferred stock		(3	)	202			1												(2	)
Other							(45	)		16						(2	)		(31	)

Balance, June 30, 2004	$	322		4,062,656		$	45,669		$	54,030		$	(3,862	)	$	(338	)	$	95,821		$	4,816

Balance, December 31, 2004	$	271		4,046,546		$	44,236		$	58,006		$	(2,587	)	$	(281	)	$	99,645
Net income										8,991									8,991		$	8,991
Net unrealized gains on available-for-sale debt and marketable equity securities													584						584			584
Net unrealized gains on foreign currency translation adjustments													30						30			30
Net unrealized losses on derivatives													(3,019	)					(3,019	)		(3,019	)
Cash dividends paid:
Common										(3,640	)								(3,640	)
Preferred										(9	)								(9	)
Common stock issued under employee plans and related tax benefits				53,672			2,090									(292	)		1,798
Common stock repurchased				(83,514	)		(3,819	)											(3,819	)
Other										(20	)					(1	)		(21	)

Balance, June 30, 2005	$	271		4,016,704		$	42,507		$	63,328		$	(4,992	)	$	(574	)	$	100,540		$	6,586

⁽¹⁾

At June 30, 2005 and December 31, 2004, Accumulated Other Comprehensive Income (Loss) includes Net Unrealized Gains (Losses) on Available-for-sale (AFS) Debt and Marketable Equity Securities of $387 million and $(196) million; Net Unrealized Gains (Losses) on Foreign Currency Translation Adjustments of $(125) million and $(153) million; Net Unrealized Gains (Losses) on Derivatives of $(5,120) million and $(2,102) million; and Other of $(134) million and $(136) million.

⁽²⁾

Includes adjustment for the fair value of outstanding FleetBoston Financial Corporation (FleetBoston) stock options of $862 million.

See accompanying Notes to Consolidated Financial Statements.


Bank of America Corporation and Subsidiaries Consolidated Statement of Cash Flows
	Six Months Ended June 30
(Dollars in millions)	2005			2004
Operating activities
Net income	$	8,991		$	6,530
Reconciliation of net income to net cash provided by (used in) operating activities:
Provision for credit losses		1,455			1,413
Gains on sales of debt securities		(984	)		(1,290	)
Depreciation and premises improvements amortization		478			477
Amortization of intangibles		412			255
Deferred income tax expense (benefit)		391			(11	)
Net increase in trading and hedging instruments		(7,014	)		(9,799	)
Net increase in other assets		(299	)		(281	)
Net decrease in accrued expenses and other liabilities		(5,869	)		(7,800	)
Other operating activities, net		(4,858	)		(669	)

Net cash used in operating activities		(7,297	)		(11,175	)

Investing activities
Net decrease in time deposits placed and other short-term investments		2,679			796
Net (increase) decrease in federal funds sold and securities purchased under agreements to resell		(57,927	)		6,043
Proceeds from sales of available-for-sale securities		140,666			37,729
Proceeds from maturities of available-for-sale securities		14,794			12,215
Purchases of available-for-sale securities		(192,401	)		(123,771	)
Proceeds from maturities of held-to-maturity securities		156			5
Proceeds from sales of loans and leases		12,221			2,002
Other changes in loans and leases, net		(21,540	)		(3,497	)
Net increase in mortgage servicing rights		(407	)		(662	)
Net purchases of premises and equipment		(563	)		(585	)
Proceeds from sales of foreclosed properties		58			97
Cash equivalents acquired net of purchase acquisitions		(116	)		5,608
Other investing activities, net		306			(138	)

Net cash used in investing activities		(102,074	)		(64,158	)

Financing activities
Net increase in deposits		16,847			21,266
Net increase in federal funds purchased and securities sold under agreements to repurchase		87,969			35,275
Net increase in commercial paper and other short-term borrowings		15,165			22,000
Proceeds from issuance of long-term debt		7,806			12,648
Retirement of long-term debt		(7,714	)		(7,385	)
Proceeds from issuance of common stock		1,927			2,052
Common stock repurchased		(3,819	)		(2,988	)
Cash dividends paid		(3,649	)		(2,802	)
Other financing activities, net		(58	)		(9	)

Net cash provided by financing activities		114,474			80,057

Effect of exchange rate changes on cash and cash equivalents		(104	)		(19	)

Net increase in cash and cash equivalents		4,999			4,705
Cash and cash equivalents at January 1		28,936			27,084

Cash and cash equivalents at June 30	$	33,935		$	31,789

Net transfers of Loans and Leases from the loan portfolio to loans held-for-sale (included in Other Assets) amounted to $114 million and $250 million for the six months ended June 30, 2005 and 2004.

See accompanying Notes to Consolidated Financial Statements.

Bank of America Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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 June 30, 2005, the Corporation operated its banking activities primarily under two charters: Bank of America, National Association (Bank of America, N.A.) and Bank of America, N.A. (USA). On June 13, 2005, Fleet National Bank merged with and into Bank of America, N.A., with Bank of America, N.A. as the surviving entity. This merger had no impact on the Consolidated Financial Statements of the Corporation.

On June 30, 2005, the Corporation announced a definitive agreement to acquire all outstanding shares of MBNA Corporation (MBNA), a leading provider of credit card and payment products, for approximately $35 billion in cash (15 percent) and stock (85 percent). Under the terms of the agreement, MBNA stockholders will receive 0.5009 of a share of the Corporation’s common stock plus $4.125 for each MBNA share of common stock. The transaction is expected to close by the end of the year.

On April 1, 2004, the Corporation acquired all of the outstanding stock of FleetBoston Financial Corporation (FleetBoston) (the Merger). FleetBoston’s results of operations were included in the Corporation’s results beginning on April 1, 2004. The Merger was accounted for under the purchase method of accounting.

Note 1 - Summary of Significant Accounting Principles

Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of the Corporation and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Corporation is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated.

The information contained in the Consolidated Financial Statements is unaudited. In the opinion of management, normal recurring adjustments necessary for a fair statement of the interim period results have been made. Results of operations of companies purchased are included from the date of acquisition. Certain prior period amounts were reclassified to conform to current period presentation.

Recently Issued or Proposed Accounting Pronouncements

On July 14, 2005, the Financial Accounting Standards Board (FASB) issued an exposure draft, FASB Staff Position (FSP) No. FSP 13-a, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” (FSP 13-a). FSP 13-a requires a lessor to reevaluate the classification of a leveraged lease and to recalculate the recognition of the lease income when there is a change in the estimated timing of the cash flows relating to income taxes generated by the lease. The proposed interpretation is to be effective as of December 31, 2005. Management is currently evaluating the effect of the provisions of FSP 13-a.

As part of this evaluation, management is considering the potential impact of the Internal Revenue Service’s (IRS) stated position on certain leveraged leases and the impact of such position on the Corporation and its predecessors’ federal income tax returns. Depending on the final provisions of FSP 13-a and the final resolution with the IRS, adoption of FSP 13-a may have a material impact on the Corporation’s current accounting treatment for leveraged leases. This change in accounting that would be required under the proposed FSP would be reflected as both an adjustment to Goodwill for leveraged leases acquired as part of the Merger and a one-time cumulative effect of a change in accounting principle below net income from operations as of the end of the year of adoption.

On July 14, 2005, the FASB issued an exposure draft, “Accounting for Uncertain Tax Positions”, a proposed interpretation of Statement of Financial Accounting Standards (SFAS) No. 109 “Accounting for Income Taxes”. The proposed interpretation requires recognition of a tax benefit to the extent of management’s best estimate of the impact of a tax position, provided it is probable that the tax position would be sustained based on its technical merits. The proposed interpretation is to be effective as of December 31, 2005. Management is currently evaluating the effect of the proposed interpretation.

On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004) “Share-based Payment” (SFAS 123R) which eliminates the ability to account for share-based compensation transactions, including grants of employee stock options, using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally requires that such transactions be accounted for using a fair value-based method with the resulting compensation cost recognized over the period that the employee is required to provide service in order to receive their compensation. SFAS 123R also amends SFAS No. 95, “Statement of Cash Flows,” requiring the benefits of tax deductions in excess of recognized compensation costs to be reported as financing cash flows, rather than as operating cash flows as currently required. The Corporation adopted the fair value-based method of accounting for stock-based employee compensation prospectively as of January 1, 2003. Under SFAS 123R, the initial effective date for the Corporation was July 1, 2005. However, on April 15, 2005, the Securities and Exchange Commission issued the final rule “Amendment to Rule 4-01(a) of Regulation S-X Regarding the Compliance for SFAS 123 (Revised 2004), Share-Based Payment” which extends the effective date for public companies to the first fiscal year beginning on or after June 15, 2005. As a result, the Corporation will be adopting SFAS 123R effective January 1, 2006 under the modified-prospective application. Management is currently evaluating the impact of adoption on the Corporation’s results of operations and financial condition.

Stock-based Compensation

SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123,” (SFAS 148) was adopted prospectively by the Corporation on January 1, 2003. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. In accordance with SFAS 148, the Corporation provides disclosures as if it had adopted the fair value-based method of measuring all outstanding employee stock options during the three and six months ended June 30, 2005 and 2004. The following table presents the effect on Net Income and Earnings per Common Share had the fair value-based method been applied to all outstanding and unvested awards for the three and six months ended June 30, 2005 and 2004.


	Three Months Ended						Six Months Ended
	June 30						June 30
(Dollars in millions, except per share data)	2005			2004			2005			2004
Net income (as reported)	$	4,296		$	3,849		$	8,991		$	6,530
Stock-based employee compensation expense recognized during the period, net of related tax effects		52			43			103			78
Stock-based employee compensation expense determined under fair value-based method, net of related tax effects⁽¹⁾		(52	)		(55	)		(103	)		(109	)

Pro forma net income	$	4,296		$	3,837		$	8,991		$	6,499

As reported
Earnings per common share	$	1.07		$	0.95		$	2.23		$	1.88
Diluted earnings per common share		1.06			0.93			2.20			1.85
Pro forma
Earnings per common share		1.07			0.95			2.23			1.87
Diluted earnings per common share		1.06			0.93			2.20			1.84

⁽¹⁾

Includes all awards granted, modified or settled for which the fair value was required to be measured under SFAS 123, except restricted stock. Restricted stock expense, included in Net Income for the three months ended June 30, 2005 and 2004, was $128 million and $105 million pre-tax, and for the six months ended June 30, 2005 and 2004 was $242 million and $169 million pre-tax.

Under certain equity plans, upon adoption of FAS 123R, the Corporation will be required to change its approach for recognizing stock compensation cost for employees who meet certain age and service criteria and; thus, are retirement eligible as described in the plan. For any new awards granted, which retain the retirement eligibility feature after the adoption of FAS 123R, the Corporation will recognize stock compensation cost immediately for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved. Had the Corporation been recording stock compensation cost under this approach, the estimated cost, net of taxes, recognized would have been reduced by $18 million and $3 million for the three months ended June 30, 2005 and 2004. The estimated stock compensation cost, net of taxes, recognized would have increased by $153 million and $54 million for the six months ended June 30, 2005 and 2004.

For additional information on recently issued accounting pronouncements and other significant accounting principles, see Note 1 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.

Note 2 - Merger and Restructuring Activity

MBNA

On June 30, 2005, the Corporation announced a definitive agreement to acquire all outstanding shares of MBNA, a leading provider of credit card and payment products, for approximately $35 billion in cash (15 percent) and stock (85 percent). Under the terms of the agreement, MBNA stockholders will receive 0.5009 of a share of the Corporation’s common stock plus $4.125 for each MBNA share of common stock. The transaction is expected to close by the end of the year.

FleetBoston

On April 1, 2004, the Corporation acquired all of the outstanding stock of FleetBoston after obtaining final shareholder and regulatory approvals. FleetBoston’s results of operations were included in the Corporation’s results beginning on April 1, 2004. The Merger was accounted for under the purchase method of accounting.

Merger and Restructuring Charges

Merger and Restructuring Charges are recorded in the Consolidated Statement of Income, and include incremental costs to integrate the Corporation’s and FleetBoston’s operations. These charges represent costs associated with these one-time activities and do not represent on-going costs of the fully integrated combined organization. Systems integrations and related charges, and other, as shown in the following table, are expensed as incurred.

In addition, Merger and Restructuring Charges include costs related to an infrastructure initiative that was initiated in the third quarter of 2004 to simplify the Corporation’s business model. These costs were solely severance related. The Corporation does not expect to incur additional severance costs related to this initiative.


	Three Months Ended				Six Months Ended
	June 30				June 30
(Dollars in millions)	2005		2004		2005		2004
Severance and employee-related charges:
Merger-related	$	13	$	64	$	22	$	64
Infrastructure initiative		—		—		1		—
Systems integrations and related charges		67		29		148		29
Other		41		32		62		32

Total merger and restructuring charges	$	121	$	125	$	233	$	125

Exit Costs and Restructuring Reserves

As of December 31, 2004, there were $382 million of exit costs reserves remaining, which included $291 million for severance, relocation and other employee-related costs, $87 million for contract terminations, and $4 million for other charges. During the three months ended June 30, 2005, there were no changes to the exit costs reserves as a result of revised estimates. During the six months ended June 30, 2005, $17 million of reductions to the exit costs reserves were recorded as a result of revised estimates. The reductions included $14 million for contract terminations and $3 million for other charges. Cash payments of $104 million and $196 million were charged against this liability during the three and six months ended June 30, 2005, including $70 million and $150 million of severance, relocation and other employee-related costs, and $34 million and $46 million of contract terminations reducing the balance in the liability to $169 million at June 30, 2005.

Restructuring reserves for the three and six months ended June 30, 2005 included an additional charge for the legacy Bank of America associate severance and other employee-related charges of $13 million and $23 million. During the three months ended June 30, 2005, there were no changes to the restructuring reserves as a result of revised estimates. During the three and six months ended June 30, 2005, cash payments of $42 million and $96 million for severance and other employee-related costs have been charged against this liability reducing the balance from $166 million at December 31, 2004, to $93 million as of June 30, 2005.

Payments under these reserves are expected to be substantially complete by the end of 2005.


Exit Costs and Restructuring Reserves
	Exit Costs Reserves ⁽¹⁾						Restructuring Reserves ⁽²⁾
(Dollars in millions)	2005			2004			2005			2004
Balance, January 1	$	382		$	—		$	166		$	—
FleetBoston exit costs		(17	)		—			—			—
Restructuring charges		—			—			9			—
Infrastructure initiative		—			—			1			—
Cash payments		(92	)		—			(54	)		—

Balance, March 31	$	273		$	—		$	122		$	—

FleetBoston exit costs		—			680			—			—
Restructuring charges		—			—			13			64
Cash payments		(104	)		(62	)		(42	)		(10	)

Balance, June 30	$	169		$	618		$	93		$	54

⁽¹⁾

Exit costs reserves were established in purchase accounting resulting in an increase in Goodwill.

⁽²⁾

Restructuring reserves were established by a charge to income.

Note 3 - Trading Account Assets and Liabilities

The Corporation engages in a variety of trading-related activities that are either for clients or its own account.

The following table presents the fair values of the components of Trading Account Assets and Liabilities at June 30, 2005 and December 31, 2004.


	June 30		December 31
(Dollars in millions)	2005		2004
Trading account assets
Corporate securities, trading loans and other	$	45,227	$	35,227
U.S. government and agency securities ⁽¹⁾		35,499		20,462
Equity securities		20,984		19,504
Foreign sovereign debt		13,958		8,769
Mortgage trading loans and asset-backed securities		10,990		9,625

Total	$	126,658	$	93,587

Trading account liabilities
U.S. government and agency securities ⁽²⁾	$	36,997	$	14,332
Equity securities		9,849		8,952
Corporate securities and other		7,776		8,538
Foreign sovereign debt		7,059		4,793
Mortgage trading loans and asset-backed securities		225		39

Total	$	61,906	$	36,654

⁽¹⁾

Includes $21.1 billion and $17.3 billion at June 30, 2005 and December 31, 2004 of government-sponsored enterprise obligations that are not backed by the full faith and credit of the U.S. government.

⁽²⁾

Includes $751 million and $1.2 billion at June 30, 2005 and December 31, 2004 of government-sponsored enterprise obligations that are not backed by the full faith and credit of the U.S. government.

Note 4 - Derivatives

All derivatives are recognized on the Consolidated Balance Sheet at fair value, taking into consideration the effects of legally enforceable master netting agreements that allow the Corporation to settle positive and negative positions and offset cash collateral held with the same counterparty on a net basis. For exchange-traded contracts, fair value is based on quoted market prices. For non-exchange traded contracts, fair value is based on dealer quotes, pricing models or quoted prices for instruments with similar characteristics. The Corporation designates at inception whether the derivative contract is considered hedging or non-hedging for SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), accounting purposes. Non-hedging derivatives held for trading purposes, including credit default swaps used in the management of risk in the loan portfolio, are recorded as Derivative Assets or Derivative Liabilities with changes in fair value reflected in Trading Account Profits. Other non-hedging derivatives that are considered economic hedges are also recorded as Derivative Assets or Derivative Liabilities with changes in fair value generally recorded in the same Consolidated Statement of Income caption as the related economically hedged item. A detailed discussion of derivative trading activities and the ALM process is presented in Note 4 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.

The following table presents the contract/notional and credit risk amounts at June 30, 2005 and December 31, 2004 of all the Corporation’s derivative positions. These derivative positions are primarily executed in the over-the-counter market. Credit risk associated with derivatives is measured as the net replacement cost in the event the counterparties with contracts in a gain position to the Corporation completely fail to perform under the terms of those contracts. The credit risk amounts take into consideration the effects of legally enforceable master netting agreements, and on an aggregate basis have been reduced by the cash collateral applied against Derivative Assets. At June 30, 2005 and December 31, 2004, the cash collateral applied against Derivative Assets on the Consolidated Balance Sheet was $9.0 billion and $9.4 billion. In addition, at June 30, 2005 and December 31, 2004, the cash collateral placed against Derivative Liabilities was $9.5 billion and $6.0 billion.


Derivatives⁽¹⁾
	June 30, 2005				December 31, 2004
(Dollars in millions)	Contract/ Notional		Credit Risk		Contract/ Notional		Credit Risk
Interest rate contracts
Swaps	$	12,848,672	$	14,026	$	11,597,813	$	12,705
Futures and forwards		2,048,207		90		1,833,216		332
Written options		1,314,744		—		988,253		—
Purchased options		1,215,771		2,940		1,243,809		4,840
Foreign exchange contracts
Swaps		307,239		4,133		305,999		7,859
Spot, futures and forwards		1,103,520		3,020		956,995		3,593
Written options		198,175		—		167,225		—
Purchased options		219,043		861		163,243		679
Equity contracts
Swaps		27,657		640		34,130		1,039
Futures and forwards		5,590		—		4,078		—
Written options		52,972		—		37,080		—
Purchased options		48,192		5,436		32,893		5,741
Commodity contracts
Swaps		8,306		2,758		10,480		2,099
Futures and forwards		6,083		2		6,307		6
Written options		9,288		—		9,270		—
Purchased options		4,720		481		5,535		301
Credit derivatives		1,315,467		657		499,741		430

Credit risk before cash collateral				35,044				39,624
Less: Cash collateral applied				9,025				9,389

Total derivative assets			$	26,019			$	30,235

⁽¹⁾

Includes both long and short derivative positions.

The average fair value of Derivative Assets for the three months ended June 30, 2005 and December 31, 2004 was $25.8 billion and $28.0 billion. The average fair value of Derivative Liabilities for the three months ended June 30, 2005 and December 31, 2004 was $18.0 billion and $15.9 billion.

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 (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its variable-rate assets and liabilities, and other forecasted transactions (cash flow hedges).

For cash flow hedges, gains and losses on derivative contracts reclassified from Accumulated Other Comprehensive Income (OCI) 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. During the next 12 months, net losses on derivative instruments included in Accumulated OCI of approximately $834 million (pre-tax) are expected to be reclassified into earnings. These net losses reclassified into earnings are expected to decrease income or increase expense on the respective hedged items.

The following table summarizes certain information related to the Corporation’s hedging activities for the three and six months ended June 30, 2005 and 2004:


	Three Months Ended						Six Months Ended
	June 30						June 30
(Dollars in millions)	2005			2004			2005		2004
Fair value hedges
Hedge ineffectiveness recognized in earnings⁽¹⁾	$	25		$	3		$	3	$	5
Net gain (loss) excluded from assessment of effectiveness⁽²⁾		(4	)		(4	)		2		(8	)
Cash flow hedges
Hedge ineffectiveness recognized in earnings⁽³⁾		(57	)		47			6		58
Net investment hedges
Gains included in foreign currency translation adjustments within accumulated other comprehensive income		32			68			79		66

⁽¹⁾

Included $(15) million and $(4) million recorded in Net Interest Income, $46 million and $7 million recorded in Mortgage Banking Income, and $(6) million and $0 recorded in Investment Banking Income in the Consolidated Statement of Income for the three months ended June 30, 2005 and 2004. Included $(42) million and $(2) million recorded in Net Interest Income, $51 million and $7 million recorded in Mortgage Banking Income and $(6) million and $0 recorded in Investment Banking Income in the Consolidated Statement of Income for the six months ended June 30, 2005 and 2004.

⁽²⁾

Included $0 and $(1) million recorded in Net Interest Income and $(4) million and $(3) million recorded in Mortgage Banking Income in the Consolidated Statement of Income for the three months ended June 30, 2005 and 2004, which relate to the excluded time value of certain hedges. Included $0 and $(5) million recorded in Net Interest Income and $2 million and $(3) million recorded in Mortgage Banking Income in the Consolidated Statement of Income for the six months ended June 30, 2005 and 2004, which relate to the excluded time value of certain hedges.

⁽³⁾

Included $(5) million and $0 recorded in Net Interest Income and $(52) million and $47 million recorded in Mortgage Banking Income from other various cash flow hedges in the Consolidated Statement of Income for the three months ended June 30, 2005 and 2004. Included $(1) million and $0 recorded in Net Interest Income and $7 million and $58 million recorded in Mortgage Banking Income from other various cash flow hedges in the Consolidated Statement of Income for the six months ended June 30, 2005 and 2004.

Note 5 - Outstanding Loans and Leases

Outstanding loans and leases at June 30, 2005 and December 31, 2004 were:


	June 30		December 31
(Dollars in millions)	2005		2004
Consumer
Residential mortgage	$	170,057	$	178,103
Credit card		53,863		51,726
Home equity lines		56,839		50,126
Direct/Indirect consumer		43,247		40,513
Other consumer ⁽¹⁾		6,829		7,439

Total consumer		330,835		327,907

Commercial
Commercial—domestic		124,080		122,095
Commercial real estate ⁽²⁾		34,537		32,319
Commercial lease financing		20,628		21,115
Commercial—foreign		19,338		18,401

Total commercial		198,583		193,930

Total	$	529,418	$	521,837

⁽¹⁾

Includes consumer finance of $3,144 million and $3,395 million; foreign consumer of $3,505 million and $3,563 million; and consumer lease financing of $180 million and $481 million at June 30, 2005 and December 31, 2004.

⁽²⁾

Includes domestic commercial real estate loans of $34,020 million and $31,879 million; and foreign commercial real estate loans of $517 million and $440 million at June 30, 2005 and December 31, 2004.

The Corporation sold whole mortgage loans and recognized gains (losses) in Other Income on the Consolidated Statement of Income of $278 million and $(1) million for the three months ended June 30, 2005 and 2004, and $276 million and $(2) million for the six months ended June 30, 2005 and 2004.

The following table presents the gross recorded investment in specific loans, without consideration to the specific component of the Allowance for Loan and Lease Losses, that were considered individually impaired in accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” (SFAS 114) at June 30, 2005 and December 31, 2004. SFAS 114 impairment includes performing troubled debt restructurings, and excludes all commercial leases.


	June 30		December 31
(Dollars in millions)	2005		2004
Commercial—domestic	$	671	$	868
Commercial real estate		60		87
Commercial—foreign		88		273

Total impaired loans	$	819	$	1,228

At June 30, 2005 and December 31, 2004, nonperforming loans and leases, including impaired loans and nonaccrual consumer loans, totaled $1.8 billion and $2.2 billion. Nonperforming securities amounted to $14 million and $140 million at June 30, 2005 and December 31, 2004. In addition, included in Other Assets were nonperforming loans held-for-sale and leveraged lease partnership interests of $49 million and $151 million at June 30, 2005 and December 31, 2004.

Note 6 - Allowance for Credit Losses

The following table summarizes the changes in the allowance for credit losses for the three and six months ended June 30, 2005 and 2004:


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	2005			2004			2005			2004
Allowance for loan and lease losses, beginning of period	$	8,313		$	6,080		$	8,626		$	6,163

Addition of FleetBoston allowance, April 1, 2004		—			2,763			—			2,763
Loans and leases charged off		(1,222	)		(1,092	)		(2,380	)		(1,985	)
Recoveries of loans and leases previously charged off		342			263			611			436

Net charge-offs		(880	)		(829	)		(1,769	)		(1,549	)

Provision for loan and lease losses		886			789			1,474			1,428
Transfers ⁽¹⁾		—			(36	)		(12	)		(38	)

Allowance for loan and lease losses, June 30		8,319			8,767			8,319			8,767

Reserve for unfunded lending commitments, beginning of period		394			401			402			416
Addition of FleetBoston reserve, April 1, 2004		—			85			—			85
Provision for unfunded lending commitments		(11	)		—			(19	)		(15	)

Reserve for unfunded lending commitments, June 30		383			486			383			486

Total	$	8,702		$	9,253		$	8,702		$	9,253

(1)

Includes primarily transfers to loans held-for-sale.

Note 7 - Mortgage Servicing Rights

The Corporation has retained mortgage servicing rights (MSRs) from the sale or securitization of mortgage loans. The following table presents activity in MSRs for the three and six months ended June 30, 2005 and 2004. Effective June 1, 2004, Excess Spread Certificates (the Certificates) were converted to MSRs. For more information on the conversion of the Certificates to MSRs, see Note 1 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	2005			2004			2005			2004
Balance, beginning of period	$	2,668		$	425		$	2,482		$	479

Additions		239			2,542	⁽¹⁾		407			2,625	⁽¹⁾
Amortization		(155	)		(56	)		(305	)		(84	)
Valuation adjustment of MSRs⁽²⁾		(386	)		94			(218	)		(15	)

Balance, June 30⁽³⁾	$	2,366		$	3,005		$	2,366		$	3,005

⁽¹⁾

Includes $2.2 billion of Certificates converted to MSRs on June 1, 2004.

⁽²⁾

For the three months ended June 30, 2005 and 2004, includes $(354) million and $15 million related to change in value attributed to SFAS 133 hedged MSRs and $(32) million and $79 million of recoveries (impairment). For the six months ended June 30, 2005 and 2004, includes $(204) million and $15 million related to change in value attributed to SFAS 133 hedged MSRs and $(14) million and $(30) million of impairments.

⁽³⁾

Net of impairment allowance of $258 million and $32 million at June 30, 2005 and 2004.

The estimated fair value of MSRs was $2.4 billion and $2.5 billion at June 30, 2005 and December 31, 2004.

The key economic assumptions used in valuations of MSRs include modeled prepayment rates and resultant expected weighted average lives of the MSRs and the option adjusted spread (OAS) levels. An OAS model runs multiple interest rate scenarios and projects prepayments specific to each one of those interest rate scenarios.

For purposes of evaluating and measuring impairment, the Corporation stratifies the portfolio based on the predominant risk characteristics of loan type and note rate. Indicated impairment, by risk stratification, is recognized as a reduction in Mortgage Banking Income, through a valuation allowance, for any excess of adjusted carrying value over estimated fair value.

Note 8 - Special Purpose Financing Entities

The Corporation securitizes assets and 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. Those assets may be serviced by the Corporation or by third parties. The Corporation also uses other special purpose financing entities to access the commercial paper market and for other lending, leasing and real estate activities. See Notes 1 and 8 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005, for additional discussion of securitizations and other special purpose financing entities.

Variable Interest Entities

At June 30, 2005, the assets and liabilities of the Corporation’s multi-seller asset-backed commercial paper conduits that have been consolidated in accordance with FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” were reflected in AFS Securities, Other Assets, and Commercial Paper and Other Short-term Borrowings in the Global Capital Markets and Investment Banking business segment. As of June 30, 2005 and December 31, 2004, the Corporation held $5.9 billion and $7.7 billion of assets in these entities while the Corporation’s maximum loss exposure associated with these entities including unfunded lending commitments was approximately $8.0 billion and $9.4 billion. The Corporation also had contractual relationships with other consolidated VIEs that engage in leasing or lending activities or real estate joint ventures. As of June 30, 2005 and December 31, 2004, the amount of assets of these entities was $886 million and $560 million, and the Corporation’s maximum possible loss exposure was $226 million and $132 million.

Additionally, the Corporation had significant variable interests in other VIEs that it did not consolidate because it was not deemed to be the primary beneficiary. In such cases, the Corporation does not absorb the majority of the entities’ expected losses nor does it receive a majority of the entities’ expected residual returns. These entities typically support the financing needs of the Corporation’s customers by facilitating their access to the commercial paper markets. The Corporation functions as administrator and provides either liquidity and letters of credit, or derivatives to the VIE. The Corporation also provides asset management and related services to other special purpose vehicles that engage in lending, investing, or real estate activities. Total assets of these entities at June 30,

2005 and December 31, 2004 were approximately $28.9 billion and $32.9 billion. Revenues associated with administration, liquidity, letters of credit and other services were approximately $71 million and $78 million for the six months ended June 30, 2005 and 2004. At June 30, 2005 and December 31, 2004, the Corporation’s maximum loss exposure associated with these VIEs was approximately $24.6 billion and $25.0 billion, which is net of amounts syndicated.

Management does not believe losses resulting from its involvement with the entities discussed above will be material. See Notes 1 and 8 of the Corporation’s Current Report on Form 8-K filed on July 12, 2005, for additional discussion of special purpose financing entities.

Note 9 - Goodwill and Other Intangibles

The following table presents allocated Goodwill at June 30, 2005 and December 31, 2004 for each business segment. The increase from December 31, 2004 was primarily due to the increase in goodwill related to the October 15, 2004 acquisition of National Processing, Inc. (NPC).


(Dollars in millions)	June 30 2005		December 31 2004
Global Consumer and Small Business Banking	$	18,597	$	18,453
Global Business and Financial Services		16,707		16,707
Global Capital Markets and Investment Banking		4,500		4,500
Global Wealth and Investment Management		5,338		5,338
All Other		239		264

Total	$	45,381	$	45,262

The gross carrying value and accumulated amortization related to core deposit intangibles and other intangibles at June 30, 2005 and December 31, 2004 are presented below:


	June 30, 2005				December 31, 2004
(Dollars in millions)	Gross Carrying Value		Accumulated Amortization		Gross Carrying Value		Accumulated Amortization
Core deposit intangibles	$	3,668	$	1,626	$	3,668	$	1,354
Other intangibles		2,253		823		2,256		683

Total	$	5,921	$	2,449	$	5,924	$	2,037

As a result of the Merger, the Corporation recorded $2.2 billion of core deposit intangibles, $660 million of purchased credit card relationship intangibles and $409 million of other customer relationship intangibles. As of June 30, 2005, the weighted average amortization period for core deposit intangibles as well as other intangibles was approximately nine years. As a result of the acquisition of NPC, the Corporation preliminarily allocated $479 million to other intangibles with a weighted average amortization period of approximately 10 years as of June 30, 2005.

Amortization expense on core deposit intangibles and other intangibles was $204 million and $201 million for the three months ended June 30, 2005 and 2004, and $412 million and $255 million for the six months ended June 30, 2005 and 2004. The increase for the six months ended June 30, 2005 was primarily due to the Merger. The Corporation estimates that aggregate amortization expense will be approximately $201 million and $195 million for the third and fourth quarters of 2005. In addition, the Corporation estimates that aggregate amortization expense will be $740 million, $593 million, $480 million, $379 million and $305 million for 2006, 2007, 2008, 2009 and 2010, respectively.

Note 10 - 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 Corporation’s Consolidated Balance Sheet. For additional information on commitments and contingencies, see Note 12 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.

Credit Extension Commitments

The Corporation enters into commitments to extend credit such as loan commitments, standby letters of credit and commercial letters of credit to meet the financing needs of its customers. The outstanding unfunded lending commitments shown in the following table have been reduced by amounts participated to other financial institutions of $19.5 billion and $23.4 billion at June 30, 2005 and December 31, 2004. The carrying amount for these commitments, which represents the liability recorded related to these instruments, at June 30, 2005 and December 31, 2004 was $433 million and $520 million. At June 30, 2005, the carrying amount included deferred revenue of $50 million and a reserve for unfunded lending commitments of $383 million. At December 31, 2004, the carrying amount included deferred revenue of $118 million and a reserve for unfunded lending commitments of $402 million.

Credit card lines acquired from FleetBoston were moved to a common reporting platform in the first quarter of 2005. The unfunded lending commitments for credit card lines for prior periods have been revised to conform to current period presentation.


(Dollars in millions)	June 30 2005		December 31 2004
Loan commitments	$	259,530	$	245,042
Home equity lines of credit		69,618		60,128
Standby letters of credit and financial guarantees		42,476		42,850
Commercial letters of credit		5,297		5,653

Legally binding commitments		376,921		353,673
Credit card lines		176,553		165,694

Total	$	553,474	$	519,367

Other Commitments

On June 17, 2005, the Corporation entered into an agreement to purchase nine percent of the stock of China Construction Bank (CCB) for $3.0 billion. Under the agreement, the Corporation will make an initial purchase of CCB shares for $2.5 billion and an additional purchase of $500 million at the time of CCB’s initial public offering. In addition to CCB, there are other equity commitments at June 30, 2005 and December 31, 2004, of $1.6 billion and $2.1 billion related to obligations to fund existing equity investments.

At June 30, 2005 and December 31, 2004, charge cards (nonrevolving card lines) to individuals and government entities guaranteed by the U.S. government in the amount of $10.7 billion and $10.9 billion were not included in credit card line commitments in the previous table. The outstanding balances related to these charge cards were $271 million and $205 million.

At June 30, 2005, the Corporation had whole mortgage loan purchase commitments of $4.0 billion, all of which will settle in the third quarter of 2005. At December 31, 2004, the Corporation had whole mortgage loan purchase commitments of $3.3 billion, all of which settled in the first quarter of 2005. At June 30, 2005 and December 31, 2004, the Corporation had no forward whole mortgage loan sale commitments.

Other Guarantees

The Corporation sells products that offer book value protection primarily to plan sponsors of Employee Retirement Income Security Act of 1974 (ERISA)-governed pension plans such as 401(k) plans, 457 plans, etc. At June 30, 2005 and December 31, 2004, the notional amount of these guarantees totaled $31.9 billion and $26.3 billion with estimated maturity dates between 2005 and 2035. As of June 30, 2005 and December 31, 2004, the Corporation has not made a payment under these products, and management believes that the probability of payments under these guarantees is remote.

The Corporation also sells products that guarantee the return of principal to investors at a preset future date. At June 30, 2005 and December 31, 2004, the notional amount of these guarantees totaled $7.1 billion and $8.1 billion; however, at June 30, 2005 and December 31, 2004, the Corporation had not made a payment under these products, and management believes that the probability of payments under these guarantees is remote. These guarantees have various maturities ranging from 2005 to 2016.

The Corporation has also written puts on highly rated fixed income securities. Its obligation under these agreements is to buy back the assets at predetermined contractual yields in the event of a severe market disruption in the short-term funding market. These agreements have various maturities ranging from two to seven years, and the pre-determined yields are based on the quality of the assets and the structural elements pertaining to the market disruption. The notional amount of these put options was $1.1 billion at June 30, 2005 and $653 million at December 31, 2004. Due to the high quality of the assets and various structural protections, management believes that the probability of incurring a loss under these agreements is remote.

The Corporation has entered into additional guarantee agreements, including lease end obligation agreements, partial credit guarantees on certain leases, real estate joint venture guarantees, sold risk participation swaps and sold put options that require gross settlement. The maximum potential future payment under these agreements was approximately $2.5 billion and $2.1 billion at June 30, 2005 and December 31, 2004. The estimated maturity dates of these obligations are between 2005 and 2033. The Corporation has made no material payments under these guarantees.

The Corporation provides credit and debit card processing services to various merchants, processing credit and debit card transactions on their behalf. In connection with these services, a liability may arise in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor and the merchant defaults upon its obligation to reimburse the cardholder. A cardholder, through its issuing bank, generally has until the later of up to four months after the date a transaction is processed or the delivery of the product or service to present a chargeback to the Corporation as the merchant processor. If the Corporation is unable to collect this amount from the merchant, it bears the loss for the amount paid to the cardholder. For the six months ended June 30, 2005 and the year ended December 31, 2004, the Corporation processed $160.0 billion and $143.1 billion of transactions and recorded losses as a result of these chargebacks of $6 million in both periods.

At June 30, 2005 and December 31, 2004, the Corporation held as collateral approximately $284 million and $203 million of merchant escrow deposits which the Corporation has the right to set off against amounts due from the individual merchants. The Corporation also has the right to offset any payments with cash flows otherwise due to the merchant. Accordingly, the Corporation believes that the maximum potential exposure is not representative of the actual potential loss exposure. The Corporation believes the maximum potential exposure for chargebacks would not exceed the total amount of merchant transactions processed through Visa and MasterCard for the last four months, which represents the claim period for the cardholder, plus any outstanding delayed-delivery transactions. As of June 30, 2005 and December 31, 2004, the maximum potential exposure totaled approximately $100.2 billion and $93.4 billion.

Within the Corporation’s brokerage business, the Corporation has contracted with a third party to provide clearing services that include underwriting margin loans to the Corporation’s clients. This contract stipulates that the Corporation will indemnify the third party for any margin loan losses that occur in their issuing margin to the Corporation’s clients. The maximum potential future payment under this indemnification was $1.1 billion and $1.2 billion at June 30, 2005 and December 31, 2004. Historically, any payments made under this indemnification have been immaterial. As these margin loans are highly collateralized by the securities held by the brokerage clients, the

Corporation has assessed the probability of making such payments in the future as remote. This indemnification would end with the termination of the clearing contract.

For additional information on recourse obligations related to residential mortgage loans sold and other guarantees related to securitizations, see Note 8 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.

Litigation and Regulatory Matters

The following disclosure supplements the disclosure in the Corporation’s Current Report on Form 8-K filed on July 12, 2005, the quarterly report on Form 10-Q for the quarter ended March 31, 2005 and the Current Reports on Form 8-K filed since December 31, 2004.

Adelphia

In a decision dated May 27, 2005, the U.S. District Court for the Southern District of New York granted the motions of Bank of America, N.A. (BANA) and Banc of America Securities LLC (BAS) to dismiss certain class plaintiffs’ claims on statute of limitations grounds. The court permitted the plaintiffs who purchased bonds in a 2001 $750 million bond offering, of which BAS underwrote fifty percent, to assert claims against BAS relating to that offering and certain other offerings made under the same registration statement. In addition, on July 18, 2005, the court granted in part and denied in part the motions of BANA and BAS to dismiss seven civil actions brought by individual plaintiffs on statute of limitations grounds, resulting in the dismissal of certain claims arising out of the plaintiffs’ purchases of Adelphia securities. With the exception of one individual action that was dismissed with prejudice, the court granted class plaintiffs and the individual plaintiffs leave to re-plead claims that the court found to be time-barred. Additional motions to dismiss the class complaint and the remaining individual complaints on other grounds remain pending.

Enron

On June 9, 2005, the Corporation, BAS and certain other defendants agreed to settle an action brought by the Retirement Systems of Alabama (RSA), pursuant to which RSA sought recovery of losses resulting from its purchase of Enron securities, for the total amount of $49 million.

Foreign Currency

The trial date for this case has been continued to May 2006.

In re Initial Public Offering Securities

On June 30, 2005, the U.S. Court of Appeals for the Second Circuit granted the underwriter defendants’ petition to appeal the district court’s decision granting class certification.

Miller

On May 13, 2005, BANA filed with the California Court of Appeal, First Appellate District, its notice of appeal and, on May 16, 2005, a writ of supersedeas, seeking a stay of the trial court’s judgment pending appeal. The court of appeal granted a temporary stay until further order of the court. The writ remains pending.

Mutual Fund Operations

On May 27, 2005, pursuant to an order of the U.S. Court of Appeals for the Seventh Circuit, the U.S. District Court for the Southern District of Illinois dismissed the action that had been remanded to state court in Illinois.

Parmalat Finanziaria S.p.A.

On June 25, 2005, the Court of Milan, Italy terminated the preliminary hearings in the market manipulation charges against the Corporation’s three former employees, Antonio Luzi, Luis Moncada, and Luca Sala, and set an

opening trial date for September 28, 2005. On August 2, 2005, the Public Prosecutor’s Office of Parma, Italy arrested Mr. Sala in connection with its continuing criminal investigation into the Parmalat matter. The charges against Mr. Sala have not been disclosed. With respect to the related charge against the Corporation asserting administrative liability for the alleged activities of its former employees, the Court of Milan, Italy determined that as a result of a failure to serve the Corporation correctly, the charge would be dismissed. Subsequently, on July 22, 2005, the Public Prosecutor of Milan refiled these charges against the Corporation.

On July 13, 2005, the U.S. District Court for the Southern District of New York granted in its entirety the motion to dismiss filed by the Corporation, BANA and Banc of America Securities Limited (BASL) in the Southern Alaska Carpenters Fund case. The court granted the plaintiffs a right to file an amended complaint by August 22, 2005.

On April 14, 2005 the Multidistrict Litigation Panel consolidated the Bondi Action for pre-trial proceedings with other lawsuits filed by Enrico Bondi against non-Bank of America defendants. The Corporation and related defendants have moved to dismiss the Bondi action; that motion is pending.

Pension Plan Matters

On May 16, 2005, the U.S. District Court for the Southern District of Illinois granted the Corporation and other defendants’ motion to transfer the Pothier case and ordered the case transferred to the U.S. District Court for the Western District of North Carolina for further proceedings.

WorldCom

On June 8, 2005 the U.S. District Court for the Southern District of New York scheduled a fairness hearing for September 9, 2005, with respect to the class settlement entered into on March 9, 2005 between the lead plaintiff and certain defendants, including Banc of America Securities LLC.

On June 22, 2005, the Corporation, BAS, BASL, Robertson Stephens International Limited and certain other defendants agreed to settle an individual action brought by the Public Employees Retirement System of Ohio (PERS-Ohio), pursuant to which PERS-Ohio sought recovery of losses resulting from its purchase of WorldCom securities.

Note 11 - Shareholders’ Equity and Earnings Per Common Share

The following table presents the monthly share repurchase activity for the three and six months ended June 30, 2005 and 2004, including total common shares repurchased under announced programs, weighted average per share price and the remaining buyback authority under announced programs.



(Dollars in millions, except per share information; shares in thousands)	Number of Common Shares Repurchased under Announced Programs⁽¹⁾	Weighted Average Per Share Price		Remaining Buyback Authority under Announced Programs⁽²⁾
		Weighted Average Per Share Price		Dollars		Shares
Three months ended March 31, 2005	43,214	$	46.05	$	14,688	237,411

April 1-30	18,200		44.57		13,877	219,211
May 1-31	11,050		45.70		13,372	208,161
June 1-30	11,050		46.40		12,859	197,111

Three months ended June 30, 2005	40,300		45.38

Six months ended June 30, 2005	83,514		45.73


(Dollars in millions, except per share information; shares in thousands)	Number of Common Shares Repurchased under Announced Programs⁽³⁾	Weighted Average Per Share Price		Remaining Buyback Authority under Announced Programs⁽⁴⁾
		Weighted Average Per Share Price			Dollars	Shares
Three months ended March 31, 2004	24,306	$	40.03	$	12,378	204,178

April 1-30	9,900		40.53		11,977	194,278
May 1-31	16,140		40.15		8,952	178,138
June 1-30	23,020		41.96		7,978	155,118

Three months ended June 30, 2004	49,060		41.07

Six months ended June 30, 2004	73,366		40.73

⁽¹⁾

Reduced Shareholders’ Equity by $3.8 billion and increased diluted earnings per common share by $0.02 for the six months ended June 30, 2005. These repurchases were partially offset by the issuance of approximately 54 million shares of common stock under employee plans, which increased Shareholders’ Equity by $1.8 billion, net of $292 million of deferred compensation related to restricted stock awards, and decreased diluted earnings per common share by $0.01 for the six months ended June 30, 2005.

⁽²⁾

On January 28, 2004, the Board authorized a stock repurchase program of up to 180 million shares of the Corporation’s common stock at an aggregate cost not to exceed $9.0 billion and to be completed within a period of 18 months. On March 22, 2005, the Board authorized an additional stock repurchase program of up to 200 million shares of the Corporation’s common stock at an aggregate cost not to exceed $12.0 billion and to be completed within a period of 18 months.

⁽³⁾

Reduced Shareholders’ Equity by $3.0 billion and increased diluted earnings per common share by $0.03 for the six months ended June 30, 2004. These repurchases were partially offset by the issuance of approximately 67 million shares of common stock under employee plans, which increased Shareholders’ Equity by $2.1 billion, net of $183 million of deferred compensation related to restricted stock awards, and decreased diluted earnings per common share by $0.03 for the six months ended June 30, 2004.

⁽⁴⁾

On January 22, 2003, the Board authorized a stock repurchase program of up to 260 million shares of the Corporation’s common stock at an aggregate cost of $12.5 billion. This repurchase plan was completed during the second quarter of 2004. Also refer to the Board authorized stock repurchase program dated January 28, 2004, as discussed in footnote (2) above.

The Corporation will continue to repurchase shares, from time to time, in open market or in private transactions through the Corporation’s approved repurchase programs. In light of the Corporation’s announced merger with MBNA, the Corporation’s ability to repurchase shares of common stock is limited by additional SEC rules and regulations. However, even under the more restrictive rules and regulations, the Corporation expects to be able to repurchase a number of shares of common stock equal to the shares issued under the Corporation’s employee stock plans.

The following table presents the changes in Accumulated OCI for the six months ended June 30, 2005 and 2004.


	Six Months Ended June 30
	2005									2004
(Dollars in millions)	Pre-tax Amount			Income Tax Expense (Benefit)			After- tax Amount			Pre-tax Amount			Income Tax Expense (Benefit)			After-tax Amount
Balance, January 1	$	(4,064	)	$	(1,477	)	$	(2,587	)	$	(3,242	)	$	(1,094	)	$	(2,148	)
Net unrealized losses⁽¹⁾		(2,605	)		(972	)		(1,633	)		(1,410	)		(640	)		(770	)
Less: Net realized gains and amortization recorded to net income		1,218			446			772			1,499			555			944

Balance, June 30	$	(7,887	)	$	(2,895	)	$	(4,992	)	$	(6,151	)	$	(2,289	)	$	(3,862	)

⁽¹⁾

Net unrealized losses include the valuation changes of AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and other.

The calculation of earnings per common share and diluted earnings per common share for the three and six months ended June 30, 2005 and 2004 is presented below.


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions, except per share information; shares in thousands)	2005			2004			2005			2004
Earnings per common share
Net income	$	4,296		$	3,849		$	8,991		$	6,530
Preferred stock dividends		(4	)		(5	)		(9	)		(6	)

Net income available to common shareholders	$	4,292		$	3,844		$	8,982		$	6,524

Average common shares issued and outstanding		4,005,356			4,062,384			4,019,089			3,471,516

Earnings per common share	$	1.07		$	0.95		$	2.23		$	1.88

Diluted earnings per common share
Net income available to common shareholders	$	4,292		$	3,844		$	8,982		$	6,524
Convertible preferred stock dividends		—			1			—			2

Net income available to common shareholders and assumed conversions	$	4,292		$	3,845		$	8,982		$	6,526

Average common shares issued and outstanding		4,005,356			4,062,384			4,019,089			3,471,516
Dilutive potential common shares^{(1, 2)}		59,999			68,906			62,832			59,522

Total diluted average common shares issued and outstanding		4,065,355			4,131,290			4,081,921			3,531,038

Diluted earnings per common share	$	1.06		$	0.93		$	2.20		$	1.85

⁽¹⁾

For the three and six months ended June 30, 2005, average options to purchase 45 million and 35 million shares were outstanding but not included in the computation of earnings per common share because they were antidilutive. For the three and six months ended June 30, 2004, average options to purchase 73 million and 55 million shares were outstanding but not included in the computation of earnings per common share because they were antidilutive.

⁽²⁾

Includes incremental shares from assumed conversions of convertible preferred stock, restricted stock units, restricted stock shares and stock options.

The Board increased the quarterly cash dividend 11 percent from $0.45 to $0.50 per common share. The cash dividend will be payable September 23, 2005 to common shareholders of record on September 2, 2005.

Note 12 - Pension and Postretirement Plans

The Corporation sponsors noncontributory trusteed qualified pension plans that cover substantially all officers and employees, a number of noncontributory nonqualified pension plans, and postretirement health and life plans. The Bank of America Pension Plan (the Pension Plan) allows participants to select from various earnings measures, which are based on the returns of certain funds or common stock of the Corporation. The participant-selected earnings measures determine the earnings rate on the individual participant account balances in the Pension Plan. A detailed discussion of these plans is provided in Note 15 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005.

As a result of the Merger, the Corporation assumed the obligations related to the plans of former FleetBoston. These plans are substantially similar to the legacy Bank of America plans discussed in Note 15 of the Consolidated Financial Statements of the Corporation’s Current Report on Form 8-K filed on July 12, 2005, however, the FleetBoston Financial Pension Plan does not allow participants to select various earnings measures, rather the earnings rate is based on a benchmark rate. The tables within this Note include the information related to these plans beginning on April 1, 2004.

Net periodic benefit cost of the Corporation’s plans for the three months ended June 30, 2005 and 2004 included the following components:


	Three Months Ended June 30
	Qualified Pension Plans						Nonqualified Pension Plans					Postretirement Health and Life Plans
(Dollars in millions)	2005			2004			2005			2004		2005		2004
Components of net periodic benefit cost
Service cost	$	77		$	67		$	4		$	6	$ 2		$ 2
Interest cost		163			166			15			18	19		21
Expected return on plan assets		(248	)		(244	)		—			—	(3	)	(5	)
Amortization of transition obligation		—			—			—			—	8		8
Amortization of prior service cost		11			13			(1	)		—	—		—
Recognized net actuarial loss		37			26			4			2	17		21

Net periodic benefit cost	$	40		$	28		$	22		$	26	$ 43		$ 47

Net periodic benefit cost of the Corporation’s plans for the six months ended June 30, 2005 and 2004 included the following components:


	Six Months Ended June 30
	Qualified Pension Plans						Nonqualified Pension Plans					Postretirement Health and Life Plans
(Dollars in millions)	2005			2004			2005			2004		2005		2004
Components of net periodic benefit cost
Service cost	$	154		$	121		$	7		$	13	$ 5		$ 5
Interest cost		328			296			31			29	38		38
Expected return on plan assets		(496	)		(434	)		—			—	(7	)	(8	)
Amortization of transition obligation		—			—			—			—	16		16
Amortization of prior service cost		23			27			(3	)		1	—		—
Recognized net actuarial loss		75			46			9			7	34		43
Recognized loss due to settlements and curtailments		—			—			9			—	—		—

Net periodic benefit cost	$	84		$	56		$	53		$	50	$ 86		$ 94

The Corporation previously disclosed that its best estimate of its contributions to be made to the Qualified Pension Plans, Nonqualified Pension Plans, and the Postretirement Health and Life Plans in 2005 is $0, $114 million and $37 million, respectively. For the six months ended June 30, 2005, the Corporation had contributed $0, $87 million and $19 million, respectively, to these plans.

Note 13 - Business Segment Information

The Corporation reports the results of its operations through four business segments: Global Consumer and Small Business Banking, Global Business and Financial Services, Global Capital Markets and Investment Banking, and Global Wealth and Investment Management. Certain operating segments have been aggregated into a single business segment. The Corporation may periodically reclassify business segment results based on modifications to its management reporting methodologies and changes in organizational alignment.

Global Consumer and Small Business Banking provides a diversified range of products and services to individuals and small businesses through multiple delivery channels. Global Business and Financial Services serves domestic and international business clients providing financial services, specialized industry expertise and local delivery through a global team of client managers and a variety of businesses. Global Capital Markets and Investment Banking provides capital-raising solutions, advisory services, derivatives capabilities, equity and debt sales and trading for the Corporation’s clients as well as traditional bank deposit and loan products, treasury management and payment services to large corporations and institutional clients. Global Wealth and Investment Management offers investment services, estate management, financial planning services, fiduciary management, credit and banking expertise, and diversified asset management products to institutional clients as well as affluent and high-net-worth individuals.

All Other consists primarily of Equity Investments, Noninterest Income and Expense amounts associated with the ALM process (including Gains on Sales of Debt Securities), the residual impact of the allowance for credit losses processes and funds transfer pricing allocation methodologies, Merger and Restructuring Charges, intersegment eliminations, and the results of certain consumer finance and commercial lending businesses that are being liquidated.

Total Revenue includes Net Interest Income on a fully taxable-equivalent basis and Noninterest Income. The adjustment of Net Interest Income to a fully taxable-equivalent basis results in a corresponding increase in Income Tax Expense. The Net Interest Income of the business segments includes the results of a funds transfer pricing process that matches assets and liabilities with similar interest rate sensitivity and maturity characteristics. Net Interest Income of the business segments also includes an allocation of Net Interest Income generated by the Corporation’s ALM process.

Certain expenses not directly attributable to a specific business segment are allocated to the segments based on pre-determined means. The most significant of these expenses include data processing costs, item processing costs and certain centralized or shared functions. Data processing costs are allocated to the segments based on equipment usage. Item processing costs are allocated to the segments based on the volume of items processed for each segment. The cost of certain centralized or shared functions are allocated based on methodologies which reflect utilization.

The following tables present Total Revenue on a fully taxable-equivalent (FTE) basis and Net Income for the three and six months ended June 30, 2005 and 2004 for each business segment, as well as All Other.

Business Segments


For the three months ended June 30
	Total Corporation						Global Consumer and Small Business Banking ⁽¹⁾
(Dollars in millions)	2005			2004			2005			2004
Net interest income (fully taxable-equivalent basis)	$	7,841		$	7,751		$	4,129		$	4,163
Noninterest income		6,365			5,467			2,933			2,560

Total revenue		14,206			13,218			7,062			6,723
Provision for credit losses		875			789			1,143			641
Gains (losses) on sales of debt securities		325			795			—			(2	)
Amortization of intangibles		204			201			139			132
Other noninterest expense		6,815			7,027			3,284			3,203

Income before income taxes		6,637			5,996			2,496			2,745
Income tax expense		2,341			2,147			901			1,005

Net income	$	4,296		$	3,849		$	1,595		$	1,740

Average total assets	$	1,277,489		$	1,094,459		$	326,922		$	343,353


	Global Business and Financial Services ⁽¹⁾						Global Capital Markets and Investment Banking ⁽¹⁾
(Dollars in millions)	2005			2004			2005			2004
Net interest income (fully taxable-equivalent basis)	$	1,898		$	1,749		$	880		$	1,130
Noninterest income		793			681			1,241			1,504

Total revenue		2,691			2,430			2,121			2,634
Provision for credit losses		(164	)		(5	)		(73	)		4
Gains (losses) on sales of debt securities		70			—			51			(4	)
Amortization of intangibles		33			36			12			13
Other noninterest expense		978			1,046			1,513			1,995

Income before income taxes		1,914			1,353			720			618
Income tax expense		697			504			259			207

Net income	$	1,217		$	849		$	461		$	411

Average total assets	$	217,181		$	201,685		$	430,099		$	328,130


	Global Wealth and Investment Management ⁽¹⁾						All Other
(Dollars in millions)	2005			2004			2005			2004
Net interest income (fully taxable-equivalent basis)	$	910		$	677		$	24		$	32
Noninterest income		927			869			471			(147	)

Total revenue		1,837			1,546			495			(115	)
Provision for credit losses		(9	)		10			(22	)		139
Gains on sales of debt securities		—			—			204			801
Amortization of intangibles		19			19			1			1
Other noninterest expense		903			893			137			(110	)

Income before income taxes		924			624			583			656
Income tax expense		334			226			150			205

Net income	$	590		$	398		$	433		$	451

Average total assets	$	128,401		$	87,015		$	174,886		$	134,276


Business Segments For the six months ended June 30
	Total Corporation					Global Consumer and Small Business Banking⁽¹⁾
(Dollars in millions)	2005			2004		2005			2004
Net interest income (fully taxable-equivalent basis)	$	15,913		$	13,721	$	8,380		$	7,258
Noninterest income		12,514			9,197		5,644			4,190

Total revenue		28,427			22,918		14,024			11,448
Provision for credit losses		1,455			1,413		1,857			1,069
Gains (losses) on sales of debt securities		984			1,290		(1	)		(1	)
Amortization of intangibles		412			255		281			167
Other noninterest expense		13,664			12,403		6,452			5,771

Income before income taxes		13,880			10,137		5,433			4,440
Income tax expense		4,889			3,607		1,939			1,630

Net income	$	8,991		$	6,530	$	3,494		$	2,810

Average total assets	$	1,239,398		$	963,825	$	330,204		$	289,309

	Global Business and Financial Services ⁽¹⁾					Global Capital Markets and Investment Banking⁽¹⁾
(Dollars in millions)	2005			2004		2005			2004
Net interest income (fully taxable-equivalent basis)	$	3,813		$	2,887	$	1,818		$	2,161
Noninterest income		1,612			1,112		2,935			2,647

Total revenue		5,425			3,999		4,753			4,808
Provision for credit losses		(221	)		86		(170	)		(95	)
Gains (losses) on sales of debt securities		71			—		80			(11	)
Amortization of intangibles		66			43		24			19
Other noninterest expense		1,939			1,591		3,147			3,553

Income before income taxes		3,712			2,279		1,832			1,320
Income tax expense		1,373			838		650			456

Net income	$	2,339		$	1,441	$	1,182		$	864

Average total assets	$	214,421		$	161,640	$	401,621		$	312,241

	Global Wealth and Investment Management⁽¹⁾					All Other
(Dollars in millions)	2005			2004		2005			2004
Net interest income (fully taxable-equivalent basis)	$	1,851		$	1,278	$	51		$	137
Noninterest income		1,780			1,369		543			(121	)

Total revenue		3,631			2,647		594			16
Provision for credit losses		(7	)		2		(4	)		351
Gains on sales of debt securities		—			—		834			1,302
Amortization of intangibles		37			24		4			2
Other noninterest expense		1,788			1,606		338			(118	)

Income before income taxes		1,813			1,015		1,090			1,083
Income tax expense		647			370		280			313

Net income	$	1,166		$	645	$	810		$	770

Average total assets	$	126,146		$	78,452	$	167,006		$	122,183

⁽¹⁾

There were no material intersegment revenues among the segments.

The following table presents reconciliations of the four business segments’ Total Revenue on a FTE basis and Net Income to Consolidated Statement of Income totals. The adjustments presented in the table below include consolidated income and expense amounts not specifically allocated to individual business segments.


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in millions)	2005			2004			2005			2004
Segments’ revenue	$	13,711		$	13,333		$	27,833		$	22,902
Adjustments:
Revenue associated with unassigned capital		91			82			170			203
ALM activities		229			(25	)		244			(22	)
Equity investments		296			6			480			(14	)
Liquidating businesses		46			75			104			160
Fully taxable-equivalent basis adjustment		(191	)		(170	)		(390	)		(339	)
Other		(167	)		(253	)		(404	)		(311	)

Consolidated revenue	$	14,015		$	13,048		$	28,037		$	22,579

Segments’ net income	$	3,863		$	3,398		$	8,181		$	5,760
Adjustments, net of taxes:
Earnings associated with unassigned capital		61			54			113			135
ALM activities ⁽¹⁾		250			488			635			777
Equity investments		167			(13	)		265			(42	)
Liquidating businesses		23			56			42			25
Merger and restructuring charges		(80	)		(83	)		(155	)		(83	)
Other		12			(51	)		(90	)		(42	)

Consolidated net income	$	4,296		$	3,849		$	8,991		$	6,530

⁽¹⁾

Includes pre-tax Gains on Sales of Debt Securities of $206 million and $799 million for the three months ended June 30, 2005 and 2004, and $833 million and $1,297 million for the six months ended June 30, 2005 and 2004.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This report on Form 10-Q contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to identify such forward-looking statements. Readers of the Form 10-Q of Bank of America Corporation and its subsidiaries (the Corporation) should not rely solely on the forward-looking statements and should consider all uncertainties and risks throughout this report as well as those discussed in the Corporation’s Current Report on Form 8-K filed on July 12, 2005. The statements are representative only as of the date they are made, and the Corporation undertakes no obligation to update any forward-looking statement.

Possible events or factors that could cause results or performance to differ materially from those expressed in our forward-looking statements include the following: changes in general economic conditions and economic conditions in the geographic regions and industries in which the Corporation operates which may affect, among other things, the level of nonperforming assets, charge-offs and provision expense; changes in the interest rate environment which may reduce interest margins and impact funding sources; changes in foreign exchange rates; adverse movements and volatility in debt and equity capital markets; changes in market rates and prices which may adversely impact the value of financial products including securities, loans, deposits, debt and derivative financial instruments, and other similar financial instruments; political conditions and related actions by the United States abroad which may adversely affect the Corporation’s businesses and economic conditions as a whole; liabilities resulting from litigation and regulatory investigations, including costs, expenses, settlements and judgments; changes in domestic or foreign tax laws, rules and regulations as well as Internal Revenue Service or other governmental agencies’ interpretations thereof; various monetary and fiscal policies and regulations, including those determined by the Board of Governors of the Federal Reserve System (FRB), the Office of the Comptroller of Currency, the Federal Deposit Insurance Corporation and state regulators; competition with other local, regional and international banks, thrifts, credit unions and other nonbank financial institutions; ability to grow core businesses; ability to develop and introduce new banking-related products, services and enhancements, and gain market acceptance of such products; mergers and acquisitions and their integration into the Corporation; decisions to downsize, sell or close units or otherwise change the business mix of the Corporation; and management’s ability to manage these and other risks.

The Corporation, headquartered in Charlotte, North Carolina, operates in 29 states, the District of Columbia and 43 foreign countries. The Corporation provides a diversified range of banking and nonbanking financial services and products both domestically and internationally through four business segments: Global Consumer and Small Business Banking, Global Business and Financial Services, Global Capital Markets and Investment Banking, and Global Wealth and Investment Management.

At June 30, 2005, we had $1.2 trillion in assets and approximately 177,000 full-time equivalent employees. Notes to Consolidated Financial Statements referred to in Management’s Discussion and Analysis of Results of Operations and Financial Condition are incorporated by reference into Management’s Discussion and Analysis of Results of Operations and Financial Condition. Certain prior period amounts have been reclassified to conform to current period presentation.

On June 30, 2005, we announced a definitive agreement to acquire all outstanding shares of MBNA Corporation (MBNA), a leading provider of credit card and payment products, for approximately $35 billion in cash (15 percent) and stock (85 percent). Under the terms of the agreement, MBNA stockholders will receive 0.5009 of a share of our common stock plus $4.125 for each MBNA share of common stock. The transaction is expected to close by the end of the year.

On June 17, 2005, we announced a definitive agreement to purchase approximately nine percent of the stock of China Construction Bank (CCB) for $3.0 billion. Under the agreement, we will make an initial purchase of CCB shares for $2.5 billion and an additional purchase of $500 million at the time of its initial public offering. We also have the option of increasing our stake over the next five-and-one-half years to 19.9 percent of the company. CCB is the second largest commercial bank in China based on total assets.

Our Board of Directors (the Board) increased the quarterly cash dividend 11 percent from $0.45 to $0.50 per share. The dividend will be payable September 23, 2005 to common shareholders of record on September 2, 2005.

On June 13, 2005, Fleet National Bank merged with and into Bank of America, National Association (Bank of America, N.A.), with Bank of America, N.A. as the surviving entity.

On October 15, 2004, we acquired 100 percent of National Processing, Inc. (NPC), for $1.4 billion in cash, creating the second largest merchant processor in the United States.

On April 1, 2004, we completed our merger with FleetBoston Financial Corporation (FleetBoston) (the Merger) after obtaining final shareholder and regulatory approvals. The Merger was accounted for under the purchase method of accounting. Accordingly, results for the three months and six months ended June 30, 2004 include three months of combined company results.

Performance Overview

Net Income totaled $4.3 billion, or $1.06 per diluted common share and $9.0 billion, or $2.20 per diluted common share, for the three and six months ended June 30, 2005, increases of 12 percent and 14 percent, and 38 percent and 19 percent, respectively, from $3.8 billion, or $0.93 per diluted common share and $6.5 billion, or $1.85 per diluted common share, for the three and six months ended June 30, 2004.

Business Segment Total Revenue and Net Income


	Total Revenue						Net Income				Total Revenue						Net Income
	Three Months Ended June 30										Six Months Ended June 30
(Dollars in millions)	2005			2004			2005		2004		2005			2004			2005		2004
Global Consumer and Small Business Banking	$	7,062		$	6,723		$	1,595	$	1,740	$	14,024		$	11,448		$	3,494	$	2,810
Global Business and Financial Services		2,691			2,430			1,217		849		5,425			3,999			2,339		1,441
Global Capital Markets and Investment Banking		2,121			2,634			461		411		4,753			4,808			1,182		864
Global Wealth and Investment Management		1,837			1,546			590		398		3,631			2,647			1,166		645
All Other		495			(115	)		433		451		594			16			810		770

Total FTE basis ⁽¹⁾		14,206			13,218			4,296		3,849		28,427			22,918			8,991		6,530
FTE adjustment ⁽¹⁾		(191	)		(170	)		—		—		(390	)		(339	)		—		—

Total	$	14,015		$	13,048		$	4,296	$	3,849	$	28,037		$	22,579		$	8,991	$	6,530

⁽¹⁾	Total revenue for the segments and All Other is on a fully taxable-equivalent (FTE) basis. For more information on a FTE basis, see Supplemental Financial Data beginning on page 37.

Global Consumer and Small Business Banking

Net Income decreased $145 million, or eight percent, to $1.6 billion for the three months ended June 30, 2005, compared to the same period in 2004. Driving the decrease was a $502 million increase in Provision for Credit Losses. The increase in Provision for Credit Losses to $1.1 billion from $641 million was due to the establishment of a $210 million reserve related to additional changes that will be made in credit card minimum payment requirements later this year and higher net charge-offs of $206 million, of which $189 million was due to an increase in credit card net charge-offs. Partially offsetting this was a $373 million increase in Noninterest Income as a $274 million increase in Card Income and a $138 million increase in Service Charges were partially offset by an $108 million decrease in Consumer Mortgage Banking Income.

Net Income increased $684 million, or 24 percent, to $3.5 billion for the six months ended June 30, 2005, compared to the same period in 2004. Driving the increase was the addition of the FleetBoston portfolio, which contributed to the $1.1 billion increase in Net Interest Income, the $752 million increase in Card Income and the $370 million increase in Service Charges. Partially offsetting this was a $795 million increase in Noninterest Expense and a $788 million increase in Provision for Credit Losses. The increase in Provision for Credit Losses to $1.9 billion from $1.1 billion was primarily driven by higher net charge-offs of $531 million due to the addition of the FleetBoston credit card portfolio and growth in the credit card portfolio. The credit card minimum payment reserves previously discussed also drove higher Provision for Credit Losses. For more information on Global Consumer and Small Business Banking, see page 44.

Global Business and Financial Services

Net Income increased $368 million, or 43 percent, to $1.2 billion for the three months ended June 30, 2005, compared to the same period in 2004. Net Interest Income increased $149 million as Average Loans and Leases increased $12.6 billion, or eight percent, and Average Deposits increased $4.1 billion, or four percent. The increase in Average Loans and Leases was primarily due to loan growth in Dealer Financial Services, Middle Market Banking, Commercial Real Estate Banking and Business Banking. Also driving the improved results was a $159 million decrease in Provision for Credit Losses to negative $164 million.

Net Income increased $898 million, or 62 percent, to $2.3 billion for the six months ended June 30, 2005, compared to the same period in 2004. The increase was primarily due to a $926 million increase in Net Interest Income as Average Loans and Leases increased $37.5 billion, or 27 percent, and Average Deposits increased $23.7 billion, or 29 percent. The increase in Average Loans and Leases was primarily due to the addition of FleetBoston and organic loan growth in Dealer Financial Services, Commercial Real Estate Banking, Middle Market Banking and Business Banking. Deposit balance growth resulted from the addition of FleetBoston and the organic deposit growth in Business Banking and Commercial Real Estate Banking. Also driving the improved results was a $307 million decrease in Provision for Credit Losses to negative $221 million. For more information on Global Business and Financial Services, see page 51.

Global Capital Markets and Investment Banking

Net Income increased $50 million, or 12 percent, to $461 million for the three months ended June 30, 2005, compared to the same period in 2004. The increase was driven by lower Noninterest Expense of $483 million and lower Provision for Credit Losses of $77 million, offset by a decrease in Trading Account Profits of $133 million and lower Investment Banking Income of $125 million. The decrease in Noninterest Expense was primarily driven by the absence of litigation expense incurred during the three months ended June 30, 2004. Also impacting Net Income was a decline in Net Interest Income of $250 million as a result of a flattening yield curve.

Net Income increased $318 million, or 37 percent, to $1.2 billion for the six months ended June 30, 2005, compared to the same period in 2004. The increase was driven by lower Noninterest Expense of $401 million, higher Trading Account Profits of $303 million and increased Equity Investment Gains of $104 million. These increases were offset by a decrease in Investment Banking Income of $156 million primarily due to a decline in securities underwriting. Also impacting Net Income was a decline in Net Interest Income of $343 million as a result of a flattening yield curve partially offset by the addition of the FleetBoston portfolio. For more information on Global Capital Markets and Investment Banking, see page 53.

Global Wealth and Investment Management

Net Income increased $192 million, or 48 percent, to $590 million for the three months ended June 30, 2005, compared to the same period in 2004. Driving the increase was an additional $233 million in Net Interest Income due to increases in loans and deposits in both Premier Banking and The Private Bank. Also contributing to the increase in Net Income was higher Equity Investment Gains of $63 million. Expenses remained relatively unchanged.

Net Income increased $521 million, or 81 percent, to $1.2 billion for the six months ended June 30, 2005, compared to the same period in 2004. The increase was due to an additional $573 million in Net Interest Income as we experienced increases in loans and deposits in both Premier Banking and The Private Bank, and the addition of FleetBoston earning assets to the portfolio. Also contributing to the increase in Net Income was higher Investment and Brokerage Services income of $345 million. Partially offsetting these increases were higher Personnel costs of $165 million related primarily to the addition of FleetBoston. Total assets under management decreased $8.7 billion, or two percent, to $442.8 billion at June 30, 2005 compared to December 31, 2004, driven by net outflows of $6.4 billion primarily in short-term money market assets. For more information on Global Wealth and Investment Management, see page 57.

All Other

Net Income decreased $18 million, or 4 percent, to $433 million but increased $40 million, or 5 percent, to $810 million for the three and six months ended June 30, 2005, compared to the same periods in 2004. For more information on All Other, see page 60.

Financial Highlights

Net Interest Income

Net Interest Income on a FTE basis increased $90 million to $7.8 billion and $2.2 billion to $15.9 billion for the three and six months ended June 30, 2005 compared to the same periods in 2004. The primary driver of the six month increase was the Merger. In addition, these increases were driven by growth in consumer (primarily credit card and home equity) and commercial loan levels, a larger asset-liability management (ALM) portfolio (primarily securities) and higher domestic deposit levels. Partially offsetting these increases were the negative impact of spread compression due to the flattening of the yield curve, a lower trading-related contribution and reductions in loan balances from corporate, foreign and exited businesses. The net interest yield on a FTE basis declined 50 basis points (bps) to 2.81 percent and 34 bps to 2.95 percent for the three and six months ended June 30, 2005 primarily due to the negative impact of an increase in lower-yielding trading-related balances and spread compression due to flattening of the yield curve partially offset by growth in core deposit and consumer loan levels. For more information on Net Interest Income on a FTE basis, see Tables 5 and 6 on pages 41 through 43.

Noninterest Income

Noninterest Income


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions)	2005		2004		2005		2004
Service charges	$	1,920	$	1,783	$	3,697	$	3,199
Investment and brokerage services		1,049		999		2,062		1,634
Mortgage banking income		189		299		410		508
Investment banking income		431		547		797		951
Equity investment gains		492		84		891		217
Card income		1,437		1,159		2,726		1,954
Trading account profits		285		413		1,045		416
Other income		562		183		886		318

Total noninterest income	$	6,365	$	5,467	$	12,514	$	9,197

Noninterest Income increased $898 million to $6.4 billion for the three months ended June 30, 2005 compared to the same period in 2004, due primarily to organic growth and whole mortgage loan sale gains.

•

Service Charges grew $137 million driven by a growing number of new consumer and commercial accounts.

•

Investment and Brokerage Services increased $50 million due to growth in the fee-based portfolio.

•

Mortgage Banking Income decreased $110 million due primarily to a reduction in production income from lower production margins and sold volumes, offset by higher net servicing income partially driven by gains on derivative contracts that were used to hedge changes in the fair value of the Mortgage Servicing Rights (MSRs).

•

Investment Banking Income declined $116 million and included an $84 million decline in securities underwriting and a $55 million decrease in syndications partially offset by a $21 million increase in advisory services.

•

Equity Investment Gains increased $408 million due to a $269 million increase in Principal Investing, which was a result of increasing liquidity in the private equity markets.

•

Card Income increased $278 million due to increased interchange income and merchant discount fees driven by growth in debit and credit card purchase volumes, as well as the acquisition of NPC and increases in average managed credit card outstandings.

•

Trading Account Profits decreased $128 million due to a volatile credit market and flattening of the yield curve.

•

Other Income increased $379 million driven primarily by higher whole mortgage loan sale gains of $279 million.

Noninterest Income increased $3.3 billion to $12.5 billion for the six months ended June 30, 2005 compared to the same period in 2004, due primarily to the addition of FleetBoston and organic growth.

•

Service Charges grew $498 million driven by the addition of FleetBoston customers and organic account growth.

•

Investment and Brokerage Services increased $428 million due to the addition of the FleetBoston business.

•

Mortgage Banking Income decreased $98 million due primarily to a reduction in production income from lower production margins and sold volumes, offset by higher net servicing income partially driven by gains on derivative contracts that were used to hedge changes in the fair value of the MSRs.

•

Investment Banking Income declined $154 million and included a $147 million decline in securities underwriting and a $26 million decrease in syndications partially offset by a $16 million increase in advisory services.

•

Equity Investment Gains increased $674 million due to a $496 million increase in Principal Investing, which was a result of increasing liquidity in the private equity markets.

•

Card Income increased $772 million due to increased interchange income and merchant discount fees driven by growth in debit and credit card purchase volumes, as well as the acquisition of NPC and increases in average managed credit card outstandings.

•

Trading Account Profits increased $629 million due to increased customer activity, more active portfolio management in our market-making books and the absence of a writedown of the Excess Spread Certificates (the Certificates) that occurred in the prior year.

•

Other Income increased $568 million driven primarily by the addition of FleetBoston and higher whole mortgage loan sale gains of $278 million.

Provision for Credit Losses

The Provision for Credit Losses increased $86 million to $875 million and $42 million to $1.5 billion for the three and six months ended June 30, 2005 compared to the same periods in 2004. These increases were driven by higher consumer net charge-offs of $190 million and $494 million, of which $189 million and $486 million of the increases were from credit card net charge-offs. Higher credit card net charge-offs for both periods were driven by organic portfolio growth and seasoning, the return of previously securitized loans to the balance sheet, increases effective in 2004 in credit card minimum payment requirements and a temporary increase in bankruptcy net charge-offs resulting from changes in bankruptcy legislation. Credit card net charge-offs for the six months ended June 30, 2005 also increased due to the addition of the FleetBoston portfolio. The increased net charge-offs associated with the 2004 changes in credit card minimum payment requirements did not impact the Provision for Credit Losses in the first half of 2005 as those expected net charge-offs were provided for in late 2004. Also driving the increases in Provision for Credit Losses was the establishment, during the second quarter of 2005, of $210 million of Allowance for Loan and Lease Losses related to additional changes that will be made in credit card minimum payment requirements later this year. Partially offsetting these increases were decreases of $93 million and $322 million in the commercial Provision for Credit Losses to negative $48 million and negative $222 million for the three and six months ended June 30, 2005 compared to the same periods of 2004. For both periods, lower commercial net charge-offs were the primary driver of the decreased commercial Provision for Credit Losses. The Provision for Credit Losses for the first half of 2005 included a $250 million reduction in the general portion of the Allowance for Loan and Lease Losses as credit integration uncertainties related to FleetBoston were reduced during the second quarter. For more information on credit quality, see Credit Risk Management beginning on page 67.

Gains on Sales of Debt Securities

Gains on Sales of Debt Securities for the three and six months ended June 30, 2005 were $325 million and $984 million compared to $795 million and $1.3 billion for the same periods in 2004, primarily as a result of ALM activity to manage mortgage prepayment and interest rate risk. For more information on Gains on Sales of Debt Securities, see Market Risk Management beginning on page 85.

Noninterest Expense

Noninterest Expense


	Three Months Ended June 30				Six Months Ended June 30
(Dollars in millions)	2005		2004		2005		2004
Personnel	$	3,671	$	3,629	$	7,372	$	6,381
Occupancy		615		621		1,251		1,109
Equipment		297		318		594		579
Marketing		346		367		683		648
Professional fees		216		194		393		354
Amortization of intangibles		204		201		412		255
Data processing		368		333		732		617
Telecommunications		196		183		402		334
Other general operating		985		1,257		2,004		2,256
Merger and restructuring charges		121		125		233		125

Total noninterest expense	$	7,019	$	7,228	$	14,076	$	12,658

Noninterest Expense decreased $209 million to $7.0 billion for the three months ended June 30, 2005 compared to the same period in 2004, primarily due to the absence of litigation expense in the current period that was recorded in Other General Operating Expense.

Noninterest Expense increased $1.4 billion to $14.1 billion for the six months ended June 30, 2005 compared to the same period in 2004, primarily due to the addition of FleetBoston.

•

Personnel Expense increased $991 million primarily due to the impact of FleetBoston associates and increases in salaries and wages and incentive compensation.

•

Occupancy Expense increased $142 million due to the impact of the Merger.

•

Amortization of Intangibles increased $157 million driven by amortization of intangible assets acquired in the Merger.

•

Merger and Restructuring Charges were $108 million higher in connection with the integration of FleetBoston’s operations. For more information on Merger and Restructuring Charges, see Note 2 of the Consolidated Financial Statements.

Income Tax Expense

For the three months ended June 30, 2005, Income Tax Expense was $2.2 billion, reflecting an effective tax rate of 33.4 percent, compared to $2.0 billion and 33.9 percent during the same period in 2004. The higher effective tax rate for 2004 primarily resulted from adjustments to the expected annual effective tax rate related to the Merger, taking into consideration higher state taxes and the effect of purchase accounting. Income Tax Expense was $4.5 billion, reflecting an effective tax rate of 33.4 percent, for the six months ended June 30, 2005 compared to $3.3 billion and 33.4 percent for the six months ended June 30, 2004.

Assets

Average Loans and Leases have remained relatively flat for the three months ended June 30, 2005 with a decrease of $4.5 billion, or one percent, from the three months ended March 31, 2005 and an increase of $5.0 billion or one percent, from the three months ended December 31, 2004. Average Securities increased $22.6 billion, or 11 percent, and $56.0 billion, or 33 percent, from the three months ended March 31, 2005 and December 31, 2004, as a result of repositioning our ALM portfolio and investing excess cash from deposit growth. Additionally, for the three months ended June 30, 2005 compared to the three months ended March 31, 2005 and December 31, 2004, average trading-related assets increased $16.4 billion, or 14 percent, and $23.6 billion, or 21 percent, as we expanded our trading book to accommodate the needs of our clients. For more information, see Tables 5 and 6 on pages 41 through 43.

Liabilities and Shareholders’ Equity

Average core deposits increased $10.9 billion, or two percent, and $20.3 billion, or four percent, for the three months ended June 30, 2005 compared to the three months ended March 31, 2005 and December 31, 2004. The increase was attributable to organic growth which resulted from our continued improvements in customer satisfaction, new product offerings and our account growth efforts. At June 30, 2005, our Tier 1 Capital ratio was 8.06 percent, compared to 8.20 percent and 8.10 percent at March 31, 2005 and December 31, 2004. For more information, see Tables 5 and 6 on pages 41 through 43, and Capital Management beginning on page 65.


*Table 1* Selected Quarterly Financial Data
(Dollars in millions, except per share information)	2005 Quarters						2004 Quarters
	Second			First			Fourth			Third			Second
Income statement
Net interest income	$	7,650		$	7,873		$	7,747		$	7,665		$	7,581
Noninterest income		6,365			6,149			5,966			4,922			5,467
Total revenue		14,015			14,022			13,713			12,587			13,048
Provision for credit losses		875			580			706			650			789
Gains on sales of debt securities		325			659			101			732			795
Noninterest expense		7,019			7,057			7,333			7,021			7,228
Income before income taxes		6,446			7,044			5,775			5,648			5,826
Income tax expense		2,150			2,349			1,926			1,884			1,977
Net income		4,296			4,695			3,849			3,764			3,849
Average common shares issued and outstanding (in thousands)		4,005,356			4,032,550			4,032,979			4,052,304			4,062,384
Average diluted common shares issued and outstanding (in thousands)		4,065,355			4,099,062			4,106,040			4,121,375			4,131,290

Performance ratios
Return on average assets		1.35	%		1.59	%		1.33	%		1.37	%		1.41	%
Return on average common shareholders’ equity		17.54			19.30			15.63			15.56			16.63
Total equity to total assets (period end)		8.07			8.13			8.97			9.14			9.35
Total average equity to total average assets		7.70			8.23			8.51			8.79			8.52
Dividend payout		42.17			39.02			47.45			48.75			42.60

Per common share data
Earnings	$	1.07		$	1.16		$	0.95		$	0.93		$	0.95
Diluted earnings		1.06			1.14			0.94			0.91			0.93
Dividends paid		0.45			0.45			0.45			0.45			0.40
Book value		24.96			24.35			24.56			24.14			23.51

Average balance sheet
Total loans and leases	$	520,424		$	524,944		$	515,463		$	503,078		$	497,158
Total assets		1,277,489			1,200,883			1,152,551			1,096,683			1,094,459
Total deposits		640,593			627,419			609,936			587,878			582,305
Long-term debt		97,360			97,126			99,588			98,361			96,395
Common shareholders’ equity		98,145			98,542			97,828			96,120			92,943
Total shareholders’ equity		98,417			98,814			98,100			96,392			93,266

Capital ratios
Risk-based capital:
Tier 1		8.06	%		8.20	%		8.10	%		8.08	%		8.20	%
Total		11.12			11.46			11.63			11.71			11.97
Leverage		5.59			5.82			5.82			5.92			5.83

Market price per share of common stock
Closing	$	45.61		$	44.10		$	46.99		$	43.33		$	42.31
High closing		47.08			47.08			47.44			44.98			42.72
Low closing		44.01			43.66			43.62			41.81			38.96


*Table 2* Selected Year-to-Date Financial Data
	Six Months Ended June 30
(Dollars in millions, except per share information)	2005			2004
Income statement
Net interest income	$	15,523		$	13,382
Noninterest income		12,514			9,197
Total revenue		28,037			22,579
Provision for credit losses		1,455			1,413
Gains on sales of debt securities		984			1,290
Noninterest expense		14,076			12,658
Income before income taxes		13,490			9,798
Income tax expense		4,499			3,268
Net income		8,991			6,530
Average common shares issued and outstanding (in thousands)		4,019,089			3,471,516
Average diluted common shares issued and outstanding (in thousands)		4,081,921			3,531,038

Performance ratios
Return on average assets		1.46	%		1.36	%
Return on average common shareholders’ equity		18.42			18.54
Total equity to total assets (period end)		8.07			9.35
Total average equity to total average assets		7.96			7.36
Dividend payout		40.53			42.85

Per common share data
Earnings	$	2.23		$	1.88
Diluted earnings		2.20			1.85
Dividends paid		0.90			0.80
Book value		24.96			23.51

Average balance sheet
Total loans and leases	$	522,672		$	435,618
Total assets		1,239,398			963,825
Total deposits		634,043			503,690
Long-term debt		97,244			87,623
Common shareholders’ equity		98,343			70,787
Total shareholders’ equity		98,614			70,976

Capital ratios
Risk-based capital:
Tier 1		8.06	%		8.20	%
Total		11.12			11.97
Leverage		5.59			5.83

Market price per share of common stock
Closing	$	45.61		$	42.31
High closing		47.08			42.72
Low closing		43.66			38.96

Supplemental Financial Data

Table 3 provides a reconciliation of the supplemental financial data mentioned below with GAAP financial measures. Other companies may define or calculate supplemental financial data differently.

Operating Basis Presentation

In managing our business, we may at times look at performance excluding certain non-recurring items. For example, as an alternative to Net Income, we view results on an operating basis, which represents Net Income excluding Merger and Restructuring Charges. The operating basis of presentation is not defined by accounting

principles generally accepted in the United States (GAAP). We believe that the exclusion of Merger and Restructuring Charges, which represent events outside our normal operations, provides a meaningful period-to-period comparison and is more reflective of normalized operations.

Net Interest Income — FTE Basis

In addition, we view Net Interest Income and related ratios and analysis (i.e. efficiency ratio, net interest yield and operating leverage) on a FTE basis. Although this is a non-GAAP measure, we believe managing the business with Net Interest Income on a FTE basis provides a more accurate picture of the interest margin for comparative purposes. To derive the FTE basis, Net Interest Income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis with a corresponding increase in Income Tax Expense. For purposes of this calculation, we use the federal statutory tax rate of 35 percent. This measure ensures comparability of Net Interest Income arising from both taxable and tax-exempt sources.

Performance Measures

As mentioned above, certain performance measures including the efficiency ratio, net interest yield and operating leverage utilize Net Interest Income (and thus Total Revenue) on a FTE basis. The efficiency ratio measures the costs expended to generate a dollar of revenue, and net interest yield evaluates how many basis points we are earning over the cost of funds. Operating leverage measures the total percentage revenue growth minus the total percentage expense growth for the corresponding period. During our annual integrated plan process, we set operating leverage and efficiency targets for the Corporation and each line of business. Targets vary by year and by business and are based on a variety of factors, including: maturity of the business, investment appetite, competitive environment, market factors, and other items (i.e. risk appetite). The aforementioned performance measures and ratios, earnings per common share (EPS), return on average assets, return on average common shareholders’ equity and dividend payout ratio, as well as those measures discussed more fully below, are presented in Table 3, Supplemental Financial Data and Reconciliations to GAAP Financial Measures.

Return on Average Equity and Shareholder Value Added

We also evaluate our business based upon return on average equity (ROE) and shareholder value added (SVA) measures. ROE and SVA both utilize non-GAAP allocation methodologies. ROE measures the earnings contribution of a unit as a percentage of the Shareholders’ Equity allocated to that unit. SVA is defined as cash basis earnings on an operating basis less a charge for the use of capital. For more information, see Basis of Presentation beginning on page 44. Both measures are used to evaluate the Corporation’s use of equity (i.e. capital) at the individual unit level and are integral components in the analytics for resource allocation. Using SVA as a performance measure places specific focus on whether incremental investments generate returns in excess of the costs of capital associated with those investments. Investments and initiatives are analyzed using SVA during the annual planning process for maximizing allocation of corporate resources. In addition, profitability, relationship and investment models all use ROE and SVA as key measures to support our overall growth goal.

Table 3

Supplemental Financial Data and Reconciliations to GAAP Financial Measures

Three Months Ended

Six Months Ended

June 30

(Dollars in millions, except per share information)

2005

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